A blog by Grant Montgomery, co-founder of Family Care Foundation, a 501c3 that provides emergency services and sustained development for communities, families and children on 5 continents. Articles and commentary on Philanthropy, Global Aid and Development.
When the W. K. Kellogg Foundation set aside $100 million in 2007 to invest in companies that could produce both social and financial benefits, it was considered revolutionary. Historically, major foundations had used mainly stocks, bonds, real estate and other traditional asset classes to build their endowments.
In 2010, the Kellogg Foundation invested $5 million in Wireless Generation, a tiny educational software maker working to improve public education in New York City. Just 219 days later, it made a 25.9 percent return after Rupert Murdoch’s News Corporation bought Wireless Generation for $360 million.
Philanthropy is taking its cues from Wall Street and Silicon Valley. The language of finance is so common that it is sometimes hard to tell the difference between an investment conference and a fund-raiser. Grants are referred to as investments, and public-private partnerships as innovations. Money used to buy vans, computers and buildings is called growth capital.
“It’s not just the language that is changing,” said Antony Bugg-Levine, chief executive of the Nonprofit Finance Fund. “The actual distinction between the two sectors, for-profit and nonprofit, is starting to collapse.”
The shift stems from a new generation of philanthropists, like Bill and Melinda Gates, Pierre and Pam Omidyar and Steve and Jean Case, hoping to stretch their dollars. As they see it, the pool of philanthropic assets — even at a whopping $4 trillion-plus — is too small to make a dent in seemingly intractable social problems like malnutrition, chronic homelessness, water quality and sanitation. So they are trying to find ways to reuse existing financing and to attract new types of capital.
At the peak of the shopping and giving season, consumers are increasingly combining both activities. They are buying products that have charitable tie-ins, shopping through Web portals that send savings to nonprofits, and donating at the registers when they check out at stores.
These charity-linked purchases might give consumers a good feeling, but are they good for charities? Maybe so, but only if those shopping decisions aren’t taking the place of other charitable giving, say some specialists.
Charitable shopping “undermines the philanthropy of a nonprofit through diminished charitable donations,” said Sondra Dellaripa, principal consultant for the nonprofit consultancy Harvest Development Group. In fund-raising development for charities, she said, it is important to build a relationship with a donor — something that doesn’t happen in these transactions.
So, how can you make your shopping turn into giving while keeping in mind how much you’re really giving to charity? Not all products with charity tie-ins are created equal.
For those shopping online, there are pass-through sites where a charity gets money every time a consumer makes a purchase. The donated percentage of the purchase price varies from 1 to 25 percent.
Some deliver no money to charity at all; they’re just for awareness. Consumers can check this, before they buy, on the product’s website or by reading the tiny print on the product’s packaging.
Among the countless street children Jimmy Pham has met over the decades, the one who comes to mind most often is a young girl whose mother slammed her head against a wall some 16 years ago.
The girl’s mother, who was beside her, had suggested she beg for money from Pham, who had become a kind of casual benefactor to the local children. When the girl refused to beg, her mother punished her with a beating.
The memory of that girl, and others like her, played a key role in the origin of KOTO, the restaurant chain Pham went on to found in 1999. KOTO uses its eateries to take young people off the street and train them in the service industry.
Pham, who as a baby fled Saigon for Australia as the Vietnam War was winding down, returned in 1996 as a travel agent. He was struck immediately by the poverty and says he spent his first few weeks buying meals for street children and giving them money.
Unlike when Pham started out, Vietnam now has a whole host of vocational charities that take the teach-them-to-fish approach. Instead of a handout, the organizations specialize in a teaching marketable skill – from baking brownies to tailoring trousers. The thinking is that they can pass these skills on to poor or disabled people, who then can support themselves.
But Pham says even this approach is no longer enough. “We’re not content with showing them how to fish anymore,” Pham, 40, said in an interview at KOTO’s restaurant in Ho Chi Minh City. “We want to show them how to set up the fish shops and teach others to fish.”
The recruits live together for two years at a training center, but food service makes up just part of their lessons. They learn English and play soccer, but also take 36 workshops that cover everything from personal finance to sex education.
Excerpts of an opinion on the question “Are charities more effective than Government?”, by Howard Husock, vice president for policy research at the Manhattan Institute:
Private charity will not be able to provide dollar-for-dollar substitute financing for reductions in government social programs. But it’s important, first, to acknowledge the fact there is a limited record of success in government social service programs.
Privately financed efforts have an advantage in helping individuals with their own special situations. That’s because private philanthropy, even through smaller expenditures, can adapt to local conditions and be led by local champions who must show donors results. That diversity of approaches is something which one-size-fits-all federal programs inhibits.
Plus donors who are matching or influencing the spending of public money directly especially have an obligation to set goals and track results.
Excerpts of an opinion on the question “Are charities more effective than Government?”, by John Briscoe, professor of environmental engineering at Harvard University, and a former World Bank official:
The priorities of charities are appropriately set by those who finance and manage those charities. But it seldom stops there. [Apart from non-governmental organizations that focus on health and education,] governments typically and necessarily see things like jobs as overwhelming priorities and sectors like infrastructure as critical for creating jobs and reducing poverty. I know of not a single nongovernmental organization that focuses on job creation, the provision of electricity at scale, or transport.
As a senior official in the World Bank I saw this dynamic at work every day. NGOs would lobby their governments for more attention to health, education and the environment. Rich country governments would then use their position on the board of the World Bank to push for these priorities.
Over the last 20 years this has led to a profound distortion in the priorities of the bank, with the social sectors becoming dominant and, for a long time, infrastructure lending – the original mandate of the Bank – falling to less than 10 percent of total lending.
An interesting evolution over the last decade has been the rise of countries like China, India and Brazil that give high priority to things like infrastructure, and as their weight in the global system has increased, this has led to somewhat of a rebalancing of priorities at an institution like the World Bank, but, more important a rebalancing in options for developing countries.
These countries, having recently emerged from poverty, know that it is not by putting the social cart before the economic horse that development and poverty reduction happen. They have little patience for the pleas of philanthropists rich and poor to deny poor countries the option of following the only known road to poverty reduction.
An opinion on the question “Are charities more effective than Government?”, by Leslie Lenkowsky, professor of public affairs and philanthropic studies at Indiana University:
The idea that charity can take the place of government spending is absurd on its face. The U.S. federal government alone spends far more than the $300 billion Americans donated to nonprofit groups last year. Moreover, much of that giving goes for purposes that would be low on any government’s priority list.
But that is exactly why philanthropy is valuable and deserves encouragement through tax and other public policies.
The basic debates in any type of government are always over what is in the public’s interest. But another way is by allowing each of us to give money or time – often collaborating with others — to try out what we think will address particular aspects of the public interest. That is the domain of philanthropy. It is especially important for people with ideas that may be unpopular, innovative, or directed at a minority of the population.
Those with more money and time can, of course, have more influence in philanthropy. But they can have more influence in politics as well. And in philanthropy, because its focus is on the particular, not the general, a little giving can go a long way. You don’t have to be rich to be a successful donor.
Philanthropy, in short, is an expression of pluralism. Its goals differ from those of politics and the standards applicable to government actions, such as fairness, do not fit what it does.
Over its nearly 100-year history, the charitable deduction has become one of the most time-tested provisions in the Internal Revenue Code. But it has also been a perennial target by people on both ends of the political spectrum who want to eliminate or restrict it.
While economists have long studied the impact of the deduction, they have not reached a clear consensus on how much it matters. A new study, however, along with recently released IRS data make it quite clear that America’s charitable organizations could be hurt greatly if donors lost all or part of the charitable income-tax deduction as lawmakers seek ways to avert the looming “financial cliff.”
The new study of the wealthy and their philanthropy, released last month by Bank of America, asked affluent people (mostly with incomes of $200,000 or more and net assets of at least $1-million) how they might alter their giving if deductions were eliminated.
Just under 50 percent said their giving would remain the same. But nearly 49 percent said they would decrease their giving—and 20 percent of those people said they would “dramatically decrease” their giving. Less than 2 percent said their giving would increase.
Some point out that most donors wouldn’t be affected by changes in the charitable deduction because 70 percent of Americans don’t itemize. While it is true that people who don’t itemize often give generously from their incomes, they don’t provide the lion’s share of the gifts that help fuel the nonprofit world.
In 2010, the 30 percent of Americans who itemize provided 79 percent of the money “Giving USA” reported that individuals donated to nonprofit organizations.
If a loss of the charitable deduction caused people who itemize deductions to reduce their giving by just 20 percent, that would mean a $34-billion drop in charitable giving, by far the largest decrease since the Great Depression. To put that in perspective, $34-billion is more than three times the sum that individuals donated to all U.S. colleges received last year (not counting bequests).
If nonprofits suddenly had to reduce costs by $34-billion, they could well need to eliminate 5 percent of their work force, or 680,000 jobs. That could increase the unemployment rate in the United States from 7.9 percent to 8.4 percent.
And if government cuts spending, charitable giving will have to play an even more important role in our society as those cuts inevitably put even more strain on the nonprofit infrastructure that enriches Americans’ lives in countless ways.
Excerpts of an article by Robert Sharpe, a fundraising consultant