January 29, 2009 | Read Time: 5 minutes
As the Obama administration gets to work, the philanthropic world may be hoping for a more supportive relationship than it has enjoyed in recent years, when legislators have questioned how it was spending its resources and even whether some organizations deserved to be tax exempt. But with government outlays already rising rapidly to deal with the nation’s economic crisis, nonprofit leaders also need to be concerned that as government officials search for additional money to keep the federal deficit in check, they may look to foundations and other charities for help.
That possibility has led to the formation of a new interest group, the Philanthropic Collaborative, whose membership includes well-known nonprofit organizations and government officeholders. Its first report, “The Social and Economic Value of Private and Community Foundations” (The Chronicle, December 11, 2008) makes the case that philanthropy returns direct and indirect economic benefits worth many times the dollars it spends.
The implication, which drew wide news-media coverage, is that Congress should be wary about making changes in tax and other laws that would restrict what grant makers are accomplishing.
However, the analysis buttressing this conclusion is weak. In any case, philanthropy’s value goes far beyond its social and economic benefits, and its defenders ought to be more forthright about saying so.
The Philanthropic Collaborative’s study starts by examining how much of the estimated $42.9-billion foundations granted in 2007 went to each of 11 causes, such as the arts, education, and health care.
It then reviewed research on the benefits of spending on certain programs and extrapolated the findings to produce an “estimated return on investment” ranging from $1 to $22 for each dollar expended, depending on the cause. This procedure led to an average of $8.58 in direct benefits over all 11 causes, or $368-billion in value for the $42.9-billion in foundation support.
A similar method was used to estimate the indirect contributions of foundation giving, such as increased earnings and the taxes paid on them.
Using figures derived from an analysis of the economic impact of arts and cultural organizations and adjusting for different levels of employment in the other fields, the study concluded that foundation spending “substantially accounted for” $511.9-billion in additional household income and $145.4-billion in extra federal, state, and local revenues in 2007.
Those are impressive figures, but unfortunately, they are not very credible. Neither the direct nor the indirect benefits the report calculates can be specifically attributed to foundation spending. Instead, those are estimates of the benefits provided by organizations that work on causes that attract private and community foundations.
Especially since such grants frequently pay for particular programs or activities, they may have been more or less beneficial than the average “return” for each cause.
Moreover, the estimates of these “returns” are highly questionable. Many of the studies the Philanthropic Collaborative used were conducted by organizations that promote increased spending on their causes, such as Americans for the Arts, which sponsored the analysis of the economic impact of arts and cultural groups.
The more independent and carefully controlled evaluations the study relied on — for example, the Perry Preschool Project, an effort begun in Ypsilanti, Mich., in 1962 and tracked over several decades — may not be typical of what nonprofit groups in education or other causes do, let alone what foundations support.
Indeed, some of the claims made for the value of foundation spending are simply implausible.
Thus, based on the economic impact of arts and cultural groups, the study finds that at least nine million jobs at charitable organizations in 2007 could be “linked to the activities of private and community foundations.” That would mean foundation grants were tied to most of the employment at American charities, even though, at $42.9-billion, they amounted to less than 5 percent of total revenue for the nation’s nonprofit organizations.
In fact, the bulk of jobs in the nonprofit world are in health care and education, two fields that depend far more on fees for services and donations from individuals than on grants.
Such transparent exaggerations hardly help philanthropy.
But even worse, they make as good an argument for more government support of nonprofit organizations as for foundation help.
According to the kind of cost-benefit analysis presented by the Philanthropic Collaborative, what really matters is how much is spent on education, health, and the other causes, not where it comes from.
Unless government investments were less productive (a claim the study does not make, since many of the programs on which its estimates are based receive substantial government money), more federal and state resources for the sorts of programs foundations support would be expected to produce the same sorts of “returns.”
Yet, philanthropy is not just government with less money. Its real importance rests on its ability to do what other institutions — particularly government — will not or cannot accomplish.
Philanthropy is less about producing sizable “returns on investment” than it is about expressing different and even competing ideas of what is beneficial. It is also the way people help others — including by giving to causes that few besides themselves may regard as worthwhile.
Measuring philanthropy by the economic benefits of what it supports not only undercuts the case for it, but also overlooks its most distinctive features.
Especially in a time of growing budgetary pressures, legislators and other government officials may care more about the possibility of obtaining additional resources than the differences between government and philanthropy.
But making those distinctions is crucial for advocates of philanthropy, if they wish to protect what is most valuable about it.
Leslie Lenkowsky is a professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.
