Philanthropy Makes A Big Comeback After an intense decade or two of unprecedented ? and amazingly fast ? earning, the new generation of super-rich is fueling a growing “culture of giving.”
Premier among these philanthropists, of course, is Bill Gates and his wife Melinda, who have outdone almost everyone else in their efforts to eradicate disease in less developed nations.
Their current effort is aimed at treating tuberculosis, which is the leading killer of people with AIDS and has grown by 20 percent in the last decade.
TB killed almost two million people last year alone.
The Gates Foundation is supporting efforts to find a faster, simpler treatment for the disease.
Highly targeted efforts like this are giving increased credibility to charitable work, and encouraging people with large amounts of money to find specific causes and aim their philanthropic efforts at them.
This kind of “targeted giving” has largely replaced traditional giving to umbrella organizations like the Red Cross or a college.
This kind of sophisticated giving stems partly from the enormous growth of the upper echelons of the world’s wealthy, especially Americans.
In 1996, as the Internet revolution was taking off, there were 423 billionaires in the world.
Just 10 years later, there are 691, according to Forbes magazine, which compiles the best-known list of the world’s richest people each year.
1 And, more than half of those billionaires are self-made.
These people, like Gates, became very rich, very fast.
Many of them are trying to give back some of what they made in newer and more imaginative ways.
Great new wealth, combined with a willingness to give, is creating unprecedented opportunities to solve some of the world’s major problems.
According to a recent report on this phenomenon, if only 5 to 10 percent of the super-rich engage in non-traditional philanthropy, the business of giving will be completely transformed in the next decade or two.
The likelihood of this scenario is indicated by the genuine explosion of philanthropy we’ve seen recently.
In 2005, for instance, there were 800,000 non-profit organizations registered with the IRS.
That’s twice the number than existed in 1990. Among these, six new “family foundations” are formed each day.
The media is encouraging the growth of this trend by putting the spotlight on those who give the most.
BusinessWeek2 now publishes an annual list of high-scoring philanthropists.
On the most recent list, Bill Gates was bumped into second place, with Intel co-founder Gordon Moore and his wife Betty taking the lead.
This outpouring of good intentions ? and money ? has prompted many people to call for a more professional effort to organize inthropy.
They see it as becoming a modern global industry, managed efficiently like any big business.
Instead of simply draining away excess capital in fruitless efforts, this new model for giving would make a positive impact on many of the world’s problems.
Claire Gaudiani, the author of The Greater Good,3 a book about philanthropy in the last 50 years, argues that well-managed giving drives the American economy and can, in her words, “save capitalism.”
She believes that the best kind of philanthropy isn’t about fixing immediate needs, such as feeding or sheltering the homeless.
It’s about making long-term investments that solve the deep, underlying problems in society.
Andrew Carnegie is a model of this kind of philanthropist.
Born in 1845 in Scotland, Carnegie was the epitome of the self-made man. He started as a “bobbin boy” in a cotton mill, the lowest sort of work.
He worked through a succession of jobs, saving his money and starting his own business at the age of 30.
That eventually became the business that launched the steel industry in Pittsburgh and gave Carnegie a $480 million fortune when, at the age of 65, he sold the company to J.P. Morgan.
Carnegie then set about giving away as much of his fortune as he could.
At the same time, he wrote about his philosophy of philanthropy, which asserted, “For the rich, giving is an obligation.”
Among his most notable contributions to society was the establishment of more than 2,500 public libraries at a cost of $56 million; that’s the equivalent of almost $1.1 billion in today’s dollars.
Before his death in 1919, Carnegie managed to give away $350 million, equivalent to about $8 billion today.
As a result of Carnegie’s work, America is unique in the world in its private support of libraries, universities, and welfare services, which are funded by governments in most other nations.
But some academics who study philanthropy are concerned, because much of our giving is not being carried out under rigorous control.
Neither the givers nor those granting philanthropists tax breaks are really doing much to make sure the money produces real results.
The journal Social Innovation Review, published by Stanford University, recently featured a cover story called “A Failure of Philanthropy.”
4 The article argued that much of the giving funds concert halls and elite schools that benefit the elites themselves, rather than helping society as a whole.
Further-more, a number of scandals in recent decades, involving charities, hasn’t helped the image, either.
But according to an article in the journal Financial Planning,5 an increasing number of individual philanthropists are targeting very specific needs with their giving.
In many cases, they travel to the sites where their money will be spent to gain a clear idea of what their gift will accomplish.
This much more direct style of giving is being called “high-impact philanthropy.”
And, it may be more effective than the older style, often called “checkbook philanthropy.”
Firms are cropping up to serve the high-impact philanthropy community, such as The Philanthropy Initiative, a company in Boston that advises people on where their money can make a real difference.
In fact, a whole new industry of management consultants, research companies, philanthropic investment banks, and others has sprung up to provide infrastructure and intermediaries to serve what is seen as a “new capital market.”
These “giving managers” aim to help donors find “appropriate causes” and to advise wealthy people on which causes are most effective.
High-net-worth individuals are starting to demand that their financial advisors begin to provide services like these, rather than just advising them about the tax consequences of giving a gift.
Financial planners, who previously viewed this as a distraction from their core work, are now seeing it as a new value-added service.
It’s one way for financial planners to differentiate themselves and realize a competitive advantage.
Such advisors can help in bringing a new rationale to what people like Harvard’s Michael Porter see as a chaotic and inefficient business.
He and others are trying to transform philanthropy by applying more conventional business models to it.
He believes that billions of dollars are going down the drain, and that philanthropy is decades behind the rest of the business world.
Porter and others are calling for a “productivity revolution in the world of giving,” by applying the best practices of businesses to philanthropy.
As a result, a new jargon of charitable work is evolving, with terms like “venture philanthropy” and “socialentrepreneurship” being tossed around.
Philanthropists are now striving to maximize their leverage, getting the most bang for their bucks.
In light of this trend, we offer the following five forecasts for your consideration:
First, philanthropic giving will continue to accelerate for at least the next five years.
As we’ve discussed in prior issues, we are in the early stages of an enormous global boom, which will greatly increase accumulated private wealth.
At the same time, the powerful “search for meaning trend” is motivating the very rich ? and even the moderately rich ? to reevaluate their long-term obligations to mankind.
And finally, the same competitive spirit that went into accumulating huge fortunes will now go into giving them away.
Second, just as the business world grew up in the last century, modernizing its practices and increasing its productivity, so, too, will the philanthropic sector.
Modern business disciplines will bring far greater good to the world by making those dollars work harder to solve specific problems, such as hunger, ignorance and disease.
Expect to see efficiency in the not-for-profit sector improve dramatically over the next decade.
Third, philanthropists will demand specialized services to help in targeting their donations so as to have the greatest impact.
Many mainstream financial firms are already developing departments to serve their clients’ philanthropic needs.
You’ll see the rise of many new firms specializing in philanthropic consulting.
Fourth, because of this new efficiency in collecting funds and managing their use, we will begin to see some of the world’s worst problem areas resolved in the next 10 to 20 years.
Two prime candidates are AIDS and malnutrition in Africa.
Fifth, since this all depends on the creation of private wealth and an individual sense of moral responsibility, expect the primary driver of philanthropy to be the United States.
If personal wealth is not created, it cannot be given away. The pro-business policies of the United States set it apart from all other nations in terms of individual wealth.
Just as important, philanthropy relies on a sense of personal responsibility; as Alexis de Tocqueville observed nearly 200 years ago, Americans are unique in their willingness to contribute to the common good.
In the current political era that we expect to last through 2040, the government will do everything in its power to encourage private wealth accumulation and the recognition of a moral duty to voluntarily share that wealth with those who are less fortunate.
References List :
1. The Economist, February 23, 2006, “The Business of Giving.” ⓒ Copyright 2006 by The Economist Newspaper and The Economist Group. All rights reserved.
2. BusinessWeek, November 28, 2005, “The Top Givers,” by Suzanne Woolley, with Jessi Hempel and Bremen Leak. ⓒ Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
3. The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism by Claire Gaudiani is published by Times Books. ⓒ Copyright 2003 by Claire Gaudiani. All rights reserved.
4. Stanford Social Innovation Review, Winter 2005, “A Failure of Philanthropy,” by Rob Reich. ⓒ Copyright 2005 by Leland Stanford Jr. University. All rights reserved.
5. Financial Planning, March 2005, “High Impact Philanthropy,” Suzanne McGee. ⓒ Copyright 2005 by Financial Planning and SourceMedia, Inc. All rights reserved.
