There is No Such Thing as a Free Gift

At a time of global inequality, billionaire philanthropists are stepping up with strong foundations and charity to overcome some of the world’s greatest challenges. The elites behind such endeavors always talk in terms of changing the world and making the world a better place. For example on December 1, 2015, Mark Zuckerberg and Dr. Priscilla Chan announced a $45 billion donation of Facebook stocks to the Chan Zuckerberg Initiative (“CZI”), a new nonprofit organization dedicated to “personalized learning, curing illness, connecting people, and building strong communities”¹Mark Zuckerberg, A Letter to Our Daughter, FACEBOOK (Dec. 1, 2015), https://mobile.facebook.com/nt/screen/?params=%7B%22note_id%22%3A770757020443898%7D&path=%2Fnotes%2Fnote%2F&_rdr. But what is a philanthropist? according to Oxford Languages, a philanthropist is a person who seeks to promote the welfare of others, especially by the generous donation of money to good causes²Oxford Languages and Google – English | Oxford Languages. (n.d.). Retrieved May 29, 2021, from https://languages.oup.com/google-dictionary-en/. What a positive impact, right? However, many of these declarations were met with more skepticism than enthusiasm. Chan and Zuckerberg’s announcement attracted allegations that the donation was simply a tax-avoidance maneuver³Mark Zuckerberg defends philanthropic venture against tax avoidance claims | Mark Zuckerberg | The Guardian. (n.d.). Retrieved May 29, 2021, from https://www.theguardian.com/technology/2015/dec/05/mark-zuckerberg-defends-philanthropic-venture-tax-avoidance-claims and amounted to the couple giving money to themselves⁴Jeremy C. Owens, Zuckerberg Answers Critics with Details on LLC, MARKETWATCH, https://www.marketwatch.com/story/zuckerberg-answers-critics-with-details-on-llc-2015-12-03. This negative response is shocking at first glance. What could be troublesome about a wealthy couple pledging to donate their fortune to the common good?
This inquiry begs the question, why should we care about Chan and Zuckerberg’s philanthropic activities?. So what if the couple decided to forego tax savings to be more flexible? After all, the $45 billion is their money. Is there a legitimate reason for public interest in how they spend it? Why should the public care if the couple determined that the tax benefits were insufficient to justify the additional administrative and regulatory burden associated with a private foundation? Well, the public should be concerned (and should be highly concerned) because Chan and Zuckerberg’s decision raises a disturbing concern about the role of philanthropy in our society and the implications of philanthropists engaging in charitable work through for-profit vehicles.

The Resurgence of an Old Trend

Since the early 1900s, the wealthy elite of the early twentieth century — a community that includes Andrew Carnegie⁶Foundation History, CARNEGIE FOUND. FOR THE ADVANCEMENT OF TEACHING, https://www.carnegiefoundation.org/who-we-are/foundation-history/, John Rockefeller⁷Our History, ROCKEFELLER FOUND., https://www.rockefellerfoundation.org/about-us/our-history/, and Edsel Ford (Henry Ford’s son)⁸Our Origins, FORD FOUND., https://www.fordfoundation.org/about-us/our-origins/— have established foundations to support charitable activities worldwide. These fathers of modern American philanthropic philosophies exemplify the conventional approach to charitable activities, which constituted the consensus of the philanthropic approach in the United States. Precisely, much of the conventional philanthropy are passive. Rather than instructing grantees exactly how to invest the donation in a specific manner, the typical philanthropist makes a financial contribution and leaves it up to the recipients to decide how to spend it. For instance, if a typical philanthropist is concerned about child hunger, they may simply donate money to an organization that feeds hungry children⁹Garry W. Jenkins, Who’s Afraid of Philanthrocapitalism, 61 CASE W. RES. L. REV. 753, 758–59 (2011).. The typical philanthropist, for example, does not dictate to the recipient organization the type of food to provide, the children to feed, or the frequency of food provision. It makes a financial contribution to a charitable organization and believes it will invest it wisely. This conventional approach however has been declining in popularity in favor of a new modern philosophy: philanthrocapitalism.

The word philanthrocapitalism was coined in a 2006 Economist magazine article and thoroughly established in Matthew Bishop’s recent book with Michael Green, a former policymaker at the UK’s Department for International Development¹⁰Bishop, M., Green, M., 2008. Philanthrocapitalism: How the Rich Can Save the World. Bloomsbury Press, London.. Bishop and Green suggest two definitions for the term. First, they argue that philanthrocapitalism is a novel approach to philanthropy, one that reflects how business is conducted in the for-profit capitalist world. Entrepreneurs are not interested in simply writing checks, they want to be hands-on, investing their time and resources in bringing new ideas to scale. Second, the term philanthrocapitalism encompasses’ the forms in which capitalism can be philanthropic, operating for the greater good of mankind. The winners of capitalism increasingly see giving back as a necessary component of wealth. A central tenet of new philanthrocapitalism is the assertion that altruism is a viable business strategy. As Bishop and Green state above, being more philanthropic is necessary for ‘wealth.’ Charity is a sound business, an unmistakably profitable strategy for benefit enhancement¹¹Economist, 2006. The birth of philanthrocapitalism. Economist (February 23)..

Critiquing Philanthropy is Akin to Despise For Apple Pie and Throwing Puppies

Before delving into criticisms, it is necessary to state what might have become apparent: Philanthropy is, on the whole, a beneficial force in the world. This is not meant to be a manifesto about the wealthy’s arbitrary benevolence. Whether motivated by an altruistic desire to solve intractable issues, the pleasure experienced when personal resources can be used to alleviate social ills, or a sense of duty born of financial prosperity when so many others fail, the impulse to invest one’s wealth in a socially beneficial manner is an admirable reaction—one that should be fostered. As a result, denouncing the wealthy’s charitable activities is remarkably counterintuitive. As Professor Robin Rogers put it more eloquently, opponents of philanthropy can be described as “lunatics who reject goodness and reason, probably despise apple pie, and possibly kick puppies”¹²Robin Rogers, Why Philanthro-Policymaking Matters, 48 SOC’Y 376, 379 (2011).. One would presume that we would prefer a wealthy individual to donate money to fix social ills rather than use it for private and selfish purposes¹³PHILANTHROPY IN DEMOCRATIC SOCIETIES 67 (Rob Reich et al. eds., 2016).. Bernard Marcus, the founder of Home Depot, claimed in defense of modern philanthropists’ efforts, saying, “All this money is going to charity to support people—what kind of numbskull can find something wrong with that?”¹⁴Stephanie Strom, Pledge to Give Away Fortunes Stirs Debate, N.Y. TIMES (Nov. 10, 2010), https://www.nytimes.com/2010/11/11/giving/11PLEDGE.html..
The response is not as straightforward as Marcus suggests. It is, indeed, a complex problem that necessitates a nuanced approach. Unfortunately, the philanthropy debate is lacking in complexity. “Cheerleaders for philanthropy see virtually all the givers do as positive,” David Callahan observed, “while detractors can be just as myopic and, at times, paranoid”¹⁵DAVID CALLAHAN, THE GIVERS: WEALTH, POWER, AND PHILANTHROPY IN A NEW GILDED AGE 33 (2017).. To summarize, regardless of how credible the critiques of philanthropy are, there is no question that philanthropy has many achievements. Philanthropy has made a major contribution to mitigating the impact of global illness¹⁶Kate Kelland, Malaria Eradication No Vague Aspiration, Says Gates, REUTERS, http://www.reuters.com/article/us-malaria-gates-eradicationidUSTRE79I06620111019, poverty¹⁷Jane Wales, Philanthropists Can’t Eradicate Global Poverty, but We Can Make a Start, GUARDIAN, https://www.theguardian.com/global-development-professionals-network/2016/may/12/philanthropy-global-poverty-development-finance-sdgs, and natural disasters¹⁸Megan O’Neil, A Decade Later, New Orleans Nonprofits Cite Gains, Yet Worry over the Future, CHRON. PHILANTHROPY, https://www.philanthropy.com/article/A-Decade-Later-New-Orleans/232509. Although it has resulted in several stunning failures, it would be dishonest to point to specific places where philanthropy has struggled as proof of philanthropy’s folly¹⁹David Bosworth, The Cultural Contradictions of Philanthrocapitalism, 48 SOC’Y 382, 386 (2011)., as such critiques often overlook philanthropy’s many victories. Evidence of specific philanthropic failures is not proof that all such efforts are doomed to fail, just as pointing to success stories is not proof that the entire philanthropic sector is vindicated. Instead of dwelling on results, critics should investigate how philanthropy achieves both its successes and failures.

Philanthropy-Driven Education Reform

Jane Addams condemned philanthropy as incompatible with a democratic society more than a century ago²⁰JANE ADDAMS, DEMOCRACY AND SOCIAL ETHICS 14 (1905).. As articulated in Democracy and Social Ethics, Addams’s criticism was not of philanthropy’s objectives or methods but its very nature. Regardless of the result of a philanthropic effort (for example, housing the poor, feeding the starving, or curing the sick), Addams opposed any organization in which an elite cadre of wealthy individuals exercised power over the beneficiaries without their consent. Addams is not alone in holding this opinion. Dr. Susan Ostrander recently lamented the rise of donor-centered philanthropy for similar reasons, observing that focusing on a donor’s pet interests or hobbies makes it less likely that philanthropic activities will align with public needs²¹Susan A. Ostrander, The Growth of Donor Control: Revisiting the Social Relations of Philanthropy, 36 NONPROFIT & VOLUNTARY SECTOR Q. 356, 358 (2007)..
Examining education reform motivated by philanthropy is instructive because public education is appealing for philanthropic efforts. A lot of the world’s largest and most potent philanthropic organizations, including the Bill and Melinda Gates Foundation (“Gates Foundation”), the Eli and Edythe Broad Foundation (“Broad Foundation”), and the Walton Family Foundation, devote their significant time and resources to reforming our public education system. As a result, it’s unsurprising that one of the CZI’s initial goals is to reform public education by emphasizing personalized learning²²CHAN ZUCKERBERG INITIATIVE, https://www.chanzuckerberg.com/initiatives.
Aiming to pique the wealthy’s attention does not immediately raise alarms. The issue is not that a small number of civic-minded people care about resolving the problems plaguing the public education system. But rather, it is that these philanthropists are uninterested in small acts of kindness. There would be no cause for alarm if they were merely supplying school supplies or supporting field trips. However, these philanthropists want to redefine the very essence of public education, and their combined financial clout has resulted in a disproportionate amount of control. Indeed, the philanthropists’ message is so powerful that almost all voices are drowned out. As a result, a limited number of representatives have dominated the debate and implementation of education reform²³Michael Klonsky, Power Philanthropy: Taking the Public Out of Public Education, in THE GATES FOUNDATION AND THE FUTURE OF U.S. “PUBLIC” SCHOOLS 21, 21 (Philip E. Kovacs ed.,2011)..
This would be similar to how a wealthy individual chooses a Mercedes over a used Volvo. When an individual purchases a vehicle for personal use, the public has no legitimate right to sway the decision. The unilateral aspect of this decision is not controversial because it does not explicitly involve the public interest. However, the philanthropic influence on public education is not the same, and it is not comparable to the rich establishing a school for their children. Instead, it is an effort to change all classrooms. Thus, a more apt metaphor would be a wealthy person asking any less rich person to buy a Mercedes rather than a used Volvo because the wealthy person has paid $1,000 toward the purchase price. The issue is not that a wealthy individual is donating $1,000. Instead, the problem is that the wealthy individual assumes that this small investment gives them the authority to choose which car is purchased.
Modern philanthropic attempts to improve education have been regularly chastised for their top-down strategy and disproportionate influence in promoting particular reform agendas²⁴Kyoko Uchida, Policy Patrons: Philanthropy, Education Reform, and the Politics of Influence, PHILANTHROPY NEWS DIG. (June 16, 2016).. This method often disregards the needs or voices of the people most impacted by philanthropic policymaking. As a consequence, there is a disturbing lack of democracy. Philanthropists have persuaded “federal and state policymakers to adopt many elements of their reform agenda²⁵Stanley N. Katz, Does Philanthropy Threaten Democracy?, STAN. SOC. INNOVATION REV.(2016), https://ssir.org/book_reviews/entry/does_philanthropy_threaten_democracy (reviewing Tompkins-Stange’s book Policy Patrons)., including “charter schools, standardized testing, national curricula, merit pay for teachers, reorganizing or closing underperforming schools, developing accurate data in and across funding sites, and improved management.” Some of these attempts may bear fruit, while others may fail miserably. The result is unimportant for this discussion. It is more important to remember that the beneficiaries of this philanthropic policymaking—administrators, teachers, students, and students’ families—have no significant input into these “philanthropically inspired educational experiments.”
There is a possibility that the reforms motivated by philanthropy will prove to be elusive to our public education woes. There is no reason to question the sincerity of which drives the Gates Foundation, the Broad Foundation, and the Walton Family Foundation to strengthen the public education system. The issue is not that philanthropists are incorrect (or may one day be proven wrong), but that they have become the only meaningful voice in a debate. Again, this is more concerned with procedure than with results. A small group of affluent individuals dominated the discussion of public education reform, deciding on the most effective options, and began implementation without input from other parties involved. Whatever the outcome, this is an egregiously anti-democratic method of resolving a social issue.

The Paternalism of Philanthropy

Poverty was thought to be under a person’s control; a person would be poor only if they lacked moral or spiritual qualities. This assumption held that fixing a poor person’s supposed depraved nature would relieve society of the burden of poverty. Andrew Carnegie’s article, “Wealth”, epitomizes this point of view. Carnegie wrote this to inspire his affluent colleagues to participate in philanthropy throughout their lifetimes rather than leaving money to their children or making a bequest to a public charity. Popularly referred to as “The Gospel of Money”, Carnegie’s article concludes that lifelong giving is “the only solution to temporary wealth inequality, the reconciliation of the wealthy and the poor.”
Regardless of its enthusiasm, Carnegie’s seminal article reeks of the paternalism that plagues modern philanthropy. Carnegie was a firm believer that poverty is an indicator of immorality, stating that “[t]hose deserving of assistance, even in exceptional circumstances, seldom need assistance”²⁷Andrew Carnegie, Wealth, 148 N. AM. REV. 663 (1889).. According to this argument, Carnegie concluded that the poor should not be trusted to decide how charitable funds were invested. If the wealthy of the country gave money to the needy, “most of this amount… might have been lost in the indulgence of appetite, some of it in excess, and it could be questioned whether even the portion put to the best use… would have produced results”²⁸Id. at 660–61.. Carnegie concluded dramatically, “It would be safer for humanity if the millions of the wealthy were thrown into the sea than expended in such a way as to promote the slothful, the intoxicated, and the unworthy”²⁹Id. at 662..
Following this belief, early American charities committed to alleviating the poor’s plight placed a premium on the individual’s character rather than on direct attempts to improve the individual’s financial circumstances. The problem, in this view, was not a lack of employment, but a lack of spirituality; poverty, in this view, was not caused by insufficient public education but by a lack of civic responsibility. This school of thinking was founded on the premise that poverty would be eradicated if the poor person addressed their spiritual deficiencies.
This is a somewhat unpopular belief nowadays, and it won’t be easy to find many charities that directly support such a philosophy. While this belief is no longer publicly held, the philanthropic sector reveals a persistent view that a person’s suffering is linked to their morality or work ethic. Current charitable approaches to poverty alleviation tend to be merely a shift of vocabulary rather than a change in method. Rather than pointing to spiritual or moral defects, “[t]he present discourse employs new pathologies such as ‘dysfunctional,’ ‘anti-social,’ and ‘dependent personality disorder’ to implicate the weak in deviant behavior”³⁰Carnegie, supra note 170, at 662–63..
This leads to the erroneous (and, frankly, offensive) belief that disadvantaged people would be competent and productive to community members if not for these pathological defects. As a result, despite the assumed evolution of our cultural perception of the causes of poverty, there is no distinction between the new approach and the historical view that wealth is proof of goodness and poverty is evidence of moral failure. New philanthropic programs, like their predecessors, are primarily designed to counter so-called pathologies rather than poverty. This is why “noncontroversial poverty schemes, such as food banks,” obtain philanthropic funding more readily than “grassroots groups, lobbying campaigns, or public policy efforts.”

Monopolizing the Market of Ideas

This amateurism manifests itself in a variety of ways. It is often the result of an apparent lack of experience for conventional philanthropists³¹David Bosworth, The Cultural Contradictions of Philanthrocapitalism, (2011).. For philanthrocapitalists, a sign of amateurism is exacerbated by their propensity for bringing corporate practices to charitable initiatives. One such business strategy that is problematic in the philanthropic realm is the instinct to monopolize the market of ideas.
The attempts of Zuckerberg to overhaul Newark’s public education system are instructive. In that scenario, the philanthropists sought the advice of experts to decide if their aim of improving Newark schools within five years was realistic. One of those experts was John King, the Deputy New York State Education Commissioner, whom the philanthropists hoped would become the superintendent of Newark. King turned down the deal, mostly because he thought the five-year reform plan was impractical. He predicted that “it will take almost that long to reform the system’s basic practices and increase standards for children and schools around the city.” Rather than following King’s advice and adjusting the timetable, the philanthropists sought an expert who would support their preferred solution.
When it contradicts the philanthropist’s preconceived solution, ignoring expert advice is a common practice. Worryingly, since philanthropists restrict their consultations to experts that agree with the philanthropist’s preferred approach, the outcome is a chorus of expert opinions that merely repeat the philanthropist’s preconceived notions³²David Bosworth, The Cultural Contradictions of Philanthrocapitalism, 48 SOC’Y 382, 386 (2011).. As philanthropists pour more money into their newly bolstered preconceived ideas, they quickly become the most influential voice in any given debate. When a philanthropist monopolizes a field in this way, there is no plurality of opinion, and the philanthropist’s preferred solution to a problem becomes the only solution considered.
This may be the inevitable result of philanthropists applying business lessons to philanthropy. Still, when philanthropists use the mechanism that helped them amass their fortune—monopolization of the market—in their philanthropic efforts, opposing voices are drowned out and ignored. According to Professor Bosworth, Microsoft “has thrived financially not because of its continuing prophetic excellence, but because of its longstanding monopoly status“³³Id. at 386.. Whether or not that is true, monopolization is the unfortunate path that many philanthropists have taken.
As a result, an amateur’s intuitive solutions are falsely elevated to dominate public discourse because of the amateur’s financial support. As the amateur’s proposals gain traction, they spend more resources to find more help for the specific solution. The will to protest weakens as more capital is spent. Whether the philanthropist is correct (or if the philanthropist came across the right expert in crafting the solution), there is no risk other than the potential harm to democracy. If, on the other hand, the key is unsuccessful, society has not only squandered time and resources but has also enabled philanthropists to censor critics and disincentivize alternative ideas.

The Opacity of LLCs Exacerbates the Paternalism and Amateurism of Philanthropy

A philanthropist is compelled to recognize the program’s public reception. However, the complete opaqueness of limited liability company (LLC) operations precludes such public inspection, thus allowing for paternalistic and amateurish conduct. This is unfortunate because the forced secrecy of private foundations is critical in fighting philanthropic paternalism and amateurism. Due to the absence of any democratic check on philanthropists’ actions, the only effective way to counteract a philanthropist’s excessively paternalistic or amateurish behavior is to publicize it. This is precisely what occurred in Zuckerberg’s experiment to change public education in Newark, which drew widespread condemnation. The first two sentences of an op-ed in the Wall Street Journal aptly summarized much of the negative press: “What happened to the $100 million that Mark Zuckerberg’s Facebook donated to Newark’s schools?”³⁴James Piereson & Naomi Schaefer Riley, Zuckerberg’s $100 Million Lesson,WALL ST. J. (Oct. 5, 2015), https://www.wsj.com/articles/zuckerbergs-100-million-lesson-1444087064.
Critics criticized how the money was invested — or, more precisely, how it was squandered — bemoaning generous wages paid to consultants, teacher increases that yielded little observable improvement, and payments to suppress political opposition³⁵Jonathan A. Knee, The Melting of Mark Zuckerberg’s Donation to Newark Schools, N.Y.TIMES, https://www.nytimes.com/2015/08/27/business/dealbook/the-melting-of-mark-zuckerbergs-donation-to-newark-schools.html. Additionally, critics emphasized the absence of democratic participation in the reform effort and that the imposed changes were largely untested. There is no reason to believe that Zuckerberg would like to escape potential scrutiny. Many of the details used to justify allegations came from Zuckerberg’s philanthropic organization’s public filings. If an LLC had done it, no salary or other payments would have been required to be disclosed. Many of the data that fueled critics of Newark’s public education reform experiment would be concealed from public view.

Conclusion

Rather than seeing philanthropy as individual spending beyond reasonable control due to its individual ideas, we should view it as private policymaking that has an unnatural impact on the public sector in some areas of public concern. Since we depend on the affluent to reform public education and provide primary health care, we should aim to create a regulatory regime that mitigates the possible adverse effects of philanthropic antidemocracy, paternalism, and amateurism. Without a dramatic overhaul of the tax system, the ultra-wealthy will continue to wield enormous control over public policy. Given this power, it is only fair to consider ways in which it may be better controlled, even more so when general issues tend to focus on philanthropic action. This concluded the fact that drafting an effective regulation is difficult. Adjusting the intrinsic advantages of private foundations and limited liability companies would be foolish, and finding the right balance in a licensing system would be exceedingly tricky. There is, however, a reason to be hopeful about the prospect of a social license for philanthropy. As long as philanthropists conduct themselves sincerely while seeking stakeholder support for philanthropic activities, the negative implications of philanthropy can be mitigated, regardless of the legal structure of the philanthropic apparatus.

Editor: M Daffa Nurfauzan, Erika Tanudjaya, Oliver Sianturi, Yudhistira GS

Illustrator: Elizabeth Alvita Stephanie