Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

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AWKWARD PLACES: AUSTERITY, DEMOCRACY & THE CHALLENGES OF CIVIC PHILANTHROPY

15 August 2018

Place-based, or civic, philanthropy is on the rise right now. The UK government’s recently-published Civil Society Strategy made “place” one of its five key themes. And policymakers have more widely been exploring the benefits of taking a place-based approach when it comes to supporting local areas and meeting the needs of society.

Here at CAF we've been exploring the development of civic philanthropy through our Giving for the City project, and we share the enthusiasm of many others about the role that place-based approaches could play in boosting civic identity and preparing our cities for the opportunities and challenges of the future.

But we should also not be naïve; and must acknowledge that there may be challenges when it comes to developing place-based initiatives, and even unintended negative consequences.

Philanthropy does not exist in a vacuum, and if we take into account the wider context of local government finances, it is obvious that whatever one’s motivation for wanting to develop a culture of civic giving, questions will inevitably be raised over whether it is simply a way to make up for shortfalls in public spending or to subsidise otherwise unsustainable austerity policies. These are highly political and divisive issues, so if we start pushing the agenda of civic philanthropy without thinking them through first, there could be significant risks.

LOCAL GOVERNMENT FINANCES: CURRENT CRISIS, ONGOING CHALLENGE

The financial challenges facing local government in the UK have been starkly highlighted in recent weeks by reports that Northamptonshire County Council has virtually run out of money. In order to avoid financial disaster, the Council has held crisis talks about proposals to cut services back to the absolute bare minimum, which have unsurprisingly caused uproar among local residents.

Northamptonshire is far from alone in facing these sorts of challenges. Local Government expert Professor Tony Travers claims that at least 15 or 20 other UK councils will find themselves in a similar situation in the near future. And the problem is not confined to the UK either: many city and regional governments around the world have run into financial difficulty in recent years through financial mismanagement or simply as a result of ongoing tensions between central government spending policies and local government needs. (These are not really new problems either, as the history of local government is peppered with similar examples).

One way of dealing with a local government funding crisis is to do as Northamptonshire council have done and cut services as far as possible to reduce costs. However, even this is unlikely to solve problem by itself. In most cases, it will also be necessary to think about new ways of bringing in funding to bolster public finances. In the UK, thinking on these lines has mostly focussed on charging for services or selling off assets (both of which are highly controversial in their own way). So far there appears to have been little strategic thought given to the idea of looking to philanthropy as an additional source of funding to address local government financial woes (except to a small extent in particular contexts, such as public parks and greenspaces or arts and cultural institutions). However, recent developments in the US suggest that this is something we might well expect to happen in the future.

THE RISE OF MUNICIPAL-LEVEL PHILANTHROPY IN THE US

In the US, there has always been a strong tradition of place-based giving and philanthropy playing a prominent role in the life of cities. This may be a reflection of the fact that wealth and industry in America is more distributed than in the UK (where London exerts a gravitational pull that distorts the entire economy), and thus individual cities are more likely to have sufficient associated industry and a pool of wealth from which to attract philanthropy. Or it may be down to a whole host of other factors that mean people’s sense of civic identity and responsibility to give back is greater (for more see Give Me A Break, my paper from 2014).

Historically, the bulk of civic philanthropy has been aimed at supporting particular causes or institutions which play an important role in the life of cities – such as parks and greenspaces, higher education institutions, or museums and art galleries. However, recent years have seen the rise of a phenomenon in which entire cities look to philanthropy as a main source of funding for all their financial needs. This is usually in the context of those places having run into severe financial trouble and needing to find a way out.

Most famously, the city of Detroit, Michigan went bankrupt in 2013 and a coalition of 14 philanthropic foundations stepped in to provide funding to keep the city’s infrastructure going. More recently, the city of Kalamazoo (also in Michigan) and Stockton in California have attracted media attention for their efforts to woo philanthropists in a bid to deal with financial difficulties. Each of these examples highlights some of the challenges and controversies that can result when civic philanthropy is done against the backdrop of problems with local government funding, and we shall explore them further in this blog.

CIVIC PHILANTHROPY IN THE UK VS THE US

We should be clear at this point that the philanthropy context in the US differs significantly from that in the UK. The amounts of money involved are greater, the range of causes that qualify for tax-exempt non-profit status (the 501c3 designation) is different, and – as mentioned already ─ the focus on locality has been a major thread of US philanthropy throughout its history.

Which is not to say that the UK has never had such a tradition. One has only to look back at the Victorian era, in which industrialists and financiers in many towns and cities around the country used their philanthropy to support civic institutions – many of which can still be seen today. But over time, as the economy of the UK has shifted away from traditional heavy industry and manufacturing toward service industries, and many towns and cities have suffered a long-term decline, the culture of civic philanthropy has dried up too (read more on the history of civic philanthropy in the UK)

Does this mean that the potential for harnessing philanthropy to support towns and cities in the UK is more limited? And does that then also mean that we also need not be concerned about any of the potential challenges or unintended consequences I have been alluding to?

I think not, on both counts. Firstly, because the optimist in me genuinely believes that there is the potential in the UK to capitalise on people’s sense of place and identity in order to develop a vibrant 21st century version of civic philanthropy in towns and cities around the country. And secondly because the pessimist in me assumes that if we succeed in doing this, we will run into all of the same potential problems at some point ─ unless we recognise them up front and take steps to avoid them where possible.

So what are these challenges?

POWER AND INEQUALITY

One of the constant criticisms of philanthropy throughout the ages is that it creates power imbalances. Firstly, because wealthy people are able to dictate how money is spent towards the public good through their giving while everyone else is not. And secondly because, those who benefit directly from philanthropy may in the course of doing so be forced into a subservient relationship in which they have to meet the requirements of funders or donors.

These imbalances are likely to be felt particularly acutely in a local context, where donors and recipients may be close geographic neighbours. This was true of the industrialist philanthropy of the late 19th and early 20th centuries in the UK and US, where the tendency of donors to aim their philanthropy at local communities that included their own workforce often created awkward tensions. In the most extreme cases, philanthropists like George Cadbury, William Lever and Titus Salt created entire new towns like Bournville, Port Sunlight and Saltaire for their workforce to live in. In many regards these were remarkably forward-looking in terms of the quality of life they afforded, but there was often also a strong degree of micro-management and many rules dictating how those living in the towns had to behave, which exemplified the worst stereotypes of philanthropy as patronising and paternalistic.

The degree of choice that wealthy people get over how their money is spent on public goods can also further inequality, if those goods do not benefit everyone equally. This the classic criticism levelled at wealthy people funding arts and cultural institutions, which are perceived to benefit primarily others from the same demographic. It is also an issue that has come to the fore in the context of philanthropic funding of public parks in New York, because many (including current mayor Bill de Blasio) have expressed concerns that a small number of parks that already have significant resources are attracting the vast majority of the philanthropic money because they are in areas where the philanthropists themselves might benefit from them. Meanwhile, parks in more deprived areas of the city are struggling to survive.

Even where there is no element of enlightened self-interest in terms of the donors getting some benefit from the public good they are funding, and their giving therefore seems truly altruistic, there are still challenges. If, for example, the scale of philanthropy is sufficient to affect wider public policy priorities or governmental spending then even if it is done with the best of intentions it can have a distorting effect and result in power imbalance and inequality.

This is a criticism levelled at the efforts of donors like Mark Zuckerberg to address public schooling in the US. Their support for new models (notably charter schools) has the effect of drawing in public money, when many critics argue that what is actually required is simply to spend more on existing schools. In the international development context it is also a criticism that has been levelled at Bill Gates, on the grounds that his efforts to eradicate particular diseases like malaria - commendable thought they may be in themselves – can lead to governments in developing countries prioritising these in their own health spending policies in order to attract funding, even when there are in fact more pressing health issues that need addressing.

The imbalance of power in philanthropy is not an insurmountable challenge, but it won’t go away automatically. In order to overcome it, one must first recognise the problem and then take active steps to address it. This might be through new models of participatory grantmaking which seek to give local people and communities a role in deciding where philanthropic money is spent. It might be through harnessing big data to identify the priorities within a local area and demonstrate that interventions are being made in response to genuine needs. Or it might be simply by giving money to an existing charity or community organisation, but with no strings attached. If a donor cedes control over how money is spent and does not make additional demands when it comes to reporting and accountability, this can go a long way to reducing the power imbalance.

LEGITIMACY, ACCOUNTABILITY AND TRANSPARENCY

The fact that wealthy donors are able to wield power through their philanthropy is seem by some to be problematic not just because of the results it produces, but because it raises questions of legitimacy and accountability. What right to unelected individuals have to influence the public sphere in this way? And what mechanisms are there for local communities and wider society to hold them to account if necessary?

The question of legitimacy presents a profound challenge for philanthropy. By offering a means for unelected groups and individuals to influence public opinion and policy, through campaigning and direct provision of services, philanthropy  can be seen as profoundly anti-democratic. The short version is that I believe one can mount a defence of philanthropic action as a vital component of a conception of democracy that goes wider than the parliamentary or electoral system: part of the system of checks and balances on government alongside an independent judiciary and a free press. However, in order to make this defence compelling one needs to recognise that the way in which philanthropy is practised is absolutely critical to ensuring that it provides a healthy counterbalance to electoral democracy but does not undermine it. And it is only by getting this balance right that we can maintain philanthropy’s legitimacy.

Accountability is also vital to ensuring legitimacy. And this needs to be accountability not just to public sector funders or to direct beneficiaries, but to the local community more widely. If people feel as though they have the means to challenge philanthropic funding and decision-making, they are more likely to accept civic philanthropy as positive force for shaping their local area.

In order to get accountability, a key first step is getting greater transparency about philanthropic spending so that people actually know what is being funded in their local area and by whom. The trend towards open data could play a hugely positive role here, and organisations like 360Giving in the UK and Glass Pockets in the US are already making great strides in opening up data on philanthropy. But open data is unlikely to be sufficient in the short term (at least not without some sort of statutory force, which seems unlikely), so it is important that there are other mechanisms too.

Local journalism could play a big role here, as local news outlets with a deep understanding of the relevant context are well-placed to shine a spotlight on any potential issues and thus help to hold philanthropic funders to account. This makes the parlous state of local journalism a particular problem for those who want to ensure that civic philanthropy remains legitimate, and suggests that support for quality local journalism could be a focus of funding for foundations and others who are concerned with issues of philanthropic legitimacy.

AUSTERITY AND PHILANTHROPY

As highlighted at the start of this blog, civic philanthropy does not exist in a vacuum. Against the backdrop of ongoing challenges for local government finances and wider austerity policies, efforts to promote philanthropy in a local context run the risk of being seen as an attempt to replace public spending or prop up unsustainable austerity policies. Given that the relationship between taxation, public finances and welfare remains a key political dividing line, this is highly controversial. (Indeed it was the basis for a fairly scathing editorial in the Guardian shortly after the release of the Civil Society Strategy)

However, there are those who take a more pragmatic approach. An interesting recent profile of the way in which the philanthropy of the TalkTalk founder Neil McArthur has helped revitalise the town of Irlam in Greater Manchester carried a quote from the mayor of Salford, who despite being an avowed socialist was sanguine about the way in which Irlam had become reliant on philanthropy because “it’s a great model for delivering in a climate of austerity, where our budgets have been cut by 50%”. One would imagine that many other local government leaders might take a similar view if a big money philanthropist came calling with an offer to invest heavily in their local area.

In the US, there has been a trend for municipal governments to go beyond mere acceptance of philanthropic funding, and instead go out of their way to court it. Most famous is probably the example of New York under the mayoralty of Michael Bloomberg, who was himself a major philanthropist and devoted a lot of effort during his time in office to attempts to leverage more money from other wealthy donors in the city. Bloomberg was extremely effective in this regard, although to some extent New York represents a special case given that it is a global centre for finance and has a long track record of significant civic philanthropy.

But more recently there have been a growing number of cases elsewhere in the US too, and these are leading some to harbour concerns of the kind outlined above, about the challenges of power, legitimacy and accountability. The cities of Detroit and Flint, Michigan both turned to philanthropic foundations for support when they ran into insurmountable financial difficulty. The city of Kalamazoo (also in Michigan), recently caused controversy with the announcement that it was creating a new $500m endowment using a mixture of public and philanthropic funds in order to help the city stabilise its budget and finances.

One of the most intriguing examples of this phenomenon is the city of Stockton, California. The mayor of Stockton, the 27-year od Michael Tubbs, garnered national headlines when he first came into office in the cash-strapped municipality for his plans to create a universal basic income pilot in the city. However, more recently he has turned to philanthropy and announced ambitious plans to attract millions of dollars in funding from donors and philanthropic foundations.

What is particularly interesting about the approach in Stockton is that they are attempting to avoid some of the challenges we have explored in this blog when it comes to power and legitimacy. A big part of this is retaining control over what the focus of any philanthropic efforts are, to ensure that they genuinely meet the needs of the local area.

To this end, the mayor has partnered with a group of existing non-profits and community organisations to define what those priorities are and is then working with them to bring potential funders on bus tours of the city to view projects. In this way, as reported in an article in The Atlantic, the hope is that “rather than letting philanthropists come in and decide where they will spend their money and what policies they want to fund, the city and community groups have spent years thinking about what programs should be funded, and inviting donors to choose one, or a few.”

There are likely to be significant challenges to making the Stockton approach work in practice, given the inherent imbalance of power between those controlling the purse strings and those looking for funding. However, the attempt to place the relationship on an equal footing - between those who understand local needs and potential solutions, and those who have financial resources they want to use for public good in a local area- is commendable, and it will be fascinating to see how it goes.

PHILANTHROPY VS PUBLIC SPENDING: A MISMATCH IN SCALE

However, aside from the issues of political and ideological disagreement, there are two main criticisms levelled at efforts to use philanthropy to replace or cover gaps in public spending that must be taken into account.

One is simply that the amounts involved are insufficient. Even when we are talking about truly big money philanthropy, it almost always pales in comparison with the scale of public budgets. That is why Bill Gates has called philanthropy “at best a rounding error”, while Michael Bloomberg has said that “all the billionaires added together are, as they’d say, bupkis compared to the amount of money government spends”. Which does not mean that philanthropy has no role to play-  it just means that that role must be seen as complementing required levels of public spending (as a spur for innovation and risk-taking, for example) rather than replacing them.  If we look to philanthropy as an outright replacement for public spending then not only do we lay ourselves open to criticism on ideological grounds, we are also likely to be disappointed when it falls far short in terms of amounts.

INEQUALITY, PATCHWORK PHILANTHROPY AND POSTCODE LOTTERIES

The other major criticism is that even if the amounts of money generated through philanthropy were sufficient, it is an uneven mechanism for distribution and thus results in increased inequality. This could be inequality of cause, whereby certain types of activities receive the lion’s share of funding whilst other, less popular issues struggle to find financial support. When it comes to the existing profile of charitable giving in the UK, the largest share of funds goes to religious causes, followed by overseas aid and disaster relief, medical research, hospitals and hospices and then homeless people, housing and refuges. These causes taken together account for 64% of total charitable donations in the UK. And while they are all undoubtedly worthwhile in their own right, it is far from clear that they accurately reflect the profile of most pressing needs, either at a national or local level.

Geographic inequality may also be a problem. This might be within the context of a particular place, if individual areas or neighbourhoods attract a disproportionate amount of philanthropic funding, or if civic spaces and public amenities disproportionately benefit particular sections of the community (as we have already seen has been argued to be the case for New York parks).

There is also likely to be inequality between different geographic locations. Some will have a greater ability to harness philanthropy, either because they have a stronger existing pool of donors and funders to draw on, or because they have greater resources in invest in developing it. Thus, at a national level, the distribution of philanthropic resources may well be extremely unequal.

A particular concern is that this will amplify existing inequality, because already-prosperous areas are more likely to have people willing to give and organisations able to take donations; while economically-deprived areas may have fewer potential donors and little existing charitable infrastructure.

A recent report from the Young Foundation exploring the link between the distribution of philanthropy and public spending and the profile of voting in the Brexit referendum gave cause for concern along these lines, as it highlighted major disparities between different areas. In particular, it identified a number of “cold spots” where public and philanthropic spending is low, yet indices of multiple deprivation show that needs are acute; and conversely a number of “hot spots”, where needs are far less acute yet spending levels are high. The geographic distribution of these hot and cold spots is as one might expect, with the former largely concentrated in London and the South East and the latter elsewhere.

For Nye Bevan back in the 1940s, this was the core failing of philanthropy, and led him to declare that “a patchwork quilt of local paternalism is the enemy of intelligent planning”. But what should modern policymakers do about it? If they want to promote the idea of civic or place-based philanthropy, does this necessitate embracing the dreaded ‘postcode lottery’ too? Or are there ways in which the distribution of philanthropy at a local and national level can be ‘smoothed’ and made more rational?

This is a huge question, which goes right to the heart of one of the fundamental tensions in philanthropy: is it primarily about the act of giving, and thus the individual choices of donors should be prioritised? Or is it primarily about the outcomes achieved through giving, and thus donor choice should be secondary to making the distribution of philanthropic resources as effective as possible?

There is a while spectrum of views on this question, from those who believe that donor choice is totally sacrosanct to the Effective Altruists who believe that donors shouldn’t even exercise choice over the cause area they give to- let alone how their money is best used. However, many would baulk at the suggestion that government should play a role in determining where philanthropic funding should or shouldn’t go (at the very least, there seems an obvious “slippery slope” argument to be made).

One possible way of squaring this circle is through the use of data. By making data on local needs and on existing philanthropic provision open and accessible to donors and funders, we could at least provide them with the resources to make informed decisions. They would, of course, remain free to draw their own conclusions from the data (or even disregard it), but that would at least entail a conscious decision rather than simply happening through lack of the required information.

SO WHERE NEXT?

Coming back to our original starting point, it is clear that there are some significant issues we need to address if we are to expand civic philanthropy in such a way that we avoid creating unintended negative consequences. However, this is not meant to be a council of despair: there is still huge value in trying to do so, as the potential benefits could be enormous (for an idea of what I think these might be, see our Giving a Sense of Place report from last year). The challenge for all of us who want to develop a new culture of civic philanthropy in the UK is to face up to these issues and find ways of avoiding or overcoming them. This will not always be easy, but then things genuinely worth doing seldom are.

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