Philanthropy & Capitalism

When debating a phrase like “philanthrocapitalism”, one requirement is that we understand the relationship between capitalism and philanthropy. I believe that capitalism is the best system that humans currently have to distribute goods and services. I believe philanthropy, while intertwined with economics, exists to do much more than simply distribute goods and services. Philanthropy is a higher calling that is driven my the human desire for self-actualization (which I discussed in a post for the Stanford Social Innovation Review).

One of the reasons why I think the philanthrocapitalism debate seems to be discombobulated at times, with the participants talking past each other, is because of a specific belief that many people who agree with Michael Edwards’ anti-philanthrocapitalism views hold. That view is articulated perfectly in a comment left yesterday by Tactical Philanthropy reader Nicole:

Why should nonprofits conform more to the corporate model, when corporations are the main source of the problems non profits were created to solve in the first place?

If you believe that capitalism is the source of the problems that philanthropy seeks to address, it is no wonder that you would reject the concept of philanthrocapitalism. There is no doubt that markets produce plenty of negative outcomes. Even hardcore free market economists agree that there are “externalities” (costs or benefits that accrue to non-market participants and therefore are not reflected by the market. A classic example is smoking where non-users accrue health related costs and so the market produces too many cigarettes). Capitalism is not perfect.

But I reject outright the idea that philanthropy’s main role is to correct the problems produced by our economic system.

To me, viewing philanthropy as primarily a correcting force on capitalism essentially sets philanthropy up as a kind of handmaid to capitalism. A clean up crew for financial markets. Philanthropy is so much more than that. Even in an economic utopia, humans would still have plenty of problems. Mental illness would still exist. Children would still lose their parents. Pain and fear and anger would still persist.

Philanthropy is about humans coming together out of an interest in each others well being. Capitalism is about people coming together to further their own self interest. It is OK to be self interested. With out self interest the human race would die out. Capitalism manages to harness self interest in a way that allows the pursuit of self interest to benefit the community. This tool set should be useful to philanthropy as a way to further our community interests.

To me, if you believe that philanthropy’s main role is to correct the problems of our economic system, than you are truly worshiping at the alter of capitalism. You are elevating the role of economics to the very center of human happiness.

To truly benefit from a positive form of philanthrocapitalism, we must be able to gather the accumulated wisdom of each discipline and integrate them into a more complete whole. This is the challenge and opportunity for philanthropy in the 21st century.


  1. foundationwriter says:

    I think the skepticism arises more from the incompetence, the emphasis on short-term results, the outrageous ceo compensation, and the meltdown of whole sectors of the economy. why should we want to act more like business?

  2. If you agree that the objective of for-profit companies is to produce economic value (profit), then it is very hard to suggest that businesses have been unsuccessful over the long term. In spite of the fact that businesses are sometimes incompetent, the focus on short term results and the outrageous CEO pay, for profit companies have consistently driven profits higher and higher. GDP is currently at an all time high.

    Business has an excellent record of achieving their objectives.

    However, note that as I wrote yesterday, I have never argued that “nonprofits should be more like businesses” I think that “philanthropy and the nonprofit sector can benefit greatly by using a financial markets approach to understanding nonprofits and to funding their operations.”

  3. Sean,
    I think many of the Tactical Philanthropoy readers would be interested in Claire Gaudiani’s book – The Greater Good. It takes a very different view as to what comes first – the market or philanthropy. The information below is from her website –

    The Greater Good

    The Greater Good is a passionate, pragmatic and finally optimistic manifesto for revitalizing the promise of the American economy…

    “Most people think that Americans are generous because we are rich. The truth is that we are rich…because we are generous…” Claire Gaudiani tells us.


    The Greater Good is filled with stories, stories of personal generosity by individual Americans. We have a great tradition of helping each other get an education, develop good ideas, and build our communities. We do this for the greater good of everyone, not just for ourselves.

    These stories describe the remarkable contributions to American prosperity that have resulted from these generous acts. If you are involved in giving or raising money, you will find an inspiring story here that you can share with others committed to your cause.

    Personal generosity for the greater good is a unique American value. No other people in the world are as generous as Americans. Eighty-nine percent of us give each year, and not only to our churches or synagogues, or to our relatives. We give to causes that will help other Americans, because we care about the greater good for all citizens. The Founding Fathers understood the need for citizens in the new country to help each other out, so everyone had a stake in the future. We need to keep this commitment alive and well in the 21st century.

    Americans are Inventors and Investors

    The Greater Good is a manifesto, as well as a history of philanthropy. Claire challenges all of us to maintain, in fact to increase, our generosity. We have more accumulated wealth as a nation than ever before, thanks to our democratic capitalist system tempered by generosity, and we must reinvest this wealth through generous acts.

    The Greater Good tells many stories of philanthropic entrepreneurs, investors in people, in our environment built and natural, and in ideas. We need generous investors today to address our current challenges, schools, neighborhoods, housing, whatever is needed to keep the American dream alive for all citizens.

    Generosity is Essential

    The Greater Good argues from sound economic evidence that forward generosity is essential to continued American prosperity. The book demonstrates that philanthropy sustains upward mobility, develops new industries and nourishes democracy. It has provided the early investments in people and physical and intellectual capital, the areas that economists such as Paul Romer of Stanford University have shown to be most important for fueling the country’s growth.

    Claire notes the challenges of the moment (rising personal debt, slow growth, gated communities, shrinking civic involvement, flat giving rates) as well as the opportunity (the next fifty years will see the largest private intergenerational wealth transfer in human history). She sets forth an agenda for forward generous investment to ensure that American social and economic success is assured.


    Bill Huddleston

  4. Tera Wozniak says:

    foundationwriter I think you take the thought to a little extreme. There are many nonprofit organizations that now turning to focus on long-term goals, and many of them do not even have enough money to pay for high CEO Compensation. Although I do believe there are definitely issues with these things in the nonprofit sector.

    I think the focus should not be on us becoming more like business, we have always borrowed our practices from business. In fact I believe that is the reason we are in the state we are in now as a sector.

    It’s important for us to utilize some business practices, like HR policies, financial systems, etc, but I truly believe what we really need to do is become more like “nonprofits”. We need to create a better system that works for us, not just copy from another sector.

  5. I’d have to say that when considering capitalism as a tool for social change you must look at it as just that – a tool. It’s easy to let all the baggage of Enron, Exxon Valdez and the current mortgage crisis cloud our understanding of what capitalism is. It has caused a lot of terrible human suffering, but it has also elevated entire countries out of economic mediocrity and created middle classes.
    Capitalism is not a panacea, however, and Sean makes a great point that philanthropy cannot be looked at as the personal janitor of an economic system. Problems existed before capitalism and it’s just a coincidence that a great deal of philanthropic efforts are focused at ameliorating conditions caused by immoral corporate practices.
    It’s my earnest opinion that, considering the large menu of problems facing humanity today, there is no one size fits all solution for all of them. It’s our job, however, to recognize this and stay focused on solving the problem itself rather than getting distracted by allegiance to a certain method. Capitalism may work in alleviating poverty when done correctly (especially with the new trends in microfinance), but has clearly done a poor job in eliminating malaria or other diseases typically confined to poor, subtropical countries simply because the profit potential for this solution does not exist. Likewise, government aid has been helpful in certain situations and a total failure in others.
    You wouldn’t use a screwdriver to hammer in a nail and it’s the same concept when facing problems of human suffering and injustice. Perhaps the question isn’t whether capitalism is good or bad, but when should and shouldn’t we decide to rely on it as a solution. In the end, it’s important to remind ourselves that the only thing that matters is solving the problem at hand, whether that be environmental or social in nature, and not that we use our favorite method to end it.