Changing motivations of philanthropy
Katharyne Mitchell, The billionaire curse, Aeon, 27 July 2020
Philanthropy is vital – but its mechanisms are as intricate and troubling as the baroque structures of high finance
The world’s largest charitable foundations include the Bill and Melinda Gates Foundation (BMGF), the Wellcome Trust, the Novo Nordisk Foundation, the Open Society Foundations and the Ford Foundation. The size, global reach and impact of these foundations grows annually, with endowments of the top three assessed at well over $100 billion. Many of these philanthropic organisations donate vast sums of money to their preferred causes and initiatives. Since its establishment in 2000, for example, BMGF has given more money towards healthcare in the US and globally than most national governments. Between 2009 and 2015, the foundation donated more than $5 billion towards infectious disease control and nearly $1.5 billion for malaria control alone.
In addition to global and community health, other areas of current philanthropic attention include broad societal problems such as underperforming schools, housing and homelessness, criminal justice reform and civic engagement. The Open Society Foundations focuses particularly on the accountability of government and the opportunity for people to participate freely in civic life; the Walton Family Foundation has a strong interest in primary and secondary education; and the Omidyar Network donates money in an attempt to catalyse social and economic change. All of these foundations have major impacts on people’s lives. Given these critical problems, needy causes and the sheer amount of money and power wielded by these organisations, it is imperative that we address the role that philanthropy plays today.
Modern philanthropy emerged in Europe alongside liberal Protestant ideas about individual self-interest and responsibility, and the corresponding decline of medieval notions of charity. As the German sociologist Max Weber argued in The Protestant Ethic and the Spirit of Capitalism (1904), the largely Calvinist belief that salvation could be secured through individual actions and manifestations of social and economic success helped to usher in a new era, one in which the goals of capital accumulation advanced, rather than contradicted, religious norms and practices. The benefits of individual hard work, efficiency and productivity were part of a larger worldview in which ‘self-help’ was a guiding principle. These ideas were formative of new assumptions about charity, as they began to shift responsibility from the shared ties and interdependencies of communal care to the personal responsibility of the individual.
These kinds of ideas grew with the intertwined advance of liberalism and capitalism over the next centuries, captured most succinctly in Adam Smith’s passage about the reputed motivations of village workers. In Book 1 of The Wealth of Nations (1776), he wrote:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.
The emphasis on individual self-interest was a key factor in the growing disdain for forms of Catholic charity that relied on assumptions about interdependence and communal responsibility. These were believed to subvert individual motivations to be autonomous and productive.
By the 19th century, both proponents of freemarket capitalism and advocates of communism were united in their attacks on older charitable practices. For Karl Marx and Friedrich Engels, a key concern about medieval forms of charity was the potential for it to sap workers of their revolutionary spirit and call to action: charity, to their minds, could create a subservient consciousness owing to the interdependencies formed by the donor-recipient relationship. Ultra-rationalists such as Thomas Malthus and David Ricardo went even further, arguing for the necessity of letting die individuals who didn’t practise efficient self-care or develop themselves productively. Otherwise, they would risk the subversion of rational society itself.
Early 20th-century American philanthropy emerged out of the crucible of these ideas. It also reflected developments in industrial capitalism, including the accumulation of unprecedented wealth by the founders and owners of companies involved in oil, steel and railroads. When the time to disperse money arrived for this wealthy elite, they turned their business acumen to the principles of giving. They were determined to be as efficient and successful in their philanthropy as they’d been in their roles as businessmen, adapting modern, ‘scientific’ methods to advance society, while at the same time inculcating what they perceived to be positive habits of self-interest in the recipients of their largesse.
Drawing on their business knowledge, new philanthropists such as Andrew Carnegie and John D Rockefeller Sr strategically leveraged their own connections, funds and networks to address the problems besetting society; these funds, moreover, were provided in a way that would encourage recipients to develop personal autonomy and self-improvement to ‘better’ themselves as model workers and citizens. In The Gospel of Wealth (1889), Carnegie wrote:
In bestowing charity, the main consideration should be to help those who will help themselves; to provide part of the means by which those who desire to improve may do so; to give those who desire to use the aids by which they may rise; to assist, but rarely or never to do all. Neither the individual nor the race is improved by alms-giving.
Similarly, John D Rockefeller Jr (Rockefeller Sr’s son) noted in his reflections on philanthropic giving:
Charity is injurious unless it helps the recipient to become independent of it.
In this regard, early 20th-century philanthropy mirrored the sentiments of Smith and other liberals vis-à-vis the importance accorded self-interest and self-help, aversion to dependent relationships, and the maximisation of human capital. This was paired with an emphasis on strategic giving, efficiency and reliance on modern methods, many adapted from the world of business.
The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries. This system driven by self-interest is responsible for the great innovations that have improved the lives of billions.
Additionally, his foundation’s factsheet underscores the value accorded to self-help in recipients, emphasising access and equity, but also human productivity and self-care:
Guided by the belief that every life has equal value, the Bill and Melinda Gates Foundation works to help all people lead healthy, productive lives. In developing countries, it focuses on improving people’s health and giving them the chance to lift themselves out of hunger and extreme poverty [my emphasis].
Despite the many parallels between the two eras, there are important differences. While the desire to inculcate individual self-interest, self-care and human productivity continues, this has been infused to a much greater degree with a contemporary push towards risk-taking and entrepreneurialism. Microcredit and other forms of risk-based financing (on which more below) draw recipients into the world of capitalist markets, producing entrepreneurial subjects at the same time as new philanthropic practices and understandings. Moreover, the earlier era’s emphasis on modern scientific practices has been eclipsed by contemporary business methods. Today, most foundations rely on elaborate cost-effectiveness algorithms and financialised investment rationalities that far supersede the metrics of the previous era. Current foundation practices also involve a more sophisticated use of competition, benchmarking and rankings to set funding priorities, as well as cost-benefit analyses of a gift’s potential social or financial return.
Indeed, return on investment (ROI) logic has become a dominant motif of much of philanthropy today. Many contemporary philanthropists perceive themselves as social entrepreneurs, doing well by doing good. Their giving philosophies reflect the practices of global finance as well as the manner in which they made their fortunes. Unlike the earlier era of fortunes made in industry or oil, contemporary billionaires have largely made their money from postindustrial activities such as finance, patents, computing, telecommunications, insurance and real estate. As a result, their foundations tend to be more focused on leveraged, accelerated and short-term financial investments, intellectual copyright, technological fixes, pilot trials, quick exits and the incentivisation of individual choice and responsibility.
The Omidyar Network, launched by eBay’s founder Pierre Omidyar, is a good example of this trend. The website states:
We articulate strong, forward-looking points of view. We have a bias for innovation and action, but are willing to experiment, fail, and learn. We leverage the transformative power of people, markets, ideas, and technology. We deploy our proven flexible capital model and whatever tools are needed to accelerate the solutions equal to the scale of today’s challenges.
The Network operates as both a Limited Liability Company and a 501(c)(3) foundation, with strategic imperatives that include reimagining capitalism and promoting the use of technology in ways that ensure human wellbeing and individual liberty. In order to achieve their desired outcomes, they partner with both for-profit and nonprofit organisations that ‘use innovative, market-based approaches’ and ‘demonstrate the power of business to create social and financial returns’. The key principles of the foundation are to incentivise entrepreneurial behaviour, harness market forces and produce a return on investment, while simultaneously operating as a ‘potent driver for positive social change’.
Women were a good risk: as family providers, the likelihood of a positive return on investment was high
The giving strategies of these foundations also reflect the larger economic context in which the postindustrial billionaires made their fortunes. Since the radical pro-market regimes of Margaret Thatcher and Ronald Reagan of the 1980s, there has been a marked move towards the deregulation and privatisation of industry and publicly held resources in the US and the UK, and indeed throughout much of the world. These neoliberal practices were accompanied by a concerted ideological attack on Keynesian economic ideas and principles of welfare and government support for those in need. While geographically uneven and often bitterly contested, freemarket ideas have affected almost every area of life, including philosophies of giving, over the past four decades. Paired with the growing emphasis on individual freedom and entrepreneurialism, and the strong disparagement of ‘dependent’ relationships of any kind, these broad shifts in economy and culture have been highly influential vis-à-vis the investment strategies of contemporary philanthropists and their 21st-century foundations.
A good example of targeted financial investments paired with entrepreneurial incentivisation strategies can be seen in the profusion of microfinance initiatives that began to take off in least developed countries (LDCs) in the 1980s and ’90s. The earliest microcredit initiatives, characterised by the programmes of the Bangladeshi social entrepreneur Muhammad Yunus and his Grameen Bank, focused on poverty reduction through the loan of small amounts of money to the very poorest members of society. Initially, this loaned money was paid back without interest or other dividends. As investors from the Global North paired up with development professionals working in NGOs and non-profits, however, the emphasis began to shift, and making a profit became an equally, or more, important motivation for the extension of credit.
As Ananya Roy documented in her book Poverty Capital (2010), poor women soon became the primary targets for loans from microfinance institutions operating in LDCs. Women were perceived to be good risks because of their status as family providers and caretakers; hence the likelihood of a positive return on investment was considered to be high. Perhaps equally important was the opportunity to bring formerly marginalised members of the rural poor into the global capitalist marketplace. Marginalised by both poverty and patriarchy, and with few other choices, women could be effectively recruited into entrepreneurial activities and ways of being, leading to long-term implications for the community and its entry into the circuits of capital. The geographer Katharine Rankin denotes this process as the creation of ‘rational economic woman’, a subject position reflecting, with a twist, the spirit of John Stuart Mill’s 1836 definition of Homo economicus (rational man pursuing wealth for his own self-interest).
The emphasis on market-based solutions to chronic societal problems can be seen in domestically oriented philanthropy in the US as well. The Walton Family Foundation, for example, has invested heavily in education reform, with a clear mandate for innovation, entrepreneurial behaviour and greater school choice. Among other targeted interventions, they provide funding for venture capitalists who have turned their attention to the education sector, many of whom push the opening of more charter schools and the increased use of technology in education. One of these organisations was the NewSchools Venture Fund, started in 1998 by a social entrepreneur and two venture capitalists. The organisation’s history is encapsulated thus on their website:
NewSchools’ founders believed that innovative teams of educators, innovators and education entrepreneurs could similarly bring about much-needed change in public education if they had access to both early-stage capital and strategic, hands-on support to start and grow their organisations. NewSchools Venture Fund was built to enable a new type of capital market that could support the development of entrepreneurial ventures serving all children – especially those in underserved communities – within public education.
Another difference between the two philanthropic eras is the contemporary practice of funding short-term pilot programmes with quick exits if desired social and/or economic investment returns are not met. This strategy has been especially evident in some of the current philanthropy directed towards the education sector. One example, from BMGF, is the early interest in the development of Small Learning Communities (SLCs) in high schools. In 2000, BMGF encouraged the Seattle Public Schools to create small, personalised learning environments with a grant of $25.9 million. The expectation was that this grant, part of its Model District Initiative, would be renewed after five years, following evidence of the school district’s success in implementing educational reform. When the desired transformations were not realised, however, the grant was not renewed, and the Foundation’s strategic investment priorities shifted away from SLCs to other areas of education reform. While the pilot programme and its quick exit ended up helping BMGF hone its investment strategies and priorities in education, it led to administrative fatigue and logistical difficulties for many Seattle-area high schools, which were left to pick up the pieces after the grant funding support was abruptly discontinued.
A final significant difference between the Carnegie-Rockefeller era and contemporary US-based philanthropy is in the cross-sector partnerships and greater global reach of current foundations. In the early 20th century, the nation-state was the primary scale of philanthropic allegiance and care. The Carnegie Corporation, for example, was chartered ‘to promote the advancement and diffusion of knowledge and understanding among the people of the United States’.
As the historian Ellen Condliffe Lagemann has shown in The Politics of Knowledge (1989), much of this funding went into the establishment of national educational and cultural institutions such as the National Research Council, the American Law Institute and the Children’s Television Workshop, as well as the construction of hundreds of neighbourhood public libraries and institutions of higher learning.
This domestic orientation changed after the Second World War, leading to different types of foundation initiatives during the Cold War, including efforts by the Ford Foundation and others to win ‘hearts and minds’ to the US cause through various philanthropic investments abroad. However, it wasn’t until the past two to three decades that the major foundations have operated on such a massive global scale, involving new transnational networks and partnerships and extensive overseas projects. Seeking to avoid the perceived weaknesses of potentially corrupt governments abroad, as well as to compensate for market failures in the provision of needed public goods and services, many contemporary foundations promote quasi-private or public-private partnerships that not only transcend national borders, but also transcend the boundaries of government. So-called ‘3P entities’ involve complex relationships between several different sectors and actors, including foundations, government actors, NGOs and various other for-profit and nonprofit institutions and players. The money loaned or given to these entities is generally used to leverage or catalyse other funds, usually with an expectation of a social or financial return on investment.
There are many implications of these new transnational partnerships and global funding strategies for both people and places. In the world of global health, for example, a persistent theme has been the emphasis by global health initiatives (GHIs) on targeted, technological fixes with measurable results. Measurability is considered critical in contemporary global health philanthropy as it enables the actual social and economic returns of any particular health intervention to be assessed, the health programme or initiative to be held accountable, and further investment to be rationally (re)considered. As Matthew Sparke wrote in the Oxford Handbook of Global Health Politics (2020):
Led by Bill Gates and other executives who have brought their business methods to the cause of expanding global health, the repeated refrain is that with ‘professional’ and ‘measurable’, results-based financing the targeting of investments will continue to improve, and the resulting returns on investment will themselves help legitimate yet more investments.
In this view, cost-effective, targeted interventions in specific diseases and health sectors are perceived to open up greater capitalist opportunities for growth and integration, and eventually lead to overall better health outcomes and better profitability at the same time.
The world’s billionaires take on increasingly powerful roles through the institution of philanthropy
The importance of measurability and accountability in global health philanthropy reflects broader trends in social impact investment more generally. It is part of the broader philosophy that ‘[doing] good business by doing good’ is the optimum solution for addressing the world’s social ills. This is one aspect of the shift to market-based logics that have accelerated in current philanthropy partnerships, and it is often paired with an increasing hostility to government, especially government-led programmes or interventions.
Many of the global health-related public-private partnerships that have developed during the past two decades were organised to avoid the perceived problems of corrupt or nationally oriented governments, address market failures in the delivery of health to the poorest members of society, and return a profit to investors. The pro-market orientation of these GHIs has tilted many interventions towards more targeted and cost-effective investments such as immunisations, and away from more seemingly intractable health problems related to a broader context of poverty and lack of primary care. A persistent critique of the rise of these types of 3P organisations and other 21st-century health initiatives has thus been that they are vertical silos, with resources narrowly targeted towards specific regions, diseases and patients, while horizontal systems of basic care, coordinated by local or national governments, are sidelined or even undermined.
National health governance is often further eroded through the liberalisation of trade and expanded enforcement of market-based regulations. For example, intellectual property, including patents associated with drugs, is protected through international agreements such as Trade-Related Aspects of Intellectual Property Rights regulations (TRIPs); these, in turn, are enforced by the World Trade Organization. The frequent result of these types of intellectual property protections and other market incentives, as Susan Craddock has documented for the development of HIV/AIDS vaccines, has been expanded patents, monopoly pricing and the increasing inaccessibility to essential medicines for millions of people worldwide.
GHIs are often complicit in these types of neoliberal policies. The reliance on a calculus of cost-effectiveness and return on investment has led to targeted and often highly selective health interventions. These vertical investment approaches also create or exacerbate uneven geographies, leading to patchy development and health effects across regions and nations. Further, the funding of complex webs of public-private partnerships and the imperative to continually leverage other investment interest frequently leads to market-based ‘solutions’ to problems that were often created by market failures in the first instance.
Coupled with four decades of hostility to Keynesian ideas and national welfare-state protections, the overall result of these neoliberal policies and partnerships has been a greatly weakened public sector. Strong governments are relied on in moments of crisis because they have the capacity to provide both centralised leadership and a deep well of resources. But with decades of doubt sewn about the fitness and capability of government to lead, as well as its systematic impoverishment through declining taxation of the wealthy, the world’s billionaires are taking on increasingly powerful roles in society through the institution of philanthropy.
The increasing power of philanthropy today does indeed make a difference in society. But the market-based orientation of contemporary foundations and their complex public-private partnerships can and does have negative implications in multiple spheres. Because of their own business backgrounds, billionaires and their foundations insist on cost-benefit calculations, metrics-based accountability and a return on investment for those initiatives they support. Yet there is little transparency or system of governance through which they themselves can be held accountable. So while philanthropy has the potential to do good in society, it can also do great harm. Investigating its origins in liberal thought and the development of capitalism can help us see how it was shaped by broader socioeconomic processes over time, and these insights enable us to imagine new and better ways of providing the resources people need in times of trouble.