A solution to global inequality, one that could likewise foster economic growth, is desperately needed. Creative Philanthropy could be the answer.
words Jesi Wagle
Inequality, today, is intolerable. During globalisation, private investment was highly encouraged for profit and the role of government was defined as a coordinator and welfare provider. The private sector, obviously, as a profit maker has contributed tremendously towards progress, but the government is forced to apply austerity measures, and now the ‘welfare state’ is being questioned by experts. Globalisation was effective during the transition that appeared after the collapse of the Soviet Union and the Berlin Wall, but since the global financial crisis began in 2007 the world economy has been hanging on the cliff, struggling to get up. Financial crisis, indeed, the outcome of Washington Consensus and finally inequality, too. Still, more than half of the world’s population are left hungry despite developmental process. Now, no more time is left. So, a remedy to reduce global inequality and foster economic growth has desperately been expected and ‘creative philanthropy’ could be an alternative.
Let’s start from inequality. According to Cambridge on-line dictionary, inequality is ‘‘the unfair situation in society when some people have more opportunities, money, etc. than other people’’. Social inequality is characterised by the existence of unequal opportunities and rewards for different social positions or statuses within a group or society. There are vertical and horizontal inequality. Social inequality can be measured based on opportunities and conditions. Mathematically, the Gini-Coefficient is the regarded as the best way to measure income inequality. More equal societies have .3 Gini coefficients or below and most unequal societies have .5 Gini coefficient or above. America had a Gini coefficient of .47 in 2012. (Stiglitz:2012)
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Much of the inequality that exists today is a result of government policy, both what the government does and what it doesn’t do (Stiglitz, 2012). According to a Oxfam’s recent study, the 85 richest people in the world have accumulated the same wealth as the bottom 3.5 billion. One in eight people go to bed hungry every night, while 1.4 billion adults are overweight. Top CEOs were remarkably successful in maintaining their high pay. The ratio between earnings of a CEO and a worker is 243 to 1 as of 2010 (Stiglitz).
Is inequality an outcome caused by a lack of resources?
Obviously not. Let’s take an example: ‘’The estimated hydro power potential of Nepal is 83,000 MW, of which 114 projects having 45,610 MW have been identified as economically feasible. Current total production is less than 1000 MW.(Wagle) The government is seeking investment from the international community but there is self interest within communities. In India, there is a power shortage of 5,547 MW out of total demand; in Pakistan there is 8-10 hours per day of power otage, Bangladesh import 500 -1000 MW hydro power every day from India, Sri Lanka had extended per day power cut hour. Power shortage is major problem of developing country despite having huge potentials. Actually, Available water resources in Nepal is an opportunity for all as Nepal alone can not use it. But Nepal is still poorest owing to proper utilisation policy. Indeed, There was lack of global policy how to address globally available natural resources. Hence globalisation was done without globalising opportunity. Stiglitz has argued in his book ‘‘Globalisation and its Discontents’’ that western countries pushed poor countries to eliminate trade barriers by keeping their own barriers as it is. And also developing countries were prevented from exporting their agricultural products (Stiglitz, 2012). In a sentence from the United Nations Research Institute for Social Development (Combating Poverty and Inequality, 2010), ‘‘globalisation and liberalisation have not created an environment conducive to sustainable and equitable social development’’. This is a reality of increasing inequality we have been facing now. Finally, according to Professor Joseph Stiglitz, ‘‘today’s divided society endangers our future, So another world is possible’’.
Philanthropy under cloud
The word philanthropy was first coined by the dramatist Aeschylus in 5th century BC to describe Prometheus’ character as ‘philanthropos tropos’, meaning humanity-loving. Traditionally philanthropy meant a charity or donation from rich to poor. Later it was used as a shield by a few elite to protect their business from taxation (Dasgupta K et.al 2007). Today, philanthropy has been strategically accepted for the sole benefit of the ‘organization’, not for others.
Microsoft giant Bill Gates and Facebook giant Mark Zuckerberg have been donating from their profits. Charity Navigator writes that, according to Giving USA, Americans gave $298.42 billion in 2011 (about 2% of GDP).The majority of donations were from individuals (73%), then from bequests (about 12%), foundations (1.8%) and less than 1% from corporations. Donations are given without return consideration. This lack of return consideration means that, in common law, an agreement to make a donation is an “imperfect contract void for want of consideration. ’’
Between 2001 and 2011, the nonprofit sector increased 25 percent. Their growth rate now exceeds that of both the business and government sectors. It’s a massive business, with approximately $316 billion given away in 2012 in the United States alone’’, but on the contrary inequality is increasing. (Buffett, NY Times, 2013).
Today’s private investment is capital for profit, and profit for further investment of infinite profit. The private sector is devoted only to profit and is liable to pay tax. The amount of tax is a matter of whether they are honest enough, because the private sector does always bargain to gain more. Profit sometimes can be rude. Profit, now, is the sole motto of private investment. That’s why investors seem hesitant to care for the need of poor. They claim to pay their fair share of tax and believe that this is sufficient. Due to their rude but essential nature (of excessive emphasis on profits) the rich are misunderstood by the poor, as they themselves always misunderstand the poor. This conflict may surface by any time in the form of costly instability. Figure 1 may help to illustrate:
Without profit or capital, investment is not possible. Profit is the source of perennial capital, which is left over from consumption. Consumption is essential to encourage business. So, the private sector does believe in consumerism–the consumer works like the battery of a torch to produce light. Finally, considering profit, welfare comes in always as a least priority.
This is the philosophy of today’s globalization. As a result, society is being extremely divided into haves and have nots. Now, it is strongly felt that something needs to be done to create justice and equality.
Philanthropy was originally treated as a source of ‘tax exemption’, rather than as a means of reducing inequality. Stanford professor Rob Reich wrote that ‘‘without significant progress in easing disparity, philanthropy will have a very hard time continuing to justify its tax- privileged’’. Today, incorporating philanthropy into business is about developing a strategy to cover values of the organization and exemption of taxation. If private sector is earning by using limited resources then they have to think about welfare as well. Suggestions have subsequently been made as to how philanthropy can work to reduce inequality.
Strong desire for philanthropy
Because of the need of quick reform, philanthropy is being viewed as a potential tool to reduce inequality. Former US President and founder of the Clinton Foundation, Bill Clinton, wrote in Finance and Development that ‘‘We need to find new ways to extend the circle of opportunity…with systems, infrastructure, and networks that enable growth…it enhances the stability of societies, and equally important, it shifts the work of the international aid community from philanthropy to partnerships.’’ In his recent article, World Bank President Jim Yong Kim argued ‘‘how the rich live, is now out… And all of us — all 7 billion of us — face an impending disaster from climate change if we do not act today with a plan equal to the challenge.’’ Nemat Shafik, Deputy Managing Director of IMF, highlighted that income inequality has widened, chronic unemployment and pervasive underemployment have escalated, populations are growing unevenly and climate change is worsening, and further she said that ‘’By 2050, the global economy must provide food and jobs for more than 9 billion people, 85 percent of whom will live in what are now developing countries. A new agenda needs to be truly global in scope, relevant to all in its goals, and realistic in how it assigns responsibilities—to advanced, emerging market, and developing economies. Philanthropy could be a truly global agenda.’’ Because of inequality, Stiglitz says that ‘‘the darkest sides of the market economy that came to the light were the large and growing inequality, … we can achieve our fundamental values, with more opportunity, higher total income, a stronger democracy and higher living standard … by political decisions’’. The CEO of Unilever Paul Polman et al. wrote that ‘‘The capitalist threat to capitalism…Addressing the failures of modern capitalism will require strong leadership and extensive cooperation between businesses, governments, and NGOs.’’ ProjectSyndicate). Jim O’Neill forecasts BRICs would be the most powerful bloc by 2050. (Wagle)
A realization of the true scope of the problem, and the things that need to be addressed by the core group of the Washington Consensus–especially from the USA, the IMF and the World bank–provides us with the best hope for the future. Change is possible, and will be much to easier effect, if these parties work together in a democratic manner.
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Making philanthropy work
Recent divisions of the richest and the poorest are the result of globalization. Now, the richest have a strong attachment to employment, investment and the economy as a whole. They did nothing wrong, just played the game of investment offered by the state. Even though, the richest are not safe where poor and hungry neighbours spend their nights without food. Much of the inequality that exists today is a result of government policy, both what the government does and what it doesn’t do (Stiglitz 2012). For the well being of rich and poor, rational equality is a minimum condition for socio-economic sustainability.
The genuine question of how the rich are getting richer needs to be checked, and the poor should be pulled out of the empty ditch that they are currently in. This is a genuine reason for philanthropy. This strong desire of change must be addressed in due course. For that, the rich may contribute for the purpose of reducing inequality. Here is the figure of how I have predicted that philanthropy will be an assertive measure to reduce inequality.
The government can encourage the private sector to allocate a compulsory fund in welfare that should be a global mission under corporate social responsibility. After the death of investors a certain portion of their private wealth can be capitalised by the nation and, in lieu of that, the government may set a ‘philanthropist reward’ program to remember their contribution. This welfare fund goes to the social sector, which is designed by the government in line with the national requirement. There will be sufficient funds to invest in the social sector. Hence, the rich will ultimately make themselves more sustainable by supporting such a creative real philanthropic mission that will be a mission of harmony, too. Here, private capital accumulated from long-term profit must be invested for further profit generation and equally for welfare, too. In contrast, current private investments believe in profit only. Their responsibility on welfare has not been stated clearly; they are just liable to pay tax. The state must be responsible for protecting the interests of those who are weaker while protecting the interests of the stronger/rich, because the resources used by the rich to gain profit are common. Moreover, the welfare state needs private sector’s art of handling resources and capital for sustainability. Indeed, sustainability is an attainable programme but not a demonstration of attractive words on the screen. It is the right time to show the private sector as a good leader of society, which ultimately can protect their welfare, too. The private sector can be defined as a welfare state, too, by making compulsory provisions to allocate funds for welfare, so that the private sector will gain more public faith, which will be a reward of private business too. Here I have proposed the way how to invest private capital.
Accumulated private capital from long term profit needs to be divided into investment for further profit and investment for welfare so that social justice and equality are possible forever. Also, taxation systems need to be changed. The low income group must be refunded or exempted either from direct or indirect tax, as now they are liable for double taxation.
Making philanthropy work will not be easy. Who is benefited from the current system will resist change (Stiglitz, 2012), and they are powerful. Of course there are many billionaires like Andrew Carnegie (1835 – 1919) who are really desperate to serve the society. For that, state mechanism must be translated to ‘real’ democratic norms and basic rights. Food , shelter, cloth, education, health and security are people’s rights not a charity work nor a matter of donation. But there was a ‘‘Democratic deficit’’ created by decisions by international economic institutions (Stiglitz, 2012) and also by the government’s decisions inside the nation.
The higher the wellbeing of people the more consumption possibility there is, meaning there may increase tremendous purchasing power of people. This is a basic principle of market expansion and market sustainability. To increase the purchasing power of the 3.5 billion poorest people means creation of demand, too. Here, the private sector should be able to expansion its role in the future by making the consumer world a reality.
Due to increasing inequality, something is urgent to be done. Philanthropy till now was considered as donation or charity work. Donation or philanthropy in this sense is synonymous with tax exemption and is a tool for business expansion.The richest are a product of the state. Now they have their own responsibility. Ignoring their role is neither feasible nor acceptable. They do charity work optionally to fulfill their own interest. But what needs to be done is the private sector needs to investment in the welfare state as well, and not only for their business motive. A certain per cent of profit must go to the welfare fund. The weak must be protected not only by the state but the private sector is also equally responsible. The contribution to society will help to increase the purchasing power of the low income consumer. Increasing purchasing power means consumer society can play an effective role in the market as consumer, private enterprise and government are parts of a triangularly shaped relationship in a healthy liberal economy.
The private sector’s role in welfare, as explained above, is a basic set of philanthropy that must be above of personal charity work. Good deed must be recognised by the state.. Finally, unequal income distribution can be checked. Due to strong welfare weak will stand up so that the meeting point of equality won’t be so far. Welfare must be an agenda of private investment too. This is one of the best ways to achieve social justice.
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