News & Views

Thinking Smaller, But Cheerfully: Philanthropy in the New Global Economy

Foundation assets are generally derived from the skilled conversion of environmental capital into financial capital. We’ve grown or sustained these assets through investing that financial capital in the glorious hungry beast that is globalizing capitalism. And with our grantmaking (and sometimes mission related investments) we have then sought to convert that financial capital into social capital or indeed back into environmental capital. This capital re-conversion neatly avoids taxation, and also provides wealthy families with an effective mechanism to trade finance for prestige or other, better values; as such, it is easy to see why the United States has seen such a flowering of philanthropy in the 20th century. Given the current crises—the much-trumpeted financial ones as well as the quieter but deeper global fraying of environmental services—it also becomes clear why philanthropy inthe 21st century is going to look different.

Facing Systems Change

Deep changes are under way in the global economy. Environmental capital is in ever shorter supply. Nowadays we find ourselves inventing it through instruments such as carbon markets more than we seem actually to increase the amount of humus-rich soil. Our monumental economy teeters terribly without a solid ecological pedestal. Our efforts to rebuild the world’s ecosystems with a slice of the wealth generated from their breakdown are not going very well beyond the successes of local or specific projects.We are thus challenged to move from “mop-up”strategies to fundamental systems-change approaches, and to effect this systems change with our rapidly shrinking budgets. Even as we eventually rebound from full recession, the future is not likely to offer another bubble. Financial markets will hopefully be nudged by better governance into better reflecting the state of the real economy, which in turn will better reflect the underlying perilous state of environmental and social capital. Nevertheless, having built an economic system that, like a shark, requires forward movement to get oxygen into its blood, we shall be deeply challenged to retrain it to live harmoniously with our soft little planet. Currently, our policy solutions for a crisis caused by over-consumption underwritten by borrowing are to shift the borrowing from individuals to the government so that the government can encourage us to increase consumption again. Similarly, we foundations seem to be relying on the kick-starting of the global economic system to re-finance our efforts to transform that same economy. This thinking may work in the short term but hardly gets us out of the hole we’re in. Resilience theory tells us that if you want transformation, the first rule of getting out of a hole is to “stop digging.”

Becoming Less American

Given these realities, what will 21st century philanthropy look like? First, less American. In the 20th century, US foundations played a global role in building social capital, driving innovation, and supporting inclusion. But the balance of economic might is shifting, and wealth is now being generated by and concentrated in many other parts of the world. Mumbai (Bombay) now has more millionaires than New York, and across the world the result of growing inequality is pockets of huge wealth even in the middle-sized economies. Furthermore, with migration and trans-nationalism, the geography and identity politics of funders will change. U.S. foundations need to acknowledge cheerfully our declining dominance. Indeed, it is only a matter of time before we will see overseas philanthropists helping to sort things out in the United States. The opening of the Environmental Grantmakers Association to international members is thus a natural development. The world isbecoming multi-polar, and this trend can help everyone—including Americans—to find new ways forward.

Thinking Smaller

All this means that we foundations and our nonprofit partners must make the transition away from assuming growth in our sector as natural and necessary. Like everyone else, we’ve been too focused on money as a measurement of success, value and impact. We’ve been encouraging and enabling nonprofits everywhere to professionalize, grow and (too often) to shift their energies to doing what attracts funding rather than to what has most impact. Despite our efforts to green operations and attend to sustainability, we do not yet operate fundamentally differently from other sectors of society. We shall have to learn to make do with less. And we shall need to look systemically at the problems and create a whole new architecture of change, rather than hope for the cycle of credit, consumption, and mindless growth to return us to the times of easy money and a swelling sense that we are changing things because we’re making bigger grants again. In recent decades the environmental sector has increasingly embraced markets as mechanisms to drive social and environmental change alongside our old stalwart of regulation. We’ve accepted the primacy of law and economics as the tools of societal shaping. Ideas, knowledge, culture, and the social capital for collective action all have been neglected. The financial crises remind us that markets are only as effective as their governance and regulatory parameters and are not driven by vision, and also teach us that developing and applying values must be central in our methods if we are to be truly transformative.

Finding (and Funding) Social Movements

To turn around these crises means supporting the emergence of cheerful new cultures built not around consumption but around our relationship with the earth and with each other. (Perhaps they will be 21st-century versions of what indigenous cultures have been reminding us for quite some time.) We foundations should move toward understanding ourselves as social capital and realize that our assets comprise more than just our investments. Our staff and our networks are crucial for helping institutions and communities find new ways to make change that don’t require heavy funding. Our grantmaking should increasingly engage social movements that are seeking to redefine what “quality of life” can mean. Fortunately social movements cost a lot less to run than our professionalized institutions, which will be reeling under the collapse of individual and corporate financing; even with our support, many of them will prove unsustainable in their current manifestations. The opportunity in this time of transition is to find ways to enable these social movements to connect with entrepreneurial innovators and imaginative legislators to create the foundations for a truly new green economy. The collapse of the grand will open the door to new, differently scalable solutions.

Perpetuity Interrupted

I believe we shall see an increasing shift away from “perpetuity” as the assumed goal of most foundations. This will happen because financial markets will no longer offer sufficient returns for most foundations to maintain assets long term at a 5-percent payout, and because foundations will increasingly ask why they should seek perpetuity through a system that clearly is not going to persist. After all, it doesn’t make sense to hold onto financial assets if their returns are less than the rate of loss of the environmental assets whose preservation is our mission. Furthermore, many foundations seeing the needs in the world will be reluctant to cut their budgets sufficiently to protect their assets. Coupled with the tragic loss of institutions whose investments have evaporated, this will lead to a dwindling of philanthropic capital just at the time we thought we’d see unprecedented growth. Rather than dwelling on our losses, let’s deploy the considerable vision and social capital we still have on finding cost-effective ways of supporting social and economic change that can adapt our human needs to those of our delicious little planet.

This article by Dr. Ken Wilson, Executive Director of The Christensen Fund, was first published in 2009 in the journal of the Environmental Grantmakers Association.