The Gospel of Wealth

Does private sector philanthropy help "society more effectively and efficiently than government"?:

Big Gifts, Tax Breaks and a Debate on Charity, by Stephanie Strom, NY Times: Eli Broad, a billionaire businessman, has given away more than $650 million over the last five years... The rich are giving more to charity than ever, but people like Mr. Broad are not the only ones footing the bill for such generosity. For every three dollars they give away, the federal government typically gives up a dollar or more in tax revenue, because of the charitable tax deduction and by not collecting estate taxes.

Mr. Broad ... says his gifts provide a greater public benefit than if the money goes to taxes for the government to spend. “I believe the public benefit is significantly greater than the tax benefit an individual receives,” Mr. Broad said. “I think there’s a multiplier effect. What smart, entrepreneurial philanthropists and their foundations do is get greater value for how they invest their money than if the government were doing it.”

It is an argument made by many of the nation’s richest people. But not all of them. Take the investor William H. Gross, also a billionaire. Mr. Gross vigorously dismisses the notion that the wealthy are helping society more effectively and efficiently than government.

“When millions of people are dying of AIDS and malaria in Africa, it is hard to justify the umpteenth society gala held for the benefit of a performing arts center or an art museum,” he wrote in his investment commentary this month. “A $30 million gift to a concert hall is not philanthropy, it is a Napoleonic coronation.”

Elaborating in an interview, Mr. Gross said he did not think the public benefits from philanthropy were commensurate with the tax breaks that givers receive. “I don’t think we’re getting the bang for the buck for gifts to build football stadiums and concert halls, with all due respect to Carnegie Hall and other institutions,” he said. “I don’t think the public would vote for spending tax dollars on those things.” ...

Research shows that less than 10 percent of the money Americans give to charity addresses basic human needs, like sheltering the homeless, feeding the hungry and caring for the indigent sick, and that the wealthiest typically devote an even smaller portion of their giving to such causes than everyone else. ...

Philanthropists like Mr. Broad say that looking at philanthropy solely as a means of ameliorating need is too narrow. “If you look historically at what Carnegie did with creating a library system and the Rockefellers in creating Rockefeller University, I think it does a lot more for society than simply supporting those in need,” Mr. Broad said. ...

Like many major philanthropists, Mr. Broad said he considered [his] gifts an illustration of the Chinese proverb: “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.” The argument is that simply taking care of the poor does nothing to eliminate poverty and that they will ultimately benefit more from efforts to, say, find cures for the diseases that afflict them or improve public education. ...

I have no problem with wealthy people doing charitable things, that's great, but it shouldn't crowd out the government's ability to act in the public interest or relieve the wealthy from their share of the bill. To use language from another debate, private sector charity as an "add-on" is desirable and the wealthy should do as much or little of this as their hearts desire, but if it's a "carve-out" there's reason to question "the notion that the wealthy are helping society more effectively and efficiently than government."

Since Andrew Carnegie came up:

Andrew Carnegie: The Gospel of Wealth, 1889, Modern History Sourcebook: [Andrew Carnegie (1835-­1919) was a massively successful business man - his wealth was based on the provision of iron and steel to the railways, but also a man who recalled his radical roots in Scotland before his immigration to the United States. To resolve what might seem to be contradictions between the creation of wealth, which he saw as proceeding from immutable social laws, and social provision he came up with the notion of the "gospel of wealth". He lived up to his word, and gave away his fortune to socially beneficial projects, most famously by funding libraries. His approval of death taxes might surprise modern billionaires!]

The problem of our age is the administration of wealth, so that the ties of brotherhood may still bind together the rich and poor in harmonious relationship. The conditions of human life have not only been changed, but revolutionized, within the past few hundred years. In former days there was little difference between the dwelling, dress, food, and environment of the chief and those of his retainers. . . . The contrast between the palace of the millionaire and the cottage of the laborer with us to­day measures the change which has come with civilization.

This change, however, is not to be deplored, but welcomed as highly beneficial. It is well, nay, essential for the progress of the race, that the houses of some should be homes for all that is highest and best in literature and the arts, and for all the refinements of civilization, rather than that none should be so. Much better this great irregularity than universal squalor. Without wealth there can be no Maecenas [Note: a rich Roman patron of the arts]. The "good old times" were not good old times . Neither master nor servant was as well situated then as to day. A relapse to old conditions would be disastrous to both-not the least so to him who serves-and would sweep away civilization with it...

. . .

We start, then, with a condition of affairs under which the best interests of the race are promoted, but which inevitably gives wealth to the few. Thus far, accepting conditions as they exist, the situation can be surveyed and pronounced good. The question then arises-and, if the foregoing be correct, it is the only question with which we have to deal-What is the proper mode of administering wealth after the laws upon which civilization is founded have thrown it into the hands of the few? And it is of this great question that I believe I offer the true solution. It will be understood that fortunes are here spoken of, not moderate sums saved by many years of effort, the returns from which are required for the comfortable maintenance and education of families. This is not wealth, but only competence, which it should be the aim of all to acquire.

There are but three modes in which surplus wealth can be disposed of. It can be left to the families of the decedents; or it can be bequeathed for public purposes; or, finally, it can be administered during their lives by its possessors. Under the first and second modes most of the wealth of the world that has reached the few has hitherto been applied. Let us in turn consider each of these modes. The first is the most injudicious. In monarchial countries, the estates and the greatest portion of the wealth are left to the first son, that the vanity of the parent may be gratified by the thought that his name and title are to descend to succeeding generations unimpaired. The condition of this class in Europe to­day teaches the futility of such hopes or ambitions. The successors have become impoverished through their follies or from the fall in the value of land.... Why should men leave great fortunes to their children? If this is done from affection, is it not misguided affection? Observation teaches that, generally speaking, it is not well for the children that they should be so burdened. Neither is it well for the state. Beyond providing for the wife and daughters moderate sources of income, and very moderate allowances indeed, if any, for the sons, men may well hesitate, for it is no longer questionable that great sums bequeathed oftener work more for the injury than for the good of the recipients. Wise men will soon conclude that, for the best interests of the members of their families and of the state, such bequests are an improper use of their means.

. . .

As to the second mode, that of leaving wealth at death for public uses, it may be said that this is only a means for the disposal of wealth, provided a man is content to wait until he is dead before it becomes of much good in the world.... The cases are not few in which the real object sought by the testator is not attained, nor are they few in which his real wishes are thwarted....

The growing disposition to tax more and more heavily large estates left at death is a cheering indication of the growth of a salutary change in public opinion.... Of all forms of taxation, this seems the wisest. Men who continue hoarding great sums all their lives, the proper use of which for public ends would work good to the community, should be made to feel that the community, in the form of the state, cannot thus be deprived of its proper share. By taxing estates heavily at death, the state marks its condemnation of the selfish millionaire's unworthy life.

. . . This policy would work powerfully to induce the rich man to attend to the administration of wealth during his life, which is the end that society should always have in view, as being that by far most fruitful for the people....

There remains, then, only one mode of using great fortunes: but in this way we have the true antidote for the temporary unequal distribution of wealth, the reconciliation of the rich and the poor-a reign of harmony-another ideal, differing, indeed from that of the Communist in requiring only the further evolution of existing conditions, not the total overthrow of our civilization. It is founded upon the present most intense individualism, and the race is prepared to put it in practice by degrees whenever it pleases. Under its sway we shall have an ideal state, in which the surplus wealth of the few will become, in the best sense, the property of the many, because administered for the common good, and this wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race than if it had been distributed in small sums to the people themselves. Even the poorest can be made to see this, and to agree that great sums gathered by some of their fellow­citizens and spent for public purposes, from which the masses reap the principal benefit, are more valuable to them than if scattered among them through the course of many years in trifling amounts.

. . .

This, then, is held to be the duty of the man of Wealth: First, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial result for the community-the man of wealth thus becoming the sole agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer-doing for them better than they would or could do for themselves.

Andrew Camegie, "Wealth," North American Review, 148, no. 391 (June 1889): 653, 657­62.

Comments

[Henry V]

' To use language from another debate, private sector charity as an "add-on" is desirable and the wealthy should do as much or little of this as their hearts desire, but if it's a "carve-out" there's reason to question "the notion that the wealthy are helping society more effectively and efficiently than government." '

Why not think of public charity as an add-on to private charity?

One would not only want to look at *where* the money is going, but how effectively it's being used. I have no doubt that, on average, private charities have lower overhead than public ones. There is greater accountability at private charities.

Public money is used for stadiums, and little of (US) public charity goes to solving the AIDS/Malaria crises in Africa. The examples cited simply aren't appropriate. How much of the federal budget goes to feeding and clothing the poor? This says nothing about so-called "pork" like the bridge to nowhere.

If anything, we should stop crowding out private charities, rather than the other way around, IMHO. Too many people I've talked to say that they don't give to charities because they "already pay taxes."

[anne]

"I have no doubt that, on average, private charities have lower overhead than public ones. There is greater accountability at private charities."

I have no doubt that the first sentence is unknown and possibly unknowable, and nonsense in that we have no idea what a public "charity" comparable to a private "charity" might be. The second sentence is simply self-contradictory nonsense.

[PeterRabid]

Bravo Anne,

Altho Henry V certainly wasted a lot of English tax taxpayer's money in launching that senseless invasion of France, even more would probably have been wasted by private charity on useless cathedrals

[robertdfeinman]

I've taken a different tack on philanthropy - it is undemocratic. What it does is allow an individual to make policy without any of the mechanisms used when the government does this.

Two examples: Bill Gates is wasting his money on the poor, rather than on poverty. (One of these quoted in the article hinted at this.) If he decides that Malaria or TB are most important that's what gets funded. When the CDC or NSF decides where to spend money it does so by soliciting proposals which are then vetted by teams of experts. Adding a few such people to a foundation as window dressing is not the same thing. The fact that this process has also been compromised by Bush's ideology does not mean that the basic scheme is unsound.

The article is a bit vague on "foundations", but as I've been pointing out frequently lately, many of these "foundations" were set up explicitly to push right wing ideology. Why should the tax payers underwrite the Cato Institute?

I have an essay on this, where I lay out my argument more throughly, if anyone is interested:

Abolish Philanthropy

[anne]

http://shakespeare.mit.edu/History/kinghenryv/kinghenryv.3.1.html

1599

The Life of King Henry the Fifth
By William Shakespeare

Act III. Scene I.

France. Before Harfleur.

Alarum. Enter KING HENRY, EXETER, BEDFORD, GLOUCESTER, and Soldiers, with scaling-ladders

KING HENRY V

Once more unto the breach, dear friends, once more;
Or close the wall up with our English dead.
In peace there's nothing so becomes a man
As modest stillness and humility:
But when the blast of war blows in our ears,
Then imitate the action of the tiger;
Stiffen the sinews, summon up the blood,
Disguise fair nature with hard-favour'd rage;
Then lend the eye a terrible aspect;
Let pry through the portage of the head
Like the brass cannon; let the brow o'erwhelm it
As fearfully as doth a galled rock
O'erhang and jutty his confounded base,
Swill'd with the wild and wasteful ocean.
Now set the teeth and stretch the nostril wide,
Hold hard the breath and bend up every spirit
To his full height. On, on, you noblest English.
Whose blood is fet from fathers of war-proof!
Fathers that, like so many Alexanders,
Have in these parts from morn till even fought
And sheathed their swords for lack of argument:
Dishonour not your mothers; now attest
That those whom you call'd fathers did beget you.
Be copy now to men of grosser blood,
And teach them how to war. And you, good yeoman,
Whose limbs were made in England, show us here
The mettle of your pasture; let us swear
That you are worth your breeding; which I doubt not;
For there is none of you so mean and base,
That hath not noble lustre in your eyes.
I see you stand like greyhounds in the slips,
Straining upon the start. The game's afoot:
Follow your spirit, and upon this charge
Cry 'God for Harry, England, and Saint George!'

Exeunt. Alarum, and chambers go off

[save_the_rustbelt]

Private philantrophy tends to be very narrowly focused, which is both good and bad news.

The narrow focus allows specific projects to be completed on specific timelines.

The narrow focus does not allow for supplanting the government in meeting long-term and broader needs.

So there is room for both.

[reason]

The only reason that market outcomes are considered "more efficient" (efficiency being a bit of a nebulous concept) than government outcomes is because of competition. Where exactly is the competition in Charity? What is the old saying about a fool and his money (and what is more foolish than believing you know better than everybody else does how to help the world).

[pcs]

Surprisingly, it seems that nobody here has taken on the most basic premise promoted here. The idea endorsed by Mr. Broad is that he, as individual, is better suited to decide what the needs are of the society than our elected official (Government). Extend that notion, and one can argue that dictatorships are better for the societies than democracies. I guess George W is just the extreme proponent of the same school of thought…

[GeneralSpecific]

I don't think the government should be fine tuning the private sector through the tax code. If people want to spend money to solve particular issues--great, I'm all for it. The government, on the other hand, should collect revenues based upon defined needs.

Some will argue that we have little control over the way congress spends its money--to me that's irrelevant. The goal is to improve our control over the public purse. There will always be a public purse. The constitution was written with that in mind. Let's improve our control over it.

Get rid of the charitable deduction. And the home mortgage deduction while we're at it.

Tax the flow of funds at a progressive level--whether income, capital, inheritance. Match the tax based with the set of problems as defined by the state. Let the private sector do whatever it wants--grandiose opera houses, religious conversion, or shelters for the homeless.

The private sector is a powerful means to solve problems. But we needn't mingle the state and the private sector. That's what the charitable deduction is doing.

[donna]

I love how the rich always can justify their wealth. It makes them feel better about not paying their employees enough, I suppose.

[Maynard]

First, I'll quibble with the first paragraph. Let's not include the loss of estate taxes as one of the offsets of private philanthropy. Society has a claim on some fraction of people's income, so if the rich can take a credit for charitable gifts on their income taxes it's fair to treat the value of the credit as a cost to government. There may be great social benefits from taxing someone's estate - I think of it as taking from Paris Hilton and giving it to the next Conrad Hilton through spending on health, education, etc. But to say that the money that a rich person would have left to his heirs but that he instead spent on a philanthropic gift represents a loss to society (or as the public finance people would say, a tax expenditure) seems like a stretch.

But the basic point is a good one, and there's a pretty sensible solution. Let's have tax credits for charitable gifts that focus on basic needs, but put a cap on the credits you can get for endowing libraries, business schools, art museums, etc.

[evagrius]

From what I've heard and seen, the great wealthy of today don't seem to be spending their money on such trifles as the Hermitage, Versailles, the churches and palaces of Florence, Rome, etc;etc;.

In other words, they're not known to be great patrons of public architecture or art.

I doubt that Larry Ellison's pseudo-shogun style house will be known as an architectural treasure.

[James Killus]

Carnegie was a Spenserian Social Darwinist, but, unlike many Social Darwinists, he didn’t believe in inherited wealth as a blood right. Instead, as he had written in “The Gospel of Wealth,” he believed in the “stewardship” of society by the wealthy, and that included large doses of philanthropy. Upon obtaining half a billion in 1901 dollars (on the order of an inflation adjusted 10 billion in today’s dollars, but a vastly greater sum in terms of, for example the fraction of U.S. GNP), Carnegie proceeded to give most of it away, to foundations of varying purposes, including the building of libraries.

But here is what you seldom hear in stories about Carnegie: Yes, he built libraries and put books in them, but he did not pay the salaries to librarians; he did not pay for the maintenance and upkeep of the buildings. Those tasks were left to the cities that got the libraries. Carnegie leveraged his philanthropy with a large amount of public money; eventually far more than he had actually given.

This was social engineering on a large scale, and it used private money to sway the priorities of the public purse. I was, as I have said many times, a major beneficiary of Carnegie’s social engineering. I daresay that I was just the sort of bright, self motivated individual that he had in mind as a beneficiary. Indeed, Carnegie started his real business ascent at a telegraph operator (see I have a Code, and made his first stake by investing in deals that he learned of as the telegrapher, i.e., what we now call insider trading.

Andrew Carnegie is in no way any sort of libertarian, Randite, or even Spenserian role model. A great deal of his success had to do with being fortunately the right person in the right place at the right time. He lived in a time when government was at the beck and call of wealth, and his wealth derived in part from the land grants given to railroads (which bought his steel), the use to state troops to break strikes, and a complete disregard for polluting the property (and bodies) of other people. In the end, his greatest philanthropic achievement was to divert tax money to a purpose of his conception.

Yes, I’m an heir to Carnegie’s philanthropy, and rightly glad of it. Still, we bite the hands that feed us, and when you set out to enable education, especially self-education, don’t be surprised if some of the ideas that result are not entirely what you had in mind.
from The Little Scotsman

[robertdfeinman]

JK:
Point of information, Carnegie did not provide the books, despite what the article says. There was a well-known newspaper columnist at the time, Finley Peter Dunne, whose work was collected into this book (among others), "Observations by Mr. Dooley". It's available on Project Gutenberg. The first essay is all about Carnegie's "philanthropy". If you can handle the Irish dialect it's still funny.

Carnegie was one of the most hated men in the US and his suddenly discovering philanthropy was one of the first examples of modern PR. It worked, most people remember him now for his good works and not for the bloody strikes that occurred at his factories.

I think Bill Gates is trying the same sort of image enhancement (although I don't think he uses Pinkerton men, he just allows us to tear our own hair out when using his software).

[James Killus]

Thanks robert, I based my statement on the bookplates of the old Nashville Public Library, which did say words to the effect of "Donated by Andrew Carnegie." This may have been a misreading on my part of "Property of the Carnegie Library," but I was under the impression that at least some of the Carnegie foundation donations went to books.

[Phoenix Woman]

Henry V spewed:

"I have no doubt that, on average, private charities have lower overhead than public ones. There is greater accountability at private charities."

Anne retorted:

"I have no doubt that the first sentence is unknown and possibly unknowable, and nonsense in that we have no idea what a public 'charity' comparable to a private 'charity' might be. The second sentence is simply self-contradictory nonsense."

Actually, we DO know these bits of data: Simply compare what happens to state-run pension plans when they're privatized.

Short answer: They go down the effing tubes.

Longer answer: Overhead costs shoot up dramatically -- the typical overhead costs for privatized pension plans range between 14 and 20 percent, whereas non-privatized plans (like the US' Social Security) average overhead costs of less than one percent.