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Why We Are Not As Boring As We Make Ourselves Out To Be

By Susan U. Raymond on June 27, 2007No Comment

An Analysis of GivingUSA Philanthropy Numbers

Why We Are Not As Boring As We Make Ourselves Out To Be
By Susan Raymond, Ph.D., 6/27/07

This week, Giving USA Foundation released its 2007 report on philanthropy in America.  The bottom line appears to be that, relative to 2005, giving in 2006 was stable in inflation adjusted terms, but up 4.2% if 2005 disasters are netted out (fairness aside, since one would need to do that for all disaster years if comparisons would be accurate, this does not seem all that striking since year-over-year rates of growth have exceeded 4% in 5 of the last ten years anyway).

Ho hum.  So, moving right along, how is Paris Hilton doing?

But wait.  Rewind for a second.  The picture is actually a bit more interesting.  There are two points to be made.

First, analyses of philanthropy are like analyses of the stock market.  What matters is not a day-to-day trend, or even a year-over-year trend.  Philanthropy (absent 9/11 and the tsunami, which are really not measures of philanthropy as a cultural or civic phenomenon) is simply not volatile enough to be analyzed on a year-over-year basis.  Philanthropy as an economic matter is (and has long been) between 1.8 and 2.1 percent of the economy.  It grows because the economy grows, not because people have a greater propensity to be philanthropic.

What matters is the multi-year trend.  So, let’s go back a decade.  Change then becomes clearer.

In terms of where the money comes from, the change is robustly in the direction of private foundations.  A decade ago they represented 8.5% of philanthropic dollars (two decades ago, 7%). Today they represent 12.4%.  Yes, individuals are still the primary engine of philanthropy, but the trend line is toward structured giving.  Structured is the operative word.  And that means that, in fact, the accountability, management, and evidentiary demands on nonprofits are significantly greater today than they have been in the past.

In terms of where the money goes, change is also robust.  Examined longitudinally, the price of nonprofit sector diversification has been paid by religion.  Today, 33% of philanthropic dollars flow to religion; a decade ago that was nearly 40% and two decades ago 53%.  (Of course, because religious organizations do not need to report, we really do not know what the numbers are, but let us assume that the degree to which we do not know has not changed.)  On the other hand, international affairs has more than tripled its share of the philanthropic pie.

Moreover, while it is true that human services as a category declined in its philanthropic take from 2005 to 2006, let us not hang the crepe too quickly.  Human services organizations have increased their overall share of the philanthropic pie from 7.8% a decade ago to 10% today.  Furthermore, private contributions account for only 14% of the revenue of the human services sector, which is overwhelmingly funded by program services revenues (public and private).  Hence, a 9% decline in private contributions should be taken in context.

It can be argued that none of these changes compete with Paris Hilton.  Perhaps not.  But they are certainly important for the business of nonprofit finance.

However, the real flaw in reaching any conclusions at all about funding trends on the societal commons comes not simply from failing to understand the correct time-dimension of the analysis, but from failing to recognize that the definition of “philanthropy” has changed.

Let us briefly take two examples.  International affairs giving is about $11 billion, of which about 74% is for international development.  Within international development about 60% is for the combination of health and international relief.  That yields about $5 billion.  Some part of that $5 billion is for vaccines for impoverished nations.  Let’s be generous and call it a third ($1.6 billion), clearly an overestimate given the sectoral diversity of international development.  This is how we have defined “philanthropy.”  Earlier this year, the International Finance Facility for Immunisation was formed to increase vaccine purchases for the impoverished.  This facility is being funded by a Goldman Sachs designed bond issue, backed by the commitments of sovereign states. Yes, a bond issue.  This year, using the bond issue, the global vaccine initiative expects to forward purchase nearly $1 billion in vaccines for the poor; over a third of the bond holders will be U.S. institutions.  This will be seven times the annual procurement level of the global vaccine initiative prior to this year.  Philanthropy as a solution to immunization of the impoverished is being overshadowed by creative financing.  This is not “philanthropy” as defined by Giving USA, but it is surely the evolution of philanthropy as social finance.

Let us take one more example to make the point.  Between 2004 and 2005, the rate of increase of microfinance clients exceeded the rate of growth of microfinance institutions.  Microfinance is coming of age.  Certainly, some of that growth is attributable to the traditional definition of philanthropy.  We do not know how much, since, as in many areas, Giving USA (lamentably) does not provide sufficient granularity to actually see beneath the forest canopy.  What we do know is that microfinance, whose beneficiaries use the resources to do things like send their children to school, has become a part of the larger finance industry.  ShoreCap International is an affiliate of Shore Bank.  It is an international private equity firm that invests in microfinance institutions in places like Mongolia and Afghanistan.  Its average return on assets is 23% and its average return on equity is 18%.  So, this is not “philanthropy” in any traditional definition, but it is social finance that accomplishes the same end.

The list can go on.  Weather insurance for farmers in famine zones, taxes on airline tickets to fund HIV/AIDS therapies, carbon-trading to fund programs on Indian reservations, $1.3 billion in cause-related marketing.  None of this is “counted” in Giving USA, but it is as much a part of the societal commons as traditional definitions of philanthropy.  In fact, it is probably more important than traditional definitions of philanthropy in understanding the future of the nonprofit sector.

Perhaps it is just me, but I find Paris Hilton boring in comparison.

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