Bill Gates, the poster-child for the moral billionaire, has confidently stated that, “Businessmen and businesses are best placed to save the world” at the 2008 Davos Annual Meeting. With the rise of a handful of individuals that have amassed exorbitant amounts of wealth, the landscape of philanthropy has significantly changed. While charity is in no way a new development, the emergence of philanthrocapitalism is relatively new and its implications are only beginning to unfold.

Philanthrocapitalism is different from traditional forms of philanthropy because it involves a capitalist, market-based, for-profit approach to solving the world’s biggest and most pressing issues. Rather than simply writing a check, the ultra-wealthy are taking on a very personal and involved approach by starting their own philanthropic ventures and applying market-based solutions to the causes they take up. This has resulted in 72% of charitable foundations being established in just the past 25 years. Uday Khemka, an Indian investor, entrepreneur, and philanthropist, predicted that “philanthropy will increasingly come to resemble the capitalist economy.” As concentrated entrepreneurial wealth continues to grow, more and more millionaires and billionaires are engaging in this new form of philanthropy, proving Khemka’s prediction to be true. This is clearly evident with the most recent development of philanthrocapitalism, the Giving Pledge, which the financial research company Wealth-X projects to be worth $600 billion by 2020. Founded by Bill and Melinda Gates and Warren Buffett, the Giving Pledge is a moral commitment made by billionaires to donate half of their wealth to different causes, ranging from combating poverty to improving global health. While this pledge is not a legal obligation, the purpose of the Giving Pledge is not only to get the wealthy to direct their money towards philanthropy, but also to get them to invest it “smarter.” This is exactly where the capitalist aspect of this new wave of philanthropy comes in.

These ultra-wealthy philanthrocapitalists have positioned themselves as the solution to the world’s overwhelming myriad of problems. The widely held belief that the moral billionaires of the world will be the solution to the world’s problems sets the foundations for a market-based capitalist approach to philanthropy. It encourages billionaires to employ models of profit maximization that are used in the private sector and have allowed them to accumulate the wealth they are looking to “redistribute” in the public sector. In this case, however, the profit they seek to maximize is the social welfare and social quality.

Philanthrocapitalism has the potential to be quite powerful. Philanthrocapitalism challenges the unsustainable and impractical notion of simply throwing money at a problem, and encourages creative problem solving. Furthermore, philanthrocapitalism has enjoyed unparalleled financial backing, which makes its ambitious plans to end global poverty, provide disaster relief, bolster education, and promote sustainability theoretically feasible.

However a number of questions on the validity of philanthrocapitalism need to be answered. Should private entities such as the Zuckerberg and Chan Initiative take on the role of governing bodies? Does their privatized and market-based approach supercede the job of the public sector and thus release them from their social responsibility to reinvest in social quality through taxation?  Are the billionaires that often perpetuate and exacerbate global problems really the best agents of change?

In many ways, the world has already seen the tremendous good philanthrocapitalist efforts can do. The Bill and Melinda Gates Foundation has been instrumental in combating global poverty and improving global health. Bill and Melinda Gates have pledged to give up 95% of their wealth and have already given grants of over $26 billion. The Global Health program of the Gates Foundation has been crucial to the work of eradicating diseases such as polio, malaria, tuberculosis, and has taken on treating HIV/AIDS in the developing world.

The key to their success has been largely their philanthropistic market-based approach. Their work is driven by the desire to maximize economic output by eliminating the barriers that hinder economic development. Subsequently, the work of the Gates Foundation prioritizes efficiency and strategic problem solving. The foundation operates methodically, collecting evidence and conducting diligent research, and then applying the most efficient and effective strategy to maximize the positive outcome of their initial investment in the cause. The successful initiatives of the Gates Foundation have been hailed as proof that market is king and that privatization of philanthropy is the most efficient approach to creating change. In fact, to the general public, it could even justify rampant wealth inequality and the existence of the ultra-wealthy.

However, critics of philanthrocapitalism are not so easily sold. Looking at Mark Zuckerberg’s philanthropic endeavors, the problems with philanthrocapitalism become clear. In 2015, Mark Zuckerberg and Priscilla Chan committed ninety-nine percent of their equity in Facebook shares to philanthropy. This was a widely celebrated act, especially since the stocks were valued at forty-five billion dollars. However, this was not an ordinary philanthropic donation to a non-profit. Zuckerberg and Chan are making this donation to the Chan Zuckerberg Initiative, a limited liability company that focuses on technologies and strategies to solve global problems. Zuckerberg explained that the decision to donate to his own LLC was to “gain flexibility to execute [their] mission more effectively.” This move exemplifies the shift of philanthropy from charity to capitalism. The Chan-Zuckerberg Initiative is for-profit and does not have the transparency requirements that nonprofits do have. The problem is that charitable donation to an LLC actually limits how much wealth can be taxed and subsequently reinvested into society. John Cassidy, a writer for The New Yorker, extensively explains how Zuckerberg and Chan’s philanthropic move created a significant loss in tax revenue.

Tax experts point to the fact that if the stocks were instead cashed in or given to an heir, they would respectively face considerable capital gains and estate taxes. In addition, despite the LLC not seeking tax-exempt status, any donation or grant made by the LLC that uses funds from Facebook stock will grant Zuckerberg and Chan tax credits that Cassidy writes is “equal to the market value of the stock, some of which could be rolled over into future tax years.” This points to some of the drawbacks of privatizing philanthropy.

It is also important to consider that billionaires who may have mastered profit maximization are not necessarily qualified to act as public servants. They are making decisions on what causes to take up and how funding should be allocated, again with very little accountability or transparency, and absolutely no democratic or political process that takes into account the will of the people.

This trend of charitable ultra-wealthy individuals taking over the role of government is quite alarming. They lack the accountability, transparency, and vulnerability that matches the demands of the people, and can consequently pick and choose which issues they deem important, by investing and divesting in issues with little consequence. It makes initiatives for change and progress vulnerable. If tomorrow the Gates Foundation were to decide to divest from the GAVI Alliance, an organization responsible for increasing immunization, or the multitude of United Nations agencies they currently fund, then those organizations would essentially lose all of their influence and impact. This was seen when the Gates Foundation took on improving public education in America and successfully persuaded local districts that were drawn by the potential funds from the foundation to break up larger schools to improve performance. Bill and Melinda Gates leveraged their wealth to implement policies they favored only to abandon this cause when their methods proved to be ineffective.

Finally, philanthrocapitalism begs the question of whether issues such as global poverty and climate change, which may require institutional change, should be solved by billionaires who are often the source of these very issues. Signatories of the Giving Pledge include Joseph Craft, Vladimir Potanin, and Mark Zuckerberg. These men are the CEO of a large American coal company, the founder of the controversial loans-through-shares program as well as responsible for severe environmental pollution in the Arctic, and overseer of a major global data leak, respectively. Countless of the Giving Pledge donors invest and run companies and conglomerates that contribute to worker exploitation, environmental degradation, and wealth inequality. It is worth considering whether instead of giving back some of their wealth through their investment in their own foundations, the ultra wealthy should rather pay their fair share in taxes to fund government and public sector’s ability to act on these issues.

All of this points to the fact that despite the real and potential benefits and successes of philanthrocapitalism, the problems that arise with philanthrocapitalism should not be ignored. It cannot be overlooked that philanthrocapitalism itself has emerged out of problematic excess.


Featured Image Source: gatesnotes

Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty,  or the University of California, Berkeley in general.

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