Long before Mark Zuckerberg and Priscilla Chan announced that they will donate 99% of their Facebook stock to charitable causes over the course of their lifetimes, the Bill & Melinda Gates foundation was already at the forefront of philanthrocapitalism. Drawing from their massive fortune, the Microsoft founder and his wife have donated over $30 billion to global health initiatives, and plan to donate another $5 billion over the next five years to philanthropic causes across Africa.
At the heart of the Gates’ and the Zuckerberg’s philanthrocapitalism is the idea that people to whom much is given have a responsibility to give much back. However, while the benefits of their donated time and money are numerous, philanthrocapitalism is not without its pitfalls.
First, huge donations can give the donor immense power to steer the course of a philanthropic effort, or demolish it altogether. For instance, a number of charities owe their very existence to ongoing funding from the Gates Foundation, without which they will not have enough money to remain operational. Such an existential problem gives Mr. Gates an exceptional influence over the decisions that these organizations make. Moreover, there are little to no mechanisms for accountability that govern private donors. While government aid is subject to scrutiny by taxpayers, private donors essentially have no one to answer to.
Big donors may also have power over the greater political process. Although the Gates Foundation is officially non-partisan and apolitical, Mr. Gates’ donations have supported divisive programs such as charter schools, the Common Core, and standardized testing. Mr. Zuckerberg has gone even further by writing that he plans to “participate in policy and advocacy to shape debates” in an effort to reform the public school system in Newark, New Jersey.
Another downside of philanthrocapitalism is that the tax code allows donors to give away less than the public thinks they do. By donating their stock—valued at $45 billion—to charity, the Zuckerbergs will avoid paying sizeable cash-out taxes that can fund government programs that help less fortunate citizens of the United States. Because they will not be leaving their stock to heirs, they will also avoid paying a sizeable estate tax. In addition, had the couple elected to roll the donated stock over to their own charitable foundation instead of putting it into a traditional limited liability company, they would have also gained immediate tax benefits that would last for years to come.
Nevertheless, despite the drawbacks, providing big donors with tax benefits and freeing them from having to answer to stakeholders also gives them the freedom and incentive to address problems that other actors do not handle. The United States spends less on aid per year than its citizens spend on candy, suggesting that government aid alone is not enough to tackle the world’s most pressing issues. The private sector, concerned with generating income, is also not equipped to create substantial public goods. Philanthrocapitalists, on the other hand, are in the perfect position to create substantial public goods—like Mr. Gates’ immense funding of the World Health Organization—even if they sometimes support more controversial causes. Therefore, philanthrocapitalism isn’t a dirty word, but certainly has room to grow into a more polished one.