Inequality and charitable giving

Today’s economic inequality is reminiscent of America’s Gilded Age. Andrew Carnegie, the steel and railroad baron whose gifts built and endowed over twenty-five hundred local libraries, was perhaps the richest man in history.

In his “Gospel of Wealth,” Carnegie argued that the wealthy had an obligation to use their wealth for the common good. He rejected the alternatives of leaving the bulk of one’s wealth to family or to the poor, both of which almost certainly would produce undesirable results.

Three years after authoring “The Gospel of Wealth,” Carnegie broke a strike at his Homestead steel works in Pittsburgh. The workers went on strike when management proposed a thirty-five percent pay cut for workers. To break the strike, Carnegie relied upon armed guards who, when a riot ensued an attempt by scabs to enter the plant, killed sixteen.

Is it possible to gain great wealth ethically? If so, why do large corporations consistently lobby the federal and state governments to enact legislation that will provide their industry and, more specifically, their business with a competitive advantage? Legislative or regulatory competitive advantages tilt the playing field in favor of certain player(s), thereby eroding the equal conditions that inherent in fair competition.

Following the example of Carnegie, Rockefeller, and others, today’s wealthiest (e.g., Gates, Buffet, Kochs, and other billionaires) are endowing foundations and committing the bulk of their assets to philanthropy. On its face, this giving would seem to counterbalance some of any evil entailed in accumulating great wealth.

One problem with that conclusion is that the wealthy may not use their money for causes that I (or you) endorse. Illustratively, as a liberal I disagree with many of the political causes the Kochs support; as an advocate of democracy, I object to political activism (efforts to shape public policy) being cloaked as philanthropy and to that political activism thus receiving many of the tax benefits associated with philanthropy.

Another problem is that if the accumulation of great wealth depended upon laws or regulations that tilted what a theoretically level playing field in favor of the one who accumulated that wealth, philanthropy in no way compensates those who suffered because of unfair competition. This is directly analogous to how local libraries, several institutions of higher learning, and other Carnegie philanthropy did nothing to alleviate the horrendous working conditions of his employees nor the poverty in which they and their families lived.

Carnegie in “The Gospel of Wealth” wrote

Individualism, Private Property, the Law of Accumulation of Wealth, and the Law of Competition … are the highest results of human experience, the soil in which society so far has produced the best fruit. Unequally or unjustly, perhaps, as these laws sometimes operate, and imperfect as they appear to the Idealist, they are, nevertheless, like the highest type of man, the best and most valuable of all that humanity has yet accomplished.

Even from a strictly materialist perspective, Carnegie’s assessment of the best results of human experience is disturbing. His flawed list omits love, friendship, knowledge, and art.

Furthermore, each item on Carnegie’s list is a limited instrumental good, not an absolute good. No person is an island; promoting individualism as the highest aim undercuts the inescapable web of community that supports each person. Private property similarly depends upon government establishing and maintaining law and order as well as services from which all benefit and yet for which none pays directly (economists refer to these goods as common goods, e.g., a public park benefits all, those who use it directly as well as those who see it or even think about its availability). Competition should be fair, which requires a level playing field. Accumulation of wealth is, per se, not bad; accumulation of wealth by exploiting others or avoiding communal responsibility is immoral.

Carnegie does favor the estate tax over leaving large wealth to heirs. However, he prefers for the wealthy to give their assets directly for the common good. His preference rests upon two widely held but erroneous presumptions.

First, Carnegie presumes that he knows how to benefit the common good than does our democratically elected state and federal legislatures. I disagree. An ability to earn money is not necessarily indicative of an understanding of how best to improve the common good. Legislatures are imperfect. However, given the choice between relying upon legislatures or the wealthy to act in a way that will best benefit the common good, I prefer to take my chances with legislatures that embody multiple voices, have different perspectives, and represent varied constituencies.

Second, Carnegie presumes that government spending involves more waste than does individual philanthropy. Examples of wasteful government spending abound (e.g., studies with no apparent social benefit, expensive airplane parts, unnecessary travel, Medicare scams, etc.). Critically, those examples collectively do not amount to even one percent of government spending. Large scale waste – well-intentioned programs such as some job training initiatives that fail to achieve their objectives or defense contracting cost overruns – are generally ignored. Including both small- and large-scale waste, most government spending is still beneficial, paying for schools, police, roads, Social Security, much healthcare, and more. These are items towards which few charitable dollars are expended.

Five hundred foundations exist today for every foundation that existed in 1930; their assets have grown from less than a billion dollars to over eight hundred billion dollars (Robert Reich, “Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better”). In spite of this dramatic increase in charitable giving by the wealthy, inequality continues to grow, leaving the bottom twenty percent ever further behind.