The discussion over at Creative Capitalism continues, and the most recent offering is from Esther Duflo. (Duflo is well known because of her work promoting the use of randomized evaluations in development economics.) In part, she responds in her post to criticisms from Bill Easterly directed at the notion of creative capitalism. Easterly argues strongly for the primacy of what he calls "traditional capitalism" in raising the poor out of poverty. Duflo, on the other hand, argues in support of creative capitalism:
There is, however, a fundamental difference between producing goods or services to sell on the market, and producing them to improve the lives of the poor. This difference creates a fundamental difficulty for creative capitalism. In their day jobs, capitalists make money and stay in business only because consumers like their products enough to pay a price high enough to allow the capitalist to make money. This ensures that businesses add value on a sustained basis...This automatic feedback loop is generally missing in the social sector...
Duflo's support for creative capitalism derives from her belief that there are ways to create this feedback loop.
And you guessed it - Duflo believes that one of the key ways to create this feedback loop is through randomized evaluations. According to Duflo and Easterly, firms usually engage in philanthropic acts because of the positive publicity, regardless of whether the philanthropy has a real impact on the poor. This is where Duflo and Easterly part ways - Duflo suggests that positive publicity and a real impact on the poor could be aligned if randomized evaluations became part and parcel of the publicity that firms are looking for. Or as she puts it:
The solution is to create a system in which companies have an incentive to rigorously assess the impact of the projects they support or initiate, and to publish these assessments...This will require institutions to gather, validate, and spread knowledge, and it requires some standard for what constitutes an acceptable evaluation...This is where the big foundations and pioneers of creative capitalism have a key role to play: they can be the ones that set the example, by setting and enforcing high standards for what constitute a credible evaluation.
Does this really make sense? While I'm sympathetic to Duflo's argument, I am pretty skeptical about its practical application. Duflo cites the Gates and Hewlett foundations as examples of philanthropy tied to rigourous evaluations. However, both of these were founded with the private money of individuals who had become rich as heads of corporations, not with corporate money per se.
These foundations don't operate on the same basis as corporations. Corporations make money for their shareholders, while the raison d'être of these foundations is whatever their boards say it is, whether producing positive publicity or having the greatest impact on the ground. I have a hard time seeing how cost of implement rigorous evaluations could be justified by increased publicity - how many people outside of a coterie of graduate students even know what a randomized evaluation is?
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