The Magazine

Rich Rewards

He who pays the piper is getting his money's worth.

Mar 23, 2009, Vol. 14, No. 26 • By MARTIN MORSE WOOSTER
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For most of the 20th century, the big foundations operated on the premise that the best donors were those who would say little or nothing about how their wealth should be used. A magazine editor once impiously argued that the writers he liked were those who turned in their articles and then were hit by trucks. The heads of America's large philanthropies have treated their founders with the same disrespect.

In the past decade, donors have been fighting back, demanding far more of a say in how their wealth is used than their predecessors did. Matthew Bishop and Michael Green call this phenomenon "philanthrocapitalism," and this is a look at what today's donors are doing with the capital they have created.

Bishop, New York bureau chief for the Economist, and freelancer Green have done quite a lot of work. In their source notes they say they have interviewed 68 philanthropists, including "Bill Gates, Ted Turner, George Soros, Bono, Pierre Omidyar, Jeff Skoll, Sir Richard Branson, Angelina Jolie, Michael Bloomberg, David Rockefeller." The interview with Gates, in particular, appears to be extensive. They also cite a mountain of books and monographs--including, I must point out, two of my own books about philanthropy.

Philanthrocapitalism is an interesting look at how donors view the nonprofit world, but it has two substantial limitations. The first is that Bishop and Green report on what people talk about at "the elite global gatherings where philanthrocapitalists rub shoulders with politicians and other influential folks." But by viewing the charitable world from its commanding heights--the World Economic Forum in Davos, the Clinton Global Initiative, the Technology, Entertainment, and Design conference in Silicon Valley--they ignore the wider world where the grants are spent. The result is that we learn a great deal about what donors want to use their money for but very little about whether these gifts actually make the world better.

Second, Bishop and Green choose not to write about the older foundations. These older nonprofits remain calcified, stagnant agencies that employ reflexively liberal program officers. The authors correctly note that "the root cause of the ineffectiveness of many established foundations is that the donor is no longer around." But these older foundations--Ford, MacArthur, Kellogg--are still among America's largest, and to ignore them gives readers a distorted look at the nonprofit world.

Bishop and Green note three ways in which today's "philanthrocapitalists" differ from their predecessors. First, they tend to limit the number of causes they support. The older foundations, given no restrictions by their founders, tend to be organizations that give many small grants to nonprofits in the hope that a few of the grants might be effective. But this "spray and pray" technique has resulted in many nonprofits' remaining small organizations that scramble from grant to grant, and have no chance to grow. Thomas Tierney, who heads the philanthropic consulting firm Bridgespan, asks the authors: "How many social problems can be solved with $50,000? Over 18 months? Not many."

Today's donors have learned valuable lessons from the great conservative donors John M. Olin and Richard Mellon Scaife, who found that it is more effective to give large sums to a few organizations for a long period of time than to give small sums to many groups for short periods.

The philanthrocapitalists, even when they disagree with Olin or Scaife's politics, are following their example. Thus the giant Gates Foundation majors in public health and minors in school reform. Other donors have even more limited goals. Mo Ibrahim, a Sudanese telecommunications billionaire, has used his wealth to fund the Mo Ibrahim Prize for Achievement in African Leadership, which gives
$5 million and a $200,000 annual pension to any African leader who voluntarily leaves office when his term is up and who doesn't loot his country's treasury. The goal of the prize is to persuade African leaders to be more responsible than their predecessors.

Another goal of the donors surveyed here is to dim the bright line between for-profit and nonprofit enterprises. One problem nonprofits have is that, because they can't accumulate profits, they're unable to acquire the capital needed to ensure stable, steady growth.

So many charities created in the past decade aren't nonprofits but have mutated into something else.
Google.org, the philanthropic arm of Google, is deliberately designed so that sometimes it will act like a foundation in funding nonprofits and sometimes it will act like a venture capitalist in giving seed money to start-ups. Another hybrid is the Omidyar Network, created by eBay cofounder Pierre Omidyar, which melds a venture capital firm and a nonprofit. Omidyar says that he has created this form of giving because he is "pro-market, anti-big government, skeptical of traditional philanthropy."

And some people who would have run nonprofits in the past have decided that the market is the best way to help the poor. Bishop and Green report on the case of the Mexican social entrepreneurs Carlos Danel and Carlos Labarthe who wanted to help the poor of Mexico by providing small loans. Their nonprofit struggled until they reorganized it as a more traditional bank. Today, Compartamos Banco is a thriving bank which aids far more poor people than it would have as a cash-starved nonprofit.

While these innovative gestures toward the market by nonprofits should be encouraged, a more discouraging trend is the move by today's philanthropists towards left-wing political activism. While George Soros is the best-known example of this breed, Bishop and Green cite other examples as well. New York's mayor Michael Bloomberg has not only banned smoking but, as a philanthropist, has lavishly funded antismoking lobbyists around the world. The hard-core leftists Marion and Herbert Sandler have created ProPublica, which will provide "nonpartisan" investigative journalism to newspapers and magazines. ("It remains to be seen," Bishop and Green write, "if ProPublica will produce investigative pieces about the Democratic party, to which the Sandlers have been substantial donors.")

Of course, billionaires should be able to spend their money as they see fit. But wouldn't it be nice if someone pointed out to these liberal titans that spending large sums on the culture wars is not only a poor way to achieve the changes they desire, but could provoke their conservative counterparts to open their checkbooks to fund
counterattacks?

Martin Morse Wooster is a senior fellow at
the Capital Research Center and the author, most recently, of The Great Philanthropists and the Problem of 'Donor Intent.'