Why Philanthropy Matters

Despite tunnel vision, Acs's book raises important questions about philanthropy's impact on culture.
Appears in Winter 2013 Issue: Patronage: Why We All Need to Invest in Culture
December 1 st 2013

Harvard University has embarked on a history-making capital campaign to raise $6.5 billion by 2018, with almost half of that being targeted for university-based research and development. “The Harvard campaign is critical to the university’s ability to fund important priorities going forward,” the press release announced, “but it is also an opportunity to redefine Harvard and higher education more broadly.” This follows Stanford’s successful campaign on the other coast, which raised $6.23 billion. “To remain competitive, universities have to launch campaigns like this,” said Roger Benjamin, president of the Council for Aid to Education, a New York nonprofit organization that monitors philanthropy to universities. “If they don’t, they’re not going to remain at the top of theoretical and applied research in the world.”

After reading Why Philanthropy Matters, I imagine such news is Zoltan J. Acs’s dream come true. Indeed, Acs seems to hold giving to research universities up as the very essence of philanthropy. In his account, there are virtually no other reasonable options. While the first few mentions are interesting, halfway through the book I stopped counting the number of times he equates productive philanthropy with the essential work of research universities like Stanford, MIT, and Harvard. The book could well have been written as a lengthy brochure for the Association of American Universities.

There is more than a good argument for the contribution of research universities to the economy through their role in helping to create businesses. MIT alone is connected to the founding of 4,000 companies and Stanford’s reputation for its role in the creation of entire industries is legendary and well-deserved. However, the constant lobbying for more philanthropy for research universities is not only a distraction in the book, but becomes almost comic. In Acs’s narrative, nearly every virtue of capitalism and every opportunity for economic growth is laid at the feet of university-based research. For Acs it seems to be a given that every illustration of genuine philanthropy will either be research or will at least place research in a prominent place on the list.

It’s too bad, because there are some genuine strengths here. While there is little that is new or especially creative, it is informative and reports facts and arguments in a wellorganized way. The core argument is fairly simple. Acs documents a kind of virtuous circle: capitalism creates wealth which enables philanthropy; good philanthropic investment, in turn, re-invests in the array of institutions supporting capitalism, creating even more wealth. So it’s not just wealth, but a healthy combination of wealth, capitalism, and philanthropy that creates opportunity. Opportunity is an important measure of a healthy society.

The author makes a good case for the dangers of inherited wealth, class society, and family dynasties that have stifled the benefits of entrepreneurs and capitalism in Europe and Asia. Too often inherited wealth has created systems that seek to maintain financial power and enforce a class system that harms rich and poor alike. “If you leave only money to the next generation, you leave them poor. They will squander it.” Furthermore, such behaviour “does not increase wealth in society; it just changes its distribution . . . and when philanthropy is absent, wealth remains concentrated, rent seeking flourishes, and innovation suffers.” On the other hand, I would add that it’s also important to consider the “shirtsleeves-to-shirtsleeves-inthree- generations” pattern in American wealth. There are very few successful dynasties in America. They tend to self-destruct before they become entrenched.

Acs’s strongest chapters are on the relationship between philanthropy and the creation of wealth. While there are times it sounds like he is quoting directly from Claire Gaudiani’s book, The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism, he has clearly captured the heart of Schumpeter’s dictum of “creative destruction” and the benefits to not only capitalism itself but society in general. Large, managed economies and businesses eventually become incapable of responding to new realities and can only survive through complex and lumbering relationships with government. They are not adaptable and in time fall in on themselves. “The culture of large firms pushed away from innovation. Economic concentration begins to have a negative effect on entrepreneurial values, innovation, and technological change.”

It is the new entrepreneurial ventures (assisted by research universities) that create new wealth—and a particular kind of wealth. It is this wealth created by distinctly middle-class (bourgeois) values that not only destroys the unwieldy business structures but performs two very important tasks.

First, it defines philanthropy as something other than charity. While charity is the traditional means of providing temporary relief for the needy, philanthropy “is about creating opportunity for individuals and getting results.” Charity, for Acs, “descends from a paternalistic society in which giving by the wealthy is designed to demonstrate compassion for the poor in times of need. Charity is designed not to empower others but rather to sustain them—not necessarily in poverty, but not on a path to prosperity, either.”

While I understand the distinction, I think there is far more to charity (especially Christian charity) than being an outgrowth of a paternalistic society. In the midst of so much emphasis on measurement, impact, and evaluation there is something to be said for Peter’s response to the beggar in Acts 3. Surely, if he had money in his pocket at the time he would have given it without fear of the beggar misusing it or insisting the beggar start a business. I think there are scores of examples of charity that are far from paternalistic and we should be careful about accepting too quickly such a distinction between mere charity and the greater merits of philanthropy. Nonetheless, Acs’s distinction can be instructive.

Second, by providing opportunity through the support of institutions (like research universities—but also many more, I would add), philanthropy makes it possible to “recycle” wealth instead of merely redistributing it. In fact, the creation of opportunity and innovation through American- style capitalism may be the heart of the book. “Indeed, the notion of equal opportunity may be the most important of all the bourgeois values in America,” Acs concludes, “Because it allows the country to use the economic opportunities available there and not available in other societies to justify, and thus sustain, inequalities inherent in a free market.” What keeps America from becoming a classbased society is the basic belief in the importance of extending opportunity to as many as possible instead of keeping wealth and power in the hands of a few (government, big business, elites). It encourages philanthropy as a “mechanism for dismantling the accumulated wealth tied to the past and reinvesting it to strengthen the entrepreneurial potential of the future.”

In fact, the author’s greatest concern may well be that the new wealthy would lapse into the patterns of old wealth and give in to the temptation to create dynasties and simply repeat the excesses of the past. That would destroy the unique nature and responsibility of entrepreneurial philanthropy to society—the value of creating more and more opportunity. To increase income inequality would be a betrayal of the great benefits to all of wealth creation.

“Capitalism is successful because it creates wealth, and most wealth generates economic opportunity through investments that seem to maximize private return. . . Thus, the economic openness that allowed entrepreneurs to accumulate fortunes has also nurtured social institutions, such as universities and foundations, that have in turn invested in and sustained future economic growth. This is the dynamic of American-style capitalism—a self-sustaining cycle of wealth creation, social innovation, and opportunity that has endured over the centuries.”

Only by solving the “moral dilemma” of depriving others of opportunity will philanthropy add value to capitalism and justify its own unique contribution to society. Only then will the “symbiotic” relationship between capitalism and philanthropy truly reinforce each other. As Christians invested in the flourishing of all of creation, and hence in a variety of institutions that foster human flourishing, we can affirm Acs’s intuition here, though we would also want to expand his purview. There are institutions other than research universities that are crucial to fostering opportunity.

What about the future? Unfortunately, the predictable answer is—you guessed it—the creation of opportunity through the support and replication of research universities. “The history of American-style capitalism suggests that we create opportunity, innovation, wealth and philanthropy. How did we do this? America provided education for the middle class and tied it to local economic development, so one thing we can learn from three centuries of American experiment is that building great research universities is an investment that pays great dividends.” In other words, we have come full circle. The past glory of American philanthropy has been the creation of research universities and it will be the sustaining hope of the future. “Through philanthropy, the unequal distribution of wealth can be channeled into creating opportunity for future generations through creating knowledge today.”

In summary, I would say the book is mistitled. Instead of Why Philanthropy Matters it would have been better to title it Giving Money To Research Universities; The Truest Source of Wealth-Creating Capitalism and Best Use of Philanthropy. While we can rightly value strategic philanthropic investment in education, we—especially Christian philanthropists—will want to foster a more expansive vision, investing in an array of institutions and organizations that contribute to the common good, creating opportunity outside of class.

 

Fred is the President of The Gathering, an international association of individuals, families, and foundations giving to Christian ministries. As well, Fred is the Chairman of Fourth Partner, a non-profit organization focused on philanthropy and community development within the East Texas area. Fred and his wife, Carol, reside in Tyler, Texas.

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