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25 February 2019

From Carnegie to Gates: directing wealth toward the public good  

US steel magnate and pioneering philanthropist Andrew Carnegie believed that the super-rich were merely caretakers and administrators of their great wealth, rather than its owners. Once the richest man in the world, he gave away 90% of his fortune to fund scientific research, build schools and support public libraries.

The model of philanthropy he created has been adopted by subsequent generations. Today the Bill & Melinda Gates Foundation supports projects throughout the developing world, from farming and combating malaria to education and family planning. For those with more wealth than they can spend in a lifetime, philanthropy has become the natural response.

However, it can backfire. For example, a famous international company came under fire for failing to address the root causes of homelessness. His critics argue that the company itself has contributed to a world in which employment is increasingly precarious. Such cases make it clear that philanthropy is not a panacea to smooth over reputational problems. It is no longer enough simply to give away wealth - philanthropy has to be consistent with the way people invest and conduct their business affairs.

The United Nations reports that global inequality is rising, with the wealthiest 1% of the world’s population owning half of its assets, up from 43% since the global financial crisis a decade ago. Huge disparities in access to basic services such as education, healthcare and sanitation are becoming the focus of political movements. Philanthropy can be a significant step to address such inequality.

Choosing the right cause is important. A new breed of philanthropy advisers has emerged who can help individuals or families find a cause that dovetails with their personal and professional aspirations. At present, education is among the biggest magnets for funding, particularly women’s education, thanks to high-profile champions such as Michelle Obama. Other popular causes include social welfare, health, arts and culture, and reducing poverty.

Different mechanisms are available to channel funds into chosen causes. For the super-wealthy, a foundation is often the structure of choice, offering ultimate control over the selection of goals or projects to be supported. Donors don’t have to retro-fit their values into existing charitable organizations, but can build and manage their own programs. It also means they can put their own management team in place, rather than relying on leaders not of their choosing.

But for those without the means or desire to build their own infrastructure, philanthropy consultants can identify appropriate charities and projects. If individuals want to support a specific cause, they can create their own charitable organization, although this will be subject to various legal restrictions. Philanthropic activities can usually be organized in a tax-efficient way, which is likely to influence the structure of any program.

Unlike in other parts of the world where philanthropic organizations have often clashed with governments, collaboration between the public and philanthropic sectors is strong in Europe. Donors and organizations can influence policy-making, and governments understand the importance of charitable giving at a time when public finances are stretched and gaps may emerge in services to the public. Philanthropy offers a fertile environment in which individuals who have built considerable wealth can help to advance goals that are close to their hearts.