An Optimistic View

The new, evolved capitalism
By William Shutkin | July 27, 2007
The Boston Globe

CARBON OFFSETS have gotten a lot of attention in recent months. It seems everyone is jumping on the bandwagon, from hard-nosed CEOs to suburban soccer moms to boards of selectmen. And why shouldn't they? Offsets are a tantalizingly easy way to do what is otherwise difficult for most Americans: kick the carbon habit. Instead of having to change our lifestyles or corporate practices, offsets allow us to pay someone else to do it for us.

But offsets are more than just a clever tool to help us clear our collective conscience while we go about business as usual. They are a singular metaphor for capitalism and its offset equivalent, private charity. Offsets are to carbon emissions what philanthropy has been to American capitalism -- a convenient though indirect way of mitigating the undesirable effects of a system and way of life we are unwilling to change through more direct means.

Whether a small family foundation or a massive charitable trust, the $300 billion in assets fueling the roughly 50,000 foundations in the United States today are derived from an economic system that has largely resisted changes meant to prevent the social, economic, and environmental harms the system itself produces. Rather than modify their business practices to account for these harms, industrialists, financiers, and others with great wealth have traditionally looked to philanthropy to help offset capitalism's adverse impacts, with a significant tax benefit to boot. As Henry Ford liked to say, "The system that makes my foundation possible is probably worth preserving."

This philanthropy-as-offset approach has proven a powerful force in protecting the status quo. But if recent developments are any indication, the system is beginning to change. In the past several years, the line between for-profit business and nonprofit mission has started to erode. A new breed of social entrepreneurs has challenged traditional philanthropy and what they perceive as its limitations in effecting large-scale reforms. On one side, foundations such as Google and Omidyar, as well as nonprofits like the New Hampshire Community Loan Fund, have begun to invest in for-profit businesses with a strong social mission -- software companies providing basic services to the poor, for example, or businesses that preserve good-paying jobs in struggling rural areas.

Meanwhile, private, money-making enterprises are incorporating social and environmental concerns directly into their business models. Honda and General Electric have recently launched bold environmental initiatives aimed at dramatically reducing carbon and other air pollutants from their products. Altrushare Securities, a for-profit brokerage firm, works to help economically distressed communities like Bridgeport, Conn., where it's based. And the list is growing.

These social enterprises are transcending the boundaries separating government, business, and nonprofits and forging a new meta-sector, what some are calling the "fourth sector." In the process, they are beginning to refashion American capitalism, long the nemesis of many reformers, into a, if not the, principal agent of social change.

Like carbon offsets, American philanthropy can be understood as an interim step in a larger process of transformation. Just as the solution to global warming ultimately requires each of us to dramatically reduce our carbon emissions ourselves rather than paying others to do it for us, we've come to understand that lasting, penetrating social change demands that our economic system, and the firms operating within it, integrate social needs directly into their business models instead of relying on charitable interventions after the fact.

In the fusion of commerce and the common good we are witnessing the birth of a new species of capitalism. For-benefit is starting to compete with for-profit as the dominant MO of a growing corps of capitalists not content with simply reaping financial rewards.

But we are also witnessing something else, something equally profound. The emergence of fourth-sector firms demonstrates what is perhaps capitalism's greatest asset -- its essential dynamism and capacity to change, to renew itself over time, however incrementally or begrudgingly, in response to new social conditions and markets.

In this sense, Henry Ford got it wrong. The system isn't worth preserving; it's worth evolving.

William Shutkin is a former foundation CEO and a trustee of Echoing Green, a funder of social entrepreneurs. source: The Boston Globe