Who's afraid of philanthrocapitalism?

• Author: Jenkins, Garry W.

This Article explores the concept of philanthrocapitalism--an emerging model for charitable giving intended to enhance the practice of philanthropy through the application of certain business techniques, particularly envisioned as being deftly carried out by a subset of ultra-rich, experienced business people. During the past fifteen years, but most strikingly in the past five, private foundations influenced by philanthrocapitalism and its forbearers have become increasingly directive, controlling, metric focused, and business oriented with respect to their interactions with grantee public charities in an attempt to demonstrate that the work of the foundations is "strategic" and "accountable." Combining empirical analysis and theoretical critique, this Article challenges the prevailing wisdom that philanthrocapitalism offers a better, smarter philanthropy, thereby strengthening the entire nonprofit sector. In fact, after observing and documenting the tenets of and rhetoric associated with philanthrocapitalism, there is a serious risk that the shift to business-like, market-driven giving may change the nature of philanthropy in ways we will come to regret. Moreover, this Article links concerns about philanthrocapitalism to a broader disquiet about the blurring lines between the public and the private. I argue that nonprofit scholars and advocates should pay greater attention to this movement and what its "success" might mean for the social sector.

CONTENTS INTRODUCTION I. UNDERSTANDING PHILANTHROCAPITALISM AND STRATEGIC GRANTMAKING II. TRENDS IN FOUNDATION GIVING A. Increased Concentration of Large Grants B. Growth of Limited-Purpose Grants C. Expansion of Foundation-Initiated Grantmaking 1. Method 2. Data and Summary Results 3. Limitations of the Study D. Implications III. THE DANGERS OF PHILANTHROCAPITALISM A. Misapplication of Business Concepts 1. Overemphasizing Metrics 2. Capturing the Meaning of "Strategy ". B. Transforming Nonprofit Institutions 1. Foundation vs. Charity Expertise 2. Market-Based Solutions C. Changing Individual and Government Giving D. Undermining Democratic Values CONCLUSION INTRODUCTION

Powerful grantmaking institutions profoundly influence much of civic life, in both the United States and abroad. Decisions made by foundation board members and staffs greatly affect millions of nonprofit organizations and the people they serve. Today the relationship between private foundations (philanthropic grantmaking entities) and public charities (grant-receiving nonprofit enterprises) (1) is very much in flux. In particular, philanthrocapitalism--the application of business techniques to philanthropy by a new generation of self-made, hands-on donors--and strategic grantmaking, as new models of giving, have burst onto the scene, commandeering attention and potentially reshaping philanthropy. (2) For the past decade, there have been growing calls for the nonprofit sector to consider new innovative approaches in conducting its work--borrowed principally from the private sector--in order to improve capacity, efficiency, accountability, and effectiveness. (3) At first these calls were primarily focused on the work of public charities. Lately, however, private foundations have become the target of those seeking to harness the power of "market-based" innovation, as a sort of new technology, to contribute to the project of smarter philanthropy. Further evidencing the concept's prominence, a recent article included philanthrocapitalism among the ten most important philanthropy buzzwords and phrases of the past decade. (4)

Led by billionaires and multimillionaires--armed with their keen business skills--philanthrocapitalism seeks to improve the practice of philanthropy through the application of techniques common to for-profit businesses. Driven by a desire to bring hard-nosed strategy, performance metrics, and an emphasis on effectiveness to the nonprofit sector, a new guard of influential donors is changing the standards for what is considered effective philanthropy. Private foundations, grant-receiving public charities, nonprofit boards, and the professionals who counsel and advise grantors and grantees are feeling the impact.

The most prominent chroniclers of this movement are Matthew Bishop, the New York bureau chief of the Economist, and Michael Green, an economist. Their book, Philanthrocapitalism: How the Rich Can Save the World, is a rosy meditation on the future of American philanthropy that combines analysis, profiles, and anecdotes to reveal a new wave of charitable grantmaking with a new vocabulary and renewed strength. (5) Bishop and Green applaud "[t]he new philanthropists" whom they believe are greatly improving a system they see as ineffective and in desperate need of reshaping. (6) In their assessment, "The past couple of decades have been a golden age for capitalism, and today's new philanthropists are trying to apply the secrets behind that money-making success to their giving." (7)

The appeal of philanthrocapitalism is easy to grasp. It is tempting to imagine society's most pressing social ills being solved by a new breed of entrepreneurs-turned-philanthropists, who revolutionize grantmaking through the application of their business acumen, ambition, and "strategic" mindset. Traditionally, philanthropy has been cast as a welcome partner of government in addressing public needs. (8) But, following the rise of neoliberalism as a dominant cultural and political ideology (9) and the significant private wealth creation of the past twenty years, (10) the social sector has looked to markets and business as sources of inspiration to improve the work of public charities. (11) Thus we have a new wave of thought in philanthropy looking to imbue capitalist/business principles and market-based theory into the work of not-for-profit, private foundations. Moreover, these past two decades has seen academics and policymakers embrace "third way" solutions that blend public and private regulatory modalities. (12) In light of these converging trends, it is no surprise to find people enticed by an idea that promises to "save the world" through business thinking and market methods.

The movement started with a small group of initial practitioners--successful-entrepreneurs-turned-philanthropists--and expanded to include hundreds of foundations and advisory firms that have become its most forceful advocates. (13) The principles of philanthrocapitalism have now captured the attention of journalists, foundation professionals, and trustees at "mainstream" foundations, governments, and beyond. Philanthropic institutions and even ordinary individuals are watching, mimicking this new development, and rapidly absorbing its messages all too well. (14) This Article critiques the discourse of philanthrocapitalism and suggests that the rhetoric behind it has consequences.

This Article proceeds from the premise that this emerging conception of what it means to practice "effective" philanthropy warrants examination because it has implications for how we think about the accountability and stewardship of tax-privileged resources managed by private individuals for the public benefit. Certainly, the additional philanthropic resources contributed by successful business entrepreneurs and investors are greatly needed and welcomed by recipients. But a giving model that exclusively subscribes to the notion that this particular subgroup, through their use of business methods, is always engaged in better, smarter, and more effective grantmaking has dangerous appeal. This Article identifies and focuses on the dangers.

Because charitable giving is generally presumed to be beneficial, regardless of its form, philanthropy is often taken for granted and rarely subjected to intense scrutiny. Many people have the normative impulse to assume that as long as charitable activity is undertaken in a manner consistent with law, it must therefore advance the greater good. In addition, recipients are often so grateful for the funding that they may overlook other concerns. Furthermore, a common line of thinking that starts with a recognition that giving is an optional act (e.g., "it's their money"), an understanding that resources could be used for private consumption rather than public benefit (e.g., "they don't have to donate it"), and an appreciation for the expressive value of giving to shape solutions and society (e.g., "so they should be able to do what they want") leads people to be hesitant to criticize or question the philanthropic system. But even within the domain of what is legal, there are many activities that we might rightfully be concerned about because of their influence on society and infringement on other important values. My concern with the new form of philanthropy is not about its end uses--i.e., where the charitable donation goes--but rather the new ways that philanthrocapitalism governs and constrains how the funding flows. While I strongly support the independence and limited role of the state to dictate matters of charity governance, (15) the self-governance exercised by foundations should be subject to critical evaluation and reflection. Although I would not legally regulate these new forms of philanthropic giving, I would encourage robust conversation about best practices in light of what I see as its harmful effects.

Its proponents have billed this new form of philanthropy as one that is more ambitious, more strategic, more global, and more results oriented, requiring higher levels of personal involvement by donors than more traditional approaches. (16) Less often discussed in the literature, however, is the fact that although donors have always had a certain degree of disproportionate control in grantor-grantee relationships, this new movement, with its use of cutting-edge language about strategy and effectiveness, exacerbates the divide and strains these relationships further. As a result, grantmakers...