Companies shouldn’t be on the philanthropic take: they should foot their own bills for expansion in new markets.
“As a businessman, I believe the free market fuels growth,” Bill Gates said in an address to G20 leaders in 2011, adding that “there are relatively simple things we can do to encourage private investment in development.”
One such incentive is the use of direct subsidies to business by philanthropic foundations. In recent years, the Gates Foundation has increased its direct charitable grants to for-profit entities, including recent donations to Vodacom and Mastercard. In both cases, the money was intended to expand financial services to the poor in low-income countries.
Vodacom received over $6 million to ‘grow the mobile banking sector’ in east Africa. Mastercard got $11 million to set up a ‘lab for financial inclusion’ in Kenya. Both grants could help bring welcome services to marginalized people in important ways. But Mastercard and Vodacom are also poised to profit handsomely from the markets created by these charitable offerings while assuming very little of the financial risk involved.
When a business venture has clear commercial as well as charitable objectives, it seems reasonable to insist that grants from foundations should be structured as program-related equity investments or as loans. But that’s not the case with either of these donations. Such grants raise an even bigger question: where’s the evidence that businesses are actually contributing more to improved social outcomes than in the past—and therefore deserve the Gates Foundation’s largesse?
Are companies themselves becoming more charitable? Are they investing more of their overheads in research and development in comparison to what they spend on marketing? Has increased executive pay heightened CEO vigilance when it comes to reining in dubious safety practices?
The answer to all these questions is no.
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