The Future of Philanthropy: There will be more

Today Mark Zuckerberg and Priscilla Chan announced in an open letter to their newborn daughter that they will give away 99% of their ownership in Facebook — currently some $45 billion — to charitable purposes. They also announce the creation of a new organization, the Chan Zuckerberg Initiative, that could receive up to $1 billion of Facebook stock each year for the next three years. The new philanthropic organization will initially focus on personalized learning, curing disease, connecting people and building strong communities. Before I put on my inquisitive journalist’s hat to offer some reflections about the future of philanthropy and its role in a democratic society, let me first say this: Zuckerberg and Chan deserve the widespread admiration they’re receiving. The money they have pledged today 1) could have been spent on yachts and villas, 2) will improve the lives of real people, including the sick and the poor, and 3) strengthens the expectation that billionaires invest their wealth in society.

This post is the first in a series that aims to make sense of the future of Big Philanthropy — the charitable giving by billionaires. I have a personal interest in coming to terms with the future of philanthropy and its role in society. Over the past six years I have worked at four of the largest private foundations: George Soros’ Open Society Foundation, Pierre Omidyar’s Omidyar Network, the Bill & Melinda Gates Foundation, and the William and Flora Hewlett Foundation. I never expected to work in philanthropy, and I still haven’t come to terms with its power, inherent contradictions, and potential to do immense good. This series is my chance to take a month-long sabbatical from my daily duties as a program officer and reflect on philanthropy’s larger role in society throughout my lifetime and beyond.

Here are the arguments I will make and the questions I’ll address over the next month:

1. Why there will soon be much more philanthropy
2. What is Big Philanthropy uniquely set to accomplish that isn’t better left to the government or the private sector?
3. How do you transform money into social change? Beyond just choosing your areas of focus, how to choose between investing in innovations, institutions, individuals, information or networks? How to choose between striving to improve the lives of 70 or 7 million or all 7 billion people on the planet?
4. Is philanthropy bad for democracy?
5. Can philanthropy fix democracy?
6. How philanthropy can improve over time, or not.

There will be more philanthropy in the 21st century

There will be more philanthropic giving by the wealthiest individuals and it will be driven by increased economic inequality and a sense of obligation among billionaires to invest their wealth in society, especially to benefit the poorest.

Increased economic inequality

Let’s start with the inequality. The past five years has seen a massive consolidation of wealth in the hands of the richest 1% of the planet, and it’s a trend that is set to continue.

Eighty people now have the same amount of wealth (some $1.9 trillion) as the world’s 3.6 billion poorest people, according to research by Oxfam published earlier this year.

But here’s what’s truly startling in the graph above: from 2010 to 2014 the wealthiest 80 people gained $600 billion while the poorest 3.6 billion people lost around $600 billion of total wealth. Over the past five years we’ve probably seen the largest transfer of wealth from poor people to rich people in the history of humanity. Looking ahead, the replacement of human labor by machines will only accelerate wealth inequality. As Stephen Hawkins recently warned:

If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.

By next year, Oxfam anticipates that the richest 1% will have have as much wealth as the bottom 99% of the world’s population, and there’s no reason to expect the trend to reverse without major, global changes in tax policy and regulation.

An increased sense of obligation

If he were alive today, Andrew Carnegie would look at the upside. Writing in 1889, the last time we had seen such a massive consolidation of wealth in the handful of just a few individuals, Carnegie wrote that increased inequality from industrialization was “not to be deplored, but welcomed as highly beneficial.” Carnegie argued that much more good would come from the richest individuals taking on the biggest problems through their philanthropy than any redistribution of wealth through taxes or regulation.

Whether Carnegie was right or not, his message has taken hold. Bill Gates has been repeatedly selected as the most admired man in the world. Each year Bill Clinton brings celebrities and billionaires together at the Clinton Global Initiative to celebrate philanthropy and encourage more of it. 138 billionaires from 16 countries worth some $610 billion have signed onto the Giving Pledge, a commitment to give at least half of their wealth to charity. The Effective Altruism movement, which argues that charitable giving should be guided by our minds and not just our hearts, has gone mainstream. A Saudi philanthropist recently partnered with UC Berkeley to create “Philanthropy University.” And the children of today’s billionaires are already gathering as tomorrow’s “next generation donors” to discuss their philanthropic strategies.

In the grand scheme of things, what’s most surprising about the Zuckerberg-Chan announcement is that it’s not that surprising at all. After all, Zuckerberg’s Facebook co-founder, Dustin Moskovitz, and his wife Cari Tuna made a similar decision to give away the majority of their $10 billion years ago. Even Sean Parker, another player in Facebook’s beginning, committed much of his wealth to philanthropy earlier this year, and managed to criticize all other private foundations at the same time.

There are strong incentives in place for today’s billionaires to become philanthropists. First, there is a growing expectation that they invest their wealth in society. Second, they receive widespread praise online and in the press. Finally, it increases their influence with politicians, celebrities and the media.

We’re in a winner-take-all economy. In 2007, Jan Koum and Brian Acton quit their jobs at Yahoo!, traveled around South America and played lots of ultimate frisbee. In 2009, unemployed and unable to get jobs at Facebook, they started WhatsApp, which was sold five years later to Facebook for $19 billion. Today 39-year-old Koum is worth $7.9 billion, and last year he donated $556 million to the Silicon Valley Community Foundation. Koum’s story is an extreme case of how a select, lucky few become very wealthy, and how they’re increasingly choosing to give most of it away.

We’re about to see much more money enter philanthropy, but we shouldn’t overstate the case. Last year the 50 most generous philanthropists increased their giving by 33%. But the total amounted to just over $10 billion — about one seventh of what the state of California spent on education in 2014 and far less than what working migrants in rich countries send home to poor countries each year.

Still, the money flowing into philanthropy is significant, and it’s set to increase dramatically. In the next post in the series, I’ll look at what philanthropy is uniquely set to accomplish that isn’t better left to the government or the private sector.