Philanthrocapitalism

In June 2010, Bill Gates and Warren Buffett announced the Giving Pledge: a commitment to give away the majority of their wealth to charitable causes. The launch was organized around a series of private dinners attended by about forty of the wealthiest people in the United States. By 2023, more than 230 billionaires from thirty countries had signed, representing combined pledges of over a trillion dollars. The press coverage was broadly admiring, and mostly ignored the question of who would decide where the money would go.

The combination of great private wealth and public purpose is not new. Andrew Carnegie, who accumulated his fortune partly by suppressing wages and, in 1892, hiring Pinkerton detectives to break a strike at his Homestead plant that left ten workers dead, spent his final decades funding libraries, universities, and concert halls. By 1919 he had given away the equivalent of roughly five billion dollars in today’s money. Cities that received Carnegie libraries did so on his terms: local governments had to provide the land and commit to maintaining the buildings in perpetuity. The offer was generous; it also bypassed democratic mechanisms.

The more consequential precedent was the Flexner Report of 1910. Commissioned by the Carnegie Foundation for the Advancement of Teaching, it recommended consolidating medical education around elite university-based institutions and closing the smaller proprietary schools it judged substandard. These changes raised training standards; they also closed the most of the schools that had trained Black physicians or admitted women in significant numbers. Again, private money had shaped outcomes that no democratic process had approved.

Today’s private foundations differ from Carnegie’s personal giving in one critical respect: the American tax code. Since the Revenue Act of 1917, charitable contributions have been deductible from taxable income. When a billionaire transfers appreciated assets into a private foundation, they avoid capital gains taxes on those assets and receive an income tax deduction at the moment of transfer. The assets remain under the effective control of the foundation’s board, which in practice consists of the donor and their chosen representatives. Private foundations are required to distribute at least five percent of assets annually, but the other ninety-five percent continues to grow tax-free under the donor’s direction. What looks like giving money away is, legally and financially, converting taxable personal wealth into a permanently controlled institutional endowment while capturing the tax benefit immediately. Donor-advised funds extend this logic further: the donor takes an immediate deduction but retains the ability to direct distributions to any eligible recipient for decades. In 2022, donor-advised funds held over $230 billion in assets.

In the 2000s, the Gates Foundation, working alongside the Walton Family Foundation and the Eli and Edythe Broad Foundation, channeled hundreds of millions of dollars into reshaping American K-12 education. Their preferred agenda included charter schools, standardized testing, merit pay for teachers, and the Common Core State Standards. For a period, these became the dominant policy agenda of American school reform. The decision-makers at these foundations were not elected, and could not be removed by the parents, students, or teachers whose schools were being reorganized. In 2017, Gates Foundation CEO Sue Desmond-Hellmann published an open letter acknowledging that the foundation’s strategy had not produced the results it intended. She described it as a learning experience; most of the teachers whose work and lives had been thrown into turmoil used stronger language.

This kind of philanthrocapitalism extends beyond education. For many years the Gates Foundation was the second-largest funder of the World Health Organization, behind only the United States government. During the COVID-19 pandemic, this made it an influential voice in debates about vaccine distribution, intellectual property waivers for low-income countries, and global health system priorities. The fact that this power was exercised with what donors believe are good intentions does not change the fact that they lack the democratic legitimacy of public institutions.

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Giridharadas2018

Anand Giridharadas: Winners Take All: The Elite Charade of Changing the World. Knopf, 2018, 978-0525533184.

Reich2018

Rob Reich: Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better. Princeton University Press, 2018, 978-0691183497.