Max Mednik
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Readings and musings

Entrepreneurship for philanthropy

5/28/2012

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One thing I've been thinking about is the various approaches to philanthropy. I wanted to briefly mention the two spheres they fall in and ask what you think.

The most common behavior I keep reading about is something like "deferred philanthropy." It's where an individual is hard-working, profit-seeking, and makes a lot of money in his first sixty years only to later give most of it away to charity. I've heard so many stories of investment bankers who later serve on many charitable foundation boards, give away a ton of money to charity, and even set up their own non-profits or foundations. There's also obviously stories like Buffett's and Gates's (both were first mostly wealth-seeking and later philanthropic).

There's a trend now for younger entrepreneurs (especially those who have accumulated wealth) to commit early on to give most of it away, and I think that falls in the same realm. There are tax incentives to give money to charity, and setting up foundations, allowing people to keep wealth (sort of) in the family (without paying estate taxes); family will be controlling that wealth and can have it pay for various expenses as long as it's generally philanthropically-oriented overall. I see it as a question like, "Do you want to give your money when you die to the government to recirculate in society or to a charitable cause of your own choosing?" Given some individuals' mistrust of the government and annoyance with its corruption and inefficiency, giving to charities (which are also imperfect but maybe less so) seems better.

I've been wondering two things about this trend, and I'm curious what others think. First, if you work so hard to achieve a big goal and grow a big, valuable company and in the end just give most of your money away, what does that say about your incentives and inner goals and desires? Is it just to benefit from the money in the meantime? Is it to feel rewarded on the inside from having achieved and built something great (and the money doesn't really matter)? Or are people actively negotiating and working hard to pull in the maximum wealth possible all in the name of the society to which they'll give their money back (seems unlikely to me)?

Second, it's interesting what this means about the flow of money. Consumers pay money to these big growing companies for their goods and services, then these companies are sold and the founders donate a bunch of wealth (that came from consumers) to charity. So it's like everyday consumers are effectively raising money for charity en masse through companies. This seems like a good thing, but not something that's explicit.

The second model of philanthropy is more like "simultaneous philanthropy" where you're actively "making a difference" philanthropically earlier in life and as you move through your career. This can be in the form of social entrepreneurship (companies that are non-profit or for-profit but which give back at the same time as earning money) as well as simply doing community service, volunteering, CSR, and just giving money to charity now, before you've become very wealthy. There's also the idea of "catalytic philanthropy," or approaching philanthropy from an entrepreneurial standpoint and using business skills to be more effective at change.

This second model seems like a better, more honest model to me, in the same way that "living life now as you eventually want to" seems like a better philosophy than the "deferred life plan" (see also 4-Hour Workweek).

What do you think? Is it right/logical/good to be building up companies and deferring certain things just to give it all away in the end? Is society raising money for charities through for-profit companies that eventually give it away? How "efficient" and non-corrupt are most charities anyways? And is a model of simultaneous philanthropy preferable? I don't have a lot of data or answers and am curious what others think.
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