Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

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INNOVATION, DISCOVERY AND THE LEGITIMACY OF PHILANTHROPY?

2 April 2019

Innovation has long been put forward as one of the key strengths of philanthropy - particularly in the context of comparisons to the state. But is there a stronger claim to be made: not only that philanthropy can be innovative, but that it must be?

One of the central questions of Rob Reich’s recent book Just Giving: Why Philanthropy is Failing Democracy and How it Can Do Better is how we best understand the role of philanthropy in a democracy; and what justification there can be for the generous tax subsidies it generally receives. As we shall see below, following his arguments (and their historical precedents) brings to light some key questions about the nature of philanthropic innovation and whether it is merely desirable or in fact a fundamental part of ensuring the democratic legitimacy of philanthropy

In very broad terms (and hopefully not doing too much of a disservice to the nuances of his arguments), Reich identifies two main ways in which the role of philanthropy can be justified.

Justifying mass market giving: Plurality and Public Choice

The first is the way in which it offers a means of decentralised choice over public goods ie a mechanism for citizens to express the strength of their concern about specific needs and issues that can sit alongside the ballot box and the other machinery of representative democracy. Two of the traditional weaknesses of democratic government are that it is not always that responsive or adaptable to changing priorities, and that it can give rise to a “tyranny of the majority”, in which the weak preferences of the multitude always outweigh even the strong preferences of a minority. So the benefit of philanthropy here is argued to be that it can offer an alternative means of expression for citizens and thus potentially redress the balance.

This works well as a justification for a pluralistic version of civil society, supported by a broad range of citizens. However, as Reich notes, the problem in practice is that philanthropy almost always introduces a plutocratic bias, whereby those with the greatest financial resources are able to exert a disproportionate influence on public policy and debate through their giving. (This is also, he argues, exacerbated by the way in which tax breaks for philanthropy are given- particularly in the US).

So we can’t rely on an argument about pluralism or decentralisation of public choice to justify philanthropy at the top level (although, as we will see shortly, this does raise a difficult question about where we draw the line between normal philanthropy and ‘elite’ philanthropy.)

Justifying Elite and Endowed Philanthropy: Discovery

Justification on the basis of plurality or decentralisation of choice is also difficult to stack up when it comes to philanthropic institutions such as foundations, as it is not clear to what extent they can be said to represent the choices of citizens. This is particularly problematic for endowed institutions that are susceptible to “dead hand of the donor” criticisms: where their legitimacy is questioned on the grounds of inter-generational justice because they reflect the wishes and whims of a dead individual from a prior age; rather than the needs of priorities of society as it is today. As Sir Arthur Hobhouse, one of the most strident critics of the idea of perpetual endowments, put it:

“To me it seems the most extravagant of propositions to say that, because a man has been fortunate enough to enjoy a large share of this world’s goods in this life, he shall therefore and for no other cause, when he must quit this life and can enjoy his goods no longer, be entitled to speak from his grave for ever and dictate for ever to living men how that portion of the earth’s produce shall be spent.”

So for elite and endowed philanthropy, a different justification is required. Which brings us to innovation: because according to Reich, this justification is to be found in the idea of “discovery”. By giving philanthropy licence to experiment and explore, the argument goes, it can play a valuable role in bringing new issues and causes to light and finding new ways of addressing known challenges. And this enables it to compensate for one of the known limitations of democratic governance: that it is often not good at accounting for the future or adapting ahead of time. Thus, Reich argues, “foundations can serve as democratic society’s “risk capital”, a potent discovery mechanism for experimentation in social policy with uncertain results over the long term.”

If the justification for elite (and particularly endowed) philanthropy rests on the idea of “discovery”, then it seems to follow that innovation isn’t just a nice-to-have thing that donors can pat themselves on the back about; rather it is the fundamental reason that society as a whole allows them the freedom to give away wealth (and subsidises it through the tax system). This raises a number of important questions.

1 Where do we draw the line between plurality and discovery as a justification?

If we are to offer two different justifications for the legitimacy of philanthropy (and any tax subsidy it may receive), there are questions about how we apply them. For instance, does the justification on the grounds of decentralisation and plurality work for all instances of ‘average’ philanthropy, and only for these? Or are there potentially examples of elite or endowed philanthropy that can still be justified in this way? (Perhaps because they seek to build a broad base of grassroots support for an issue and thus ensure some kind of democratic basis).

Conversely, can lower-level philanthropy also be justified on the basis of discovery? Or is this the sole preserve of those with sufficient resources at their disposal? (Reich seems to think something akin to the latter, as he argues that it is impractical - and probably deeply inefficient - to expect most normal philanthropy to be able to drive innovation in any meaningful way).

If there is a distinction between average philanthropy, justified on the basis of plurality and decentralisation, and elite or endowed philanthropy ; justified on the basis of discovery or innovation, then where does the dividing line fall? Is there a clear cut off point at which an act of philanthropy reaches sufficient scale that it is no longer a valid example of the decentralisation of public choice, and instead becomes a plutocratic exercise of power? Or is there always likely to be a large grey area, in which we can justifiably disagree about the status of acts of philanthropy and how they are to be justified in the wider context of society and democracy?

2 How much elite philanthropy actually meets the criterion of discovery?

If the justification for elite and endowed philanthropy is the role it plays in discovery, then how much philanthropy of this kind actually fits the bill? I.e. how many big ticket philanthropists or foundations are genuinely pursuing innovative goals or using innovative methods?

It is clearly hard to gauge in any sort of systematic way: partly because the information we would require about the overall distribution of philanthropy is not really available, and partly because what counts as ‘innovative’ is always subjective to some degree. However, what we can say is that the charge of being unimaginative or risk averse - when levelled at donors or funders-  is often presented as one of the most damning criticisms there is.

Even during the supposed Victorian “golden age of philanthropy” in the UK, some critics argue that the scale of giving masked the fact that a large majority of it was extremely conservative. Historian David Owen notes that:

“The chief impression left by late-century bequests is not that of eccentricity but that of conventionality… few contained anything particularly venturesome or imaginative. Money went, on the whole, to maintain established institutions or to create new ones of the same sort...There was dissatisfaction in some quarters over the behaviour of British philanthropists… a critic might complain of the “great lack of originality on the part of rich men in disposition of their wealth”.

Even individual donors were sometimes taken to task. In an 1886 obituary for the philanthropist Samuel Morley, for instance (a man who did admirable work rescuing and supporting the Old Vic theatre in London), the Spectator magazine took the opportunity to rail against what it perceived as a failing of contemporary philanthropy that he embodied. Namely:

 “The kind of catholicity which distinguishes English middle-class philanthropists. They seem to give to everything good, rather than to any cause; to find more pleasure in helping on everything they approve, than in carrying on any one work by themselves…[thus] the dreamer who dreams what he would do with money takes up “a cause” in his visions, and thinks it would, were he once rich, prove all-absorbing’ but the actually rich philanthropist divides his benefactions, and finds so many objects deserving of help that he completes no single work at all.”

One question in response to this criticism is whether all of a big money donor’s giving needs to be innovative and result in discovery; or whether it is ok for some of it to be more straightforward or reactive? Can one perhaps purchase a ‘license for one’s philanthropy’ by ensuring that a sufficient proportion one’s giving meets the discovery requirement to quell any criticism about pursuing a more straightforward or reactive in the rest of it? (And if so, what counts as a sufficient proportion?)

3 Can we have “too much innovation”?

As well as deciding when a philanthropic project is sufficiently innovative to meet the criteria of discovery, do we also need to have some mechanism for ensuring that it is not too innovative? I.e. making sure that philanthropists do not go too far in their desire to be innovative and steer away from the obvious? At what point, for instance, does a ‘philanthropic big bet’ become a wild goose chase or a vanity project that diverts resources away from other areas in which it could be better spent?

These are important questions at a time when a growing number of big donors (particularly those from a Silicon Valley background) are choosing to focus their philanthropy on long term issues such as human space exploration (which I explored in an earlier blog) or countering the risk of AI takeover (the hypothetical point at which an artificial intelligence develops beyond human capability and decides to start running the show).

Now, some would argue that these are precisely the sort of long-term big bets that should be the focus of philanthropy. Others, meanwhile, would argue that they merely reflect the techno-centric worldview of people who have made a lot of money through technology and thus naturally see the world through that lens. (Some might even point out something like AI takeover seems like a textbook case of “Pascal’s mugging”- the philosophical criticism that any future event, no matter how unlikely, can be argued to be worth taking seriously on a utilitarian basis if it would affect a sufficiently high number of future lives).

Billionaire Amazon founder Jeff Bezos became a focal point for criticism on these grounds after giving an interview in 2018 in which he seemingly bemoaned the difficulty of spending his fortune and commented that. “The only way that I can see to deploy this much financial resource is by converting my Amazon winnings into space travel.” Critics compared this unfavourably with both Amazon’s poor track record on paying workers minimum wage, and with Bezos’ lack of significant philanthropic giving at that stage. They pointed out that much of the profit Bezos makes could be reinvested in treating his employees more equitably and that there are plenty of other major challenges in the present day that he could focus any additional philanthropic resources on, rather than spending it all on space exploration.

The flipside, of course, is that for anyone who laments the lack of progress we have made in manned space travel since the 1970s, or who believes that our future as a species depends on expansion to the stars; a focus on space exploration might well represent the best possible use of philanthropic resources.

If the question of ‘how much innovation is too much’ is subjective (which it certainly appears to be), then the immediate practical question, again, is how we determine the cut-off point. Reich’s suggestion is to adopt something akin to the system of peer review that exists in academia; in which the schemes of a given philanthropist would be subject to the approval of a body that represented their relevant peers, who could then determine whether or not it should be seen as legitimate. He argues that “peer review could in principle foster norms that, without the need for formal legal regulation, help to hold private foundations to a discovery mode.”

This is an interesting idea that definitely deserves more consideration. I can however, see two immediate problems with it. The first is the practical one of getting philanthropists - who are often very individualistic and idealistic - to accept any given group of people as their ‘peers’ when it comes to assessing their giving. This is not a reason to give up, merely an observation that the system of peer review may need to be more enforced than voluntary, and that that may bring its own challenges.

The second problem is that, as with so many things, it is much easier to judge the value of philanthropic big bets in hindsight rather than ahead of time. As political and social reformer Thomas Hare point out in a speech on the value of endowments in 1869, “The most important steps in human progress may be opposed to the prejudices, not only of the multitude, but even of the learned and leaders of thought in a particular epoch”. Might there be a danger, therefore, that in seeking to make philanthropy more legitimate, we inadvertently stifle its ability to foster discovery by imposing upon it the limitations of accepted wisdom and group-think?

4 Does philanthropic discovery run counter to democracy?

Building on the last point, does the onus on philanthropy to be innovative run directly counter to the desire to make it more democratic? Is it precisely the fact that it is not constrained by the requirements of electoral democracy, nor even - in the case of individual donors - by the need for group consensus of any kind that makes it able to take the big bets that lead to discovery?

This is certainly the argument deployed by many who tout philanthropy as a more effective way of driving innovation than the state. However, even if one does believe that this comparison is justified, it is far from clear that it requires us to give absolute autonomy to the donor. Could there not be mechanisms for decision making and accountability that sit somewhere between electoral democracy and total philanthropic laissez faire, and which allow us to keep philanthropy in sufficient check to ensure it does not become anti-democratic whilst still allowing enough freedom for innovation to occur? The various approaches to things like participatory grantmaking might offer valuable avenues for exploration along these lines.

5 What do we do with philanthropic discoveries?

Assuming we have somehow squared away all of the above issues, there is still a question about what the benefit for society of allowing, or even subsidising, philanthropy in order to get discovery actually is. What is the end goal? If innovations are found, is the intention to continue funding them through philanthropy in perpetuity, on the basis that this is preferable to state provision? Or is the goal always to find an exit by demonstrating the value of a new approach, or the importance of a new issue, sufficiently clearly that the state will step in and adopt the approach or start addressing the issue?

There are certainly those who would view philanthropic or voluntary provision as preferable to state provision, even if they grudgingly recognise the necessity of the latter (for now, at least!) There are conversely those who would view state provision as preferable to philanthropic, but who might acknowledge that philanthropy has a role to play as a catalyst for innovation or a means of holding state provision to account.

Given that this is one aspect of a big state vs small state division that forms one of the major political dividing lines of our time, it shouldn’t come as a surprise that I don’t have a clear prescription here. However, it is important to note that it is hugely relevant for the notion of discovery and the question of how we gauge philanthropic legitimacy.

6 Is philanthropic discovery actually necessary?

The final question to ask is whether philanthropic discovery is actually necessary at all. The case in favour is usually based on an assertion that the state is somehow incapable of delivering innovation. As Bill Gates said in a recent interview with Forbes:

“Philanthropy is there because the government is not very innovative, doesn’t try risky things and particularly people with a private-sector background—in terms of measurement, picking great teams of people to try out new approaches. Philanthropy does that.”

Historian Betsy Rodgers noted something similar in her 1949 book Cloak of Charity, arguing that “Voluntary societies can venture and experiment where a government department can only prevaricate and elude… [so whilst] the early philanthropists had faults and weaknesses… they were pioneers who often influenced the course of history.”

William Beveridge, meanwhile, thought that whilst “the democracy can and should learn to do what used to be done for public good by the wealthy”, in practice, “the problem is that of getting the democracy to give for new things, and unfamiliar needs”. Reich echoes this point in his book, arguing that “citizens in a system of democratic governance tend to expect and prize tested and reliable outcomes in public policy.” i.e. whilst we may profess a desire to see more social innovation and experimentation taking place, when it comes to our own tax dollars or pounds many of us are less keen on the idea that they might be spent on high-risk ventures.

And Thomas Hare eloquently made a similar point, noting that:

 “No doubt the nation at large may take on itself the cost of such tentative efforts, but this involves taxation; and the assent of the majority to increased taxes could not be justly demanded by philanthropists or projectors, and certainly would not be obtained until their speculations had taken such a hold upon the public mind as no longer to require an exceptional support or propagation.”

It seems as though there must be at least some element of truth in the idea that the state finds innovation more difficult that philanthropy, given that it has been such a pervasive motif in the debate between the two for such a long time. However, just as we highlighted above the need to be careful about assuming that philanthropy is always innovative, do we not also need to be careful about assuming that the state is always not innovative?

Economist Mariana Mazzucato argues in her book The Entrepreneurial State for instance, that many of the vaunted innovations of the tech sector and others are actually dependent on research and development work done in the public sector and funded by taxes. And a recent article in the Boston Review questioned the historical basis of the myth of “creative disruption” in the corporate sphere: arguing that in many cases it is a narrative used to perpetuate the idea that companies should remain free from all responsibility to wider society, when in actual fact those companies have relied on government support and beneficial legal and regulatory environments for their success.

And to reinforce the point that even if for-profit organisations are innovative, it doesn’t mean they have a monopoly on that innovation; there are many people working on social innovation within public services around the world. Whilst this may still represent the exception rather than the rule, perhaps it suggests that the whole “philanthropy innovative, state not innovative” narrative needs to be considered much more carefully.

The final thing to say is that even if philanthropy is demonstrably more innovative, that still leaves a question as to whether the state is unable to innovate or simply unwilling. If there is something inherent in public provision that prevents innovation, then that is one thing. But if it is merely a matter of practical reality - a reflection of cultural or structural issues that dictate risk aversion - then that is a different matter. In this latter case, one could argue that philanthropic discovery or innovation is not a fundamental requirement within society, but merely a pragmatic necessity. And as such, one might believe that the most effective way to spend resources would be to focus on removing the constraints that prevent public sector innovation, rather than on philanthropy.

Conclusion

Whilst there are questions about how we assess what counts as “innovation”, there is definitely a strong argument that if elite philanthropy is to maintain its legitimacy in our democratic society then innovation is a necessary, rather than simply desirable, feature. There is pretty compelling evidence that philanthropy at its best can be a powerful catalyst for innovation, but we cannot simply assert or assume that this will be the case. The onus, therefore is on major donors and foundations to ask themselves whether at least some of what they are doing is innovative; and to demonstrate how their actions result in discovery that can move society forward.

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