Impact Market Failure

Impact Market Failure

SSIR Opinion & Analysis

I was dragging my feet on the way to the Skoll Forum in Oxford. I'd been in Africa for a month, connecting with 20 organizations in 4 countries in 4 weeks, and I was pretty desperate to get home and sleep in a room I didn't have to check out of.

I'm really glad I went, though. Among other things, the organizers did a beautiful job of bringing serious funders together in a productive way. Those who came seemed like a different breed of donors, in a different kind of mood. There is a high ratio of doers to donors at Skoll, which may explain why the donors there seemed less afraid of hanging out with doers and more serious about funding them.

As for doers, the Skoll social entrepreneurs are the kind of people who make you feel optimistic about the fate of the world, and it's nice to see them celebrated. All the hoopla makes it that much weirder when you talk to them and find that almost all are in a continual scramble for money. Two of the organizations who've demonstrated big bang for the buck are in precarious financial straits and no one's financial future is assured, no matter how well they perform.

That's just wrong. For god's sake, these are the rock stars, the golden ones anointed by Jeff Skoll and blessed by Archbishop Tutu. They're not the only great ones out there, but they're all pretty remarkable. We've been making a big deal out of social entrepreneurship for a decade, but even the most celebrated are still reduced to passing a tin cup. What gives?

It comes down to this: We're all operating in a dysfunctional market for impact.

Think about it. In the for-profit world, if you make a big profit, everyone wants a piece of you. If you have a money-making idea, you need to protect it from me, or I'll steal it. With a few hiccups here and there, capital flows toward success.

That doesn't happen in the social sector. Real impact—our analog of profit—doesn't make it easier to fund-raise. Good ideas sit around unused (a friend of mine referred to the social sector as "a desolate landscape of abandoned pilots"), and zombie NGO's can operate for years without any evidence that real impact ensues. Capital does not flow efficiently toward those who know how to create change.

Ultimately, the fault lies with us, the donors. By and large, we don't fund on the basis of impact—we're like investors who don't look at profit-and-loss sheets. Because we don't demand ongoing measurement of impact, organizations don't do it. Because we prefer to fund shiny new stuff, organizations have little incentive to copy others' successes. Good ideas languish, and high-impact organizations struggle to raise the money they need to grow. Calls for collaboration go unheeded because organizations won't get credit for the increased impact, and it may even hurt fund-raising.

As far as I know, no foundation head—or even program officer—has ever been fired explicitly for lack of impact. Wouldn't it be great if a few of us who head up foundations got the chop for insufficient impact? How cool would it be if organizations without demonstrable impact went out of business, if high impact translated into higher compensation, if successful founders could move on with enough dough to start something new or sit on the beach for a while? 

There are encouraging signs out there. More donors are asking for measurement of impact and a lot of smart people are working on ways to measure it. I worry that they're going to make it too complicated—at our little shop, we rely on a relatively simple eight-word-mission and single-best-indicator approach, and we prefer internalized systems where ongoing measurement feeds back into operations.

However we do it, though, it has to happen, and we have to fund on the basis of what emerges from the process. And in the end, I ought to get fired if I can't show that our investments have led to real, scalable impact.

There, I've said it. Hold me to it.

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Kevin Starr directs the Mulago Foundation and the Rainer Arnhold Fellows Program. He also practices rural emergency medicine part time.

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Good Intentions vs. Good Results

Good Intentions vs. Good Results

Tactical Philanthropy

One way to think about the big shift in philanthropy is a shift in focus from intentions to results. We are starting to care more about whether a donation make a difference rather than simply applauding the gift. We are starting to talk more about how donors can actually help rather than simply urging people to give.

One person who is very focused on this topic is Saundra Schimmelpfennig who runs the aptly named Good Intentions Are Not Enough consultancy and blog. Over the last few days Saundra has been leading a social media campaign against TOMS Shoes. TOMS is a media darling of the for-profit for good space. The company donates a pair of shoes to "a child in need" for every pair of shoes that customers buy. Any reading of the founder's biography seems to make clear that he has completely good intentions. But does TOMS actually create good results for the children they seek to help?

Saundra thinks the answer is a clear no. As a sort of guerilla campaign against TOMS' Day Without Shoes program, she lead a social media fueled Day Without Dignity campaign that resulted in the video below being produced:

The fact that good intentions don't always create good results is one of the most upsetting ideas in philanthropy. When Felix Salmon of Reuters recently wrote that making donations to Japan wasn't the best way to help, his column was deluged with outraged comments from readers even though Salmon's post was about how best to respond to the Japanese disasters. But recognizing that good intentions and good results are not the same is a maturation event for philanthropy and for our culture.

I think though that it is critical that those of us who seek to encourage a focus on good results do so in a way that does not undermine people's good intentions. There's no quicker way to sap the empathy of donors than to tell them they're fools for trying to help. But we also have a responsibility to not simply smile and say thank you.

The Good Results shift in philanthropy is not going to really take off until the effective philanthropy movement figures out how to appreciate people's good intentions while simultaneously working to channel intentions that do not produce results into more productive efforts.

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Who Else is Too Big to Fail?

Who Else is Too Big to Fail?

The Business Ethics Blog

The notion that some companies are "too big to fail" — too large and too interconnected with the rest of the economy for their failure to be permitted by government — is lamentably familiar to most of us in the wake of the 2007-2010 financial crisis. The term has most famously been applied to the biggest American banks (e.g., Bank of America) and insurance companies (e.g., AIG), and it motivated the multi-multi-billion-dollar government bailouts of 2008/2009. In some ways, it's a radical notion: for most of modern economic history, the assumption has been that the economy could operate according to something like survival of the fittest. If a company is so mismanaged that it fails, so be it. That's life in a competitive market. Of course, governments have from time to time propped up companies seen as particularly important employers, but such moves are always divisive. There has seldom been such widespread agreement that certain companies really are so big, and so important, that they cannot be allowed to fail.

But outside of the financial industry, what companies might reasonably be thought of as "too big to fail?" Are there companies the failure of which would be truly catastrophic? What companies are there such that, if they suddenly ceased operations, the result would be disastrous not just for individual customers, employees, and shareholders, but for society as a whole?

I'll mention a few possibilities, and then open the floor for discussion:

BP, Chevron, and the other very large oil companies. As unpopular as they are, it's hard to deny that their product is utterly essential, at least for the time being. Any one of the biggest companies going out of business would, I suspect, have a terrible impact on the reliability of supplies of gasoline and heating fuel, and would most certainly result in increased prices. On the other hand, most of the world's oil supply flows through the big state-owned oil companies of the middle east, rather than through private companies like Exxon and Shell the others, the ones that come most readily to mind for North American and European consumers.

Big pharma. Again, not a popular industry. And much of what they produce — treatments for baldness, erectile dysfunction, etc. — is far from essential. But some of their more important products, including things like antibiotics and vaccines, truly are essential and an interruption in their supply could have catastrophic consequences, from a public health point of view. But then, that industry has enough players in it, with overlapping product lines, that it's unlikely the collapse of any one company would have a huge impact. But really, I'm guessing here. Perhaps the collapse of the maker of whatever the single most antibiotic is would be catastrophic. (Does anyone know?)

What about UPS? That one may surprise you, but the company handles something over 5 million packages per day, which I've heard adds up to a non-trivial percentage of American GDP. If UPS disappeared tomorrow, of course, Fedex and the USPS would take up some of the slack, but the short-term effect on American business (and hence consumers) would be significant.

Locally, surely, there are lots of companies that might be considered essential. Companies involved in ensuring the quality of municipal water supplies might count (including the ones that provide the chemicals needed for water purification). And in places where fire departments are privately-run, those would obviously count. But really, I'm looking for examples of companies the failure or disappearance of which would have widespread effects from a social point of view.

Of course, the phrase "too big to fail" isn't just descriptive. In the world of finance, it is seem as having immediate policy implications. In 2009, Alan Greenspan, the former chairman of the US Federal Reserve (and no fan of government intervention in the economy), said "If they're too big to fail, they're too big." Are there companies outside of finance where such an argument could be made?

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When is a Land Deal a Land Grab?

When is a Land Deal a Land Grab?

Development Horizons from Lawrence Haddad

A new report will be released this week in concert with the international conference on the global land grab to be held at IDS next week.

The Journal of Peasant Studies (JPS) Forum on global land grabbing, with three leading commentators, debates the sometimes hidden impacts of land deals and sets the scene for wider debates at the upcoming conference. The papers are available here: http://www.informaworld.com/smpp/title~db=all~content=g935339693

Klaus Deininger, a senior economist at the World Bank examines the risks associated with single owners of large land holdings and the institutional reforms needed to make land deals successful. Olivier de Schutter, the UN Rapporteur for the Right to Food and Professor of Law and Human Rights at the Catholic University of Louvain, promotes small family farms and human rights in the context of contemporary debates on land grabbing. And Tania Murray Li, Canada Research Chair and Professor of Anthropology at the University of Toronto, examines how land deals can lead to dispossession and "rural exclusion".

Saturnino Jun Borras at the Institute of Social Studies in the Hague, Ruth Hall at the Institute of Poverty, Land and Agrarian Studies in South Africa and Ian Scoones at IDS, are founder members of the Land Deals Politics Initiative which is organising the Global Land Grab conference.

It will be interesting to see what the evidence says about when a de jure land deal is simply a de facto land grab and whether there is anything public policy can do to prevent one turning into the other. Will do a post later next week.

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