Does It Matter Where the Money Came From? Philanthropy and the Sources of Wealth

John D. Rockefeller was among the most reviled robber barons of his time. Henry Ford was a union buster. Bill Gates was sued for monopolistic practices. George Soros destabilized Britain’s currency. The Walton family helped obliterate Main Street with its low-wage business model. And most of today’s hedge fund billionaires are so rich, in part, because of the notorious “carried-interest” tax loophole. 

Many great fortunes, past and present, have their origins in unsavory business practices and/or public policies that have been rigged to favor the rich.

How much should these backstories color our analysis of philanthropy? Does it matter how the money was made?  

These questions are hardly new, but come up with increasing frequency in regard to today’s mega-giving. To offer one example: We write often about the philanthropy of Steve Cohen, whose hedge fund was shut down after a federal investigation into insider trading investigation — sparked by years of suspicion that Cohen had grown so rich by operating on the edge, or beyond. Every time we write about a Cohen gift, we note this backstory. 

On the other hand, when we write about Rockefeller or Gates grants, we don’t pause to note the monopolistic practices that contributed to the endowments of those foundations. 

So how long do we keep Steve Cohen in the doghouse? Fifty years from now, when he’s gone and his foundation is still making grants, should every story include that caveat about insider trading? 

The Cohen case is extreme. But the question remains: How do we think about philanthropic fortunes pumped up thanks to perfectly legal — but reprehensible — behavior? Take the tech sector, which is producing more and more mega-givers. A great many tech companies, including Apple and Google, engage in aggressive tax avoidance strategies using offshore tax havens to stash foreign profits. Some also have poor labor and environmental records.

When we write about, say, a major grant by Apple to get more girls into computer science, should we also make mention of Tian Yu, the young Chinese woman who attempted suicide thanks to sweatshop conditions in a factory making iPhones?

When we write about the “Patriotic Philanthropist” David Rubenstein, should we also mention the not-so-patriotic tax avoidance strategies that have allowed him and other private equity billionaires to get so rich? Or the allegations of revolving-door practices and influence peddling of his Carlyle Group? 

My answer to the question of whether it matters where the money comes from is “yes” and “no.” 

The context of today’s big philanthropy should never be too far from our minds. This mega-giving reflects historic levels of inequality that didn’t emerge by accident. Sure, certain unavoidable shifts related to technology and globalization have fueled inequality, but so have deliberate business practices and public policies. The Walton family is so rich, in part, because it chose a low-wage model and worked aggressively to stop unionization of Walmart workers. The hedge fund and private equity industries have energetically fought efforts to close the “carried-interest” loophole, and the wealthy have campaigned relentlessly to keep taxes low on capital gains, a tax policy that’s been an important driver of inequality. 

I could cite other examples. The point is that the upper class has so much money to give away partly because they have promoted policies that have channeled wealth upward. So, yes, there’s something wrong with lavishing these Americans with uncritical praise as they now step forward as philanthropists to meet societal needs that wouldn’t be so acute if we’d had a more high-minded and selfless upper class over the past few decades. 

That context should never be forgotten. 

As a practical matter, though, litigating the details of how every philanthropist made their fortunes — and then coloring judgements of their giving as a result — doesn’t make sense. Such an undertaking is simply too big and complex. 

So where do the backstories about wealth creation belong in our narratives about philanthropy? A few thoughts. 

First, I think the worldviews and ideologies that philanthropists bring to their giving are super-important. To understand how a donor thinks, it’s very helpful to know how they made their money. That context can lead to some trenchant critiques of the choices donors make — say, in placing undue faith in technological fixes or market-based solutions — but also to the praise of donors who bring new kinds of thinking to solving social problems. 

Second, if a donor seems to be engaged in an effort to repair their reputation after past wrongdoing, that context needs to be mentioned. But caution is important here. For example, both Steve Cohen and Michael Milken were active philanthropists before the feds came after them. You can’t be too reductive in assigning motive. 

Third, the greatest skepticism should be reserved for corporate philanthropy. This giving is often directly tied to strategies that boost the bottom line and it’s often not hard to find the self-interested motives at work. These motives range from quite unsavory — say, an oil company bankrolling climate denial — to far more benign, like tech companies giving to expand the supply of STEM workers. 

Fourth, it often makes sense to just skip the backstory of wealth creation altogether in order to focus on the strategies and impact of funders. This stuff is complicated enough without getting mired in the details of where the money came from. 

As long as the broader context of today’s giving is never too far from mind — i.e., the appalling inequality of the new Gilded Age — most philanthropy is best evaluated on its own merits: Will this gift or that grant make the world a better place or not? 

See more articles by David Callahan.