ThePower of Catalytic Philanthropy

BillGates

Lastsummer, I attended a summit on philanthropy that was organized by Forbes. Italked about how philanthropy can make a real difference and its unique roleversus government and business, and how all of us can contribute something tomaking the world a better place.

1    I am a true believer in the power ofcapitalism to improve lives. Where the free market is allowed to operate, it isagile and creative. It can meet demand the world over and plays a central rolein increasing living standards.

2    But when my wife Melinda and I made ourfirst trip to Africa in 1993, it was really our first encounter with deeppoverty and it had a profound impact on us. Not long after we returned, we readthat millions of poor children on that continent were dying every year fromdiseases that, essentially, nobody dies from in this country: measles, malaria,hepatitis B, yellow fever. Rotavirus, a disease I had never even heard of, waskilling half a million kids each year — none of them in the United States.

3  We assumed thatif millions of children were dying, there would be massive worldwide effort tosave them. But we were wrong. While the private sector does a phenomenal jobmeeting human needs among those who can pay, there are billions of people who haveno way to express their needs in ways that matter to markets. And so they gowithout. And while private markets foster many stunning innovations inmedicine, science, and technology, the private sector still under-invests ininnovation— dramatically. There are huge opportunities for innovation that themarket ignores because those taking the risk capture only a small subset of thereturns.

4    Innovations for the poor suffer from bothof those market limitations. The market is not going to place huge bets onresearch when there are no buyers for a breakthrough. This explains why we haveno vaccine for malaria today, even though a million people die from it everyyear.

5    In this gap, government plays an importantrole. It can offer services where the market does not, and thus provides asafety net. To some extent, it also fills in where the market leaves off infunding innovation. Medical research at the National Institutes of Health is agreat example. But government faces its own obstacles to funding innovation. Itgenerally does not take the long view, because election cycles are short.Government is averse to risk, given the eagerness of political opponents toexploit failures. Unlike the private market, government is not good at seedingnumerous innovators but backing only the ones that make progress.

6  So when you come to the end of theinnovations that business and government are willing to invest in, you stillfind a vast, unexplored space of innovation where the returns can be fantastic.This space is a fertile area for what I call catalytic philanthropy.

7    Catalytic philanthropy has the high-stakesfeel of the private market, but can transcend the key market limitations above:The investor doesn’t need a share of the benefits — those go to poor people, orsick people or society generally, all of whom stand to gain earth-shakingreturns from the kind of innovations that business and government likely won’tpursue unless philanthropy goes first. And once you’ve found a solution thatworks, catalytic philanthropy can harness political and market forces to getthose innovations to the people who need them most.

8  That has beenour foundation’s approach in supporting research, manufacture and delivery ofvaccines for childhood diseases. As Melinda and I became more involved, wefound that some critically needed vaccines were just sitting on shelves, whileother vaccines were not being manufactured at all. For the first time in ourlives, we were working in a world beyond the reach of market forces.

9    Philanthropy’s role is to get thingsstarted. We used foundation funds to set up a system to make market forces workin favor of the poor, guaranteeing purchases so drug companies could make alittle bit of money, or at least not lose their shirts. As the value of thisapproach became clearer, governments put in money to add to the marketincentives, and some drug companies began to factor poor-world diseases intotheir business model. In both research and delivery, well-targetedphilanthropic money triggered action from business and government. Since 2000,this catalytic philanthropy partnership has immunized more than 250 millionchildren and prevented more than 5 million deaths. We may even see a malariavaccine in 2015.

10   Melinda and I have the honor and theresponsibility to return to society the resources we have received in the bestway we know how. But you do not need to be the chair of a large foundation tohave an impact on the world.

11  Risk-takers need backers. Good ideas needevangelists. Forgotten communities need advocates. And whether your chiefresource is volunteer-time or hard earned dollars, for a relatively smallinvestment, catalytic philanthropy can make a big impact. For me, it’s proventhe best job in the world: as thrilling and humbling as anything I’ve everdone.