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Stanford professor points out flaws in big philanthropies

In the final event of the “Markets and Morals” series, Professor Bob Reich looked at big philanthropies through a skeptical lens

Hannah Powell

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The Mudd Center series on “Markets and Morals” concluded Thursday evening with a lecture from Professor Rob Reich of Stanford University.  Reich came to Washington and Lee to discuss the function of big philanthropy in a democratic, capitalist society.

He said he wanted to open the minds of the audience so they could question whether philanthropic foundations play a significant and effective role in our society, and he offered criticism about how they currently interact with the free market.  He then connected his point to the broad theme of markets and morals in two different ways.

One is that the operation of the marketplace in a capitalistic economy is actually what creates big philanthropy.  In other words, capitalism creates the wealth inequalities that give wealthy people the ability to found and support these organizations.  Reich referred to the current American economy as “the second Gilded Age,” which is producing wealth comparable to that of the Carnegies and Rockefellers and others of the first Gilded Age.

Second, Reich said that many people are beginning to accept big philanthropy as a part of “marketplace norms.” This passion and heart that usually drive philanthropic efforts are being replaced by “philanthro-capitalism,” or analytical tactics used to gain the highest yield from a donation.

Philanthro-capitalism is the main problem with big philanthropy, according to Reich. Instead, philanthropy should function very differently than the market, and Americans should not be in search of a philanthropic sector that mirrors how the rest of the economy operates.

Reich used this argument as a jumping-off point, from which he attempted to convince the audience of why these problems should be of interest. One reason is that the ways donors seek to fund their personal projects inevitably affect change in social policy and social outcome that has the ability to affect all of our lives.  Another is that large-scale philanthropic efforts by wealthy individuals are often what start universities like Washington and Lee, so we should all have an inherent interest in them.

The current conventional attitude toward philanthropists is that the only appropriate way to react to their benevolence is extreme and unwavering gratitude, Reich said. As proof, he said Bill Gates and Warren Buffett are frequently named amongst the most admired Americans worldwide.

It is not for their great successes in their fields, exactly, but what they choose to do with the wealth they have acquired that makes so many people praise them without question.  It is because of this attitude, Reich said, that students often tell him the best career they can imagine is one in a big foundation rather than a big corporation.

Instead of adhering blindly to this custom, Americans should practice approaching big philanthropy through a lens of skepticism and scrutiny. Reich used the Rockefellers as an example for why philanthropy deserves as much criticism as praise.

Frederick Yates was the primary financial advisor to the Rockefeller family. Yates urged the family to enter the business of philanthropy with the wealth they had amassed from the oil business. Reich said Yates wanted the family to “distribute their wealth faster than it grows.”

The Rockefellers failed to obtain help from Congress in starting their foundation. So, the Rockefellers instead turned to wealthy friends and connections in New York. They received almost immediate criticism from figureheads around the country.

President Roosevelt reportedly said that no amount of philanthropic spending could make up for the ethically flawed means through which the Rockefeller fortune was made.

Reich said that the President’s realization was the lesson.

“Large-scale philanthropy is an exercise of the power of the wealthy, and such power deserves scrutiny,” said Reich.

He then raised the question: Is it really ever possible for the goals of the wealthy to be domesticated to meet the needs of the public?

The wealthy are financially incentivized to participate in big philanthropy due to tax advantages. This essentially grants legal permission for wealth to play “a consequential role in public life,” Reich said. A problem with this is that foundations have no system of accountability; no consumer demands have to be met for them to stay afloat, and those in charge are not under the constant pressure of reelection prospects.

These details, according to Reich, make big philanthropy’s role in democracy an “institutional oddity.”  With no competitors, no accountability and tax-incentivized freedom to spend how they please, these foundations are completely unique in a capitalist environment.

Reich concluded by offering a more optimistic rationale for big philanthropy to continue to exist.

One, he explained, is that power in a democratic society should not be solely concentrated within government institutions; it is preferable, rather, to decentralize this power to allow people other than elected representatives produce public benefits.  Second, foundations actually have long term flexibility for social experimentation that representatives lack due to pressure to please constituents.

Reich said that these aspects give foundations that might be otherwise flawed the opportunity to produce long term positive change in our society.

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Stanford professor points out flaws in big philanthropies