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American philanthropy redefined

The word "philanthropy" is being redefined, according to Susan Raymond, an economist who serves as executive vice president of Changing Our World Inc in New York. Philanthropy used to be simply a matter of exchanging value, represented by cash, between those who have it – Americans (dead or alive), private foundations and corporations – and those who don't, says Raymond. Today, philanthropy is both that and a spectrum of other strategies.

Beyond traditional giving is philanthropy that continues to be the exchange of cash or donations, but the conditions of that exchange involve a business-thinking framework. Donors want to see measurement, impact, management structures; they want reporting, and to sit on the board of a nonprofit.

Next on the spectrum are social enterprise models, in which the "cash" may not be a donation, but a debt instrument. It may be the equivalent of an equity instrument in the nonprofit sector. It may be a financial institution that takes in investor money and has an investment portfolio. Investors accept a point or two less than market rate as a return on their equity, and that point or two becomes both a debt and a grant fund that nonprofits can tap into.

Farther still along the spectrum are corporate social engagement models, in which the corporation itself does not actually give anybody anything, except access to its products. Whereas in traditional philanthropy, the donor gets value in almost a spiritual sense, here he gets a computer, a garment (think red t-shirt from Bono's Red organisation), a purse, an iPod, says Raymond.

The donor engages in consumption, not in philanthropy. The company provides the opportunity to purchase something and have a portion of the purchase – $2, say – go to a cause. "But that is an entirely different structure, powered by an entirely different set of consumer motivations that don't exist when you put $1 in the fireman's boot for your community fire department."

These innovations are transforming American philanthropy. "We're in new territory," says Raymond. Today in the US, only about 23% of nonprofit revenue on average comes from private contributions – that is, traditional giving, she says. This amounts to some $290 billion a year, based on what she says are the weak data available.

On the other end of the spectrum, many multiples of that – $1.4 trillion – constitute new streams of revenue moving onto the societal commons in the US through such things as investment funds that provide access to loans because they offer their investors a return at less than market and consumer products companies linking up with charities.

Is this redefinition of philanthropy a good thing or a bad thing? Raymond says a case can be made on both sides. It's a good thing because more resources are available. At the same time, it is bifurcating the nonprofit sector. Big organisations that can do sophisticated things have access to the robustness of the revenue stream. Small organisations do not – and 80% of American nonprofits have less than $200,000 a year in income. But the small nonprofits are the ones that are closest to community.

"So we've got all this sophistication at the top and revenue starvation at the bottom. And the reason you have nonprofits, the reason I pay their taxes is because they're close to community. So now we have the danger that we'll raise a question about the legitimacy of nonprofit status."

A second issue gets lost in this redefinition as well, says Dr. Raymond. "In my view philanthropy is simply the monetisation of volunteerism. You're putting your money voluntarily, not through taxes, into a problem you care about." She says that the donor also lends his voice to a problem, because philanthropy is not just about the money. The problem that is being addressed requires advocacy, leadership, policy change; it requires citizenry to step forward.

"And if you turn a nonprofit sector into only a financing problem and you 'solve' nonprofit needs with only a financing metric, then you have removed the opportunity for the leadership of private voices, and I believe you weaken civil society."

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