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Economics and the Presence of Philanthropy

By Tom Watson on October 10, 2007No Comment

Economics and the Presence of Philanthropy by John Bloom

Imagine, if you would, what our world would be like without the presence of philanthropy. Certainly, we would continue to produce and consume. We would continue to save or invest any surplus generated out of basic economic activity. Likely, investments would continue to grow and be reinvested. The “economy” could continue to grow. At the same time, organizations that depend upon gift support and volunteer time would suffer unless they became somehow profitable. Any activity or service—such as education, research, and the arts—whose purpose or end is other than producing a profit would basically be headed for extinction. The conventional economist might acknowledge the social consequences of this, but register no economic ones. This is why it should come as no surprise that philanthropy, the art and science of giving, is not to be found in classic economics text books.

As one of the primary means of support for education or any field connected with renewing the human spirit, philanthropists know that philanthropically-funded activities actually have a very important place in the economic cycle, from a social as well as economic standpoint. Philanthropic gifts are generative in nature. That is, without charitable gifts there would be no economic activity at all. Proof: In the history of mankind, gifting processes notably preceded all other forms of economic trade transactions and monetary systems. Cultures have found ways to meet all the basic human needs without any monetary systems at all. In addition to physical needs such as food and shelter, these economies valued the non-commodity aspects that conventional economics cannot fathom, like caring and learning, imagining, inspiring. Yet these are the very things that really matter most to us day-to-day. Such intangibles fall outside the quantifiable world of modern social science. They are nice but not economic. Rather, it has been left to philanthropy, which is primarily motivated by these intangibles, to make whole the fragmented and generally inhuman picture of economics. Given this encompassing perspective, I would posit that gifting is the most important and productive component of the economic system.

In the world of risk and return, a gift is 100% risk while the returns on the gift are immeasurable, so rich are they in the experiential and qualitative aspects of life, so laden with potential for the future. The fascinating thing is that charitable activities are actually structured to consume, even burn up, excess capital. Through this transformative process, they produce new human capacity (education), new insights and breakthroughs (research), and cultural innovation (the arts), all of which often lead to economic renewal. It should come as no surprise that these three areas (and there are others of course) are primarily supported by gifts and taxation, a form of mandatory gifts.

Philanthropists know that accumulated capital is the most vital source of gifting. Money “ages,” becomes more disconnected from human initiative as it accumulates. As soon as that money is given away it leaves the sphere of investment and is given new economic life by being used for purchase to accomplish a charitable mission by the recipient. Thus the linkage is established between the generation of surplus capital and the renewal of that capital through philanthropy. The logic here is one of functional integration rather than cause and effect. Historically, philanthropy is something you are privileged to do because of your financial success. This may be considered something of the Nineteenth Century industrial model. But that too is shifting. More corporations and individuals are structuring their philanthropy as part of their present financial activity rather than putting it off pending the results of a career. For example, the dramatic increase in young people’s interest in philanthropic activity is a result of activism and engagement; they want to make a difference with their lives now rather than viewing the accumulation of resources as a measure of accomplishment. This sense of social responsibility and integration is but one reflection of a much larger, though just now barely visible, sea change in the emerging field of social finance.

Social finance holds that the purpose of money and finance is to support human initiative and to foster the evolution of new community. Social finance recognizes that in the context of a global economy, we are fully interdependent. It is no longer possible to stand outside this reality, regardless of political boundaries, accumulated wealth, or dire poverty. Social finance recognizes the human and environmental consequences of economic activities. In this paradigm, for example, socially responsible businesses are capable of bringing about needed changes in our culture through fair labor practices and the charitable distribution of a portion of profits. This is just one emergent approach in which gifting is integral to the whole economic cycle. It presents a picture of a healthier sustainable future—and one which leaves behind the industrialist model of philanthropy that lives so strongly in the mythology of American history.

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