Philanthropy Debates Its Role

Debates about philanthropy’s role have heated up since the 1980s, as the federal government cut taxes and support for many social programs, a series of recessions battered the economy, and economic hardship deepened and expanded.

In this era of scarcity, philanthropy has been pulled into a much higher profile. Demands come from lawmakers seeking private sector allies, nonprofits looking to fill gaps left by government cuts, next generation givers feeling a sense of urgency to make impact sooner, and community and issue activists striving to make philanthropy more responsive and accountable to public needs.

Here are three major debates in the field.

Should philanthropy focus on economic hardship and environmental crises?

Economic hardship and critical environmental problems are prompting many to appeal to foundations and donors to focus more on assisting lower income Americans, and addressing climate change.

Critics point out that only a small percentage of total charitable giving is directed at alleviating or preventing poverty. (The Foundation Center estimates that 15% of foundations spend as much as 25% of their giving on social justice work.) Some are calling on the federal government to promote and reward giving targeted to poverty and human welfare by offering an enhanced charitable deduction; others propose eliminating the deduction for certain nonprofits they perceive as primarily benefiting the interests of donors themselves, such as large universities; and others call for a renewed philanthropic ethic of social justice.

Those who oppose these efforts assert that citizens enjoy an inherent freedom to give as they choose, and that favoring certain programs over others violates this freedom. Yet others oppose any government influence on private giving; and still others claim that giving to all varieties of institutions—including large universities—does benefit the disadvantaged.

Thought leader Gara LaMarche sums up this debate in a recent issue of Democracy:

The question is not whether many good things are accomplished with the money excluded from taxation for philanthropy. The standard is whether the record of philanthropy justifies the foregone tax revenue that in our current dire fiscal state could be used to keep senior centers and libraries and after-school programs open, hold tuition within reach at public colleges and universities, expand Internet access in rural communities, and on and on.

The precise level of the charitable deduction (like the fact of the deduction itself) did not come down on tablets from Mount Sinai. It is a choice that a democratic society makes, weighing competing interests and values. One of these is donor independence and philanthropic pluralism. These are not fleeting values. But neither is the responsibility of citizens in a democracy, acting together through government, to strengthen social protections.

Should philanthropy focus on the “most effective” organizations?

The same sense of urgency is prompting leaders to call on foundations and donors to focus more giving on organizations with proven track records. These leaders assert that specific fields and approaches offer top return for donors’ investments. For example, some advocate that early childhood care and education delivers the best long-term impact per dollar invested. Writes Nicholas Kristof in The New York Times:

James Heckman, a Nobel Prize-winning economist at the University of Chicago, says that our society would be better off taking sums we invest in high school and university and redeploying them to help struggling kids in the first five years of life. We certainly would prefer not to cut education budgets of any kind, but if pressed, we would have to agree that $1 billion spent on home visitation for at-risk young mothers would achieve much more in breaking the poverty cycle than the same sum spent on indirect subsidies collected by for-profit universities.

We wish more donors would endow not just professorships but also the jobs of nurses who visit at-risk parents; we wish tycoons would seek naming opportunities not only at concert halls and museum wings but also in nursery schools.

Appeals for donors to focus in these ways face resistance from those who champion freedom and personal choice. Others argue that the way we measure and define effectiveness ignores many kinds of powerful work whose value and impact are felt only over years or decades.

How can philanthropy best support effective organizations over the longer term?

A vocal group of activists is pressuring foundations to invest much more heavily in nonprofits’ core operations and organizational capacity. They seek to discredit the use of “low overhead” as a measure of nonprofit fitness, calling it misleading and destructive to nonprofits. And some are calling into question the entire system of nonprofit finance, asserting it is unrealistic and broken in an era of government cuts and stagnant private giving.

Few critics are more outspoken than entrepreneur and activist Dan Pallotta, whose TEDTalk, The Way We Think About Charity Is Dead Wrong, has been viewed 3.2 million times. A recent article about Pallotta lays out his case:

In Pallotta’s view, “overhead”—or administrative, fundraising, and program costs—is precisely what makes it possible for nonprofits to advance their cause. Without investing in talented staff, awareness campaigns and innovative services, the reach and impact of many nonprofits will remain too small in a world of very big problems. The public’s expectation that nonprofit executives earn relatively modest pay and the tendency to demonize executives who are perceived to earn too much drives away a lot of talent, Pallotta believes.

In following the debates in our field, we are reminded that all the arrangements we take for granted, from the charitable deduction to nonprofit salary levels, have been created, negotiated, and enacted not by divine forces but by people who are engaged, outspoken, and passionate. Past debates shaped how we practice giving now, and current debates will shape the future.

We encourage you to join these conversations.

Senior Program Director Andy Carroll writes resources, designs workshops, and facilitates seminars for funders. Andy also dedicates a significant portion of his time to managing our Leadership Initiative that defines, validates, nurtures, and celebrates the many ways philanthropists lead. Andy has 25 years of experience in nonprofit organizations, and he enjoys talking with funders about their questions, interests, passions, and plans for making a difference. Follow Andy on Twitter @andycarrollexpo.