Tuesday, September 18, 2007

The Good Society (part 1 of 2)

There have been a couple of articles recently in the WSJ and NYT that go a ways toward exposing, or inviting the exposure, of some trends and fallacies in contemporary philanthropy that should be of interest to anyone who participates in the 'not-for-profit' economy and that's pretty much all of us.

Stephanie Strom's piece in the Times focuses on, and disrupts, two foundational premises about charitable giving in the US: 1) the 'common perception of philanthropy ... that one of its central purposes is to alleviate the suffering of society’s least fortunate and therefore promote greater equality'; and 2) (quoting Eli Broad) "what smart, entrepreneurial philanthropists and their foundations do is get greater value for how they invest their money than if the government were doing it". The merit of Mr. Broad's assertion can be assessed both with respect to data documenting the impact of private vs public dollars on causes that we might all agree are of 'greater value' (ok, I know I beg indulgence here) and also with respect to the overall social contract such a statement implies. Are individual entrepreneurs providing greater value to society than the state? Is this desirable? What is the cost?

A recent study co-sponsored by the University of Indiana Center on Philanthropy and Google found 'that less than one-third of the money individuals gave to nonprofits in 2005 was focused on the needs of the economically disadvantaged. Of the $250 billion in donations, less than $78 billion explicitly targeted those in need'. One telling statistic concerns charitable giving to benefit the poor as a percentage of income. Out of 4 income brackets: 1) less than $100,000, 2) $100,000-$200,000, 3)$200,000-$1 million and 4) $1 million or more, those reporting income of $1 million or more gave the LEAST to causes that benefited the poor-- 22 per cent, as opposed to over 35 per cent for those making incomes of $100,000 or less. What's especially fascinating about this finding is how sharply it contradicts the self-reported priorities of wealthy individuals as documented in another important Center of Philanthropy report, the Bank of America Study of High Net Worth Individuals. The BofA study, which defines high net worth individuals as those with an annual income of over $200,000 or net worth of $1 million or more, found that the top motivations for giving reported by this group were to 1) 'meet critical needs' (86.3 per cent) and 2) 'give back to society' (82.6 per cent). By contrast, such self interested motivations as making good business sense, doing what was expected of one's social set, and leaving a legacy were reported by between 26 and 29 per cent--- the lowest scores on the survey (with the exception of 'limiting funds to one's heirs', which suggests nobody wants to confess keeping company with Leona Helmsley).

Strom notes that there are also substantial amounts of money-- largely from or patterned on The Bill and Melinda Gates Foundation, going 'primarily to improve the lives of the poor in developing countries'. The Gates Foundation's 2006 990 describes approximately two thirds of a total $1.5 billion in grants as being dedicated to 'global development' or 'global health'. (I was looking for the actual awards but haven't found them yet which is odd because they are usually spelled out on every 990. Maybe they submit their appendices differently). I really don't want to fault the Gateses of the world, or Bono for that matter, for aiming to eradicate disease, end poverty, and generally address the kind of extreme problems that you'd be embarrassed to contemplate unless you were God, Miss America, Mr. or Mrs. Gates or Bono). I mean, these people could be using their billions to colonize outer space or run for office (there were too many candidates to decide on a link so I leave that one to your imagination). But it's more than cynicism to observe that a population that is unemployed, uneducated, diseased and deceased does not spring to mind with the words 'emerging market'.

And of course, we all know that those who can make money, should. This was Carlos Slim's contrarian rejoinder to the benediction Warren Buffett was accorded following his paradigm-shifting decision to give away a fortune, to another agency that didn't bear his name, to spend down on today's needs rather than to augment its coffers that it might continue to dole out smaller amounts over longer periods of time to redress/sustain problems that will have persisted due to the paternalistic spending policy of the comfortably endowed granting foundations.

Earned money used to follow inherited money where charitable giving was concerned. And for the most part it still does. What's different is the level of control to which today's newly rich, often young and entrepreneurial donors are accustomed to exercising and are now capable of bringing to bear in their charitable activities. In courting and securing the megagifts that are increasingly the lifeblood of not-for-profit organizations (I will return with data), entities that are privileged--both by the state and by the public--on the basis of their claim to serving the public good, are at serious and deserved risk of losing the public trust.

What's worse is that the'public' may not care.

Coming soon: the business of philanthropy, the philanthropy of business, and 'good' government.

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