By Zoltan Acs, Professor of Practice in Entrepreneurial Development
Philanthropy seems like a subject with little public policy interest at best and a rather boring subject at worst. That is why not a lot is written on the subject. If you don’t believe me, just go and google the word philanthropy and see what comes up.
Recently, Olivier Zunz, commonwealth Professor of History at the University of Virginia has written Philanthropy in America, a history. So do we have a boring history book here on an even more boring subject? On the contrary, as you crack the book open and glance at the jacket flap your views are immediately challenged, “American philanthropy today expands knowledge, champions social movements, defines active citizenship, influences policymaking and addresses humanitarian crisis.”
Philanthropy has been a distinctive feature of American culture, but its crucial role in the economic well-being of the nation—and the world—has remained largely unexplored. So the book is welcome! The new philanthropy was the marriage between the rich, who had made their own money, and various progressive elites of the academic world, local governments, the judiciary and emerging professional associations.
So let’s get to the heart of the issue. Philanthropy is the art of putting wealth to use for the common good. But the common good was carefully described. It would be a capitalist venture in social betterment, not an act of kindness, as understood in Christianity and later in the 1960 and 1970 as an expression of the Great Society programs that were a form of government charity not philanthropy.
For most of civilization no one was interested in the improvement of mankind. For thousands of year’s kings, noble families, the church and bishops, ruled over mankind for the sole betterment of themselves. Looking after the poor had always been part of the agenda of the rich. Starving peasants led to revolt so feeding the poor was important. However, while charity had been for the needy, philanthropy was to be for mankind.
Philanthropy is one of those topics that cannot easily be digested by itself and be appetizing. So the question is, “What do we consume philanthropy with in the broad lexicon of the social sciences and public policy debates of our time?” The answer is that, if you want to understand philanthropy, you need to consume it as a part of American-style capitalism.
American style capitalism is a dynamic process which balances wealth and opportunity—the great seesaw of civilization. It follows that the success of American-style capitalism must turn not on its transient ability to generate macroeconomic growth, but on its sustained ability to generate microeconomic opportunity.
For wealth to invigorate the capitalist system it needs to be “kept in rotation” like the planets around the sun. Philanthropy strengthens American-style capitalism in two ways. The first is that philanthropy, when targeted to universities, research and other productive uses, lays the groundwork for new cycles of innovation and enterprise. The second way philanthropy strengthens capitalism is that philanthropy – like creative destruction—provides a mechanism for dismantling the accumulated wealth tied to the past and reinvesting it to strengthen the entrepreneurial potential of the future.
The story of philanthropy in America is the story of the convergence of big money philanthropy and mass giving. From Andrew Carnegie to Bill Gates and from ordinary people who purchased Christmas seals to fight tuberculosis and polio the nation has come to, “view philanthropy as both a quintessential part of being American and another means of achieving major objectives. Foundations originating in large private fortunes have collaborated with institutions of mass philanthropy to promoting scientific research, supporting education institutions, and fighting for human rights” according to Zunz.
Historically, philanthropy has been loyal to the institutions of American capitalism. They have invested fortunes in schools, universities, libraries, and research centers. The strength of American-style capitalism depends on the health of these institutions and on their ability to produce new ideas and train new workers for the marketplace.
Philanthropy has long been a powerful force for social change, often viewed as moving in parallel track with capitalism. Yet, it has both emanated from the capitalism system and continually nurtured the system. It is a product of capitalism—another way in which industrialists have sought to shape American society and values.
Of course, the ‘American dream’ itself, is under attack today and we wonder how philanthropy fits into this picture. It is easy to point out that income inequality and persistent poverty in inner cities and rural areas has resulted from a heartless and individualistic system of capitalism, but this ignores the extent to which American capitalism has stayed true to opportunity creation throughout much of its history. Relatedly, the start-up rate of new firms and new ideas provides evidence of opportunity for upstarts and underdogs.
Why does philanthropy matter I ask? Philanthropy is the invisible, underappreciated force for progress in American-style capitalism. It provides an extra gear that propels capitalism into overdrive. It is what gives American-style capitalism a competitive edge in the global economy. Including it giving us a fuller, more realistic picture of capitalism and therefore a better handle on how to govern it.
It is philanthropy, not entrepreneurship, that propels the basic machinery of American-style capitalism. So in addition to well-functioning markets, property rights, contract law, capital markets, and the like, philanthropy—a little understood economic force—provides a super-institutional element that serves to promote vital nonmonetary institutional forces necessary for achieving growth through technological innovation promoting economic equality, and cultivating economic security.
Philanthropy, when targeted to universities, research, and other productive uses, lays the groundwork for new cycles of innovation and enterprise. Take the Rockefeller Foundation, for example, which is funded by the oil fortune made by John D. Rockefeller in the late nineteenth century. He founded some of America’s great research Universities, such as the University of Chicago (winner of scores of Nobel Prizes over the years), the Rockefeller University (a medical research center), the Brookings Institution (a nonpartisan policy research institute) and the National Bureau of Economics (NBER).
This feedback loop has helped America fulfill its dual obligation to create both wealth and opportunity—the critical balancing act that determines the true strength of a civilization.
Posted: 25 March 2014
This is an abridged version of an article that originally appeared in the Spring 2014 issue of Philanthropy Impact Magazine. For the full article see ‘The Great Seesaw of Civilisation’