"Those that forget the lessons of history are condemned to repeat them" - Edmond Burke
So with spring comes the conference season, that intoxicating elixir of life that feeds the ego of manic depressives like me, who half the time feel ecstatic that maybe - just maybe - that someone, somewhere has "got it" to at the next moment being ready to slash your wrists and reach for the Prozac when you comprehend the scale of the problems and the paucity of the human response.
Words like "new", "radical", "innovative", and the real killer ap - "systems change" will be bandied about - more competitions will be promised - and held and the winners - and the givers - of the prizes will be lauded. Now please for one moment do not think I am being critical of the Social Entrepreneurs, whilst at Ashoka I had the honour of knowing many of the best of them and indeed continue to work with them now helping them to raise capital - they are in many if not most cases simply the most dedicated and smartest folks you will ever come across. But what is demonstrably clear is that the supporting infrastructure fails them (and us) in helping to scale their innovative solutions.
It was whilst pondering this question that I saw a post recently by Kevin Jones - the founder of SOCAP in San Francisco - noting a new location for a new "Hub" - that had unusual historical markings and frescos.
Which got me thinking, are there actually solutions to be found in the past for our dilemmas today - for example what were the organisational structures that had substantive social impact historically; or if we seek a revolution in funding for today's issues how exactly was a cultural revolution like the Renaissance funded or; have the tools that we look to apply today in impact investing actually been applied before ?
Is the citizens sector just playing catch up with the productivity of industrial society or can it also learn lessons from history ? As the author Dan Browne noted in his best seller, which twisted the perception of history, “sometimes all it takes is a tiny shift of perspective to see something familiar in a totally new light.”
Lesson one - collaborating around a social mission
It may come as a surprise to many to discover the first pan European banking system was actually a social finance one, indeed a Holy order created by the Poor Fellow-Soldiers of Christ and of the Temple of Solomon or in Latin 'Pauperes commilitones Christi Templique Salomonici' founded in the crucible of the Crusades in 1119. We know them more simply as the Knights Templar.
In the same way that the modern concept of trusts was based on the legal code that came from "trusting" your assets for your family as you went off to fight the crusades, so the seeds for the modern banking system were created by the Knights Templar. Formally endorsed by the Church in 1129 at the Council of Troyes, a mere ten years later in 1139 Pope Innocent II granted the Templars a papal bull called Omne Datum Optimum. This was followed by two other papal bulls in 1144 and 1145. These papal bulls amongst many other benefits exempted the Templar's from local laws. These rulings meant that the Templar's could pass freely through all borders, were not required to pay any taxes, and were exempt from all authority except that of the pope.
In banking the Templars used this to develop the first letters of credit and cheques - and as you passed through to the Holy Land your advances were debited to your account by a secret code hence negating the needs to carry large amounts of gold or coinage. As the preferred charity to support the Crusades, compounded by an ability to act across borders the Templar's extended their commercial and banking empire arguably becoming the first multi national corporation, owning for a time the Island of Cyprus.
By 1307 the French and English kings were deeply in debt to the Templar's and as an example of medieval moral (and physical) hazard for bankers and one of the few times in history one has had a true Anglo - French consensus on banking issues, decided, the best solution was simply to eliminate the bankers.
In one final twist the termination of the Templar Order commenced on Friday October 13th (and it is said by some that this is the reason this date is unlucky) King Philip IV of France carried out mass arrests in a well-coordinated dawn raid that left several thousand Templar's — knights, sergeants, priests, charged with heresy, blasphemy, and homosexual practices. Many of the Templars however are said to have fled to the east into the Alps and indeed the rise of the Swiss Federation dates from this time. Proponents of this view note that the Templar's were known for banking, military discipline, secrecy and engineering and that many Templar symbols can be seen on the Swiss Cantonal flags and as the roots of Swiss cultural life.
So what are the lessons we could learn today, well the next time you see UBS or Credit Suisse launching their next impact investing initiative perhaps all they are doing is just connecting nearly a thousand years of history.
Or, if you don't believe the folklore maybe the next time we see a crisis such as the Haiti Earthquake or The Tsunami and the weak un-coordinated international response done country by country, charity by charity - in each of its silos - perhaps we should think how we can create more effective greater cross border collaboration mixing commercial and philanthropic skills (just as the Templars did) - perhaps even adapting a well established commercial legal code from 1979 using LLC and LLP law that then allows intra sectoral and cross border collaboration around a social mission.
Indeed just as Omne Datum Optimum achieved a focus on what was perceived a critical social mission in 1139 and created the largest social finance institution ultimately so powerful that governments conspired to bring it down, perhaps we should use modern legal forms to create dynamic market collaboration for the greater good of all man today.
Lesson two - Product innovation and the dislike of bankers
Dislike of bankers and banking is also not new and has deep roots in Western culture, indeed as early as the Council of Nicaea in AD 325 there was the first formal ban on Usury by the church - and throughout much of Medieval history the Jews performed the role of bankers transacting from benches (the root of the word for Banks) to be found in the ghettos. Two verses in the Old Testament book Deuteronomy allowed Usury to Christians by the Jews - 23:19 Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. But - 23:20 Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto". So lending to a fellow Jew was not acceptable but it was to lend to a Christian.
This lending was of course critical to the growth of trade and commerce as well as funding the mercenaries to fight the wars between the various Italian City states, the Papacy, the Holy Roman Emperor and the French. Further developments such as numerical numbering, the maths behind the finance calculations pioneered by Leonardo Bignolle (also known as Fibonacci and whose methodologies are still used in Forex trading to this day), double entry book keeping all emanating from North Italy were what allowed the next major step to be made. Indeed some would argue it allowed for the funding of the Renaissance itself.
There is one banker Cosimo de Medici who stands above all and it was his innovation leveraging off these innovations charging a commission (but not called interest) through the Forex market and matched by the creation of the first bond market - allowed Florence or rather the Medici's to leverage off the capital of Florence itself by issuing bonds. Something then mirrored across Europe. The Bond Market had been born. The tentacles of the Italian Banks reaching across Europe - as one legacy you still find the Headquarters of Barclays Bank on Lombard Street today, named after the Italian bankers from Lombardia (the region around Milan) .
The surplus capital funded also a philanthropic boom, that if not created, certainly fuelled the Renaissance as you can see as you go around the private art collection of the Medici's - the Uffizi gallery in Florence - there is hardly any major Renaissance painter or thinker from Leonardo to Galileo to Copernicus who was not funded by the munificence of the Medici's. There has always been a symbiotic relationship between wealth and philanthropy - and one of the key human drivers for philanthropy - who after all remembers Medici, Carnegies or Rockefellers' greatest competitors. Money can make you rich and powerful but philanthropy can make you immortal.
This paradox and the complex relationship with bankers can be seen in the Florence's Duomo. Here in a painting by Domenico de Mechilino painted in 1465, of Dante presenting his Divine Comedy. To the left of Dante as laid out in his book are the seven circles of hell - the sixth circle is reserved for Blasphemers, Sodomites and Bankers; though it has to be said Dante was always a little harsh, with for example the last Pope to resign prior to Pope Benedict, Celestine Vth also being also placed in the first circle of hell - on this basis Pope Benedict in getting his red loafers shredded and gold ring melted down has probably got off lightly. But I digress. To the right of Dante in the painting is the Duomo of Florence with the famous dome by Brunelleschi - under which you are standing, funded by a banker no less than Cosimo de Medici himself.
Now again other than perhaps adding a touch of colour to your Italian vacation is this again relevant. I would argue yes again it is - what Cosimo de Medici learnt was the importance of leveraging your capital market in his case the Northern Italian capital markets of the City states. It is unfortunately a lesson we still have not learnt in modern philanthropy - in that we have a capital market of about $1 Trillion in the core global funds in Foundations. But ninety eight percent of those funds are unaligned with social mission. Yet with an easy legislative action these funds could in turn be leveraged for social purpose. As I noted in an earlier Geneva report if just 20% of US Foundation core funds were invested in social investment it would create a capital pool of $125bn which in turn could be leveraged three times to create an active social capital pool of $500bn. Perhaps as Cassius noted "The fault, dear Brutus, is not in our stars, But in ourselves."
Lesson three - Product innovation
The third lesson really refers to the lessons of pre war Imperialism. The dominant paradigm since May 1944 Bretton Woods has been the top down approach that Western governments knows best and cascades the money down through other sovereign "developing" governments. As everyone is aware there is "seepage", some argue that the worst example is Sub Saharan Africa where since 1975 you have seen approximately 80% of the $175bn capital allocated by Western Governments is estimated to have become flight capital within 18 months.
One can however see the logic in that in the post Independence world there were no local capital markets and it made sense to provide capital centrally. But what people may not be aware is that between 1860 and 1939 capital flows to the developing world were of an order four to five times higher in relative terms than they are today (if one excludes China from the calculation). Capital flows today are primarily between rich countries and not to the developing world. The current crisis is exacerbating that trend. So if pre 1939 capital was not provided by top down state provision how was it done? Quite simply by a guarantee mechanism, indeed Keynes noted this in the 1920's rhetorically asking how the cost of capital was the same for Kent Railways as for the Farmers in the Rift Valley of Kenya. It was quite simply a sterling guarantee area. Now let me be clear not for one moment before am I suggesting a re-imposition of colonialism. In fact the exact opposite.
How about if you use Western guarantees in the same way America funded for forty years its own Infrastructure development. The empowerment of local capital markets in local currency for their own essential sustainable development. Such an idea has even won a Gates and World Bank prize.
But is there money - well in contrast to some aspects of the development business, the development of local currency savings markets have been a success with estimates from JP Morgan, Citibank and the World Bank indicating that from ground zero at independence nearly $1.8 trillion has been amassed today in currency equivalents in local pension funds; and indeed in low income countries such as Rwanda or Ghana.
Currently this money is primarily in local government bonds and in cash. This Guarantee entity would therefore allow the local capital seekers - universities, schools, sanitation, airports, to raise capital on their own local capital market. The structure takes out 70% of the development risk as the local currency FX risk no longer has to be fully priced in, as it would be if the capital was sourced externally from traditional western sources. Furthermore this is a leveraged model and at just a 1% market share this entity would move - profitably - more money for development than the Gates Foundation in five years and more than all the development finance Institutions in ten years. A true win - win and in some senses exactly how capital was disbursed historically before 1939, except this time it is not western capital that is being guaranteed by a gunboat, rather local currency pension funds guaranteed by a western financial institution.
Confucius said once, “Study the past if you would define the future", the three historical examples noted here each offer if readapted the opportunity to shift the scale of capital we need to address the issues we face as humanity. In the examples noted above the infrastructure / processes are already available and could be deployed with relative technical ease. The question is however a change management one, whether we can show the vision and courage to adapt what has been done before or whether the vested interests of the status quo will prevail.
The limitations of a private sector (Foundation) model created in 1903 and the 1944 (Bretton Woods) model are simply unable to solve the issues we face. It is mathematically demonstrable - we need to adapt the modern capital market tools we have to hand and blend modernity with the lessons of the past - it is perhaps as Churchill noted a case of, “The farther backward you can look, the farther forward you are likely to see.”