Capital and Philanthropy: Donations from the Wealthy
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Research Report #22 May 2015 Capital and Philanthropy: Donations from the Wealthy Morgan Clark Chien-Chung Huang Rutgers University The purpose of this paper is to examine the trends of charitable giving from wealthy indi- viduals in both the United States and China. This paper includes a history of philanthropy in each nation, as well as the impact of notable wealthy figures on philanthropy. We also asses the motiva- tions of wealthy donors and review the charitable areas that receive the most donations from this population. This paper analyzes and compares the donation trends from the top fifty philanthropists in both the United States and China. Finally, this data is compared with the total asset trends of the fifty wealthiest individuals in each nation. This data depicts that in both the United States and Chi- na, asset size increases more rapidly than donation rates over time. Capitalism offers a possible way to advance for humanity; however, increasing income inequality may damage the advance- ment. While substantial philanthropic engagement from wealthy individuals may be an important mechanism to balance capitalism and income inequality, the statistics indicate that collective shar- ing of capital has a long way to go. 1 Introduction expands when r > g, because this need innovative reforms. As Dr. Lu Though many societies have made means that the rate of return on capital points out, capital is a unique form of substantial social progress, economic exceeds economic growth. The idea is wealth since it can be utilized to pro- inequality and poverty are still chal- that when the returns on capital ex- duce more wealth, and that the wealth lenging problems in our world. In fact, ceeds the returns on labor, the wealth generated from capital should serve income inequality in the United States gap will continually widen between the majority. This is an essential com- has been on the rise since the mid- people who have a lot of capital and ponent of social development. Lu 1970s, with a prominent increase in the those who have less capital and rely (2015) also furthers this idea of a pro- income of the very wealthy (Hatch & more heavily on labor. ductive relationship between capital Rigby, 2015). The Gini coefficient, an Picketty (2014) also depicts ine- and philanthropy by describing mod- income inequality measure, was quality in terms of the forces that can ern philanthropy. Modern philanthro- around 0.391 in 1970s, continually rose lead to snowballing wealth, such as py is a practice that facilitates the col- to 0.481 in 2013, the highest level in that most children of wealthy people lective sharing of capital, and Lu (2015) history (Jongsung & Tebaldi, 2013; often receive access to networks and describes this as the best means to Noss, 2014). Top 0.1% families owned opportunities that lead these children achieve the collective sharing of 10% of total national wealth in 1970, to also be very wealthy adults. Hence, wealth. Capital can be utilized in this the share was 22% in 2012. Likewise, governments should play a construc- way to be a source of economic and there relative shares for top 10% fami- tive role in offsetting this snowballing social development. The use of enor- lies were 70% and 77%, respectively of wealth and the inequality it perpet- mous contributions is what distin- (Saez & Zucman, 2014). This rising uates. Piketty (2014) proposes a pro- guishes modern philanthropy from income of the wealthy and overall eco- gressive annual tax on capital, instead traditional charity (Lu, 2015). To fur- nomic inequality contributed to start of of on income. He argues that this type ther develop modern philanthropy, it the Occupy Wall Street movement in of tax “will make it possible to avoid is essential for more wealthy individu- November 2011, which depicted how an endless inegalitarian spiral while als, who are the people with the largest serious the American public perceives preserving competition and incentives amounts of capital, to take part in phi- the problem of income inequality. for new instances of primitive accumu- lanthropy. Likewise, the income inequality in- lation” (Piketty & Goldhammer, 2014, Like Lu and Pikkety, Gates be- creases substantially in China. The p.572). Bill Gates agrees with this, as lieves that capitalism has the ability to Gini coefficient was about 0.30 in 1970, he feels that “it doesn’t make any sense improve society if utilized in the most kept stable between 1970 and 1979, that labor in the United States is taxed effective ways. However, he also notes and started to increase after the eco- so heavily relative to capital” (Gates, that while it has positively impacted nomic reforms in 1979, the coefficient 2014). Gates (2014) further suggests a the lives of billions, there are still bil- reached 0.40 by 1995, 0.50 by 2005, and progressive tax on consumption, lions that have been left out by capital- was around 0.55 in 2012 (Xie & Zhou, which would involve wealthy people ism (Gates, 2008). Those that do not 2014). living a lavish lifestyle paying more reap the benefits of capitalism have to Thomas Piketty (2014) depicts ine- taxes than wealthy people participat- rely heavier on government services quality in Capital in the Twenty-First ing in philanthropy. This would en- and nonprofit organizations. While Century by describing that the income courage more wealthy people to par- these institutions currently play a cru- produced by capitalism tends to be ticipate in philanthropy. Piketty (2014) cial role in assisting the less fortunate, concentrated in the hands of a small also supports estate tax, which can be they cannot compensate for the large group of people, whereas income from utilized to invest in education and re- income inequalities on their labor is dispersed throughout the en- search in order to strengthen society. own. Therefore, Gates (2008) suggests tire population. This problematic eco- The significant conclusion to draw the need for a more creative capital- nomic inequality is bound to worsen if from Piketty’s book (2014) is that un- ism, in order to create new ways to the economy expands at a slower rate regulated capitalism has led to im- bring more people into the system of than capital earnings. Piketty (2014) mense economic inequalities, which capitalism, a system that has done so illustrates this with his equation r > g, cannot be solved solely by a free- much good in the world and can do so where r is the average rate of return on market economy. much more with the right innovations. capital and g is the rate of growth of Lu (2015) supports this view, and Though contributions to philanthropy the economy. Therefore, inequality that addressing problems related to made by wealthy individuals such as capitalism and the free market will Gates also play an essential role in ad- 2 vancing social development, he pro- of Philadelphia in 1751, which was ents had their own funds to support poses that innovators and businesses open to all deserving men, as opposed the project in the future (Nasaw, 2006). get more involved through creative to just the sons of wealthy families like Carnegie’s new system of scientific capitalism (Gates, 2008). He furthers other colleges at the time. The Acade- philanthropy was unprecedented, and that in order to get more companies my of Philadelphia, later the Universi- had a large impact on the development involved, the companies need to earn ty of Pennsylvania, was established to of philanthropy in the United States. some kind of return as an incentive, prepare students for business and pub- He practiced what he preached as he which Gates depicts as the “heart of lic service, and became America’s first utilized his capital to build 1,680 pub- creative capitalism” (2008). liberal arts college (National Philan- lic libraries in the United States and Piketty, Lu, and Gates each offer thropic Trust, 2012). Harvard Universi- libraries in 2,509 communities world- innovative proposals for enhancing ty and the University of Pennsylvania wide (The Carnegie Corporation of capitalism and philanthropy to better remain top regarded universities to- New York, 2014). Carnegie also estab- serve the majority. Piketty focuses on a day; and therefore the contributions lished the Carnegie Corporation of punitive tax approach to reduce in- from John Harvard and Benjamin New York in 1911, a philanthropic come inequality, Gates emphasizes Franklin have not only benefited the foundation which has been to known creative capitalism that employs capi- students who attended these universi- to focus on education, science, and talism to be actively involved in re- ties, but also the millions of people international affairs. Carnegie donated ducing income inequality, and Lu fo- worldwide that have benefitted from about $350 million during his lifetime, cuses on philanthropy that encourages those students’ contributions to socie- which was over 90% of his wealth, and wealthy individuals to voluntarily and ty. Furthermore, Benjamin Franklin’s would be equivalent to several billion wisely share their wealth. In this pa- will established trusts in Boston and dollars today (Carnegie Corporation of per, we will focus on the level and Philadelphia, which gathered interest New York, 2014). As a man who grew trends of donations from wealthy peo- for 200 years. Boston utilized the mil- up with little means himself, he knew ple in both the United States and Chi- lions of dollars left in the trust to estab- firsthand the benefits of education, and na. lish a trade school, while Philadelphia he felt that the most beneficial way to Notable Wealthy Figures in created scholarships for local high utilize his capital was through philan- America’s History school students (Levenick, 2015).