Billionaire Philanthropy like Twitter CEO Jack Dorsey’s Covid-19 Donation is Great but Dangerous
Can we depend on billionaires to solve the world’s problems? Should we? LUXUO analyses billionaire philanthropy and discovers it often falls short but not for reasons one might imagine
In a stunning act of billionaire philanthropy, Twitter CEO Jack Dorsey just pledged a quarter of his wealth, US$1 billion to charity to fight the coronavirus pandemic. Dorsey announced yesterday 8 April 2020 that he would place the US$1 billion to “fund global COVID-19 relief” into Start Small LLC, a limited liability company. As far as billionaire philanthropists go, Dorsey’s billion puts him ahead of other tech giants like Bill Gates, Jeff Bezos and Michael Dell who have each pledged $100 million so far.
“No amount of charity in spending such fortunes [as Rockefeller’s] can compensate in any way for the misconduct in acquiring them.” – Then presidential candidate Theodore Roosevelt
Billionaire philanthropy is a relatively modern concept. Born in the early 20th century, high net worth robber barons in the United States “gave back” to society by way of corporate entities like the Carnegie Corporation in 1911, and the Rockefeller Foundation in 1913. Already back then, skeptics were suspicious of these plutocrats. Though prima facie, they espoused lofty ambitions to improve the lives of their fellowmen, these Foundations were quite unlike traditional charities. In essence, limited liability companies or LLCs, these corporations were designed to manage great financial assets with the legal structure to last forever. Each was governed by a board of private trustees and in the process of “working for good social causes”, would intervene in society with no democratic accountability to the public or governmental oversight.
Billionaire Philanthropy like Twitter CEO Dorsey’s Covid-19 Donation is Great but there are (potential) Pitfalls
Consider David Koch, the billionaire industrialist and philanthropist whose support for conservative causes and candidates reshaped U.S. politics for decades. Mr. Koch, whose $50 billion placed him as the world’s 11th-richest person in Forbes rankings (tied with his brother), gained most of his wealth from a 42% stake in Koch Industries. Although a liberal on social issues such as abortion and same-sex marriage, Koch supported traditionally conservative causes such as lower taxes, free trade and deregulation by means of immense financial donations in strategic causes. Credited for financing the Tea Party movement that helped Republicans win control of the House in 2010 during President Obama’s first term, then-Senate Democratic leader Sen. Harry Reid of Nevada accused Mr. Koch of “trying to buy America”. Senator Reid’s utterance in 2014 echoes President Roosevelt’s own statement to congress when he was running for elections 110 years ago.
The Nation argued that since time immemorial, men from Andrew Carnegie to Koch used billionaire philanthropy to legitimise inequality, championing right-wing causes like climate change denial and environmental deregulation. It also beggars the question: should billionaire charitable giving mean that we ignore the source of their enormous wealth? In Jane Mayer’s 2016 book Dark Money, she traces the fount of Koch wealth to patriarch Fred Koch who established the family’s fortune in the early 1930s, building oil refineries for autocrat leaders like Hitler and Stalin. In other words, Koch had consciously contributed to the Nazi goal of resource independence from foreign oil, further fuelling Hitler’s militaristic ambitions.
During the Gilded Age, Carnegie’s 1889 Gospel of Wealth heralded the current model of billionaire philanthropy, where he argued that the wealthy should be allowed to earn as much as they can BUT contingent on the premise that they improve the world through charity. However, the drive to achieve this outcome encouraged ever Machiavellian business practices where he eventually hurt the sandwiched middle class that he had originally intended to help.
“The idea that after-the-fact benevolence justifies anything goes capitalism; that callousness and injustice in the cutthroat souk are excused by later philanthropy; that giving should not only help the underdogs but also, and more important, serve to keep them out of the top dogs’ hair—and, above all, that generosity is a substitute for and a means of avoiding the necessity of a more just and equitable system and a fairer distribution of power.” – Anand Giridharadas, author, Winner Takes All
Introducing MarketWorld Philanthropy
LLCs give billionaire philanthropists the flexibility and control in how their money can be used, without any transparency or oversight: billions can be funnelled for not just charitable causes but also political donations, for-profit investments, and nonprofit grants while evading public disclosure. Dorsey’s Start Small LLC is a donor-advised fund, yet another opaque approach to philanthropy. And as one might have surmised: It’s not just conservative billionaires like the Kochs but also their liberal counterparts: Bill Gates, Jeff Bezos, among others.
Anand Giridharadas, author of Winner Takes All refers to this method of big philanthropy as “MarketWorld” giving. Well-meaning billionaires are trying to solve the world’s problems and with their LLCs, their trustees decide what the problem is and what solution they should fund; therein lies the problem, private individuals define what is “good” without democratic control or civic obligations – ultimately, billionaire philanthropy is a plutocratic power derived from inordinate wealth exercised in society. In essence, an unelected private party translates their beliefs into public policy.
Once villain, now hero: Remember Bill Gates?
Bill Gates recently announced he’s stepping down from the board of Microsoft, to “dedicate more time to philanthropic priorities including global health and development, education, and my increasing engagement in tackling climate change.” True to his word, the Gates Foundation, the world’s largest private charitable entity which has been on the frontline combating AIDS, accelerating economic development in impoverished countries, soon committed an additional $100 million to fight the coronavirus pandemic. This is well and good but it is also a demonstration of the potential flaws in billionaire philanthropy.
In 1998, Bill Gates was embroiled in Microsoft’s antitrust trial. Microsoft was sued by the Department of Justice and a coalition of 20 state attorneys general for violating federal antitrust law. Gates, at one time, the world’s richest man, had built enormous wealth on the back of DOS (Disk Operating System) and Windows, leading a surge of stupendous growth as IBM and other PC-makers used Microsoft Operating Systems to power the era of the home personal computer.
Just like the smartphones you use today, desktop PCs of the era supported another growth industry of software development where programmers coded applications which made PCs the ultimate productivity, design and entertainment tool. The sheer mass and ubiquity of DOS/Windows based personal computers (as opposed to something more niche like the competing Apple Computer) created “network effects,” which economists argued was instrumental in creating a market monopoly.
This monopolisation was best demonstrated during the early age of the internet, when young tech-upstart Netscape and its nascent Netscape Navigator internet browser was riding the wave of growth which accompanied the spurt of content on the web. Microsoft, eager to create its own internet browser, utilised its network effect by using its operating-system monopoly and making installation of Internet Explorer mandatory and the default way to surf the net. Gates argued that enforcing the antitrust laws against Microsoft would damage innovation and impede the economic growth fuelled by the technology sector. After a tough fight, the government won, there is no browser monopoly today, and obviously we live in a world with many apps, tech companies and bold new ideas after Microsoft’s monopoly was broken.
Though today, we recognise Gates for the man he is, rather than for the man he was, this legal fracas is the best reminder that the ultra-wealthy might not really have the best ideas all the time but through their immense wealth, they have the power and propensity to project their world views, however misguided as in the 1998 antitrust suit, upon civil society. Men like Dorsey, Gates and Mark Zuckerberg are our modern Gilded Age tycoons. In fact if you think about it, these tech giants pledged to counter disinformation – but with key Presidential elections looming and fake coronavirus news spreading, they are not only falling short but also continuing to profit from it.
“Philanthropy can have important effects on society, but it does little to solve the root cause of the problems it is trying to solve,” – Stanford scholar Rob Reich
Dissent Magazine offers the best argument: Because billionaire philanthropists and their LLCs are mostly free to do what they want, mega-foundations threaten democratic governance and civil society (defined as the associational life of people outside the market and independent of the state). When a foundation project fails—when, say, high-yield seeds end up forcing farmers off the land or privately operated charter schools displace and then underperform traditional public schools—the subjects of the experiment suffer, as does the general public. Yet the do-gooders can simply move on to their next project. Without countervailing forces, wealth in capitalist societies already translates into political power; big philanthropy reinforces this tendency.
Privately managed but publicly subsidised, these charitable foundations and trusts are tax exempt because it is meant to motivate the ultra wealthy into charitable giving – not that there are any studies which support this idea either – too many factors determine giving: religiosity, innate altruism, family culture, social attitudes, community ties, etc, that is difficult to find any correlation (if any) between tax exemptions and charitable donations anyway.
Consider this: following World War II, top marginal individual tax rates stayed near or above 90%, and the effective tax rate at 70% for the highest incomes (few paid the top rate), fuelling the long boom: the greatest economic expansion after the Great Depression – mega-cities, skyscrappers, super highways and other important infrastructure were built during this era. With billionaire charity trusts, a substantial portion of the wealth has been diverted from the public treasury, where voters would have determined its use.
In December 2018, Stanford scholar Rob Reich, professor of political science in the School of Humanities and Sciences and director of the McCoy Family Center for Ethics in Society looked at the laws and policies that structure charitable giving in America found that philanthropy has done little to help poverty and inequality. He argued, “Charity is a good thing – it provides people things that they might deserve or need. But it doesn’t get at the root source of the problem. For example, is donating money or volunteering at the soup kitchen going to bring an end to hunger? The two are completely separate things. What’s appropriate for a soup kitchen is an aspiration to self-liquidation, to social conditions that render soup kitchens unnecessary.”
Indeed, capitalism in its current form has not rendered soup kitchens unnecessary. Whatever economic model that arises from the ashes of this coronavirus pandemic has to answer the faults and failings that Covid-19 has now uncovered.