Opinion

Felix Salmon

Philanthropy: You’re doing it wrong

Felix Salmon
Dec 26, 2012 04:10 UTC

Merry Christmas! Maybe it’s because of some vestigial religious undertones to this holiday, or maybe it’s because the end of the tax year is rapidly approaching, along with the urgency of maximizing your annual deductions. Either way, this is a particularly philanthropic time of year. And since I’m personally feeling very charitable right now, I’ve decided to do you all the favor of telling you that when it comes to philanthropy, you’re doing it wrong.

Interestingly, philanthropy is one of those areas where the richer you are, the more likely you are to be doing it spectacularly wrong. So to make you feel better still, this is aimed mainly at the mega-philanthropists: the people who give away millions of dollars and feel fantastic for doing so. These are the people at the heart of the debate over capping the mortgage-interest tax deduction: they receive an outsized proportion of its costs, on the grounds, to quote Bob Shiller, that

charitable giving can substitute for a good part of the things that the government would otherwise be doing itself, a factor that is rarely introduced into budget calculations. Indeed, in many cases, individual philanthropy may be more effective than government expenditures.

Being “more effective than government expenditures” is a pretty low bar to hurdle. But that doesn’t mean it’s reasonable to assume that most philanthropic donations hurdle it with ease. Remember John Paulson, with his $100 million gift to the Central Park Conservancy: I think I’m entirely safe in saying that the government, in the form of the New York City Department of Parks & Recreation, spends its money a lot more carefully and effectively, despite the fact that it has to divvy up its budget across 5,000 different properties, including Central Park.

And the much bigger problem is that Paulson is no exception here. Let’s run down the list of things you’re likely to be doing wrong, if you’re a rich philanthropist:

You meddle in the internal workings of the charities you donate to, even though you’re not on the board.

If you’ve done your homework, then you’re giving to a certain charity precisely because you admire the way it gets things done. If you don’t admire the way it gets things done, then you should find a different charity: there are many very good ones out there.

What’s more, your experience in the for-profit world is not nearly as valuable as you think it is. The executives are probably good at flattering you by asking you for your advice: the slogan in the non-profit world is “if you want advice, ask for money; if you want money, ask for advice”. Once again, be humble. They live these issues every week; they know them better than you do.

Remember: the things which work in your business aren’t necessarily a good idea in your philanthropy. One of the reasons why so many rich businessmen give money to microlenders is that it’s a model they’re intuitively very comfortable with. Even if there’s very little evidence that it actually does much good.

You set up your own foundation.

The classic waste of money and resources. Foundations are expensive things to run, both in terms of overhead costs and in terms of opportunity costs. A well-run foundation will be staffed with qualified philanthropic professionals; such people are not easy to find, and if you do find them, the fact is that their talents could almost certainly be put to better use elsewhere.

The main reason why people set up foundations rather than just giving their money to the needy is that foundations are a have-your-cake-and-eat-it-too form of philanthropy: you get to say that you’ve given your money away while at the same time continuing to have ultimate control over that money. That’s great for your own personal power and influence, but it’s almost never the most effective way to spend your money.

Personal foundations are also the easy way out: a way of saying “I know I want to give my money away, but I can’t be bothered to actually do it yet.” If you’re committed to philanthropy, that’s not good enough. You’re trying to improve the world, rather than trying to create a tax dodge which gives away the bare minimum every year.

You give your money to Harvard, or any other large endowment.

The Harvard endowment currently stands somewhere north of $30 billion. If it grows at 5% a year, that’s $29 million per week. The marginal utility of your donation is probably smaller here than anywhere else. The general principle here is this: giving money to a well-endowed institution is just another way of not actually spending your money.

You fund architecture.

It’s generally easier to raise money for a new building than it is to raise money for continuing operations, which is one reason why charities often embark on huge capital campaigns. But such campaigns often end in tears, with cost overruns which necessitate staff cutbacks or even high-level resignations. Leave the ego-infested world of architecture to others: your money can always be better spent elsewhere. Mission-building is more important than edifice-building.

You encourage mission creep.

If an organization is doing great work in Cambodia, don’t offer it a large amount of money to do the same thing in Nicaragua. Donations with strings attached are bad; donations which essentially force a non-profit to do something it never particularly wanted to do in the first place are much, much worse. Examples would include most cancer wings at hospitals; or a dedicated yoga center at a university. (I’ll come back to that example.) Charities are under constant pressure to move away from their core mission and towards where the money is; don’t be part of the problem.

You kid yourself that your mere presence on the board, or your “celebrity endorsement”, is valuable.

It’s your money that’s valuable — the money you give to the organization, and the money you can persuade others to give to the organization. The main value of your presence on the board is the implicit or explicit financial commitment that comes with it.

You are a rich and important person, but no one is going to give money to this organization just because you did.

You’re a tease.

Charities are forced to put a lot of effort into buttering up donors and potential donors. Don’t be part of the problem: don’t waste their time. If you’re going to give money, give money. If you’re not, then say so, clearly.

You confuse philanthropy with social climbing.

Philanthropy is one way of feeling better about yourself; buying the admiration of your friends and peers by ostentatiously giving money to their favorite causes is another. Do not confuse the two.

You think that going to to charity balls constitutes charitable activity.

Some people actually enjoy these things. If you’re the kind of person who likes to dress up in black tie spending an evening in an orgy of rubber chicken and self-congratulation, then by all means go to as many of these things as you like. But if you’re not that kind of person, and you feel that you can’t politely decline, then just take the money you would otherwise spend on a table, and donate it to the organization directly. That way the charity gets all of the donation, and you get four hours of your life back.

Amazingly, charity balls aren’t even the most inefficient way of giving to charity. Paul Sullivan recently glowingly profiled Cindy Citrone, who went to Sotheby’s and spent $425,000 on “a small, pink-diamond ring and diamond bracelet that had the word love written on it in rubies.” That was probably near the market price for those jewels, and in any case, given that this was an auction, there was certainly an underbidder willing to pay almost as much. So even though the auction proceeds were going to charity, the marginal benefit of Citrone’s $425,000 was pretty tiny. And yet, somehow, Sullivan managed to write a column implying that this was a good way of giving money to charity. Donating the jewels was a genuine charitable act; buying them, not so much.

You put your name on a building, or anything else, for that matter.

Why?

You transactionalize your giving.

The world of non-profit fundraising has become increasingly transactionalized: everything’s a tit-for-tat operation, these days. Give a small amount of money and you get a yellow wristband; give a large amount of money and you get to rename the entire organization you’re funding after yourself. It’s an invidious trend, and the only way to reverse it is for prominent philanthropists to refuse to play the game. The Jewish charitable tradition of tzedakah calls out anonymous gifts for especial praise: philanthropists and charities alike should take note.

All too often, meetings between fundraisers and donors turn into a kind of bargaining session: if you give us this, we’ll give you that. The conversation ignores the important — how the charity will use the money to improve the world — and concentrates instead on the banal: what the charity can do to publicly thank the donor.

In one particularly odious recent case in New York, two foundations which helped pay for a big new FDR memorial on Roosevelt Island went all the way to the state’s Supreme Court to ensure that their names appeared so prominently as to damage the whole architectural construct. In their minds, the quality of the memorial itself was less important than the conspicuousness of the thank-yous.

It’s incredibly easy to find examples of all of these sins, but one in particular jumps out at me for the way it encapsulates many of them at once. Here’s Andrew Rice, talking about the way that the University of Virginia’s Teresa Sullivan tried to get money from one of its richest alums:

One of Sullivan’s most promising targets was Paul Tudor Jones, a Virginia alumnus, billionaire hedge-fund manager and philanthropist. Though he had given away countless millions, Jones considered his brain to be his primary asset: he was fond of saying that “intellectual capital will always trump financial capital.” He had already given large sums to his alma mater, and he told Sullivan that he and his wife had an exciting new idea: endowing a center for yoga.

“I thought, Oh, man, people are going to be very cynical about this,” recalls Bob Sweeney, UVA’s fund-raising chief. So Sullivan convened a dinner at her home with professors of religion, medicine and other disciplines. “I said, ‘O.K., let us think about it a little bit,’ ” she said. “We began talking about, wait a minute, it’s not just yoga.” The group swiftly produced a proposal for a multidisciplinary Contemplative Sciences Center, which was vetted by Jones’s paid yoga consultant. In April, Sullivan announced the $15 million gift, one of the largest of her tenure.

This was all part of a multi-year buttering-up campaign, of someone who is convinced that just by thinking about the University of Virginia in the right way, he can do more good than by giving it money. The University, of course, knew exactly what it needed money for, but Paul Tudor Jones wasn’t interested in what the University thought: he had his own ideas — and his own paid yoga consultant.

When someone offers you $15 million, and a very large part of your job is to raise money, you can’t just laugh and say their idea is ridiculous. Instead, you have to spend an inordinate amount of valuable management time, across multiple university faculties, and eventually construct a white elephant that no one actually wanted in the first place.

And so the lesson here is pretty simple: Don’t be Paul Tudor Jones. Instead, have some humility. Here’s one idea: for every dollar you spend on overhead and payroll at your foundation, make sure that you donate a dollar earmarked for overhead and payroll somewhere else. Those are the funds which are always the hardest to raise, after all.

If you did that, you would be helping to counteract one of the most corrosive and invidious memes in the nonprofit sector: the idea that it’s incredibly important to look at the “overhead ratio”, and give only to charities which spend a small proportion of their money on overhead, and a large proportion of their money on program activities. It really isn’t. But partly because a lot of people think that it is, this year I gave to DNDi, the Drugs for Neglected Diseases initiative, an amazing nonprofit which is basically all overhead. Its job is to coordinate the work of organizations all over the world, from non-profits to pharmaceutical companies to multilateral organizations to national health ministries, and to get them all working together to create drug cocktails which can cure devastating diseases in some of the most forlorn parts of the world.

What else should you do? Well, if you’re one of those extremely wealthy people who has pledged to give away most of their money, then follow the spirit of the pledge, rather than just the letter. It’s not enough to set up a foundation which will receive most of your wealth when you die: that’s, quite literally, a cop-out. Instead, embrace the concept of front-loading, and give the money away right now, as much as you can. In a world which is getting richer, your money is best put to use now, rather than in the future. And in a world with many vicious cycles, an increase in up-front investment can prevent enormous damage down the road. You’re not building a business with permanent equity capital, you’re trying to make a difference. And if you think that the world would be better off if you invested the money, made a huge return, and then gave away that much larger sum — well, that’s just your hubris at work. Remember, in philanthropy, you’re meant to be the humble one. The graveyards are full of people who dreamed of giving away hypothetical future riches. Much better to give away real present ones.

What’s more, if it turns out that you really are very successful, and that your wealth is going up rather than down, increase your giving commensurately. This is a tough one: even very large-scale philanthropists like George Soros have found it very difficult to make a serious dent in their wealth by giving it away. But it is possible. Do it.

Finally, there’s something that all of us can do, whether we’re dynastically rich or really rather poor: volunteering. But weirdly, volunteering is harder for the rich, who can more easily afford the time commitment: they often think that time spent volunteering is wasted.

The logic, after all, is simple and clear. The value to the charity of my labor is $x; so if I just donate $y>$x then the charity is better off. What’s more, the value of my time is $z>$x, so in a way I’m destroying value by volunteering.

The problem with this logic is that it ignores the enormous value to the volunteer of volunteering. Volunteering is the best and most effective way of piercing the bubble that all wealthy people live in every minute of every day, and of giving such people a gut-level understanding of the problems the charity is trying to solve.

On that level, volunteering is much more effective than some fact-finding poverty tour, where a bunch of rich donors or potential donors jet in to observe the Great Work Being Done in some far-flung country. The logistics involved in organizing such tours are substantial, and the good they do is minuscule. So if you want to see for yourself what an organization is doing, find out by doing that work yourself.

But volunteering is also worthwhile for its own sake. It gives an extremely valuable perspective on life, one that’s hard to find elsewhere. And it can be incredibly rewarding, in ways both expected and unexpected. Find time to do it: almost nobody ends up regretting the time they spent volunteering.

The theme here is humility, mixed with seriousness. Giving away money effectively isn’t fun or easy, and although it can be rewarding, it’s important to keep your eyes on the job at hand, rather than on maximizing those rewards. Philanthropy has always been self-serving in large part, and that’s never going to end. But there’s no good reason why you should be part of the problem.

COMMENT

A big thank-you for writing this article. When I read the title it made me sad, because I think that generosity is sorely lacking in our culture, and so it seemed weird to be critical of philanthropy. But I agreed with almost everything you said. It sounds like you’re not against philanthropy at all, you just have some good concerns for how it could be done a lot better. Thank you!

Posted by danielbigham | Report as abusive

The problem with the Red Cross, cont.

Felix Salmon
Nov 14, 2012 23:56 UTC

Eduardo Porter, today, has a great column about philanthropy, explaining that although Americans place trust in charity to help those in need, that trust is largely misguided. For one thing, he points out, “most philanthropists, generous as they may be, don’t usually see replacing government services as their job.” And more generally, human services charities receive less than 12% of all US charitable giving.

Which is why the Red Cross is exceptional: unlike any other charity, the government has given it the responsibility “to lead and coordinate efforts to provide mass care, housing, and human services after disasters that require federal assistance.” That, in turn, makes it accountable not only to its donors but to all taxpayers. And Ernie Scheyder’s article about the Red Cross today makes for very disturbing reading, on that front. Something, for instance, clearly went very wrong here:

As Sandy approached, the American Red Cross headquarters in Washington, D.C. arranged five staging areas in cities expected to be just outside the storm’s path, Lowe said. Supplies and staff were mo ved out of the New York region to avoid damage.

One of those cities was Harrisburg, Pennsylvania, where Lowe said response vehicles and other supplies were stored. When contacted after the storm, though, local Red Cross officials in Harrisburg said they had prepared primarily to serve local victims. Only after they made sure Pennsylvania residents were all right – a process that took three days – were resources sent on to New York City.

The problem is only partially that there were mixed signals, and that the Pennsylvania officials thought the resources were for them rather than for New York. It’s also that no one at the Red Cross wants to even admit that there was a mistake. Instead, they seem to blame mythical traffic jams which were so bad as to hold up traffic for three days:

The Red Cross said traffic delayed by three days its efforts to serve Staten Island, the Rockaways, Coney Island and other hard-hit communities in and around New York City. That was despite all main bridges to those communities being open the day after Sandy.

The Red Cross is the charity which people give to reflexively whenever there’s a disaster — but look at where the Red Cross’s money actually goes: in 2010-11, for instance, it spent $271 million on domestic relief, $340 million on international relief, and a whopping $2.21 billion on blood and plasma services. It’s basically a blood bank with a disaster-relief agency attached, and a constrained one at that: the Red Cross says that its primary mission in a disaster is to supply food and run shelters, not to provide transportation, arrange cleanup operations or coordinate last-minute volunteers. And boy do they stick to that mission: when one woman asked the Red Cross for help moving a 90-year-old bed bound woman from the Rockaways, she was told that there was nothing they could do, that wasn’t a service they provided.

That reveals a level of bureaucracy and rule-following which is never appropriate in a disaster situation, where experienced operatives learn to respond to needs rather than to directives.

To be fair, the Red Cross is also constrained by its donors. After 9/11, it made the sensible decision that a lot of the money it had been donated would be best used in future emergencies, but the public outcry forced it to reverse course. As a result, the Red Cross has to deal with seriously backwards accounting: it basically has to pay for its disaster-relief operations with money received after the disaster occurs, and can’t use those donations for any other purpose.

Still, the way to deal with this problem is simple: don’t give money to the Red Cross. Give unrestricted donations instead to organizations like Doctors Without Borders or Team Rubicon, who know what they’re doing and who respond to need rather than to orders and conventions. The Red Cross does do good work. But there’s absolutely no reason why it should always get the lion’s share of post-disaster donations.

COMMENT

You seem to have it ‘in’ for the Red Cross. Have you gone bonkers? Suggesting people do not donate will only make matters worse. Suggesting they divert that money to other charities will only focus attention on them, and those people who believe that not only should charity begin at home, but should stay there and exist solely as a tax reduction vehicle will then do to the other charities what they have already done to the Red Cross.

In Europe we do things differently and see charities as being necessary for relief in third world countries more than at home because looking after the security and safety of citizens is the job of the government, not volunteers. It’s a joke that the US doesn’t have a properly funded domestic relief system and needs to rely on the Red Cross – which you then lambast because you personally were slightly inconvenienced and couldn’t get power for a few days. Shame on you!

Posted by FifthDecade | Report as abusive

The problem with the Red Cross

Felix Salmon
Nov 12, 2012 06:56 UTC

If you thought the official New York marathon statement about being cancelled was tone-deaf, just wait until you hear thison video, no less:

Gail McGovern, chief executive officer and president of the Red Cross, told NBC News’ Lisa Myers late last week that the response has been timely and well-organized: “I think that we are near flawless so far in this operation.”

This is chutzpah of the highest order: at least in the first dreadful days after Hurricane Sandy hit, the best adjective to describe the Red Cross was “invisible”, rather than “flawless”. One of the best ways to judge charities is by the way in which they learn from their mistakes and constantly improve; by that standard, the Red Cross is positively ostrich-like in the way that it refuses to admit that there was even a problem at all, let alone that it might have reacted better.

It’s incredibly sad, because the Red Cross is the default charity that everybody gives to whenever there’s a tragedy. Even I did so, not that I’m any great fan of the organization: I bought the Sandy benefit print from 20×200, and the proceeds from that are going to the Red Cross. But at least in the early days, and even now, it’s hard to find a Sandy-relief drive which isn’t giving its money to the Red Cross: whether you’re donating money at Chase ATMs, or donating your Starwood points, or whether you’re giving in response to a telethon, the Red Cross always ends up being the beneficiary. And in the case of Sandy, the amount raised is truly enormous: $117 million and counting.

The Red Cross loves to talk about its massive efforts, with what it claims is a group of 5,700 volunteers — but frankly I don’t trust the Red Cross’s numbers, given the many reports where the Red Cross higher-ups have sworn that they’re in a certain location and helping, even as no one who’s actually there has seen any evidence of them.

And in any case, the Red Cross doesn’t seem particularly capable of actually putting those 5,700 volunteers to good use. The real heroes of Sandy have been the much smaller-scale organizations, often built on an ad hoc basis. Occupy Sandy is the main one, and it’s been doing an amazing job, as Glynnis MacNicol recounts in a fantastic dispatch for Capital New York:

Almost without fail, what is being done in the neighborhoods I visited is being done by local community organizers or organizations like the increasingly impressive Occupy Sandy group…

At the end of nearly two weeks, the majority of which was spent traveling to the most devastated areas of Brooklyn and Queens, I could not tell you, nor could very many people I met, what government agencies a person could expect to arrive to help them in this disaster because I saw so few on the ground who might know.

This kind of story has been told many times, but bears repeating:

It was difficult not to conclude based on our surroundings that the neighborhood had not been served at all. Within five minutes of us setting up our goods in the empty lot, and without any real outreach needed, crowds began to appear—batteries, flashlights, disinfectants, diapers and blankets were getting snatched up quickly. It’s at this point the need began to feel overwhelming, and the frightening suspicion that help, official help in the form of city officials or large established disaster-relief organizations, was not going to arrive, started to sneak up on us…

While I was unpacking a garbage bag full of blankets one woman arrived with her daughter, who appeared to have Down syndrome, and asked if she could take two blankets instead of one. The feeling that I, or any of the volunteers, were somehow believed to be in charge of dictating what rations these families struggling in the cold could get struck me suddenly, and was obscene. I told her to take what she wanted. We left before the sun went down.

The next day Ben told me he returned to the same location to find a army of volunteers had arrived and an impressive organization had been set up. We had simply been the first ones out there—six days after the storm.

The Red Cross isn’t technically a government agency, of course, but it does work very closely with the government, and is treated as a quasi-governmental agency by those in need, and it certainly has many orders of magnitude greater resources than anybody associated with Occupy Sandy.

But here’s the problem: Occupy Sandy doesn’t scale. MacNicol admits as much in her piece: if we’d all given money to Occupy Sandy instead of to the Red Cross, they wouldn’t have been able to do more good than they did. The now-famous Occupy Sandy wedding registry is a fantastic idea, and has worked very well, but in general items are being bought just as fast as they’re being added. (Maybe buy some of the stuff on Congregation Beth Elohim’s list instead; they too have been doing a fantastic job.)

MacNicol’s story is one of a single man, Ben Heemskerk, with significant non-profit experience, organizing a relatively small group of his friends. Everybody knew who was in charge, and Heemskerk knew what his limitations were: he actually turned away volunteers he didn’t know.

Similarly, read Matthew Power‘s excellent article on what Doctors Without Borders (MSF) managed to do after Sandy, and you’ll see a similar dynamic: a lean and experienced group of people who know exactly what they are doing, going out and trying to make as much of a difference as they can, where they’re needed most. The trick is to move fast, to abjure any kind of bureaucracy, and to deliver help where it’s needed most.

The Red Cross can’t do that: it’s simply too big. This passage, from MacNicol’s piece, is key:

On Tuesday, one week after Sandy, some of our group went out in cars, and I and a friend were split onto a larger bus that was carrying a number of different groups. It was the first time I came into contact with volunteers not picked and vetted by Ben. The result was somewhat more chaotic; there was no clear leader and everyone had a different idea where our priorities should lie. To say that organization is the key to any useful relief effort is to say that the sun is key to daytime.

Things started falling apart, in MacNicol’s experience, just when the number of volunteers exceeded the number of friends-of-Ben. Imagine what would happen when the number of volunteers starts growing into the quadruple digits. They actually behave in a predictable manner: the overwhelming majority of them have a tendency to stand around waiting to be told what to do, while a few others bicker about what ought to be done.

This is inevitable when the number of volunteers grows much into double digits, and it’s exacerbated when the volunteers are inexperienced. Here’s Power, tagging along with an MSF doctor:

Suter had recently returned from a nine-month MSF mission in the Congo, where she had worked with a local hospital and helped organize small health clinics spread out around the countryside. “This really isn’t all that different,” she said, headlamp on, scanning a printed spreadsheet filled with the names and addresses of a dozen patients.

Now that’s the kind of volunteer you want manning an impromptu health clinic in the Rockaways. Disaster relief is something which can be learned with experience, and MSF volunteers have disaster-relief experience in spades. Red Cross volunteers, on the other hand, don’t.

And yet, one of the first things that the Red Cross did after Sandy hit was to say that it was “stretched thin” and put out a call for more volunteers. It’s very hard to tell whether all those extra volunteers actually improved outcomes: after all, each one needs to be supported by the larger Red Cross organization, and all of that support is effort which would ideally be expended on the needy. It’s a bit like adding extra stories to extremely tall skyscrapers: the added support those floors need, in terms of columns and elevator banks and the like, means that they don’t actually end up increasing total square footage at all.

The real problem with the Red Cross was not that it was stretched thin, but rather that it was simply too big, and its people too inexperienced in disaster recovery, to be able to respond nimbly to Sandy. Eventually, after a week or two, it will lumber in to affected areas and take over from the ad-hoc groups who provided desperately-needed aid in the early days. It’s reasonably good at that. But that’s clearly not good enough, and it’s certainly nowhere near flawless.

Of course, the Red Cross is burdened with massive expectations. If you’re stuck in a remote part of Staten Island without power or communication for days on end, no one’s going to blame Doctors Without Borders or Occupy Wall Street if you get no help — but they are going to blame the Red Cross.

With $117 million in donations comes an expectation that the Red Cross can and should be everywhere it’s needed, when it’s needed, rather than in a handful of places, a week later, offering food but no shelter or blankets or power or lights. But probably those expectations are unrealistic. The US is fortunate in that it’s not a permanent disaster zone: it’s not a country where Red Cross volunteers are ever going to be experienced in responding to such things. And mobilizing thousands of volunteers and tens of millions of dollars to provide food and shelter in areas without electricity or pharmacies or heat — that’s a logistical nightmare.

The Red Cross, in the event, proved incapable of rising to the occasion. Other large organizations did amazing work: ConEd brought power back, and the MTA brought public transportation back, in much less time than virtually anybody had dared to hope. But those organizations had experienced and dedicated workers who knew exactly what to do and how to do it, rather than a rag-tag band of well-intentioned volunteers worrying about what they were authorized to spend, and a fleet of trucks located in unhelpful places up and down the Eastern seaboard.

In the end, the Red Cross will probably spend much if not most of that $117 million — but not in the immediate aftermath of the storm, when the need was greatest. And more to the point, inputs aren’t outputs. If the money gets wasted in logistical infrastructure, it helps no one.

The truth of the matter is that if you donated money pretty much anywhere, after Sandy hit, that money probably didn’t do a lot of immediate good: at that point, it was too late for money to be turned into first- or second-day response. Ask any of the people who were working on the front lines, whether they’re from Occupy Sandy or MSF or even the Red Cross: money was never the bottleneck, and there was never a point at which anybody felt that if they only had more money, they could do more good. People didn’t need money, they needed gas.

Which isn’t to say that donating money is a bad idea, when disasters hit. But it is to say that donating money to the Red Cross might not be the best use of your dollars. My advice is to give instead to MSF, or an organization like it, which is dealing with disasters every day of the year. That gave them the experience ability to respond quickly when disaster struck in the USA — and it also means that if your money would be put to more urgent use somewhere else, like Zimbabwe or Honduras or Chad, then that’s where it will go.

We should spend as much money as is needed here — but don’t force the matter and earmark $117 million for Sandy relief, when no one knows whether even the Red Cross thinks it can sensibly spend that much. The Red Cross didn’t need to promise to spend all that money on Sandy and Sandy alone, but it made that promise anyway: “the Red Cross promises,” said NBC’s Lisa Myers very explicitly in her piece, “that 91 cents of every dollar donated will be used to help victims of this storm”. That was the last straw, for me: not only was the organization MIA for nearly all of the first week, but it’s now promising to spend huge amounts of money in New York and New Jersey regardless of where that money could be put to best use.

The trick to being a disaster relief organization is that you need the money and the resources before disaster hits, so that you’re prepared when it happens. The Red Cross should have used its balance sheet to go to work as soon as Sandy arrived, should then spend whatever is necessary for as long as it is necessary, and then should use whatever’s left over from its latest $117 million windfall to be better prepared for the next disaster.

Instead, the Red Cross is promising to spend that whole $117 million down to nothing, leaving it just where it started this time around. Which was clearly inadequate.

And that’s why there are surely better places for you to send your money.

COMMENT

I’m a 46-year-old homemaker and writer living in Ashland, Ohio leading an online campaign for more cots at the First Aid building at Wooster Ohio’s fairgrounds. The Wooster Ohio Red Cross has only two cots for 50 people during fair week. People who are prone to heat illness really need more cots. I’m angry with the Wooster Ohio Red Cross for denying me an open cot when I fell VERY ILL on 9-10-13. Despite repeatedly begging to lay down, I was denied two free cots when I most needed one. Cot mismanagement risks lives, and I could’ve died with 11 symptoms. I drive long distance to visit Wayne County’s fair, and I just need a fair break. I think my campaign could be a great story that puts a personal face on the issue of cot mismanagement.

https://www.change.org/petitions/wooster -ohio-red-cross

Why not the ethical treatment of PEOPLE during medical emergencies? https://www.change.org/petitions/wooster -ohio-red-cross

We need not be forced to go to the emergency room when we can easily be treated for free. Cot mismanagement puts lives at risk. My aim is to prevent what happened to me from ever again happening to me or anyone else.

Posted by IWasDoneWrong | Report as abusive

Can charitable donations offset despicable behavior?

Felix Salmon
Oct 26, 2012 15:04 UTC

It was quite surprising when Jed Rakoff, scourge of Wall Street, sent Rajat Gupta down for only two years on Wednesday. After all, federal sentencing guidelines suggested that Gupta should get a sentence four times longer than that. And Gupta wasn’t some small-time crook grubbing for dollars with inside information, either: he did enormous damage to the reputations of central icons of our capitalist system, like McKinsey and Goldman Sachs. But for all that, said Rakoff, he is at heart a good man:

“The court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need,” Judge Rakoff said.

This kind of reasoning is found outside the courthouse, too. For instance, Gary Belsky defends Lance Armstrong in New York magazine this week, on the grounds that the ends (raising lots of money for charity) justify the blood-doping means. “If you’re an obsessed sports fan”, says Belsky, then Armstrong’s actions can’t be excused. But for the rest of us, isn’t it great that he managed to use that activity to raise so much money for cancer research?

Belsky’s column is unconvincing, not least because he seems inordinately impressed by charities’ overhead ratios. Doesn’t he know that cheating on overhead ratios — which mean nothing at the best of times — is a lot easier than sports doping? Especially when it comes to a charity with as vague a mission as Livestrong (“we empower the cancer community”), just about anything can be classed a programmatic expense, rather than overhead. Still, the principle — that the scales of justice can offset despicable behavior with charitable acts — seems to be deeply ingrained.

There are limits to how far this kind of argument can be taken. The Jimmy Savile scandal in the UK, for instance, is made worse, not better, by the fact that Savile spent nearly all of his career raising huge sums of money for children’s charities. Similarly for Jerry Sandusky here in the US.

But there’s something that Gupta and Armstrong have obviously in common with other high-profile philanthropists, and that’s their wealth. Poor people, by definition, can’t give millions of dollars to charity. Neither Gupta nor Armstrong ever had to make choices between their own lifestyle and the charities they supported: neither ever had less spending money for himself because he gave so much money away.

At these levels, when you have a net worth in the eight- or nine-digit range, philanthropy starts to become a consumption good: something you spend money on in order to bolster your reputation and your place in society. That’s not necessarily the only or the primary motivation, of course. But there’s an uneven playing field here: the rich have the opportunity to offset their misdeeds with money, in the way that poorer people don’t. (Exhibit A: Martin Erzinger.)

I’ve always been suspicious of so-called “transactional philanthropy” — the kind of tit-for-tat deals where I give you $X, and you give me Y. (My name on a building, for instance.) But now Gupta and Armstrong are making a case that all charity is transactional, in a sense: it’s a kind of favor bank, which comes in very useful when you get into trouble. In the case of Gupta, for one, it seems to have saved him six years in the clink.

COMMENT

What a concept – the Sale of Indulgences to save sinners from guilt.

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Philanthropic donation of the day, John Paulson edition

Felix Salmon
Oct 23, 2012 22:50 UTC

John Paulson lives in a 28,500 square foot townhouse at 9 E 86th Street on the Upper East Side, opposite the Neue Galerie and just steps away from Central Park. He’s invested a lot into his townhouse, which hosted a big fundraiser for Mitt Romney in April. And now he’s given even more to Central Park: $100 million, to be precise. “The park is very large,” he explained to the New York Times, “and its endowment is relatively small.”

Actually, at $144 million (pre-Paulson), Central Park’s endowment, I’m pretty confident in saying, makes it the most lavishly-endowed park in the world. Half of Paulson’s gift is going to make that endowment even bigger; the other half will be spent on various capital improvements. Apparently the entrance to the southwest corner is going to get spiffed up.

The Central Park Conservancy has a CEO, of course, named Doug Blonsky; he made $493,462 in 2010. Paulson probably considers that to be a “relatively small” amount as well. Most numbers have a habit of looking small, when you’re a multibillionaire. Blonsky did his job today, hailing Paulson’s money as “transformational”.

But the fact is that if you wanted to give $100 million to charity while making the barest minimum impact on the world, you’d be hard pushed to improve on Paulson’s performance today. Maybe he was inspired by Ronald Lauder, across the street, who is just waiting for the perfect time to donate the Klimt painting he owns to the museum he founded, where it has been hung since he bought it.

On the other hand, if you wanted to make a charitable donation expertly calibrated for its helpfulness with respect to your social-climbing ambitions on the Upper East Side, then a splashy gift to the Central Park Conservancy could hardly be improved upon. The gift was announced with great fanfare: a massive press conference and photo opportunity, dozens of park employees, the Mayor, the whole bit.

Of course, since this is a charitable deduction, it’s a tax expenditure, too. I don’t know what Paulson’s marginal tax rate is, but in any case, if you multiply that by $100 million, you get the amount of money that taxpayers are being forced to contribute to John Paulson’s 843-acre back yard, in the form of foregone tax revenues. Is that the best use of public funds? Almost certainly not, but we don’t have any choice.

I spent last night learning a lot about the Drugs for Neglected Diseases initiative — an incredibly exciting model of drug development and clinical testing which refuses to deal in any kind of patents and which has already, in its short life, come up with six transformational treatments for diseases which are too rare, or suffered by people too poor, for the market to ever really help on its own. It’s not a particularly sexy charity, and doesn’t have a Halloween ball full of boldface names, but it saves lives, and as a byproduct it’s also helping to open up drug libraries which have been neglected for decades. What’s more, it acts on a tiny budget, mainly acting as a liaison between many other actors, helping them to work in concert with each other.

After seeing the amazing things that are being done by DNDi, it was a little depressing to wake up to Paulson’s preening performance. He is of course free to spend his money any way he sees fit. He has more money than he could ever spend, so the next thing on his list is acquiring the respect and admiration of his social circle. And he’s going about that in a very effective way. I just don’t see why the coverage should be so glowing, and I certainly don’t see why U.S. taxpayers should be chipping in.

This gift, in other words, is Exhibit A in any attempt to cap the amount that American taxpayers can deduct in any given year. Foster Friess likes to say that the rich shouldn’t pay any taxes at all, and that instead they should “self-tax” by giving their money to carefully chosen charities. What today’s news underlines is that while such donations are ostensibly in the service of helping others, in practice they tend to be extremely self-serving. The rich can give away more money than the rest of us. But that doesn’t make them any better at it. Quite the contrary.

COMMENT

@Strych09

What is Felix correct about?

That JP wants to build up some good will in the community? I’ll grant you that I guess.

That we the little people were entitled to the treasury’s share of his $100,000,000 gift and so really we not he donated 35,000,000 of that amount and he donated only 65,000,000? If that helps you sleep nights sure… believe that.

Unlike Steve Jobs or Thomas Edison, JP didn’t invent something that will benefit a generation of people around the world. What he did do was to spot the largest imbalance of risk that has ever existed and show it to the world with his investors money.

If you have any question as to if that was the “right thing” or a “good thing” look at Japan 1990 – 2012. Valuations got so far out of line that their market fell 75% over a 22 year period and has yet to recover. I’ll repeat for effect. 75% market drop no recovery 22 years from peak. When you envy JP, his money, and his gifting tell yourself that he helped you avoid that fate.

Remember also that Felix sort of belittled Mr.Facebooks mega-donation to Newark Public schools. It seems the rich can do little to appease the masses anymore. Dangerous times!

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Why arts organizations love new buildings

Felix Salmon
Jul 5, 2012 22:21 UTC

In 2002, Richard Florida published The Rise of the Creative Class, and created a whole cottage industry of people — himself foremost among them — flying around the country and the world, telling cities how to attract creative people and thereby thrive. In truth, however, these cities didn’t need much persuading. Between 1998 and 2001, expenditure on creative-industry construction projects — theaters, museums, performing arts centers — quadrupled, from a little over $400 million per year to almost $1.8 billion. Here’s the chart, from Set in Stone, a major new research project from the University of Chicago’s Cultural Policy Center:

peryear.tiff

Clearly, around the turn of the century, cities decided that building new cultural centers was a great idea: in total, American cities spent some $16 billion on cultural construction projects between 1994 and 2008. But was spending those billions good for the creative class, for cities, or for creativity? That’s far from obvious. For one thing, the more money you spend on construction, the less money you spend on people:

Our survey evidence suggests that as a result of investing in projects during this period, many organizations also had to cut staff sizes significantly. The negative relationship between the number of cultural managers and per capita investment may just suggest that capital and labor act as substitutes, thus an organization that invests more in physical capital invests less in labor.

One case study can stand for many, here:

In Roanoke, Virginia, the art museum embarks on the facility planning process with the humble goal of expanding its gallery space, but over time, and partially inspired by the Guggenheim Bilbao, it decides to build a sprawling $68 million architectural landmark so as to redefine the city’s identity and boost economic development. The post-modernist design proves controversial as well as more expensive than originally anticipated. Once the new Taubman Museum of Art opens, attendance is far below estimates, while the cost of operating the new facility is far above them. To balance its books, the museum is forced into multiple rounds of layoffs and drastic increases in its admission charges.

Here in New York, I’ve been following the sad saga of Cooper Union, whose massively expensive new academic building seems to have been the final nail in the venerable institution’s coffin. Essentially, the college took out a monster mortgage to build the project, but projected no extra income that would allow it to make its mortgage payments.

And when I was in Aspen last week, I talked to two different museum directors, both of whom have very shiny brand-new buildings, about the whys and wherefores of embarking on such massive projects. One of them, in particular, admitted to me that the amount of money and effort that was poured into architecture was difficult to justify when looked at from the perspective of his institution’s mission. But he said that raising money for a new building was vastly easier, always, than raising money for an endowment, or for general operating expenses.

Which is not to say that it’s easy. “In our sample,” says the report, “the number of leadership transitions that occurred from the time the project was initially proposed to when it opened its doors to the public was striking”.

This is not surprising. Big architecture tends to be accompanied by big egos — the architects, the board members writing the big checks, the museum directors with outsize ambitions, the municipal burghers wanting to make their mark, and so on and so forth. Missions are easily subsumed to a general feeling that if something new and shiny enough is built, massive crowds and critical acclaim will automagically appear.

Buildings have names slapped on them, and you can see the money in a way that you can’t if you’re spending on things like curatorial staff or acquisitions or touring budgets or insurance. Most other forms of arts spending feel ephemeral, in a way that putting up some huge edifice doesn’t. Even if the money spent on that edifice would much better serve the mission of the institution in some other way.

What’s more, there’s something naturally ponderous about non-profit institutions housed in some kind of Big Architecture. Here in New York, for instance, consider Zankel Hall, the $72 million project to create a more intimate sibling for Carnegie Hall, which was designed to attract a younger, cooler, crowd. And then compare it to Le Poisson Rouge, a minimally-redesigned nightclub downtown, which manages to put on equally exciting programming at no higher prices, all while being run on a for-profit basis. All too often, if you build something expensive, all you really create is new layers of administrative headaches and bureaucracy.

That said, there are few major civic institutions which don’t live in grand buildings. Constructing something showy is a statement of ambition and intent — one which doesn’t always work out as planned, but which is probably a necessary precondition if you want to lay the foundations for a major arts organization which will last for many decades and which will have a national or international reputation. Maybe we should look at all this construction much as a portfolio manager might: there will be winners and there will be losers, but overall it has surely been a benefit to the nation. And frankly, $16 billion over 15 years is a pretty low sum — less than a dollar per US household per month, most of which was donated by rich philanthropists who would otherwise have given much less.

That’s the real reason that cultural institutions build, I think: directors reckon — rightly — that a large part of the money is additional to what they would otherwise receive, and that if they don’t build, they’ll never get it. When the philanthropically-inclined rich decide that mission-building is more important than edifice-building, that will change. I’m not holding my breath.

(HT: Badger)

Haven’t Gates and Buffett given away their billions?

Felix Salmon
Mar 15, 2012 23:58 UTC

The thing that struck me first about Bloomberg’s new updated-daily Billionaires Index was the fact that Bill Gates and Warren Buffett are still in second and third place, respectively. Aren’t they both supposed to have given most of their money to the Gates Foundation? How can they give it all away and yet still be among the world’s richest people?

Ben Walsh looked into this for me, and it turns out that Gates and Buffett have pledged to give most of their money to the Gates Foundation. But they haven’t actually done so, yet.

The Buffett gift is the more transparent of the two: the terms of the gift are laid out in a public letter written in admirably clear English. Buffett basically set aside 10 million B shares in June 2006, and promised to donate 5% of those shares to the Gates Foundation every year. The idea is that although the number of shares being donated each year will fall by 5%, share-price appreciation will keep the annual value of the gift roughly constant, or even rising, over time.

The B shares had a 50-for-1 stock split in January 2010, so the Buffett gift was of 500 million shares at their current valuation of $81.34 each. That’s $40.7 billion. To date, Buffett has donated 132 million shares, with a cumulative value of $9.5 billion. Buffett insists that the shares be sold and the proceeds spent, so it’s silly to look at what those 132 million shares are worth today. But it’s certainly safe to assume that if he hadn’t given those shares away, they would not have been sold — and the current value of 132 million shares is $10.8 billion.

As a result, we can say that were it not for Buffett’s gift to the Gates Foundation, his net worth would be $10.8 billion higher: $55.9 billion, rather than $45.1 billion. Amazingly, that eleven-figure increase in net worth would make no difference to his ranking on the Bloomberg index: he’d still be in third place, behind Gates’s $63.4 billion.

On the other hand, if you subtract from Buffett’s net worth the 368 million shares he has irrevocably committed, then he drops from $45.1 billion to $15.2 billion. That’s still a completely insane amount of money for any one individual to have, but it would place him just 46th on the Forbes billionaires list, between a Russian steel magnate and a Russian nickel magnate.

So while Buffett’s gift has had the effect of reducing his spendable net worth from $55.9 billion to $15.2 billion, a 73% decrease, it has so far had the effect of reducing his billionaire-league-table status by a much smaller $10.8 billion, or 19%.

And what about Gates? He has donated $28 billion to his eponymous donation to date, which to a first approximation means that his net worth would be a whopping $91.4 billion if he hadn’t given that money away. That would make him the world’s richest man by a very comfortable margin.

What’s less clear is the amount of money that Gates has pledged to give to his foundation in the future. In their Giving Pledge letter, the Gateses say that “we have committed the vast majority of our assets to the Bill & Melinda Gates Foundation”, but that’s pretty much all the specificity I’ve been able to find. What we do know is that the gifts they’ve made already have reduced Bill’s net worth by roughly 30%.

All of which is to say that the net-worth numbers on billionaire league tables are decidedly silly, since they include enormous sums which have been pledged but not formally donated. Insofar as billionaires are competitive — and, to a first approximation, all self-made billionaires are competitive in such matters — then maybe it would make more sense for the people putting these league tables together to use the sum of current net worth and the amount that has been given to charity. There are lots of people who want to be the richest man in the world, and there’s nothing embarrassing about appearing on this league table. Nothing, that is, which might encourage its members to give more of their money away.

If I were Gates or Buffett, then, and wanted to encourage my fellow billionaires to give their money away, I’d set up some structure which resulted in all my committed funds being subtracted from my net worth. We’re so used to seeing those two names on the top of every billionaires list that it would be something of a salutary shock to see them disappear from the league tables overnight, as a result of doing something incredibly praiseworthy. And it would also make the rest of us realize how silly these league tables really are.

COMMENT

Don’t get me wrong. Everyone has the right to earn as much money as they can but is it just me or do some of these people’s net worth seem exorbitant?

What happens when a select few people become worth $100, $200, $500 billion dollars? We are seeing Apple accumulate over $100 billion in cash. What now?

I mean, after taking out Muammar Gaddafi we learn he had over $200 billion in accounts all over the world. Not to mention all the real estate, gold, etc. he owned too.

At what point is too much, way too much?

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For-profits vs not-for-profits

Felix Salmon
Jan 16, 2012 23:50 UTC

When Mitt Romney started plugging his friend’s for-profit university as a solution to the problem of rising higher-education costs, he was surely doing well by a major campaign donor, while giving pretty bad advice to potential students: no one should enroll in an $81,000 21-month program in “video game art” if it has — as this one does — a graduation rate of just 38%.

But Romney’s staking out an important philosophical stance here, too, when he praises the for-profit education industry in general as an affordable alternative to traditional colleges.

How can a company which exists to maximize the profits for its shareholders, and therefore to extract as much money as it possibly can from its students, possibly cost less than a traditional college which is run on a not-for-profit basis and which might well have a substantial endowment subsidizing tuition fees? Most traditional colleges charge some students nothing at all, while at the extreme, Cooper Union has a flat tuition rate of zero. For-profit colleges can’t possibly compete with that.

For-profit colleges have a fiduciary obligation to, basically, take the money and run: once they’ve been paid their tuition fee, they’ve made their money, whether the student continues to show up for class or not. But still, there are two main ways in which they could, at least in theory, compete on price with traditional colleges.

The first is to take advantage of their high drop-out rates, and use the drop-outs’ tuition fees to effectively cross-subsidize the minority of students who actually finish the course. After all, if half your students have stopped showing up for class, they’re not going to cost you much money. The average student will still suffer, of course, but at least those who finish the course might benefit.

The other way that for-profit colleges can end up cheaper than their traditional competitors is by concentrating on costs: rather than paying enormous sums for prestigious professors and research institutes, they concentrate with a laser focus on their core business of teaching undergrads. After all, their concentration on profits means that they’re likely to be more efficient than flabby old traditional not-for-profits. Think of it this way: groceries are cheaper at Walmart than they are at the Park Slope Food Coop.

But does that hold more generally? If you have a for-profit and a not-for-profit in the same space, is the for-profit likely to be cheaper and more efficient? I’ve been wondering about that question myself of late, ever since I had breakfast with Betterment CEO Jon Stein a couple of weeks ago. I’d just written something less-than-flattering about the fees that he charges, comparing them unflatteringly to those charged by Vanguard, and he told me that it’s incredibly hard to even think about competing on fees with Vanguard when you’re a for-profit company and Vanguard is mutualized.

That rang true to me — but it’s also something I wanted to check out for myself. There’s no doubt that Vanguard funds have historically been much cheaper than other funds, but to what extent is that just a function of the fact that they’re index funds, and index funds by their nature are cheaper things than actively-managed mutual funds? Certainly if you look at Vanguard’s ETFs, there’s not much evidence that they’re any cheaper than their direct for-profit competitors.

And what happens in other areas where not-for-profit organizations compete directly with for-profits? Hospitals, of course, are one — are non-profit hospitals measurably more efficient than their for-profit brethren? Credit unions are another; the banking lobby isn’t shy about keeping their operations restricted on the more or less explicit grounds that it’s not fair for for-profit banks to have to compete with mutualized credit unions. And in fact consumer-facing credit unions are, nearly always, much better value for depositors and borrowers than the big banks are.

One useful distinction here, I think, comes from Larry Summers, who talks about how a huge part of the US economy is now accounted for by non-traded goods, where the normal rules of competition become harder to discern. “In many of these areas the traditional case for market capitalism is weaker”, he writes, adding that “it is surely not an accident that in almost every society the production of health care and education is much more involved with the public sector than the production of manufactured goods.”

Summers concludes that “it is not so much the most capitalist parts of the contemporary economy but the least—those concerned with health, education and social protection–that are in most need of reinvention.” Unhelpfully, he gives no hint as to what kind of reinvention he has in mind, or whether he thinks that for-profit companies can do these things better or more efficiently than not-for-profit institutions.

But I do think that it behooves Obamacrats like Summers to engage directly with the facile certainties of Mitt Romney when it comes to things like this. For-profit colleges are not a better and cheaper alternative to traditional colleges; in fact, their shareholder focus by definition means that they don’t have their students’ best interests at heart.

Instead of pushing back, however, the Obama Administration technocrats love to talk about what they can learn from the private sector, and talk about public-private partnerships (where “private” always means “for profit”), and generally give the impression that even if they disapprove of individual for-profit colleges or healthcare companies, in principle they think such things are a swell idea.

Ideally what I’d like to see is some empirical data here: where do for-profits compete effectively with not-for-profits? Where don’t they? And if that particular distinction turns out not to be very useful in some of these areas, then what are the kinds of things we should be looking for instead?

I know full well that a lot of not-for-profit organizations are run in a dreadful fashion; I’m just not convinced that introducing a profit motive is always or even often the best way to fix that problem. Sometimes it might be: I’m thinking for instance about the way that American Homeowner Preservation, in Chicago, spun off a for-profit hedge fund in order to raise the kind of money which could buy up whole portfolios of distressed mortgages at a stroke. But I very much doubt that for-profit education is ever a good idea. I just don’t see how the incentives there could possibly be aligned.

COMMENT

Do you feel ripped off by your for-profit school? Has your experience left you near bankruptcy? Do you have huge student loans to pay off after going to a for-profit school?

I’m a grad student doing a project on the best way we can legislate changes in (1) accreditation, (2) disclosures to students, and (3) accountability/oversight of these schools. Please get in touch and share your stories. We may even ask you to testify in front of state legislatures. Mostly, we’re just collecting stories for a “story book” that we can hand to California State Senators or Assemblypeople.

Get in touch!
forprofitschooldebtstories@gmail.com

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The philanthrocapitalism debate

Felix Salmon
Dec 23, 2011 17:50 UTC

The Stanford Social Innovation Review is hosting a debate over philanthrocapitalism in which Kavita Ramdas, on the anti-philanthrocapitalist side, makes some very salient points.

Firstly, Ramdas breaks philanthropy down into three groups: traditional philanthropies; philanthrocapitalism; and what she calls “social change philanthropies”, which “are emerging to challenge the substance, form, and direction of philanthrocapitalism as well as the current, largely unequal systems of trade and global capitalism”.

Ramdas doesn’t give examples of these anti-capitalist social change philanthropies, so I’m a bit unclear on what exactly she has in mind, although Occupy Wall Street and its funders certainly seem to count. And interestingly, although Ramdas is siding with the social-change philanthropies against the philanthrocapitalists, the philanthrocapitalists, in the form of Matthew Bishop and Michael Green, seem more interested in opposing traditional philanthropies:

We still need to talk about nonprofit performance and impact. Most nonprofits are “black boxes” to their supporters. We are excited that the Internet and social media can engage and mobilize “mass philanthrocapitalism” from ordinary donors. Organizations such as GlobalGiving, Kiva, and DonorsChoose have made a great start, but this revolution has a long way to go. And we mean revolution, maybe even a mass extinction of traditional nonprofits that cannot engage their givers.

Although I have no desire to overthrow the capitalist system, I have a lot of sympathy with Ramdas, here, and very little with the philanthrocapitalists. The idea that a “black box” is always and obviously a Bad Thing is oversimplistic: while transparency and accountability are good, they can result in conservatism and a lack of the very kind of risk appetite and failure-embracing that the philanthrocapitalists love to espouse.

Meanwhile, Ramdas has a strong point here:

Current philanthropic practice is also driven by the need to find technological solutions, the same “fix-the-problem” mentality that allowed business people to succeed as hedge-fund managers, capital-market investors, or software-developers. This approach is designed to yield measurable and fairly quick solutions. A symptom of this may be found in the kind of skills that new foundations are seeking. I am struck by how few social scientists are employed at the new “mega-philanthropies.” Instead, the people most sought after are management consultants, business people, former industry leaders or lobbyists, and scientists. Each of these is expected to bring a crisp and coolly efficient approach to their work, demonstrating their “expertise” on specific issues—climate change, agricultural productivity, soil quality, or infectious disease. The nuance and inherent humility of the social sciences—the realization that development has to do with people, with human and social complexity, with cultural and traditional realities, and their willingness to struggle with the messy and multifaceted aspects of a problem—have no cachet in this metrics-driven, efficiency-seeking, technology-focused approach to social change.

Pointedly, Ramdas asks for — and the philanthrocapitalists fail to provide — “evidence that philanthrocapitalism works”. When the Gates Foundation, armed with a million-dollar salary for its new CEO, ends up hiring a second Microsoft centimillionaire, the simplest explanation is usually the right one: it’s not because that person, at that salary, is the best possible choice for the foundation. It’s just that extraordinarily rich people, like everybody else, like familiar surroundings. And they’re also disproportionately likely to have an immodestly high opinion of their own ability to be a success in any field they choose. If they hired management consultants as a tool to make lots of money, then why not hire management consultants as a tool to give it away?

There’s a lot of this which can’t and won’t be changed. Philanthropy is driven by money, and money comes from rich people. If it’s rich people who are paying the philanthropic piper, then it’s rich people who will call the philanthropic tune. And non-profit organizations which don’t pay the requisite lip service when it comes to return on investment and the like will simply get passed over, when the dollars are doled out, in favor of fundraisers who can talk the talk.

I have little reason to believe that the rich are better at giving away money than the poor, or that they run philanthropies better. But this is how rich people like to give away their money, these days — and it’s better that they give it away than that they don’t. I think they have a lot to learn from philanthropies which have been around for decades, but they’ll have to learn that themselves, slowly. In the mean time, we don’t need to celebrate philanthrocapitalism in order to be happy that the rich are choosing to give their money away, rather than just keep it in their families forever.

COMMENT

For some, money is subsistence.
For some, money is security.
For some, money is freedom.
For the very wealthy, money is power and fame.

Giving money to a charity would be ceding that power. Giving up the ability to splash your name all over the headlines. Surely that must take precedence over charitable endeavors?

Posted by TFF | Report as abusive
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