A Foundation for Positive Change
In profit-oriented philanthropy, corporations pursue their charitable endeavors through profit-making entities (Google.org appears to be the prototype, but eBay founder Pierre Omidyar’s Omidyar Network embraces a similar concept). The traditional categories of “commerce, capitalism and philanthropy” no longer fit a “new generation of social problems or market opportunities,” and promising, pioneering initiatives in the corporate sector are “blurring” the division of labor between the for-profit and non-profit sectors. Amidst all the excitement, progressives must endeavor not to lose sight of the key responsibility of governments to respond to our world’s most pressing problems of poverty; inadequate water, sanitation and healthcare, and global warming.
Much of the discussion over blending business and – choose your preferred catchphrase here – “philanthropy,” “charity” or “social responsibility” is silent on the role of government. It’s unclear whether market-based proposals are mitigating previous government failure at solving social problems or are a means to enhance on-going government efforts. Progressives interested in redressing persistent global challenges should be wary of espousing the results-oriented rhetoric of “outcomes” and “scalability” in philanthropy’s “new turn,” without articulating a broader justification for socially-oriented activity. In defining a unifying vision for tackling the world’s most pressing problems, governments play a decisive role (see for instance, the UN’s Habitat Agenda for addressing global urbanization, ratified by 171 countries). Yet, governments must also lead by example rather than relinquish primary responsibility to the market. Researchers at Duke University and the Center for American Progress illustrate how progressives should shift the pressure from Wal-Mart back to our government towards this end. A brief look at our attempts to alleviate poverty in the 20th century via affordable housing production illuminates the limits to private sector effectiveness at combating social problems absent government leadership. (This report expands on the following summary.)
The U.S. government historically was remarkably productive at alleviating housing shortages during times of economic crisis. The Depression spurred our most aggressive attempts at tackling shortages and affordability, especially for low-income families. The US Housing Authority (USHA) built 100,000 units of housing in 140 cities between 1937, the year of its inception, and 1942. The creation of the USHA signified that housing for low-income Americans in urban and rural areas had become a public responsibility. Critically, precipitating legislation – the birth of the Federal Housing Administration (FHA) in 1934 – not only led to this phenomenal productivity, it also revitalized the private homebuilding industry, created new geographies (the “‘burbs”), and stimulated an enormous growth in homeownership over the next two decades.
By 1956, there were over 400,000 units of public housing nationwide, representing 1% of all occupied housing units, and 2.3% of all rental housing. During the 1950s, private builders and voters increasingly fought back against any additional public housing development. The growing class divide between the cities and suburbia created two sharply different worlds of urban, poor, minority renters versus suburban, white, middle-class homeowners. In less than 30 years private sector partners and citizen recipients abandoned the federal government in its effort to provide quality, affordable housing for the majority of Americans. In 1965, the Department of Housing and Urban Development (HUD) was created at the Cabinet level, signaling the elevated importance of housing and community development in the federal government.
Yet, no subsequent affordable housing initiatives came close to the ambitious efforts of the 1930s and 40s. Indeed, through a policy conversion to vouchers and tax credits, and a shift in primary housing responsibility to state governments and the private sector, since the 1980s the trend of low-income housing construction is one of “small- or medium-scale, individualized responses to the housing crisis.” In the last 14 years, the most visible federal involvement in this crisis has been HUD’s HOPE VI program, which typically replaces public housing projects with mixed-income developments, rarely with a one-to-one replacement of the former number of affordable units. Research by the National Low Income Housing Coalition (NLIHC) estimates the current effective shortage of affordable housing in the U.S. at approximately five million units.
Even in times of strong commitments to affordable housing, other government policies such as New Deal era “separate but equal” racial housing policies contributed to the current racial and economic residential segregation that characterizes this country. Nonetheless, a detailed report this month from the NLIHC shows how the abdication by the federal government of low-income housing construction to the private sector is resulting in an ever-widening gap between private market production and housing affordability for all, but especially low-income, Americans.
These more recent chapters of our public housing history demonstrate the limits to resolving endemic problems such as poverty and segregation via a focus on the quantifiable outcomes (e.g., number of housing units) that fundamentally define success for for-profit endeavors. Furthermore, this retrospective illustrates the on-going need for government stewardship in addressing social problems. While private sector innovation can lead to cost-effective, advanced (“green”) design and construction techniques, ultimately, affordable housing production necessitates significant material incentives from the federal government. Otherwise, it’s just not profitable. As the Duke/CAP report emphasizes, unless social benefits are strategically related to profit-maximization (e.g., building goodwill via charity to increase brand loyalty and thus sales and thus profits), it is antithetical for companies to pursue such goals.
Until recently, a public mandate for social justice seemed to be shifting from the government to the private sector. Current trends in for-profit philanthropy and progressive support for them suggested that our globalized market had co-opted government and civil society:
By giving corporations a seat at the table and making compliance a voluntary, market-driven norm, pressure groups believed they could reach their goals without controversial regulation and reduce their dependence on national governments. To that end, the Clinton Administration gave the groups its blessing—its 1995 Model Business Principles encouraged private firms to "adopt and implement voluntary codes of conduct for doing business around the world.
A New Year and incoming Democratic Congress has stimulated healthy debate about such “pragmatic” policy measures. But we have much to undo of thirty years of misdirected public-private partnerships. Of $160 billion in federal housing subsidies in 2005, almost 50% went to the top 20% of households (earning at least $92,000 per year), while only 24% went to low-income housing. For progressives, the next few years bring an indispensable opportunity to revisit the “core democratic values” that underwrite our commitment to equity and justice; they are our foundation on which to build a more positive, equitable future.
Happy New Year.
This is cross-posted at Foresight.
Great post Leigh!
Could you say more about the legal status of for-profit philanthropy? Is it like a foundation? Is it private? Are profits required to be reinvested? If they pay taxes, I guess they can do whatever they want. But then what's the difference with a private company that declares its products to be "good for humanity" ?
December 17, 2006 4:09 PM | Reply | Permalink
Um...isn't "profit-oriented philanthropy" just another name for investment?
Example: once upon a time some people invented airplanes. Some people with money then invested their money in companies that built airplanes, and in other companies that flew passengers in airplanes from one place to another. The airplane business succeeeded. Some of the investors made money. And airplanes turned out on the whole to be good for humanity.
So I guess now we call this example capitalism-as-usual "profit-oriented philanthropy"?
Hey, maybe my boss will start calling my paycheck an "employer-employee tithe" or or a "corporate humanitarian outlay" on account of the fact that I take the money from the paycheck and feed my family.
Business people are always inventing new public relations-friendly bottles for old wine. But there is nothing new here. There is no paradigm shift to a "new generation of social problems or market opportunities". There is no "new model" or "blurring" - other than in the ever- blurrable minds of the consumers of corporate marketing and branding. All innovative and dynamic companies have always brought about "social change". That's what companies do. At least sometimes the things they invent and sell are good for people, and make the world a better place. Let's not start calling business "philanthropy" on that account.
Shrewd investment for profit is not "charity". Like earlier investments in airplanes, or investments in pharmaceuticals, or investments in the personal computing industry, these new investments might produce saleable goods that are also good for humanity, and that have a profound impact on society. But "charity" means giving things away, ok? That's all there is to it.
So to all these capitalist risk-takers and world-changers: knock yourselves out. Go for it. Produce something useful and world-altering, sell it, and make some money. But please don't try to con the public into believing that you have invented a new-fangled form of charity, when it's is just old-fangled capitalism and profit-making.
December 17, 2006 6:14 PM | Reply | Permalink
One of the perverse triumphs of being a conservative and watching the Bush administration go down in flames has got to be the opportunity to use Bush ineptitude as an example of how the government "gets everything wrong." Walmart moving in after Katrina and setting up tent stores (and scoring a huge PR triumph in the bargain, natch), was trumpeted far and wide as showing what business can do, but government (the Bush-brain-drained FEMA) can't. Swept under the carpet of visible examples like these are the many, many times when business fails. It's an oft-bandied statistic (possibly false), for example, that 80% of businesses don't survive more than a year. We can look at Enron or Worldcom or a host of other examples of egregious moral and practical business failures, yet people don't seem to get as cynical about business as they do about their government. They'll send their kids to government schools, cash their government social security, call their government fire departments, drive to work on their government roads, and then stand around the watercooler talking about how inept the government is. As someone who believes socialism is stupid, but a well-run (as opposed to what we've seen for the past 6 years) government plays a positive and indispensable role in society, I'm always surprised by this -- that a seeming majority of people swallow the conservative talking points about government whole. Now we're getting to the point where we are supposed to rely on business, whose sole purpose is to make a profit, to take over the social responsibility role that government has played? I don't know how "for-profit philanthropy" will fail, but it will. I also know that somehow, the government will take the blame when it does.
December 17, 2006 6:18 PM | Reply | Permalink
I'm opposed to private philanthropy. The money is spent at the whim of the philanthropist without any regard to the priorities of the society. This is anti-democratic. I'm OK with charity which I define as personal giving.
For example, the Gates-Buffet foundation to fight AIDS and Malaria and other diseases-of-the-month has been criticized for focusing on the person rather than on the society. Vigorous public health activities would give more bang for the buck by heading off future cases. This is the Mother Theresa effect - treat the poor, but don't treat poverty.
I lay out my objections and alternatives in this short essay:
Abolish Philanthropy
--- Policies not Politics
Daily Landscape
December 18, 2006 6:55 AM | Reply | Permalink
Thanks!
This is a good question. Right now, the legal structure is the same as any for-profit entity. Scholars at Chicago's Law School are arguing that non-profit tax exemption should be extended to "for-profit charities," which is an institutional form they think would flourish if "discriminatory tax treatment" would change. Here's a link to their research:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=928976
So far, Google.org's case is to be a for-profit, but with the intention to plow all the profits back into their R&D and product development, rather than distribute the profits to shareholders, etc. Understandably, critics are skeptical of this pledge; the big argument offered is that in times of an economic downturn, Google shareholders might demand that Google.org profits be used to support other arms of the business. The response to that is that the 2 founders of Google are the major shareholders, so arguably there would not be shareholder profit-maximization activism, per se.
This debate raises an interesting wrinkle about "for-profit philanthropy" - essentially, it's pledges to socially-oriented R&D by mega-wealthy founders of firms - Richard Branson (Virgin), Pierre Omidyar (eBay), and the Google guys. So, while it sounds like they're taking their companies in a new direction, in some ways they're just spending their accumulated wealth differently than people like Bill Gates and Warren Buffet (Berkshire Hathaway), who are plowing their fortunes into foundations that have the same broad objectives - mainly, to combat the world's most pressing problems. Essentially, the "for-profit" adjective is overblown. This is about 21st century financiers experimenting with new forms of philanthropy, and some are wondering if they can generate a social return on their investments.
So, in many ways, they're not much different from companies that are trying to do right by humanity (e.g., Whole Foods) where corporate social responsibilty is built into the entire business model. The difference is that Google et al. are trying to separate the two bottom lines. Whether we think this is a good/better idea or not is up for debate.
December 18, 2006 10:16 AM | Reply | Permalink
Right on!
December 18, 2006 10:20 AM | Reply | Permalink
I agree with you re: treating the poor, not poverty. That's why we need to bring government back in: they're the only institution that can take on such a mandate, and we've gravely relieved them of this responsibility (and shifted much of the blame of poverty etc. onto the victim, i.e., the poor). I agree that via philanthropy we're beholden to the whims of the donor. Indeed, that's not just true of individual philanthropists like Bill Gates, but among the large, established philanthropic institutions that shift their programmatic goals and funding priorities as they see fit. While it may appear they're responding to market needs, my experience in post-Katrina New Orleans and in the non-profit sector over the last years is that they identifykey trends, but then design their funding programs as they see fit, and ask those in need - local individuals or community-based organizations - to tailor their needs to meet the funding requirements. It's quite top-down and problematic. It's also largely due to this private-sector emphasis on ROI and quantifiable outcomes that has seized the philanthropic world in a context of shrinking public or charitable funds to support their work, forcing them to account for each dollar spent in a way that does not allow them to put $$ where it is most needed (e.g., in operating funds for a small non-profit to provide programs and service delivery effectively via a strong staff).
December 18, 2006 10:40 AM | Reply | Permalink
Thanks Leigh for your thoughtful, informative reply. This is fascinating stuff. I was despairing to see any discussion on this subject (the role of government in anti-poverty programs) in TPM, so it's been a real treat to read your posts.
Hope to see you here again soon.
December 18, 2006 5:52 PM | Reply | Permalink
I'm not impressed with the Foresight blog. I left a comment on a prior thread (Lydia Bean) and it got "moderated" into oblivion. The first principle of online discussion is the willingness to have one. Otherwise the actions speak louder than the high-minded sounding rhetoric.
Many of the rightwing sites are very controlling about the types of comments they will allow. This, of course, confirms their fundamental preferences for autocratic forms of society.
New Vision seems to be a new breed, what I call neo-liberal, a blend of libertarian internationalism and utopian social policy. The neo-con prior generation was misguided and it would appear that the new generation is making similar mistakes.
Democracy is messy, inefficient and can produce bad outcomes, but the cure is not philosopher-kings, neither conservative nor liberal ones. The solution is transparency and education and living with imperfection.
--- Policies not Politics
Daily Landscape
December 19, 2006 7:35 AM | Reply | Permalink
Rdf -
I can only speak for myself when I say that I agree with you that "democracy is messy" (and in my opinion, sometimes brutal and violent) and your implications for what that means about commentary, debate, etc. I just went to Foresight and looked for your comment, and can't find it, so I'm assuming by "'moderated' into oblivion" you mean it never ran? I write for the site, and consider it a victory whenever we get comments beyond ourselves and our immediate circle of colleagues. I don't know what happened to your comment, but I'm pleased we at least stimulated your input. What happened to it, I don't know, but one of the reasons I've liked posting at TPMCafe is because the comments flow, and the debate happens. I'll definitely let my colleagues at Foresight readers think we could be better at fostering discussion. I know it's important to us as emerging scholars to be part of a forum for discussion about the issues we study and care about.
On a side note, I'm amused. This is now the second time I've been called a neo-liberal (the last much more directly, by housing activists in New Orleans) and I generally disagree, though in varying degrees depending on exactly what people mean by this term. One thing I'd like to see a stronger part of the debate, which I touched on in my first post at TPMCafe, is new forms of democracy, politics and governing in the U.S., with more emphasis on the pursuit of national and international equity and diversity as ends unto themselves, fair trade globally, a balance of power b/w goverment and the market, and a more empowered civil society than merely mobilizing for elections every couple years. I'm not sure what to call this - it's certainly utopian and/or idealistic! - but I'd rather be motivated by a global vision than a certain approach to governance - i.e., incremental, pragmatic, management-style government. The latter is fine once we know what we're pursuing; a US neoliberal focus on "what works" is insufficient.
December 19, 2006 8:31 AM | Reply | Permalink
I just posted my original remarks about abolishing philanthropy on the Foresight blog.
The posting shows with this header:
rdf Says: Your comment is awaiting moderation.
It does not show as a comment however. Perhaps there is something wrong with the site's software? If you can get it working it would also be nice if one could preview remarks and include html markup.
--- Policies not Politics
Daily Landscape
December 19, 2006 9:45 AM | Reply | Permalink
Your comments are up. They were 2 of 4 real comments hidden in 254 spams. Apologies they got lost in the shuffle.
December 19, 2006 12:10 PM | Reply | Permalink