Nonprofit Remix

Translating business research into nonprofit language

Advocacy, Research

Philanthropy’s Role in Inequality

It’s a complicated situation: some people have more money than they need, and other people don’t. And then there are these things called nonprofits, which somehow increase the greater good while relying on the largesse of the wealthier to do it. It all sounds a bit haphazard, doesn’t it?

Fortunately, we have research economists who are willing to explain it all for us.

Diverging from our formula a bit, we’ll talk about Thomas Piketty’s massive french tome Capital in the 21st Century and how it connects to nonprofits.

Seriously, TL; DR

For those who wouldn’t go near a 700+ page book on economics, the Economist has provided a four paragraph summary. Here’s an even shorter version: Over time, the average rate of growth on capital is greater than the average rate of growth of the economy as a whole. Because of this, wealthy people will get steadily richer, leading to significant income inequality.

In other words: Rich people’s investments will tend to grow faster than the income of non-rich people. The rich get richer as the poor get poorer. (And if you want to make people think you’ve actually read the book, just toss in the words rentier and super-manager.)

Piketty goes on to propose a global tax on capital to decrease inequality, which has exponentially increased discussion of the book, but that’s not of much interest to us here.

Bill Gates has published his reaction to Capital in the 21st Century in a recent post on LinkedIn. If that sounds weird, it’s not: In the book, Piketty calls out Gates as a rich person who may or may not be evil. Gates points out that philanthropy could be an important part of the solution to inequality, but that it’s not covered sufficiently in the book.

In fact, Piketty does talk briefly about the transfer of private wealth to foundations. He blows them off, however, as ineffective, not transparent, and corrupt. This seemed like a lazy patch over a potential hole in his hypothesis.

As nonprofits, we’re acutely aware of the social good that foundations can do. The Foundation Center reports that in 2011, US Foundations made $49 billion in grants on $662 billion in assets, or about 7.5% of total assets. That’s 426 ice bucket challenges worth of donations.

Compared with the total wealth of the 2011 Forbes 400 list of the richest americans though, there’s still a little bit of a gap. The combined wealth of the Forbes 400 is $1.53 trillion. So: the assets of the 81,777 foundations in the US total only 43% of the assets of the 400 richest people in the US.

In addition, the 2013 Forbes 400 list shows a 37% increase in total wealth over 2011. It’s highly doubtful that foundation assets increased at that same rate, but we’ll need a few years for the 990-PF data to catch up to know for sure.

The nonprofit spin: Only a very few nonprofits are likely to be engaged directly in any advocacy efforts to reduce income inequality. For the rest of us, inequality’s potential long term effects will certainly increase the need for services, and here’s where our typical advocacy efforts should pay dividends.

The simplest way is to make sure you’re keeping up with legislative changes that may be affecting the nonprofit community as a whole. Joining your state association for nonprofits is a good start (like the Alliance for Nevada Nonprofits), and you can easily keep track of other states as well with updates from the National Council of Nonprofits.

Beyond that, make sure you’re well acquainted with your local community foundation. Many donors don’t realize the benefits of using a local community foundation as their conduit for giving rather than setting up a private foundation (or not making any gifts at all).

image by Henri Docquin (Own work) [CC-BY-SA-3.0], via Wikimedia Commons

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