Companies to the Rescue

This is the fifth in a series of six blog posts.

In my last several posts, I have described what I regard as worrisome trends: the way many (inside and outside the nonprofit sector) push for a “blurring of boundaries” between sectors, disparage the term “nonprofit,” and equate “business thinking” with “effectiveness.”

But, many go further still, arguing – or at least strongly implying – not just that nonprofits could benefit from an infusion of “business thinking” but that, in fact, nonprofits are increasingly irrelevant because it is companies that will solve our most vexing social problems. To this growing chorus, the private sector is now where the action is.

Forbes asks in an apparently serious headline in its November 30, 2011 issue that might as well come from The Onion, “Can Venture Capital Save the World?” Leslie R. Crutchfield, John V. Kania, and Mark R. Kramer assert that “an ever-growing set of social entrepreneurs are choosing for-profit business models as the best way to make a social impact.”

But I have seen little in the way of data to back the contention from these and other writers that these business models are more effective in achieving impact. Increasingly, it seems even leaders within the “movement” are wondering, as Hotfrog CEO Laurie Lane-Zucker puts it, “Is Social Entrepreneurship run like a human capital Ponzi scheme?”

“I greatly fear that the Social Entrepreneurship space may be a human capital Ponzi bubble that will inevitably burst. Thousands of entrepreneurs around the world, spurred on by the multiple crises humanity faces and the promise of efficient capitalization are racing to create companies that serve the social and environmental good. They read about a few success stories. They read new studies that support the ‘emerging industry’ and its vast potential. They read about major institutions that are publicly giving their names to the cause.

And so they dive in.

But does the pool have any water in it?”

Those who promote the notion that business will solve our social problems come armed with assertions and anecdotes, but little in the way of convincing evidence. In a 2002 article, Kramer and Michael Porter stated, “We are learning that the most effective method of addressing the world’s most pressing social problems is often to mobilize the corporate sector in ways that benefit both society and companies.” In a 2006 article, the same authors declared, “When a well-run business applies its vast resources, expertise, and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organization.”

But how do we know these bold assertions, made repeatedly over many years, are true?

Not only do these authors, like so many of their corporations-as-saviors brethren, appear to lack convincing data to support their contentions about what is happening, they also don’t adequately address the internal contradictions of their argument. In an important article in the Nonprofit Quarterly, Fredrik O. Andersson writes:

“[I]f business enterprises and their practices were any better than nonprofit or public agencies at solving social problems, why haven’t they already done so? After all, they are the ones that use business best practices all the time. … There is something paradoxical about recommending business and market-based logic and practices as suitable and effective solutions for nonprofits, given that market failure is seen as one of the principal reasons for the very existence of the nonprofit sector in the first place.”

It is of course true that many companies have acted in ways that powerfully promote the social good – sometimes working collaboratively with nonprofits, funders, and government – especially when doing so is consistent with higher profits. Although this is discussed as if it is a new phenomenon, it is not. Metropolitan Life funded a major study of tuberculosis and a public education campaign about the disease in the early 1900s, to cite just one example from more than a century ago of a company acting in a way that had both a powerful social benefit as well as an economic one.

But, it is also the case that corporate self-interest frequently runs counter to the public good. This obvious reality seems to have been lost in the public discourse, as many have embraced what John Cassidy calls a “utopian economics” that has rendered us blind to “the problem of distorted incentives.”

In his illuminating book, How Markets Fail: The Logic of Economic Calamaties, Cassidy writes, “Markets encourage power companies to despoil the environment and cause global warming; health insurers to exclude sick people from coverage; computer makers to force customers to buy software programs they don’t need; and CEOs to stuff their pockets at the expense of their stockholders. These are all examples of ‘market failure.’”

Given the limits of markets, why, then, do we look to companies as our saviors?

I can only speculate. After all, the motivations of those promoting this mindset are undoubtedly diverse. Many are likely driven by a genuine desire to see social problems addressed. But it is difficult not to sense another agenda at work, at least for some – one that involves lower corporate taxes and less regulation. It is striking that some of the very critics of foundations and nonprofits who have expressed skepticism about whether their tax-advantaged status is justified have been silent when the (apparently legal but ethically dubious) tax avoidance schemes of companies like GE and Apple are exposed.

If we are to question whether nonprofits or foundations deserve their tax-preferred status, shouldn’t we also question whether GE does? Taking it a step further, if we see companies as the solvers of our social problems, what, by implication, are we saying about the roles both of the nonprofit sector and the government? It is not difficult to imagine that, for some, this is as much about limiting the role of nonprofits and government as actors in our society as it is about companies doing social good.

Dan Pallotta, a blogger and author who is described on the Harvard Business Review website as “an expert in nonprofit sector innovation and a pioneering social entrepreneur,” pushes the markets-as-panacea libertarianism particularly far. (Pallotta is the author of Uncharitable: How Restraints on Nonprofits Undermine Their Potential and When Your Moment Comes: A Guide to Fulfilling Your Dreams by a Man Who Has Led Thousands to Greatness.) He argues that one of the shortcomings of the nonprofit sector is its insufficient emphasis on pay-for-performance.

“There should be no limit to the amount of money a person can earn making the world a better place, so long as the money is commensurate with the value they produce,” Pallotta writes. But who judges value? To Pallotta, the only yardstick seems to be monetary. Like many in the companies-to-the-rescue camp, he seeks to portray business titans, and companies, as epic do-gooders while diminishing the value of those toiling within nonprofits.

In a post titled, “Steve Jobs, World’s Greatest Philanthropist,” Pallotta writes, “A student at one of my talks on the nonprofit sector asked if I could name a for-profit company that was making a difference on the scale that nonprofits do. I said I’d be hard-pressed to name one that wasn’t.”

That is quite a statement. But in what is hard not to conclude to be a kind of self-esteem problem that seems to plague the sector (or perhaps it is simply a gallant openness to opposing views), Pallotta has been a featured speaker at numerous nonprofit conferences.

We seem almost afraid to push back – to discuss the limits of markets. As Michael J. Sandel argues in an Atlantic article based on his new book, What Money Can’t Buy: The Moral Limits of Markets, “We live in a time when almost everything can be bought and sold. Over the past three decades, markets – and market values – have come to govern our lives as never before. … To contend with this condition, we need to have a public debate about where markets belong – and where they don’t.”

Right now, that debate isn’t happening. Instead, many of us in the nonprofit sector are standing idly by while companies are heralded as solvers of all problems. Rather than powerfully articulating the historic and present-day value created by nonprofit organizations and philanthropy more generally, we are too deferential to those who hype the contributions of companies and dismiss nonprofits.

The right answer is not to disparage companies, in a sort of tit-for-tat “Sector War,” but rather to point out that each sector has its strength and limitations. There is much to be learned, and much work to do, across sectors, for sure. But we need to remember that each of the sectors play distinct, and vital, roles.

Of course we need companies to thrive and grow – creating jobs and goods and services. That is indisputable.

But we also need to be realistic about what companies cannot do, and about what we need nonprofits to do.


Phil Buchanan is President of CEP. You can follow him on Twitter at @philCEP.

Author’s note and acknowledgment: The views expressed here are mine. Healthy debate on these issues occurs within the walls of CEP and in our board room. I am grateful to the many people, including CEP board members and staff, as well as colleagues and friends outside CEP, who gave me feedback on earlier drafts of these posts, much of which I incorporated.

Please read on to see the rest of this series:

Part One – Our Starry-Eyed Idealization of Markets
Part Two – The Need for Clear Boundaries
Part Three – Wearing It Proudly: Clarity on Being Nonprofit
Part Four – “Business Thinking”
Part Six  – The Risks Posed by a Sector’s Silence: Toward a Forceful and Positive Articulation of the Nonprofit Sector

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