The Magazine

Giving It All Away

Philanthropy and its discontents.

Mar 1, 2004, Vol. 9, No. 24 • By LESLIE LENKOWSKY
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The Greater Good

How Philanthropy Drives the American Economy and Can Save Capitalism

by Claire Gaudiani

Times, 290 pp., $25

AMERICAN PHILANTHROPY has recently found itself in the unusual position of being on the defensive. Organizations on the front-lines of providing assistance to the victims of the terrorist attacks of September 11, such as the American Red Cross, were accused of dispursing the more than $1 billion in contributions too slowly--or even diverting the funds to other uses. Financial and management scandals involving well-known nonprofit groups, such as the United Way and the Nature Conservancy, have raised questions about conflicts of interest and governance. And many grant-making foundations, the "venture capitalists" of the philanthropic world, have come under fire for spending too much money on salaries and other administrative expenses and investing too little in worthy causes.

As a result of all this, the Brookings Institution's Paul C. Light reports, while public confidence in civic institutions generally went up after September 11, it dropped for charitable ones and has stayed lower than it used to be. That may be the reason Claire Gaudiani's new book, "The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism," has won endorsements even from across the political spectrum, including the Heritage Foundation's leader, Edwin Feulner. The former president of Connecticut College, Gaudiani aims to celebrate the achievements of American philanthropy, and, in the first half of her book, she makes a convincing case that American generosity is not just a product of the nation's wealth but also contributes significantly to building it.

Gifts from philanthropists, Gaudiani shows, have enabled Americans from all backgrounds to gain access to fine educations, as well as addressing a host of health and other problems that might have limited poor people's participation in the nation's economy. Donations have helped build the infrastructure of American communities, from housing and hospitals to research parks and cultural centers. Not least important, in Gaudiani's eyes, is the role philanthropists have played in seeding new ideas. Without the support of the Guggenheim family for professional schools and pioneer inventors such as Robert Goddard, she argues, aviation and rocketry in the United States might have grown far more slowly.

Gaudiani overstates her case about philanthropy "saving" capitalism. Will Bill Gates's foundation ever surpass what he did for the economy as an entrepreneur? But she is onto an important point. Indeed, it is the same one Andrew Carnegie made, over a century ago, when he called on his fellow industrialists to be generous in providing opportunities and amenities for their less wealthy fellow citizens in order to preserve the economic system that had produced their fortunes.

Yet, after having praised the contributions philanthropy has made to the health of American society (and especially to upward economic mobility for the poor and minorities), Gaudiani then maintains--throughout the future-looking, second half of her book--that the nation is in dire straits. "Simply put," she writes, "we're losing ground." Using carefully selected statistics, she contends that inequality in income and wealth is increasing, opportunities for getting ahead are declining, and Americans are becoming more dissatisfied and unhappy. Even philanthropy has been coming up short. As a share of personal income, Gaudiani laments, giving is only about where it was thirty years ago.

ALTHOUGH ALL OF THIS is open to argument, it is now part of the conventional wisdom that can be heard at any gathering of foundations or groups representing the nation's large charities. So too is the solution: If government will not "put its money where the need is," philanthropy needs to step up. Gaudiani would like to see what she calls "a generosity revolution," at least a doubling of the amount given today, a figure she justifies by citing estimates of an impending intergenerational transfer of wealth in the trillions of dollars during the next fifty years. She also serves up a laundry list of mostly familiar ideas about how to spend this money, such as by investing in economic development in low-income neighborhoods and encouraging "asset-building" among the poor. Changes in capital gains or estate-tax laws, she adds, should only be considered if their beneficiaries can confidently be expected to put at least "the larger portion" of the proceeds into voluntary donations to those whose "social health is in jeopardy."