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Ma Weihua: Economic Development and Philanthropic Transition

:2016/12/02


Ma Weihua: Economic Development and Philanthropic Transition

From Ma Weihua, CGPI's Board Chairman and former CMBC President in CGPI's open lecture, regarding economic development and philanthropic transition, May 21, 2016


Economic level is the determinant of philanthropic development

In the feudal society of low productivity, when the production mode was rather backward, with unprosperous commercial activity, lack of a uniform market and closed, simple and self-sufficient economic pattern, philanthropy was spontaneous, individualized and simplistic. When it came to the stage of competitive capitalism, the first Industrial Revolution marked by the invention of steam engine brought breakthrough progress to the economy, and a national-scale market was beginning to take shape, which brought the individual-to-social and small-to-large transition to philanthropy and made it an essential part of economic life. In the stage of monopoly capitalism, with the rapid integration of production and capital, largely increased socialization degree of capital and production-capital internationalization resulting from large capital output, both the intensively concentrating wealth and increasingly poignant class antagonism were pushing philanthropy up towards the larger scale and higher level.


Economic level is also the determinant of philanthropic nature and significance. In the feudal society of low productivity, people were majorly concerned about their physical satiation. As capitalism is becoming increasingly socialized with the productivity, philanthropy is going through a diversity transformation from pure disaster or poverty relief to livelihood and social fields such as municipal administration, sanitation and education. For example, aiming at the gap of wealth, political and commercial communities have been long working out a solution. There are all kinds of experiences and lessons, but none has met our purpose too well. Therefore, we're now discussing the construction of tolerant capitalism, and our aim is to change capitalism. Philanthropic institutions have developed the innermost need for social improvement.


The stage of economic development also decided the mode and management level of philanthropic organizations, from classical church, temple to traditional orphanage, monastery, asylum for tramps and economic freemasonry, and to the modern-time large foundation and philanthropic ventures, which advocate modern enterprise management in philanthropic organizations. All kinds of philanthropies are moving forward with the continual improvement and advancement of economics. Philanthropy plays a vital role in promoting economic progress. How does philanthropy boost economic advancement in return? This is also what the philanthropy undertakers should be concerned about. Philanthropy is not only about spending money; it is a great contributor to economic development.


Philanthropy itself is an economic sector. In economic statistics, non-profitable sector is listed as service sector, which belongs to the third industry and is included in overall GDP. That's why philanthropy itself generates GDP. The difference is that commercial sector will share the dividends and philanthropic sector will not. American philanthropic sector has created 12% of GDP, with employment rate of 10%; it is already the third largest profitable sector in the country, and its employment population and GDP are matched. Volunteering can generate a large number of social services; this is a big industry. Philanthropy itself can create GDP. According to the MCA's Statistical Bulletin of Social Services, as of the end of 2014, there were 606,000 social organizations in China, 6.823 million employed persons of all industries, with fixed assets of RMB156.06 billion and added value from social organizations of RMB63.86 billion, accounting for 0.21% in the added value from the third industry; the GDP created by philanthropic sector was only 0.2%.


China's service industry witnessed rapid development in recent 10 years; its annual growth has exceeded 10% if the price factor was not considered. The service industry provided the largest employment space in 2011. By 2013, the service industry's added value exceeded that of the second industry; and by the end of 2015, its proportion exceeded 50%, a record figure surpassing the contribution from the second and third industries together. For China, the over 50% contribution to GDP from the service industry is a remarkable achievement. The growth in service industry far exceeded GDP growth. Nevertheless, we are far left behind by the worldwide developed countries. The world average level is 60%, while ours is only slightly higher than 50%. The production service, in particular, is as low as less than 40%. Therefore, China has made splendid agenda for service industry in its 13th Five-year Plan, and issued a good package of policies. This also provides a lot of space for philanthropy and many things for us to do, like the old-age care, education and poverty relief.


Philanthropy may be a remedy for some trauma in market economy and enables a steadier, more sustainable operation. Since the industrial revolution, the unbalanced pursuit of economic growth has resulted in many disasters which can be seen across the world, such as the climatic problem, poverty and pollution. China is also one of the victims, suffering from the pain brought by its high-speed growth in the last 30 years.


At present, the huge gap of wealth in the world is a highlighted global problem. According to Oxfam's estimate in 2015, the rich accounting for 1% in the total world population would possess the wealth in 2016 that exceeds the summation of the remaining 99%. The global wealth owned by the 1% rich groups increased from 44% in 2009 to 48% in 2014, and that number is estimated to exceed 50% in 2016. This is a trend that the rich would get richer. There is an indicator that the 62 richest persons in the world own a total asset as much as USD1.76 trillion, equivalent to the overall wealth from the 3.6 billion poorest persons in the world. One out of nine persons in the globe is underfed, and a population of over 1 billion lives their life by spending below USD1.25 every day. China’s Gini coefficient is placed at a high position globally all the time; our living environment is also subject to severe pollution. That is the inevitable trauma left by the market economy. These are problems that cannot be completely corrected by the government or the market alone. Thus, the regulating function of philanthropy should be put to full use, and its force is gaining momentum.


Philanthropy helps create more active CSR fulfillment and stronger economic growth

CSR has been established almost in all the Fortune 500 companies, and CSR reports are released on an irregular basis. There are already over 10,000 enterprises globally that release their CSR reports. They've listed CSR as a criterion along their global production chain. Wal-Mart, for example, rejects suppliers who fail to meet the CSR standard as the Company sees appropriate. As I see, it's a positive sign for the world that such CSR is being performed by enterprises on a voluntary basis. China received a high-speed growth in the last decade and released 1,526 CSR reports by 2014, a 50-time increase compared with the 32 reports in 2006. More and more entrepreneurs are developing the sense of social responsibility. Once they feel responsible for the society, they would be responsible for the environment and their customers. When there is any severe disaster in the society, they would come to rescue. This belongs to the philanthropic field and is also important for the healthy, sustainable development of economy.


Philanthropy's economic contribution is also reflected in the new philanthropic means, like influence investment, known as philanthropic venture or social investment, which integrates society, philanthropy and commerce for investment through combining interests and benefits. High importance is placed on social benefits during the investment process, but commercial returns are also valued. This started in western countries long time ago. Ford Foundation launched the mutual fund in 1971. Influence investment is now receiving the highest popularity across the world. In March 2016, the UK issued two social investment programs, listing social investment as a state-level strategy. According to a report jointly released by DFID, Global Impact Investment Network and Open Capital Consulting Corp, there are influence investments worth nearly USD10 billion that have flown into East Africa, mostly to Nairobi, Kenya. A country like the UK has provided assistance to backward African countries through influence investment, a move that both brings benefits to itself and addresses social problems.


The largest influence investment in America is the community rebuilt fund supported by its government. It is used for the renovation of the downfallen old industrial areas. There are many other funds, like the private insurance fund targeted to the disadvantaged groups in Asia and Africa, and the profitable influence fund for agricultural projects in Africa and Latin America, and more.


Morgan Stanley released the analysis report on the performance from 10,000 mutual funds in seven years, which found that the sustainability investment fund brings returns not less than the traditional fund. 71% of investors show interest in sustainability investment, which seems a good sign to me. All kinds of new philanthropic means and tools are important for economic growth.


The two aspects lead us to see how economic development and philanthropy relate to each other. Instead of being mutually exclusive, they interact to supplement each other.


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