The time has come for Britain's leading business people to make a big public display of commitment to the wellbeing of society. So here is a “modest proposal”: the chief executives and chairman of the FTSE 100 companies should each make a large donation - a year's basic salary would be ideal - into a new “social action” fund, with a mission to improve everything from the state of schools to cleaning up the urban environment.

Leading hedge-fund and private-equity investors could contribute, too, as could the foreign-born tycoons who have set up homes in what to them is the tax haven of London. Perhaps Richard Lambert, the Director-General of the CBI, could organise the fund and appoint a group of business people and social entrepreneurs to run it.

There are two reasons to do this, and to do it now. One is admittedly superficial, though no less important for that: to improve the public image of business and its leadership. The credibility of Britain's bosses may never have been lower: it is not just the bankers who are seen to have the let the country down.

As things stand, the recession is certain to make it even worse. As company after company goes to the wall, or at a minimum downsizes, and hundreds of thousands of employees are laid off, fat-cat executive salaries will stick in the public's craw more than ever. Britain's top industrialists will join its moneymen in being widely seen not merely as incompetent, but selfish, heartless and cruel too.

Already, bosses are starting to complain about the prospect of becoming public whipping boys (and a few girls), pointing out that the recession is due to the Americans, or the bankers, not them. And in some cases, they have a point - which is why a collective gesture such as a fund makes sense, as it avoids individual blame. Yet now is not the moment to wallow in self-pity. After two decades in which business has had the wind in its sails, power is now flowing away from the wealth creators to the governing class.

Before they are reduced to irrelevance, and weighed down with new, probably ill-considered, regulations, our captains of industry should be thinking about how they need to change themselves. A good place to start would be to join a revolution in capitalism in which the winners make doing good a core part of their personal and business strategies. Michael Green and I call this revolutionary movement “philanthrocapitalism”.

Even before the current crisis, philanthrocapitalism had been growing strongly, first in America and more recently in Britain, Europe and even emerging economies. At the World Economic Forum in Davos last week, I moderated a discussion of philanthrocapitalism that featured business leaders such as Bill Gates and Richard Branson; Muhammad Yunus, the Nobel prize-winning social entrepreneur, who has helped millions of impoverished people get access to capital through his Grameen microfinance bank; the movie star Jet Li who is pioneering philanthropy and volunteering in China through his million-strong organisation, One; and two retired politicians-turned- philanthrocapitalists, Bill Clinton and Tony Blair. They all agreed that philanthrocapitalism can play a key role in leading the world out of today's economic problems, by combining the heart of the social activist with the mind of business.

That brings us to the second reason why business leaders should create this social action fund: society needs the expertise and methods of business to solve its problems. It needs the best sort of business thinking, particularly in entrepreneurship, risk-taking and operating on a large scale.

One of the most exciting features of the past decade has been the way in which philanthropists have improved the effectiveness of government by funding the sort of social policy innovation that politicians are often too risk-averse or financially constrained to try.

Mr Blair eloquently made the case for philanthrocapitalism in Davos by observing that government is often terrible at being innovative and entrepreneurial. Social entrepreneurs such as Dr Yunus tend to find that their bright ideas get nowhere inside state bureaucracies, whereas they can flourish with the support of business and philanthropy.

In New York Michael Bloomberg, the billionaire philanthropist-turned- mayor, has found a way for government to harness the innovation of business by encouraging philanthropists to fund pilot schemes thought up by social entrepreneurs, which if they work can then be scaled up using taxpayers' funds. The projects ranged from setting up a special training college for new school principals to providing matching payments for poor people who use their earned income tax credits to open a bank account. This has inspired similar initiatives in nearby Newark, by one of America's leading reforming mayors, Cory Booker, who now has a philanthrophy co-ordinator in City Hall.

This is a model that should be adopted in the UK, where the Government's various efforts to promote social investment tend to have fallen short of their potential because of insufficient involvement and leadership by the business community and philanthropists.

That is why a business-led fund could make such a difference. Innovation and entrepreneurship will be needed now more than ever in the social sector, given the growing demands that will be put on it because of the recession and the growing difficulty of raising money. When every pound is scarce, it is essential that the money is spent well.

Indeed, two organisations already exist in Britain that have a mission to improve the effectiveness of the social sector, both of them created by philanthrocapitalists and capable of operating on a far larger scale if only they had more money. One is New Philanthropy Capital, founded by Goldman Sachs alumni, which does in-depth research into voluntary organisations. Another is Social Finance, which is dedicated to improving the effectiveness of the “third sector” by giving non-profits access to a far wider range of financing options. These two organisations would be ideal as the first two recipients of grants from the new business social action fund. Britain's bosses: over to you.

Matthew Bishop is New York bureau chief of The Economist and co-author, with Michael Green, of Philanthrocapitalism: How the Rich Can Save the World and Why We Should Let Them.

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