“This Is Not Charity”

How Bill Clinton, Ira Magaziner, and a team of management consultants are creating new markets, reinventing philanthropy—and trying to save the world
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Brand-name pharmaceutical companies refused to play, but generic manufacturers in India and South Africa were interested. The foundation sent staff members to study the companies’ cost structures and to act, in effect, as free consultants, helping find the efficiencies that higher volumes could afford. Then the foundation repeated the process back through the supply chain, with producers of raw materials and other inputs. The approach was pure McKinsey: novel in its application, but routine in its methods, as Clinton himself is the first to point out. “This is not Einstein,” he says. “We didn’t develop the theory of relativity here. All we did was take something that people would naturally do in a purely business context and apply it to the public-goods market.”

In October 2003, at a news conference in Harlem, Clinton announced price cuts for a number of drugs, notably a reduction of more than 50 percent in the price of a leading three-drug AIDS cocktail. It was the first in a series of foundation-sponsored AIDS-drug price cuts that continue to this day; 750,000 people in 66 countries now get HIV medications through the foundation’s purchasing consortium, and, perhaps more important, overall market prices have followed the consortium’s prices down.

How much did the foundation reduce drug prices? How many lives were saved? We can never precisely know. AIDS experts I spoke with at the World Bank, the World Health Organization, and Médecins Sans Frontières all pointed out that the foundation was flying with a tailwind. The rise of generic-drug companies, the pressure brought by activists and patients’-rights groups, and billions of new aid dollars were already pushing the HIV-drug market toward higher volumes and lower costs. On the other hand, the experts agreed that the foundation brought prices down faster than they would otherwise have fallen, and that more people got treatment as a result. “It changed the way business was being done,” one World Bank official told me.

Within the foundation, a source of some annoyance is that the outside world supposes Clinton to have picked up the phone and jawboned prices down. The real work has been done by hyperkinetic staffers who have negotiated dozens of deals and ground out thousands of pages of cost analysis. Clinton takes particular pride in the fact that the companies that collaborated in cutting prices did not sacrifice profits. “I haven’t asked anybody to give us anything,” he said in our interview. “All we did was ask the drug manufacturers to adopt a different business strategy. Once we got smooth distribution, quick, certain payment, and really high volumes, they were still making money. They just made it in a different way.” To him, profit is necessary and entirely legitimate, a point he makes to anyone who will listen—for example, at the May press conference in New York, where he declared, “I think it’s wrong to ask anyone to lose money.”

Clinton and Magaziner believed they had stumbled onto something bigger than an AIDS program. “I mean, if you apply this thread of thinking, you’d be thinking about it all the time,” Clinton told me. “The longer I’ve done this, the more I’ve become convinced that the AIDS drugs were just the tip of the iceberg—that basically there are a huge number of what I call public-goods markets that are disorganized, where the consumer knowledge is imperfect, to say the least, and parenthetically they’re almost all underfunded. But if they were better organized and there was more demand for the service or product they were providing, the funding would be there. This is something we can do!”

To establish itself as a paradigm instead of just a program, the market-making model needed a second act, preferably bigger than the first and in a completely unrelated field. In late 2005, Clinton and Magaziner hit upon global warming.

Clinton says he has been concerned about climate change for years, but that a hostile Congress and cheap oil prevented him from doing much about it when he was in office. Out of office, one day he decided to replace every lightbulb in his house with a compact fluorescent. But when he went to his local hardware store in Chappaqua, New York, he couldn’t find bulbs in a lot of the shapes and sizes he needed. “So I literally picked up the phone and called Jeff Immelt”—the CEO of General Electric—“and I said, ‘I’m trying to be a good customer. I’m trying to buy American, support GE. I like your eco-initiatives. But I can’t fill half these sockets. What am I going to do?’ And he said, ‘Well, make me a bigger market, and I’ll make whatever bulbs you want.’”

It’s a charming story, if somewhat tarnished by the fact that, through a spokesman, Immelt said he had no recollection of the conversation. In any event, a lightbulb had lit up in the ex-president’s head. “It struck me that we were in the same sort of deal,” he says, “where we have very low knowledge of the economic options among consumers, drastic undercapitalization, and a completely disorganized market.” In December 2005, Magaziner proposed a global-warming project, and Clinton gave the OK. In January 2006, Magaziner put five researchers to work figuring out what to do.

What to do wasn’t clear, and might not have become so but for a stroke of luck. In October 2005, 18 of the world’s largest cities—prodded by the deputy mayor of London, a firecracker of a woman by the name of Nicky Gavron—had held a summit where they resolved to do something about global warming. Cities are said to account for 75 percent of energy use and greenhouse-gas emissions, and so if the largest cities reduced their carbon footprint, that could make a real difference. (No one seems to know where the 75 percent figure comes from, but everyone seems to accept it.) Among the cities’ resolutions was to create “municipal procurement alliances”—buyers’ clubs—to “accelerate the uptake of climate-friendly technologies and measurably influence the marketplace.” Those brave words spoken, the cities called for a second summit within 18 months and commenced not doing much, until, early last year, Magaziner got wind of their project.

That April, Magaziner went to see Gavron. “We’ve got this track record, and we can assemble talent very quickly,” she remembers him telling her. When she asked for the foundation’s financial support, he parried with a bigger idea. “He said, on the spot, ‘We don’t want to back you; we want to be your partner.’” The foundation would become, in effect, the cities’ operational arm. In August of last year, Clinton, standing with the mayors of London, Los Angeles, and San Francisco, announced the Clinton Climate Initiative. The same day, five foundation staffers hit the road, traveling to participating cities around the world—almost 40 were soon on board—to introduce the project.

The climate initiative, in typical Magaziner style, has many moving parts, including technical assistance to cities, networks for sharing best practices, software to measure progress, financial support, and a full-time foundation staff member assigned to each city. But the make-or-break component is a plan to re-equilibrate the market for energy conservation. “What we’re doing is jump-starting— accelerating—market forces,” Magaziner told me.

Cities own public buildings: offices, schools, police stations, hospitals, fire stations. They set codes for private buildings. They buy and run fleets of vehicles: buses, garbage trucks, police cars, ambulances. They handle water and waste. No city by itself can make a deep dent in carbon emissions or reorganize a global market, but together cities can pool their demand for leading-edge conservation technologies, such as LEDs for traffic lights, systems that capture and burn garbage dumps’ waste methane (a potent greenhouse gas), and alternative-fuel engines for city vehicles. Predictable demand would let suppliers scale up their operations, bringing prices down and creating footholds for technologies on the cusp of commercialization.

That would be step one. Step two, in Magaziner’s vision, is to channel a Niagara of private capital into the effort. Energy-saving technologies typically cost more up front but less over time. “So what we’re going to be doing is setting up a financing mechanism,” he told me. The foundation would help cities borrow in the securities markets against future energy savings. “The whole thing is bankable,” Magaziner said. “It’s a commercial proposition. This is not charity. The whole concept of this is that the market itself over some period of time is going to deploy all these energy-saving things. The problem is it will happen slowly and gradually.” The foundation hopes to reduce decades to years, and years to months.

Magaziner hired Stephen Crolius, the business consultant, and Jamie Russell, the London financier, and Göran Carstedt, the Swedish executive, and other top-level staff. They brought in more business talent at a rapid clip. In early January, the climate initiative had 28 people; by March, about 40. Later this fall, it will have 100 or more, according to Sara Greenbaum, Magaziner’s 23-year-old chief of staff. “We’re like a start-up company moving as quickly as possible to get an effective structure in place,” she told me.

Greenbaum has moved pretty quickly herself. She was trailing Magaziner when I met with him in February, and I mistook her for the sort of factotum that 23-year-olds usually are. It turned out that Magaziner met her in the fall of 2005, when she was a senior at Tufts University and he was giving a guest lecture in her class on the Clinton presidency. Impressed, he recruited her on the spot. Days out of school, she became the climate initiative’s first employee. Like a Silicon Valley start-up, the Clinton Foundation disdains job titles, ageism, and small thinking; if you can do the job—or, for that matter, invent the job—it’s yours. This is not your father’s philanthropy.

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Jonathan Rauch is a contributing editor of The Atlantic and National Journal and a senior fellow at the Brookings Institution.

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