The ethical argument against philanthropy

Exceptionally wealthy people aren’t a likeable demographic, but they have an easy way to boost personal appeal: Become an exceptionally wealthy philanthropist. When the rich use their money to support a good cause, we’re compelled to compliment their generosity and praise their selfless work.

This is entirely the wrong response, according to Rob Reich, director of the Center for Ethics in Society at Stanford University.

Big philanthropy is, he says, “the odd encouragement of a plutocratic voice in a democratic society.” By offering philanthropists nothing but gratitude, we allow a huge amount of power to go unchecked. “Philanthropy, if you define it as the deployment of private wealth for some public influence, is an exercise of power. In a democratic society, power deserves scrutiny,” he adds.

A philanthropic foundation is a form of unaccountable power quite unlike any other organization in society. Government is at least somewhat beholden to voters, and private companies must contend with marketplace competition and the demands of shareholders.

But until the day that government services alleviate all human need, perhaps we should be willing to overlook the power dynamics of philanthropy—after all, surely charity in unchecked form is better than nothing?

In extreme situations, such as a major disaster, Reich is supportive of donations from philanthropic organizations. But he’s strongly against private donors providing public goods on a longer-term basis, which he says contributes to a cycle whereby the state expects to provide less and philanthropists are relied on to pay for more and more. And a democratically elected government should be a far better provider of long-term services than wealthy individuals.

“Even the savviest philanthropist, and even with the resources of the Gates Foundation, would say they can’t possibly provide all of public education, for example, on its own,” he says. Even the wealthiest philanthropists will run out of funds incredibly quickly if they attempt to provide a substantive public good in the long term.

There are, Reich says, ways for philanthropy and public services to collaborate effectively. He points to the Carnegie libraries as an example: In the 20th century, Andrew Carnegie donated huge amounts to build more than 2,500 libraries around the US, but insisted that local governments use public funds rather than private donations to continue to run the libraries.

An ideal form of philanthropy, according to Reich, would see philanthropists using their lack of accountability to an advantage, by testing creative long-term solutions. “Philanthropists,” he says, “can pilot test social experiments or novel public policies, subject them to all kinds of scientific testing, and then present the successful innovations for a stamp of democratic approval—ordinarily to a legislator—for scaling it at large.”

Government officials, after all, are beholden to the public and to producing short-term results. Philanthropists have the freedom to investigate idealistic, potentially wrongheaded solutions to public need. So, for example, they could fund research into an environmentally friendly alternative to cement and, if successful, present their findings to a government official to create the legislator to turn their inventions into a public resource.

Unfortunately, this is not a widespread form of philanthropy today.

Jeff Bezos, head of Amazon, recently said he wanted to use his wealth to help people in the short term. Given Bezos’ tremendous resources, Reich says such short-term solutions are precisely the opposite of what he should be doing.

Meanwhile, there’s a growing trend to create limited liability companies (LLCs) —such as the Chan Zuckerberg Initiative—rather than charitable foundations (a legal category of nonprofit in the US) as a base for charitable donations. LLCs don’t share the same tax benefits as foundations (namely tax deductions when funds are invested), but they do offer a distinct (and potentially worrying) advantage to philanthropists: greater control.

But LLCs are even less transparent than charitable foundations, because there’s no obligation to provide information about their charitable work or its effectiveness. LLCs do not have to disclose the tax documents that foundations are obliged to share, and are also free to invest their funds however they wish, including towards political causes.

Reich believes any philanthropic pursuit that does not then present its findings for democratic approval should be met with skepticism. “There ought to be ways of socially sanctioning them or shaming them, which is to say subject them to scrutiny,” he says. “Or we should reserve civic gratitude for the forms of philanthropy that serve democratic aspirations.”

Undemocratic philanthropy is a misuse of power, even if it is power attempting to do good. “At the very least, we should not provide tax benefits to further augment the private pursuit through philanthropic mechanisms of private means,” adds Reich.

After all, those very tax breaks afforded to philanthropists are depriving the public sector of further funds that should be used to provide public services.

For now, Reich says it’s fine to continue donating to charitable causes, particularly if they carefully evaluate how their wealth is spent. But charity cannot achieve as much as widespread, publicly backed, government support. And, for that, political advocacy is necessary. “Charity is good but it’s, at best, a second best thing to do,” he says.

Until there are widespread political solutions to social ills, we should stop praising hugely wealthy philanthropists.

A charitable foundation is a “donor-directed, perpetual, tax-subsidized exercise of the liberty to give public wealth away,” says Reich. “What was the democratically good part about that again?”

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