Is the recession transforming philanthropy?

Yesterday evening, the editor of the Chronicle of Philanthropy, Stacy Palmer, was interviewed briefly on NPR regarding the recession’s impact on giving. While the outlook is fairly grim even for last year when charitable donations decreased, Ms. Palmer did note that the recession is forcing donors to be pickier with their donations. Donors are starting to increase their focus on outcomes when choosing where to give.

Could the financial squeeze of the recession create a new paradigm in giving? Philanthrocapitalism has been a hot topic after the publication of Matthew Bishop’s and Michael Green’s book by the same title. Venture philanthropists such as Bill Gates have called for philanthropy to become more like for-profit capital markets that yield results on investment. Whether the market model actually works for philanthropy is still a question under debate. Many claim that people give with their hearts not with their minds, and so the need to see impact and a return on giving is less of a worry for a philanthropist as opposed to an investor. Yet during this recession, the reoccurring theme shows that the decline in giving is accompanied by a reassessment of giving, with an increased focus on impact donations. Will the recession transform all philanthropists to philanthrocapitalists on a smaller scale?

While the long-tern impacts of the recession are still to be determined, it will be interesting to see whether certain types of giving will be more dependent on the economic situation compared to others. Recent research shows that tax policy has different impacts on charity and non-profit donations depending on the type of work the organizations do. Specifically, donations to charities that appeal to higher human needs such as the arts, or environmental causes tend to have high tax-price elasticity, meaning that tax incentives increase the donations to these charities. While organizations that cater to basic human needs such as hunger and poverty relief tend to be inelastic to tax incentives. This implies that people still give with their heart, but only to selective causes. Perhaps a similar elasticity trend will surface between the nation’s economic condition and giving, where donations to basic need organization will remain relatively stable, while donations to organizations that provide higher needs will become outcome-driven.

-Yulya Spantchak
Research Associate
Center of Global Prosperity