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Submitted by Marcus on Mon, 2006-03-27 22:05

Cost-benefit charity assessment. I like it Smiling
Saturday, March 25, 2006
Trendsurfing: Philanthrocapitalism (The Times)
By David Rowan

Here's a problem you'd love to face. You have a spare couple of billion pounds burning a hole in your back pocket, and you're thinking of using it to feel good about yourself. Sure, you could endow a few opera productions in your name, with any leftovers nicely tiding over the cats' home. But what if you wanted to ensure that your money was being used to the greatest possible effect, efficiently and cost-effectively making the world a better place? What if you could quantify your donations' returns on your initial investment, just as you would measure a successful stockmarket punt?

A remarkable trend currently sweeping through the world of charitable giving promises to tell you how. Just as many of today's 691 dollar billionaires (according to Forbes magazine) owe their success to a ruthless engagement with the capital markets, so the new generation of philanthropists is taking a market-conscious approach to making donations. Whereas in the past cash would have gone to causes that merely "felt right" or supported the donor's pet causes, increasingly the cheques are being signed only after rigorous cost-benefit analyses of what the gifts might achieve. There is even a new City-inspired language buzzing around charity-sector fundraising meetings: the talk is of "venture philanthropy", "social entrepreneurship", and what The Economist recently called "philanthrocapitalism".

For Bill Gates, committed to dropping $31 billion into the charity tin, that means spending on causes such as malaria eradication only after applying strict businesslike tests to predict a likely return. Having calculated that Africa's gross dometic product would be $100 million higher had malaria been wiped out in the Sixties, for instance, his foundation can calculate the bottom-line benefits of every dollar it commits, while using its financial muscle to leverage further spending from outside bodies such as NGOs. Pierre Omidyar, founder of eBay, takes a more mixed approach: as well as backing causes that pursue "individual self-empowerment", his Omidyar Network also makes for-profit investments in schemes such as microfinance for Asia's poor, of little appeal to the big commercial banks.

But how do you measure the "viability" of a charitable investment? New Philanthropy Capital (NPC), a British charity devoted to measuring the effectiveness of donations to good causes, looks for high returns "in terms of the benefits to the people whom the charity is trying to help". Founded by a group of bankers and City figures including Gavyn Davies, formerly of Goldman Sachs (and who briefly chaired a non-profit called the BBC), it sends economically literate analysts to pick through a charity's accounts and ask detailed questions about its work. Top-notch investments already identified by NPC include prison visitors' centres, which help inmates maintain family ties: by cutting rates of re-offending, which it says cost the criminal-justice system an average of £111,300, it calculates that they offer the taxpayer a rate of return close to 1,500 per cent. The Swansea branch of Age Concern, meanwhile, helps poor pensioners to claim £26 in benefits for every £1 spent on administration. Which ruthlessly unsentimental capitalist wouldn't be transfixed by 2,500 per cent returns?

For those few Times readers who have neither billion-pound nest eggs nor even vast Goldman Sachs share holdings, there is a simple way to join the philanthrocapitalism trend. Log on to the free GuideStar UK website, a thorough database of how UK charities spend their money (at, and judge for yourself where your donated pounds will work hardest. It's what all your fashionable billionaire friends would expect.

(The Times Magazine, March 25 2006)

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