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Philanthropy in the Modern Age: A Complicated Legacy

By Andrew Nicolais

October 12, 2023

In the 19th century, the Rockefellers, Carnegies, and their fellow magnates began amassing unimaginable wealth, while rapid industrialization created a new underclass of low-wage workers. The fortunes of gilded age tycoons were so massive and the amount of people in need were so many that a more systemized and scientific method of distributing money—the modern foundation—seemed necessary. Fast forward to today: in a CNN interview in late 2022, Jeff Bezos pledged to give away most of his estimated net worth of $120 billion. Since then, he has only managed to donate about $2 billion, and a notable lack of transparency surrounding the remainder of his fortune remains. In that same timeframe, Bezos’s personal wealth has ballooned by another $40 billion–an increase of about 33%. Out of the approximately $105 billion added to his wealth since 2013, Bezos has paid an effective tax rate of just 1.1%, second only to Warren Buffet’s astonishingly low 0.1%. Had Bezos paid the same rate on his income as most Americans, he would have already contributed $38 billion in taxes this past year.

According to Bezos, his foundation will make up for that…eventually.

Philanthropy, on the surface, seems like a non-controversy. Why should there be any fuss around sharing wealth with those in need? In recent years, however, critics of large philanthropists like Jeff Bezos, Bill Gates, and Mark Zuckerberg are speaking out in an increasingly unified voice. CEOs argue that donated funds are inherently beneficial; any resource donated to someone in need is fundamentally, and simply, a good thing. But their antagonists counter that much of philanthropists’ wealth–including money given away in displays of benevolent goodwill and public stewardship–is generated through corporate and personal tax loopholes, and that using that lost revenue to fund existing government programs and services would be much more effective, and much more just.

This practice of the ultra-rich–using philanthropy to touch-up public image and evade taxes is known as philanthrocapitalism. But no system is without its detractors. Philanthrocapitalism’s more radical-grassroots offspring, philanthrolocalism, appropriates certain elements of the classical model and instead superimposes them on community-driven, locally-managed donation efforts. These local initiatives have the potential to get resources where they are needed without the externalities and baggage of corporate management.

We’ll get to that, but let’s first zoom back out. Upon taking a closer look at the research, three major criticisms against modern philanthropy come into focus: image building, lack of accountability, and influence on public priorities.

Motivations and Image Building

Corporations and billionaires are no strangers to controversies. We all know that the Waltons and the Blackrocks of the world employ teams of public relations experts to ensure images remain as spic-and-span as possible. A time-tested and effective method of swiftly repairing a public image crisis is to announce a massive donation, often without divulging further details. For example, Jeff Bezos’s announcement he will give away his entire net worth came a few days before news broke of Amazon’s plan to lay off more than 18,000 employees. Though Walmart takes great pride in donating to food banks, nearly 14,000 of their employees are on SNAP, a government-funded supplemental nutrition program. These trends cut across nearly every industry, as the positive publicity generated from small donations can often mitigate even the most severe controversies. Carl Rhodes and Peter Bloom, writing in the Guardian, say it perfectly:

“The trumpeting of the CEOs’ personal generosity can grant an implicit right for their corporations to act ruthlessly and with little consideration for the broader social effects of their activities.”

Lack of Accountability

Another often-unexamined quality of CEO philanthropy is the role of private foundations. Here’s a fun fact: private foundations are only required to spend 5% of their endowment a year on actual charitable activities. The massive Bill and Melinda Gates Foundation is the zenith of all 501 C-3s, but recent years have also seen a growing number of limited liability companies (LLCs) used solely as charitable organizations. Mark Zuckerburg’s charity is an example of this; under the burden of even fewer regulations than a nonprofit foundation, Zuckerburg is free to use that money to invest in other companies, make political donations, or just move money into the charity to avoid paying taxes on it.

Yet another form of tax evasion by billionaires is through Donor-Advised Funds (DAFs), which are essentially large investment portfolios that are considered a charitable donation as soon as money is deposited, meaning it is untaxed and can be used as a deduction. The bigger problem however, is that there are essentially no requirements to actually distribute those funds to charities. Vanguard Charitable for example, only requires $500 in actual donations every 3 years. These funds account for over half of the top 20 charities in the US, representing over $234 billion of charitable giving. At their best, DAFs act as tax free investment funds for the rich, but at their worst, they are used to anonymously funnel over $200 million into anti-LGBTQ+ hate groups in the US and around the world.

Influence on Public Priorities

As philanthropic endeavors are able to reshape the public’s opinion of the ultra-wealthy and the corporations they control, it’s no surprise that they also have an outsized influence over what social issues we decide to address, and often divert attention away from systemic problems that may require government intervention. A great example of this is climate change: only 2% of global philanthropic dollars ($10 billion) was allocated to address the climate crisis in 2020–a figure that amounts to about only 6% of Jeff Bezos’s net worth. Philanthropy and lobbying also go hand-in-hand; rather than donate directly to political campaigns, large corporations frequently redirect money to tax-deductible politically-aligned nonprofits, allowing them to save money and still wield their influence, just less overtly.

But let’s return to our good friends Bill and Melinda, whose foundation was the second largest funder of the World Health Organization–after only the US government. While the Gates Foundation may have altruistic intentions, the massive influence it wields over the priorities of global health should not be overlooked. At the onset of the COVID-19 pandemic, the Gates Foundation donated nearly $750 million to Oxford University to fund COVID-19 vaccine development, which was developed in a University lab and from the start was intended to be patent-free. That was until Gates used a massive donation to pressure Oxford into offering the rights of the life-saving vaccine to just one company–AstraZeneca. This prevented low-income nations from being able to manufacture their own vaccines, vastly reducing access but generating billions in profits as a result.

This is perhaps the crux of the philanthro-capitalist debate. Big donations from big funders do help people. But should decisions impacting millions of people and billions of dollars be made by a handful of CEOs and their rich friends? The movement against philanthropy does not take issue with giving money to those in need. The argument is that if we simply enforced our tax laws and made the richest people in the world pay their fair share, we could have more effective and more robust public spending programs, and you wouldn’t need to rely on hope–that some faraway billionaire decides your cause is worthwhile.

An Alternate Approach: Philanthrolocalism

William Schambra, writing in Philanthropy Daily, defines philanthrolocalism as:

“A philosophy of giving that prioritizes the use of resources to help one’s own place, including one’s neighbors, community members, churches, businesses, cultural institutions, civic associations, and ecology. Philanthrolocalists seek to deploy resources to promote human flourishing and civic life in their own local communities.”

Philanthrolocalists argue that to empower local communities we must allow for unique solutions that suit their specific challenges, rather than force top-down approaches. This grassroots, organic alternative requires trust–that local community leaders will allocate resources effectively and ethically. Moreover, it encourages innovation, as small-scale solutions can be developed and tested before scaling up. Finally, philanthrolocalism encourages civic engagement, granting community members a sense of ownership over their community and its priorities, as opposed to decisions being made by out-of-touch and distracted CEOs.

Does philanthrolocalism have a chance to entirely replace our existing philanthropy industry? It’s unlikely. But it could be a win-win for both the public and the CEO philanthropists. Donations to local community organizations with no strings attached enable CEOs to showcase their philanthropic efforts without the need to establish their foundations from scratch. Concurrently, local communities regain control and ownership over what they deem most beneficial

Final Thoughts 

Philanthropy has undoubtedly helped countless people over the years, but it might be time to reconsider how we approach charitable donations. Unchecked corporate influence in philanthropic endeavors often places those receiving lifesaving resources at the mercy of a single CEO’s discretion or the board’s reaction to earning reports. It is imperative to democratize philanthropy by closing billionaire tax loopholes and adequately funding existing government social safety net programs. Beyond that, moving funds into independent, transparent foundations with an emphasis on small, community driven programs should be the gold standard of philanthropy going forward.

This is not to say that you should cease your charitable donations, nor is it to say that the wealthiest among us should refrain from giving. The Bill and Melinda Gates Foundation, for instance, has contributed billions of dollars to address global health challenges, and the positive impact of this financial support cannot be overstated. (In fact, they played a pivotal role in the successful eradication of polio.) But perhaps we should look beyond the flashy headlines that claim billionaires alone can solve the world’s problems. What if, instead, we all encouraged each other to advocate for a new, more equitable approach to philanthropy in the future?

Let’s try it.

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