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Pablo Eisenberg: Unintended Consequences of Giving Pledge’s Good Intentions

By Pablo Eisenberg on January 11, 20117 Comments

Surveys and research have indicated that very wealthy donors, those giving over $1 million a year, donate almost all their money to universities and colleges, hospitals and medical schools, and museums and art institutions. Only a tiny fraction of their money is channeled to low-income oriented nonprofits, grassroots organizations, local social service groups or advocacy and activist organizations.

Even in tough economic times, when small local human needs groups are being forced to cut their services or go out of business, the pattern of giving by the richest Americans remains unchanged. In fact, many of them have reduced the amount of their charitable giving in the past two years, even to their cherished establishment institutions. We may be the most charitable nation in the world, but not by the standards set by our wealthiest citizens.

So for some of us it was surprising to note the enthusiastic and unquestioning response to the recent announcement that Bill Gates and Warren Buffett were launching an initiative to have billionaires around the world pledge to give more than 50% of their fortunes in their lifetimes to philanthropy. What a wonderful thing to do, crowed many foundation and charity leaders. It would spur an immediate outpouring of new resources to a financially starved nonprofit sector, they said, encouraging new commitments from their wealthy friends and admirers.

The media, which has always treated the Gates’, Buffett, Soros and other billionaire philanthropists with kid gloves, never thought to ask about what this new money would support, or how it would do so. The substance of the issue was lost on reporters and commentators who could only focus on the new dollars that might pour into nonprofit cash registers. They never questioned whether the prospective, phenomenal growth of mega foundations, some possibly larger than Gates, might be a dangerous development for American democracy. They never asked whether these new funds would be publicly accountable, or merely managed, as with the Gates Foundation, by two or three family members, without any public discussion or political process.

Nor did they note that the over $600 billion in new money projected by the pledges in the next decade would be, with few exceptions such as Buffett’s money, lodged in endowments that would only pay out about 5% of the principal every years, although their donors could receive an upfront tax deduction for the entire amount of their contributions. At a time when we are not collecting sufficient taxes to pay for the cost of essential federal programs, this is a huge amound of money to divert from our tax base.

But their most significant omission was the failure to recognize that the pledges, which now number over sixty, might have serious unintended consequences for our neediest populations and the nonprofit sector.

There is no reason to believe that our billionaires will change the way they conduct their philanthropy when they begin to implement their pledges. That means that almost all of their new money will go to higher education, hospitals, medical schools, museums and arts institutions…the largest nonprofits in the sector. Few or no funds will be targeted to poor and disadvantaged constituencies, those people who need it most. Moreover, little or no money will flow to local social service agencies or to small nonprofits.

There is already a wide financial disparity between large and small nonprofits and between those institutions that serve disadvantaged populations and those that cater to more established constituencies. The pledges will invariably increase that gap, broadening the inequities in our nonprofit and charitable system. With the increasing contraction of federal and state safety net and social service programs, future philanthropic efforts are likely not to mitigate the federal government’s abdication of its responsibilities for the neediest in our society but rather to accelerate this development.

This is not the effect that either the Gateses or Buffett wanted for their well intended initiative. There is still time for them to repair some of the expected damage. They could strongly propose that their wealthy colleagues who take the pledge target a portion of their money — say a minimum of 25% to 50%  — for disadvantaged groups and their nonprofit organizations. And they should publicly recognize that the failure to alter past patterns of giving by their “pledgees” will result in a civil society less vital and fair than it has been in the past.

There are two sad lessons in this affair. First, we need media and reporters who are willing to ask tough questions and not genuflect before wealth and power. Two, new ideas and programs should undergo thorough exploration and testing before being launched publicly. The giving pledge, sadly, was not subject to either of these screens.

Pablo Eisenberg is Senior Fellow at the Georgetown Public Policy Institute’s Center for Public & Nonprofit Leadership. Eisenberg served for 23 years as Executive Director of the Center for Community Change, a national technical assistance and advocacy organization working with low-income constituencies nationwide. He has actively contributed to national discourse on government accountability and reform, the role of philanthropy, and the achievements and problems of the nonprofit sector. Eisenberg has published numerous articles and chapters of books and has a regular monthly column in The Chronicle of Philanthropy. He has held senior positions with the U.S. Information Agency in Africa, Operation Crossroads Africa, Office for Economic Opportunity, and the National Urban Coalition. He is a founder and Vice-Chair of the National Committee for Responsive Philanthropy and President of Friends of VISTA.

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7 Comments »

  • [...] This post was mentioned on Twitter by Tom Watson. Tom Watson said: Pablo Eisenberg: Unintended Consequences of Giving Pledge’s Good Intentions http://bit.ly/gzKtug from @onPhilanthropy [...]

  • Your point is important – most high-end philanthropy indeed has historically gone to large, established institutions or been buried in endowments. But are there reasons to believe that philanthropy in the 21st century can be different? Gates, for example, actually represents a departure from the business-as-usual giving scenario: Unlike most other large private foundations, Gates doesn’t spread it billions across hundreds of causes. Instead it focuses on a few strategic priorities, such as saving lives in the poorest countries through global health programs and reforming U.S. public schools. There are other prime examples of donors taking on neglected causes – Siebel Systems founder and billionaire, Tom Siebel, successfully cracked down on teen meth abuse and its tragic consequences in Montana (his full story and others can be found in the article “Catalytic Philanthropy” by FSG cofounder Mark Kramer in Stanford Social Innovation Review). These and other high net worth players are using their money—and also their time and minds—to tackle tough issues affecting very vulnerable populations. How can we encourage other ultra-wealthy folk who sign on to the Giving Pledge to follow in Gates’ footsteps and take a problem-solving approach to their philanthropy?

  • sara says:

    While I appreciate your article, I think it is presumptuous to assume where these dollars are going to be given. The very definition of a democracy allows individuals to give to who they want, when they want and how they want. It would defy our country’s principals to tell these individuals how they must give their money away. How easy it is to be critical of wealthy Americans when they don’t give their money to whom you want them to give.

  • [...] 12, 2011 The Georgetown Public Policy Institute’s Pablo Eisenberg argues that journalists have failed to look critically at the Gates and Buffett-inspired Giving Pledge and its potential unintended consequences, which he [...]

  • [...] a leading expert on public policy and philanthropy at Georgetown University. In an op-ed for On Philanthropy, Eisenberg specifically lists three things wrong with this [...]

  • Joe Cerrell says:

    The only “sadness” here is Pablo’s intense cynicism, old school mentality, and lack of imagination in appreciating how the cultivation of a new generation of philanthropists (including an influx of some $150 billion by some estimates) could help make a real difference in tackling some of society’s greatest ills.

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