Elite Philanthropy Mainly Self-Serving

A group of U.K. researchers reviewed 263 journal articles, books and studies on elite philanthropy to better understand the role it plays in this new age of inequality. In the United States, the wealth gap between richest and poorer families has more than doubled since the 1980s, and in the United Kingdom, the incomes of the richest fifth are 12 times as much as the incomes of the poorest fifth. 

The researchers’ paper, published in a special issue of the International Journal of Management Reviews, lays out how on the whole, the elite class mainly donates to causes that provide themselves with some type of benefit. The researchers defined “elite philanthropy” as “the preserve of wealthy individuals and close family members” who became rich through entrepreneurship, either by starting a new business or expanding an inherited one. These individuals generally have extensive local, national and international business networks, the researchers said, and occupy positions with the “field of power,” a social space at the top of society that allows them to impact policy and practice.

Until recently, philanthropy hadn’t been taken seriously as part of mainstream management and organizational research, but Newcastle University professor Charles Harvey said it’s important that academia moves in this direction as many of the wealthiest philanthropists have entrepreneurial backgrounds.

“In the last decade, we’ve seen tech and finance money finding its way into philanthropic funding led by people like Bill Gates and Christopher Hohn,” said Harvey, one of the paper’s authors. “But entrepreneurship has enabled philanthropy for centuries so it’s important to understand how the philanthropic sector supports the economic sector.”

Many people mistakenly view elite philanthropy as a benign force for good rather than an avenue for the super-wealthy to translate economic capital into social and cultural capital, according to the researchers. Elite philanthropy, the study argues, is transactional, as there are also material benefits in addition to the cultural capital. In 2017, the United States increased the proportion of income that can be deducted from 50% to 60%, which directly benefits the elite; and in the United Kingdom, efforts to reduce philanthropic tax relief fell through in 2012 after pushback from wealthy philanthropists. 

Households in the top 0.1% reduced the share of their income they donated by half from 1980 to 1990 after changes to the tax code reduced the amount of money they could deduct from charitable contributions, according to a study published in Cambridge University Press. That trend continued in future decades: In 2018, the 20 richest Americans donated $8.7 billion to charity, which is just .8% of their net worth as a group.

Where wealthy elites donate their money is shaped by where they can have the most influence on a local, national and international level, researchers said; maintaining their “field of power,” which allows them to use their business ties to influence the political sphere, is also a motivating factor in their philanthropy. For example, one study of 194 elite philanthropists in the United States found that 104 of them actively worked to sway public policy by funding research and advocacy organizations.

Because elite philanthropy affords a higher degree of influence to a select group of people, it’s important to examine its benefits and pitfalls more thoroughly, the researchers argue. While investments in philanthropy are beneficial to society at large, the current state of investments has only a moderate redistributive effect between the rich and the poor. Most of the money has not only been kept within developed countries but also within elite circles, rather than going to causes that impact a larger share of the world’s population such as disease prevention in developing nations. 

Universities and colleges such as Harvard and Oxford, which already boast large endowments, are by far the largest beneficiaries of elite philanthropy. Money is also shared to arts and culture organizations and environmental causes, but in most fields accounts for only a small portion of nonprofit organizations’ income. In this way, wealthy people’s charity serves to support institutions that have directly benefited them, all while giving them the goodwill to influence other sectors of society, according to Harvey. 

The researchers present four types of elite philanthropy that are distinguished by a focus in either developed or developing countries. Institutionally supportive philanthropy supports organizations and causes in developed countries, while developmental philanthropy focuses on developing nations. These two are more customary forms of philanthropy. The other two types take a newer, more entrepreneurial approach: Market-oriented philanthropy uses market-reinforced solutions to help developed nations; and transformational philanthropy seeks to invest in solutions that will not only combat social problems but also create wealth in developing countries. 

Someone practicing customary philanthropy might donate a large sum of money to a nonprofit focused on eliminating child hunger, while an example of entrepreneurial philanthropy would be Facebook founder Mark Zuckerberg investing $24 million in a startup that trains and recruits software developers in Africa. 

Contrary to popular belief, though, donations and investments in developing countries make up only a small proportion of elite philanthropy, and investments like these have only become more popular in the last decade or so, according to Harvey.

“As the differentials between the rich and poor get wider, you might expect the rich to give more as a percentage of income but the opposite is true. It’s really just a few percentage points, a small amount relative to the amount of wealth that these people hold as a class,” Harvey said. “That’s not to say that there aren’t some super generous people within that class, but the class as a whole is not generous.”

Internationally, the biggest givers are actually governments. Between 2013 and 2015, governments of developed nations provided $462 billion in overseas aid while philanthropists contributed $24 billion, according to data from the Organization for Economic Co-operation and Development.

The research isn’t intended to dissuade wealthy philanthropists from donating or to make the argument that no good comes from the investments they do make, said Mairi Maclean, a professor at the University of Bath. 

“Individually there are some very impressive people helping important causes,” she said, recalling conversations she’s had with philanthropists who work on prison reform and disease prevention, among other causes. “But we’re looking at this systematically and on that level, a lot of improvements can be made.”

The study “Elite philanthropy in the United States and United Kingdom in the new age of inequalities,” published Feb. 21 in the International Journal of Management Reviews, was authored by Mairi Maclean, University of Bath; Charles Harvey and Ruomei Yang, Newcastle University; and Frank Mueller, Durham University.