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Billionaire Philanthropy: Society’s Golden Ticket or A Drop in the Ocean?

Blanka Mona investigates the role of philanthropy in a modern welfare state. 

Philanthropy is rapidly growing in its scale and importance. A practice that operates at the extreme margins of society—think multi-billion-dollar investments by the Rockefeller and Gates Foundations—has taken on new meaning in the wake of recent financial and health crises as philanthropic ventures have had to fill voids in government spending. 

The COVID pandemic highlighted the positive role that dynamic and flexible charitable giving, which helped fund vaccine research and rollout, can play during times fraught with hardship. But the rhetoric that often surrounds philanthropy, that it is a wholly good and efficient substitute for public funds, is being called into question. There have been increasingly loud claims that donations by the massively wealthy have had, in fact, only limited social impact. A similarly disparaging assertion is that philanthropy is an undemocratic force that threatens to undermine the sovereignty of governments and public agencies.

The question now facing many societies is whether they would be better off if the vast sums directed to philanthropies were instead taxed and redistributed by governments. 

Chicken Little

Charitable giving has had an undeniably positive effect on certain aspects of wellbeing; after all, the Rockefeller Foundation practically founded the field of public health and spurred early efforts to eradicate hookworm, yellow fever, and malaria. The Gates Foundation has more recently improved the lives of millions of women living in deprived countries by providing contraceptive services. These efforts are laudable, as is the experimental approach that many philanthropies take when approaching social problems. 

Willingness to tolerate higher levels of risk than government agencies—who have to justify spending to taxpayers—often translates into daring and sometimes quizzical projects. An eye-catching example of this came in 2016 when the Gates Foundation donated 100,000 chickens, vaccinated against common agricultural diseases, to rural families living in extreme poverty in sub-Saharan Africa. The project aimed to ameliorate food poverty in the region by raising stocks of healthy chickens. Ultimately, the number of vaccinated chickens bred increased by 5%. If you are left underwhelmed by that statistic reader, you are not alone. Despite attracting remarkable headlines, it is not clear that the Gates Foundation substantively changed the fortunes of sub-Saharan families by putting “beaks on the ground.”

A concern for many is the lack of accountability facing such ambitious ventures. As Rob Reich, a professor of political science at Stanford University, points out, “private foundations are frequently nontransparent.” To this end, more than 90% of the roughly 100,000 private foundations in the US have no website. Whilst public servants may envy the carefree, give-it-a-go attitude of philanthropists, it is important to recognise that members of philanthropic organisations are not elected and yet often make decisions that affect millions of people. Projects that may otherwise be considered wasteful and not receive public support are allowed to go ahead without approval. It is not hard to imagine that a government-sponsored program to send chickens to Africa would receive widespread condemnation and backlash from disgruntled voters if it produced the same results as that of the Gates Foundation. 

Before the Ink Is Dry

It may, however, be that philanthropies add higher value in other domains. As noted above, an often-cited virtue of philanthropy is its ability to react quickly during crises, which stands in stark contrast to slow-moving bureaucracies. Fast Grants, a program launched in April 2020 to expedite funding for scientific research, is a prime example of the agility of philanthropic initiatives. Amid a global health crisis, Fast Grants allowed researchers to apply for funds in under 30 minutes and receive a decision within 48 hours. Successful applicants typically receive funding within a week. In the nine months since its inception, Fast Grants secured over $50million from donors and issued 260 grants. Conventional government funding for scientific research, by contrast, often takes up to a year. 

The responsiveness of philanthropy may be key to understanding its apparent success over the short term. Programs like Fast Grants, which bypass government bureaucracy, are evidence that philanthropies offer a viable—and perhaps more attractive—substitute to public funds in the immediate response to crises. Nevertheless, most philanthropic funds do not intend to fill temporary shortfalls in government spending, but instead target long-term and deeply rooted social issues. A dilemma naturally arises if the issues that wealthy philanthropists wish to address are different from the priorities of the rest of society. 

The Winner Takes It All

Misalignment seems unfortunately commonplace. Take education, for example. In 2018, over £1billion—10% of total charitable donations in the UK in that year—was donated to UK universities. Almost half of which went to just two universities: Oxford and Cambridge, institutions disproportionately attended by rich and middle-income students. Religious causes received the lion’s share of charitable donations in the UK in 2018—19% of total donations in that year—despite half of the population indicating on a recent national survey that they do not subscribe to any religion. It may be that these donations come predominantly from private donors, such as alumni networks, but the objectives of philanthropic foundations themselves are prone to differ. UBS, a multinational financial services company, finds that 18% of philanthropies identify the arts and culture as a top funding priority, whereas only 16% identify poverty alleviation as warranting a similar focus. 

For some, embracing philanthropy means accepting its inherent shortcomings. They acknowledge that philanthropies will sometimes allocate funds inefficiently, at least from the public’s perspective. But, on the whole, support for underfunded causes must only be a good thing. This reductive reasoning overlooks a worrisome aspect of philanthropy. 

The freedom to disproportionately allocate vast sums to issues that the wealthy deem “important enough” may undercut democratic ideals. Elected governments have the implicit consent of their voters to spend public funds according to the priorities they campaign on. Philanthropies afford wealthy individuals the power and means to advance their visions of the future, to decide what is and is not good for societies, whether those societies agree or not. This raises an important ethical question about the deepening role of philanthropy in modern societies; as German billionaire Peter Kramer puts it: “Is the transfer of power from elected politicians to billionaires morally right?” 

The answer to this question would be more straightforward if opinions about social welfare were similar across income levels. Research suggests that this tends not to be the case. Using results from a survey of the top 1% of Americans by income conducted in 2013, Benjamin Page, a professor at Northwestern University, finds that the views of wealthy Americans deviate substantially across a range of welfare issues from those of Americans in other income groups. Notably, the top 1% were more in favour of cutting social welfare programmes and considerably less supportive of minimum wage laws and other forms of income support. It seems natural to question how socially impactful charitable giving by elite donors can be when their metric for success is so disparate from the rest of society.

Free to Choose

A frequent response to concerns about the ideological motivations behind philanthropy is that wealthy donors have the right to decide how to spend their wealth. Notwithstanding arguments about how much of this wealth is earned through hard work and how much is derived from strong economic growth and public investment, charitable donations are often not independent of other social obligations. Most charitable donations offer significant tax advantages; in the UK, donations to charities are tax-free. This means that private donations may crowd out public spending if the funds used by philanthropies, subject to tax relief, would otherwise be collected and redistributed by governments. A cynical view is that philanthropists are giving away vast swathes of taxpayers’ money; for example, tax subsidies on philanthropic donations cost the US Treasury $50billion in foregone revenue in 2016—almost equal to the amount spent on education annually in the US. 

These are not small sums, but it is important to consider the practicalities of alternatives to tax-free philanthropy. It is not a given that money spent on philanthropy could be recouped through taxation. Much of this wealth would likely be spirited away to overseas tax havens—where it would serve nobody but its owners. A more balanced approach may be to evaluate the effect of philanthropy at the margin. If the benchmark is to improve society through any means, then philanthropic spending is a net positive even if it does not meet the same standards as government spending.

Sharing the Love

The word philanthropy literally means “love of mankind,” but relatively recent trends in income inequality suggest that this “love” is not shared equally. Global income inequality has risen to unprecedented levels. The poor’s share of real income has declined—in part due to falling real wages. In the US, while the top 1% of US individuals hold over 20% of national income, the bottom 50% take home only 12%, almost half of the share of national income they held just three decades ago. Historically, philanthropy has been a mechanism through which prosperity in the upper echelons of the income distribution reaches the poorest in society. Yet, despite over two-thirds of the world’s philanthropies being founded in the past two decades, income inequality has continued to worsen. This is, of course, not a direct indictment of philanthropy—much of its positive impact may not be reflected in statistics on income inequality—but the data suggest, at least, that philanthropy is not doing enough to alleviate relative poverty.

The need to address growing income inequality is one of the strongest arguments in favour of taxing funds that would otherwise go to philanthropies. There is abundant empirical evidence to support the view that countries with larger welfare states, which typically have better public education, healthcare, and social security, have higher living standards and greater social mobility. Although there is no evidence to suggest that philanthropy cannot achieve the same ends, the evidence on the social impact of philanthropy is scant. A straightforward interpretation of the facts is that it may be more sensible to support larger welfare states through increased taxation on charitable giving than to leave addressing pressing social issues to the whims of wealthy donors. 

Balancing the Books

Philanthropy evidently deserves a place in modern society. It has changed the lives of millions of people for the better and likely will continue to do so in the future. The flexibility, generosity and unmatched ambition of philanthropies have especially shown their worth during recent years. Nevertheless, we should not take the merits of philanthropy at face value. It is right to question the motivations of wealthy donors. Philanthropies should be accountable for failures, and they should be open to exploring new ways to harness funds for greater social impact. In this instance, it’s ok to look a gift horse in the mouth. 

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