The Role of Ultra-Wealthy Charities in the Growing Gap Between Rich and Poor

“To him that hath, more shall be given; and from him that hath not, the little that he hath shall be taken away.”

(Percy Bysshe Shelley)

I come bearing poetry. I come bearing facts. In this case the breaking news does require some imagination.

The rich are getting richer. By a lot.

In July the Canadian Centre for Policy Alternatives (CCPA) issued a report, Born to Win, by CCPA’s senior economist David MacDonald. Studying wealth concentration in Canada since 1999, the report concludes that:

 “Canada’s wealthiest 87 families have a net worth of $259 billion, which is about what everyone in Newfoundland and Labrador, Prince Edward Island and New Brunswick collectively owns ($269 billion). That sum would include all houses, cottages and other properties, all cars, every savings account in the region, RRSPs, pensions, etc., minus all liabilities such as mortgages and loans.”

These 87 families—dynasties in some cases—collectively own the same amount as the lowest-earning 12 million Canadians.

The CCPA, a think tank which focuses on analysis of economic policy, international trade, environmental justice and social policy, puts the growing wealth gap partially down to a growing income gap. People who earn more can afford to invest more. “And since returns on larger sums of invested money are naturally higher, we should expect the growth in the net worth of the wealthiest Canadians to outpace everyone else by a larger and larger factor with each passing year,” they say.

The other piece is the inheritance gap, a wealth gap. “A family’s stock of wealth can accumulate not just over a single lifetime but over generations, through inheritance, which further widens whatever income gaps may have existed on an annual basis,” the report states.

In August, as reported by CBC, a company called Wealth-X issued its World Ultra-Wealth Report 2018 and found that Canada is out pacing much of the rest of the world in the growing number of ultra-wealthy people, ranking fifth globally in terms of the number of people with a net worth of at least USD $30 million, ahead of Switzerland and Hong Kong.

Wealth-X is an interesting company.  It bills itself as “the leading global wealth information and insight business, whose clients are prestige brands across the financial services, luxury, not-for-profit, and higher education industries.

Prestige brands across the … not for profit and higher education industries, emphasis mine. In order words, ultra-wealthy charities who pay for research that allows them to follow the ultra-wealth money.

The company provides a special report for fundraisers called Major Gift Fundraising in the Global Economy.

With government budget cuts for services increasing around the world, there is an increasing focus on major donor fundraising to supplement the efforts of not-for-profit organizations,” explains Valentina Guerrini, Relationship Director, Non-Profits & Education at Wealth-X.  “The number of wealthy individuals with the capacity to give at a high-level is expected to more than triple in the next five years – substantially enlarging the potential pool of donors.”

Put a pin in the phrase “with government budget cuts for services increasing around the world.”

It will come up again as we consider how the tax cuts agenda that has driven politics since the mid-1980s has increasingly benefited the ultra-wealthy and resulted in the cutting of social services. And how charitable tax credits are a big part of that tax reduction menu for the ultra-wealthy, as their money is now being solicited by charities to help fill the gap created by the tax cutting which largely benefits the wealthy. It’s quite the vicious circle.

If there needed to be any finer point put on it, September brought us Anand Giridharadas’ new book Winners Take All: The Elite Charade of Changing the World.

The book has been getting lots of press. Giridharadas is a previous author, former New York Times columnist and frequent guest on MSNBC. Winners Take All was reviewed in the New York Times by Joseph E. Stiglitz, chief economist of the World Bank from 1992 to 2000 and a Nobel Prize in Economics recipient in 2001.

I’ll turn it over to Mr. Stiglitz to tell us about Mr. Giridharadas’ book.

“In a series of chapters centered on different individuals who are part of [these philanthropic plutocrats and aspiring “change agents”], Giridharadas exposes the rationalizations of the 0.001 percent who actually believe they are making the world a better place. The Sacklers [for example] helped create the opioid crisis but give money to important causes. The chief executive of Cinnabon thinks that being transparent about the fat and sugar she peddles offsets the harm her company creates. It’s a land of PowerPoint presentations and cuddly good intentions.

 “In order to really have an economy with the greatest opportunity for all, the kind of economy they seem to champion, [they] would have to pay high levels of corporate and personal income tax, offer decent wages to their workers, allow unions, fund public schools (instead of pet charter projects) and support some form of single payer health care and campaign finance reform. One simply can’t arrive at a more economically equal reality when the rungs of the ladder are so far apart.”

The rungs of the ladder are so far apart because when wealth pools at the very top, one result is that the middle class shrinks. And taking steps to protect and support the middle class is more than a cliché in an election campaign.  It’s a real problem. But the levers that allow wealth to pool at the top are the same levers that cut taxes and reduce spending on public programs for the common good.

We see the result of the growing gap all around us. In OECD members states, precarious employment is the new norm with 50% of new job creation being temporary contracts or self-employment. Almost half of Canadian employees are living paycheque to pay cheque, according to the Canadian Payroll Association. A friend of mine calls this middle class poverty.

Wealth-X says the number of ultra-wealthy people are going to triple in the next five years.

And while the prospect of so many new donors might brighten the day of some major gift fundraisers, I am urging a sober second thought or, at least, some discussion around how big money is impacting the sector. As enormous wealth accumulates at the smallest tip of the economic pyramid, the charity sector—instead of government bodies—is used to re-distribute a small portion of that wealth, to the continued tax benefit of the ultra-wealthy.

II

Charity, we understand, is not social justice. It is an economic sector with many dynamics and a number of influences at play. While full of neighbourly acts and good intentions, charities are also increasingly becoming about big money. The charity sectors in the U.S., U.K., Canada and Australia had a combined revenue of more than $2 trillion in 2014. More than 65% ($1.3 trillion) of that came from governments; 20% was from tax-receipted fundraising.

As we see wealth accumulating among fewer people at the top of the wealth pyramid in general society, we see evidence of the same dynamic in the charity sector.

Canadians, I’d say, generally have a good impression of charity goals, so much so they allow charities to issue tax creditable receipts to anyone who donates to them with no upper limit.

But what, perhaps, Canadians don’t fully understand is the growth of ultra-wealthy donors and ultra-wealthy charities, and how this is contributing to a serious and growing inequity among the organizations who are charged with helping the poorest, sickest and more oppressed among us.

In one square kilometre of Toronto’s “Hospital Row,” for example, four hospital charity foundations spent more than $1 billion on advertising and fundraising costs between 2005 and 2014.

By way of comparison, the money spent on the three federal elections held during that time—including donations to all political parties—was $800 million. The 10 largest national cancer research charities spent $637 million in that time. The Canadian Red Cross spent $223 million. The World Wildlife Fund spent $72.6 million.

The four hospital foundations that spent more than $1 billion in fundraising and advertising costs were also sitting on more than $2 billion of non-capital assets in 2014 including foreign equities, bonds, hedge funds, mortgage funds and private capital pooled funds. Yet they they needed more money and outspent their charitable competitors by as much as four to one to accomplish their fundraising goals, largely mega-projects of their own choosing.

The result is that “ultra-wealthy” charities are spending so much money on fundraising, they are squeezing out the “middle class” or mid-size charities who are finding it harder and harder to compete for fundraising dollars.

The rich really do get richer and we see it play out in charities all over the country and the world. Many of the charities, necessarily competing with ultra-wealthy charities, have large mandates to help many millions of people face a triple threat:  reduced government spending, a fundraising environment where they simply don’t have the many millions to compete in the ultra-wealth challenge, while more people need their services.

III

The increased pooling of money at the top of the charity sector leaves the 99% of the sector—like the 99% of us regular people—increasingly stressed and wondering how we are going to maintain what we have and create opportunity for those in our care.  But if you work in the charity sector, you don’t have to sit idly by. Here are 8 steps to surviving—and hopefully, someday, shrinking—the growing gap between the rich and poor.

  1. Do what you can to become more aware of the dynamics impacting the charity sector. Heaven knows, there’s been a lot written and discussed  about how to best steward your donors. Let’s learn about something else and do some broader reading on what’s going on in the sector we work so hard in. Take a look at the big picture. Knowledge is power, and you can become defter at knowing what you can do and what’s out of your immediate control. Being able to put things in a context can reduce stress and help you figure out what can be done. (Within the next week or so, I’ll be posting a list of books, articles and blogs you can follow.)
  2. Work toward transparency in the charity sector—especially from the 1% of charities raising the most money. We often see news articles trumpeting a donation of $50 million, $100 million or more. It’s important to know specifically what that donation is supporting. When will it be used? Immediately or is it an endowment that goes on to infinity with a 3.5% payout a year? How much in endowment funds is that charity already sitting on? How many people will the gift impact? Who are they? How much of a tax credit is the donor receiving from the Canadian tax payer? To be clear, it’s not for me, or anyone, to say who should donate how much money to what cause.  What I am asking for is more transparency so Canadians can make informed decisions who they support and by how much. As Canadian tax payers, we have a right to this important information. As people working in the 99% of charities whose futures depend on making the 1% more transparent, we must embrace a discussion based on facts, not fundraising hype.
  3. Assess what you are doing in your charity. The landscape in the charity sector has changed dramatically in the past 10 years. In terms of mission, are you having the impact you’d like to have? Now? Ten years from now? Are there ways to improve your impact without relying on increased philanthropy? Are there ways to restructure that can help you more effective? We can put the best of our imaginations to work on this task.
  4. Take a good look at your fundraising activities over the past five years.Where have you been succeeding? Struggling? How are your organization’s activities determined by what goes on in fundraising? Are you getting what you need? Do you have the structure? Best practice? Talent? Come to an understanding, based on evidence and consultation, about how best to succeed and know what your obstacles are.
  5. Look at ways to impact public policy. Money isn’t everything. Charities have a lot of information about the problems facing the people they serve and the means by which they can be addressed in a systemic way, by changes in government policy.  Invest in this.
  6. Don’t let the tail wag the dog.A charity’s job is to look after the people in their care, not tie themselves up in knots in order to receive money from a philanthropist that’s looking to impose their world view or pet project on you. Establish what you need from a donor, what the impact of that gift will be and repeat it confidently. Charities are accountable to the people of Canada who provide the vast majority of the money that funds them. We’ve got to respect that.
  7. Hold charity lobby groups accountable. Are the groups that say they are speaking on behalf of charities actually working in the best interest of the people served by charities or are they working in the best interest of donors? The two are not mutually exclusive but there is a difference. We need to ask ourselves whose interest is served by lobbying for bigger tax cuts for wealthy donors or establishing charity “standards” that considers the desires of donors over people who need help.
  8. Support independent critique of the sector. The charity sector is pretty used to being considered a sector of good works and, if they fail, good intentions, at least. Some view anyone who critiques the sector as being a tad unneighbourly and, maybe even, a bit of a grump.  We need to invite informed critique, revel in it, be smarter and do a better job because of it.

In his review of Anand Giridharadas’ new book Winners Take All, Nobel Laureate, Joseph E. Stiglitz, said,

“First came the books describing just how much worse economic inequality had become over the past 20 years, with all the dramatic political implications now impossible to ignore. Then there were the tomes about globalization (including my own, I admit), detailing the West’s unfettered pursuit of neoliberal policies that abetted all this unfairness.

“Well, prepare for a new genre: books gently and politely skewering the corporate titans who claim to be solving such problems. It’s an elite that, rather than pushing for systemic change, only reinforces our lopsided economic reality — all while hobnobbing on the conference circuit and trafficking in platitudes.”

 

Gail Picco is an award-winning charity strategist and thought-leader widely recognized as one of Canada’s foremost experts on how to carve a path through the increasingly complex dynamics of the charitable sector. Civil Sector Press recently published her latest book, Cap in Hand: How Charities are Failing the People of Canada and the World.  http://www.gailpicco.com

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