Wednesday, May 22, 2013

Does Philanthropy End Up Hurting the Poor and Vulnerable?

by Brian T. Lynch, MSW

What follows is my response to an open discussion about the role and social value of philanthropic foundations. It is my response to the lead article by Dr. Rob Reich, which can be read in its entirity at the URL below.


Lead Essay:What Are Foundations For?
Rob Reich

This article leads off our debate on philanthropy, with responses from Stanley Katz, Diane Ravitch, Larry Kramer, and others.

Graham Smith

Judge Richard Posner, one of the foremost American jurists outside the Supreme Court, once observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.” Why, he wondered, don’t we think of these foundations as “total scandals”?

If foundations are total scandals, then we have a massive problem on our hands. We are now living through the second golden age of American philanthropy. What Andrew Carnegie and John D. Rockefeller were to the early twentieth century, Bill Gates and Warren Buffett are to the early twenty-first century.

The last decade of the twentieth century witnessed the creation of unprecedentedly large foundations, such as Gates’s. The assets of the Gates Foundation and a separate Gates Trust, which holds wealth donated by the Gates family and Buffett, together total more than $65 Billion. If the combined entities were a nation, it would be 65th on the world GDP list. And it’s not just billionaires and their mega-foundations that command attention. Record wealth inequalities might be a foe to civic comity, but they are good for philanthropy. The boom in millionaires has fueled unprecedented growth in the number and assets of small foundations as well.

So foundations have seen explosive growth. But why are they a scandal? Read the Full Article.

My Comments:

In setting up his essay on philanthropic foundation in this "second golden age", Reich offered the following: "Let us dismiss quickly one common and intuitive thought: that foundations exist because they are remedial or re-distributive, responsive to the needs of the poor or disadvantaged."

He goes on to identify public goods this way: "It has long been understood that the commercial marketplace does not do well at providing what economists call public goods. These are goods that, like a well-lit harbor, are available to everyone if they are available to anyone; and that, like clean air, do not cost more when they are consumed by more people. "

After three decades in the field of child welfare, this was a startling and insightful dismissal. In debating whether America's philanthropic foundations are worthy of the tax exempt status conferred on them in 1937, Reich excludes consideration of their value relative to public services that reduce human misery but carry a cost per use. In other words Reich's definition of public goods includes only passive public services, like street lights, but not active public services, including child welfare. This certainly explains why foundational giving for public needs is so small a percentage of their activity. Yet we are asked to judge whether their social contribution is worth their $53 billion in tax exemptions each year? How much good could that revenue do to support and strengthen our most vulnerable citizens? Don't ask!

To characterize social services as remedial "or redistributive" of wealth, is offensive to me. When used to characterize government spending on the general welfare, "redistribution" is a code word to frame partisan arguments in our muffled debate over distributive justice. Taxing the more successful citizens to promote the general welfare, except for military spending, is considered an unfair redistribution of wealth, yet any discussion on the fair distribution of profits between workers and business owners is considered out of bounds.

The context for this discussion on foundations is the social value of philanthropy at a time when wealth disparity has never been greater. When a growing number of wealthy foundations are extracting ever more revenue from an already dwindling federal revenue stream, excluding consideration of their impact on public services makes this discussion itself a plutocratic exercise.

The pros and cons of whether foundations generate valuable diversity and innovation were well explored by the forum's other contributors, but none of their essays addressed underlying assumptions. Foundations actually do play an outsized and often deterious role in how community social services are structured, funded and distributed. None of the contributors picked the scab off this wound to consider the broader picture. Financially speaking, foundations are in direct competition with public social services and the vulnerable populations served. I was disappointed.

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