Why private companies should stop giving money for good causes

Does everybody win?
Does everybody win?
Image: Photo courtesy of McDonald's
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Pursuing the public good is expensive.

Public interest projects—anything from a new playground to large infrastructure initiatives—often suffer from a lack of funding. Nonprofits aren’t known for their lavish budgets, and government bodies, particularly in poor regions, rarely have the resources to satisfy the needs of their communities.

But you know who does have the resources? Private companies. Enter the holy grail of development: public-private partnership. This injection of private capital into public projects is, many believe, the perfect formula for delivering on the things a community needs.

Here is how it works: Corporations—often through sponsorship deals—donate money to public institutions or nonprofits in exchange for both a tax cut and some of that invaluable marketing capital known as “conscience,” a key driver of millennial purchasing choices. Many corporations set up foundations dedicated entirely to this effort to “give back.” On the surface this seems like a good deal. Governments or nonprofits are able to deliver on their mandate to pursue the public good. And the public gets the good. Everybody wins.

The scenario is considered so desirable that the United Nations has a whole office devoted to fostering public-private partnerships. Consulting firms and business are, too, unanimous in their praise for the great potential private financing offers to public projects.

But is it really that simple? Jonathan H. Marks, a professor of bioethics and author of The Perils of Partnership has doubts.

“It totally makes sense from a corporation’s point of view,” Marks told Quartz. It gives a company a chance to be involved in “good causes” over which it has control, he said, while avoiding higher taxes. But it might not be as beneficial from the perspective of the public.

His research focuses primarily on public health and the ways in which the involvement of private funding—specifically from food and beverage companies—isn’t just ineffective at improving the public good, but can be counterproductive.

One example? The opioid crisis. Opioid manufacturers donated to patient advocacy organizations, as well as medical research organizations focused on reducing pain, which seems like a good thing. In turn, however, when these organizations were called to assess the addictive potential of opioid medications, Marks said they ended up underplaying it.

Opioid manufacturers were going to fund an initiative to tackle the opioid crisis as part of a public-private partnership with the National Institute of Health. Though an ethical committee eventually decided the support couldn’t be financial, in-kind contributions from pharmaceutical companies were still accepted. The results of that research stressed the importance of developing alternative, less addictive, pharmaceutical solutions to pain, as well as chemical treatments for addiction. It did not, however, call for more regulation of the drugs, or restrictions on access to them. The outcome of the study, Marks says, was ultimately in the interest of the pharmaceutical companies involved, whether or not the National Institute of Health realized it.

Companies can also use philanthropic investments to offset, mask or distract from poor corporate behavior. In fact, research shows that companies that make higher investments in public causes appear to otherwise behave the worst. “When companies do more ‘harm,’ they also do more ‘good,'” wrote Matthew Kotchen and Jon J. Moon in a 2012 paper on corporate social responsibility, which analyzed the behavior of 650 large companies (including all of the S&P 500).

An even more dangerous potential problem with public-private partnerships, Marks says, is the influence it allows corporations to have on the kinds of projects governments and nonprofits tackle. The public’s reliance on private investment gives life to a “web of influence,” in which private companies—or very wealthy individuals—get to dictate the priorities of public leaders in ways that could ultimately cause more harm than good. Anand Giridharadas notes in his book, Winners Take All, that the public-private partnership often ends up reinforcing the very system it seeks to improve.

The problems aren’t always rooted in malicious intent, either. When companies invest in public projects, they can inject business strategies that impact priorities. Take the Bill and Melinda Gates Foundation, which—as Marks notes—has had important impacts on public health around the world, but privileges a quantifiable, technology-oriented approach to solving public challenges that may not always be sustainable in the long term, or fails to address situations that require systemic change.

Marks notes other, more subtle, examples of how ethically complex public-private partnerships can be. For instance, imagine a fast-food company offers to sponsor a much-needed playground in an underserved community. The playground is important for children’s health, but it’s unlikely to offset the overall damage that the fast-food company causes. What’s a public official to do? Take the money for the playground, providing the “conscience laundering” to the fast-food chain that comes with it, essentially promoting the company that sells unhealthy food? Or leave the community without playground?

The ethical solution, Marks says, is for private companies to stay out of public business. But if corporations stop donating, who will make up for that lost investment?

Higher corporate taxes may be a solution. But that’s not always fair because it would affect all companies the same way. Arguably, a company making goods that, say, increase the likelihood of obesity should be held more accountable than one whose products aren’t harmful to human health or the environment.

Marks proposes an alternative tax that would “assess the harm [caused by a company] and levy a tax proportional to the amount of harm they create.” This would work similarly to cigarettes, which are taxed more highly because of the health issues they cause, but rather than making consumers pay, the company would have to. This solution would have the advantage of incentivizing corporations to reduce their negative social impact.

“I am not suggesting that doing that calculation is easy,” Marks told Quartz. “But it’s a possibility worth exploring.”

Correction: This article has been corrected to reflect that the NIH didn’t accept funding from opioid manufacturers, but in-kind donations.