August 05, 2013

Peter Buffett Is Right to Call for Philanthropic Change

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Peter Buffett.

When Peter Buffett took to the pages of The New York Times to lament what he calls a “crisis of imagination” in philanthropy—a failure to envisage a way for our society to function that puts an end to what he calls a “perpetual poverty machine,” he ignited a quite a debate.

Mr. Buffett, chairman of the NoVo Foundation and son of Warren Buffett, critiqued our capitalist system, while being careful to emphasize that he is not calling for an end to it.

Sitting in meetings with people who are “searching for answers with their right hand to problems that others in the room have created with their left” has left him frustrated, he writes. So too has the philanthropic ignorance that leads to unintended and negative consequences; a nonprofit sector and accompanying “charitable-industrial complex” that he says has become a “massive business” and led to the creation of countless “gatherings, workshops and affinity groups;” and an over-reliance on “business principles” that simply “feed the beast.”

Like many others, I have real critiques of Mr. Buffett’s op-ed, but I also think that he makes some important points that we should not dismiss too quickly (and judging by some of what I read, I worry that we may).

First, my criticisms: I question his understanding of the nonprofit world and where philanthropy money goes. He creates the misimpression that philanthropy has grown relative to business and government when that is not really the case.

As Tom Watson, founder of the CauseWired consulting firm, noted on the Forbes site, “While it’s true that the numbers of nonprofits have grown rapidly (as have foundations), philanthropy today represents roughly 2 percent of GDP—and has been stagnant at that level since roughly 1970.”

He cites the $316-billion given in 2012 (without acknowledging that this remains below the 2007 peak) and writes that “philanthropy has become the 'it’ vehicle to level the playing field.”

But the data suggests that the bulk of that giving goes to activities not primarily focused on leveling the playing field: yes, some of the dollars directed to religious and educational institutions—the two biggest pieces of the pie—might be allocated to alleviate poverty or create upward mobility, but much is not.

Perhaps philanthropy should be solely focused on leveling the playing field—although I’d argue both that government has a rather crucial role to play in this and that there are other worthy objectives for philanthropy to pursue (from combating climate change to promotion of the arts)—but, today, it certainly is not. It supports associations of all types, cultural institutions, fancy college campus centers and athletic facilities, and the list goes on.

I’d also take issue with what Mr. Buffett seems to imply about the motivations of the mega-rich.

“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,’” he writes. “But this just keeps the existing structure of inequality in place. The rich sleep better at night, while others get just enough to keep the pot from boiling over.”

It’s unfair to issue sweeping generalizations about the motivations of individuals who, having found themselves with great fortunes (whether inherited or the result of an initial public offering of their technology start-ups), choose, as Warren Buffett has, to seek to put it to use for the betterment of many—rather than simply handing it down to the next generation.

On the other hand, Mr. Buffett makes some important arguments that we should not dismiss.

He is right to question the current fetishization of markets among many in philanthropy. For some, this part of Mr. Buffett’s argument clearly touches a nerve.

Howard Husock, vice president for policy research at the Manhattan Institute, writes on the Forbes site without much to back it up, that the bigger problem is that philanthropy “has become unfriendly to the creation of wealth that provides the resources to solve such problems.”

My view is that philanthropy at its best often solves the very problems that business and government cannot, or will not—or that result from market failure.

As Warren Buffett put it when explaining his decision to give much of his fortune to the Bill & Melinda Gates Foundation, “In business you look for the easy things to do … Philanthropy is a tougher game.”

I think that’s right, and that, therefore, it’s unlikely that market analogies, terms, and frameworks will provide the answers as we seek to make philanthropy more effective.

On a related note, Peter Buffett is also correct, I believe, to resist the alluring fiction of easy answers. He argues that this work cannot be reduced to the question “What’s the return on investment?” He warns of the over-simplification that can lead to what he calls “philanthropic colonialism”—or an assumption that what works in one place can be transplanted to another without regard to differing contexts.

He argues that we need to question the “current structures and systems that have turned much of the world into one vast market,” asking, “Is progress really Wi-Fi on every street corner? No, it’s when no 13-year old-girl on the planet gets sold for sex.”

He’s right, of course.

But why question the motivations of those donors—such as Pam and Pierre Omidyar—who are working to help try to change that reality? Instead, let’s figure out what can be done to help them be as effective as possible as they pursue their goals.

All this brings me back to the “charitable-industrial complex” that Mr. Buffett laments and that, I suppose, the organization I lead is very much a part of.

Fact is, if we care about making progress on our most pressing social problems, then we need foundations and nonprofits to be effective.

There is a role in this effort for data about what works (and in what contexts), for bringing the views of those on the ground (grantees and beneficiaries) to decision-makers, for performance assessment that is rigorous and thoughtful, even (gasp) for meetings among those who might learn from each other.

Yes, we need to ask the big questions about how our society functions and about the role and limits of markets. But we also need to focus on making the philanthropy that is going on today, and each and every day, as effective as it can be.

Phil Buchanan, a regular Chronicle columnist, is president of the Center for Effective Philanthropy.