Why Philanthropy Actually Hurts Rather Than Helps Some of the World’s Worst Problems

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In America today, big time philanthropists are often lauded for helping to even the playing field for those less fortunate. Every week, millionaires flock from TED conferences to “idea festivals” sharing viral new presentations on how to solve the world’s biggest problems (give village children computers, think positive thoughts etc.). But this acceptance of the philanthropic order was not always the case. In the era of Carnegie and Rockefeller, for instance, many distrusted these philanthropic barons, arguing they had no right to horde would-be tax dollars for their own pet causes, especially since these “donations” came from the toil of the workers beneath them.

In her new book No Such Thing As A Free Gift: The Gates Foundation and the Price of Philanthropy Linsey McGoey reasserts this challenge to the legitimacy of philanthropy in today’s new era of philanthropic superstars. McGoey’s book investigates the Gates Foundation’s interventions in US K-12 education and global health, raising serious concerns about the extent to which the massive philanthropic sector depletes funding for traditional social services and prioritizes the agendas of unelected foundation leaders.

As institutions like the Gates Foundation take increasingly leading roles in policymaking and governance, McGoey argues, the line between traditional notions of charity and top-down consolidation of power becomes unclear; and with this largely unchecked influence, philanthro-capitalists, like Bill Gates, have pushed countries across the world to accept market based solutions for crises like education inequity and disease proliferation – despite evidence that these problems are often rooted in actions taken by those philanthro-capitalists themselves.

No Such Thing As A Free Gift asks, what is the place of such philanthropy in a democratic society? The answer seems to be “none at all.”

You start the book by putting the rise of today’s “philanthrocapitalists,” like Bill Gates, into historical context. Could you explain what philanthrocapitalism is and what is actually new about it? How do the Bill Gateses of today compare to the Carnegies and Rockefellers of old?

The term philanthrocapitalism was coined by Matthew Bishop, an editor at the Economist and expanded in a 2008 book co-written with Michael Green. They define the term in two key ways: First, they argue that philanthropy is becoming more business-like and results-oriented, with donors increasingly applying the profit motive to giving practices.

Secondly, they suggest that capitalism is a “naturally” philanthropic practice, and therefore grants should be aimed at helping the private sector to solve social problems. Bill Gates has never called himself a philanthrocapitaist, but people like Bishop and Green see him as an exemplar of the trend.

What’s not new about the “new” philanthropy is the emphasis on cost-effectiveness and strategic giving. Champions of philanthrocapitalism exhibit quite astounding historical amnesia when it comes to the history of large foundations such as Carnegie and Rockefeller, which were modelled on the corporate structures of their founders’ businesses. Results-oriented, strategic philanthropy is a modern phenomenon, but it can be dated to the turn of the 20th-century and the late Gilded Age, not to the start of the 21st century.

There was a recent hullabaloo about Mark Zuckerberg’s public announcement that he was going to “give away” 99% of his Facebook shares to charity – which turned out to actually mean a LLC under his control and exempt from non-profit rules against political expenditures and profit-making. Do you think Zuckerberg genuinely understands this as charity? And if so, is this profit-oriented “giving” a major new trend in the philanthropic sector?

Through setting up an LLC, Zuckerberg has skirted any requirements to publicly list any grants made to either for-profits or non-profits. His giving can take place in total secrecy: we’ll know only about the grants that he wishes to disclose. When an entity such as the Gates Foundation offers grants to for-profit corporations, it needs to legally exercise “expenditure responsibility,” which means that it needs to take measures to ensure that the grant is used for charitable ends, rather than private profiteering. There are no such restrictions on Zuckerberg’s LLC.

Zuckerberg can legally offer the bulk of his “philanthropy” to any for-profit recipients he wants and still receive public acclaim for “gifting” his fortune. We’re seeing the rise of a new, horizontal philanthropy – the rich giving directly to the rich – at a level that’s completely unprecedented.

I think the entire meaning of “corporate philanthropy” is shifting. It once meant corporations surrendering a portion of their revenues to non-profits. Now the meaning is reversed: corporate philanthropy means getting charity to for-profits that position themselves, however disingenuously, as deserving charity claimants.

Though American wealth inequality is at its greatest since the Great Depression, today’s philanthropic titans receive much less skepticism from the public than they did in years past. Both Rockefeller and Gates were entangled in some of the most high-profile anti-trust cases in US history. Yet while Bill Gates tops some of today’s most admired celebrity surveys, Rockefeller faced so much hostility that he was forced to register his charity in New York State instead of at the federal level. What accounts for the huge shift in the public’s mind?

Something that separates today’s donors from famous benefactors of the past is that the bloodiest, most fatal effects of wealth extraction have been largely outsourced to developing regions, where brutal labor battles occur regularly but are less visible and therefore less salient for consumers in the west. When Andrew Carnegie, the steel baron, first called for the wealthy to spend their fortunes on the poor, his workers were engaged in very visible struggles over harsh working conditions at Carnegie’s steel plants. These workers had a high degree of public support. Thus, while his philanthropic benefactors did curry some public favor, there was widespread skepticism over the motivations of his charitable giving.

Also, high-profile, 19th-century authors such as Oscar Wilde and Charles Dickens often wrote essays and fiction that satirized and denounced the way that philanthropy seemed to entrench inequalities rather than dissipate them. That literary thread seems almost absent today.

In the book, you document how philanthrocapitalism is seeking to make both charities and public sector institutions run more like corporations, both in structure (with the seeding of for-profit “social enterprises”) and operation (as in the case of teacher evaluation reform). What is gained and lost in this approach?

It’s very obvious there’s been a considerable shift in how donors, particularly at large foundations, understand and measure their own impact. Garry Jenkins, a law professor at Ohio State, has done important work here, showing how large foundations such as the Gates Foundation increasingly refuse to accept “open-door” proposals from smaller non-profits: returning again and again to proven recipients. This tendency is undermining genuine competition.

Grantees feel increasingly burdened by unreasonable expectations and short turnarounds for demonstrating a gift’s impact. The education sector in the United States has gone through upheaval after upheaval as schools and school districts try and meet the mercurial demands of donors who are themselves accountable to no one other than a foundation’s trustees or board of directors.

In a review for The New Republic, Dana Goldstein asserts that your book wrongly insinuates the Gates Foundation’s philanthropic work is about laying the ground for Bill Gates’ own financial gain. This seems to be a misreading of your book’s entire premise, which argues that the philanthrocapitalists seek to solve problems of social inequality through market expansion – not because of their own “lust for profit” but because of a sincere faith in unbridled capitalism. Could you clarify the significance of this distinction with specific reference to the Gates Foundations’ work?

My main argument is not that Gates is trying to position himself to profit personally. My point is that he’s overly sanguine about the value of positioning and helping other elite actors to benefit financially from his own giving. His foundation has offered tens of millions in non-repayable grants to some of the world’s largest corporations, including Mastercard and Scholastic. In email interviews, a spokesperson for the Gates Foundation suggested to me that any giving to for-profits is in keeping with IRS regulations which stipulate that grants must be used solely for charitable gain. But clearly the foundation’s giving is used in a highly commercial manner by recipients such as Mastercard.

US taxpayers subsidize philanthropic foundations such as the Gates Foundation through displaced tax revenue. I’d like to see more media and congressional scrutiny over whether the Gates Foundation’s charity towards Mastercard is really a fair use of taxpayer money. I also worry about the precedent that is being set. If the Gates Foundation can offer a gift to Mastercard, there’s nothing stopping the Koch brothers from directly subsidizing any corporation they want – as long as they can argue that the gift was in line with their own charitable mandate.

In the book you grapple with one tenet of this faith in business: the idea that the “data-driven” and “market-based” philanthropic efforts of today are far more efficient and productive than social services provided by the government. Is this true? What are the numbers on who philanthropy helps today and who it costs in lieu of tax revenue?

Scholars like Robert B. Reich place the yearly cost to the US treasury at $40 billion – this is what overall deductions tend to come to. Clear-cut numbers of who philanthropy helps the most are hard to determine because you have to ask, who is the “who” you’re talking about? Are we talking about the poor in the United States? The poor globally?

In the United States, study after study has shown that less than a third of all charitable giving from foundations and individuals is geared towards people who are living in situations of extreme economic need. Poverty is rising in the United States; it’s clear that this purportedly golden age of giving is not making a dent in reducing growing inequality.

At the global level, there’s evidence that a growing reliance on enrolling the private sector in service delivery can be extremely expensive for state actors. An organization called Eurodad, the European Network on Debt and Development, has studied the rise of public-private partnerships in global development and concluded that partnerships with the private sector can often double the costs expended by governments. We see this in the United States with for-profit prison services, something that even the Economist pointed out was often more costly for tax-payers than non-profit correctional facilities.

You write that the big time philanthropy of Carnegie’s day was, in part, a response to fears of militant labor uprisings. But “what’s absent in the peppy optimism of today’s TED Heads is recognition of the historical struggles over private profits and public gain that have shaped labor relations” since the Gilded era. Given this ahistorical outlook, what motivates the enormous philanthropy of today?

I think the philanthropic impulse comes from growing recognition that wealth inequality inside wealthy nations and between nations is unsustainable and certain to foster ongoing civil strife. Inequality is fuelling the current philanthropic surge, but far too few people are examining whether this “solution” is actually making a difference to inequality levels – or simply entrenching existing wealth gaps.

In the second half of your book, you trace out the tremendous sway over American education and Global Health policy that the Gates Foundation has earned by virtue of its strategically leveraged contributions. Should advocates of campaign finance reform fight for philanthropists to be scrutinized and regulated also? If so, how?

The last time the US Congress launched a significant inquiry into tax provisions and regulatory requirements for large foundations was the late 1960s. Many scholars, including Ray Madoff and Pablo Eisenberg, suggest that we need new regulatory mechanisms to ensure that charitable benefactions reach people in need. Proposals include mandating that some members of the public have a voice on the boards of family foundations; limiting the tax deduction; and capping the size of large foundations.

My own view is that nothing will change unless large media outlets such as the New York Times nuance the fawning way they cover large foundations such as the Gates Foundation and start asking tougher questions.

In the realm of American education and Global Health policy, much of the Gates Foundation’s focuses seem based on personal whim rather than a “save the most lives” philosophy. You cite researchers, for example, who argue that Gates’ fight to eradicate polio, which has mostly been defeated in the developing world, siphons off both funding and crucial local state services away from TB and Malaria containment efforts. Nonetheless, the Gates Foundation is widely recognized for a utilitarian, data-driven attitude. How does this image persist and what is its cost?

People in the global health community are divided over whether polio efforts are worth their immense cost, given the fact that new cases are rare. Far, far more children die of, say, road accidents in the developing world than they die of polio. For years, global health scholars have pointed out that bequests from donors such as the Gates Foundation do not correspond well with the global burden of disease.

A negligible amount of Gates Foundation money is put towards chronic diseases like cancer, heart disease and obesity, which are biggest cause of premature death in both the developed and the developing world, outpacing deaths from infectious diseases. You don’t see this reality reflected in the Gates Foundation’s global health disbursements.

You quote Foster Fries, a Wyoming investor who once declared, “It’s that top 1 percent that probably contributes more to making the world a better place than the 99 percent. I’ve never seen any poor people do what Bill Gates has done.” The bizarre statement implies that the 99 percent contribute almost nothing to the billionaire class’ wealth – a notion that you rebuke in your conclusion, pointing out that “working-class philanthropists” are actually the ones relinquishing their wealth everyday. Given this insight, how would you define philanthropy? And is it a concept that can exist within a progressive society?

Fries’s quote is from Chrystia Freeland’s excellent book Plutocrats, which I draw on a number of times. Freeland taps into a growing zeitgeist, which is the idea that governments are worse than ineffectual and that private enterprise is essential for solving intractable problems. The point I’m trying to make is that neither governments nor the private sector exist in a silo. There’s obviously no such thing as a “free market” – private fortunes have always been bolstered through regulatory interventions and legal frameworks. The wealth of Gates and other has been greatly augmented through governmental mechanisms such as patent protections.

It follows that how we conceive of wealth is central to how we conceive of philanthropy. If we swallow the unsubstantiated myth that wealth is created in a vacuum free of government intervention, philanthropy has a different salience than if we explore and document the ways that public subsidies are often central to private wealth. Today’s philanthrocapitalists are propagating a questionable assumption: the belief that entrepreneurs and corporations are subsidizing gaps in development aid generated by increasingly non-interventionist states. In reality, it’s typically governments subsidizing and underwriting the philanthrocapitalists.

As for my views on philanthropy, I don’t offer a single definition. I think individual charity is a commendable impulse. As I say in the book, the poor in the United States proportionately give away more of their income than the rich. But the idea that private donors can “solve” the problems of poverty and inequality seems untenable to me.

Today, there’s a growing return to aristocratic notions of “noblesse oblige,” the idea that with great wealth comes the need to show great leadership and responsibility. Notions of noblesse oblige were rightly and resoundingly challenged during the 19th century, when scholars such as Lester Frank Ward pointed out that plutocratic notions of elite responsibility didn’t square well with democracy. The amassment of wealth doesn’t naturally endow any individual with leadership “rights.” But that is what’s happening: the assumption that wealth confers exceptional public duties and that we owe deference to individuals who part with their fortunes.

That assumption has no merit – at least not in a democratic nation.