Lately, I’ve been playing with an idea I call ‘compassionate capitalism’. This is the idea that we can use capitalism — an economic system where private parties own the means of production and operate them to make a profit for themselves — to solve big social problems like poverty. One example of this is Lumni, a for-profit business that provides money to low-income students so that they can pay for their educations. Lumni does not provide loans. Instead, it uses income sharing agreements. Lumni provides the money for an education, and the student agrees to give a certain percentage of her income to Lumni for a certain number of years. Investors make money by investing in social impact funds. Think of it as investing in a group of students. If that group, on average, gets jobs that pay well, then the fund is profitable and those profits can be paid out to investors. The students get an education that might otherwise not be available to them. The investors get to make a social impact that they believe in… and make a profit. Capitalism makes a positive social impact.
Charity skeptics really like compassionate capitalism, and both Dan Pallotta and Steve Rothschild are advocates. In fact, I first learned about Lumni from Rothschild’s The Non Nonprofit.
But there’s an obvious potential problem here. In Lumni’s case, we should expect there to be a greater interest in educating people who will make large salaries (and who are, therefore, more profitable) than in people who make smaller salaries (and who are, therefore, less profitable). So if there is a student who will make a six-figure salary in supply chain logistics for an international corporation that uses Bangladeshi sweatshops, Lumni should be more likely to invest in that student than in one who will make a mid-five-figure salary rooting out corruption in local governments. To put it simply, capitalist markets only care about one value: profitability.
So, while it’s probably true that capitalism can be used to mitigate big social problems (as long as it’s reined in by other values), there no guarantee that it will be used to do that. And if you want some absurd dystopianism, here it is: a smart investor — who only wants to make as much money as possible — could invest in both sides of the equation. She could invest in the companies that cause social problems and the ones that work to solve them. In fact, a single company could work both sides, making profits on a vicious circle.If you want some absurd dystopianism, here it is: a smart investor — who only wants to make as much money as possible — could invest in the companies that cause social problems and the ones that work to solve them. Click To Tweet
Which brings me to the odious orphanage.
Recently, I was told a story that was meant to illustrate why mission trips are… problematic. A lot of charity skeptics argue against mission trips on the basis that they feed voluntourism. Under this theory, mission trip volunteers tend to be more interested in the experience of helping than actually helping. And, of course, they’re willing to pay. So, for example, mission trip volunteers end up building a school that could have been built by local laborers (who also need the income). Another group of volunteers might paint the same wall that a group coming after them will paint, and that a group coming after them will paint. Or a group of volunteers might repair a house, but do such a poor job that the work just needs to be done again my professionals. In all of these cases and more, charity skeptics argue that it would be better to invest in local labor — often through loans or grants, not gifts — who could do this work.
The story that I was told involved an orphanage in a developing nation that had basically invested in the voluntourism model. It needed money, and it could get that money by charging wealthy westerners for the experience of coming to the orphanage and reading to the orphans. And, of course, the worse off the orphans were, the more they could charge the westerners for the experience. So the orphanage made sure that it kept the orphans living in squalor!
I have no idea if that story is true. But I do know that it’s not an indictment of mission trips. Mission trip volunteers who go to that orphanage to read to orphans aren’t doing anything wrong. At least, they’re not doing anything more wrong than buying clothes that were originally made in that Bangladeshi sweatshop I mentioned earlier, or a smart phone that relies on rare earth elements mined by children in the Democratic Republic of Congo. The problem in this story isn’t people wanting to read to orphans. It’s the mindset that makes the orphanage be willing to exploit those orphans in order to get money.
Now, that’s not exactly capitalism, but it’s capitalism adjacent. The same mindset is there. The odious orphanage is willing to abandon — or, at least, to downplay — other values in the interest of acquiring money. It’s a perfect example of why we need to make sure that capitalism is bound by higher values: even ‘compassionate capitalism’ that is trying to solve big social problems can wander into a perverted place.We need to make sure that capitalism is bound by higher values: even 'compassionate capitalism' that is trying to solve big social problems can wander into a perverted place. Click To Tweet