Charity Assets

David Scher Untitled

Pierre Omidyar’s journalistic venture is another of his efforts to fuse philanthropy with profit -- so far, not so good

There is no doubt that the new journalism organization starring Glenn Greenwald, Laura Poitras, and Jeremy Scahill and founded by Pierre Omidyar will be, to quote political scientist Henry Farrell, a big deal. Omidyar, the founder and chairman of eBay, has a personal wealth estimated at $8.5 billion, and has said that he is prepared to put $250 million into the project “for starters.” Compare that to the total spending by ProPublica, over five years, of $43 million and the scale of the enterprise becomes clear.

It has been widely reported that Omidyar sees his venture in the tradition of campaigning journalism. He told journalism professor Jay Rosen  that “the right kind of journalism is a critical part of our democracy,” and that he is motivated by a “rising concern about press freedoms in the United States and around the world” in the light of the reactions to the Snowden revelations. The venture has been greeted with eager anticipation, partly on the basis of Omidyar’s record of innovation and---through his “Omidyar Network”---philanthropy. In Forbes, Jeff Bercovici writes that “What ties together all his activities is a belief that democracy can’t function right without journalism that gives voters the information they need to make smart decisions”; the Columbia Journalism Review says the new initiative has “extraordinary promise”; in the Washington Post Erik Wemple writes that “The guy’s a true believer” in the potential of great news organizations, and quotes Adrienne LaFrance of Omidyar-owned Honolulu Civil Beat, who says “He made it clear that he really cared about public affairs-driven investigative reporting — the kind of reporting that makes a community a better place.”

But Omidyar’s record is more blemished than these glowing phrases suggest, and there are reasons to be doubtful about the future of the new venture.  There is a consistent theme to Omidyar’s activities since he made his fortune: he is a leading proponent of “social enterprise,” believing that commercial and social goals complement each other, so that the way to scale up social-reform projects is to run them as businesses. Omidyar Network is frequently described as a philanthropic organization but describes itself as a “philanthropic investment firm” and is explicit about its dedication to “harnessing the power of markets” to do good. Emphasizing this view, just a few days ago Omidyar Network announced a shift towards funding more for-profit organizations: “Why for-profit? Because we believe those models offer greater sustainability, more efficient IT spending, and a better platform for scaling.”

This new journalism initiative fits the vision of “social enterprise.” While Omidyar says that many aspects of the project still need to be worked out, he was clear to David Carr of The New York Times that the new venture is “a company not a charity.” As a result, a venture devoted solely to investigative journalism is off the cards: “That’s part of the reason we are doing a general-interest site,” he told Carr, “to work on how we get a general-interest audience to become engaged citizens.”

A look at the history of Omidyar’s profit-driven philanthropic ventures does not support his faith in social enterprise, and raises doubts about the prospects for the new journalism venture. is one example of how adopting the Omidyar vision can boost “enterprise” at the cost of “social”, and has many parallels to the new journalism venture. The site has long presented itself as a non-profit organization (a .org), and has gained widespread support on that basis. But it was actually privately owned, and in 2012 it stepped out from behind its non-profit front, allowing “corporate advertising, Republican Party solicitations, astroturf campaigns, anti-abortion or anti-union ads and other controversial sponsorships.” Then in May 2013 it took venture capital from the Omidyar Network and others in order to scale up, and the nature of the organization changed.

The Omidyar/ press release uses the standard language of social entrepreneurs: blandly inspirational and content-free.

"Social enterprises can play an instrumental role in solving some of the world’s biggest problems,” Rattray said. “This funding will help us continue to expand our empowerment tools internationally while innovating on new products with the potential for disruptive social impact.”

But as Lindsay Beyerstein writes, the language hides a real change: “ has always been a for-profit company, but it has historically been an explicitly progressive enterprise. The new model is purely profit-driven with no commitment to progressivism.” is far from the only case where Omidyar’s vision of social enterprise has damaged what many people thought of as a social movement, rather than scaling it up. Couchsurfing is a social travel site founded in 1999. Members around the world offer each other a free place to stay on their travels, and “share their life, their world, their journey. Couchsurfing connects travelers with a global network of people willing to share in profound and meaningful ways, making travel a truly social experience.”

Couchsurfing started life as a non-profit exemplar of a successful digital commons, praised by Clay Shirky in his 2010 book Cognitive Surplus. Members felt they were part of a social movement, even volunteering to write the software that drove the site.  Many members assumed Couchsurfing was communally owned, but the site did have owners, and in August 2011, it incorporated and accepted $7.6 million in venture funding including funding from the Omidyar Network. Like, Couchsurfing presented a non-commercial “.org” face to the public but became a commercial, “.com” enterprise.

Since then, the Couchsurfing community has deteriorated. Over 5000 Couchsurfing members joined the forum "We are Against CS becoming a for-profit corporation," and lamentations about the decay of the community are scattered over the web: by a long-time Couchsurfer who misses the days of “art gatherings, bonfires, a weekly meet up at a bar, café gatherings, potlucks”; by a volunteer who helped the organization recover from a database failure in its early years.

Now the Couchsurfing community might be going through its death throes. Earlier this month Tony Espinoza stepped down as the CEO and the company laid off 40 percent of its employees. Far from scaling up a sharing community, the profit motive may have damaged it beyond repair.

Omidyar’s misguided belief in the synergy between markets and social good goes back at least to 2006 when, as a New Yorker story by Connie Bruck details, Omidyar was embroiled in a debate with Nobel Peace Prize winner Mohammed Yunus over for-profit, shareholder-driven philanthropy. Yunus’s Grameen Bank had pioneered the use of small group-based loans, which had far better repayment rates than loans to individuals, to bring credit to the poor. Yunus stayed away from making the Bank into a public company, but Omidyar had other ideas. As Bruck reported,

Yunus is now seen by Omidyar and many others as the archetypal founder, too wedded to his original vision. In recent years, younger and nimbler players have been taking microfinance—their preferred term—toward the idea of building a fully commercial, profit-making sector. This conflict, between pure do-gooders and profit-minded do-gooders, has come to define the current debate in the microfinance world.

In Omidyar’s vision, profitable microfinance firms would eventually raise money in capital markets and so become “a self-sustaining, profitable model, which opens the door to reaching large numbers of people who need to be reached by this tool of access to capital.” Meanwhile Yunus held to a more traditional charity-based view. He demanded of Omidyar: “Why do you want to make money off the poor people? You make money somewhere else. Here, you come to help them.”

Bruck reports what happened next: “Omidyar gave a hundred million dollars to Tufts [University]—the largest gift in its history. But he stipulated that the principal be dedicated to a fund to invest in microfinance—specifically, in investments that would promote microfinance’s commercialization.”

A few years later Hugh Sinclair, who spent several years working for microfinance institutions, described his disillusionment and anger at the state of microfinance in his book Confessions of a Microfinance Heretic. As money flooded into the industry, microfinance institutions became like the loan sharks they once replaced. At the center of the book is the Lift Above Poverty Organization (LAPO), a Nigerian microfinance institution. It charged deceptive and high interest rates, it was audited by the brother of the CEO, and it siphoned money into many already wealthy pockets.

LAPO was for several years a major partner of Omidyar-funded “peer-to-peer” lender Kiva, until Kiva cut ties in 2010. The episode highlighted a fact that was worrying some observers, including micro-finance expert David Roodman: “peer-to-peer” lending is not actually peer-to-peer, instead Kiva works with intermediary partners, who in turn make loans that were not, as many thought, interest-free.

Beyond generally promoting the market-driven approach to microfinance, Omidyar Network was a big donor to Unitus, a microfinance fund embroiled in a 2010 scandal involving Indian microfinance institution SKS. When SKS went public, raising $350 million in its IPO, Unitus controversially backed out of microfinance: “In charity circles, people wondered about the motives of the Unitus board members, at least four of whom had invested in SKS Microfinance themselves and thus would reap profits from the IPO.” More controversy followed in 2012 when it was revealed that more than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010. The state blamed microfinance companies for fueling a frenzy of “overindebtedness and then pressuring borrowers so relentlessly that some took their own lives.”

Sinclair concludes that “the only means to rein in these groups is to formally regulate them.”  He also notes that “impact investing” — the Omidyar Network’s current emphasis — has similar problems: “I do not believe there are panaceas for poverty reduction – it is hard work and requires a number of tools used wisely and collaboratively.”

What Omidyar missed is that the profit motive actively erodes the sense of communal purpose and collective commitment that both aid work (in the case of microfinance) and community (in the case of Couchsurfing) rely on to succeed. Taking a charity and turning it into a bank is, Sinclair says, a way to build social assets and then capitalize on them.

As commercial microfinance grew in scale it has spawned a web of interacting operations: microfinance funds investe in microfinance institutions, which are rated by microfinance rating agencies, and which make loans through other partners. Principal-agent problems become pervasive and, without a regulatory framework, there are incentives everywhere that not only enable corruption but, Sinclair argues, pushed participants to keep a lid on stories of corruption—to try to fix them quietly rather than to risk the reputation of the broader industry.

Just as Omidyar had set out to use capital and commerce to scale up microfinance, GlobalGiving, an Omidyar-funded “Internet-based service focused on making international philanthropy more efficient and high impact,” set out to use technology and capital to scale up charitable giving. Believing in Omidyar’s vision of “market-based efforts that catalyze economic and social change,” GlobalGiving adopted a “hybrid model” involving a parallel for-profit company, ManyFutures, that provided a technology platform to support its charitable work. But ManyFutures never made money, so the funding transfer ended up going from GlobalGiving to ManyFutures rather than the other way round, and controversy ensued. As with microfinance, the idea that capital and sharing are natural complements went wrong.

Open Government Data is yet another area where commerce and sharing sound like they mix nicely: making government data available to everyone at no charge enables people to innovate around that data in what Tim O’Reilly calls “Government as a Platform”.  No surprise, then, that Omidyar Network is deeply involved in both the Open Government Partnership at the international level, in Code for America in the U.S., and is the first major investor in the UK Open Data Institute.

Despite the progressive-sounding language of the movement, the “government as a platform” agenda assumes that private industry is the best way of delivering public services (that profit and sharing go together), and the program risks becoming indistinguishable from neoliberal privatization. At Code for America, which describes itself as a new kind of public service, Omidyar has funded an Accelerator arm which invests in startups, augmenting the idea of “service” with the contradictory idea of “entrepreneurship” and erasing the boundaries between those who want to contribute to a stronger civic space and those who want to make money from government contracts. Unsurprisingly, the Open Data initiative has been colonized by major companies.

These repeated failures have not, from what I can find, been addressed by Omidyar in any public way. They demonstrate concretely that the idea of a natural synergy between business and sharing, between capital and commons—encoded in the ideas of social enterprise, in many flavors of open source license, and in the variant of open content licensing favored by Omidyar-funded organizations—is fraught with tensions and contradictions.

It is not encouraging to see Omidyar claim he’s going to “support independent journalists,” apparently blind to the dependencies that support is creating. If there is one principle that he’s going to have to stand by it’s to establish a separation between his own goals and the “independent” journalism that he is funding. There is a history of arms-length trusts running newspapers, ironically including the Scott Trust which owns Greenwald’s previous home The Guardian, set up to ensure that proprietors could not mess with editorial independence. Such separation only comes about if you are aware of the dangers. The history of the Omidyar Network suggests that Greenwald, Poitras, and Scahill’s new patron has little such awareness.