A conversation with the New York Bureau Chief of the Economist and Co-Author of Philanthrocapitalism.

Question: Do events like the Clinton Global Initiative have any real effect?

Matthew Bishop: I think it is very easy to be cynical about an event like the Clinton Global Initiative because of all of the celebrities and the general pizzazz that Bill Clinton brings to it all. But underlying it all, I think they are making a huge difference. What’s going on at the moment is a really new way of going about solving society’s biggest problems. It’s not just about government, but it is about partnerships between government, business, social entrepreneurs, philanthropists, charities, and those partnerships need places to come together. And what Bill Clinton has actually turned out to be very good at is using all of his access. I mean, everyone wants to meet him and so forth to actually bring people together and he has a very serious team of people around him who are very good at broker deals between all of these different entities. So, that actually what you’re starting to get is a really serious effort to solve some huge problems. And I think that without those big events like shining the spotlight on everything, you wouldn’t get the results that we are going to get over the next few years.

Response: Asia seemed to be left out of the event.

Matthew Bishop: Actually the Clinton Global Initiative held an event in Hong Kong last September which had a lot of Asians very enthusiastic about this notion of philanthrocapitalism and working together to solve problems. And I moderated a plenary session yesterday on innovation with Jack Marr, who is the entrepreneur behind Alibaba, which is the Chinese eBay. And he was saying; you know, he was trying to create a whole entrepreneurial culture in China and he’s going to create 100 million jobs in the next ten years. I mean it’s got to be an incredibility ambitions statement. And I think there is an enthusiasm for the ideas that we’ve seen come out of America and the rich world about partnership in new ways taking off in Asia. And another interview I did recently was with Jet Li, the Chinese film star who has started a foundation called The One Foundation, in China. He was nearly killed in the Tsunami and had to be rescued and so forth, and decided to devote his life to encouraging a culture of giving as one of the key values of society. And he now has over a million Chinese giving via the Internet and via mobile phones and it’s beginning to have a real impact. So, I think this isn’t just an American thing; it’s actually a global phenomena.

Question: What is philanthrocapitalism?

Matthew Bishop: Philanthrocapitalism is about the different forces in society, government, business, social entrepreneurs, and above all philanthropists coming together around solving society’s problems and doing it in a new way which is about really achieving results by bringing best practices from the business world and from the entrepreneurial world, as well as the traditional people who have made it their mission to do good in society. So, it’s about doing good in a way that is actually about results rather than about feeling better about yourself because you are trying to do something right. It’s about bringing the head and the heart together around solutions for the world’s biggest problems.

Question: What’s an example of successful philanthrocapitalism?

Matthew Bishop: Well, one of the really interesting examples at the moment is how the Bill and Melinda Gates Foundation has got together with a number of the world’s governments and organizations like the World Health Organization to attract a vast amount of money towards vaccination of people in developing world. So, a lot of people are now being given basic immunization against some of the main diseases that kill poor people. And they brought down the cost of those vaccinations by a very large amount because they’ve managed to marshal a lot of capital behind innovating and behind getting the companies that wouldn’t otherwise have produced these vaccinations and to do them at a very low cost. So, that’s one very notable of example.

Question: Can philanthrocapitalism make up for the inequalities generated by capitalism?

Matthew Bishop: So, inequality is one of the big challenges that we face as a planet and it’s not a simple matter. I think some inequality is the result of people being wonderfully innovative. The people – the Google guys, Larry Page, Sergei Bren—have become fantastically rich in their early thirties by doing something that has clearly benefited everybody and hasn’t exploited anybody in any serious way. Some inequality is the result of the people actually being monopolists and expropriating assets and treating workers cruelly. But between those two, there is quit a lot of difference. And so, philanthrocapitalism is I think a way that the wealthy can give back and I think it’s in of the rules we have in the book, a good Billionaire’s Guide that we said there are four things that a billionaire needs to do to be well thought of by the public. The first thing is they need to make their money in a way that is non-exploitive, that they need to make it in a way that is fair and honest. The second is that they should pay a reasonable amount of taxes. It’s basically possible as a billionaire to pay virtually no tax and that I think is wrong. I think they clearly should be paying a higher percentage of their wealth in taxes than people who are poorer than them. The third is they should be committed philanthropists. They should be giving more than the average person. And I think this is a world where I think all of us are going to give more in the future because we all see the problems in the world, but the billionaires really should be giving much more than the rest of us. And lastly, it shouldn’t be just about writing a check. The philanthropy they do should be focused seriously on achieving change on genuine impact rather than just showiness. And so the fourth test is that they are serious about making a difference with their giving rather than simply trying to get headlines.

Question: Is this charity-based yet highly stratified economy sustainable?

Matthew Bishop: Well I think we are, as I say, in a new world which is very dynamic, where there is a lot of potential to innovate and if you do innovate successfully because of the economy being so big and things spreading so fast, you can get very, very rich, very fast and I think that system is a very good system in many ways because it actually creates a lot of wealth that we all benefit from. But it does leave the situation where you are getting people who are fantastically wealthy. I am less worried about that system than I am worried about a system that you might find, in say Russia after the fall of the Soviet Union, where a small group of individuals basically seized control of all the country’s assets, the oil and so forth and made themselves very rich in a way that didn’t benefit the population as a whole. So, I think we have to differentiate between those two models. But the model which is, “I am going to create an innovation that is benefiting everybody, and in the process I get very rich,” I can’t see a real problem with that. It just comes around to sheer jealousy if we don’t like people who win from that situation. That’s very different from a situation where people are getting rich by stealing from us.

Question: How is philanthropy evolving in China?

Matthew Bishop: So China has embraced capitalism, but has done it in a very authoritarian way where the government is very much still in control of the system. And that has made it, I think, quite hard for philanthropy to get started because people are making a lot of money, but they don’t want to be too visible about the fact that they’ve got money because it seems to call into question the whole system. But what’s happened recently is that they are looking, some of the wealthy Chinese, are looking at their society and they are saying there are huge social problems, terrible environmental problems, terrible problems of poverty, of water shortage and so forth, and the government is clearly struggling to solve those problems on its own. They are looking at people like Bill Gates and saying, well that’s a good role model for us. We think that’s what it means to be a successful wealthy person now. We want to be like the best American business people, but also we see our own society and we see there is a need to solve a lot of problems. And I think the government is now open to encouraging that because it sees that as a good role model, they want a harmonious society and so when they see the rich give back, that’s a good thing. And they are also aware that they can’t solve these problems on their own and they need to engage the business community in that.

And so, when there was an earthquake, a huge earthquake that killed a lot of people last year, that was the first moment where you saw a lot of the new rich in China actually come out and start giving substantial amounts of money. And that, I think, was when the government for the first time gave its official nod of approval towards that phenomena. And you are seeing people like Jet Li, the movie star, create a popular culture of giving; so with a million Chinese now giving – he has this slogan of one-one per month is the ideal. And they are going by the Internet and the mobile phones. And they you also have this culture of Western companies that want to do business in China being expected to give back in the communities where they are working. Particularly there is a lot work going on with HIV Aids where international companies have come in and done work in that field. Interestingly, talking to Jet Li, one of the issues he’s hoping to solve through his foundation is that when you are a western company and you are asked to do something socially good in China, you have to partner with a local organization, a non-profit or something. And they are quite often, you have no idea whether you are actually working with a good organization or with a crook who just wants to take your money and do whatever with it. And he’s hoping that he’s going to create a real marketplace with genuine feedback so that you know, as a western company that you are doing business with a bona fide non-profit that is actually serious about solving problems. And so, I think we are going to see in China, over the next five years, this extraordinary takeoff of philanthrocapitalism as you get business philanthropy and non-profits and the government all working together to solve these huge problems that China faces.

Question: How has China adapted to being an economic superpower?

Matthew Bishop: So, China I think has been doing a lot of catching up so far. They had all these years where it was state dominated, communistic, and after Tiananmen Square, the Government said, we have to embrace economic growth, which means we have to embrace capitalism; otherwise, the whole system is going to crumble. And so, they were catching up by copying the successful practices of the West and basically doing it much cheaper. So they were undercutting us by using very cheap labor. Now, there’s a real question about how do that go beyond that because they’ve actually probably achieved much of what they can do by simply copying and doing it cheaper. They’re labor markets are actually quite expensive relative to many other emerging countries now, so they are losing out to them. So, they’ve got to become innovative and that’s what is so interesting about someone like Jack Marr at Alibaba, he has these extraordinary events. Alibaba is ten years old, they had an event he other week where they had 27,000 people in a stadium all of whom were what Jack Marr calls netropreneurs which are sort of people who are running a small business and they are basically doing e-commerce via his website. And he’s actually talking about now not B to C, business to consumer, but C to B, consumer to business where you’re creating a whole industry around the customer actually telling the firm what it wants. What the customer wants and actually leading to a really high level of customization I don’t even think you are seeing in the west in terms of the products that are produced. So, this is the real challenge for China kind of go from being a follower in terms of innovation to being a leader. And I think there is every reason to think the talent and the energy that they have there, and the awareness that they need to just keep growing as fast as they can and at the same time deal with the social problems they face is going to mean they will probably a leader in things like green energy. But they have to solve these problems and that’s actually going to make them very, very innovative over the next few years.

Question: How will the U.S. think of India and China in five years?

Matthew Bishop: Well, I think the U.S. has a schizophrenic view to the growth that is happening in developing countries like India and China. India and China both taking jobs from America, in a way, and so that seems very threatening. On the other hand, there is an awareness that China in particular is providing most of the money that America is using to spend and enjoy a high quality of life, so a lot of Treasury Bonds are bought by the Chinese. And there is an underlying recognition that when countries like India and China come out of poverty, the world as a whole gets wealthier, which means we all win. It’s a win-win situation. And so the next five years are going to be about adjusting to a world where America is not the dominant economy anymore, but is still a very important economy and it has to find a more satisfactory relationship with these emerging economies and that’s going to mean a bit of give and a bit of take on both sides. But I think there will ultimately a better relationship between America and China and India because it will become a more equal relationship and I think gradually the public will understand in America that its not a threat fundamentally, that America, if it sorts out its own domestic issues which are largely about retraining the labor force so that people can do jobs that aren’t done more cheaply overseas, this will be a very much a win-win.

Question: Will the next five years bring more economic opportunity in the East?

Matthew Bishop: Well China and India, I think, have a lot of opportunities because they’re still very many people who aren’t in the mainstream labor market. India in particular has a very young population that is getting educated fast, but their education system still has a long way to go before it is as good as it could be. China, there is still a lot of brain power, a lot of engineers there and this is still a period of human history where there is a great deal of potential for innovation and so, I think there are great opportunities there. The issue is that labor markets are becoming globally integrated which means that the price of Chinese labor and of Indian labor is increasingly moving up to global levels and therefore, unless they are actually adding real value relative to what you could do in America, there’s not going to be just simply a matter of cost cutting, it’s going to be about figuring out a way that they do things better.

Question: Are for-profit philanthropists more effective than governments at charity?

Matthew Bishop: Well, I think we’ve seen a lot about how governments fail in trying to solve big social problems because they tend to get very risk adverse. Politicians are always thinking about the next election so they don’t want to take a risk that might fail. And I think a lot of social change requires people to try things that you don’t quite know whether it’s going to work or not. And that’s the press. The press and really get on the back of a politician who does something that doesn’t work. Business people are much more used to that mindset of, I’ll take a risk, I know there’s a 20% chance it is going to succeed, but if I do enough of those things, then we’ll find the answer. And so that’s why I think the role of social innovation is much better driven by the private sector. Government then has a huge role to play in taking successful ideas pioneered by the private sector by philanthrocapitalists and scaling it up and taking the idea to a level where hundreds of millions of people benefit rather than smaller numbers. And I was very struck by Bill Gates. Although he is giving away three or four billion dollars a year, which seems like a huge amount of money, he is very conscious that compared to the scale of the problems he is trying to address in the developing world, that money is a drop in the ocean compared to the sort of money that governments have at their disposal. So, part of his challenge as a philanthropist is not just to come up with clever ideas for solving social problems, but to persuade those who have far more money than he does, which are by and large, governments to use their money and put their money behind his in innovative ideas.

Question: Are you optimistic about microfinance loan facilitators like kiva.org?

Matthew Bishop: Kiva.org is a fantastic innovation. It’s allowing people with $20 to give away to have some of the same experience that someone with $200 million or $2 billion to give away is going to have. Because a lot of us find we write a check to a charity and that’s all we ever hear about it. The money goes off, we don’t know whether it’s made any different whatsoever. With Kiva, you are actually able to interact with the people you are giving to. And you get the feedback of this person. This small farmer say you’ve lent money to, a few months later you’re check comes back and realize that you’re money has made a difference, they’ve managed to put that money to work and they’ve made some money and you feel great about him and then you say, well who am I going to help next. And you also see on Kiva, groups – teams forming, to compete with each other to give more money to different people and different causes, so you have at Kiva Obama supporters who are competing with the Kiva McCain people. Last year during the election, the Kiva atheists are competing with the Kiva Christians. And that’s building a sort of discussion amongst those groups that is leading to a much more informed public debate about aid and how to do it effectively and how to do giving effectively. And increasingly, I think we’re going to see partnerships between these mass organizations where we can all get involved with both big philanthropy like the Gates foundation and indeed with the government. And one of the ideas that Michael Green and I are proposing throughout philanthrocapitalism work is that 10 percent of the aid budget ought to be given away through these sites were all the members of the public can have a say in how the money is given, so Kiva should be given matching funds by the government.

Microfinance has become one of the great success stories of philanthropy and aid. But what’s so interesting about microfinance is that what 30 years ago started out as a charity, a way to basically help people help themselves get out of poverty has become a very, very profitable business. There’s a Mexican microfinance institution called Compo Tomos that was started as a charity, but had an IPO last year that raised over a billion dollars, and is one of the strongest performing shares on the Mexican Stock Exchange. This has been hugely controversial because some people say; well you shouldn’t be making money out of providing things that the poor need. But actually what’s happened is that a lot more money has gone into helping the poor because there’s a chance to make money on their investment than every comes through charity. You could never reach as many people through charity as you can through marshalling some of that money into for profit capital markets. And so, a lot of kind of – well I think some of the cleverest philanthrocapitalists and social entrepreneurs are saying, well maybe there’s a load of other services for the poor in the developing world that we traditionally have thought as charities, like providing them with water, or with healthcare, or with education, that we can actually find a business model that makes profit, and therefore, people who have a lot of capital to invest in profitable growth opportunities will say, “Let’s get in and put a lot of money behind this.” Actually, if they do that, we can actually scale out those services to the poor much quicker than by waiting for charity to do it. And so, this is a very exciting area and we are going to see a lot of action over the next few years. It’s going to be controversial, but I think it could end up making a huge difference in helping the poor far more than some of the traditional sorts of charity.

Question: How do you respond to Dambisa Moyo’s argument that charitable money promotes corruption in Africa?

Matthew Bishop: Well, Dambisa Moyo’s, Dead Aid is a cry from the heart from an African woman who has seen terrible corruption as a result of aid, hold Africa back. I think thought it is more emotional in its rather simple message that all aid is bad than it is rational because some aid is needed and the private sector will not do it on its own. The question is, can we get smart aid rather than some of the old forms of aid. Smart aid is what we think the essence of philanthrocapitalism is. It’s about business philanthropy, social entrepreneurs, charities, governments all coming together around how do we most effectively design partnerships that quickly deliver results. So its very results orientated. And that, I think, is the future of aid. But to argue that all aid is dead, all aid is useless, even though there is plenty of evidence that a lot of aid in the past has been useless, and bad, and actually harmful to Africa I think is wrong.

Question: What can for-profit companies learn from non-profits?

Matthew Bishop: For profit companies can learn a lot from non-profits. One of the interesting things that I think has happened is that the for-profit sector and the non-profit sector have increasingly worked together. That is that both of them started out thinking that they were much superior to the other. That if you were in the non-profit set, you used to think well all of these people have sold their souls by trying to make money. And if you’re in the for profit sector, you think, oh kind of softhearted kind of do-gooders, but they haven’t got a clue. As the sides have come together, they’ve started to really learn about the strengths that each side brings, and so I think for-profits are learning a lot about how do you inspire people who work for you. What is it about the mission about social enterprise that just gets people to work with passion and much longer hours to actually get to know the people they are working with much better and to actually form partnerships based on trust with the people they are serving, whether it be the customer or the person you are helping. And so, businesses are discovering that actually, in today’s world, a lot of the best people that they want to hire want to do something that they feel good about in their life. They want to make a difference, and therefore, if the company doesn’t have a mission, and a mission that is about building a better society, even if it is through making soft drinks, or something like that, they’re not going to hire the best people. The people are going to go elsewhere, and so they are learning from their partnerships that motivational question.

They are also learning about the societies in which they live. For many big companies today, if you want to have a confidence that you were going to keep growing in the future, you know you’ve got to be successful in the world’s poorest countries as they emerge from their poverty into being kind of prosperous countries. And so, you need to know what the people in those societies really care about, what they want, where they are going. And you don’t want to be on the wrong side of history. I am fascinated by Nike, for example. Nike is a company that, 10-15 years ago, the idea that they were a force for good in the developing world was laughable; in fact, they were seen as running sweatshop operations and often found their workers in very poor conditions. About 10 or 12 years ago they saw the light and realized that they were on the wrong side of history—that, in the future, they were going to be selling a lot of their products in those countries where currently they were working people in appalling conditions, and the long run bet is that those people are going to get richer and if they see Nike as a brand association with exploitation, they’re not going to want to wear Nike clothing. So, it’s completely turned itself around as being probably one of the leaders in working with non-profits to monitor the quality of work in its supply chain and the conditions in which people are working. It’s put a huge resource into working with HIV Aids issues in Africa in particular. Now it’s got a huge initiative called the Girl Effect, which is all about promoting the economic empowerment of women in the developing world. And I don’t think this is just a fig leaf, it’s not just superficial, it’s about something that is actually fundamental now to Nike’s DNA. And I think other companies are now looking at that and saying, “Well, this is the future of business. We have to be on the right side of history in the long run if we are going to deliver a sustainable business.”

Question: Is now is a good time to be an entrepreneur?

Matthew Bishop: I think entrepreneurs thrive in situations of change because they are people who are thinking hard about the future—where is the problem that needs to be fixed? And the more change there is, the more opportunity there is for opportunity. Clearly, the world at the moment is going through massive change partly due to this economic crisis, but also due to globalization, due to technological trends, biotech, or information technology. So, that’s a great opportunity for entrepreneurship. A recession is always good for entrepreneurship because many of the dominant firms in industry tend to be very inward looking and defensive in a recession and less likely to take risks. And so if you are a smaller business person you are likely to find less attention being paid to your new ideas by the big players. And so, you may be able to get further ahead before they realize you are there and start to squash you and by that point I may be too late for them. So, you actually see a number of the greatest companies in the world that have historically been founded during recessions.

Question: How will old media journalists be able to adapt to new media realities?

Matthew Bishop: One of the many ironies in journalism at the moment is that the Internet has made it much easier to be a very good journalist, a very effective journalist. If you can master multimedia, if you know how to search information out, if you know how to use the modern techniques like Twitter to communicate with your readers, you can actually be a much better journalist than was every possible in the past. And so, there is this productivity revolution going on in journalism at the same time as the traditional journalism industry is in a state of panic, I think largely because it turned out that there was massive excess supply of news reporting that was essentially duplicating each other. And so there has to be a huge decline in some of that basic commodity journalism, at the same time, there’s a search for those who have mastered the new form of journalism to figure out what the business model is. How you are going to make a living if you are not doing it through the traditional roots. I am pretty confident that there will be business models that are very successful that come out of this current turmoil. And that you will see journalism being for the best journalists, a fantastic career as has always been, but even more fantastic because you will be operating on a global scale rather than just a national scale.

And at the same time, this transition from the old model to the new model, I think, is a worrying time for society because the press does play an important role in keeping the public informed and holding those who are powerful in society to account, and I think there is a real danger that investigative reporting and reporting on Congress and some local reporting on the powerful people in the communities is going to suffer in the short run. And it’s been again interesting that philanthrocapitalists have started looking at this area as one where they can make a real difference. One organization, for example, Pro Publica has been set up, which is various philanthropists fearing investigative journalism would be squeezed because investigative journalism is one of the most expensive forms of journalism, and yet it’s got a very unpredictable success rate in terms of stories being produced at the end. So it is a natural thing for the old media organizations as they face growing pressure on their revenues, that’s going to be the first thing that is going to get cut. And so, they’ve started an organization that is endowed to actually do investigative journalism. And I think those philanthropy responses, and there are a whole series of things coming on in journalism at the moment, at going to help us through that difficult transition period. And I think this has to be – this is the information age and if journalism can’t thrive in the information age, something is really odd.

Question: What was the biggest mistake you’ve made in your career?

Matthew Bishop: Okay, I need to think about that. The greatest mistake I think I have made is not going to China when I had the opportunity to go and be based in Beijing for a couple of years about a decade ago. I think that would have been an extraordinary experience to see that economy and that political system really come out of the old communist days and into this new era. And I still would love to spend time in China professionally at some point in the future because so much of the future of the world is going to be shaped by what happens in China.

Question: Why did you decide not to go?

Matthew Bishop: I was just enjoying living in New York too much, so I just didn’t want to go and rough it in Beijing at that point.

Question: Describe an ethical dilemma you’ve faced.

Matthew Bishop: Yeah, I think the thing about journalism is, I mean, the ethical rules are actually fairly clear because I think you have to be very clear in journalism because the trust of your readers is so important. And so, we have a lot of clear rules on conflicts of interest and on what hospitality we can receive and that kind of thing. And I suppose where the difficult decision come in and part of the challenge of a journalist is you need to get to know the people that you are writing about and there is always a danger that you might get to know them and sympathize with them to the extent that you feel that you don’t want to embarrass them when you discover something that is difficult about them and you might think, well I just don’t want to hurt them. And I don’t think – I can really think of any particular situation where I have felt very torn in that way, but I am very conscious that that is something I have to say to myself is, am I going easy on this person because I’ve got to know them?

Question: Have you ever worried about being too soft on someone?

Matthew Bishop: I think professionally, journalists, I mean as they look at their fellow journalists they are very worried about being seen as being soft on someone, as being seduced in some way. And one of the criticisms that reviewers have had of philanthrocapitalism has been that we have become cheerleaders for the rich. Now, I think that’s completely unfair. I mean, if you read the book, about all the criticisms that are being made of these various philanthropists and how they are going about their work. The criticisms are all there in the book and we’ve given them a chance to answer those things. The book is fundamentally positive because we believe that this is a positive trend this philanthrocapitalism, but many people have said, oh they’re just kissing up to – Mattie’s got a crush on Bill Gates, or something like that one reviewer said. And you professionally feel inside, oh, I don’t want to be seen as being soft, but I think the duty of a journalist is to be honest and fair. Fox calls it fair and balanced. I’m not sure that’s what I mean, but I mean that’s why the term is so powerful because actually that is as a journalist what you are supposed to be is fair and balanced. And I think you will always feel that you need to have something that is a balancing negative comment if you are writing a piece that is positive equally you ought to have some balancing positive stuff in a piece when you are being negative. And I guess there is also a danger in journalism that we go in these sort of mood swings. That there’s times when there’s a great appetite. During the internet bubble for example, there was this huge appetite for stories about some guy in a garage who’s going to change the world with some amazing website, and then it all went bang and suddenly you couldn’t get a positive story in the press about anyone doing anything good. They all had to be about how they were all secretly crooks who were lying to the public.

Question: What is the worst career advice you have received?

Matthew Bishop: I think I got terrible advice when I was about 15 where someone said, “You should be an accountant.”

Question: What keeps you up at night?

Matthew Bishop: I honestly – what keeps me up at night is probably the two or three nights a week when I am finding I have to write very late. I kind of have this essay crisis approach to my journalism that I – we have a deadline once a week at the Economist and that pieces have to be filed on a, to be ready for London on a Wednesday mornisng. So I am often still writing at 4:00 in the morning and that’s a weekly cycle. It probably means the rest of the week I’m so tired that nothing can keep me up at night.

Recorded on:  September 24, 2009