Does Philanthrocapitalism Make the Rich Richer and the Poor Poorer?

Income inequality and philanthropy

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By Linsey McGoey 

The first time Bill Gates met Puff Daddy, the rapper and fashion entrepreneur, the encounter was a tense one.

The meeting took place in New York, where Gates had been hanging out at the back of a bar with Bono and other friends. Puff Daddy approached Gates and his coterie. He stood before Gates and nodded.

‘You are a motherfucker.’

Gates’s eyes darted at the man. It’s doubtful the world’s most generous philanthropist hears comments like this too often.

Diddy continued his train of argument: ‘You are a motherfucker. What you are doing on immunization in Botswana? Motherfucker.’

Gates leaned back in his chair and relaxes, realizing that Puff Daddy was offering him a high compliment.

This encounter is reported by Matthew Bishop and Michael Green in their book Philanthrocapitalism: How the Rich Can Save the World.

First published in 2008, this book has become something of a bible for a new breed of philanthropist vowing to reshape the world by running philanthropic foundations more like for-profit businesses. In this world, Gates is hailed as the ‘MacDaddy’ of the new philanthropy. Bishop and Green offer a quote from Bono on the appeal of Gates’s charitable work: ‘Jay-Z, all of the hip-hop guys, kind of adore him. Because he is not seen as a romantic figure – well, maybe romantic in the sense that Neil Armstrong is romantic, a scientist but not a poet. He gets shit done.’

Getting shit done. You might hear other phrases for it. The new philanthrocapitalists claim to be more results-oriented and more efficient than earlier philanthropic donors. They want to revolutionize the last realm untouched by the hyper-competitive, profit-oriented world of financial capitalism: the world of charitable giving. In place of bureaucratic quagmires, they plan to get shit done.

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Proponents of philanthrocapitalism often claim that a business-like approach to philanthropy is something entirely new. Inspired by catchphrases such as ‘shared value,’ coined by management theorists Mark Kramer and Michael Porter, the new philanthropists argue that what sets out their approach from older models is a novel emphasis on measuring the results of charitable giving in order to make sure philanthropy creates the most social benefits possible in the most efficient way: what matters is getting the cost-benefit calculus right.

In 1999, for example, Kramer and Porter published an article in Harvard Business Review claiming that far too few philanthropic foundations ‘think strategically about how they can create the most value for society with the resources they have at their disposal. Little effort is devoted to measuring results. On the contrary, foundations often consider measuring performance to be unrelated to their charitable mission.’

There’s only one problem with this suggestion. It’s demonstrably false. In reality, a business-like, impact-oriented approach to charity has been dominant within large-scale philanthropy for at least 120 years, ever since industrialists such as Carnegie and Rockefeller vowed to apply business techniques to the realm of philanthropy. Just look at Rockefeller’s main philanthropic advisor, a former Baptist clergyman named Frederick T. Gates. Gates left the Baptist ministry in the late 1880s and went on to spend following decades advising first Rockefeller Sr., and then later on his son, John D. Rockefeller Jr., on the best way to disburse their philanthropic holdings. An outspoken fan of the Efficiency Movement, a school of thought flourishing from the 1890s to the early 1930s that aimed to apply Taylorist principles of management to all spheres of social and business life, Gates continually advised Rockefeller to try to leverage his philanthropic spending in ways that would achieve the most observable good.

William Schambra, a well-regarded expert on philanthropy based at the Hudson Institute, reiterated this point to me during an interview: ‘The notion that we should organize our philanthropies the way we organize our corporations – that was John D. Rockefeller’s original idea. That we establish a kind of corporate structure with a bureaucracy and careful decision-making. [Philanthrocapitalism] is just more of that.’

When proponents of philanthrocapitalism claim that the ‘new’ philanthropy is more impact-oriented or business-like than approaches from the past, they are brazenly ignoring the legacy of movements such as the Efficiency School. The historian Stanley Katz has made this point bluntly. ‘Much of the current foundation promotional rhetoric,’ he has written, ‘seems to me to bespeak a troubling lack of knowledge about the history of the great and large American foundations.’

Gazing further back, to the eighteenth century, the parallels between today’s philanthrocapitalists and earlier generations become even more striking. At first glance, the oxymoronic character of a phrase like ‘philanthrocapitalism’ seems quite pronounced. Very few things seem more incongruous than philanthropy, the realm of altruism, and capitalism, the realm of private profit-seeking. And yet, looked at historically, the purported novelty of the idea disappears.

A key claim of the ‘new’ philanthropy is that markets and morals are not distinct phenomena, but commensurate goods. By harnessing the power of the market, philanthrocapitalism inevitably contributes to the welfare of a wider community. This is a powerful idea, but it’s hardly a new one. Quite the contrary, it echoes long-held assumptions about the societal advantages of private enterprise. Indeed, one might say it’s the founding kernel of modern political economy, apparent at least since the writings of Bernard Mandeville and Adam Smith, political economists who advanced the idea that individuals laboring to meet their own self-interested economic goals naturally contribute to the common public good.

The philosopher Slavoj Žižek is one of the few critical observers to point out the strange sense of déjà vu that pervades the rhetoric of philanthrocapitalism enthusiasts. He has pointed out that their maxims are like a ‘postmodernized version of Adam Smith’s invisible hand: the market and social responsibility are not opposites, but can be reunited for mutual benefit … their goal is not to earn money, but to change the world (and as a by-product, make even more money)’.

Žižek makes a good point. But two things are new about the new philanthropy. One is scale. The other is outspoken way that donors celebrate rather than veil the capacity to use philanthropy for private enrichment.

When it comes to scale, while solid numbers are elusive, it’s clear that global philanthropy is in a golden phase. Nearly half of the 85,000 private foundations in the United States alone were created in the past fifteen years. Thousands more private philanthropic foundations are set up each year.

Experts differ over whether this flourishing of individual foundations actually represents a significant increase in overall charitable giving in comparison to earlier decades. Ray Madoff, a professor of law at Boston College, has pointed out that within the US, overall charitable giving has remained at about 2 percent of the gross domestic product since the 1970s, and that contributions from individuals have stayed relatively the same for 40 years, amounting to about 2 percent of disposable income.

Broadening the gaze beyond the US, clear-cut pronouncements about increases in global philanthropy are easier to make. Philanthropy scholars David Moore and Douglas Rutzen suggest that global philanthropy has dramatically increased in recent years, a growth that has ‘corresponded with a rise of private wealth in Brazil, India, China, and other countries.’

This surge in global philanthropy is rooted in growing wealth concentration and widening economic inequality – something that has enriched the ability of the wealthy to give away eye-popping sums. Warren Buffett’s much-hailed 2006 offering of $30 billion toward the Gates Foundation is just one recent example.

But to what end?

What’s remarkable about the growing number of philanthropic foundations over the past two decades is that increased giving hasn’t made a dent in reducing growing levels of economic inequality. In fact the opposite appears to be the case. What to make of the fact that growing philanthropy and growing inequality seem to go hand-in-hand? Does philanthropy actually make the rich richer and the poor poorer?

Straightforward assertions of causality are hard to make, as multiple factors contribute to widening wealth divides. But there are a number of reasons why growing levels of philanthropy might exacerbate growing inequality rather than mitigate it. One is that charitable donations deprive treasuries of tax revenues that could be spent on redistributive welfare policies.

The second is that a surprisingly small proportion of foundation giving is geared at offering economic relief for low-income individuals. Yearly reports from organizations such as the Giving Institute show that only a small percentage, typically less than 10 percent each year, are spent on initiatives labelled as for ‘public-society benefit’ in contrast to far greater spending on religious pursuits or gifts to wealthy universities.

Another concern is that philanthropy is used to thwart demands for higher taxation, protecting and expanding assets rather than redistributing wealth. Philanthropy often opens up markets for US or European-based multinationals which partner with organizations such as the Bill and Melinda Gates Foundation in order to reach new consumers. Giving more is a strategy for getting more, helping to concentrate wealth in an ever-narrowing nucleus of power-brokers with growing influence over policy-setting at organizations such as the World Health Organization.

Philanthropists themselves are often the first to admit that their philanthropy is aimed at preserving rather than redistributing wealth. Carlos Slim is, perhaps, the most candid about this fact, summarizing his own approach to charity with the comment, ‘Wealth is like an orchard. You have to share the fruit, not the trees.’

Slim’s comment parrots a belief that underpinned the generosity of earlier benefactors such as Andrew Carnegie, the steel baron. In his influential essays on the value of charitable giving, published through the late 1880s and 1890s, Carnegie was clear that philanthropic gestures were crucial for allowing the wealthy to consolidate wealth and ensure manufacturing processes were not threatened by an increasingly militant working class demanding organizational change.

He suggested in 1889 that philanthropy would enable the ‘problem of rich and poor to be solved. The laws of accumulation will be left free, the laws of distribution free. Individualism will continue, but the millionaire will be but a trustee of the poor, entrusted for a season with a great part of the increased wealth of the community, but administering it for the community far better than it could or would have done for itself.’

Carnegie was writing at a time of massive labour unrest on US soil. Few of his workers were swayed by the suggestion that the so-called ‘laws of accumulation’ must be left intact so that he and a handful of others could control unlimited wealth to gift to their select causes.

A number of Victorian and early twentieth-century novelists wrote satires of this mind-set of Carnegie and fellow benefactors. Robert Tressell’s The Ragged Trousered Philanthropists, a novel set among a group of house painters, satirically extended the label of ‘philanthropists’ to a group of workers who meekly accede to their bosses’ demands. With sly wit, Tressel suggested that their willingness to give away their labour cheaply was the ultimate philanthropic act.

Today, philanthropy has largely sanitized of earlier satirical associations. From concerts such as Live Aid, to the popularity of shows such as The Secret Millionaire, a hit British TV show where benefactors lurk undercover in poor communities to find worthy recipients of their charity, philanthropy has achieved a popular salience that makes acts of giving hard to criticize or question.

Public acclaim, even reverence, for today’s philanthropists is kindled by a largely deferential media, prone to embrace and perpetuate the claim that there is something unprecedented about the new, ‘strategic’ philanthropy at organizations such as the Gates Foundation.

Certain techniques of measurement may be new, such as randomized controlled trials which hail from 1920s but have gained preeminence in development circles over the past 20 years. But the effort to evaluate impact is not.

And yet, time and again, today’s philanthrocapitalists tend to ignore their historical precursors. A good example is a recent article by Napster co-founder Sean Parker in the Wall Street Journal. Parker suggests that’s what unusual about the new global elite is their ‘hacker’ mentality. In his words, the ‘newly minted hacker elite is an aberration in this history of wealth creation.’ For evidence he cites the young age of today’s elite: the fact that many tech billionaires achieved success before turning 40. Then he contrasts the new ‘hacker’ elites with ‘antiquated’ traditional philanthropic foundations that, he claims, are uninterested in gauging their effectiveness.

Both points are false. Carnegie and Rockefeller each accumulated considerable wealth by their thirties, and each would have been the ‘hackers’ of their day, desperate to distance their own giving from alms-giving which saw charity as virtuous in itself regardless of practical effect. Contrary to Parker’s suggestion in the article – his argument that ‘youth and philanthropy haven’t historically mixed’ – Rockefeller and Carnegie gave generously throughout their lives and not simply in their dotage. Rockefeller started systematically surrendering a significant portion of his income while he was still a teenager.

Very little of Parker’s recent Wall Street Journal article is historically accurate, something pointed out by specialist websites such as HistPhil, a site devoted to the history of large-scale giving. And yet Parker was feted in the mainstream press, including a glowing review in Intercept, an online forum funded by Pierre Omidyar, as if Parker’s approach was really as innovative or unprecedented as he suggests.

Omidyar, the founder of eBay, is unusual among philanthrocapitalists in acknowledging the relevance of early political economists to his own approach to philanthropy and business; he often praises Smith for igniting his belief that private enterprise, under the right, laissez-faire conditions, will lead to collective benefits.

But this is a partial picture of Smith’s work. On the rare occasion when the new philanthropists speak of their historical predecessors, they tend to select convenient fragments of writing that propagate convenient caricatures of early political economists.

Take the writing of Mandeville, a Dutch philosopher born in 1670 who spent most of his career in England. Many people credit Adam Smith for originating the idea that individuals, labouring to meet their own economic needs and desires, will fuel collective public benefits. But an earlier genesis of that idea is actually found in Mandeville. It’s encapsulated in his influential essay, The Fable of the Bees.

In this essay, Mandeville adopts the metaphor of a bee hive. Within the hive, he writes, there thrives a mass of industrious and ingenious bees, many of whom seemed immoral – they were deceitful, vain, fickle – and yet their wants helped to make the ‘the whole mass a Paradise’. Their ingenious scheming, however rooted in vice, helped to fuel a dynamic industry, creating such comforts that ‘the Poor / Liv’d Better than the Rich before’.

Progress, in other words, was rooted in economic greed rather than abstinence. In the desire to get; rather than in restraint against taking. The idea that self-interest serves an important economic and moral function is visible in a direct lineage stemming from Mandeville and Smith, through nineteenth-century industrialists such as Carnegie and Rockefeller, to champions of philanthrocapitalism today.

Take the example of men and women profiled by the US anthropologist Karen Ho in her studies of young Wall Street investment bankers. The bankers she encounters display genuine and deeply felt bafflement that so many outsiders to their field perceive an absence of morals in their actions. Far from it, they are confident they are performing an essential public service. They see the embrace of Schumpeterian forms of ‘creative destruction’ as essential to ensuring smaller enterprises can flourish and compete. Like Mandeville, they insist that private profits generate public rewards.

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But there’s an important aspect of Mandeville’s argument which is often neglected. In Fable of the Bees, he writes the following verse:

So Vice is beneficial found

When it’s by Justice lopt and bound.

In another section, he insists that ‘Private Vice by the dextrous Management of a skilful Politician may be turned into Publick Benefits.’ Mandeville’s homage to economic self-interest, in other words, stressed the need for governmental management and legal restrictions in order to ensure that public profiteering does, indeed, lead to public rewards.

What’s missing in the peppy enthusiasm of today’s philanthrocapitalists is sufficient recognition of the historical struggles over private profits and public gain that have shaped labour relations at least since Mandeville’s day. When they acknowledge history, which isn’t often, today’s philanthrocapitalists praise a bastardized version of early political economy, one that ignores the emphasis that Mandeville and later Adam Smith placed on the need for government regulation.

Private enterprise may reap public benefits. But only if state actors, through ‘dextrous Management,’ are able to steward wealth in a way that guarantees that public interests are served as well as private ones. Mandeville, the original, unsung hero of philanthrocapitalism, was actually a champion of powerful, interventionist governments. No wonder today’s philanthrocapitalists tend to ignore him.

2016 February 23

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