Wednesday, October 10, 2007

The Billionaires

A 2-Pager by Ajit Chaudhuri
October 2007

I had promised myself that, when I made my first billion, I would buy myself a football team – Olympique Marseille was my target at the time (its owner was broke and incarcerated), but any top class side would have done. My dreams of kicking about with Maradona, Platini, et al (I would include their current equivalents if I thought they had any) have yet to fructify, but I notice that others have been treading in my imagined trails twenty or so years later. Yes, according to[1], there are 946 dollar billionaires in the world (178 qualified in the past year[2]) and they are buying things from submarines to football teams. They are also putting money into development philanthropy.

What’s new about this? The Rockefellers and Carnegies had done this long ago. My own employer, the late Paul Hamlyn, put GBP 400m of his personal wealth into philanthropy. In India, the Tata Trusts have been major players in development funding. Is it just the amounts – the $30b plus that the Gates put into the Gates Foundation, Warren Buffet’s $37b addition to it in 2006, and the subsequent scramble among billionaires to give and be seen to give significantly – or is there something more to this phenomenon? I was fortunate to attend a talk by Mathew Bishop, Editor of The Economist, at the Association of Charitable Foundations meeting in London last month on the subject “What’s New About New Philanthropy?” that touched upon these matters.

To make sense of new philanthropy, according to him, it would be useful to understand new philanthropists. Many of today’s billionaires are self-made –highly successful, arrogant, and with a scale of ambition for their philanthropy that matches that of their businesses. They expect their philanthropy to have a global impact, and they transfer their attitudes on business to philanthropy. Interestingly, they do not think that they have much money! They therefore see themselves as innovators and look to use their efforts to leverage resources from governments and MNCs. They are uninterested in approaches that do not have the potential to scale up significantly. They are interested in for-profit ways of addressing social problems because of the possibility of attracting serious resources (brains and money) to the problems. New philanthropists see the need to build quality organisations around the problems they look to address, and they understand the requirement of a long-term perspective. And even though many have made their money by acquisitions, they prefer to build their respective Foundations from scratch rather than to acquire existing organisations. They see old philanthropy as being all about making grants rather than addressing problems, and they are determined not to go down that road.

Why is this of any interest whatsoever? One – because the effects of new philanthropy within the Indian development sector are becoming visible. I work (via the Paul Hamlyn Foundation) along with other ‘old philanthropy’ types[3] with an NGO in Jaipur to universalise elementary education within the city – dealing with governmental capacity constraints, political issues and red tape at every stage and slowly and steadily moving forward. Along comes the Airtel Foundation, which says it will do what it takes to ensure this – set up as many schools as required, manage (and pay all costs for) them, ensure quality, and all of this into the long term – the government just has to give the land for the schools and manage the likely freaking out of the government teachers’ unions. Wow!!

Two, there is something exciting about this whole approach – to identify a serious problem and then work to address it at a district, state or national level – none of these islands-of-excellence-in-ten-villages stuff any more. To bring in the best brains, the latest technology, serious money and a long-term perspective to addressing problems. To develop models that work, and scale up across regions, and excite governments, and attract more resources. This is refreshing when compared with the rather cynical attitudes that currently prevail on most matters relating to the social development sector.

Three, where does this leave the good old NGO? Where does this leave the traditional grant-making organisation? Where does this leave old philanthropy? And, last but not least, where does this leave me? Are we part of the solution in this paradigm, or part of the problem? Are we ants to be crushed, or deadwood to be ignored, or irritants to be brushed aside, or sheep to be co-opted? I am not too sure as yet.

Are there grounds for cynicism? I have read of the times, in the 1950s, when humankind had just gone into space, when cures for TB and malaria had been discovered, and when we were going to eradicate disease, misery and poverty. TB and malaria continue to be major killers fifty years later, and the less said about misery and poverty the better. What will happen when the billionaires get bored, or when they discover that some problems defy solution, or when they die and their successors show signs typical of second-generation wealth? And, let us not forget, some of these billionaires have reasons for getting into philanthropy that are not exactly philanthropic. There are significant tax breaks involved. And I remember the aftermath of the Kutch earthquake, when the Ambanis grandly announced to the world that they would be rebuilding Anjar town. They then made a quiet request to the Gujarat government for permission to build a private port in the vicinity as well. No port, no philanthropy! Neither happened!

To conclude! There is certainly something exciting happening in the Indian development sector courtesy the billionaires, and it is happening away from the usual terrain of NGOs, panchayats, donors and government. I for one see huge potential here, and want to engage and take advantage of the resources – human, technical and financial – that are available. How much will I have to change, in skills and attitude, to be able to do so? I am not too sure. And will I be able to? Maybe not! But the younger generations in the sector will. At the least, new philanthropy will provide a space for and the ability to absorb the brilliant and committed. For this in itself, I welcome the billionaires!
[1] This is in a special report by Luisa Kroll and Alison Fass on 3rd August 2007.
[2] Some among us will be proud to note that India is the land of the fastest rising number of billionaires, 36 in total of whom 14 joined in the past year, and the most in Asia (Japan comes next with 24).
[3] These include the Aga Khan Foundation, the American India Foundation and the Bunyan Tree Foundation. I am not sure whether AIF would qualify as ‘old philanthropy’, and as they are on this reading list I hope that they will enlighten me on this matter.


Ajit Chaudhuri said...

Dear All
This is the latest in corporate philanthropy. One prominent retail chain has leased around hundred acres of land from government near Hyderabad for waste land development for the community. Now it is growing vegetables and supplying and selling it through its retal outlets. Even the apex body of industrilists in the country is worried about this new innovation of community development through public private and community participation.

Ajit Chaudhuri said...

Hi Ajit,

Some good lines here and there is really an intersting thing for the NGOs.
Thanks for sending the new philanthropy.

Manoj Kurian

Ajit Chaudhuri said...

enjoyed this a lot!!!! Harini

Ajit Chaudhuri said...


gr8 reading your two pagers. Wish I were there in your evening parties. Do we really need new philanthropy to provide a space for and the ability to absorb the brilliant and committed?? My be not, I am not sure!

Ajit Chaudhuri said...

Read your note. Am less enthusiastic than you are about private foundations
and the offers of the likes of airtel to run schools. Why cant they help you
improve the government schools if they are interested in making a dent in
education? Why have their own schools in the first place? My new argument
against private provisioning of public goods is the "age of corporates
factor". There are many other sound arguments (you would have heard them a
hundred times) about why airtel should not be running schools. What I have
recently learnt (from a very good article which I shall try and locate and
forward to you) is that the average age of a fortune 500 company (surely the
bluest of blue chip firms so far as corporates go) is a mere 30 years !!
creation of public infrastructure requires a much longer vision and you
cannot really outsource governance. There are many things happening in
rajasthan that are extremely worrying especially in the privatization of the
education sector. This will perhaps be one more thing to get worked up
about...why don't we meet up over a long overdue beer to discuss this any
time when you are free? Biraj Patnaik

Ajit Chaudhuri said...

Interesting, Ajit.

Let me start by responding to your question to AIF - is it a "new" or "old" philanthropy organisation? I have to give you what will sound like a wishy-washy answer - we are both and neither and if someone is really interested, I can elaborate.

I am not sure if I fully understand the differences between the "old" and "new" philanthropists. Does giving grants mean that grant-makers don't
believe in addressing problems? If new philanthropists see scale as
critical, does that mean that the "old" don't? I am not sure. In my experience, the fundamental differences between these "new" and "old" worlds is fundamentally philosophical and that determines their approach. The "new" believe that markets are best way to deal with poverty, and this is only natural because that is where they come from. This philosophy therefore translates into a few execution non-negotiables:
1. Grants are not helpful because they distort markets.
2. The state is inefficient and is a market distorter and hence should be substituted.
3. NGOs being non-profits are inefficient and unable to work at scale and so execution must be done by a different type of organisation - a corporation?

Of course, these are contradictory stands! Corporations all over are
constantly looking for sops from the state e.g. tax holidays enjoyed by the BPO sector must be extended from 5 - 10 years (never mind that the ITES sector always says that their growth and wealth is inspite of the state!). What kind of a free market is it if you go to a restaurant and ask for a
Coke but they only serve Pepsi because that is the franchise - you are of course free to go to another restaurant! Ironically, the only people in the world who operate in a truly competitve market are the poorest - a landless
labourer, a waste picker, a rickshaw driver...

In case I sound anti-"new" philanthropists or anti-market, let me disabsue you of that! I am neither pro nor anti because age has not only made me grey but also helped me appreciate the greyness of life! I think the "old"
philanthropists need to embrace some of the lessons of the business and markets - solutions are important and in order to come up with solutions that have impact, scale and replicability are critical. The "new" also need
to change - if the state is important for business, it is even more so for the poor and they need to join in the fight to reform rather than replace them; NGOs are important because of all the institutions we know, they are
the only one that shows some signing of caring - the question is how should they evolve? And success in business does not guarantee success in poverty
eradication and there are indeed some great minds engaged in poverty issues also!


Ajit Chaudhuri said...

Dear Chau,

One would commence by inferring that you have indeed made the first
billion while the minor detail of finding the right team or players to
kick about remain.

While many philanthropists are indeed transferring their attitudes from
business to philanthropy the ubiquitous ego seems to hinder efficient
utilisation of their resources. Very often this in fact flies in the
face of what business would suggest as an appropriate strategy -
adopting processes that minimise cost and provide economies of scale. If
one were to look around within India for example at the number of
reasonably large foundations set up by institutions and individuals this
would illustrate the point. Warren Buffet seems to be a rare exception
to the norm where rather than create a Warren or Buffet Foundation he
was happy to choose an existing foundation and give them his money.

I think it is important to make a distinction between family foundations
or foundations essentially supported by the wealth of one corporate
entity from others that raise resources from multiple millionaires. The
foundations that are driven by single entities find it easier to pick
one theme or issue and try and scale it up. The attempt is to cut
through the crap and to identify one crucial intervention within an
issue that can be scaled up. Choice of the intervention is determined by
whether it fits the requirement of scaling up.

These are welcome and will have a limited impact - not in terms of scale
but given the complexities and inter-relatedness of problems on the
overall issue. Bottom line, it is bringing in resources when the states
own role is increasingly shrinking.

At least for another couple of decades the need to focus on processes,
alienation, inequity, insecurity will remain and with that the need for
foundations and institutions with multiple windows for support and wide
menu of choices.


Anirban said...


Ajit You write well, and enjoy both your blogs. Wanted to get in touch with you, can you send me your email id.

I am surprised your other blog doesn't see many comments
best wishes