The Evolving Philanthropy Industry

Submitted by Hazel Henderson

Since the crises of 2008, the global financial system has shaken many societies, causing job losses, homelessness, sluggish economies, overhangs of unrepayable debt with central banks trying stimulative exercises to substitute for failing fiscal policies and political will.  Financial markets retreated into risk-averse, short-termism while needed long-term investments in infrastructure maintenance and redevelopment stalled.  Meanwhile, risks in the real world proliferated: water shortages, severe weather events and variability due to global average temperature rises, terrorism, conflicts, refugees, all reported in real-time by global and social media. 

All these epochal changes are driving paradigm shifts in science, academia, policy circles, corporations, finance and philanthropy.  The charity sector of the past is evolving beyond the great foundations endowed by the wealth of 19^th and 20^th century industrialism, the ivy league college endowments and millions of individual donors enabled by tax codes in the USA an other countries. 

The early assumptions that private charity and churches could handle the unfortunate victims of the industrial era was shattered in the Great Depression.  Laissez faire economics conceded to the New Deal and need for governments to provide safety nets.  Research and development of new industries and public goods fell to governments, along with infrastructure, national defense and space beyond the capabilities of private investors and corporations. 

The post-2008 landscape reveals new public-private approaches to philanthropy and providing public goods and social services.  Some of these approaches are visibly failing, including for-profit private prisons and colleges – funded by taxes.  Providing US healthcare through private insurance, for-profit providers’ fee-for-service models financed by tax-supported Medicare and Medicaid payments has produced arguably the most expensive, least efficient system in the world. 

New foundations sprout daily from the new billionaires in the US tech sector – all under 501©3 rules in the tax-code: allowing deductions of donations from tax liabilities.  Yet, corporate philanthropy gives even less to charity.  The Harvard Business Review estimated that by 2002 charity as a percentage of profits had fallen by 50%.  Companies now expect their foundations to measure results, including enhancing the corporation’s image and goals.  Yet, many charities addressing problems of poverty, homelessness, addiction and other social ills cannot show results in the short-term, since rehabilitation of those they assist may take years or decades.  Today, foundations instead of assisting distressed citizens, widows and orphans, give grants to well-heeled think tanks and institutes with obscure social purposes of dubious public benefit.  The US Supreme Court’s disastrous Citizens United 5-4 ruling in 2010 has made matters worse, allowing super PACs and political groups to back candidates while obscuring the identities of their donors. 

Thus, much of the evolution of philanthropy is of questionable public benefit.  For example, the Gates Foundation has been criticized for its investment portfolio containing companies that perpetuate the health and environmental problems its donations then seek to ameliorate.  This kind of “Chinese wall” between foundations’ portfolios and their grant-making was critiqued by Mark Dowie in American Foundations: An Investigative History (2002).  The Jessie Smith Noyes Foundation was the first to fully align its portfolio with its mission, led by Stephen Viederman. 

Today, foundations even give grants to corporations, such as the Gates Foundation’s $11 million grant to MasterCard in 2014 to establish a “financial inclusion” lab in Nairobi, Kenya.  MasterCard explained that this grant would enable them to reach new markets!   In the Boston Review 2013 issue forum “What Are Foundations For?”, Robert Reich highlights how little philanthropic spending reaches low-income individuals.  He adds that although foundations must direct their grants to public charities with 501©3 tax exempt status, “virtually any organization can be structured as a non-profit, so long as it promises not to distribute profits to its owners.”  Thus, foundations are free to offer donations to for-profits that fulfill the foundation’s mission.  For example, the Gates Foundation offered $1.5 million to ABC News in 2010 for investigating global health problems.  As the UN member countries approved the Sustainable Development Goals (SDGs) which we endorse, Bill Gates and his representatives have repeatedly expressed skepticism at these 17 goals. 

Adding to the confusion and the dearth of charity funds trickling down to the poor and needy is the rapid growth of so-called “impact investing” promoted by the Rockefeller Foundation.  This term obscures the fact that all investments create impacts!  Some blow the tops off mountains or pollute air and water while others may be beneficial.  Will “impact investors” seeking financial returns along with their social goals displace funds going to real charities such as the United Way, Greenpeace and Planned Parenthood? 

The November 2015 report Philanthropic Power and Development: Who Shapes the Agenda raises the key issues of control, public transparency and oversight.  It calls for assessing foundations and their performance.  The Forbes 400 Philanthropy Summit hosted by the United Nations in 2013 sponsored by Credit Suisse with Bill Gates, Bono, Warren Buffett and 150 other celebrity donors represented half a trillion dollars and focused on eradicating poverty.  The report finds more than 200,000 foundations in the world, listing the 27 largest, most of which are in the USA, while noting their growing influence on development policies internationally.  The Gates Foundation, the largest with its $42 billion endowment, is governed by three trustees: Bill and Melinda Gates and Warren Buffet, based in Seattle with 1,376 employees in its worldwide offices.  Their laudable The Giving Pledge to dedicate most of their wealth to philanthropy has been signed since mid-2015 by 137 billionaires, including Michael Bloomberg, Mark Zuckerberg, George Lucas and others. 

Philanthropy has always mixed altruism with power, influence and ego, since those of the fossil fuel era.  The issue today focuses on the rising inequality due to policies favoring wealth accumulation, regressive tax codes and the growth of finance’s lobbying power over politicians.  While applauding Mark Zuckerberg and Priscilla Chan in their commitment to philanthropy, their use of a private LLC charter must be questioned since they will control these assets and how they will be donated. 

The whole paradigm of separated public and private sectors along with the third sector of philanthropy has been overturned.  Today’s confusion may result in a new paradigm.  Until then, only vigorous debate and clear analyses can clarify the interpenetration between tax-supported versus truly independent wealth creation, such as Mariana Mazzucato’s The Entrepreneurial State and Robert Reich’s Saving Capitalism.