Very Rich Philanthrocapitalist Frauds

When I recently blogged about the New Statesman's critique of "philanthrocapitalism", one thing I didn't address - but should have - was fraud.

Based on studies published in the Nonprofit and Voluntary Sector Quarterly, a NY Times article recently reported that fraud and embezzlement in the non-profit sector account for roughly $40 billion a year or around 13% of all philanthropic giving.

This is a gigantic number. Church-related organizations, government nonprofits, $25 million from Goodwill in Santa Clara County, all of them seem to be teeming with fraud.

The most costly cases, the study found, involved male executives earning $100,000 to $149,000 a year. In these examples the executives had generally been with the organization the longest. Perhaps the greatest reason why this is not being talked about more openly and publicly is the reason that one accounting professor gave,

'This has been going on for years, but there’s a feeling that it shouldn’t be discussed,' because of the effect it might have on donations.

Is this a case against philanthropic giving? Not necessarily. It certainly makes giving feel less secure, even though total U.S. giving is nationally on the rise. The original study, of course, lumped government and non-government "nonprofits" together, making it difficult to distinguish which forms of giving are more sound.

The Very Rich Philanthrocapitalists (VRPCs) donate large sums of their income to charities and foundations, which in turn are being appropriated by accounting frauds on a massive scale. When a private philanthropic foundation becomes a bureaucracy, not a privately-funded public interest organization, the risk of fraud increases. This seems to happen whenever large monetary surpluses are siphoned off to organizations with little or no oversight.

The article that I critiqued in on Saturday expressed disgust whenever philanthropists pay too much attention to the social returns from their giving, as if it were a contest. This study suggests that this expression is ultimately unfounded. With such high risks of fraud, greater accountability to the philanthropists makes more sense.

It is not feasible in my view to attack the intentions of philanthropists, or their social position in society, unless their positions were unjustly obtained. I don't assume, like many seem to, that their positions in society are ipso facto evidence of injustice. There is an important burden that must be met, as I explained in the comment section in Philanthrocapitalism. I do, however, think that the philanthropy sector itself can indeed be scrutinized and attacked for all its deceptive accounting practices and overt breaches of contract.

This study should sound the alarm for Very Rich Philanthrocapitalists, and perhaps everyone should be less careless about what happens with their stocks and flows.

"Philanthrocapitalism"

I want to critique a recent article in the British current affairs magazine, The New Statesman, which rails against what the author is calling philanthrocapitalism or philanthropy 3.0. According the analysis, 21st-century philanthropists take a more "hard-nosed" approach to giving than philanthropists of an earlier era.

"[Philanthropists] behave like investors, allocating their money to maximise 'social return'. So, for example, Gates calculates how much malaria costs in lost GDP and then decides it's worth paying for its eradication."

Gone was the era of simply giving away profits willy nilly and hoping charitable organizations were able to use it wisely, philanthropy 1.0. In our era (regrettably?) 3.0 philanthropists take charge of their donations and work especially hard in order to increase its benefits to society. Are we to assume philanthropy is not justified in making cold calculations and not justified in their desire to maximize social returns? Ostensibly, that is the position of The New Statesman. At any rate the author points out thee distinct problems with philanthrocapitalism:

"[First] philanthrocapitalism legitimises growing inequality, which might be unsustainable politically without greater generosity from the filthy rich. In fact, the rich are not particularly generous; if anything, people on middling or low incomes give proportionately more of their money to charity."

The amelioration of inequality is not an imperative for anyone in particular in the first place. But why are we assuming philanthropy legitimizes rather than ameliorates? If the state had distributed the same amount of wealth to society it would legitimize state power. Second, business owners should be expected to invest more into their enterprise than charity. If they are using a portion of their profits for charitable purposes, investing in their profitable business only compounds the portion to which they are able to make charitable donations.

"Moreover, generosity is subsidised from tax breaks."

Since when did 'tax breaks' become 'subsidies'? The view that the absence of taxation is an "indirect subsidy" presupposes that the burden of justification is on the state if any income or spending left untaxed, rather than having the state justify any taxation in the first place. It is a complete reversal of liberal ideas about the unassumed justification of the state as the ultimate arbiter. The author goes on,

"[Second] philanthropy is often just another form of marketing, designed to strengthen the donors' market dominance and even to tie certain groups into buying their products or services."

Essentially, a portion of consumer income is being donated to charities whenever they purchase these products or services. Yet the author shifts the focus from amelioration of inequalities to the financial benefits for the philanthropist from donating, neglecting to mention that many philanthropists actually enjoy donating and spend a large portion of their time figuring out ways to maximize social returns. The author overtly sidesteps the real effects of philanthropy in order to talk about the philanthropist's "self interest" or "legitimization" of wealth accumulation.

"[Third] why should rich people, who wield enormous economic power, also determine social priorities? As Robert Reich, secretary for labour under President Clinton, has observed, governments used to collect billions from tycoons and then decide democratically what to do with it."

The author reveres low-income earners when they determine social priorities, but not when wealthy business owners do the same. This is a double-standard. To begin with, business owners had the ambition and the right to design goods and services that society valued in the first place. Second, they had the ability to decide where to spend their profits, and if by so doing they addressed issues that were important to them, it should make little difference what their level of income is. They are 'determining social priorities' through the same principle of liberty that anyone else would.

The author says the governments decided what to do with taxed income "democratically" in the past. Yet involuntary wealth distribution is not democratic, it is statist. Once again, the author assumes that philanthropists must justify their wealth before governments need to justify adversely taking possession of it. When philanthropists decide what to do with their income voluntarily, this is the most democratic form of giving. It is not paternalistic. It requires no arbitrary justification.

The author takes what are essentially benefits to social welfare through free enterprise and paints an ugly portrait of them as anti-democratic and manipulative. The author would rather the state have the monopoly on charity, robbing individuals of their own desire to return their wealth to society through ways that would be incredibly authoritarian. It is disappointing to see so many liberals take up such anti-liberal and anti-democratic positions. State monopolies do not diffuse power; they concentrate power within the arbitrary nexus of institutional thievery.