As a grant maker working for a small philanthropy in St. Louis, I am most uncomfortable in my job when someone thanks me for our gift. This is ostensibly the best part of the gig – the emotional reward that comes from feeling like you have done a bit of good in the world. But my discomfort comes from the knowledge that these are not our dollars to give, nor should I be in the position of deciding who receives them. The frontline leaders we support know best, but I remain the gatekeeper, merely facilitating the transfer of wealth back into the community. And despite the strength of relationships and trust that often exists between our organization and the leaders we fund, the moment the gift is made lays bare the power imbalance inherent to a broken system.
We must re-imagine philanthropy as a public good before we can unlock the resources needed to finance a shared economy. Much has been written about ways to “change” philanthropy, or what a “Just Transition for Philanthropy” might look like. And there are several laudable examples of foundations and individual donors that have forfeited some of their power over grant making decisions via participatory grant making models that empower local leaders to decide who should receive funding. But these efforts to reform philanthropy are tinkering at the margins rather than rethinking this inherently extractive and unjust system tasked with solving society’s most complex challenges. None of the more progressive philanthropic models address philanthropy’s original sin: the funds were extracted from communities, often causing the same social, economic, and environmental ills that philanthropy seeks to mitigate.
Philanthropy is fundamentally at odds with a shared economy
Philanthropy itself is a product of the systemic failures of capitalism and is fundamentally at odds with a shared economy. First, philanthropy is dependent upon growth and extraction of wealth to survive. Foundation endowments grow with the market, and trustees have largely proven unwilling to give more than the legally mandated 5 percent of their assets annually, which allows the foundation to exist and grow in perpetuity. As we come to terms with the planetary limits to growth, our dependence upon philanthropy and investments enabled by growth to fund a just transition to a new economy is a fundamental paradox that our movement has yet to grapple with.
At the same time, philanthropy is highly unstable, subject to both the whims of the market and dependent upon public policy and tax law. These pillars of the philanthropic system become weaker at the very moment when charitable giving is needed most. For example, during the Great Recession, some foundation endowments lost as much as 35 percent and grant making was slashed. And even modest changes to income tax or estate tax rules can have a major chilling effect on giving.
Philanthropy also depends on public subsidy that robs public coffers of the revenue needed for large-scale systems change, such as a Green New Deal. Foundations do not pay income taxes on the gains of their endowments. And the individuals who establish foundations skirt much of their own personal income taxes as well as capital gains and estate taxes.
And lastly, philanthropy puts the asset owner in a position of unilateral power. While trusting relationships can develop between a funder and local communities, even democratic grant making models must still play by the rules that the funder set and are dependent upon funders (and the returns of their endowments) to pay for their operations.
The goal of modern philanthropy is to protect and perpetuate the economic system that created it, while seeking to mitigate the worst effects of that system. The Robber Barons who pioneered the American tradition of institutional philanthropy and who’s names (Rockefeller, Carnegie) adorn some of the largest foundations today, did so in large part to quell the growing social unrest that resulted from growing inequality during the industrial revolution. Today’s philanthropies continue this tradition, seeking to leverage the power of the free market to solve problems such as climate change, homelessness, or our broken education system. Many studies have tracked the pervasive racism that hinders foundation giving to communities of color, yet initiatives to diversify the staff of foundations have failed to move the needle on funding. That is because these foundations depend upon an economy rooted in racial and social injustice for their survival and cannot be expected to voluntarily fund work to uproot that system.
With 95 percent of a foundation’s assets tied up in investments, the goal of philanthropy remains focused on the extraction of wealth. Impact investing has sought to harness the power of the investment assets of foundations to address societal ills. Yet much of foundation impact investing has been diverted from grants budgets (the 5 percent) rather than endowments (the 95 percent) in the form of Program Related Investments, as trustees have proven unwilling to forgo returns on their endowment. And those who are deploying impact investments from their endowment largely limit their focus to social enterprises that can offer the same returns as traditional investments, limiting accessibility to marginalized communities. In a new twist on this approach, the Ford Foundation is borrowing against their endowment to increase their grant budget during the pandemic, rather than dipping into their endowment and risking any future growth.
Towards shared ownership of philanthropy
To unlock the resources needed to transition to a shared economy, we must reclaim community wealth by rewriting the rules that govern philanthropy. To begin, we need a paradigm shift in our organizing that recognizes that philanthropy is a public good due to the considerable tax subsidy that allows it to operate. We already have shared ownership of charitable dollars through the tax code, and we need to start exercising that ownership. Efforts to change how philanthropy operates have stopped short of staking some claim of public ownership, instead looking to shape the voluntary behavior of individual actors within foundations. Only policy reform of the IRS tax code that governs charitable giving can bring about the necessary structural reforms.
The goal of a system of shared ownership for philanthropy should be to truly democratize how charitable dollars are governed, while reinvesting in the communities where the wealth was generated. Three potential pillars of shared ownership of philanthropy include:
- Tax-deductible endowments must be invested in the communities they serve, creating a closed loop where financial returns recirculate within a community rather than being extracted.
- Philanthropic assets must be governed by the communities themselves, with a mandate that philanthropic boards are majority-run by members of community impacted by the issues they fund.
- Philanthropic institutions must be held accountable to the communities they serve, with increased transparency about where dollars flow, their intended use, and outcomes (with the burden of proof of outcomes resting with the foundation, not recipients).
It does not require a large leap of the imagination to consider public policy changes to shape how foundations operate. Community foundations—which enjoy unique tax benefits—are required to have community representation on their board to maintain their tax status. Banks and nonprofit health care systems are required to invest a certain percentage of “public benefit” funds into marginalized communities in the georgraphies they serve. Why not have similar levers of accountability for publicly subsidized charitable activity?
The shared economy movement can build on a wave of criticism of philanthropy that has crested as income inequality grows more pervasive and racial inequity becomes harder to ignore. Foundation leaders feel a pressure they are unaccustomed to, though shaming philanthropists for poor behavior is not the same as accountability. To build political will for structural reform to philanthropy, we need more examples of effective models for shared ownership of philanthropic resources, pushing beyond participatory grantmaking and impacting investing to integrate all foundation investments and giving into community ownership.
FSM’s journey towards shared ownership
The Franciscan Sisters of Mary have taken several steps in this direction. Our sisters were intentional about committing to spend down the assets they accumulated in their lifetime and not endowing a foundation. They have also committed much of their giving to the Midwestern communities served by the healthcare ministry that generated the assets. And our giving is rooted in trusting relationships, guided by frontline leaders in the communities we serve. In Chicago, our funding for environmental justice is democratically managed by the Chicago EJ Network, and we are working towards building a similar structure in St. Louis. But these voluntary steps will only take us so far. Ultimately, as the donor we decide which communities will benefit from the generosity of our sisters. We decide who has a seat at the table when advising our giving, and we define the agenda. And to date our investments – impact or otherwise – have not been directed towards these communities.
Today, FSM is working towards a shared ownership model for our philanthropy and impact investing, exploring more inclusive ways to resource the development of a democratic economy in St. Louis. As we move ahead, there are several key questions we need to answer in collaboration with frontline leaders in the region:
- What democratic financing models will be most effective at deploying FSM’s grant and investment capital in St. Louis?
- How might our grant making support the growth of the shared economy movement ecosystem in the St. Louis region, and who are the local leaders that can drive this work?
- What are the key areas of expertise and capacity that need to exist to support cooperatives and other democratic models, and how will this worked be collectively owned and managed?
- How can we ensure the long-term financial sustainability of this work after FSM has spent down?
While we as an organization are committed to making this journey towards a more shared approach to our giving and investments, the decisions along the way will ultimately still rest with us. Only through reforming the tax laws that govern philanthropy can we recover community wealth and divert these resources towards building economic power for the long term.