Investment philanthropy’s relationship to our economy and our democracy is what I call the “virtuous cycle.”
The cycle begins when philanthropists make unregulated investments that create opportunities such as educational scholarships and research grants. This generosity builds opportunities for advancement that would have been impossible otherwise. Thus, the second step in the cycle: Opportunity builds prosperity.
Prosperity inspires gratitude. People grateful for the prosperity they experience want to give back.
Gratitude inspires generosity, and they freely give generously — beginning again this cycle that defines American affluence.
America, despite many short-comings, has achieved a remarkable level of economic and social prosperity. Prosperity, of course, is about the spirit as much as it is about dollars. Americans are optimistic and idealistic.
Even the less well-off have preserved their enthusiasm for the American dream. Our people continue to create new businesses and invent new industries such as pharmaceuticals, biotechnology and wireless communication at a remarkable pace.
John D. Rockefeller’s philanthropic investment in penicillin helped build the pharmaceutical industry. Alfred Loomis invested his fortune in science right after the Great Depression. His funding helped launch industries using ultrasonics, microwave radar and electron spectroscopy, among others.
Philanthropists give back to the nation that has enabled them to amass their well-being. But it is not just wealthy white men with their names on museums and universities. Nine out of 10 Americans make charitable contributions annually.
Personal responsibility in a free society is a vital asset. It keeps us focused on the needs of others as well as our own. Because we are grateful beneficiaries of the generosity of our fellow citizens, we ensure our role in sustaining the virtuous cycle.
Philanthropy creates a balance between capitalism and democracy. It strengthens both as it feeds optimism and innovation.
It shows our shared responsibility for fairness. It reminds us of the Founders’ expectation that we each take personal responsibility for “life, liberty and the pursuit of happiness” for fellow citizens.
Capitalism is wealth-producing and wealth-concentrating. A market economy fosters tough competition and potentially winner-take-all outcomes. It encourages optimization of individual assets.
It is demanding, impatient, imaginative and entrepreneurial. It thrives on freedom and light bureaucracy. It is risk-tolerant and self-focused.
But democracy cannot thrive when income distributions reach extreme levels of inequality. Philanthropy provides free-market capitalism with a governor on its engine. It prevents capitalism from “overheating” and burning up.
At the beginning of the industrial revolution, few could have imagined the combination of virtue and enterprise in men like George Peabody. They applied the control mechanism of philanthropy to their engine of wealth-building.
This made our capital market system work as well as it has because it emphasized fair play and self-discipline, and engaged wealth in addressing unfairness. (When our market system has failed us, it has usually been because greed wrestled generosity out of its way.)
Citizen-to-citizen generosity is the vital link between civil society and economic development. Civic virtue and economic success connect donors and recipients in mutuality basic to citizen life in our democracy.
The financial instabilities since late 2007 have left millions without jobs, homeownership or access to higher education and health care. In these times, we need “generosity unbound.” Its openness to innovation and entrepreneurship can launch successful strategies to renew and expand the American middle class. As our economy grows stronger and produces more jobs, American philanthropy will remain a crucial driver of this recovery.
But this system is now threatened.
Excerpted from “Generosity Unbound: How American Philanthropy can Strengthen the Economy and Expand the Middle Class” by Claire Guadiani. She is a fellow of the American Academy of Arts and Sciences, and the author of four books on philanthropy.