Billionaire Philanthropists Are Shaping a New Gilded Age

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Author David Callahan talks about the surge in political philanthropy by the wealthy.

bookThe number of billionaires has increased sharply in recent years — and they are using their charitable giving to influence the direction of a host of issues, such as education, the environment, science, among others, according to a new book, The Givers: Wealth, Power, and Philanthropy in a New Gilded Age. Author David Callahan, founder and editor of the website Inside Philanthropy, leads a team whose goal is to shed light on the intentions of foundations and donors. He recently joined the Knowledge@Wharton show, which airs on SiriusXM channel 111, to talk about his book. 

An edited transcript of the conversation follows.

Knowledge@Wharton: What do you see as the state of philanthropy right now?

David Callahan: There’s a lot of it going on. It’s the next chapter, what I call this new gilded age, that got going in the 1980s when Forbes first published that list of the wealthiest Americans. It had only 13 billionaires, but you could get on the list if you had $80 million. Now you need $1.7 billion to get on that list. A lot of billionaires don’t even make it onto the Forbes 400. Many of those people who are on the list are turning to philanthropy. They have a lot of extra money. They want to solve problems, and they’re charging forward with their giving.

Knowledge@Wharton: You noted an estimated $27 trillion is expected to be given to charities in the next five years. That’s a lot. We should be able to cure every cancer and everything else in the world with that kind of money.

Callahan: Just to keep it in perspective, the federal government spends about $4 trillion a year. But the portion of government money that can go for discretionary spending — to cure diseases, to engage in environmental protection, to send a man to Mars, whatever — is shrinking. So, philanthropists are stepping forward to do things that often government can’t.

Knowledge@Wharton: Is it more a of private-public partnership than ever before?

Callahan: Yes. We see this a lot with public parks, for example. In New York City, billionaire Barry Diller stepped forward to put a little island park off the west side of Manhattan. It caused a lot of controversy. The Highline in New York City [a park converted from an old railroad line] was built with private money.

Knowledge@Wharton: Another statistic you bring up is that the number of foundations is soaring as well.

Callahan: In the last 15 years, wealthy people created about 30,000 new private foundations. The numbers of people who have extra money to give away is staggering. Here’s a statistic that blew my mind: 70,000 of U.S. households have assets of $30 million or more, not including their real estate. That’s some serious liquid money. If you want to try to do some good in the world, you have that spare change to do it.

“Philanthropists are stepping forward to do things that often government can’t.”

Knowledge@Wharton: People expect certain things to be done with their money when they are giving it to charity. How much of it is always done for good, and how much of it is causing angst in other areas, like public policy?

Callahan: It depends upon your point of view. Michael Bloomberg, for example, has given $130 million, working with the Sierra Club, to shut down coal-fired power plants. If you’re worried about climate change, if you’re worried about coal pollution, that’s great. If you’re a coal miner or you work in the coal industry, that’s not so great.

If you like charter schools, these billionaires have put a lot of money behind that. That’s fantastic if your kid goes to a charter school. If you feel like public education shouldn’t be run by billionaires, you may have more of a problem.

Knowledge@Wharton: Cities such as Philadelphia, Chicago and others certainly could use more funding for their public school systems. Yet charter schools are seen as the next step beyond public education to provide kids with what they need for academic success. It’s a tough push and pull.

Callahan: Absolutely, yes. And there are no simple answers or analysis. My book is pretty rich in nuance about the pros and cons of this. Philadelphia is a great example. This is a city that’s been hurt by fiscal cuts, budgets for education have gotten whacked, many private donors have stepped forward to help out. But they have done so with strings attached.

They want the schools to change in certain ways. They want more charters, more teacher accountability. You have to ask, is that any way to run a city education system that you give power to billionaires in exchange for money that the taxpayers won’t put forward themselves?

Knowledge@Wharton: There was a lot made in the last couple of years about The Giving Pledge. Bill Gates and Warren Buffett put together the group of the uber-wealthy to give away a majority of their wealth towards charity. When that came out, many jumped on board. What’s its impact?

Callahan: It’s still too early to say. But about 150 billionaires in the United States and around the world have now signed that giving pledge, committing themselves to give away at least half their wealth. Among them is Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, who committed to giving away 99% of his Facebook stock to try to solve problems. What’s not to like, right? This is a solution to economic inequality to have the rich give it back. Except who is Mark Zuckerberg to have that kind of power as a private citizen?

“Who would have thought … that the big cause of hedge fund billionaires would be poor kids in the inner cities?”

It does raise troubling questions about who’s in the driver’s seat of American life because government as an agent for change to solve problems is going to continue to be on the downward trajectory as those budget cuts kick in. That’s not just at the federal level with what we’re seeing with the Trump administration, but at the state and local level. All those Giving Pledge billionaires are coming in, and government is on the decline.

Knowledge@Wharton: What does that mean for a democratic government going forward?

Callahan: It’s starting to look a little like a benign plutocracy with a lot of these really well-meaning, wealthy people having growing influence. It’s hard to say how that will play out, but it’s important to have the conversation now to bring attention to this. I think most Americans don’t pay much attention to philanthropy. When they think about philanthropy or charity, they think about donations to universities, to hospitals, to museums. They don’t think about people using their money to push a public policy agenda, to have a lot of say in what government does.

Another good example of how private philanthropy has had a big impact is in LGBT rights. In my book, I talk about Tim Gill, who made his money in tech and created a foundation. He put all of the money in the foundation dedicated to one cause, which is advancing LGBT rights. He, along with other funders, really accelerated that move to marriage equality and getting that Supreme Court victory. If you believe in marriage equality, that’s a great example of philanthropy speeding along progress to more rights for more people. If you’re uncomfortable with marriage equality, you feel wealthy donors maneuvered this issue faster than maybe citizens would have been comfortable.

Knowledge@Wharton: The good side to it is the fact that you have all of these wealthy people who want to be more involved in philanthropy, right?

Callahan: Absolutely, particularly with many of these billionaires worrying about the plight of poor people and low-income kids who are struggling in our schools. Who would have thought back in the 1980s during the Bonfire of the Vanities — the age of greed — era, that the big cause of hedge fund billionaires would be poor kids in the inner cities? In New York City, the Robin Hood Foundation now raises about $160 million every year from these wealthy finance people to fight poverty. That is a sea change, and it’s a positive thing.

We don’t want to say all this philanthropy is a bad thing. Many of these people also are coming from business. They’re good at solving problems. They know how to scale up organizations, manage people. They’re innovative. A lot of the philanthropists are from the tech sector. They have new ideas. There’s a lot to be excited about here as well.

Knowledge@Wharton: Still, would you like to see more transparency in the process?

Callahan: At the very least, we need to know where this money is coming from and where it’s going. We’ve heard a lot about dark money in politics. There’s also a lot of dark money in philanthropy, and much of that money is going to the same things. It’s also aimed at trying to influence what government does. It’s a form of political spending, but it’s all tax deductible. You can get a charitable deduction for giving money to kind of sway public policy. I’m not sure that that’s what Americans think of when they think of charity.

Knowledge@Wharton: We have an economic divide in this country. It probably would be better to close that gap a little bit and open up opportunities for people.

Callahan: It’s a good point that underscores a troubling fact I note in my book, which is that giving by ordinary Americans has been flat or going down, while giving by the people at the very top has been going up. That reflects the economic trends that we’re seeing with all this inequality, which is that all the income gains in the last 15 years have gone to that top 1%. They’re the people who have the extra money lying around to do something charitable. Most households are running in place or losing ground and don’t have some extra money. The charitable sector is increasingly being dominated by these wealthy people.

… Some of them give a lot to politics and also to philanthropy. Some of them don’t give much to politics at all. But the most sophisticated ones are good at pulling all the levers of influence. They know that if they want to advance an agenda, whether it’s for LGBT rights or the environment or low taxes and fiscal conservatism, they will be most effective if they invest in all the different avenues of change. They give money to think tanks, policy groups, litigation organizations and activist groups to push that agenda with their charitable dollars.

They give money to politicians and super PACs. They give money to lobbyists. That is an enormous amount of leverage that most citizens couldn’t even imagine having. When the average person wants to try to change something, maybe they can sign a petition or write their representative. They can’t bankroll a think tank to come up with new ideas to hand off to policymakers.

“It’s a form of political spending, but it’s all tax deductible.”

Knowledge@Wharton: Beyond transparency, are there solutions to try and keep charitable giving on focus without a lot of the strings attached?

Callahan: One idea that I discuss in the book is to limit politicized giving. Is it OK that billionaires get a tax deduction for giving money to groups that work closely with political parties to advance an agenda? In the past 30 years, philanthropists have built up this whole network of think tanks in Washington: The Heritage Foundation, The Cato Institute, the American Enterprise Institute. Those are all organizations on the right that have been bankrolled by conservative donors.

On the left, liberal donors got with it and built up their own network of think tanks like the Center for American Progress. Many of these work hand-in-glove with people in government and partisan political officials. The Heritage Foundation right now is one of the big forces in the Trump administration. Trump did not just come into office with all those executive orders in his briefcase. He didn’t bring those down from Trump Tower. No, he turned to the experts. He turned to places like the Heritage Foundation, very far conservative organizations bankrolled by tens of millions of dollars every year in donations.

You have to ask, does giving money to a group like that really count as charity? Should they get the same tax deduction? I suggest probably not, that we need to redraw the line. With trillions of dollars coming into philanthropy, we want to see that money go ideally to more hands-on efforts to help communities, to help children, build up cultural institutions, help universities. We don’t want to see it just go into this bigger and louder ideological combat between billionaires. It’s like watching these gods throw lightening bolts at each other and battling it out in this war of ideas, all at taxpayer expense.

Knowledge@Wharton: Is it a concern that we’re going to get to a point in 20, 30, 40 years where the money that these people are giving becomes more important than what the government can provide?

Callahan: The water crisis in Flint, Mich., is a great example. After it turned out that that water was contaminated, a number of foundations stepped forward and gave $120 million to help provide clean water in Flint and solve some other problems in the city. When Detroit was going bankrupt, a number of foundations stepped forward and helped bail it out with $800 million. When Kalamazoo, Mich., was facing a big budget deficit, philanthropists stepped forward and put up $80 million to bail out the city. We just saw in Hartford, Conn. — a number of insurance companies coming forward with philanthropic contributions to help bail out the city. Again, with those donations comes power. You don’t write a check to bail out the city and not have some say over what happens next.

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