Charity 2.0: Partnership, Not Patronage
Posted by Hemant Puthli on September 21, 2009
While it is a fact that several charitable organizations, the world over, are doing good work in helping developing communities, societies and economies, it is also a fact that there are charitable organizations that are either wasting resources or subverting the very causes that they claim to espouse or, worse, doing both. This is mostly because the idea of charity, arising as it does out of a present-day variation of the feudal concept of ‘noblesse oblige‘ (which in turn arises from a benevolent variation on the theme of self-interest) carries within itself the seeds of its own failure. Presented below are examples of some of the risks that are intrinsic to charity initiatives:
1. Power: Charity tilts the balance of power in favor of the donor. It provides the donor with political leverage over the recipient, and therefore gives the donor the opportunity to determine the scope, pace and extent of the recipient’s development and also the opportunity to influence other incidental factors that impact the recipient’s growth and future prosperity. This could lend itself to abuse in situations where such power falls into the wrong hands. In many cases, charity has prevented recipients from evolving solutions that might have been better than the ones the donor is willing to fund or provide for. In such cases, charity serves as a strategy to suppress potential competition.
2. Dignity and Dependency: Charity tends to deprive recipients of their dignity and self-esteem, especially in situations where it does not provide them with opportunities to independently improve their own socio-economic conditions. Charity also undermines the basis for catalyzing entrepreneurship, drive and innovation in recipient communities and instead replaces it with a ready justification for complacency. Recipients grow dependent on aid and are not equipped to deal with a future that does not bring in as much aid as they require.
3. Dumping: Charity easily becomes the vehicle for handing-down legacy products and technologies that are ready to be retired from their lifecycle or, worse, are being withdrawn from donor-side markets due to known defects or harmful effects. Obsolete products are usually more expensive to maintain, and defective / harmful products are clearly undesirable. In some cases, recipient communities could be used as testing grounds for new products (especially in the life sciences sector) whose impact is not clearly known. This is another potential area of abuse.
4. Wastage: Since charitable initiatives do not have a profit motive, there is no incentive to control wastage of resources (including money). Such organizations are open to the risk of becoming fertile grounds that breed inefficiency and/or corruption (if not one, then the other; worst case, both). In order to avoid this, controls need to be enforced through external audits and tighter internal checks and balances, both of which add to costs and thereby drain scarce resources.
A more effective approach to socio-economic development would be to shift the paradigm, from a traditional not-for-profit donor/recipient model built on patronage, to a ‘social enterprise’ model that is based on the same economic principles and financial disciplines of mainstream for-profit businesses, and which builds on a spirit of partnership. The fundamental difference between these two models is characterized by the fundamental difference between the spirit of patronage arising from self-interest and the spirit of partnership towards a common goal.
While the partnership-based social enterprise approach also brings its own risks (such as the potential to levy usury interest on loans), adequate competition in the social enterprise domain would go a long way in checking such exploitative tendencies and monopolistic opportunism. Suitable regulatory mechanisms (including the requirement for better corporate governance, and for standards in performance reporting) would also help in ensuring that social entrepreneurship initiatives retain integrity in their efforts to promote growth and development. This may not be a perfect solution, since every approach brings its own risks, but it would certainly be more sustainable than one based purely on the charity of patron communities.
There’s an old proverb that goes “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” To that, social enterprise can only add “Help him set-up a fishing business and you put him on the path to prosperity in his own lifetime as well as for his future generations.”
This entry was posted on September 21, 2009 at 7:54 pm and is filed under Economics, Governance, Society, Strategy. Tagged: Aid, Charity, Profit, Purpose, Social Enterprise. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Sustainable Business Transformation 
Shubhranshu said
The jump from simplistic charity to managed investing and customer centricity as a basis for sustainability seems to invite the 4 downsides you mentioned in the piece. I read somewhere that the number of people who have agri based income in India has dropped with the almost simultaneous increase in non agri based income… this suggests that the urge exists among the poorer populace to “improve” themselves. Professional management is not a solution for this kind of fragile interface … a bad example.. namely a management approach would not help improve parenting in anyway… in the same way, charity possibly needs the “non profit” approach of parenting wherein based on “education, support, protection..” the parent lets go.. The pay off is what all “parents” want -social success rather than monetary. As I mentioned above I am a huge skeptic about the benefits of so called professional intervention in social areas..
Hemant Puthli said
Thanks for your comment, you make an interesting point. Charities as Parenting (the 3rd “P” … forming an alternative to Patronage vs. Partnership). Thanks for providing some valuable inputs around this idea.
This requires some brainstorming, but here’re some initial thoughts – it may be useful to blend Parenting principles into the spirit of Partnership. I would still root for Partnership (as opposed to Patronage) in spirit, though I take your point about doing a “lift and shift” adoption of standard B-school management ideology onto social initiatives. I am beginning to think that the secret sauce in a successful model would lie in the way one adapts management principles to the social sector, not in whether or not they are relevant … or good. Certain things – like cost management (as an idea) cannot be bad. The adaptation of those ideas to organization in the social sector is where one can go wrong. Or right.
Hemant Puthli said
You had also commented (on the facebook thread relating to this topic / blog post), as follows:
“At some point, even helping to set up the fishing business becomes a charity… question being that in a capitalistic or semi capitalistic society when do you allow failure? Is failure an option for sustainable solutions?”
To which my response is:
It is precisely the charity involved in helping to set up the fishing business that I am referring to, in the title of this post, as Charity 2.0 – the new avatar, if you will (as different from Charity 1.0 which is, let’s say, giving a man a fish, or Charity 1.5 which would be teaching a man to fish).
As regards your question on failure – just like any other human endeavor, social enterprise is vulnerable to failure. Lack of clarity in vision or strategy and/or poor execution (including inability to adapt to change) are typically the main causes of failure of any initiative, program or organization, be it in the private sector or the public sector or the social sector. The ‘journey towards sustainability’ that we keep talking about across a lot of the pages and blog posts in this web-site, is a transformation journey, not a destination. It is as fraught with risks and threats of all kinds as any other transformation journey. Perhaps a more important / relevant question is how resilient the social entrepreneur is. Resilience and resolve, even in the face of failure, is key – for failures there will always be.
Shubhranshu said
Even if the sustainable investment model is a success, it’s the people who have received help that need to enter the actual world where 99 out of 100 will fail… the question I raised related to this… will the sustainable model allow its beneficiaries to fail? If it does not (failure reflects back on the model) then it’s become a charity like any other… a circular argument but I believe we need to understand it better
Hemant Puthli said
I agree, this may not be as straightforward a question as it appears initially. (Am trying to explore it a bit here with some loud thinking … let’s see what we come up with.)
This is partly because in the social enterprise / social investment model, there is no “recipient” as such, just as there is no “donor”. Wall Street doesn’t have those concepts – they have investors who invest in companies, who in turn serve customers through the goods / services they produce / deliver. The question of failure, then, would apply to the business that is seeking to work the social sector – in our metaphor, that would be the fishing business.
To continue the metaphor further, as a guide to exploring and understanding this question, let’s say we help this guy by first teaching him how to fish and then seed-funding / coaching / mentoring him as he sets up a fishing business. At a certain point, we step back, as any parent should (to borrow the part of the metaphor that you added through your comment). If the fishing business starts faltering immediately after we step back, we may want to step forward again and help out (open question), but once we’ve taken our hands off the case, it should pretty much be on its own. If it fails, it fails. Same goes for our children, doesn’t it? 🙂
So I guess the short answer would be that social investing is just like any other form of investing – i.e. it does not underwrite the enterprise being invested in, forever.
Meghna Kaushik said
Social enterprise certainly is one way of doing it. Charity can take different forms right? Also, it depends on what the receiver really needs and what the mission of the charitable institution really is.
Hemant Puthli said
Thanks for your comment, Meghna.
Charity can take different forms, yes, and that’s what this post is about – it is better when charity takes the form of partnership, rather than the form of patronage. Charities that take the form of patronage tend to focus on surpluses that they can donate, rather than what the recipient needs. Theirs is a supply-driven approach, not a demand-centric one.
As far as mission is concerned, quite often there tends to be a hidden agenda underlying the stated mission. The hidden agenda may be something innocuous (such as publicity) or it could be something more insidious (such as political control). Either way, it is something a mission can do without.
Anupama Tiku Dhar said
“adequate competition in the social enterprise domain ”
Am not sure I follow what that statement alludes to!
I do agree with your points 1-4,would have been useful though if you had elaborated more on the social enterprise model which you have pitched in the piece.
Hemant Puthli said
Anupama, thanks for your comment.
‘Social Enterprise’ is about applying traditional business management principles and practices (i.e. the stuff they teach in B-schools) to non-profit organizations in the social sector – specifically in terms of: (1) a more market-oriented, customer-centric approach and (2) a renewed focus on efficiency and effectiveness, through improved financial discipline and better use of technology and systems. Related concepts and trends include ‘Patient Capitalism’ and ‘Socially Responsible Investing’.
My post was about the paradigm shift in charity that is taking place already, and how it is a change for the better, and needs to be supported and facilitated by the powers that be in that domain. For the sake of brevity I have not dwelt in detail on the social enterprise model as such. Again, for the sake of brevity I won’t go into too much detail here other than providing key words (as per the previous paragraph – please feel free to search on the phrases in quotes). Some ready links are provided in the ‘Links & Resources’ tab of this same site, under the heading ‘Social Enterprise / Socially Responsible Investing / Patient Capitalism’. A brief review of these web-sites may provide a better idea.
We could have a more detailed discussion off-line. Please feel free to connect, and thanks again for your comment.
Anupama Tiku Dhar said
Thanks Hemant for the elucidation!
My question was mainly focused on the “adequate competition” in the social enterprise domain. Somehow the concept of “competition” does not gel with the concept of enterprise where the primary thrust is social welfare. I may of course be unaware of the prevalent trends, hence the query.
I of course enthusiastically concur about applying crisp management practices/good corporate practices to social enterprise to improve efficacy.
Hemant Puthli said
If a social welfare organization looks like a business, walks like a business and talks like a business, then it *is* a business. And so, it will also compete like a business.
For example, if Grameenphone does good business, then how long before someone else comes along and wants to compete? More about Grameenphone and its history here: http://www1.grameenphone.com/index.php?id=63
The key thing is that a business has a built-in survival instinct in its DNA. A charity organization does not. It will close down when the flow of funds dries up. If a social welfare organization really means business, it should morph into a business!
Anupama Tiku Dhar said
While the motivations for running a social enterprise as tightly as a profit oriented organization with ethics and strict controls on quality of service is pretty clear,there are yet questions about how competition in this domain will improve/maintain anything else….longevity perhaps. And is there not a possibility that once there is competition the “social enterprises” may abandon their primary focus of welfare and get bogged down with profitability,margins and other factors which hound commercially oriented enterprises?
And any comments on this:
http://www.weeklyblitz.net/index.php?id=150
Hemant Puthli said
If one were to carry out a historical comparison of competitive versus monopolistic markets, one would find that competition typically results in a lot of advantages to the customer: lower costs, better quality, more innovation, wider set of choices, etc. In the context of this post, my submission is that competition between social welfare organizations (acting like businesses) would help in curbing monopolistic behaviour and opportunism.
As regards your point regarding the potential shift of focus (away from welfare) caused by concerns over profitability, I can only point out that anxieties over revenue will only spur initiatives to improve customer satisfaction, thus forcing the enterprise to focus even more sharply on meeting customer expectations. (The customer in this case, of course, is what one would refer to as the recipient of social welfare, in the traditional paradigm.)
Apropos of the trouble GP got into (per the Blitz article), here’s my view:
(a) Not a good thing for them to do, though they probably had their reasons for doing it. (Several people in several countries, believe that government-owned telecom companies – mostly monopolies – have been exploiting customers esp. in the market for international connectivity, and therefore rebel against what they consider to be unfair tariffs. This was happening in India too. Music / video piracy is a similar area – not all of it is commercial opportunism, there’re a lot of radical ideologies out there)
(b) Yunus did some great things, but not everything he did (or does) is necessarily great. Secondly, just because someone messes up in one area, it should not take away the impact of good stuff they’ve done in other areas. Grameen is a great model, but not perfect – people will come along and improvise on it and make it better. However, the founders are but human.
Hemant Puthli said
P.S. Also, please see the video clip embedded in the post immediately after this one – ‘The Art of Giving’. Jacqueline Novogratz provides some great insights.
Hemant Puthli said
P.P.S. And this video clip – a TED talk by Iqbal Quadir http://www.ted.com/index.php/talks/iqbal_quadir_says_mobiles_fight_poverty.html
Anupama Tiku Dhar said
Goes to show where common sense,a spark of inspiration and loads of perspiration and hair loss can lead to! 🙂
Have been a fan of M. Yunus’s micro finance though I read that it ran into rough waters and needed to be tweaked.
Most interested in the concept of mini power plants a la grameen phone. Need to check if it was successful in its implementation. Can it not be replicated in India?
Hemant Puthli said
Mini-power plants – no clue where the idea stands in India. If you find out, please let me know. It’s definitely an interesting area and holds a lot of potential vis-a-vis energy self-sufficiency.