By Koh Okuno
The 2020 March to July lockdown was a period of cash handouts for much of the advanced economies. The initial economic impact prompted many businessmen and celebrities to donate to causes worsened by the Coronavirus pandemic. Later, when the murder of George Floyd sparked the insurgence of BLM, the world’s biggest corporations began to donate to BLM in order to “combat” racial equality. From Mcdonalds, to Nike, Warby Parker, and Toms shoes; the list was endless.
Most of the media coverage on these “altruistic” acts by these corporations and multimillionaires have been positive. Even the New York Times praised them for committing such vast amounts to social justice and inspiring others to donate. But looking at modern philanthropy from a more holistic perspective, it is less of a selfless act than it seems to be.
This isn’t to say that philanthropy has been ineffective. Take the epitome of philanthropy right now; Bill and Melinda Gates and their partner Warren Buffett. According to the Bill and Melinda Gates Foundation, these three have donated over $66 billion from their company stocks to the Bill and Melinda Gates Foundation (BMGF), which, since its inception in 2000, has spent over $50 billion in grant payments on issues such as agricultural development, gender equality, education, economic policy, and particularly health. The foundation has been a key player in the fight against infectious diseases through the Global Alliance for Vaccinations and Immunizations (GAVI), established in 2000. Since then, the WHO estimates that GAVI has vaccinated roughly 760 million children and prevented the death of 13 million people through 67 campaigns.
However, much of the criticism of philanthropy doesn’t lie with what it achieves (or does not achieve), but with its source and the context under which it is done.
The Social Cost of Wealth
Before examining the faults of lavish philanthropy, we must understand the social cost pay for the charity-giving elite. In 2018, some of the most prominent economists of our time published The World Inequality Report that revealed a disturbing modern history of the global income distribution. The report analyzed the progression of global income inequality from 1980 to 2016 based on administrative data, mostly income tax records. The study found that the global top 1% has experienced the greatest increase in real income capturing 27% of the total income growth while the bottom 50% has captured 12% of that.
Another way to look at this is through the income share of the top 10% of various regions that have risen steadily, except in the Middle East, Brazil, and Sub-Saharan africa.
This trend of increasing income inequality is critical evidence that governments around the world have failed in redistributing income and wealth in a more equitable manner, which has inadvertently boosted philanthropy by the wealthy. Why have governments failed?
The answer is complex, but one clear reason is the increasing digital dependence of our economy, most of which is owned by billionaires. This year is a prime case study of the phenomenon due to the unforeseen shift to online formats that many sectors have experienced.. According to a report by UBS, a Swiss Bank, billionaires saw their wealth increase by 27.5% from roughly $8 trillion to $10.2 trillion between the April to July, this year. All the while, unemployment has soared to double digits across the world and more than $3.5 trillion has been knocked off from worker’s income due to the lockdown.
Therefore, its ironic that these billionaires, who stand elevated from the unjust distribution of wealth, try to “solve” socioeconomic and climate issues with money that have seeded such problems.
The Financial Incentives of Giving
The second issue that lies with philanthropy is the legal manner in which it is conducted, particularly in the US. The first thing to know about large donations is that philanthropists can actually benefit from them through the tax deductions (in taxable income) that they can subsequently claim.
Unsurprisingly, regulations on donations in the US are extremely loose. According to the IRS, donors can deduct up to 30% on your adjusted gross income through donating assets (50% if you are donating cash). Oftentimes, for the ultra-wealthy, these donations come in the form of stocks which means the philanthropists can also avoid capital gain taxes (taxes imposed on assets that have increased in their value).
But beyond tax deductions, it’s important to know the common channel through which donations are made: donor-advised funds (DAFs). They are, in essence, savings accounts at a charitable organization to which one can donate to. They are beneficial for philanthropists in four main ways.
- The donor can claim the tax deductions when they transfer cash/assets to their DAFs at the charitable organization instead of when it is actually donated.
- The donor has the right to advise the fund on where their assets should be donated to and when it should be liquidated.
- The donor is not required by law to donate from their DAFs. So theoretically, donors never have to actually donate.
- The donor’s identity or donation amounts does not have to be disclosed by the charitable organization.
Offering such extensive freedom over philanthropy, DAFs have become increasingly popular among donors. According to the National Philanthropic Trust’s Donor-Advised Fund Report, the number of DAFs increased by 55% to almost 730,000 total accounts in 2018 and annual contributions to DAFs increased by 20.1% to $37.12 billion that same year.
On the other hand, the case of the EU is more encouraging. The EU has a generally superior social security system funded by a stringent taxation system. This in turn leaves a more limited need for philanthropy.
According to the European Funding Association, there are no giving-channels like DAFs in the EU. All member states have their own unique tax incentives for individual charitable giving, usually capped at a more conservative 10-20% deduction on your adjusted gross income. Furthermore, unlike the US, most of the western European states require details of the donors and donations to tax authorities to sustain a level of transparency. (Unfortunately, the Netherlands is similar to the US in regards to financial transparency).
The Inconspicuous Puncture to Democracy
Yet, to me, the most consequential issue of large-scale philanthropy lies within its threat to democracy. This becomes easier to see when you detach the altruistic element to philanthropy and examine it from an investment perspective. What you will find then is a group of plutocrats investing their immense wealth based on their private agendas without government-regulated accountability to direct the world as they please.
Although the private agenda is often aligned with the public agenda, this is not always the case. We probably won’t scrutinize Bill Gates for donating billions to fund the distribution of even more vaccines to millions of children in the world via the GAVI initiative, because that seems to align with our agenda. But can we confidently say the same thing about initiatives that are not so clear cut?
Take for example, the Wellcome Trust, funded by GlaxoSmithKline’s pharmaceutical profits, which is initiating research on genetic analysis to predict future individual health problems. Or, take Mark Zuckerberg’s CZI research into the cure for affluent diseases. Given that such services will initially only be available to the affluent, what will become of the world’s already horrendous income inequality?
Plutocracy is inherently undemocratic. What are we doing praising those who “give back” while it is just another way for them to govern our world?
Featured collage by Emma Kappeyne van de Copello