The Political Economy of PSC
How regenerative capital reshapes power, incentives, and institutional behaviour.
The 60-Second Version
Money is power. How you give money determines who holds power.
Traditional grants keep charities dependent on donors. Each year, nonprofits must compete, perform, and comply to secure next year's funding. This creates a power imbalance: donors (and their preferences) shape what charities do.
PSC changes this dynamic. When capital cycles permanently through a system, recipients gain autonomy. They're not dependent on any single donor's continued approval. The fund exists; the capital flows; the mission continues.
This isn't just financial innovation—it's a governance technology that redistributes power from gatekeepers to mission-holders.
The Problem: Power Through Dependency
Government Grants
Public institutions depend on annual budget allocations. Politicians can redirect, reduce, or eliminate funding based on political considerations—not mission effectiveness.
Power effect: Institutions become responsive to political cycles, not community needs.
Private Philanthropy
Charities depend on donor relationships. This creates implicit pressure to align with donor preferences, report metrics donors care about, and avoid activities donors might dislike.
Power effect: Wealthy donors' preferences shape the social sector.
Foundation Grants
Program officers at foundations become gatekeepers. Their priorities, theories of change, and reporting requirements shape entire sectors—often more than the organisations doing the work.
Power effect: Intermediaries accumulate influence over mission organisations.
Electoral Cycles
Important programmes get cut when governments change. Long-term projects are abandoned halfway through. Institutional knowledge walks out the door with each administration.
Power effect: Short electoral cycles dominate long-term mission work.
The pattern: In all cases, the organisation doing the mission work is dependent on an external source of capital renewal. This dependency creates power asymmetries that can distort mission, create administrative burden, and generate fragility.
How PSC Redistributes Power
Autonomy Through Perpetuity
When capital is designed to cycle indefinitely, recipients don't need to keep asking for permission. The fund exists as a permanent resource. This shifts power from "who controls next year's budget" to "how do we best deploy this permanent asset?"
Decentralised Decision-Making
Traditional philanthropy concentrates decisions at the donor level. PSC distributes capital to recipients who then become part of the governance—their pay-it-forward decisions shape where capital flows next. Those closest to problems gain voice in resource allocation.
Reduced Gatekeeping
Program officers, foundation boards, and government bureaucrats lose some of their gatekeeping power when capital doesn't need to be renewed annually. The initial decision matters, but ongoing control is reduced. Mission organisations can focus on mission, not fundraising.
Political Insulation
A PSC fund doesn't disappear when governments change. It continues cycling regardless of who wins elections. This creates institutional continuity that survives political volatility—essential for long-horizon work like climate adaptation, education, or scientific research.
How Incentives Change
| Actor | Traditional Incentive | PSC Incentive |
|---|---|---|
| Donors | Ongoing control, recognition, reporting | Multiplied impact, legacy building |
| Recipients | Please donors, secure renewal | Execute mission, pay forward when able |
| Administrators | Control allocation, justify existence | Optimise recycling rate, expand reach |
| Politicians | Use funding for political leverage | Claim credit for establishment, not control |
The Key Shift
Traditional philanthropy incentivises donors to maintain control and recipients to maintain relationships. PSC incentivises donors to maximise initial impact and recipients to maximise mission execution. The relationship becomes transactional at the start rather than ongoing dependency.
PSC as Governance Technology
PSC isn't just a financial mechanism—it's a way of structuring institutional relationships that produces specific governance outcomes:
Reduces Fragility
Organisations aren't vulnerable to single donor withdrawal or political changes. The capital base is permanent and self-renewing.
Increases Accountability
Transparency about recycling rates creates public accountability without donor control. Success is measured by system performance, not donor satisfaction.
Enables Long-Horizon Work
When you're not chasing next year's grant, you can plan for decades. Climate adaptation, scientific research, education reform—all require longer time horizons than grants allow.
Builds Institutional Trust
Recipients are trusted with assets, not treated as supplicants requesting permission. This dignified relationship builds social capital alongside financial capital.
Common Questions
Doesn't removing donor control reduce accountability?
It shifts accountability—from "satisfying the person who pays" to "achieving measurable system outcomes." PSC funds track recycling rates, reach, and impact publicly. This is arguably more accountable than traditional philanthropy, where success is often defined by the donor's perception rather than actual outcomes.
What stops a PSC fund from being captured by special interests?
Governance design matters. PSC funds can have diverse boards, transparent allocation criteria, public reporting, and community oversight. The paper discusses "cycle constitutions"—governance frameworks that protect the fund's mission across leadership changes.
Won't governments try to control PSC funds anyway?
This is a real risk. The paper discusses "political fragility"—the vulnerability of any asset to political interference. PSC reduces this by making interference costly (you can't easily redirect a fund that's designed to cycle to specific recipients) and by building broad constituencies who benefit from the fund's continuation.
Does this mean donors shouldn't have any say in how their money is used?
Donors absolutely shape the initial purpose—they choose which PSC fund to support, what sector it serves, what geography it covers. What changes is ongoing control. The trade-off: less continuous influence, but potentially 5-50× the impact through multiplication. Many donors find this trade-off attractive.
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