Why a dollar can be worth more than 100 cents when it comes to development

Friday, 16 February 2018 14:49 GMT

* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

A dollar donated to a charitable organization is a dollar, whether it’s donated to fighting malaria, improving education, or ending child poverty. Surely it doesn’t matter, whether that dollar comes from a donor country, a corporate foundation, or a private wealth holder? Each dollar carries the same worth.

Or so most of us would assume. But if we look closer at that dollar capital, and crucially at the impact it creates – it’s clear that the value of one dollar to the next can vary vastly.

Firstly, much of the ‘value’ of each dollar is defined, and often limited, by its source. For example, aid money from development banks and UN agencies usually take a very low-risk approach. As government-related organizations, they must account to their political constituents for how they are spending tax dollars.

Corporate foundations, too, must take a lower-risk approach, because they’re answerable to their management boards when making funding decisions. There is often a high level of accountability and, as a result, the bandwidth for them to take risks is also inevitably diminished.

However, when we look at the dollar donation that comes from a private wealth holder, an individual or family, that accountability is different. Each donation is subject only to the enlightenment, passion or strategy of the individual or family – and ultimately only limited by their personal risk tolerance and capacity to accept the consequences of failure.

As I know first-hand, that freedom can allow some private philanthropists to back untested higher-risk innovation or projects, which larger institutions would struggle to justify investment in. 

This differentiation is not an uncommon concept. When it comes to the funding of commercial enterprises, it is commonly understood that we have different categories of capital providers and investors.

In business, those sources of capital are frequently categorized by their appetite for risk, from risk-averse banks to more risk-taking publicly listed equity investors. Similarly, that approach to risk is what differentiates a true philanthropist from corporate foundations along with other institutional donors.

In their recent article published in the Harvard Business Review, Bridgespan, a Boston-based nonprofit providing management consulting services to philanthropists, coined an interesting term: ‘Audacious Philanthropy’.

They looked at 15 social impact initiatives that changed the world, such as the setting up of a universal 911 emergency service in the United States, the near-elimination of polio worldwide, and legislating tobacco control. One clear trend emerged: 66 percent of those initiatives had donors making contributions of $10 million or more in risk capital.

If there’s a lesson we can learn from these historical success stories, it is that achieving social impact requires commitment and big, high-risk capital investment – in other words, ‘audacious’ philanthropic ‘big-bets’.

We have taken a similar approach in the Clearly campaign to help the world to see. Our aim is to get vision correction to the 2.5 billion people in the world who cannot see properly and usually only need glasses to put that right. The challenge is enabling them to have eye tests and then getting the glasses to them. We have found that risk has brought reward. For this effort, we worked closely with national governments, including Rwanda's Ministry of Health, and provided high-risk capital to study the problem, test solutions, and drive success and change. As a result, Rwanda became the first country in the developing world to have provided access to vision screenings and affordable glasses to all.

Indeed, like in the commercial sector – risk capital is required in the social sector for development projects to achieve real, scalable impact and make the breakthroughs that can transform whole economies in just a few decades.

If we are to maximize the opportunities for success in truly solving social sector challenges, we must facilitate the social entrepreneurs, partnerships and collaborations with the high risk high value philanthropic capital that allow for risk and innovation to flourish.

We live in a time where exceptional wealth is being created around the world, especially in booming economies like China. As the first generation of philanthropists matures in the country, it is my hope that more of them will choose to become true philanthropists to finance riskier, more innovative ideas and take the ‘audacious’ philanthropic ‘big bets’.

James Chen, Founder, Clearly