A fight has broken out in the philanthropic community over how to react to the slow-motion tsunami that is rolling over the economy. Given the size and importance of private social aid that foundations and nonprofits provide, this is an important debate. But it misses the most crucial question: Why should society subcontract concern for social problems from public to private hands?
In October, the leaders of the Council of Foundations, the elders of the fund-raising community, released an open letter on how their sector should face these economic challenges. These folks are the ones you see on the society pages in tuxedos and evening dresses at charity events. Their milquetoast suggestions were to "reach-out to the nonprofit sector," to "play an active and visible role in helping" communities to understand and react to the challenges they face, and to "pay special attention" to situations in which the loss of philanthropic support will be the unintended consequences of "economic restructuring." The editors of the Nonprofit Quarterly, a publication that promotes "Spirited Non-Profit Management," were outraged. In their response, they advocated a central role for private philanthropy in ameliorating the effects of the crisis, focusing on the increased distribution of the assets of the foundations in a counter-cyclical fashion. Specifically, they called for an increase in grant-making by foundations to those organizations that serve those most affected by the economic crisis, a loosening of restrictions on grants, an increase in support for advocacy, and a fundamental commitment to the nonprofit sector, arguing that given recent events, support for the nonprofit sector "is nothing short of essential to the fabric of American democracy."
On the surface, this fight is about how to protect the mission of the nonprofit sector and the foundations themselves. Due to aggressive investment policies, many foundations that fund nonprofits have been financially hard hit by the economic downturn. In addition, as two presidents of large foundations recently wrote in the Chronicle of Philanthropy, "Most foundations design their budgets to allow for distribution of 5 percent of their assets. Although that is the minimum percentage required by the Internal Revenue Service, many foundations treat it as a ceiling, as if their primary goal were perpetuity rather than solving social and environmental problems." So, like bankers scared to lend, these hoarding philanthropists privilege the ability of their foundations to survive financially in the current crisis. Their leaders stress protections for their organizations first, and a continuation of their philanthropic efforts second. Doesn't this seem odd for the section of our society that is specifically dedicated to distributing money to promote the well-being of others? The editors of the Nonprofit Quarterly, on the other hand, advocate more giving by foundations so the non-profit sector does not suffer and can play a more significant role in society going forward.
But this debate, while important, sidesteps questions about the appropriate role of the private sector in what were once governmental social services. Over the past thirty years, many social services have become privatized. This has been done in two ways. The first way is by the taxpayer funding of private firms to perform formerly governmental services. Examples range from the work of faith-based agencies in cities such as Oakland, to private prisons and schools, to the "security" functions being handled by the Blackwaters of the world. At the same time, shielded by the smaller government mantra, many governmental entities have simply quit doing work in areas of social need in which they were historically active. That role has been taken over by private foundations and the non-governmental organizations they support. The global work toward the prevention of malaria by Bill and Melinda Gates is an example. It is within this second privatized area that this philanthropic fight is being played out.
Battles over the role of the first type of privatization are often the stuff of front-page news. Unions, environmentalists, and others often oppose the contracting out of the work of government, knowing that lessened oversight and lower wages for the workers are usually the result. But somewhat under the radar are the issues related to the growing influence of foundations and non-governmental organizations performing what had been governmental work and making policy decisions in areas once reserved for government.
As an example, I appreciate the efforts of the Gates' in malaria eradication. The Bush regime certainly would not make this effort a high priority. As the target population is unlikely to have health coverage or the bankroll needed to afford medication and preventative measures, it takes a focused and humanitarian effort to address the problem. The Gates folks are doing this. But should we really subcontract the problems of the world to individual rich people and their foundations? Should they get to decide what gets tackled and what does not? Shouldn't this be a collective decision?
Let's acknowledge that much of the money that goes into philanthropic efforts comes from legalized tax avoidance. The tax code has been structured to allow rich folks to stash money tax free in these vehicles, while retaining control of its use and distribution. The most egregious recent example of this is Stephen Schwarzman of the Blackstone Group, who was able to save several billion dollars on his tax bill through loopholes protected by his friends in government, then "magnanimously" gave $100 million to the New York Public Library, which renamed its primary building in his honor. The system that allows these kinds of shenanigans should be changed. Shouldn't we demand a system that forces the Schwarzmans of the world to pay their fair share of taxes like the rest of us and then have our elected representatives make the decisions about where the money goes?
The nonprofit arena has spawned an industry. But it is an industry that needs a thorough review. Democracy demands that decisions affecting the many are decided by the many. This is the discussion that the minds of philanthropy should be having.
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