In Support of Super-Rich Philanthropy

person showing both hands with make a change note and coins

The Guardian published an article titled “How philanthropy benefits the super-rich”. And parts of it are making really really angry. I have seen similar articles (they made me really really angry), and the Guardian article is one of the better ones (but still made me really really angry). The most important points it makes are:

  • Most donations go to institutions like Oxford, Cambridge, Yale, or to the Arts – not to poor people.
  • People who donate have too much power to make decisions that are not democratically legitimized.
  • charity hides the true underlying question of how the rich came to be so rich and therefore perpetuates injustice.
  • Philanthropy is often a form of green-washing

The reason this article makes me so angry is because I believe articles like this one (and there is a lot of them) can do real harm. I will argue the following things in this post:

  • We should stop allowing people to get tax-deductions for donating to elite colleges and golf courses. But nevertheless, positive impacts of super-rich philanthropy currently by far outweigh the harms
  • Large donors overall don’t exert undue influence on our society through their donations. We can have a debate on whether we should have billionaires at all (and I’ll also talk about that), but the problem is not philanthropy.
  • If we want to fight injustice, we should fight against injustice, not philanthropy. A lot of things need to be changed, but we should tackle problems with current philanthropy in a way that doesn’t decrease future good philanthropy
A game of tone

What I find problematic about the article is not so much the specific shortcomings of current philanthropy it points out. That is all fair and fine. My problem is the lack of context and the insinuating undertones that suggest we should be skeptical and wary of all philanthropy by rich people, even when it does exceptional good. Let me start with the tone. Here are some quotes from the article:

The common assumption that philanthropy automatically results in a redistribution of money is wrong. A lot of elite philanthropy is about elite causes. Rather than making the world a better place, it largely reinforces the world as it is. Philanthropy very often favours the rich – and no one holds philanthropists to account for it.

The take-home message is not: Philanthropy is a good thing, but has major problems we need to talk about. Rather it is: Yet again the super-rich are screwing us over and we must not trust them, especially not if they claim to be doing good. It goes on:

The effect of this is often to give the wealthy control in matters that would otherwise be determined by the state.

Yet the priorities of plutocracy, rule by the rich, and democracy, rule by the people, often differ. The personal choices of the rich do not closely match the spending choices of democratically elected governments. A major research study from 2013 revealed that the richest 1% of Americans are considerably more rightwing than the public as a whole on issues of taxation, economic regulation and especially welfare programmes for the poor. Many of the richest 0.1% – individuals worth more than $40m – want to cut social security and healthcare. They are less supportive of a minimum wage than the rest of the population. They favour decreased government regulation of big corporations, pharmaceutical companies, Wall Street and the City of London.

All of these things are probably true. But the implication is: we should be skeptical of all kinds of donations and of the donors’ agenda. Should we? Instead of shunning all kinds of donations, I believe we should look more closely. Some donations are good, and some are problematic. Saving millions of lives? Very good. Eradicating diseases? Excellent. Helping out your local golf course with a new fountain? Not so much. Donating your kids’ way into an elite college? Definitely not. Not all kinds of donations are good and aspects of the system are flawed. But we need to talk about the bad ones in a way that doesn’t destroy the good ones. The Guardian article unfortunately fails at that.

Putting the achievements of super-rich philanthropy into context

My first problem is that the article does not correctly take the proportions between ‘positive’ and ‘negative’ philanthropy into account. If you wrote a book about Martin Luther King and devoted the majority of your time writing about how he was not perfect and how he was sometimes mean to other people, then you’re clearly not putting his achievements in context correctly. All of these things may be true, but something feels off if the main message is: Martin Luther King had these achievements, but mainly he was very problematic. This, to a certain extent, is what the Guardian does to super-rich philanthropy. Let’s look at another quote:

There are a number of tensions inherent in the relationship between philanthropy and democracy. For all the huge benefits modern philanthropy can bring, the sheer scale of contemporary giving can skew spending in areas such as education and healthcare, to the extent that it can overwhelm the priorities of democratically elected governments and local authorities.

Some of this influence is indirect. The philanthropy of Bill and Melinda Gates has brought huge benefits for humankind. When the foundation made its first big grant for malaria research, it nearly doubled the amount of money spent on the disease worldwide. It did the same with polio. Thanks in part to Gates (and others), some 2.5 billion children have been vaccinated against the disease, and global cases of polio have been cut by 99.9%. Polio has been virtually eradicated. Philanthropy has made good the failures of both the pharmaceutical industry and governments across the world. The Gates Foundation, since it began in 2000, has given away more than $45bn and saved millions of lives.

Yet this approach can be problematic. Bill Gates can become fixed on addressing a problem which is not seen as a priority by local people, in an area, for example, where polio is far from the biggest problem. He did something similar in his education philanthropy in the US where his fixation on class size diverted public spending away from the actual priorities of the local community.

Can we pause for a second to note that the by far most important information in these paragraphs is “The Gates Foundation, since it began in 2000 […] saved millions of lives”. This is an unbelievable achievement and more than most nation states can say of themselves. This should be the yard stick against which we should measure the shortcomings of super-rich philanthropy. Yet it is not the central message that comes across in the article. The very opening statement of the Guardian text is:

Philanthropy, it is popularly supposed, transfers money from the rich to the poor. This is not the case.

Yes it is! Very much so! *Wildly gesturing at millions of lives saved*. Maybe not all of it. Maybe not even the majority of tax-deductible donations (and that is a problem we need to talk about). But overall, this kind of philanthropy has been overwhelmingly successful. Consider these examples, taken from a SlateStarCodex article titled “Against against billionaire philanthropy“:

Until last year, California factory farms kept animals in cages so small that they could not lie down or stretch their limbs, for their entire lives. Moskovitz and Tuna funded a ballot measure which successfully banned this kind of confinement. It reduced the suffering of hundreds of millions of farm animals and is one of the biggest victories against animal cruelty in history.

Norman Borlaug’s agricultural research (supported by the Ford Foundation and the Rockefeller Foundation) plausibly saved one billion people.

These accomplishments – and other similar victories over famine, disease, and misery – are plausibly the best things that have happened in the past century.

Maybe the majority of donations is not very effective and goes to questionable things like colleges or golf courses. But the average donation is hugely impactful, simply because we have such outliers as the Bill and Melinda Gates Foundation among them.

Apart from lack of effectiveness, the article insinuates that large donors exert undue influence and divert public spending away from the actual priorities. Let’s therefore have a look at how much influence this large donors actually have.

How much power does super-rich philanthropy really have?

The Guardian article completely fails to put in perspective how small a share of overall spending donations are. The biggest donors in the US gave around $14 billion in 2018, according to Forbes. The US federal budget in 2018 was $4 trillion, 285 times as much. From the SlateStarCodex article again:

For context, the California government recently admitted that its high-speed rail project was going to be $40 billion over budget (it may also never get built). The cost overruns alone on a single state government project equal four times all the charity spending by all the billionaires in the country.

Compared to government spending, Big Philanthropy is a rounding error. If the whole field were taxed completely out of existence, all its money wouldn’t serve to cover the cost overruns on a single train line.

This is clearly not private philanthropy crowding out the state. Or private donations deciding on hugely important questions instead of the general public. Governments could do all the things philanthropists due and 285 times more! (Obviously they can’t do 285 times as much as the state has a lot of fixed costs to cover and things to run and can’t freely decide on what to spend all that money. But after all these immense stimulus packages we have seen over the last years, nobody can tell me that states couldn’t muster the money if they wanted to. The US government simply decides to spend around a $50-100 million per year in Afghanistan instead of giving the money to people in need).

States just have different priorities and therefore it seems a good thing if private philanthropists step in. Sure, not all of this is perfect and some super-rich may be taking advantage of the system. But again, put this in context. *Gesturing at $4tn annual state budgets. Gesturing at millions of lives saved through private philanthropy*.

But what about donations that try to influence politics? I feel this is a bit of a straw man argument, but I’m going to address it quickly. First and foremost: It would probably be a good idea, for various reasons, to limit political donations from individuals to say $1000 per year, maybe less. If you think that there are too many private donations in politics, I agree with you. We can solve this particular problem and then move on. But complaining about billionaire philanthropy is not the way to change that.

Yet again, it helps to also put political donations into perspective. There is reason to believe that money doesn’t heavily influence elections – I actually did my bachelor thesis on this. The idea is that promising candidates attract donations, not that donations make candidates win. If you compare the same set of candidates running against each other several times in a row (as is quite common in US House of Representatives elections), you can observe that money has almost no effect at all. You can read more about research on the subject by economist Steven Levitt (as explained in the book Freakonomics) here and here. Also: If donations were an effective way to influence government, why are there so few of them? From an another SlateStarCodex article, titled Too Much Dark Money In Almonds:

Everyone always talks about how much money there is in politics. This is the wrong framing. The right framing is Ansolabehere et al’s: why is there so little money in politics? But Ansolabehere focuses on elections, and the mystery is wider than that.

Sure, during the 2018 election, candidates, parties, PACs, and outsiders combined spent about $5 billion – $2.5 billion on Democrats, $2 billion on Republicans, and $0.5 billion on third parties. And although that sounds like a lot of money to you or me, on the national scale, it’s puny. The US almond industry earns $12 billion per year. Americans spent about 2.5x as much on almonds as on candidates last year. [….]

Add up all US spending on candidates, PACs, lobbying, think tanks, and advocacy organizations – liberal and conservative combined – and we’re still $2 billion short of what we spend on almonds each year. In fact, we’re still less than Elon Musk’s personal fortune; Musk could personally fund the entire US political ecosystem on both sides for a whole two-year election cycle.

The article is great and you should read it. Probably, political donations are less influential than we commonly believe. I think overall it is hard to make the case that the super-rich skew the political and societal landscape in their favor through donations. They have other means to exert power that are not related to philanthropy, like deciding where to invest.

Nevertheless, I am digressing and we can probably agree there is a lot to object about political donations and it would probably best to limit them dramatically. Individuals being able to donate millions to a political campaign and make politicians depend on these donations is certainly not ideal. What is important though: We should make sure that we focus our argument on political donations, not make a case against philanthropy in general.

Alternatives to super-rich philanthropy

If we think about whether or not the current super-rich philanthropy “system” is better than the alternative, we also have to talk about what the alternative is. Some options:

  • Continue to allow billionaires to donate as much money as they want, just remove tax deductions for things like elite colleges, golf courses, your kid’s football club, or bird sanctuaries.
  • Remove all tax deductions for donations
  • Force all large donations to be decided on by popular vote
  • Increase taxes until there aren’t any billionaires around anymore.
Getting rid of odd tax exemptions

Getting rid of loopholes is a bit of a no-brainer. At least in theory. Of course we should allow tax deductions for things like poverty alleviation, but maybe not for things that don’t really benefit society as a whole. We can probably agree that building homeless shelters is different from sponsoring a theater. In practice I imagine it will be really hard to define what exactly is beneficial enough to merit tax exemptions. Doesn’t a community park also help society as a whole? Doesn’t Oxford also contribute to the prestige the UK has in the world? Specific choices may be tough, but I think it is at least possible to make a big list of things and have people vote on it. Note, however, that this proposal is very much in line with “rich people donating money is a good thing and we should foster that and just remove the loopholes”. This is not the main line of attack that the Guardian article takes. If this is what you want, argue against loopholes, not against big philanthropy in general.

Maybe nobody should get tax exemptions

One could go further and argue that nobody should be able to deduct any donations from state taxes. The idea is this: the state shouldn’t subsidize the rich exerting a form of undemocratic power. Instead, the state could just keep the money to do all the charitable things that are now done privately. I argue that by and large (except for the things mentioned above), this is a bad idea.

First, think about what taxes are. If the state decides not to tax you, it isn’t ‘giving’ you anything. It just decides not to take away from you. The reason why the state usually takes away from you is so a guaranteed part of your wealth benefits society as a whole. If you do something that benefits society as a whole I think it is fair for the state not to tax you again on that. Sure, we might want to change that once the state couldn’t generate any taxes anymore because everybody was just donating their money away instead of paying taxes. But this is not the case.

The US collected $3 330 billion in taxes in 2018, compared to $14 billion in billionaire philanthropy. If we assumed a 50% tax rate, that would be $7 billion in lost revenue (the actual number would probably be higher, as the $14 billion only counts donations from the super-rich). Allowing people to decide for themselves how to best benefit society with 0.21% of the annual tax revenue can hardly be called “exerting undue and undemocratic influence”. This is even more so as the government can easily democratically control what is deductible and what is not. Big philanthropy is not “out of control”. And even if it were, removing tax exemption status wouldn’t change it. Even if donations were not deductible, evil philanthropists could still go on a donation spree and vaccinate all these children against Polio even if the public does not approve.

Second, you will probably lose money for charitable causes. If you make something 20%, 30% or 40% more expensive, people will do less of it. Depending on the price elasticity of donations, we might either end up with a little less or with a lot less. It doesn’t take much to imagine how removing social recognition and the literal joy of avoiding taxation could lower the willingness to donate. But even if you believe that you gain in taxes what you lose in donations, only a fraction of that money will actually go towards charitable causes.

States do stupid things

Governments do a lot of stupid things with money. They use it to throw bombs on children in Kosovo, Iraq, Afghanistan and *insert state here*. They use it to throw two million Americans in prison. Just google “examples of bad government spending”. I found this list on msn (msn still exists?) that lists things like “12 million for an e-mail subscriptions that was incompatible with the rest of the IRS system”, or “The space agency spent $15 million annually on a study analyzing the materials used to make golf equipment in space” or “$28 million for forest camouflage that did not work in a desert state like Afghanistan”. Think about the almost 2 trillion in estimated costs for the Iraq war. Or the 6 billion for Guantanamo. Or all the billions of subsidies that go into fossil fuels and the destruction of the planet. Bill Gates could have saved a lot of people with that.

I know I’m being unfair by listing failures of government spending, as one could do something similar with billionaire philanthropy as well (You would be hard pressed though, to find examples of philanthropist spending billions and trillions on killing people, torturing prisoners and destabilizing entire regions). My point is this: I am quite certain that the marginal dollar spent by the super-rich on philanthropy does more good than the marginal dollar spent by nation states. That is true even if we include all the stupid donations to elite colleges. I would even be willing to bet that the average dollar spent by philanthropists does more good than the average dollar spent by governments. I don’t see the US government saving 285x times as many people as super-rich philanthropists do.

Even if the state were as effective as private donors, it would still be good to have a multitude of different contributions to preserve a pluralistic understanding of charity. Charities do a lot of things the state doesn’t do: They fight for a reform of the prison system, for environmental protection or against animal farming. This is, in many instances, directly the opposite of what states do. When the state throws people in prison, it is very good to have a charity backed up by billionaires that tries to bring justice to the most disenfranchised. When the state subsidizes industrial farming, it is very good to have charities advocate for animal rights. With the US withdrawing from the Paris Agreement on Climate Change, it is very good to have charities, backed up by billionaires fight for the environment.

From the SSC post “Against against billionaire philanthropy again:

If Moskovitz and Tuna’s money instead flowed to the government, would it accomplish the same goal in some kind of more democratic, more publically-guided way? No. It would go to locking these people up, paying for more prosecutors to trick them into pleading guilty, more prison guards to abuse and harass them. The government already spends $100 billion – seven times Tuna and Moskovitz’s combined fortunes – on maintaining the carceral state each year. This utterly dwarfs any trickle of money it spends on undoing the harms of the carceral state, even supposing such a trickle exists. Kicking Tuna and Moskovitz out of the picture isn’t going to cause bail reform to happen in some civically-responsible manner. It’s just going to ensure that all the money goes to making the problem worse – instead of the current situation where the overwhelming majority of money goes to making the problem worse but a tiny amount also going to making it better.

Or take one of M&T’s other major causes, animal welfare. Until last year, California factory farms kept animals in cages so small that they could not lie down or stretch their limbs, for their entire lives. Moskovitz and Tuna funded a ballot measure which successfully banned this kind of confinement. It reduced the suffering of hundreds of millions of farm animals and is one of the biggest victories against animal cruelty in history.

If their money had gone to the government instead, would it have led to some even better democratic stakeholder-involving animal welfare victory? No. It would have joined the $20 billion – again, more than T&M’s combined fortunes – that the government spends to subsidize factory farming each year. Or it might have gone to the enforcement of ag-gag laws – laws that jail anyone who publicly reports on the conditions in factory farms (in flagrant violation of the First Amendment) because factory farms don’t want people to realize how they treat their animals, and have good enough lobbyists that they can just make the government imprison anyone who talks about it.

George Soros donated/invested $500 million to help migrants and refugees. If he had given it to the government instead, would it have gone to some more grassroots migrant-helping effort?

No. It would have gone to building a border wall, building more camps to lock up migrants, more cages to separate refugee children from their families. Maybe some tiny trickle, a fraction of a percent, would have gone to a publicly-funded pro-refugee effort, but not nearly as much as would have gone to hurting refugees.

Even in the best case scenario, only a small fraction of states expenditures goes into the areas we think about when we say “charity”. Ironically, most of the money spend by governments would probably end up disproportionally benefiting the super-rich, not society as a whole.

Governments have an incentive to cater to the ones who vote the most, not to the ones that are most in need. Politicians are incentivized to be tough on crime, not release people from prison. Local communities want to preserve jobs no matter what, even if these jobs are in the coal industry. Governments in fact do a lot of good things. But their incentive structure does not really incentivize them to put the money to best use. Philanthropists, on the other hand, tend to be more intrinsically motivated to do the most good. They have much more leeway to spend their money where it actually does good most effectively.

Should we mandate a popular vote on large donations?

This proposition would directly address the alleged problem of democratic control. But it is also a bit odd. First, I believe most large donations are already approved by ‘the public’ in one way or the other. You don’t go around building homeless shelters or schools or vaccinate people without official approval. For most of these things you need a permit. And by the idea of a representative democracy, this is the public approving these projects through democratically elected representatives. If the community doesn’t want the exact school that you want, they can just turn down your money and build a one that is more to their liking.

Also the tax exemptions and things that qualify as ‘charity’ were decided on by publicly elected bodies. We even democratically decided to have a capitalistic system that allows people to become insanely wealthy and donate their money. If we wanted to, we could immediately decide to change the system and replace it with a new one. Mandating a popular vote on large charitable donations therefore seems like quite a stretch to me.

Secondly, why would you focus on donations in particular, not all kinds of spending? Some kinds of philanthropy probably don’t need a special permit. You can donate $50 millions on malaria research without getting special approval. But then again you can spend $50 millions on any type of research or even on a private yacht. Why should your charitable intention make a difference? Would we really want public approval for every large sum of money spent? If we don’t want that, then criticizing philanthropy for being undemocratic is just a case of isolated demand for rigor.

Should we just get rid of billionaires?

Let’s go yet another step further and talk about taxing away all rich people. I have some sympathies for it. It would also partly solve the problem outlined in the last section. Even if only a tiny fraction of government spending went to charitable causes, a tiny fraction of a lot is still a lot. If we were able to access all the fortune of every billionaire and multi-millionaire that would be enough to do a lot of good.

But this proposition is much more radical than anything most people would ever really wish or support. I also don’t think that the Guardian seriously argues in favor of near 100% tax rates above a fortune of a couple of millions. If this is what the majority of people wanted, our world would look much different. I have a lot of sympathy for somewhat higher taxes, especially inheritance taxes. I believe inheritance makes our society more unjust and less meritocratic. But to a certain extent I think it is a good idea to allow individuals to become rich in their lifetime if they create something of immense value to society.

My main point, however, is slightly different: Whether or not you are in favor of higher taxes to the rich, we can and should separate this discussion from the one about billionaire philanthropy. I find it strange to be angry about philanthropy, if what you actually want is redistribution of power and wealth. If you want to criticize capitalism, fire away, but don’t shoot the wrong guy. I can understand the impetus to be angry at large corporations and individuals who rig the system in their favor and make large fortunes from exploitation. I can also understand that it is especially maddening if individuals first amass obscene amounts of money and then act as if they were the good guys all along. But simply understanding billionaire philanthropy as a form of image management doesn’t do it justice.

Is philanthropy only a form of green-washing?

In many cases (beyond the obvious loopholes that we should deal with), philanthropists are quite serious about their intentions. Take the Giving Pledge, for starters. Those who signed it agreed to donate at least half of their fortune during their lifetime. Members of the giving pledge are currently worth around $734 billion. This is a very serious commitment. There are many other pledges. Many of the signatories like Bill Gates or Warren Buffet have also argued in favor of higher taxes. If what you want to do is save money, you wouldn’t pledge to donate at least 50% of it. Sure, you can of course argue that you want a society where nobody can ever be that rich. But why on earth would you start your fight by ranting about those billionaires that do the most to make the world a better place?

Currently, donating large amounts of money seems like a very bad strategy to polish up your image. The general public voices a lot more criticism whenever the super-rich donate large sums of money, than when they spend it on luxury goods. Just google “Bill Gates criticism”. The first things that come up are not Microsoft’s shady business practices. The first thing that comes up is how the fact that the Bill and Melinda Gates foundation spends so much money on charity is problematic. (Again for context: the problem is not that the foundation spends so much, it is that governments spend so little. The fact, for example, that the Gates Foundation sponsors about a third of the overall WHO budget, is a testimony to state failure, not a problem with the Gates Foundation.)

Of course, capitalists benefit from capitalism. And capitalists have an interest to keep capitalism running. Large companies will engage in lobbying to preserve the system as it is. But I find it very implausible that the main thing that perpetuates capitalism should be charitable donations by the rich? If you want to make people fond of capitalism, you tell them: “here is 20 000 new jobs” and promise them wealth. You don’t tell them “look how many malaria nets I can buy from the benefits capitalism has brought to me”. If you want to influence legislation, you promise the Senator to move your new factory here or there. You don’t show them the schools you have sponsored in Sub-Sahara Africa.

Philanthropy is probably one of the costliest and least effective ways to perpetuate capitalism that I can imagine. Giving away 20% of your wealth is simply not a very sensible way to lobby for lower taxes if you only care about your own wealth. I can, in principle, imagine someone luring and tricking the public into believing they were a benefactor, while all they wanted is to take over the state. I would be very skeptic about that person as well. But currently, I just don’ see it happening.

On the contrary, if you donate large sums, there is hardly a way to escape criticism. If you donate too much, you are criticized for “making decisions that governments should make”. On the other hand, you will always face scrutiny for not doing enough. There is an article by the Jacobin Magazine literally criticizing Bill Gates for spending only $50 million on Ebola, even though it would cost $600 million to fight it properly. This is insane. If this was about injustice, why don’t they criticize billionaires for spending obscene amounts of money on luxury goods instead of Ebola? Take Amancio Ortega (net worth 66 billion, currently 5th richest man in the world). Instead of facing scrutiny, there is an entire page about him hailing his beautiful yachts, each of them worth more than what Gates spent on Ebola.

Why this form of criticism is problematic

Billionaires are not much different from anyone else. Sure, they are rich, but they are also human. What would you prefer more, people mocking you on Twitter because you’re giving away the majority of your fortune to help people in need, or people applauding your beautiful yachts? Criticizing billionaires for their philanthropy can potentially do real harm. If one person more decides to join the Giving Pledge then that is a huge boon to philanthropy. One single billionaire who decides not to join the giving pledge, can make the difference in thousands of people seeing their lives improved or not. Of course we hope that the super-rich will do the right thing, no matter what. But I don’t think anyone could be immune to public opinion. And if the public criticizes billionaires for their giving instead of applauding them, I believe this will make them more hesitant to give freely.

What to do

I have no objections to criticizing the current philanthropy system. Some of the tax exemptions are problematic and aspects of the system need to be reformed. But I object to making the people who donate the centerpiece of that criticism. I object to criticizing billionaire philanthropy without putting its achievements in context. In the end, I think what we should do is the following:

  • remove tax exemptions for things that mainly benefit the rich themselves (i.e. elite colleges and golf courses)
  • close a lot more tax loopholes and raise taxes, especially inheritance taxes
  • still allow people to become rich if what they do benefits society
  • Applaud those who pledge or donate substantial proportions of their fortune
  • Separate wealth distribution from billionaire philanthropy in public discourse. We should argue for more wide-spread redistribution. But we should talk about those who buy yachts first and about philanthropists second.

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