The Future of Philanthropy

Former Citigroup Chairman Walter Wriston once said, “Capital goes where it’s welcome and stays where it’s well treated.”

Philanthropy has traditionally been the interface between wealth and need. It gives pride to the wealthy, give purpose to those without, and gives hope to the underprivileged.

Philanthropy is power; the power to make a difference, the power to leave a legacy, and everything in between. It is the worthiness of a cause and the worthiness of a struggle that gives nobility to the process, and bestows awe and respect on those in the middle.

But for all its well-spun intentions, the process remains hugely inefficient.

Philanthropy itself is in a constant state of transition. Over time, philanthropy will shift from a playground for the rich to a business tool for the many. It will be very fluid in nature, organic in its potential, and apply resources with far greater precision.

As it continues to transform, it will evolve into a new voice of democracy, allowing people to vote with their money, applying targeted amounts of resources to specific causes, issues, and noble agendas without waiting for approval by the power elite.

The purpose of this paper is not to delve into the many nuanced forms of philanthropy. Rather, the intent is to focus on some of the key over-arching trends and think through a few of the implications along the way.

As it stands today

In 2009 as compared to 2008:

• Total giving to charitable organizations: $303.74 billion. A 3.6% decrease from the $315.08 billion given in 2008.
• The majority of giving came from individuals: $227.4 billion (75% of total). A 0.4% decrease from 2008.
• Giving by bequest: $23.8 billion (down 23.9%).
• Giving by foundations: $38.4 billion (down 8.9%).
• Giving by corporations: $14.1 billion (up 5.5%).

• Largest Recipient – Religious Organizations: $100.9 billion (down 0.7%). 33% of all donations go to religious organizations, with most coming from people giving to their local place of worship.
• Second Largest Recipient – Education: $40 billion (down 3.6%).
• Donations to international charities:  $13.3 billion (up 0.6%).
• Donations to human services charities:  $27 billion (up 2.3%).
• Donations to animal and environment charities charities: $6.15 billion (up 2.3%).
• Donations to health charities:  $22.5 billion (up 3.8%).
• Donations to arts, culture and humanities organizations:  $12.3 billion (down 2.4%).
• Donations to public benefit charities:  $22.8 billion (down 4.6%).

The Population Factor

Unbeknownst to most, the 8,000 pound gorilla hovering in the background of our economy is the shifting population base. Any fluctuation in the number of consumers changes the demand-side of the supply and demand equation.

The 1900s were a very fertile century where the earth’s population grew from 1.6 billion people to 6.4 billion within 100 years. Never before in history had the human population exploded like this, and we all became conditioned to think there would be a never-ending supply of young people, and a never-ending supply of demand for real estate, stocks, bonds, and other securities.

But a strange thing happened along the way. As doom and gloom predictions started painting scary scenarios of an overpopulated earth where food shortages threatened the very existence of humanity, the full impact of birth control technology, invented in the 1960s, began to take effect.

Three states in the U.S. are leading this trend with declining populations in Maine, Michigan, and Rhode Island. Soon there will be many more.

Today, Maine’s median age stands at 42.2, the oldest in the country. The declining population has translated into school closings and fewer investment dollars, as well as a declining labor force and tax base.

Although the U.S. growth curve is slowing it still remains above zero, while nearly all of Europe and major parts of Asia are in serious decline. Since people create the economy, the lack of people creates just the opposite. A drop in demand will manifest itself in many areas, including a drop in the demand for real estate, as well as other goods and services.

System Perspective

The world is built around systems, but we often fail to recognize systems that are out of date or failing.

My favorite story about failed systems has to do with a Roman Empire that produced no famous mathematicians because of their numbering system – Roman Numerals. The reason Roman Numerals didn’t work was because it wasn’t a placeholder numbering system with separate columns for 1s, 10s, 100s, 1,000s, etc. Instead, each number was an equation, making higher math nearly impossible to calculate.

This is an important reference point. The Romans were employing a system that prevented their entire civilization from advancing its math skills, simply because of the numbering system they were using.

Putting it into today’s context, what systems do we employ today that are the equivalent to Roman Numerals that prevent us from accomplishing what needs to be done.

Indeed there are many.

In philanthropy, one system preventing the industry from moving forward is the institutionalized process of submitting proposals to receive grants. It has become what many would describe as the modern-day millstone around the industry’s neck.

What began as an effort to formalize requests has evolved into an entrenched bureaucracy that operates in a manner that is quite detached from the recipient’s needs, favoring those most adept at writing grants over those most adept at producing results.

More importantly, it creates a large organization bias with barriers that prevent funders from ever hearing the people-in-the-trenches stories, and finding the greatest inflection points for driving change.

A more fluid funding environment will mean that future funders will try to circumvent the gatekeepers, seeking small amounts from the masses as opposed to large amounts from the few.

Fluid Resources

Moore’s Law has shifted us from analog to digital thinking, with the fluidity of communications setting the stage for a more fluid monetary system.

For financial institutions, even though their internal transaction costs have plummeted and the time-float has been squashed to zero, they haven’t passed these savings on to the end users. The industry has built a financial fortress out of the laws and regulatory environment that provides its base of power. It remains stubbornly resistant to new thinking and business approaches fomenting deep inside the digital underground.

In what many have termed to be an abuse of power and privilege, today’s banks and credit card companies are on the verge of being blindsided by an array of alternative currencies and payment systems designed to eliminate the current friction in the system.

Rising from the ashes of this pending battle will be an innovative new funding environment, creating a foundation upon which the next generation of philanthropy will emerge. In this fresh new environment, the flow of resources will be conducted with great precision, speed, and transparency. It will also emerge as a form of checks and balances for today’s increasingly failure prone business and social structures.

Appealing to the Masses – The Haiti Story

The earthquake in Haiti was a very revealing moment as nonprofits around the world witnessed the American Red Cross raising millions through text messaging.

Using a simple five-digit code and the word “Haiti,” the American Red Cross raised over $2 million in the first 24 hours after the nation-crushing earthquake on January 12th.

Over the next few weeks, the Red Cross pulled in over $30 million using the cell phone program, and nonprofits everywhere saw this as the new gold rush as they scrambled to duplicate that success. But for most it was an unworkable system. In most cases the cost of the program is more than the money it generates.

Sending donations through text messaging is limited to $5 and $10 increments and capped by phone companies to no more than five a month per phone. Also, text-based donations require a 5-digit short code and they are very expensive, around $12,000 each.

Perhaps the most limiting factor of all is the cost of a promotional campaign to “tell the world” about what you’re working on. Few issues are likely to attract the number of eyeballs that the Haitian earthquake did with media around the world acting as the marketing department. So factoring in the cost of the technology along with the cost of a marketing campaign raises some instant red flags.

Circumventing the Gatekeepers

Working deep inside the tech community are legions of talent trying to unlock the keys to new digital currencies, and in doing so, radically improving the flow of digital money.

Every obstacle that prevents people from replicating the Haiti success has a work-around, and the disruptive thinkers are constantly probing for ways to circumvent the gatekeepers.

The biggest disrupter in this space today is PayPal. Last November it opened up its code, giving anyone with rudimentary programming skills access to its technology. This is a move that has the potential to unleash a massive new wave of innovation. Two months after PayPal opened its platform, 15,000 developers had used it to create new payment services, sending over $15 million through the PayPal network to beta test their technology.

Many of the work-arounds use a new currency to circumvent the current system stumbling blocks, and these alternative currencies are springing to life in places we wouldn’t normally suspect..

For example, in the gaming world, one U.S. Dollar equals:

• 10 Facebook Credits
• 125-170 WOW Gold (World of Warcraft)
• 80 Microsoft Points
• 10 Project Entropia Dollars (Entropia Universe)
• 6 Q coins (QQ.com)
• 250 Linden Dollars (Second Life)
• 1,500,000 Star Wars Galaxies Credits
• 6 Habbo Coins (Habbo Hotel)
• 10 Twollars (Twitter)
• 100 Nintendo points
• 1,000 IMVU credits
• 80 hi5 coins
• 5 Farm Cash (FarmVille)
• 5.71 WildCoins (WildTangent WildGames)
• 2,000 Therebucks
• 100 Whyville Pearls
• 25,000,000 ISK (EVE Online)
• 0.75 Mahalo Dollars
• 4 Zealies (Dogster)
• 10 Ven (Hub Culture)

Game currencies are destined to become an integral part of philanthropy for two important reasons. First, they are designed to influence behavior, creating instant on-demand incentives. And second, they operate in a world with dramatically less friction.

In addition to the alternative currencies of the gaming world are a number of other payments systems designed to undermine the current power structure.

A startup called Obopay, funded by Nokia, allows people with cell phones to transfer money to one another with nothing more than a PIN.

Twitpay is a startup that uses Twitter to transfer payments inside of PayPal.

Hub Culture uses its Ven currency for travelers to circumvent the hassle and fees of swapping dollars for Euros by transacting in virtual currency.

Perhaps the most applicable to philanthropy is GetGiving, a mobile app that uses PayPal to enable charities to accept small donations without the usual exorbitant credit card transaction fees.

We have only begun to scratch the surface of alternative currencies and payment systems. The true power to transform system impediments will come as we think through the scenarios listed below.

Business Colonies

As I have mentioned several times in the past, future business will evolve around the concept of business colonies, and this will play a particularly interesting role in the future of philanthropy.

In much the same way the movie industry works, where a single movie project will attract camera people, script writers, lighting and sound people, actors, and makeup artists, future business projects will attract talent for short-term temporary assignments. Once the project is complete, team members will disband and form around other projects.

While this may seem discouraging to those who are looking for stable careers, to many young people it will be an inviting work environment because of the variety of work and flexible work arrangements. The job security they lose on one hand is offset by a steady stream of available projects and the ability to control their own destiny.

Setting up a new colony is as simple as hiring a project manager and developing a database of talent that can be brought in on a moment’s notice. Some colonies will be completely virtual, while others may require facilities with access to specific equipment.

Philanthropic projects with defined objectives will be well-suited for operating out of a business colony environment. Costs can be kept extraordinarily low, performance can be measured on an ongoing basis, and the entire operation can be shut down on a moment’s notice with very little disruption to the people involved.

Scenarios and the Future of Philanthropy

Scenarios are a tool used to craft compelling stories about what the future may hold. Done correctly, they challenge our assumptions about what might happen and why, and in the process, give us new strategies for adapting to change.

By engaging your imagination in all these ways, my hope is to highlight some of the opportunities and dangers that may lie ahead. This is not a comprehensive picture, by any means. Rather, it is an attempt to take some of the theme above and ask how the coming years may be quite different from the present.

For the purpose of this exercise, a series of short-form scenarios are used to present possible directions for philanthropy.

1.) From funding the “helpee” to funding the “helper” – While donations of money and support will still be available to help the disadvantaged on a short-term basis, the “ongoing needs” department is more the purview of governments with access to public money. Governments have a symbiotic relationship with the needy, but philanthropy aspires to a higher calling – changing the outcome of the needy. And they can best achieve this type of change by working with change-agents responsible for administering the funds.

2.) From the digitization of wealth to the digitization of need – We have spent several decades making money more digital, and by extension, more fluid. The piece of the equation where we haven’t done a good job is in understanding the need. Tomorrow’s tools will allow us to micro-analyze virtually any situation and find the primary inflection points where a change can be most effective.

3.) From need related issues to cause related issues – Needs are ongoing but causes have a definable life cycle with an actual endpoint. More important than the endpoint, definable life cycles have definable criteria for success. Success criteria creates the foundational underpinnings of good management metrics. Future proposals will map the entire cause lifecycle and assign a series of “points of influence” where change-efforts can be directed. The success of a campaign will be determined by measuring the metrics at each step of the process. Causes will not only include issues of need, but also many other far-reaching topics.

4.) From helpers of the needy to cause architects – Traditionally, people with a big heart, who dedicate their lives to helping the needy, were held in high esteem. It was a virtuous life filled with personal fulfillment. In the future, an even greater virtue will be bestowed upon those who are capable of solving the predicaments that create the needy class in the first place. Cause architects will extend far beyond working with the disadvantaged, and set out to wrestle social injustice to the ground. Cause architecture will become an inspiring new profession well suited for power-craving young people who both want to make a name for themselves as well as live a life of meaning..

5.) From whale hunting to dollar valves – The time and effort needed to build a relationship with a major donor is on the opposite end of the spectrum from the quick connections needed to garner $1 to $10 donations. Small donations require virtually no relationship-building. But people designing these systems have to contend with today’s high friction payment systems and ever changing mass marketing issues. The viral nature of causes will make future marketing far more efficient and future alternative currency systems will be designed to circumvent today’s system impediments.

6.) From ongoing support to defined life cycles – Virtually every piece of music has a beginning, middle, and end. Books and television scripts are also written with a discernable beginning, middle, and end. The best cause architects will be the ones who continually work themselves out of a job. Their role will be to construct a realistic action plan, execute, and complete the process of solving some major social problems along the way. People in this field will come armed with tools unimaginable by today’s standards, as well as tools they invent along the way.

7.) From “push” to “pull” – Traditional philanthropy has been formed around “pushing” a cause forward – spending money until a solution is discovered. The power tool of the coming decades will be prize competitions where people are incentivized to accomplish a specific objective. Rather than using money to “push” a project forward, the incentives used in prize competitions have a way of “pulling” people towards the finish line. In general, people are very good at competing. But in most fields, we have been running a race without a finish line. Funding a well-conceived prize competition can have far-reaching implications, and may provide a variety of opportunities for people to leave a legacy with such things as naming rights for both the competition, the prize, and the given accomplishment.

8.) From leaving a legacy to living a life of meaning – Wealthy people love to leave a legacy and typically need a significant amount of hand-holding along the way. However, young people today are far more interested in living a life of meaning, and more likely to give small donations throughout their life as opposed to one large grant sometime after they retire.

Philanthropy and the power to transform itself

Funding a cause brings with it unusual new ways to think about opportunities, including the opportunity to for philanthropy to change itself. The cause being funded may be a payment system used to facilitate the flow of money. It may involve the reworking of tax laws to inspire a whole new breed of philanthropists. Or it may be used to reinvent the organizational structure of foundations or corporate giving.

In the end, philanthropy has the power to be its own doctor and prescribe its own medicine. And that is where the real future of philanthropy lies.