PHILANTHROPY AND

Dushawn Love
Dlove05@student.coppin.edu

CAPITALISM
The Evolution of Philanthropy in the 21st
Century

When I initiated this research project, my intentions were to examine how modern philanthropy

has evolved to address issues involving public welfare and how society has benefited from the

contributions of wealthy philanthropist. As my research reached a conclusion, one idea has

become abundantly clear. Philanthropy is essential for the survival of Capitalism. This paper will

attempt to determine how current trends in philanthropy shape the economic landscape of the

societies it impacts.
"The Gospel of Wealth"

It can be argued that the Father of American Philanthropy is Andrew Carnegie. Andrew

Carnegie became one of the richest men in the world and helped build American industry by

revolutionizing steel manufacturing in the late 1800s. (Diallo, 2015) Carnegie wrote an essay

titled The Gospel of Wealth in 1889 where stated that the proper administration of wealth is the

problem of our age. (Carnegie The Gospel of Wealth 1889 North American Review) Carnegie

can also be quoted as stating The man who dies rich, dies disgraced. According to

Philanthropy Roundtable (Philanthropic Roundtable) Carnegie pledged over $350 million dollars

of his fortune to philanthropy in his lifetime. Adjusting for inflation, that would be

approximately $5 Billion dollars in 2016. His approach to impacting society was to invest in

public benefit projects that improve the conditions for everyone. Carnegie felt that even the poor

could be shown that public giving, which benefits the masses, is more valuable to them than if

scattered among them through the course of many years of trifling amounts. (Juskalian, 2014)

Modern Philanthropy V Capitalism

As one of the principal creators of a distinctively American tradition and expectation that once

one had achieved a certain level of wealth ones moral responsibility to ones fellow citizens was

to become their trustee, not in small but in great and expansive ways, (Carnegie, 1889)

Carnegie offers the wealthy a way to not only impact society, but a way to maintain the system of

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capitalism. In a capitalistic economy profit maximization is the overriding goal and mechanism

for creating wealth. In his view this a moral obligation. This view was also shared by at least

one of Carnegies wealthy capitalist peers John D Rockefeller. According to Adam Smith, who

by many is considered the Father of Capitalism, "It is not from the benevolence of the butcher,

the brewer or the baker that we expect to eat our dinner, but from their regard to their own

interest." (Smith, 1776) This passage presents direct opposition to the views of Carnegie and

Rockefeller, who are arguably the most successful capitalist the world has ever experienced.

Carnegie and Rockefeller also happen to be the two of the most successful Philanthropist in

history.

According to Ayn Rand, an influential theorist on the motives of humanity. Rand believes that

Capitalism and altruism are incompatible; they are philosophical opposites; they cannot co-exist

in the same man or in the same society. (Rand, 1966) Rands position on altruism also provides a

distinct contradiction to Carnegies ideas on moral responsibility of wealthy individuals.

Regardless of which position is held, the debate of mans responsibility to fellow men is central

to understanding how society develops the concepts of philanthropy. Capitalism is defined as an

economic system characterized by private or corporate ownership of capital goods; by

investments that are determined by private decision; and by prices, production, and the

distribution of goods that are determined mainly by competition in a free market. This definition

fails to describe the products of capitalism and adds to the confusion of its purpose. Without

arguing the merits of Capitalism vs any other economic system, it can be argued that the system

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does offer an opportunity to reduce poverty for individuals that participate in the free market.

This is the essential idea in having a society of free individuals.

Products of Capitalism

Capitalism can be credited with many recent innovations and overall increased quality of life for

both producers and consumers. The best producers provide the consumers a product or service

that has an implied value that is greater than the competition. This competition forces

efficiencies in production and price. In a perfectly efficient market these products can be

evaluated as universally beneficial to all participants. However, economist has proven that the

market is not always efficient. The best capitalist exploit the inefficiency of the market to

generate surplus capital or wealth. Market inefficiencies create externalities, which create trade

imbalance that in many cases is assumed by the public. For example, the sale of tobacco to any

individual with the required amount of money for the transaction is a legitimate transaction by

definition. However, each transaction not only cost individuals it cost the public in terms of

lower life expectations, higher health cost and possibly environmental degradation. Many

philanthropic causes can be directly attributed to the actions of capitalist.

Balance of Power

When Andrew Carnegie determined that it was a moral obligation for the wealthy to be

philanthropic, it can be argued that this obligation is not to the people, but to the system. Many

practitioners of capitalism focus intently on the bottom line and fail to weigh the sustainability of

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their activities. As with the tobacco sales example, more tobacco sales ultimately result in lower

profits over time due to a reduction of healthy consumers. Wealth can only be generated by

transference of wealth. With the worlds wealthy owning more than a third of the available

wealth, while representing only 1% of the population, the balance of power is concentrated in the

hands of few. According to a CNN report, the 80 richest people on the planet have the same

wealth as the poorest 3.5 billion people. This current alignment is not sustainable and may

eventually result in economic collapse. Philanthropy may be the mechanism that allows wealthy

to add balance to economic disparity resulting from resource concentration in the hands of few

individuals.

The New Generation

Many of todays new generation of wealthy appear to have a better understanding of the

economics of Philanthropy. They create enterprises that are socially responsible, dedicated to

philanthropic endeavors, and even pledge their fortunes advancing publicly beneficial projects.

This generation of philanthropist apply capitalist theories towards creating social impact that can

be measured and provide a return on investment. The need for philanthropy to become more like

the for-profit capital markets is a common theme among the new philanthropists, especially those

who have made their fortune in finance. As they see it, three things are needed for such a

philanthropic marketplace to work.

First, there must be something for philanthropists to invest in something that, ideally, will be

created by social entrepreneurs, just as in the for-profit world entrepreneurs create companies

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that end up traded on the stock market. Second, the market requires an infrastructure, the

philanthropic equivalent of stock markets, investment banks, research houses, management

consultants and so on.

Third, philanthropists themselves need to behave more like investors. That means allocating their

money to make the greatest possible difference to society's problems: in other words, to

maximize their social return. (The Economist , 2006)

Philanthrocapitalsm

Todays philanthropist use social impact investments and apply knowledge gained from capitalist

theories to develop accountability and organizations that would have traditionally delivered

charitable services. Many investors view socially responsible investing as a guiding principle to

generate returns. Philanthrocapitalism is investing for blended value and can be used as a

framework that looks to maximize total value creation potential and performance of

organizations whether non-profit or for-profit. This concept is being applied throughout the

entire investment value chain from entrepreneurial ventures to social activists and policy makers.

The combining of traditional giving with for-profit enterprise is changing the landscape in

philanthropy. In 2011, then-World Bank president Robert Zoellick invoked a system in which

assistance would be integrated with and connected to global growth strategies, fundamentally

driven by private investment and entrepreneurship. More recently, Harvard Business School

professor Michael Porter has called for a shared value approach to philanthropy in which

private companies would help others by helping themselves. (Johnson, 2015) According to the

2014 Report on Sustainable and Responsible Investing Trends from the US SIF Foundation, the

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total U.S.-domiciled assets under management using SRI strategies expanded from $3.74

trillion at the start of 2012 to $6.57 trillion at the start of 2014. 55 percent of private investors

seek to earn competitive, market rate returns, according to the most recent J. P. Morgan impact

investor survey. Assets in the sector are expected to grow to $500 billion by 2019, from $50

billion in 2009, and some predict assets ultimately will hit as high as $3 trillion according to

Investopedia.

Impact investing

The bulk of impact investment has been made by private investment fund managers and

development finance institutions, which together have put up more than 80 percent of the money

flowing into impact investing. Enterprises that provide social returns are highly profitable dont

have much trouble raising money from impact investors. Major financial institutions view

impact investing as an opportunity to generate income. Black- Rock, the worlds largest asset

management firm, announced in February 2015 the launch of BlackRock Impact, a business unit

dedicated to impact investing. Prudential committed to investing an additional $1 billion in

socially responsible businesses by 2020. And Bain Capital hired former Massachusetts Governor

Deval Patrick in April 2015 to found a new business unit that will focus on delivering attractive

financial returns by investing in projects with significant, measurable social impact (Etzel, 2015)

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Corporate Social Responsibility

If Andrew Carnegies views on philanthropy are applied to all wealthy persons, then by

definition they are also applicable to corporations. Todays successful socially responsible

corporations understand the link between philanthropy and competitive advantage. Corporations

can have enormously detrimental effects on the environment. As better information is now

available on how corporations impact their environment, consumers are increasingly making

conscious efforts to support more responsible organizations. Many entrepreneurs consider profit

and social-environmental benefit to be inextricable. Few tech startups pitch their ideas without

describing how they will change the world for the better. Social media platforms believe they

will facilitate democracy and the free exchange of information; renewable energy companies

believe they will make money by selling sustainable solutions; sharing economy apps believe

they will cut down on the waste and inefficiency of a post-war economy myopically geared

toward the individual consumer. (Impact Investing vs Venture Philanthropy, n.d.)

Philanthropy is more organized, professional, and global than any other time. Philanthropists

work to improve and strengthen communities, support the arts, build schools and raise

educational standards, combat epidemics, and provide relief for the victims of war and natural

disasters. Foundations support cutting-edge research. Corporations give back to their

communities. Technology has enabled people to make instant, global exchanges, and

philanthropy has thrived in the digital environment, finding new ways to reach people in need.

Conversely, Trillions have been spent to move the needle on major social problems, yet by many

indicators, were still stuck treading water. Since the 1970s, for example, K-12 reading and math

achievement have remained stagnant; the U.S. poverty rate has hovered at around 15%; and the

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average yearly income of the bottom 40% of U.S. households has barely change. (Juskalian,

2014)

Capitalism and Philanthropy

Capitalism and Philanthropy depend upon each other for survival. Philanthropy attempts to

moderate the excesses of capitalism by attempting redistribute wealth constructively. As the

social consciousness is becoming a requirement to do business good capitalist will always

discover opportunities. As the emergence of Philanthrocapitalism develops the pressure to show

results may be challenging. Also, the new definition of philanthropic and for-profit investment

may risk confusing social value with shareholder returns, adversely affecting both. The

evolution of venture philanthropy to impact society will continue evolve as a form of thithing for

wealthy indivduals. The wealthy that recognized that there is an cost associated with there

position act as mediators between the one and many

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Bibliography
Bangser, A. (2011). Bringing Philanthropy into the 21st Century.
Carnegie, A. (1889). Gospel of Wealth . North American Review.
Diallo, M. (2015). Carnegie Steel Company: An Earlly Model of Efficency and
Innovation.
Dolan, K. A. (2016). Rethinking Philanthrophy: Why Impact Investing Makes Giving
Sustainable. Forbes.
Etzel, M. (2015). Philanthropy's New Frontier- Impact Investing. SSIR.org.
Impact Investing vs Venture Philanthropy. (n.d.). Retrieved from Investopedia:
WWW.investopedia.com/articles/personal-finance
Johnson, E. M. (2015). The Myths of Philanthropy. Morals not Markets Make us give.
Juskalian, R. (2014). Was Carnegie Right About Philanthropy. New Yorker.
Philanthropic Roundtable. (n.d.). Philanthropic Hall of Fame.
Rand, A. (1966). Captialism: The Unknown Ideal.
Smith, A. (1776). Wealth of Nations.
The Economist . (2006). The Birth of Philanthrocapitalism.