A Failure of Philanthropy

Posted on August 1, 2008


This article by Rob Reich of the Stanford Graduate School of Business is a fascinating, a bit provocative look, and a mini expose of charitable giving in America. (Website link) Below is my short review.

Reich begins his report by using two Bay Area schools, one in the top financial bracket with a high dollar-to-student ratio (Woodside), and the other in the lowest bracket with a low dollar-to-student ratio (Ravenswood), to illustrate the disproportionate giving that happens with non-profit organizations and the policies that provide the benefits that fuel this kind of giving.

He then calculates the number of dollars that the government loses in taxes due to the giving that occurs. Given that there is a broad spectrum of 501(c)3s he concludes that the government’s values are the same for all kinds of giving, not just the giving that benefits the poor. The following quote sums up a bit of the tenor of the article:

Perhaps because American policies governing philanthropy are indifferent toward helping the poor, American individuals and institutions likewise fail to funnel their money to those in need.

After then thinking about the distribution of those funds through government taxes or through charitable 501(c)3 giving, the main question (which you can see coming) is this,

Do charitable donations flow more sharply downward than would government spending? In other words, does philanthropy do a better job of redistributing wealth than the state would if it had fully taxed the charitable donations in the first place?

His conclusion?

Given the evidence already presented, philanthropy does such a poor job of channeling money to the needy that it would not be difficult for government to do better.

VIA: I’ve got a couple issues.

When discussing religious donations, he does not take into account that dollar amounts are not the only benefit to the poor, and though wealth distribution is a key piece towards equalizing the injustices in the world, it’s not the only piece. I would even assert it is not the most important piece. We must understand that the way in which religious (and other) organizations help the poor is not always, or primarily by throwing money in their direction. Experienced ministers and philanthropers know that that is not the solution. A more holistic approach, which does include finances, must be sought after.

This leads me to another contention that I have been wrestling with over the wealth and poverty issue. There are some practical realities of being poor and being rich in America. When he uses personal itemization and reporting as leverage for his argument, he completely doesn’t acknowledge that perhaps that is how [some] poor people became poor. Not because of a lack of wealth distribution, but because of a general attitude towards money, and behavioral choices. It’s a bit of a chicken/egg question, but a reality that I see everyday in my work.

Second, he seems to be advocating big-government, which as we all know, is a bit controversial, and a philosophical difference that requires more attention than simple financial calculations. If non-profit organizations can’t distribute the wealth appropriately (as he argues) what makes him believe that government will do better? That seems a bit naive, as it is commonly understood that government is just as corrupt and mismanaged as non-profit organizations are. People are people everywhere. Instead of shifting the funding, we need to be shifting all of our leadership, management, and operational values.

He does highlight some realities that are good for us to recognize, such as “the opportunity cost of virtue falls as one moves up the income scale.” $100 is much different for a millionaire than a minimum wage worker. But I would simply say that pointing out this reality of economics is neither an argument for or against a certain kind of philanthropy or policy. It is simply the practical realities of our existence, and the very kind of realities that create an existence in which people have “opportunity,” a key piece in this whole discussion.

I am thankful for the article, though, as it poked and prodded some embers of thought that do get buried beneath the ashes of everyday living and existing (as a wealthy American).

So, I sum up my personal observations thus far about the whole issue.

CHARITY OUGHT TO BE REDEEMED FOR THE POOR. While I took issue with some of his rationales, I agree completely that charity has devolved into a cyclical self-preservation stream. We ought to think more clearly about our charity, and ensure that almsgiving really does benefit those in need, not just those we like.

ECONOMICS IS ABOUT ATTITUDE AND BEHAVIOR, NOT ABOUT DOLLARS. I find more people with great opportunities to reach a new standard of living, more comfortable “nest-egging,” and plenty of chances to save, and think long-term into the future, AND they’ve been coached, mentored, etc….and they choose, willingly and knowingly, to squander their money on various temporary, frivolous living items. This is why we cannot talk about the poor and the rich by simply talking about who has how much in various bank accounts. There is an Intelligence/Emotional/Willful Quotient that also must be taken into account and addressed.

ONE CANNOT HAVE OPPORTUNITY WITHOUT HAVING RICH AND POOR. Again, this is just the reality of economics. It is that disparaging reality that drives people to have a vision for their future life, and which has caused many to come out of it. And, it has also helped to drive the compassion impulse within us to even be charitable.