Weighing In on the Charitable Industrial Complex

Last week, a debate over the role of philanthropy was sparked by no other than Peter Buffett– son of billionaire Warren Buffett– in a op-ed for the New York Times. The article, titled The Charitable Industrial Complex,” argued that philanthropy is not enough to address society’s worst problems because it does not change systemic inequality. Buffett wrote:

“As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few, the more heroic it sounds to ‘give back.’ It’s what I would call ‘conscience laundering’ — feeling better about accumulating more than any one person could possibly need to live on by sprinkling a little around as an act of charity.”

Now, a number of voices are responding and taking a hard look at the role of philanthropy. Tom Watson, a Forbes Magazine contributor, argued that while philanthropy is in need of reform there are many charitable organizations that are well structured but need more capital.

“There are thousands of worthy charities that don’t need re-invention, don’t need a new model, don’t need an entirely new mindset,” Watson wrote. “What they need is more capital, to serve more people, with the successful models they have.”

Here in Philadelphia, Will Bunch, a Philly.com blogger, referenced Buffett’s article in his own criticism on the role of charity. Bunch wrote that philanthropy has not only been inadequate in Philadelphia, but it has also shaped what he considers bad policies, such as investing in charter schools rather than public schools.

Whatever you think of Buffett’s argument, his article highlights questions that we often ask ourselves here at Generocity: What is the role of philanthropy? How much should we depend on it to address social problems? And are there viable alternatives?

One alternative that Buffett hinted at is the idea that philanthropic donations should be used as “risk capital.” This idea has been floating around social enterprise circles for a while, but it is still a somewhat vague prescription given that current laws do not exactly allow philanthropic donations to be used as risk capital. It also contradicts an argument Buffett made earlier in the article:

“And with more business-minded folks getting into the act, business principles are trumpeted as an important element to add to the philanthropic sector. I now hear people ask, ‘what’s the R.O.I.?’ when it comes to alleviating human suffering, as if return on investment were the only measure of success.”

Indeed, more business-oriented thinking is seeping into the philanthropic sector. But if foundation dollars were used as risk capital, there would almost certainly be a greater focus on the return on investment as well.

Watson also argued this point: “Risk capital is needed – but only in addition to the capital that saves and improves lives on a daily basis.” Which is to say, outright charity will remain important even as society experiments with new mindsets and methods for solving social issues.

As Generocity follows the evolution of charity and the nonprofit sector in the Philadelphia region, we see the impact of philanthropy everyday in the form of small organizations that are powered by gifts and grants doing the hard work of keeping people fed, educated, clothed, sheltered and connected to their society.

We also see amazing new models that blend the boundaries between social good and entrepreneurism, and even the legal distinction between nonprofits and businesses.

But as Buffett and Bunch hint at, current poverty rates show that philanthropy alone is not enough. What comes next is not just a question of where we are currently failing. The biggest question is how to build whatever is next.

What do you think? Feel free to leave your thoughts in the comments below. We’ll respond and highlight the best insights in a follow up post.