The Giving Pledge: Dangerous Implications For Democratic Decision-Making

Giving by billionaire philanthropists has typically been limited in its effectiveness and has dangerous implications for democratic decision-making.
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This is the second and final part of a series of posts that looks at why I am skeptical that The Giving Pledge will have the kind of impact many people are saying it will. In Part I, I explored how the pledge is likely to have an extremely small impact on total giving, and how little money will likely benefit underserved communities.

Below, I look at how giving by billionaire philanthropists has typically been limited in its effectiveness and has dangerous implications for democratic decision-making.

Billionaire philanthropy has real limits and risks.

Billionaires don't typically like to share power.

Some forward-thinking foundations share power with communities by including grantees or the constituent perspective on their boards. Others share power by giving most of their grants in the form of unrestricted general operating support so that the leaders of the nonprofits can best decide how to spend the money.

But most billionaire philanthropists don't follow these practices. The current trend in philanthropy is to develop highly specific theories of change around narrowly defined issues, and then to look for nonprofits that can carry out the foundation's plan. It's often called "strategic philanthropy." In this approach, the billionaires and their families get to decide what the problems are facing communities and how best to solve them.

"What's wrong with that? It's their money," you might ask.

First, it's not entirely their money. Dollars donated by millionaires and billionaires should be thought of as partially public dollars. Given our current tax code, most gifts by the ultra-wealthy are subsidized at the 35 percent level by other taxpayers. A foundation created with a $1 billion gift is really $650 million from the donor and $350 million from the tax-paying public. When tax-exempt donations are made, the U.S. Treasury forgoes revenue, and other taxpayers pay higher rates to make up the difference.

Second, there are real risks for democracy when we allow billionaires to have undue influence on public institutions. It has been well documented how the charitable choices of the ultra-wealthy are influencing government policy in this country and around the world. For just one example, look to an opinion piece in the Chronicle of Philanthropy, where education historian Diane Ravitch explains, "A foundation's offer of a multimillion-dollar grant is enough to cause most superintendents and school boards to drop everything and reorder their priorities."

Third, having billionaires tightly control the decision-making process is not optimally effective, for three reasons.

  • Overwhelming evidence from groups like Grantmakers for Effective Organizations and the Center for Effective Philanthropy shows that when nonprofits receive unrestricted support, they have greater impact. That's because the people closest to the problems, those running nonprofits, often have important insights about how to find solutions. So to increase impact, billionaire pledge-takers would be wise to give more unrestricted funding.

  • Research by theorist Scott Page demonstrates that diverse groups make better decisions, so a foundation that has a diverse board is likely to be more effective than a foundation with a small board that includes only the donor and a few members of his or her family. Advisory committees are a good half-way step, but there is no substitute for truly sharing power by adding community perspectives to the board of trustees.
  • Another way billionaires often fall short of being optimally effective is that they tend to favor technocratic approaches to solving social problems. Yet, as philanthropy expert Michael Edwards points out in his latest book, many of the most pressing challenges we face are not best addressed with a business-oriented approach. Thorny social problems require investments in civil society and social justice, not technocratic business-driven solutions. Unfortunately, despite the fact that it is well documented that foundation investments in advocacy, community organizing and civic engagement have an incredibly high return on investment, few high-net-worth donors currently focus on promoting social justice in these ways.
  • Happily, a few of the billionaire donors who have taken the pledge are leaders in social justice giving. Herb and Marion Sandler are among them -- they're big supporters of grassroots community organizing. Jean and Steve Case, too, have devoted more than 30 percent of their foundation's grant dollars to social justice causes, primarily by investing heavily in civic engagement. But these donors are the exception rather than the rule among billionaire philanthropists.

    What's needed to mitigate these risks and limitations is for billionaire pledge-takers to recognize that donors, taxpayers and nonprofits are really all partners in pursuit of the common good. We all have certain rights and responsibilities in this partnership. And as true partners, we need to share power. If signers of The Giving Pledge think about their philanthropy in this way, it will help democratize their work and lead to better results.

    (For more critiques of strategic philanthropy, check out these posts from Sean Stannard-Stockton, Susan Berresford and William Schambra.)

    Final Thoughts

    The Rev. Dr. Martin Luther King, Jr. once noted, "Philanthropy is commendable, but it must not cause the philanthropist to overlook the circumstances of economic injustice which make philanthropy necessary."

    As I stated up front, all things considered, I'm glad the Gateses and Mr. Buffett started The Giving Pledge. It's better for our nation and the world to have billionaires giving to charity than to leave vast amounts of their wealth exclusively to their kids. I hope this initiative inspires bolder giving from billionaires, millionaires and the rest of us.

    But it's not just the amount of giving that matters. The quality of the giving matters, too.

    Thus far, The Giving Pledge has been silent on these questions of quality, following a politically safer route that says implicitly that all charitable giving is noble and of equal value. But that's just not true. The choices philanthropists make determine to what extent the common good is served by their generosity. We should all hope they make good choices.

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