No such thing as a free gift
< Part 3 here
The concluding article of our series on ‘philanthrocapitalism’
A significant motive driving philanthrocapitalism has to do with the
tax incentives involved in charitable contributions. In most countries
in the world, taxes constitute the primary source of government revenue
(government borrowing, mainly through the bond market, is another
important source). Paying less tax may be good for the businesses
concerned but it obviously impacts on government revenue and, hence, the
state’s capacity to finance reforms such as social welfare programmes.
That in turn has consequences for private charity and the scale of the
task it faces.
Some philanthrocapitalists appear to have grasped this point well enough. An example of this is the Boston-based project, Responsible Wealth
– a ‘network of business leaders, investors, and inheritors in the
richest 5%’ of the US population. It lists amongst its supporters Warren
Buffet and Bill Gates Snr and is an offshoot of the aforementioned ‘United for a Fair Economy’
which it describes as ‘an organization that supports workers to
organize and advocate for policies that make our economy more fair and
equitable’ (www.responsiblewealth.org).
Amongst other things, it calls for higher taxes on the very rich and an
increased level of public investment. However, the bizarre spectacle of
billionaires taking up apparently left-wing causes might not be all
that it seems. There is undoubtedly an element of self-interest
involved, based on a recognition that the way things are panning out
might not be good for the long-term stability and prosperity of
capitalism itself. Though a system of cut-throat competition tends to
foster ‘short-termism’, that does not rule out the possibility of
sections of the capitalist ruling class rising above their circumstances
to take a longer-term perspective.
Given that the state, famously described by Marx as the ‘executive
committee of the ruling class’ has more leeway than capitalist
corporations in what it is able to do within the context of market
constraints, it is not surprising that such a longer-term perspective
has tended to be associated with, and organised around, a more
statist-oriented prescriptive approach. An example of this would be the
kind of thinking that led to the setting up of the modern welfare state.
Germany under its distinctly non-left-wing chancellor, Bismarck, in the
late 19th and early 20th centuries, was the first country to truly
implement this idea of a welfare state. As Germany began to overtake
Great Britain as an industrial power around this time, sections of the
British capitalist class, alarmed by this development, began to take a
serious interest in Germany’s state welfare programme. They began to see
a connection between this and Germany’s growing industrial strength.
Years later, in 1943, the millionaire Tory industrialist, Samuel
Courtauld, articulated such thinking when he strongly endorsed the
Beveridge Report’s proposal to set up a welfare state in Britain too on
the grounds that ‘Social security of this nature will be about the most
profitable long-term investment the country could make. It will not
undermine the morale of the nations' workers: it will ultimately lead to
higher efficiency among them and a lowering of production costs’ (Manchester Guardian, 19 February 1943).
However, there is always that current of short-term thinking, generated
by market competition, against which this longer-term perspective has to
do constant battle. Economic boom conditions can, to some extent, shore
up the latter perspective, by making state welfare programmes more
affordable and, also, by empowering workers in their bid to increase the
social wage. But when boom turns to bust as it did in the 1970s,
ushering in an era of neoliberal austerity, philanthrocapitalism was
then able to play a more prominent role, filling the vacuum created by
the retreat of the welfare state. Philanthrocapitalism came to be
increasingly identified as the bearer and nurturer of this longer-term
perspective which the neoliberal state appeared to have abandoned in its
bid to cut costs and restore national ‘competitiveness’. Hence the
title of Bishop and Green’s book, Philanthrocapitalism: How the Rich can
Save the World, referred to earlier. The thinking behind this was that
enormous fortunes of the super-rich to some extent cushioned them from
the short-term exigencies of cut-throat competition, giving them the
freedom to spend their money on whatever they chose
The economics of philanthrocapitalism
Though philanthrocapitalists may profess to adopt a long-term
perspective of wanting to ‘save the world’, their actions all too often
belie the image they are intent upon projecting. Take the case of taxes.
While some philanthrocapitalists such as those involved in ‘United for a Fair Economy’
seem intent upon advocating higher taxes for people like themselves,
this does not apparently prevent them trying to run their own businesses
in a manner deliberately designed to avoid paying taxes as far as
possible, knowing full well the fiscal impact of this on a state’s
budget and on the state’s ability to fund social welfare programmes.
This incongruity might seem puzzling but it is quite predictable in
terms of game theory. Our ‘selfless’ philanthrocapitalists are quite
willing to pay more taxes providing everyone else – meaning their market
rivals - does as well. Until then, they will strenuously seek to avoid
paying taxes as far as possible just like their ‘selfish’ counterparts
in the capitalist class (who they will also try to emotionally blackmail
through such stratagems as the ‘Giving Pledge’ to ensure the costs of
philanthropy are shared more evenly). After all, taxation is ultimately a
burden on the capitalist class, not the working class, and the squabble
over that burden essentially boils down to a conflict of interests and
perspectives between different groups of capitalists over how a
capitalist economy ought to be administered.
Tax avoidance, unlike tax evasion, is of course perfectly legal under
current legislation. The higher the taxes the stronger the incentive to
avoid them, since taxation eats into profit margins and impairs the
ability of businesses to compete on an increasingly globalised market.
The significance of this to philanthrocapitalism lies in the fact that
charitable donations are one of the ways in which the payment of taxes
can be avoided.
In America, perhaps contrary to impressions, corporate taxes have been
historically amongst the highest in the world (although Trump’s recent
tax reform bill will cut these to a level just below the global average
as well as reducing some personal taxes). Large US-based transnational
corporations are particularly adept at tax avoidance, engaging in such
sharp practices as transfer pricing and intra-corporate loans, and being
able to employ expensive legal terms to ensure everything appears hunky
dory and above board. Huge sums of money are offshored into tax havens
or reinvested in other foreign operations. As Farok Contractor notes:
‘The accumulated, but unrepatriated, profits of American multinationals’
foreign subsidiaries—which have legally escaped US taxation—are
estimated between $2.1 and $3 trillion’ (Rutgers Business Review, Vol. 1, No. 1, pp. 27–43).
As stated, making charitable donations is just another form of tax
avoidance. Indeed, some of the most notable philanthrocapitalists are
associated with businesses with a notorious record of tax avoidance. One
example is Bill Gates. According to a report by The Independent:
‘Microsoft has reportedly avoided up to £100m a year in UK corporation
tax by routing its sales through Ireland’ (19 June 2016). Over £8bn of
revenues from computers and software bought by customers in the UK has
been diverted to Ireland since 2011, under an arrangement agreed with HM
Revenue & Customs.
Another example is Mark Zuckerberg. His corporation, Facebook, has been
severely criticised for its tax avoidance stratagems and, like
Microsoft, has resorted to funnelling profits through Ireland. In 2014,
Facebook paid only a paltry £4,327 in corporation tax on an annual
profit of £1.9bn (though the company has more recently agreed to pay
several millions in taxes).
The case of Zuckerberg and Gates epitomises a trend in
philanthrocapitalism. Instead of philanthrocapitalists giving directly
to charities, they are increasingly setting up foundations of their own
as a vehicle through which they can exercise ‘social entrepreneurship’,
funnelling money to causes of their choosing. Some like Buffet seem to
be the exception to this trend. In his case, his charitable donations
have mainly gone to the Gates Foundation, the largest of its kind in the
world, thereby amplifying its already enormous power and reach.
Indeed, the Gates Foundation is said to contribute about 10 percent of
the total budget of the World Health Organisation which, critics claim,
gives it undue influence on policy making. In a special report, the ‘Global Justice Now’
campaign group comment on the nefarious workings of the Foundation: ‘We
argue that this is far from a neutral charitable strategy but instead
an ideological commitment to promote neo-liberal economic policies and
corporate globalisation. Big business is directly benefiting, in
particular in the fields of agriculture and health, as a result of the
foundation’s activities, despite evidence to show that business
solutions are not the most effective’ (globaljustice.org.uk/resources/gated-development-gates-foundation-always-force-good).
How philanthrocapitalism goes about financing various causes, gives us more clues as to its real nature and intent.
While attention is focussed on the huge sums of money involved in
charitable giving, it is easy to overlook what all that money is spent
on. Quite a significant chunk of it is spent, in the first instance, on
administrative costs and fundraising (which is, of course, indispensable
in a capitalist money-based economy). According to a report by the Daily Mail (12
Dec 2015), one in five of the biggest charities in the UK are ‘spending
less than half their income on good work’ and, in a few cases, as
little as 1 percent.
It is difficult to avoid the conclusion that many of these charities
are little more than a lucrative gravy train for those employed in them.
Indeed, the New York Times, (29 March, 2008) refers to a report
on the fraudulent misuse of charitable money for personal gain in the
United States. The authors of this report estimated that the overall
costs of fraud came to a staggering $40 billion for 2006, or some 13
percent of the money given to charity in the US. In early 2007, another
report by the Center on Philanthropy at Indiana University (partnered by
Google) provided some revealing data on the subject of what charitable
money is spent on. According to the report, less than one third of the
money that the American public gave to non-profit organisations in 2005
was focused on the needs of the economically disadvantaged. Of the total
of $250 billion donated that year, less than $78 billion explicitly
targeted those in need.
While we tend to think of charity as essentially an endeavour seeking
to ease the plight of precisely those in need, this can be quite
misleading. Ginia Bellafante in the New York Times (Sept 8, 2012) notes that:
‘Nationally, 32 percent of the $298 billion given away last year went to
religious institutions, 13 percent to cultural organizations and 12
percent to social services, according to a report issued annually by the
American Association of Fundraising Counsel. But if giving were
conducted with the greatest consideration paid to the most urgent needs
of the society, then Yale, a private institution with a $19.2 billion
endowment, would arguably never receive another 50 cents.’
According to a Wikipedia entry on the billionaire Koch brothers:
‘Charles' and David's foundations have provided millions of dollars to a
variety of organizations, including libertarian and conservative think
tanks. Areas of funding include think tanks, political advocacy, climate
change scepticism, higher education scholarships, cancer research,
arts, and science’
(https://en.wikipedia.org/wiki/Koch_family_foundationswikipedia.org/wiki/Koch_family_foundations).
That climate change deniers and the advocates of free markets should
count as the recipients of philanthrocapitalist charity speaks volumes
as to the supposed efficacy of such charity in addressing the needs of
the poor. It is precisely the poor of the Global South, above all, who
stand to lose most as a result of the very climate change which its
deniers are unwittingly enabling.
However, it is arguably when charitable donations are funnelled into
for-profit enterprises that the very term itself becomes most
particularly questionable. As Matthew Reiz notes in his review of Linsey
McGoey’s book, No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy (2015), there
is a long-standing tradition of donating money to for–profit businesses
in America and it has become more pronounced in recent years. McGoey’s
book gives examples of this such as the Gates Foundation’s donations to
Scholastic Inc, a large publisher of education material. Another
recipient of the Foundation’s money was a project called M‑Pesa, for
‘which Vodafone and its subsidiaries built, in Kenya and then Tanzania, a
system that allowed villagers access to mobile phone banking’ (www.timeshighereducation.com/features/the-perils-of-philanthrocapitalism).
As an article in The Economist put it, one of the things
revolutionising American philanthropy is the ‘blurring of the
distinction between the profit and the non-profit sectors. In health
care, and even in education, for-profit companies are increasingly doing
things that used to be reserved for non-profits. And non-profits
increasingly model themselves on profit-making businesses. Business
schools put on courses for voluntary workers. Non-profits hire managers
from the private sector, and pay them accordingly. Some non-profits even
charge for their services or spin-off profit-making subsidiaries’ (28
May1998).
Though the sums of money involved in charity donations are substantial -
in America for example, by 2016, total giving to charitable
organisations had risen to $390.05 billion, 72 percent of this coming
from individuals compared with 15 percent by foundations and 5 percent
by corporations and the rest by bequests - it is still small by
comparison with state expenditures on welfare programmes. In America, if
you include both federal and local government spending, the latter
comes to about $1 trillion per year. Given that only a fraction of
charitable giving in the US (which itself represents only 2.1 percent of
GDP) is actually targeted on the needy this further underscores the
utter absurdity of such brash claims about the super-rich wanting to
‘save the world’.
Philanthrocapitalism is not about saving the world. It is about saving
capitalism through a face-saving attempt to justify what cannot be
justified. It is about promoting the patronising belief that the poor
depend upon the super-rich when the reality is the complete opposite.
ROBIN COX
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