Philanthropy's Scarcity Mindset Is Hurting the Sector, Not Helping It

Writing about the staggering fortunes wielded by people like Bill Gates and Warren Buffett, it’s always striking how much of the philanthropic sector, and by extension the nonprofit sector, operates under a state of enforced scarcity that’s essentially an illusion. The money is there in spades — it’s just that not enough of it is being distributed.

The fact that charitable funders aren’t giving enough is a longstanding gripe for us here at Inside Philanthropy, and for others who’ve been making the same point. But rather than simply chalking it up to “plutes gonna plute,” to borrow a phrase from anti-plutocracy writer Anand Giridharadas, it’s worth asking why penny pinching became the norm for individuals and institutions ostensibly committed to giving money away.

One thing’s for sure: Most Americans both inside and outside the sector don’t much care for this status quo. A recent Ipsos poll commissioned by the Institute for Policy Studies’ Charity Reform Initiative found that nearly 70% of American adults surveyed back a higher foundation payout mandate, as well as a payout mandate for donor-advised funds (which currently don’t have one). An even higher 81% of respondents flat-out disapproved of taxpayer subsidies for philanthropic money kept on the sidelines in perpetuity, either in foundations or DAFs.

Inside the nonprofit world, the outlook looks strikingly similar. In our own survey of grantmaking and fundraising professionals conducted earlier this year, around the same percentage (70%) backed both higher foundation payout and mandatory DAF payout. And 40% favored limiting the tax breaks wealthy donors can receive, which is a surprisingly high figure considering many of these folks depend on taxpayer-subsidized giving for their livelihoods.

One cadre in the philanthrosphere that definitely does not back charitable reform is sector associations and many of the big philanthropy-serving groups. Despite representing, or claiming to represent, those who work in the philanthropic field, these groups have reflexively resisted calls for charitable reform. Some resist any reform that would oblige the wealthy to part with an even slightly larger fraction of their hoards.

On the extreme end, we have the conservative Philanthropy Roundtable, which has railed against pretty much any call for charitable reform and takes an especially pointed stance against the reformist Accelerating Charitable Efforts (ACE) Act, which was introduced about a year ago and remains mired in Congress. In late July, the group took its defense of plutocracy even further with a policy paper dunking on wealth taxes, which it characterized as a threat to charitable giving that rises on “populist tides” to punish the rich.

Meanwhile, the Council on Foundations’ opposition to reform efforts like the ACE Act is couched in less ideologically overt terms, but remains opposition nonetheless. The ACE Act, COF maintains, would “decelerate the expansion of charitable giving in the United States” by saddling grantmakers with increased costs and hassles, and make it harder for funders to address long-term challenges.

What these minority-position arguments lean on the most is a sort of anxiety-ridden scarcity mindset. Let’s call it philanthropic fragility. It’s this idea that whatever we do, we must avoid taking any action that might cause fickle wealth-holders to give slightly less, because they’re already doing us a great favor by giving anything at all.

Now, I don’t need to get into everything wrongheaded about that. Suffice it to say, this scarcity mindset is a factor in much of what goes on in this sector, from the constant worries over what might depress overall giving levels — be it falling stock prices, inflation, “burnout,” you name it — to the very structure of the standard grantmaker-grantee relationship. Most grantees will never ask for what they really need, worried that they might scare away their annual project grant like a frightened rabbit. Well-meaning program staff too often insist that this is the best they can do this year because foundation grants are, after all, a zero-sum game. Only so much in the budget, regardless of what we all know is in the endowment.

Related to this is the old trope that giving away money well is hard. Sure, that might apply if you’re MacKenzie Scott or Bill Gates and you’re moving tens of billions out the door in a limited timeframe. But the logic starts to break down when it’s just a matter of a couple more percentage points a year — which is the extent of what most of these charity reform and wealth tax proposals are asking.

The money is out there. Foundations’ endowments currently account for well over $1 trillion, while about $160 billion more sits in DAFs with zero payout requirements (even as many foundations use DAF contributions to satisfy their own 5% mandates). Despite downturns and recessions, wealth inequality continues to skyrocket as the fortunes of the very rich climb over the long term. And as the baby boomers age and transfer their wealth to their heirs, the potential is there for far more robust giving by a younger and more involved generation of philanthropists. That doesn’t sound like philanthropic fragility to me.

Of course, it’s understandable that nonprofits would operate with a scarcity mindset, as fundraisers struggle to secure grants and wage an uphill battle to keep their organizations in the black. But when large majorities inside and outside the sector support higher giving requirements, drawing upon a growing hoard of philanthropic money that taxpayers have already subsidized, it’s hard to accept that these underlying conditions persist.

There are reasons to be hopeful that norms will change. For instance, some of the wealthiest and most celebrated donors of our time are helping normalize spend-down philanthropy. Promises to “empty the safe” from the likes of MacKenzie Scott, Bill Gates and Warren Buffett are playing a role in an ongoing trend toward less perpetuity and more spending on immediate needs. Meanwhile, an expanding array of charitable reform efforts are making their case against the status quo, even as a renaissance of philanthropic collaboration and a growing universe of philanthropy-serving professionals threaten the “giving is hard” argument.

Taking them at their word, high-net-worth individuals say they like giving, and rank tax benefits as only a secondary consideration. Cynics might scoff at that, but alongside most Americans’ positive opinion of philanthropy-backed civil society (82% in the Ipsos poll expressed support for the role foundations play), the enterprise of charitable giving still appears to be on firm ground in the court of public opinion.

Philanthropy is in a unique position of strength in the U.S. Yet many of its practitioners continue to act like it’s weak and enfeebled. Whether they’re spending down or not, perhaps it’s time for more funders to throw the entrenched caution to the winds and truly embrace that “risk capital” label by actually, you know, risking more of their capital. When you have as much money as many of the people and organizations we write about, it literally can’t hurt.

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