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 Eric Franklin Amarante, University of Tennessee College of Law – Philanthrocapialism: Exacerbating the Antidemocratic, Paternalistic, and Amateuristic Nature of Philanthropy  

With the birth of their daughter, Mark Zuckerberg and Dr. Priscilla Chan announced a pledge of $45 billion to philanthropic efforts. Somewhat surprisingly, this declaration was met with more skepticism than praise. Almost immediately, the news drew accusations that it was merely a tax-avoidance scheme or that it amounted to nothing more than the couple donating money to themselves. Most of the criticism concerned the decision to organize the endeavor as a for-profit limited liability company, rather than the more traditional tax-exempt private foundation. Despite the tax benefits of private foundations, Zuckerberg and Chan were attracted to the fact that LLCs may freely engage in political activity, fund any type of entity, and participate in policy debates.

This begs the question: why should we care how they decide to engage in charity? The $45 billion is, after all, their money. Does the public have any legitimate interest in how they spend it?

The reason the public does (and should) care, is that the decision presents troubling questions about the role of philanthropy in our society and the consequences of philanthropists using for-profit vehicles to engage in charitable work. There is a long-held and healthy suspicion of philanthropy generally, the reasons for which are exacerbated when philanthropy is carried out through a for-profit vehicle. As described below, philanthropy is antidemocratic, paternalistic, and amateuristic.

By definition, philanthropy is undemocratic. This is why, over a century ago, Jane Addams lambasted the mere existence of philanthropy, noting the lack of democracy when a small cadre of the very rich wield their wealth without the input of the beneficiaries.[1] More recently, Dr. Susan Ostrander bemoaned the emergence of donor-centered philanthropy for similar reasons, noting that a focus on the desires of the donor makes it less likely that philanthropic efforts are consistent with public needs.[2] The antidemocratic nature of philanthropy has long been a concern of social scientists and critics of the nonprofit sector.

Philanthropy is also paternalistic. Dr. Lester Salamon sums up the paternalistic nature of philanthropy by noting that the “nature of the [charitable] sector … comes to be shaped by the preferences not of the community as a whole, but of its wealthiest members.”[3] No matter how well-intentioned, the very structure of philanthropy leads to the promotion of the desires of a select number of wealthy individuals. Sometimes the result is obvious, as with the promotion of museums and ballets, and sometimes it is less blatant, as with promotion of job training in fields chosen by the benefactor (as opposed to jobs in fields desired by the charitable recipients).

Finally, philanthropy is amateuristic. This is inherent in the fact that philanthropy invites individuals to address some of the world’s most complex and intransigent problems simply because the person successfully amassed a fortune. Logically, there is no basis to think that just because a person is rich, they can determine the best means for addressing the needs of the less fortunate. However, this belief has deep roots in American culture, and pervades modern philanthropic efforts.

This article will examine each of these critiques of philanthropy and discuss how they are curbed, if not cured, by restrictions placed on private foundations. The regulatory mechanisms governing private foundations ensure that the entities actually engage in publicly-blessed charitable activity, require numerous disclosures to increase accountability, and restrict certain political and lobbying activities. Although these mechanisms do not eliminate the negatives of philanthropy, they do limit their negative effect.

Given the costs of philanthropy, the hope is that the mechanisms regulating private foundations result in a palatable balance between philanthropy’s negative and positive aspects. However, the recent trend of conducting charity through for-profit vehicles throws that balance off. The regulatory bulwarks designed to encourage the positive aspects of philanthropy do not exist in the for-profit realm. As such, philanthropy conducted through for-profit vehicles encourages entities to engage in matters of public concern free from meaningful regulation and limitations.

[1] Jane Addams, Democracy and Social Ethics (1902).

[2] Susan Ostrander, The Growth of Donor Control: Revisiting the Social Relations of Philanthropy, 36 Nonprofit and Voluntary Sector Quarterly 356, 358 (June 2007).

[3] Lester Salamon, Of Market Failure, Voluntary Failure, and Third-Party Government: Toward a Theory of Government-Nonprofit Relations in the Modern Welfare State, Partners in Public Service, Partners in Public Service (33-49), Johns Hopkins University Press.