In Pune, India, a shiny van cruised the red-light district, canvassing local brothels. The van was brand-new; the driver was a stranger. Fearing that the state police had dispatched the official-looking vehicle, the prostitutes, some of whom were HIV positive, waved it away.
The van belonged to Avahan, a network of about 100 Indian nongovernmental organizations funded by the Bill and Melinda Gates Foundation with a mandate to create a model for preventing the spread of HIV that could be adopted by the government in India, and perhaps elsewhere. As a Forbes special report on Avahan documented, the intention was noble -- India has the third-highest number of individuals living with HIV, and prostitution is the primary source of new cases. By pledging $100 million over 10 years, the Gates Foundation made Avahan its biggest philanthropic grantee in history. Beginning in 2003, the best and brightest minds from the business and consulting world were sent to manage thousands of NGO clinicians and counselors tasked with raising awareness, testing, and treating 300 million residents for HIV/AIDS.
By 2005, the program had opened 6,000 treatment centers and was distributing 15 million condoms per month. But by 2009, all but 800 of those clinics had closed -- and HIV incidence in India remained virtually unchanged. The sticker price of this audacious effort? $338 million.
Just six years after its creation in 1994, the Gates Foundation became the largest philanthropic organization in history. Since 2000, its assets have exploded from $21.5 billion to $34 billion, triple the current holdings of the Ford Foundation, the second-wealthiest philanthropy. At a time when nearly half of all U.S. foundations surveyed have decreased their grant-making, the Gates Foundation disbursed $3 billion in 2009 -- almost double the funds allocated by the rest of the top 10. In global health alone, the foundation has given a total of $13 billion. The five-year price tag on Avahan was larger than the annual total disbursements of other well-known givers such as the John D. and Catherine T. MacArthur Foundation, the Rockefeller Foundation, and the Carnegie Foundation.
In the 20th century, philanthropy was built on wealth from steel, oil, and automobiles, and funding a project with $1 million was "a huge deal," according to one development expert who wished not to be named because of a pending grant application with the Gates Foundation. Today, because of the Gates fortune -- built on technology juggernaut Microsoft -- "$25 million is nothing" (in the last decade, Gates gave out 360 grants of more than $10 million). And when, in 2006, investor Warren Buffett bequeathed the bulk of his $44 billion fortune to the Gates Foundation, it was as though he'd poured gasoline into a volcano.
But it is not just cash on hand that makes Gates the biggest player in the philanthropy industry. With operations spanning more than 100 countries -- not to mention a robust program of giving within the United States -- its reach is truly global. Gates Foundation grants support everything from tiny schools in New Mexico to the United Nations Foundation. It is difficult to find an area of health, education, or development work that Gates hasn't touched. (Indeed, nearly all of the individuals quoted in this article have partnered with or received funding from the Gates Foundation.)
"They've established a reputation for rigor and reach," says Phil Buchanan, president of the Center for Effective Philanthropy, a think tank and watchdog group. By poaching data-obsessed McKinsey consultants and former heads of Fortune 500 companies to run its operations, Gates has nudged the rest of the aid industry toward "really assessing results and being as data-driven as possible." That influence stretches into the U.S. government -- USAID administrator Rajiv Shah is a Gates alumnus who still dines privately with Bill and Melinda. And when the Gates Foundation sets priorities, the market listens. According to Randall Kempner of the Aspen Institute, "Gates is so big and so influential that if they decide they want to focus on, say, food security, then they have the weight to get other foundations and, indeed, government agencies to change the game."
The Gateses relish their status as the 800-pound gorilla in the philanthrosphere. Since leaving the Microsoft Corporation in 2008 to focus full-time on the foundation, Bill Gates has gone from a shy technologist to a passionate crusader against "barriers that prevent people from making the most of their lives." Time magazine named Bill and Melinda its 2005 "Persons of the Year," crediting the couple with "making mercy smarter and hope strategic and then daring the rest of us to follow." This year, Melinda told National Public Radio that persistent nagging -- even with powerful world leaders -- is key for improving outcomes in neglected areas. She pointed to maternal health (where the foundation plans to invest $1.5 billion over the next five years) as an example: "If it's already on the agenda, we talk to them about what they're doing. ... If it's not on the agenda, I will bring it up."
They nag because the state of global development is still embarrassing. Ten years after the United Nations announced eight ambitious Millennium Development Goals, 1.4 billion people around the world still live in extreme poverty, with less than $1.25 a day in income. One billion are chronically undernourished, and almost 1 billion have no access to clean water. Over 16 years, the foundation has attacked these problems admirably. With their partners, the Gateses have distributed millions of vaccines; stocked books and computers at libraries across the United States; built homes, farms, and wells for the poor in Latin America, Asia, and Africa; and placed global scourges like HIV and malaria squarely in the developed world's line of sight.
The Gateses' generosity has made them poster children for doing good after doing well. And, even as the global recession takes a toll on giving, the foundation has shown no sign that it's letting up. Along with Buffett and the granddad of American philanthropy, David Rockefeller, Bill and Melinda recently convened a series of secret meetings to convince other billionaires to become "Great Givers" -- following Buffett's presumption that "huge fortunes that flow in large part from society should, in large part be returned to society." Over lavish meals, they convinced 37 other major moneymakers including New York City Mayor Michael Bloomberg, media executive Barry Diller, Oracle founder Larry Ellison, and energy tycoon T. Boone Pickens to embrace their presumption that more money equals fewer problems.
The Gates method brings to philanthropy what the Powell Doctrine brought to war: overwhelming force. But the eye-popping figures on the foundation's balance sheets raise not just the question of how best to give away billions but whether such sums should be given away at this pace. Buffett's donation, for instance, requires that the foundation hand out at least $1.5 billion annually -- which is "harder than you think," former foundation CEO and current senior adviser Patty Stonesifer admitted to the Seattle Post-Intelligencer in 2008. Cases like Avahan show how the execution can fall far short of hopes. In regions where aid dependence has been a curse to rival poverty and disease, the very idea of charity is suspect. And a growing class of so-called social entrepreneurs is pushing a private-sector development model that they say is more sustainable.
Phil Auerswald, a professor at George Mason University who researches entrepreneurship and development, sums up the problem: "Gates was known for being in touch with the smartest people in the room -- but the smartest people in the room are different now."
Unlike the victims of the world's humanitarian and natural disasters, the Gates Foundation has been able to brace for earthshaking change. Buffett gave his friends two years to prepare for the $37 billion tsunami headed their way, during which time the foundation's staff grew from around 200 employees to more than 500. In the two years after that, Gates has hired another 300 program officers, administrative staffers, and researchers. In 2006, the foundation began a broader global development program to complement its intense initial focus on global health. A 12-acre office complex rose up in Seattle, followed by additional bases in Beijing, Delhi, London, and Washington, D.C. Since 2001, disbursements have tripled, funding ambitious initiatives for health, agriculture, scientific research, and financial services for the poor.
While more money has meant more grants and more solutions, it has also meant more operational liabilities. In 2009, the Center for Effective Philanthropy conducted an anonymous survey of over 1,000 Gates grantees, which offered some devastating critiques of the foundation. According to a statement released by the Gates Foundation, grantees are "confused by our decision-making and grant-making processes," and the foundation is "inconsistent in our communications and often unresponsive." Grantees also bemoaned the constant turnover among program officers. This contrasts sharply with the reputation for excellence that Gates has carefully cultivated. Though the foundation has been praised for elevating data to an institutional religion, the buck can stop as soon as the checks are printed. "They are really anal about the application process, really walk you through everything," says the development expert applying for a grant. "But once you have the money, it's hands-off."
The foundation's industry-wide influence and financial heft have largely insulated it from such complaints. "When you mention the Gates Foundation, eyes light up," says Leslie Green, who works with its domestic education program. "Everybody laughs a little harder at your jokes than before," Buchanan adds. To the foundation's credit, it publicly released the results of the grantee survey, held a series of conference calls with key recipients, and called for another review in 2013. CEO Jeff Raikes addressed the issue in an open letter. "We are committed to building strong partnerships, and we realize that doing so may require fundamental changes in the way we work," he wrote.
Bill Gates' incredible private-sector success led many to believe his nonprofit foundation would find innovative ways to do good. "Bill has a wide-ranging and curious mind," said Paul Allen, co-founder of Microsoft, when Gates announced his retirement from the company. "It will be interesting to see what things he ends up really diving into, because once Bill dives into something, he really wants to make a difference."
But in some ways, the foundation's operational hiccups are unsurprising -- the world of philanthropy is radically different from the markets that made Gates' fortune possible. Over 30 years, Microsoft built its empire selling software and personal computers. Craig Mundie, chief research and strategy officer of Microsoft, describes the business: "When you think of other large companies, many tend to grow into conglomerates where they have completely dissimilar business units -- jet engines and locomotives and plastics and things like that. Because of the malleability of software ... we tend to be distributed in where we get things done, but it's not like we have whole separate business divisions in other parts of the world or the country."
The Gates Foundation, by contrast, is marketing multidimensional health, educational, and trade solutions on six continents, in dozens of languages, as soon as possible. Thus it faces a challenge not unlike that of militaries deployed for years in foreign theaters: mission creep. "The pressure for a foundation to add new goals and new program areas [is] constant," Buchanan says. "People talk about the pressure to meet payout, which sounds crazy -- how could that be? There are so many important issues and strong organizations working to address those issues. But when you're talking about the kinds of resources the Gates Foundation has, it is a challenge." As the complaints about program-officer turnover suggest, finding talent to manage the expanding universe is difficult -- and even the most outstanding nonprofit partners may be ill-equipped to handle a massive infusion of grant support.
The foundation stands by its methods. "However large we may seem, our resources are, relative to the size of the problems we're facing ... relatively tiny," says Mark Suzman, director of policy, advocacy, and special initiatives for the Gates global development program. "It's not so much about putting dollars out the door but implementing real catalytic change." Indeed, Gates' aid budget is significantly smaller than that of the U.S. government or even the World Bank, World Health Organization, or The Global Fund to Fight AIDS, Tuberculosis and Malaria (each of which it funds in part). As such, the foundation is more flexible. "Places that are smaller and nimbler and less burdened with the need to be accountable to the legislature are going to be able to be more venturesome," says Nancy Birdsall, president of the Center for Global Development. After disasters like 2005's Hurricane Katrina or 2009's flooding in El Salvador, for example, Gates was able to mobilize multimillion-dollar emergency funds for victims within a few hours.
"[It's] the freest money in the world," says Priya Jaisinghani, who helped launch the Gates global development program that now makes up 40 percent of the foundation's total disbursements. "It's not tied to geography; it's not tied to political issues. ... You can imagine change in a way that so many other people can't -- simply because if you stumble upon or find a great idea, you're in an organization that can fund it."
But the freedom to fund is no guarantee of success. This fact animates a central debate in philanthropic circles -- the tension between what the Center for Effective Philanthropy calls "program impact" and "institutional effectiveness." The former is the data that the Gates Foundation lives by: doses of vaccines distributed, lives saved, dollars and manpower deployed to attack a problem. The latter refers to the sustainability of the change produced -- and is harder to judge. Many experts have found that good intentions still produce unintended consequences. When a Gates-backed NGO hires all the best nurses in a poor country, for example, it heals the sick but also siphons human resources from the local health infrastructure. Scaling up global development contributions risks provoking "Dutch disease," when a sudden flood of dollars causes damaging inflation in local economies. Laurie Garrett of the Council on Foreign Relations questions major outsider investments, in which "the particular concerns of wealthy individuals and governments drive practically the entire global public-health effort." The choices made by large foundations like Gates can overemphasize particular diseases at the expense of other, no less troubling public-health problems. And, while Gates funds some causes that virtually no other major foundation does, such as polio eradication and genetically modified seed development, most NGOs tend to run where the money is. "By funding so many people in one space, the risk is groupthink," Jaisinghani says.
Enacting regionally specific and culturally appropriate development solutions is also difficult to do from afar, says Jaisinghani, who now works at USAID. Gates brainstorms which managers to send and whom to fund from its American headquarters, whereas USAID has "an army of people around the world who are rolling up their sleeves," Jaisinghani says. "You can't do that from Seattle. There's no way to get that depth of experience and knowledge with the business model Gates has." This doesn't mean that USAID is more efficient (indeed, American foreign assistance meanders through 12 departments, 25 agencies, and almost 60 government offices). But it does mean that USAID can rely on managers with longer histories in the regions where they're deployed.
The real problem is that aid is often badly spent -- trapped in bureaucracies or banks, or siphoned away by opportunistic foreign governments. Economist Dambisa Moyo contends that any grant-based foreign assistance "chokes desperately needed investment, instills a culture of dependency, and facilitates rampant and systematic corruption." Even in the United States, Gates' robust program of giving to public schools relieves the government of key responsibilities in the name of short-term results. Without accompanying human capital, the fight against global problems like poor sanitation (Gates funds clean-water initiatives on three continents) or HIV (Gates is backing efforts to develop a vaccine) may only be as sustainable as the cash flow that funds it.
Yet, fueled by the success of the Great Givers pledge, the Gateses seem to have doubled down on the presumption that overwhelming financial force can make lasting change. Speaking at the International AIDS conference in Vienna this year, Bill Gates said, "If you have AIDS, and you go to a health clinic, you should never have to hear someone say: 'I'm sorry. You can't have the drugs that would save your life. We don't have the money.'" Many in the development community agree that donations breed results -- and that rich national governments aren't giving enough. According to Columbia University economist Jeffrey Sachs, allocating a mere 0.7 percent of national gross domestic product from the world's richest countries would make a significant dent in global poverty. (The United States currently earmarks 0.15 percent.) Western stinginess makes the Gates contributions more significant. But governments, nonprofits, and businesses alike are starting to think beyond giveaways. "The development community is focused on the sensible use of market principles," Birdsall says.
"How do you really leverage your dollar?" muses one representative of a rival foundation. "It's all we think about."
In Mumbai, India, 1298 is 911. Dial it and a yellow car will arrive, open its doors, and handle your medical emergency. Over the course of three years in a city without state-run first-response teams, 1298 ambulances have answered some 70,000 calls for help, and the fleet has grown to 90 vehicles. Unlike most Gates grantees, 1298 is a for-profit company -- courtesy of a $1.5 million equity investment from the Acumen Fund, a firm focused on ventures that do good and do well.
Acumen is one of a new class of do-gooders challenging the largely grant-based model that has driven the last century of charity. Along with Ashoka, the Omidyar Network, the Skoll Foundation, Endeavor Global, and other venture philanthropists, Acumen focuses on social entrepreneurship, fundng businesses that produce NGO-like outcomes in poor countries. Acumen calls its investments "patient capital." Because these businesses market important solutions (better sanitation, rural electrification), socially conscious investors can accept lower short-term returns -- but returns are the point. "It's not an either-or," says Sasha Dichter, director of business development for Acumen. "There are many more tools in the philanthropic tool chest than previously thought."
Encouraging market-based solutions is not new in philanthropy circles. A few months after the Gateses were honored as Time's persons of the year, the Nobel Peace Prize went to Grameen Bank founder Muhammad Yunus for developing microfinance as a successful alternative to handouts for the poor. While microloans aren't perfect -- high interest rates can trap some small-business owners in debt -- Elizabeth Littlefield, a former World Bank microfinance expert and current head of the United States Overseas Private Investment Corporation, agues that "a grant is a onetime thing," whereas a loan "creates an ever-growing benefit."
It's the parable of teaching a man to fish, applied to global philanthropy. "Too often governments and government agencies don't think of facilitating and stimulating private-sector engagement," Littlefield says. (Indeed, the Millennium Development Goals make little mention of private industry.) But, she says, "what was once the domain of government agencies and the development sector has now been overshadowed by the arrival on the scene of the 'new philanthropists.'" This includes Facebook co-founder Chris Hughes, now CEO of Jumo, a social network for do-gooders, who believes, "In the long term, the only way we're going to get rid of extreme poverty is jobs."
The concept is catching on quickly. Echoing Green, a foundation working with social entrepreneurs, reports that over 37 percent of its partners have structured their ventures as "hybrid organizations" operating in both the private and public sector. Just as 1298 saw India's lack of emergency response as a chance to turn a profit, a company called M-Via uses mobile phones to circulate remittances from global migrants to their relatives back home. Plagued by poor lighting and inspired by the Avon model for selling cosmetics, hundreds of East African women now make money selling solar lamps in rural areas. Business schools have begun to offer classes in social entrepreneurship, and even the U.S. government has jumped on the bandwagon, convening a major summit on entrepreneurship and offering cash prizes for projects with social missions. "The mainstream is going to shift profoundly in the next several decades," says John Elkington, an advocate of corporate social responsibility. "Most entrepreneurs will fail, and fail repeatedly -- but they'll eventually create change."
Jacqueline Novogratz, CEO of Acumen, agrees that such for-profit ambitions can mean the difference between short-term poverty relief and long-term economic opportunity. "Money really isn't the issue," she says. Rather, "it's finding individuals with the capacity to do the work," -- dynamic local partners who will lift a venture to its feet. The proliferation of charity work in poor nations can actually make that task more difficult. "By the time the NGOs are done with them, there isn't an ounce of entrepreneur left," says one information-technology entrepreneur in Ethiopia.
Bill Gates gave a much-discussed speech at the 2008 World Economic Forum in favor of "creative capitalism," defined as "an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world's inequities." But in practice, there hasn't been much capitalism at the Gates Foundation. Less than 2 percent of its funding goes to for-profit efforts. "In the case of supporting small to medium-sized businesses and ventures, it has not been Gates that is the market mover," says Kempner, who works with a network of development entrepreneurs at the Aspen Institute. At the 2010 Group of 20 summit in Toronto, it was the Rockefeller Foundation that announced a call for innovation in funding "missing middle-tier" ventures, like the 1298 ambulance service, that are too big to qualify for microloans but too small to attract traditional investment. Of course, U.S. tax policy makes supporting for-profit ventures more cumbersome, but Gates still invests its real money (the $30-some billion it does not disburse annually) in many profit-driven companies that actively counter its major environmental and health goals.
The Gates Foundation does work with some social investors and entrepreneurs, including Acumen, and has sometimes combined grants with low-cost loans. Says Gates CEO Raikes: "Sometimes the best tool for us is making grants, and sometimes the best tool is to have a contract. We try to be very thoughtful on ... which is the best tool for the circumstance." Gates partnered with USAID to offer a $10 million prize for mobile banking development in Haiti and has facilitated low-cost, low-tech bank accounts in countries like Mexico, where incremental savings can make a big difference to individuals and small businesses alike. Suzman points to the global development program's focus on training coffee growers in East Africa as evidence that the foundation's vision is "embedded in private-sector actors and market-driven solutions."
As the U.N. convenes to discuss the progress toward Millennium Development Goals, the problem Bill Gates identified in 2008 persists: "The world is getting better, but it's not getting better fast enough, and it's not getting better for everyone." While his foundation's effort to speed and scale global development has been valiant, its calculus still rests more on the behavior of wealthy individuals than on the future capacity of recipient nations and people. The "new philanthropy" offers a different vision for the Gates fortune -- based more on transaction than donation.
To be sure, one can't build a business on an empty stomach or create a dynamic national economy with one-third of the population crippled by HIV. But the philanthropic world must change gears, Birdsall says. "The countries that are receiving half of their budgets from aid, they have to be brought into the discussion on what are their priorities," she says. "Otherwise they don't own the priorities, and the aid is wasted." Adds Littlefield, "The notion of nimbleness and agility has nothing to do with your size but with your attitude -- a sense of urgency and a knowledge of what other people can bring to the table."
Hughes, whose commitment to grassroots social development may make him the 21st-century version of Bill Gates (the two lunched together recently), believes that Gates' methods hold some merit. "The intentions are in the right place, and they focus on smart solutions," he says. "If they do their job right, they'll put themselves out of business."