The end of 2022 has brought the kind of news that gives philanthropy a bad rap. Most notably, the collapse of cryptocurrency giant FTX amid charges of fraud against its founder, Sam Bankman-Fried, led to a loss of millions of dollars in expected donations and questions about the much-heralded effective-altruism giving approach, for which Bankman-Fried served as a bankroller and poster boy.
The FTX saga capped off a year of continuing challenges in the nonprofit world. High inflation cut into nonprofit budgets and endowments while also increasing operating costs. When estimates are reported, giving in 2022 measured in real dollars is likely to show little growth, or even a decline — one of the few times that’s happened outside of a recessionary year.
Although a new report by the Better Business Bureau’s Wise Giving Alliance shows trust in nonprofits is up slightly, many influential voices continue to push for widespread change in philanthropy. Legislation to speed up distribution of donations from foundations and donor-advised funds — the Accelerating Charitable Efforts Act — was introduced in the House this year after debuting in the Senate in 2021. Congress has shown little interest in moving the bill forward, and groups representing the nonprofit field are divided on its merits. But the legislation’s message has reverberated loudly: Philanthropy needs to do more and at a much quicker pace to help solve the multiple problems facing the nation and the world.
The issues confronting philanthropy are real and complex, but the field has weathered other serious problems, most recently during the pandemic. And if history is a guide, the philanthropic world is on a better path than might seem evident at this moment. That’s the message at least from a recent report from the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University, which looks at philanthropy during the past three decades as the center marks its own 30th anniversary.
The report — “Philanthropy: 1992-2022: What Difference Can 30 Years Make?” — points out that giving has kept pace with the nation’s economic growth, rising from $124.31 billion in 1993 to $484.85 billion in 2022. Adjusting for inflation, donations more than doubled over this period. The number of nonprofit organizations grew as well. Despite Internal Revenue Service efforts to cull those groups that are no longer operating, the number of registered public charities doubled to almost 1.3 million by 2020, while the number of private foundations grew by 68 percent, reaching nearly 100,000. Many more nonprofits, typically religious and community groups, operate without registering with the IRS.
The past three decades have also seen the growth of a variety of organizations providing services to philanthropy, including this publication, which launched in 1988. Hundreds of colleges and universities started programs to prepare students for careers in nonprofits and increase public understanding of the field. That may partly explain why more attention has been given to measuring and evaluating the results of philanthropic efforts.
The report’s author, Michael Moody, who studies family philanthropy at the Johnson Center, notes that a sizable increase in community foundations has had “ripple effects,” including bringing more young people into the field through their involvement in youth-advisory councils — a key feature of many community foundations. He also points out that the federal government’s promotion of national and community service has created “enduring programs,” such as City Year and Teach for America.
The report does not gloss over the scandals that have beset philanthropy, starting back in 1992 with the fraud scheme that landed the United Way’s president in prison. And it notes that a larger proportion of giving now comes from foundations and wealthier people than from individuals and donors of more modest means.
Income and assets have also grown more rapidly for the hundred largest charities than for the nonprofit field generally, while the share of giving to religion has declined relative to giving for other activities, such as health and education. Despite threats of cutbacks, government funding for the nonprofit field has continued to increase. And socially responsible business practices including impact investing and microfinance, which were scarcely on the radar in 1992, have now put down roots.
For anyone who remembers the alarm bells leaders in philanthropy rang repeatedly and loudly during the 1970s and 1980s over issues such as stagnant foundation growth and the Reagan administration’s tax cuts, the long-term perspective provided by the Johnson Center’s report might seem astonishing. “It should be clear from this review,” concludes Moody, “that the nonprofit sector and the practice of philanthropy have become considerably larger and dramatically more complex in the past 30 years.” Perhaps with a touch of institutional self-interest, he calls for more support of education and research to produce “the well-trained and credentialed professionals to work in this ever-more-complicated field.”
The Challenges of Growth
To be sure — and this writer also admits to some self-interest — more knowledge and more skillful staff are likely to improve philanthropy and could even make the field more diverse. But the challenges philanthropy faces are more fundamental ones, exacerbated by the three decades of growth the Johnson Center report documents.
The controversy over donor-advised funds is a case in point. Fidelity Charitable, the largest sponsor of DAFs, began operating in 1991. Since then, it and many others, including those run by community foundations, have helped attract impressive amounts of contributions. The way they operate, including donor anonymity and upfront tax deductions, strikes many critics as distinctly unphilanthropic. This dispute is, at heart, about the nature of philanthropy, and it is occurring precisely because the field today is larger and more complicated.
Effective altruism has also emerged in the past 30 years as an outgrowth of many donors’ understandable interest in knowing their gifts are used as well as possible. As the Johnson Center’s report points out, that has led to increased investment in research and evaluation. But advocates of effective altruism call for a more rigorous approach than philanthropy has traditionally used — one that could lead donors to bypass giving to nearby groups and those focused on present-day challenges in favor of faraway organizations and problems likely to occur in the distant future.
Not surprisingly, many wonder how philanthropic that really is, and Bankman-Fried’s fall from grace has underscored their concern.
Similarly, controversies over issues such as philanthropy’s involvement in politics and the outsized influence of big donors grow out of changes during the past three decades that have made philanthropy’s role in society less straightforward. As the Johnson Center’s report shows, these changes have greatly improved philanthropy, but also present new problems for which solutions will be both necessary and challenging. The coming year is as good a time as any to start addressing them.