Director of Anti-crisis Humanity Program of International Fund “Renaissance”, Kyiv

Round table 1 Activity of Philanthropic Organizations in Ukraine”

October 7

Crisis of Social Capital, Values and Motivations

 

Business is suffering from reduction of turnovers and is forced to slow down its development due to decreasing of a demand for goods and services, as a result it lowers allowances of workers or lay them off, not only creating social tension by this, but also reduces general level of purchase competency.

Government, feeling critical deficit of budget resources, because of reduction of taxation fees, steps into election process, trying to maintain its power position, takes next financial loans, and being incapable of returning them.

Citizens, in expectation of better times, hope that something will change in the near future, their expectations of miracle slowly change into hatred to businessmen and politicians.

Business is threatened with bankruptcy, state – with default, citizens – with apathy. Life will change but no one knows in what way.

Who could think that in 2009, when all of us seemed to begin living better, when everybody seemed to get settled with rules of civil life, something like this might happen?

Majority of politicians and businessmen explain, better to say exculpate the situation with global crisis that touches Ukraine, which has become a part of global economic process. However, on the other side few people aloud or seriously accept the situation as normal and naturally determined. Specifically the shift of paradigm, connected to a new type of relations of production and civic life.

New paradigm, in contrast to the previously existing one, has more space for a change in attitude to and treatment of the things, which seemed ordinary to us earlier. In a new era, that humanity steps in, more space for fundamental values will be found, that religious and public organizations try to defend and protect.

As eras of gatherers and hunters have passed, eras of farmers and hunters, in the same way era of highly qualified workers passes, bright representative of which was Bill Gates, owner of Microsoft

Maybe he felt the breath of new epoch, therefore established the greatest, in terms of capitals, charitable fund; his companies actively create models of partnership with public and charitable organizations in all the countries of the world, including Ukraine.

But he is not alone.

Famous theorist and practitioner of management Peter Drucker notes: “In hundreds of years, when scholars will be writing the history of our time, scarcely will they consider neo-technologies, or Internet, or electronic commerce to be the most remarkable achievements of this period…they will first turn their attention to unprecedented changes inside a human. For the first time in literal meaning f this word, great, constantly growing, amount of people are able to choose. For the first time in history of civilization people are forced to manage themselves”.

And society is not ready for it at all.” (“Leader to Leader”, 2000)

In continuation to this, founder of marketing theory Philip Kotler proposed his new theory that is founded on learning of the most successful practices, this theory partly objects his prominent works in the past, and together with Nancy Lee publishes new book “Social Corporative Responsibility. Or how to do more good to people and your company”.

C.K. Prahalad, professor of dialogue administration of Michigan University and V.Ramasavi, professor of marketing, state that future of competition lays in creating a unique value together with clients. They refer to specially established communities of consumers, precisely public organizations, which present interests of citizens.

Going back to assessment of present situation, as Mikhail Bulgakov said trough his character Professor Preobrazhensky - “Devastation is not in the country, but in our heads”. Many of those who hope to await the crisis without immediate change of oneself, and position towards life, work, business, politics, and one’s place in society, will suffer from their own inaction and faulty deeds.

For those who began self improving and changing his/ her surrounding for the better, crisis is always a time for opportunities and a foundation for future achievements.

Thus understanding of a new paradigm (a prism through which we perceive things) is so important in the days, when politics and economics go bankrupt and a new socially-economical era is unceasingly advancing. Because erroneous paradigm, due to our usual attitude, makes us defenseless against changes, essence of which we cannot grasp, as cannot conceive true attitude of people around to us. Without correct paradigm we find ourselves under the power of illusions and are forced to play a role of “naked king”, as in famous play of J.Schwartz.

Many people of past socially-economical era, now when the world is changing, wonder: why has philanthropic capitalism arisen? Why did philanthropic funds in the U.S. in 2005 receive more income, than economics (due to the view of “Economist” journal)?

In reality with viable charitable funds everything is simple. They have adopted professional approaches of development from business, but use more advanced instruments in sense of obtaining social capital.

As it is known, social capital precedes obtaining financial capital, because social capital is trust of citizens, community, and society. (Stephen Covey, author of “7 habits” and “8th habit” calls trust, social capital: “emotional bank account”).

Obtaining trust, and after that real capitals by charitable funds is done through the usage of four fundamental principles, that lay in foundation of super-contemporary and professional management and governing.

1. Effective Supervisory Board (Council of Directors), which makes strategic decisions and receives reports, but at the same time promotes development of relations and attraction of resources.

2. Effective Directorate (personnel and volunteers), that follows principle 10-20-30-40. (Where 10% of time, efforts and resources is spent on administering; 20% - on completion of activity, which is already financed; 30% - on PR and social marketing, including mechanism of transparent bookkeeping and social advertisement; 40% - on incorporation of resources from different sources, which are diverse).

3. Effective Boards of Experts, that establish priorities in accordance to existing needs and problems of different groups of citizens (target audience), based on true sources of information, and decree decisions of whom to support in realization of their projects; this eliminates reasons for problem to appear.

4. Effective management of Endowment (untouched, target capital), that is proceeded by another charitable fund, bank institution or company of active resource management.

But this is not the last difference between successful and viable business and viable, effective charitable fund.

Main difference, despite of the same professional standards for business and charitable institutions, lays in values and motivation, that play fundamental role in development of charitable funds. (And recently also do in modern ways of business management).

Business operates such an economic value as profit (surplus). Income received from selling products (goods and services), is directed into a pocket of a business owner. With this owner justifies existence of a business. Isn’t it so? As a result, employees of business institutions are also motivated to obtain high level of allowances, which corresponds to the status of profitable business. Most often other motivations (not only bonuses and honoraria) for the personnel of businesses are secondary. (Who would work voluntarily or for free for a business owner?)

A proof of material attitude to personnel is system of bookkeeping, in which payments to people are one of the production expenses.

An investment is considered to be a purchase of estate property, equipment, raw materials, technologies and so forth, but not an investment in Person. It is from here that we derive absolutely technical term, which we see in enclosures to machinery or household equipment – exploitation. (Marks, founder of communist theory of transformation of productive power, eloquently speaks of this.)

At the same time in charitable organizations concept of profit is absent, since charitable funds belong to non-profit institutions. This of course does not mean that charitable is identical to the concept of “poor” or “without money”, not at all. Moreover charitable funds are institutions that attract, accumulate, multiply and invest. Money for charitable fund, just like in business, consists of income and expenses. But, the difference lays in division of income, which does not have surplus (which is profit).

Charitable fund divides all income for beneficial activities. And even capital of charitable fund (Endowment) has target designation and cannot be used to benefit owner (founders) of charitable institution.

Moreover, charitable funds often and actively get help from volunteers, altruistically set people, who with own hands, voluntarily and without payment, not only help certain people or nature (do good), but without financial reward, attract money for charitable fund, which gives out this money as charitable help to those in need, or social investments (grants, that should be recovered) in non-profit projects.

In terms of personnel, majority of developed charitable funds have few employees, but their professional development is extremely high, since charitable funds invest their time, efforts and resources in person. (Non-qualified workers will not gather the army of volunteers, will not attract resources to solve the most acute problems of society, will not develop endowment capital). In addition to this, working making good to people is more pleasant, interesting, honorable and noble.

 

In capitalistic world, except developing countries and post-soviet countries, shock appears of presumption that, in fact, non-profit organizations (charitable funds) overcome in their incomes GDP of most developed country, in terms of economics and financial turnover.

 

Should we search for additional proofs that new era of economic, political and social development of a person has approached?

But how could this happen?

 

According to Stephen Covey paradigm of wealth is changeable component.

Historically it appeared that during gatherers era (when people lived in wild nature as a herd), reach was considered a person, who gathers the most. This era had changed to hunters era, when reach was who hunts the most. That is why new weapon and household objects (means of production) appeared. This era gave up place to agriculture, where for centuries, reach was considered person, who possesses land. But at present time, agriculture as business is not abolished, that is why in most of the countries farmers receive subsidies, and contemporary land owners do agro business only to optimize agro reproduction industry. I am sorry to say, but we have to note, that era of fabricants has also passed by the end of 60-ies of 20th century, because, since the introduction of digital technology, time “has begun to spin faster”. And those, who managed to create know-how and spread it around the globe, started to be considered as reach. Globalization is just an attempt of big owners to hold in their hands sources of resources, which are spent on mega-industries and net of consuming (distribution). But we have to note, that besides the owners, those, who were considered “small people”, almost supplements to property and equipment, stepped into the game. Almost unnoticeably, qualified workers, not the owners, started to chose whom to work for.

 

Thus, the world has changed indeed. Time has come, when highly qualified employees (workers, managers, lawyers, economists) make use of freedom, previously accessible to the most reach only.

 

Current financially-economical crisis is a signal, that new era, which will change era of innovations and information technologies, and in which qualified worker have become dominant,- is coming.

 

It is hard to define exactly how long transitional period will last. Majority of people is not concerned with the crisis, as the theme of this publication.

Up to this time millions of people work hard in agriculture, businessmen think, that it is the best to invest into production power. There are also those in the world, who hunt and gather. Therefore everybody lives in his own system of values, and luckily not everybody wants to live gathering wealth…Nevertheless everybody perceives life, wealth and good accordingly to his own paradigm.

If the world changes and paradigm does not – it means that we live in the past. And if we feel comfortable like this – then freedom is given for us to choose.

Maybe charitable funds were touched by the financially-economical crisis as well. However, it will not hit charity as severely as business, which worked according to paradigm of the past epochs, and was for sure disoriented. (Since to use inadequate paradigm is the same as searching a house and a street needed in Zaporizhzhia, using the map of Rivne).

 

The need in charity definitely increases in time of crisis – this is doubtless fact.

Therefore, speaking in language of business, demand on good has increased. Thus this market is destined to grow, and after the crisis – to even more powerful capitalization. This simple prediction is based upon notion, that helping those in need (if we do not pave the road to hell) leads to increasing of trust (social capital). And if charitable institutions will turn receivers of help into philanthropists (lonely elderly women, receivers of help, may knit socks or gloves for children-orphans) – it will not be long to wait for results.

 

There is one more thing to be mentioned about difference in values between business and charity.

 

Strategic development of business, in majority of cases, is viewed by theorists and businessmen as battle actions, where a way to victory hovers through a death zone. Therefore business is oriented on competition, rivalry, contest, where someone has to win, and the other lose.

System of business management and marketing is based on such approach. There is no place for the weak and non-predatory.

This also proves that perpetual battle actions put a mark on army and chief-commanders as well. Majority of them lives in conditions of constant stress and in a world, soaking with total suspicion, search of spies and severe trainings. Where majority of soldiers and officers in their perspective has great chances to turn into cannon meat, regardless of humble, comparing to a lost of health and strength, marauder trophies and also orders and medals, that in civil life will be appreciated by no one.

 

During battle actions, armies sleep little, are badly fed, get sick and die, and glory goes to a commandant. And this only in case of victory. Officers follow combat spirit, and publically punish for small faults to set a fear into punishment, but not death on a battle field. These are values of competition and motivation of struggle (contest).

And what is used in strategic development of charitable funds?

Partnership!

Because it is partnership that is able to lead to synergy, when every partner brings in his own part into good deed, and together good extends for everybody.

Partnership leads to generous harvest, since the world is created as a source of sufficiency for everybody. Because Laws of Nature guarantee enough light and nutritious substances to plants, for they could rejoice us with lush blossoms and rich harvest.

Let’s take a look at the most effective charitable institutions in the world. How could philanthropic capitalism emerge; in what other conditions, but partnership, could charitable funds develop financially?

Law of energy transformation, familiar to us from school course in physics, states, that giving positive impulse, we receive inflow of new positive powers in much bigger size. The same way, a person, who does good, receives return in times greater, than what he can give. And if this process will be repeated, if everybody will help those in need, there will be not only less those who are in need, but also the world will become better. This is not an idealization, but functioning of one of the fundamental Laws of Nature.

Instead of competing for trust, charitable institutions try to develop partnership among citizens, government and business, to solve the most acute social issues and to meet needs of citizens. Those, who are able to set partnership, receive social (trust) and real capital from each key player (government, business, citizens, communities, society).

And the other way around, those charitable organizations, that use principle of competition, first make public discussions (which they lose) and then quickly vanish, leaving after themselves memory of empty blabbers or destructive elements, not able to do worthy things and those who stay in a way. This is the price of violation of principles and Laws of Nature.

It is not a secret that experienced advocates become the most paid employees, advocate bureaus become high profitable businesses that compete for clients and prove their competitive advantages in courts.

When we talk about legislature (state or social), not all can pass verification for presence of values or unscrupulousness.

Who are considered to be the most successful advocates? What are values applied by well-paid and successful advocates? Of course there are different advocates, to whom the author of this lines is respectful.

However there are other lawyers in society, that are not known for great honoraria, but who lead defense case not from the point of formal legislature, laws or transgression of laws. The last are called human right activists. For them more important element is not only the word of law, usually created by imperfect humans (legislators and lawgivers), and not the money, that could solve a lot of issues, but such important principles as honesty, justice, conscience.

Having non-financial motivations human rights activists, despite advocates, often do not have juridical education. However, statistics of their victories is not lower, than of paid servants of law.

In social history lead advocates, who strived to earn millions are rarely mentioned. But most often and most influence on course of history had human rights activists (Frederick Douglass and Nelson Mandela, Mahatma Gandhi, Sakharov and many others). They are indeed not only carriers of solid character (and character is based on values), but also of good understanding of real firm and perpetual values, and of great hope in the victory of Good (positive and clean energy).

Appeal to values and motivations in the time of crisis is not accidental. As the crisis gives each of us a chance to make our own decision on what is important and what is perishable for us. What are we ready to live and work for, what achievements to gain, and who has to make use of them?

After all, we have to think of new paradigm of wealth (as necessary and full welfare) and ways that lead us to desirable.

Just one thing is clear, that in new paradigm values oriented communities, united for mutual help, will play a major role. Therefore the role of public and charitable organizations will become more significant. And business will have to search for synergy with non-profit initiatives of communities and to subdue economic values (aspiration for profit) to motivations and values which are important to people.