The Imaginations of Unreasonable Men

by Bill Shore

  It would be hard to imagine that the creator of what many consider the most impractical vaccine ever manufactured could actually make its delivery equally impractical, but Hoffman may do just that by using the IV delivery route. Hoffman is not only undeterred, but more enthusiastic than ever. Because while he’s not sure how to administer the vaccine, he knows it’s still the only one that provides high levels of protection, the only one that can save the lives of a million kids a year and be used to eliminate Plasmodium falciparum. The clinical trial helped take at least one option off the table. In the spirit of Thomas Edison, who once said, “I have not failed. I’ve just found 10,000 ways that won’t work,” for Steve that means one of the remaining possibilities is all the more likely to be the right one.13

  CHAPTER 11

  PHILANTHROPY’S SHIFTING TIDES

  A malaria vaccine has protected a significant percentage of children against uncomplicated malaria, infection, and even severe forms of the disease for at least six months, according to a proof-of-concept study published today in The Lancet. . . .

  “Our results demonstrate the feasibility of developing an efficacious vaccine against malaria,” wrote Dr. Pedro Alonso, . . . director of the Center for International Health of the Hospital Clinic in Barcelona, Spain.

  —Barbara K. Hecht, Ph.D., and Frederick Hecht, M.D.,

  “Malaria Vaccine Battle Has Been WON,”

  MedicineNet.com, October 14, 2004

  THE ECONOMIST SAID IN 2007 that “there is much talk nowadays of a new golden age of philanthropy dawning.”1 It is an era that has indeed been marked by a huge infusion of capital, thanks to economic growth and a technology industry that made many tech-savvy entrepreneurs wealthy at a young age. A greater intergenerational transfer of wealth is anticipated than at any time in our nation’s history. It is projected to reach $41 trillion by 2052, according to the Center on Wealth and Philanthropy at Boston College. Even in the face of the recession of 2009-2010, there is excitement about philanthropy’s potential, not just because of the amount of money involved but because of new thinking about how it should be deployed.

  Indeed, it is an era of tremendous intellectual ferment about the role of philanthropy and how it can have the greatest impact, an era accompanied by experimentation, with each new major philanthropy testing out its own signature style. Organizations such as the NonProfit Finance Fund, which provides growth capital strategies to nonprofits; Venture Philanthropy Partners, which uses venture capital practices in philanthropic investing; and Community Wealth Ventures, which designs earned-income strategies, strive to demonstrate the merits of their approaches.

  Perhaps what has changed most significantly is philanthropy’s ambition. In philanthropy’s earliest days, the wealthy felt an obligation to “give something back,” and charitable organizations were the vehicle that enabled them to do so. As social consciousness spread and philanthropy became more grassroots, many simply wanted to genuinely contribute to the aid of others, ensuring that the poor were clothed and fed, that widows and orphans were cared for rather than neglected, that the homeless were sheltered. Others returned wealth to the organizations from which they had personally benefited, such as universities or cultural institutions.

  But over the past twenty-five years, and especially in the past ten, the ambition of much philanthropy has shifted from seeing “doing good” as good enough to instead wanting to actually solve complex social problems. It is now not uncommon to have a foundation fund the planning process for solving a problem and to then, in effect, subcontract out the necessary actions to nonprofit grant partners. The Gates Foundation very much acts like the general contractor responsible for eradicating malaria, using a wide variety of subcontractors who specialize in vaccines, drugs, diagnostic techniques, and public health systems. On a smaller scale, the Eli and Edythe Broad Foundation aspires to do the same in transforming public education, as does George Soros’s Open Society Institute when it comes to strengthening civil society.

  Once the ambition of such institutions changes, the way they allocate funds changes. They now must become long-term institution builders, investing not only in programs, but in operations, capacity, and leadership. They must place greater priority on sustainability and scale. Above all, they must invest not only in creating solutions, but in creating markets that will embrace and distribute their solutions.

  This has become the special province of today’s most far-reaching social entrepreneurs. If ever there were a label made catchy by the business-worshipping zeitgeist that has held a grip on the nonprofit sector, “social entrepreneurship” is it. If ever there were a label in need of a useful definition, this is it, too.

  Nearly everyone engaged in nonprofit work today wishes to share in the aura of social entrepreneurship being touted by philanthropic insiders and repeated in the media. It sounds more impressive, implies more talent and strategy, and personifies more attractive qualities than mere charity work. But not all new nonprofits are entrepreneurial. Being entrepreneurial means more than just being new, or being started by young people, or leveraging private resources for a public purpose, or even starting with a little and turning it into a lot.

  What is new—and what excites me—about social entrepreneurship is the determination to find or create markets to enable nonprofit goods and services to get to scale and sustain themselves, instead of having to depend on constant philanthropic subsidization. This means creating commercial markets. Nowhere is this strategy being pursued more vigorously or more purposefully than in the field of global health, especially around the effort to battle the so-called “neglected diseases.” But there are examples from other fields as well. Perhaps none is so visible currently as the market for carbon offsets created by companies that cannot cut their own carbon emissions enough to meet legal requirement and so instead pay other companies that have made an excess of cuts, making an offsetting purchase.

  THE EMERGENCE OF MARKET-DIRECTED ORGANIZATIONS

  The laws of economics govern global health outcomes every bit as much as principles of biology and sequences of genes do.

  Until recently, there has been very little economic interest at stake in addressing malaria and the neglected diseases. So, in the absence of obvious commercial markets, today’s entrepreneurs have sought to create their own, or at least have begun to believe that there has been a market hiding in plain sight all along. Steve Hoffman, for example, sees the armed services and American and European travelers as a $3 billion market for the Sanaria vaccine. It is a market large enough to reward a pharmaceutical corporation for investing in a product that could also be made available to children in developing countries for no profit, but ideally at cost.

  Bill Gates, at the 2008 World Economic Forum in Davos, Switzerland, observed:The great advances in the world have often aggravated the inequities in the world. The least needy see the most improvement, and the most needy get the least—in particular the billion people who live on less than a dollar a day. . . .

  Why do people benefit in inverse proportion to their need? Well, market incentives make that happen.

  In a system of capitalism, as people’s wealth rises, the financial incentive to serve them rises. As their wealth falls, the financial incentive to serve them falls, until it becomes zero. We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.2

  The challenge is twofold. One is whether nonprofits can not only develop a needed product or service, but also have enough sophistication and skill to attract market forces, bring the product or service to scale, and sustain those efforts in order to reach all of those in need. The other is whether philanthropic institutions will be able to provide the risk capital essential to gaining meaningful access to markets in the first place. Increasingly, entrepreneurial funds are doing just that—ranging from the Edna McConnell Clark Foundation, which evolved from a more traditional grant maker, to SeaChange Capital Partners, created in 2006 by two former G
oldman Sachs investment bankers expressly for this purpose.

  Such an investment approach requires something different from support for entrepreneurship—including social entrepreneurship—and something distinct as well from the passion, innovation, and risk-taking that the word “entrepreneurship” implies. In addition, it requires nurturing a new kind of nonprofit that strategically repositions itself and directs its energies toward long-term market solutions: an NGO, or nongovernmental organization, that transforms itself into an MDO, a market-directed organization.

  At some point, most industries or sectors of society are convulsed by genuine revolutions in thinking that transform their growth from the incremental to the exponential. Manufacturing had its industrial revolution. Technology saw the creation of the silicon chip. Science is currently racing to catch up to the mapping of the genome. Such revolutions have more to do with leaps of imagination than they do with money.

  But the nonprofit sector has yet to experience such a revolution. That may be about to change, and bringing market economic principles into social policy may mark the beginning of the shift. It could enable the sector to go beyond good intentions to actually solving and eradicating neglected social diseases in the same way that the neglected tropical diseases are being attacked.

  If one believes there is a moral obligation to share our strengths and intellectual gifts to develop solutions to human need, then the moral obligation may be even greater to ensure that such solutions are accessible to everyone, and not just to the privileged few.

  As society continues to struggle to strike the right balance between political, nonprofit, and market solutions, philanthropic organizations have a huge opportunity to shape that debate. By taking the kinds of risks philanthropic institutions alone have the ability to take, and helping to manage the risk of nonprofits willing to hold themselves accountable to market forces, the philanthropic sector can provide leadership that can determine the fate of our generation and those of the future.

  The new philanthropy, as represented by the Gates Foundation and others, does not supplant what government or the economic marketplace can do. And unlike traditional philanthropy, it is a by-product not only of enormous riches, generated by innovation and acumen in business, but also of shifting political tides.

  Andrew Carnegie and John D. Rockefeller operated before the era we think of as big government. It was before Lyndon Johnson’s Great Society, before World War II, and even before Franklin Roosevelt’s New Deal. Originally, philanthropic funding filled gaps left by political institutions so young that they did not yet fully recognize issues such as literacy and education as a national responsibility.

  Bill Gates came along at the opposite end of the spectrum, after the expansion of government and after the backlash that led President Bill Clinton to proclaim that “the era of Big Government is over.” Instead of filling the void left by government, like Carnegie, Gates designed funding to bridge gaps left by economic markets, such as the lack of vaccines for neglected tropical diseases, or the shortcomings in efforts to increase agricultural productivity and crop yields in Africa.

  With social entrepreneurship principles playing a larger role, philanthropy has evolved to take on tougher, more complex, seemingly intractable problems—problems that other institutions have avoided or abandoned. The philanthropic leap to doing things like attempting to invent vaccines that no one has ever been able to invent before means taking big risks; being willing, at times, to pay for a failure; and committing to long-term investments that may not yield short-term rewards.

  This doesn’t make the new philanthropy of Bill Gates better or worse than the old philanthropy of Carnegie and Rockefeller. It just makes it a better match for our times.

  LESSONS LEARNED: SIX PROBLEM-SOLVING STRATEGIES

  In Washington and the other centers of government that we look to for solutions to social problems, the battle over how to solve our toughest and most controversial problems usually revolves around spending more money or less money, government taking a bigger or smaller role, and the right and left poles of the culture wars. But from today’s unprecedented convergence of science, entrepreneurship, and philanthropy, there is emerging a set of problem-solving strategies that, while not apolitical, are certainly less political, and until now have been widely overlooked.

  Those from whom I’ve learned have made no grandiose claims for their work. Their energies have been naturally and appropriately focused on solving the specific and very pressing problems in front of them. They haven’t had the luxury of looking across the philanthropic field and discerning patterns that may be useful beyond their own office or lab, or extracting broader lessons.

  What follows is a summary of six major lessons I have learned about solving seemingly intractable problems and how this new philanthropy, at its best, can work. There were other small discoveries to be made, of course; but these are the ones that I felt had the most import and utility for others working in a wide range of organizations to bring about change. Although I learned them by observing how leaders in global health seek to solve problems that affect people who are not served by the markets that the rest of us rely upon, their usefulness cuts across many fields and disciplines of social change.

  Lesson One: Invest in Bringing Existing Solutions to Scale Rather Than in Discovering New Ones

  “The key to developing a malaria vaccine is biotech engineering, not scientific discovery,” Steve Hoffman said the first time we met, intentionally overstating the point to make it, because targeted scientific discovery clearly played a critical role in his work. When all else failed, or at least had not succeeded, Hoffman devoted his energies to the daunting engineering required to bring viability to the one discovery that had worked, however impractically, already. Jay Keasling employed a very different methodology to do the same thing with artemisinin. The same approach could be used to solve many other social problems. What we need are not necessarily new solutions, but strategies for making existing solutions affordable, scalable, and sustainable. Until recently, there has been little institutional support, in the form of money, talent, or intellectual capital, for such strategies.

  Most problems—whether they have to do with hunger, illiteracy, health care, or education—have a solution, but few solutions have a strategy for getting to scale and being sustainable. Jeffrey Bradach, a former Harvard Business School professor who started the consulting firm Bridgespan to advise nonprofits, put it this way:Homelessness, illiteracy, chronic unemployment: nonprofits struggle to address society’s most intractable problems. And yet, as Bill Clinton noted, in reviewing school reform initiatives during his presidency, “Nearly every problem has been solved by someone, somewhere.” The frustration is that “we can’t seem to replicate [those solutions] anywhere else.”

  With a few exceptions, the nonprofit sector in the United States is comprised of cottage enterprises—thousands upon thousands of programs, each operating in a single neighborhood, in a single city or town. Often, this may be the most appropriate form of organization, but in some—perhaps many—cases, it represents a substantial loss to society overall. Time, funds, and imagination are poured into new programs that at best reinvent the wheel, while the potential of programs that have already proven their effectiveness remains sadly underdeveloped.

  . . . Add in the fact that for many social entrepreneurs, autonomy is an important form of psychic income, and it becomes easy to understand why implementing someone else’s dream tends not to be nearly as satisfying as building one’s own.3

  In Washington, D.C., a nonprofit called College Summit faces just such a challenge of bringing a proven strategy to scale on a national level. The organization has exceeded all expectations in helping talented, low-income high-school students successfully navigate the college-access process. But its growth has been constrained by lack of funding and low visibility. Mary’s Center, in the Adams Morgan neighborhood of D.C., knows how to provide quality maternal and child health care for im
migrant Latino families and has successfully reversed horrible infant mortality statistics. If it grew into a national organization, tens of thousands of lives would likely be saved. But after twenty years it has expanded no further than neighboring Maryland. Because the nonprofit sector lacks mechanisms to steer capital toward high-performing organizations and away from the low-performing ones, they often remain unknown to others—and undercapitalized.

  One reason this is so is that new ideas, not old ones, have been the darling of traditional philanthropy, and all of the incentives align with pilot programs and starting something, as opposed to scaling something. But that attitude is starting to change.

  Chuck Harris, a Goldman Sachs banker for twenty-three years, is the founder of SeaChange Capital Partners, which hopes to fill the market gap that exists for growth capital for nonprofits with proven track records. SeaChange arranges funding for nonprofits that is large enough to be transformational. Harris, who first noticed the problem after becoming a donor to College Summit in 2004, told me: “I decided to work for six months in the development department. I observed the disconnect between the founder, J. B. Schramm, a dynamic entrepreneur with very lofty ambitions, and the way it was being financed, which was by grant writers cranking out as many grants each week as they could. And I thought, why not finance this as a corporation would finance this at the same stage of its growth?”