Philanthropy in Transition

M. LeClair

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137395610
• eBook ISBN: 9781137394484
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

The already vibrant charitable sector in the US is in the midst of a transformation that is altering both the manner in which donations occur and the causes that are supported. Philanthropy in Transition examines the unique role that charitable giving has played in the US, from colonial times to the present. The rising importance of new means of contributing, particularly giving through buying or investing, is considered. These new models of philanthropy have expanded the ways by which ethical consumers or investors can support a cause. Although these innovations represent a revolution in the structure of philanthropy, they introduce significant complexity to the act of giving – donors are far removed from recipients – and this may weaken the impact of contributing. This transformation is also likely to accelerate the rising importance of web-based promotion and fund-raising, as traditional nonprofits compete with social market enterprises and social impact investmentsfor funds.

1

A History of Philanthropy in the United States

The United States remains the most philanthropic nation in the world, even with the expansion of its domestic welfare state in the past half-century. In the postwar period, Europe, in particular, has pursued an assertive role for the state in its social policies, and the continent’s charitable giving has been diminished. All available statistics show that, compared with the citizens of other industrialized countries, Americans are more generous, both in terms of money donated and volunteer hours worked. Indeed, one could say that the conception of charity in the United States is unique, derived as it is from singular historical and religious events and expressed in an insistence that government largesse and giving by individuals remain two prongs of social policy.

Facing the hardships of settling in a new land, the American colonists embraced the Protestant ethic of personal temperance and shared responsibility for the general welfare. Local churches addressed the needs of the impoverished. Members of a given congregation would discuss the indigent in their communal meetings, and then arrange for the physical well-being of these unfortunate neighbors. In this way, donors and recipients were personally connected, and this direct and immediate interaction of transfer remained the norm well into the postcolonial period. Not until the late nineteenth century did large charitable institutions emerge with multifaceted missions beyond the immediate locale. So it was that the first charity aggregator, the United Way (founded in 1887), could collect monies from multiple points and then distribute these contributions to various charitable enterprises, thereby reducing fund-raising costs while tossing a wider net. Henceforth, philanthropy was treated as a marketed endeavor with a presence beyond houses of worship; this increased invisibility resulted in even greater giving. But with the higher profile they now enjoyed, charities tended to lose some of the intimacy of philanthropy as a face-to-face encounter.

The trend toward formalizing the charitable sector continued in the twentieth century, when titans of the commodity and transportation industries founded charitable trusts. So it was that steel magnate Andrew Carnegie established the Carnegie Foundation in 1911, and oil tycoon John D. Rockefeller followed suit two years later with the Rockefeller Foundation. Just as industrialists were allotting portions of their wealth to the philanthropic sector, various nonprofits were being created to support research and fund treatments for various chronic diseases: the American Society for the Control of Cancer (later the American Cancer Society) was founded in 1913, followed by the American Heart Association in 1915 and the American Diabetes Association in 1918.

By the mid-twentieth century, American philanthropy was becoming more international in scope. Depending largely on U.S. contributions, UNICEF was founded in 1946 to aid children in war-torn Europe and China. In 1946, a pious Mennonite woman named Edna Ruth Byler, in an effort to provide richer market opportunities for struggling artisans in the developing world, began importing handicrafts to sell from the back of her car, a modest initiative that ultimately led to the founding of Ten Thousand Villages, the first retail-based Fair Trade organization in the United States. As American citizens have expanded their giving cross-nationally, the connection between benefactor and recipient has become ever more complex. For example, a buyer of Fair Trade coffee cannot be sure if the faraway producer of the coffee beans is benefiting from a guaranteed minimum price per pound or is receiving in-kind support such as health care, these arrangements being negotiated by the Fair Trade organization and the producer co-ops to which the growers belong.

The rise of corporate giving is perhaps the most controversial development in America’s nonprofit sector.¹ As early as 1917, U.S. businesses were donating corporate funds to organized charities such as the YMCA and the American Red Cross. At that time, corporate giving was a contentious issue within the business community, viewed by some as a misuse of stockholder funds and an abrogation of a firm’s commitment to maximize profits. There were also questions about the corporation’s motives for giving to charity—specifically, whether it was in the public’s interest for a company to open its coffers in support of social agencies and causes. It may surprise some to learn that Franklin D. Roosevelt was suspicious of corporate giving, and his misgivings were recorded in The New York Times in 1935, where he was quoted as saying:

Granting the exemption from profits thus contributed would mean the sanctioning of two unsound practices. First, the purchase of goodwill by corporations, and second, the authority of corporate officials to exercise a right in bestowing gifts that belong properly to the individual stockholders.²

The magnitude and visibility of corporate donations began rising significantly in the 1980s, when executives came to embrace the practice of giving as a powerful means of advertising, with the firm’s perceived enlightenment seen as an attractant to long-term customer loyalty. Consumers wishing to support a certain charity could do so by simply altering their buying behavior in favor of a corporation allied with that charitable cause. But from the customer’s standpoint, the trade-off for this ease of engagement was the effect of having one’s dollars distributed to a distant recipient through an organization with multiple, potentially contradictory, motives.

By the late twentieth century, a new form of entity, the social market enterprise (SME), was providing a more certain means by which consumers could purchase products and simultaneously pursue a social goal. Modern Fair Trade organizations are the most visible type of SME, although new forms of incorporation that also promote business for a social purpose are quickly becoming commonplace. Ethical consumers could now be assured that their purchases were making a difference, as traditional profit maximization was not the primary goal of these firms, but affecting a social purpose was. The available means to give-through-buying expanded.

This chapter examines the sweeping transformation in U.S. philanthropy from the colonial era, when donor and recipient generally knew one another, to the current environment, in which giving is complex, multifaceted, and frequently involves little or no contact between contributor and cause. An expanded charitable sector has increased the magnitude of giving, the breadth of services offered, and the number of people served. Yet the ever-widening distance between donor and beneficiary has reshaped philanthropy into a largely anonymous endeavor beyond the control of the giver, who cannot be certain exactly how his or her funds are being used or, for that matter, if the contributions reach the intended recipients. The structure of indirect giving prevalent today has created a situation not unlike the principal-agent problem common to the investment world: an individual who gives to a charity (the principal) relies upon a charitable organization (the agent) to fulfill the expected transaction. Without some form of independent verification for the donor, indirect philanthropy is susceptible to inefficient and misdirected use of donated funds.

1. The Foundations of Philanthropy in the United States

It was commonplace in the early American period for communities to act through their local churches to administer to the poor in their precincts. The Puritan minister Cotton Mather noted this inclination toward charitable giving in his Magnalia Christi Americana, an ecclesiastical history of New England published in 1702. Mather again addressed the natural predisposition of Americans to philanthropy in his Essays to Do Good (published in 1710), in which he expressed the belief that giving should be a voluntary act rather than a role of government. Similarly, the Englishman and Quaker leader William Penn, founder of the colony of Pennsylvania, encouraged in his followers humanitarianism based on personal moral rectitude and the principles of equality, tolerance, and charity (William Penn, Fruits of Solitude, 1682). To Penn’s mind, the pursuit of individual gratification was to be avoided, and those of greater means should assist the less fortunate.

Despite the laudable goals of early American churches and religious communities to administer to the poor, resources often outstripped the local community’s ability to serve, and so already by the early eighteenth century civic groups and charitable societies were forming to help provide for the indigent. In 1729, Scottish immigrants founded the St. Andrew Society in Charleston, South Carolina, with the goal of promoting the public good through charitable actions, the aid to be distributed regardless of a person’s country of origin or personal circumstance. Likewise, the St. George Society of New York was established in 1770 to provide assistance to impoverished colonists, primarily those of British or Commonwealth descent. Branches of these religious societies were subsequently opened in other U.S. cities. In 1787, a group of prominent Philadelphians, including Benjamin Franklin, founded the Quaker-inspired Society for Alleviating Miseries of Public to Prisons, whose purpose was to help improve the living conditions and provide material aid to the city’s burgeoning prison population.

Some of the largest and most enduring charitable organizations in the United States were founded in the late nineteenth century. There was, notably, the Boys Club (nationalized as the Boys Club Federation of America and renamed as Boys & Girls Clubs of America in 1990), which was founded in Hartford, Connecticut, in 1860 with the goal of pulling disadvantaged boys off the streets and redirecting them toward leading productive and principled lives. The U.S. Sanitary Commission, precursor to the American Red Cross, was a private relief agency created by federal legislation in 1861 to support sick and wounded U.S. Army soldiers during the Civil War. In 1879, the Englishman William Booth opened the first American chapter of the Salvation Army in Philadelphia (the initial chapter having been created under the name “Christian Mission” in London’s East End in 1865), and soon offices were opened in other U.S. cities. In 1866, the American Society for the Prevention of Cruelty to Animals (ASPCA) was incorporated in New York as an offshoot of the United Kingdom’s Royal Society for the Prevention of Cruelty to Animals, which had been formed in 1824.

By the last decade of the nineteenth century, there were so many American charities vying for dollars that there arose a need for a larger umbrella organization to act as a conduit for donations. The United Way of America was the first charity aggregator of this type. Founded in Denver in 1887 by a group of ecumenical leaders under the title of Charity Organizations Society, the group undertook a single-point fund-raising drive on behalf of twenty-two charitable agencies. The efficiencies of this unified approach to soliciting donations were made clear by the money collected in this first campaign: $21,700, a remarkable sum at the time.

By the time the Salvation Army and the United Way were founded, the Industrial Revolution was well underway, and the small-town, agrarian-oriented, church-based giving of the past was being supplanted by more city-centered, monetary, and broadly spiritual or even secular campaigns. With the advent of the twentieth century the magnitude of charitable giving in the United States increased dramatically. Many of the best-known charities were founded during this period: The American Red Cross (chartered by Congress in 1900); 4-H Clubs (1902); Big Brothers–Big Sisters (1904); Christmas Seals (1907); The Boy Scouts of America (1910); and The Girl Scouts of America (1912). In 1907, Margaret Olivia Slocum Sage gave an initial gift of $10 million to create The Russell Sage Foundation, the country’s first private family foundation, which was dedicated to the broad task of improving social and living conditions.

By the first decade of the twentieth century, industrialization had raised American per capita income to such an extent that the average citizen could engage in some level of charitable giving. And many of these donations were distributed outside religious circles. During this time, one charity begat another, and the push to address one social cause inspired the next benevolent program. But the drive to meet the needs of the poor and promote the social good were not confined to religious, civic, and small private benefactors, as can be seen by considering the myriad trusts that were founded by industrial icons.

1.1 The Rise of the Large Foundations

By the early twentieth century, a handful of American industrialists, in command of personal wealth never before seen in the nation’s private sector, put their fortunes to work for social change in an array of charitable trusts. Premier among the magnates financing these social welfare initiatives was John D. Rockefeller, who in 1911 used vast capital earned through his petroleum empire to found the Rockefeller Foundation (assets as of 2011: $3.5 billion). Rockefeller would leave $530 million in 1937 to charity through his estate. In 1913, Andrew Carnegie transferred capital from his holdings in his diversified steel industry to create the Carnegie Corporation, whose mission was to promote international peace and economic development (assets of $2.8 billion in 2012). A watershed event in private giving was the enactment of the estate tax exemption for charitable donations in 1919, which heralded a new era in foundation donations by individual (see Webb, 1992).

In 1934, William K. Kellogg, founder of the food manufacturing company that bears his name, donated $66 million to start the W. K. Kellogg Foundation. Initially devoted to promoting programs in health, agriculture, and education in rural areas, the Kellogg charitable trust...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• Preface
• Acknowledgments
• 1 A History of Philanthropy in the United States
• 2 U.S. Philanthropy: Trends in Giving and the Impact on Society
• 3 Government Policy and Charitable Contributions
• 4 The New Philanthropy: The Rise of Nontraditional Giving in the United States
• 5 Engaging the Ethical Consumer and Investor
• Notes
• Glossary
• Index