Stones in the river (conclusion…?)

A lot of my series of posts have been open-ended; I’ll try closing off a multi-post arc.

Continuing about the potential lessons for philanthropy from China’s economic development: Justin Lin, chief economist for the World Bank, says for developing countries, “markets are indispensable but government is also indispensable.”

If we accept that both governments and markets are indispensable for economic development, how do we think about the role of foundations – not just with respect to economic development, but more broadly?

Governments set the rules for markets, enforce property rights and security, and can through “industrial policy,” pick “winners” and provide support to bring them to scale.

Markets generate new ideas through competition. Some organizations succeed and others fail; a few are able to reach scale and most either stay at a small level or don’t survive.

Philanthropy can do two things, it can be the source of finance for nonprofit “firms” that operate within the third sector, and it can generate ideas that can be applied by government in the public sector. Foundations can be the engine of industrial policy at two different levels: within the public sector, by picking winners among nonprofits and bringing them to the attention of government; and within the nonprofit sector, by picking winners among nonprofits and signaling to individual donors that they should support them.

It’ll be worth investigating what we’ve learned about industrial policy in different contexts, and thinking about how it applies to nonprofit finance. So much for a closed-ended arc. Closed for the moment, I suppose….

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