My Own Worst Enemy

I had lunch with a colleague in philanthropy today, and she posed an interesting question: Would you wish the U.S. system of philanthropy – specifically, the ability of individuals to shelter assets from taxes by setting up a private foundation that in exchange is required to pay out at least 5% annually to charitable causes – on a country that was setting up its tax code? Our system is fairly unique; would we wish to replicate it in other countries, or would we not wish it on our own worst enemy?

The easy thing to do would be to be flip: “Of course not!” And there’s a kernel of truth there; Lord knows there’s a lot of dysfunction in the sector: Underperformance as a natural state, data clamoring to be free, both too much strategy and not enough.

But as ever, I have more questions than answers.

With the dust settling (for the moment) on the debt ceiling debate, economic inequality is front of mind. I saw a headline today that Neiman Marcus’ profits rose even more than expected in the last quarter. Clearly someone’s making out fine in this not-really-a-recovery, and it’s not your average Josefina.

So I would say, look at the Gini coefficient – countries with our level of inequality probably aren’t candidates for our version of philanthropy, which doesn’t seem able to mitigate that inequality – and may in fact exacerbate it. (Of course, there’s a whole other realm of charitable giving that’s not tied to tax exemption and the the private foundation form, which is a whole ‘nother question to be considered in comparative context.) In somewhere more equal, like, I dunno, Scandinavia, letting some folks pull their otherwise-taxable dollars out of public purview to advance private conceptions of the public good might not be so problematic.

The other thing to look at is levels of tax compliance. Part of the problem with Greece is that no one pays their taxes. In places like that, perhaps a tax shelter that ties those funds to at least some expectation of advancing public welfare would bring some assets into the semi-public realm instead of having them practically all be in the private realm. In other words, if there’s no public realm to speak of, perhaps a US-style philanthropic tax exemption could help to create one.

Problem is, high levels of inequality and lack of tax compliance tend to go together. So a US-style philanthropic tax exemption could cut both ways, positive and negative. In that case, I think the thing that should break the tie is the presence of civil society. If not much of one exists, then a philanthropic tax shelter could – could! – be a tool to help bring one about. But learning from the US example, you’d want to think carefully about the kinds of accountability for public benefit you build into that system. If civil society is already strong, you may care more about ensuring that the public sector is strong and can provide safety net services, rather than promoting private philanthropic initiative.

This gets to the heart of one of my two questions – what is the role of philanthropy in a democratic society? Which is the greater good – a robust public sector or the thousand points of light of private philanthropic impulse? Under what conditions do we favor one or the other? Would we wish the US philanthropic system on our own worst enemy?

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3 Responses to “My Own Worst Enemy”

  1. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Three Times One Minus One Says:

    […] you wish the U.S. system of philanthropy on a country that was setting up its tax […]

  2. Calvino Says:

    I’ve been thinking along siiamlr lines about the social entrepreneurship space since joining Ashoka.There’s Angel investors for SEs (Echoing Green), early stage (Ashoka), and even mezzanine funding (Skoll). Then there’s Acumen and Schwab (not yet sure how they fit in). But is there enough synergy between our investment strategies? Are we working collaboratively to truly find the best of the best (Bill Drayton’s 1:10M) and make sure they are adequately funded throughout all stages of their development? Are we providing enough access to management guidance to make sure the SEs can get to scale? Are we giving them access to each other to grease the synergies? And where are the sustainer funders?It seems perpetually under-organized to me — and even a bit too competitive. But, I’ve only been inside the sector for 5 weeks, as opposed to looking at it from outside.

  3. CardonaC Says:

    Thanks Calvino, I like that typology of SE donors. Are there spaces where those groups meet? I see what you mean about competition, but are there venues where such funders can meet to learn more about each other’s efforts? That might be a start. And welcome to the sector!

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