Thursday, 26 November 2015

Capitalism and philanthropy

Although capitalist are frequently depicted as ruthless profit seeking individuals, it is nevertheless true that most philanthropists are businessmen. That is, they may be unforgiven when making money but generous when bequeathing it. How can we explain this apparent paradox? It is a matter of self-interest, the result of guilt, vanity or is it the result of institutional constraints? I shall explore these issues with special reference to the USA where philanthropy is more widespread.

According to the Giving USA Foundation, Americans gave $358.38 billion in 2014, a 7.1% increase from 2013. Of these, corporate giving amounted to $17.77 billion (a 13.7% increase from 2013). The total given was equivalent to 2.1% of gross domestic product in 2014, of which about half goes to religious and educational projects. It largely exceeds the $148.18 billion contributed by the US as international net official development assistance in 2013.

These figures suggest that, when encouraged, the private sector is capable of contributing substantial amounts of money for redistribution on a non-profit basis. Whether, it is also more efficient on its allocation and use than the government it is an open question. Common sense dictates that each sector has its own comparative advantages in relation to specific groups of beneficiaries, and therefore the state and private roles should be complementary rather than competitive.

Another important issue is whether capitalists should be free to bestow their giving to whom they wish. Each individual has its own set of priorities and should be free to select them. Regardless of what each individual thinks, we cannot say that Bill Gates is more philanthropic than Rockefeller was simply because the first gave money to fight malaria in Africa while the second gave a villa in lake Cuomo to be used as a retreat by academics.

Obviously, the state should not follow the wish of individual politicians without bearing in mind the priorities of society as whole expressed by free voting. Moreover, the state priorities should not be imposed on private donors. All that authorities should do is to encourage through co-financing or tax breaks the allocation of private donations to certain objectives.

A more controversial issue is whether the donors generosity should be left to each individual or if a minimum rate should be applied. For instance, if at the time of death they should be subject to an inheritance tax on all wealth not bequeathed to charities. In chapter 13 we explain why inheritance taxes provide a powerful restraint on wealth concentration required to preserve market capitalism. However, this only applies to large fortunes. All the others should be left to be masters of their own generosity.

Indeed, although there are some scrooges among capitalists, it is important to notice that most of them are only greedy when making money and not when giving it away. So, in general, philanthropy not only supports capitalism but it also complements it by supporting those that by misfortune or careless were left out by the wealth produced under capitalism. This said, philanthropy should be an individual decision, not something that should be practiced by corporations, for the reasons I gave in another post.

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