Philanthropy Needs a Major Overhaul to Better Serve the Common Good

Philanthropy as we know it now is based on a strange assumption: Let’s develop a hugely costly and divisive system for creating wealth and then hope that those who benefit most will give some back to solve problems that they have helped to cause.

That’s probably the least efficient way possible to tackle social problems—and the reason why it’s time to replace noblesse oblige with citizen-centered philanthropy that helps to revive activism across our society.

In reshaping the process of giving, we must seek to solve the conditions that make philanthropy necessary in the first place, using the wealth of the world to transform it, not simply to ameliorate the symptoms of social problems.

To rebuild this system, some basic principles must guide us.

* Involve as many people as possible so that everyone can share in defining which problems get solved and how.

* Put those who experience society’s problems at the center of the system rather than on the periphery. People who are poor or otherwise marginalized should be the prime movers in identifying where additional resources can help the process of finding and carrying out solutions.

* Make the system as nonbureaucratic as possible, so that resources can be secured without nonprofit groups’ jumping through so many hoops.

* Find ways to direct as many resources as possible to the most difficult and entrenched social problems, since that is where government and business usually fear to tread.

* Strengthen openness, accountability, and education, so that peer and public pressure can encourage innovation without the need for too much government intervention.

Today’s system of philanthropy is not based on any of those ideas, so it should come as no surprise that public opinion is suspicious of msny foundations, which play by their own rules and operate largely outside the realm of accountability.

As long as foundations maintain a governing board, obey the law, and file some basic information with their regulators, they can do whatever they like. In theory, that gives them the freedom to take risks and invest in unpopular causes, but in practice it can stifle openness to learning, challenge, and change, especially when boards of directors are drawn from the same small circles or limited to members of the founder’s family and their friends.

You can even leave all your money to your dogs and still lower the taxes on your estate, as Leona Helmsley did when she died in 2007.

The hotel queen’s actions may be an extreme example, but if philanthropy means putting private wealth to work in the public interest, it doesn’t seem unreasonable to insist that the public has some say in defining how its interests are identified and met.

Currently there is no way to do this. If my government doesn’t do what it is supposed to do, then I can hold it accountable by voting in a new one.

If Bill Gates does something I don’t like, there’s nothing I can do because he is a private citizen in charge of his own foundation.

Philanthropy has always been an expression of individual desires, and it is assumed that those desires are supportive of more broadly shared visions of social change. If they are not, however, the common good may be in peril as philanthropy continues to expand.

Congress could take steps to avert those troubles. For example, new laws could require that:

* Charitable trusts be created in ways that genuinely benefit the public and are not simply a means to avoid paying taxes.

* Foundations release more information to the public on what they are doing and why, beyond the limited financial and salary data that are now published in reports to government regulators.

* Grant makers compile a publicly available summary of their program evaluations every five years and solicit feedback from grantees and from independent experts on the problems foundations seek to solve.

* The nation’s largest foundations report on the results of their work to Congress every five years as part of a nationwide philanthropy summit, open to participation by journalists and other members of the public.

Policy makers, civil-society leaders and others must constantly ask whether philanthropy reduces or reinforces inequalities of wealth and power.

Answering that question requires more social science and less of an obsession with the financial measures that are so popular in philanthropy today.

That is accountancy, not accountability, and it does little to measure long-term social change.

Making foundations more open and accountable will go only so far to prompt the changes that philanthropy requires, however.

We must reorganize philanthropy around the one thing that nonprofit groups need—as much money as possible with the fewest strings attached, so that organizations can get on with doing what they do best and avoid wasting so much time seeking money and other aid from grant makers that think that they know best.

Some steps to encourage this include:

* Creating up to 500 local social investment funds across the United States with $100-million each. The money contributed by private donors should be matched dollar for dollar by the U.S. government or financed through civil-society investment bonds or other public offerings.

These funds, which could be run as separate organizations or by the nation’s community foundations, should be governed by a cross-section of representatives from civil society, government, and business who were elected or selected from their constituencies, a model that already works in the world of foreign aid.

That would get resources much closer to where they are most needed and build local accountability for results.

* Providing economic security for those doing the hardest work on the front lines of social change.

Foundations could expand support for health care and pensions for community organizers and other nonprofit activists by pooling their resources to support more of the programs that already operate among nonprofit organizations but on much too small a scale.

* Expanding support for community radio stations, independent newspapers, investigative journalists, electronic media, face-to-face debates, and other communication efforts that are essential to stir up the world of philanthropy and get more people involved.

* Offering enhanced tax breaks for people who make small contributions and for nonprofit groups that raise money from their members and from broad swaths of the population (not just from foundations, large donors, and fee-for-service payments).

That might encourage civil-society groups to return to their roots and strengthen their ability to spur democracy, much in the same way that President Obama’s election campaign drew strength from large numbers of small donations.

* Reducing the transaction costs of getting support from foundations, especially for small groups, by redesigning application procedures, making more multiyear grants, and finding better ways for grant makers to pool their money so important projects get enough support.

* Imposing a new federal rule that no foundation can receive a tax exemption unless its board contains some representation from the communities it claims to serve. After all, they are the subjects, not the objects, of social transformation.

Those closest to the action have ideas and experiences that can shed light on problems and solutions, and they have networks and associations through which they can pull in good ideas and provide feedback to grant makers.

Finally, we must make philanthropy more fun. If it is not, then most people probably won’t join in.

It’s time to give as much credence to empathy, intuition, community, joy, and wild and wacky ideas as to the dull utility of the calculator and the spreadsheet.

The best way to reinvent philanthropy is for ordinary people to get involved in a way that does not reinforce the unhealthy patterns of the past.

All citizens must have the power to ask the difficult questions about philanthropy and social change and must not be brushed aside or told that they have no right to question foundations that belong to others.

All foundations must accept the obligation to hold themselves accountable to more than a board of close friends and acquaintances and to see themselves as partners in a common project of social transformation that places disadvantaged people at the center of their own stories.

Social transformation is not a job to be left to market forces or to the whims of billionaires. Perhaps if we supported the energy and creativity of millions of ordinary people, we could create a foundation for lasting progress that will never come from an elite group of wealthy donors, however well intentioned.

When philanthropy is reconfigured to be less technocratic and more supportive of people’s own self-development efforts, then the change society so desperately needs will get the support it requires.

Michael Edwards, a former Ford Foundation official, is a distinguished senior fellow at Demos, in New York. This article is adapted from his new book, Small Change: Why Business Won’t Save the World, published this month by Berrett-Koehler.