How is philanthropy changing?

Andrew Milner

The ‘financial crisis’ is often said to have begun on 15 September 2008 when Lehman Brothers filed for bankruptcy. In North America and Europe, the world certainly changed then. For the rest of the world, it can be taken as a symbolic date for a longer-term shifting of economic power, playing out differently in different parts of the world. What has this meant for philanthropy? A selection of Alliance editorial board members offer their views on what is happening in their own patch.

The Alliance editorial board consists of experts on philanthropy from around the world, their key role being to advise the editor of Alliance on trends and issues in their regions and fields of expertise. All editorial board members were invited to respond to a series of questions about how philanthropy is responding to changing economic circumstances. This article is based on the views of those that did respond.

Key trends

  • Many northern governments are unable to address growing social needs.
  • Public spending is growing in the BRICS countries, though the rate may be slowing down.
  • The gap between rich and poor is growing everywhere, except in Brazil and some other Latin American countries.
  • Many northern foundations have seen reductions in assets and income.
  • Southern foundations whose funds come from external agencies or a corporate parent have also seen their funds reduced.

Austerity and growing inequality in the North
In many northern countries, the outlook is gloomy. Massimo Lanza anticipates ‘another tough year in Italy with negative economic growth, increased unemployment, emerging poverty and severe austerity’. In his view, the crucial change is ‘the inability of government spending to support social needs which are going to grow in size and quality’, and he doesn’t see this as ‘a short- or medium-term crisis’. Despite Slovakia having had one of the highest growth rates in the EU, Boris Strečanský sees a difficult period ahead. Slovakia has a very high long-term unemployment rate and ‘the government does not have any innovative or progressive solutions to address the situation’.

Although ‘there isn’t austerity per se in the US’, says Tim Ogden, he anticipates that, for the foreseeable future, ‘any organization that depends on government spending should assume that spending will grow slower than inflation and slower than need’.

Even where the recession has been felt less intensely, as in Germany and Australia, the divide between rich and poor has become more marked. Australia has felt the effects of the crash to a lesser degree than Europe or the US, says Vanessa Meachen, because of the country’s resources boom. But this has meant rising income inequality and increasing hardship for those in the boom states who haven’t profited directly. The German economy to date has been stable and successful, Volker Then and Michael Alberg-Seberich agree, but Alberg-Seberich reports that ‘3 million children often do not get a warm meal once a day, and a growing number of people work in temporary, low-wage jobs’. ‘We seem to be living in a bubble that will burst soon,’ he says. Christopher Harris notes a growing gap between rich and poor in the US, with ‘serious issues of unemployment and under-employment’ for middle- and working-class and poor people.

As Barry Knight sees it, ‘a fundamental shift has taken place. The rise of the East means that the West will spend the rest of this century in decline.’ Moreover, he believes, ‘fundamental mistakes have been made in squandering the wealth created over the past century so that we have not invested properly in society’.

Growth and inequality in the BRICS countries

The so-called BRICS economies of Russia, Brazil, India and South Africa, by contrast, have seen an increase in public spending. In Russia, says Maria Chertok, ‘this includes increased funding to NGOs at both the federal and the regional level’. In India, says Ingrid Srinath, ‘the worst-case prognosis for GDP growth is about 6 per cent per annum’; a 300 per cent increase in public spending on healthcare is budgeted over the years up to 2017, and a 30 per cent increase in education spending. But she notes that ‘these plans preceded the recent economic slowdown and it is not clear how they will change’.

In South Africa, Alan Fowler does not ‘anticipate much in the way of austerity as such, but with extreme inequality there will be greater emphasis on government policies aimed at redistribution to protect provision of public services, pensions, social grants, universal access to healthcare and so on. Also likely is pressure to withdraw energy or food subsidies.’ Halima Mahomed agrees that government spending is unlikely to be much reduced but points to spiralling inequality. The issue here, she says, is not long-term growth but ‘the nature of that growth and the distribution of assets, income and wealth – which continues to be extremely skewed’.

In Brazil, meanwhile, as in a few other countries in Latin America, affirmative public policies and public spending have helped to close the divide between rich and poor. A rise of 16 per cent in the average income between 2001 and 2011 was concentrated in the poorest 50 per cent of the population, says Marcos Kisil. But even in Brazil, with inflation rising faster than GDP, ‘many Brazilians are expecting that 2013 will require austerity in public expenditure’.  Pictured: a family registered on the Bolsa Família (Family Allowance) programme, a social welfare programme of the Brazilian government, which provides financial aid to poor Brazilian families on condition that they ensure the children attend school and are vaccinated

The effect on foundations and donors
Many foundations in the North have seen their assets reduced. In the US, because foundations typically calculate their budget based on average investment returns over several years, Tim Ogden expects that growth in foundation giving will be constrained for at least the next five years.

Though Germany has so far escaped a prolonged period of austerity, both Volker Then and Michael Alberg-Seberich are aware of a growing challenge to foundations’ income. One reason for this, says Alberg-Seberich, is that many are invested in high-yielding government bonds which will run out soon, and investors need to find alternatives that will produce a similar return. Foundation income has been less squeezed in Slovakia, if only because, as Boris Strečanský remarks, few foundations derive their income from invested assets.

Foundations in the South are more likely to rely on annual contributions from a corporate parent or on regranting funds from external organizations. As overseas funding shrinks and companies reduce their philanthropy budgets in line with reduced profits, NGOs will suffer. In some cases, this will mean more than just a drop in overall funding. As Halima Mahomed notes, in South Africa NGOs that ‘deal with human rights issues, that engage in advocacy and lobbying, test case litigation, policy change etc, are funded primarily from external sources … Philanthropic support for organizations that challenge the status quo is difficult to obtain locally.’

It should be noted, too, that foundations are often not yet major players in the South, as Atallah Kuttab remarks of the Arab region. On the other hand, Janet Mawiyoo notes an increase in the number of corporate foundations in Kenya and Ingrid Srinath reports that the foundation model is gaining popularity in India.

Have foundations risen to the challenge?

Here respondents’ views vary. Some feel that foundations have failed to respond adequately to the changes around them. Barry Knight sees the response in the UK as ‘feeble’. ‘They do things at the periphery of our society that are often useful,’ he says, ‘but they do not step up to the big issues of the day. For the most part, they are risk averse and feel that issues of political economy are in the “too difficult” category. This is a missed opportunity because foundations have the freedom to explore issues and find creative solutions by funding people who operate on the edges, which is where most solutions to big problems come from.’

In the US, observes Tim Ogden: ‘Foundations and non-profits only take their heads out of the sand in order to polish their rose-coloured glasses.’ Beyond hand-wringing, he expects that ‘over 90 per cent of foundations will not put in place any strategic plan’ to deal with the problem of increased need and reduced resources and ‘will manage it from day to day’.

Massimo Lanza characterizes the response of Italian foundations in more measured terms. The general reaction has been to streamline, he says – cutting operating costs, reducing the amount of grantmaking, and focusing it on areas where they can serve a particular need or can see results. ‘Economies of scale and more efficiency are becoming a common feature.’ Indeed, a sharper focus on results has been a general effect of the crisis among both funders and funded.

In Slovakia, says Boris Strečanský, while foundations experience increasing demands from those in need, there is little sign of a coordinated response, though he expects that ‘the crisis will catalyse new approaches in a less traditional manner’. Michael Alberg-Seberich notes a shift of interest (though not yet of resources) in Germany towards issues like income redistribution and poverty reduction. Ingrid Srinath is not aware of much change in the activity of local foundations in India, but she anticipates that funding from the North will shrink while Indian foundations will not close the resulting gap.

How are foundations responding?

  • Foundations in the North seem more inclined to work with government.
  • Many northern foundations have maintained or increased spending, but in some countries legal requirements to preserve endowments prevents this.
  • Most foundation spending in BRICS countries is for basic needs; very few are willing to fund more contentious causes.
  • While few in the North anticipate much increase in philanthropy, an upsurge in philanthropy is noted in parts of Africa, India, Russia and Brazil.
  • Despite government efforts to stimulate social investment in several northern countries, most feel that there is still a lot of hype around impact investing.

Changing relationships
In an age of diminishing returns for foundations, ‘partnership’ and ‘collaboration’ have become the new watchwords. But are they more than words? In Massimo Lanza’s view, there are more signs of cooperation between Italian foundations and the public and private sectors, both locally and nationally. In Slovakia Boris Strečanský reports an effort to establish an association of corporate foundations – ‘so at least in this subsegment of foundations there are some signs of collaborative behaviour’.

Both Michael Alberg-Seberich and Volker Then see a growing interest in working with government. Alberg-Seberich cites a joint funding programme of more than 40 foundations and the federal government called ‘Lernen for Ort’ (Learn on the Spot). In some respects, this is a change in degree rather than in kind. As Then points out, there is already a tendency ‘towards more public-private-partnership structures’ because of the special features of the German welfare system, which ‘is not welfare provided by the state but services provided by non-profit, for-profit and public players competing in a regulated quasi-market’. In Australia, too, Vanessa Meachen feels that foundations are collaborating increasingly with government – the Victoria state government has released a set of guiding principles for collaboration between government and philanthropy.

In the US, says Christopher Harris, ‘very few foundations are renegotiating relationships with different sectors’. Some are experimenting with new ways of working, generally ‘where foundations see clearly that the scale and complexity of the problems are simply beyond what they can solve themselves’. This is especially true in cities where federal funding has been cut.

Levels of funding
Foundations in the North have tried to maintain levels of spending, and so far government aid funding hasn’t been affected. Peter Laugharn notes that ‘in our area of global funding, we haven’t seen a real retrenchment – yet. In fact, in the UK there’s a stronger than ever commitment to overseas development assistance, and the US is mostly holding steady.’ Janet Mawiyoo notes that the Kenya Community Development Foundation’s budget has tripled in the last three years.

In some instances, foundations are drawing more on their non-monetary resources. Australian foundations, says Vanessa Meachen, ‘seem to be responding mainly through offering non-grantmaking assistance such as mentoring … and there is increasing use of voice and influence with policymakers, mainly at a local or state government level.’

Constraints on foundations
In many places, foundations’ room for manoeuvre is restricted by a legal requirement to preserve their endowments. This is true of Italian banking foundations, says Massimo Lanza (and other Italian foundations generally follow suit), and in Germany. In Australia, says Meachen, ‘some of the newer foundations with living donors have increased spending and can spend assets, but many foundations legally cannot do so’.

The biggest constraint, however, is limited resources. ‘The size of foundations’ annual grantmaking in Slovakia, approximately €30 million, is very low in relation to needs,’ says Boris Strečanský, ‘and a fractional amount compared to public budgets or the programme budgets of structural funds.’ The same could be said of foundations everywhere.

Where is the money going?
Generally speaking, foundation resources in the South go to meet basic needs, even in the BRICS countries where government spending has been maintained or increased. ‘In Russia healthcare is one of the biggest areas,’ says Maria Chertok, and ‘education both at school and university level, and support to organizations working with children in need and the elderly’. Similarly, in India philanthropy remains ‘largely focused on direct service delivery to bridge the enormous gaps between the need for, and availability of, basic public services’. In Kenya, by contrast, Janet Mawiyoo reports that support for work to address some of the critical issues affecting Africa – including youth unemployment and food security – has increased.

Most respondents from the South point out that philanthropy generally shies away from more contentious issues. Funding for rights or advocacy is usually hard to come by locally, and anything that can be construed as opposition to the government tends to be avoided. As Halima Mahomed puts it: ‘Persuading foundations to use their funds for social justice is not easy.’ Brazil seems to be an exception: while the usual welfare issues attract most attention, Marcos Kisil notes that philanthropists are prepared to grapple with ‘thornier issues’ such as gender and race inequalities.

Effects on grantees
Foundations will go on, diminished resources or no. The real victims of any drop in philanthropic resources are likely to be the NGOs they fund. Akwasi Aidoo remarks that in Africa ‘most CSOs are one donor grant away from extinction’. He suggests that donors are partly to blame for this, having failed to encourage beneficiaries to become less dependent. On the other hand, NGOs in the South often display great resilience in the face of reduced funding. Janet Mawiyoo notes that in Kenya, while some programmes have closed, budgets for ‘a good number of organizations have actually grown since 2008’, partly because they have succeeded in finding new sources of money and support. Ingrid Srinath comments on the ‘ethos of self-reliance’ among Indian civil society, from grassroots movements to large NGOs.

Peter Laugharn reports that the 26 organizations the Firelight Foundation funds in Zimbabwe ‘have proved remarkably resilient, weathering a triple crisis – hyperinflation, an unstable political situation, and a high HIV prevalence rate. Yet none of these went bankrupt or ceased operations.’ Their resourcefulness has enabled them to survive by a mixture of ‘barter, ingenuity, new partnerships with local government, and sheer determination’.

New money? In the North …

Is new money coming into philanthropy? And has it made a difference? In the North, the answers to these questions seem to be ‘sometimes’ and ‘debatable’. In Germany, new foundations are being created at a great rate, but most of them ‘are fundraising foundations, community foundations and foundations with an endowment of less than €250,000’, says Alberg-Seberich. In Italy, Massimo Lanza does not believe that philanthropic resources ‘will increase in the short and medium term’. In Slovakia, by contrast, Boris Strečanský does see ‘emerging examples of new individuals – venture philanthropists’. But they are not necessarily setting up new foundations. ‘They will try new and innovative ways of philanthropy combining business and charitable activities and they will be hard to classify.’

Even where wealth is increasing, it may not find its way into philanthropy. ‘Western Australia, where mining wealth is mainly concentrated, has seen wealth increase sharply but has very low donation rates compared to the rest of the country,’ says Vanessa Meachen.

And even where new money is coming into philanthropy, it may not make much difference. In the US, says Tim Ogden, new money will follow one of the two paths that most new foundations do. New donors will either ‘splash a lot of cash on a cause already of interest to the billionaire, and in so doing waste a lot of money by giving poorly, or they will be extremely cautious, making only the bare minimum of grants to comply with regulation while they spend 5 to 10 years figuring out their “strategy”.’

… and in the South

Janet Mawiyoo and Akwasi Aidoo both note an upsurge in local giving in different parts of Africa. In Kenya Mawiyoo also notes an increase in corporate giving, with more companies and corporate foundations taking corporate social responsibility (CSR) more seriously.

Giving in India has risen steadily according to Bain & Co’s India Philanthropy Report 2012, with many new donors entering the field. One imponderable is the recent legislation requiring companies to devote 2 per cent of their profits to CSR activity, or to say why they have failed to do so. This is a ‘potential game changer’, says Ingrid Srinath, but the ‘get-out clause’ means that its actual effect is impossible to gauge in advance.

The changes in wealth distribution in Brazil over the last decade have also led to changing patterns of giving, says Marcos Kisil, with the newly enlarged middle class ‘increasing their giving by13 per cent between 2009 and 2011’. This has altered the focus of Brazilian giving, he believes, because these middle class donors are much more focused on the communities where they live and ‘how their resources can contribute to alleviating or solving problems’. Moreover, increased middle-class participation has led communities to pressure ‘business to become local citizens making their contribution locally’.

In the Arab region, Atallah Kuttab sees a willingness on the part of the private sector to make more money available for social causes if NGOs become more serious about measuring impact.

Social investment – ‘more rhetoric than resources’

Massimo Lanza speaks of ‘growing interest in social investment’, making use of what he sees as accumulated capital and Italy’s entrepreneurial spirit, but most of our respondents seem to feel that social investment is more talked about than practised.

In Germany, Australia and the UK, governments have taken initiatives to stimulate social investment. There have been trials of social impact bonds in New South Wales, initiated by the state government, and in the UK, where a social lending agency, Big Society Capital, has been set up. The German government, reports Michael Alberg-Seberich, has set up a small (€15 million) fund to invest jointly with private investors in social enterprises. Volker Then notes the ‘beginning of interest in social investment/mission investing and social entrepreneurship, but on a very small scale. All this is very much in an experimental stage.’

Christopher Harris sees ‘a slow increase in the number of foundations doing socially related investing’ in the US but impact investing ‘appears to be far more rhetoric than resources’. Boris Strečanský sees a growing opportunity, not yet fully taken, for hybrid approaches that combine giving with social investment.

‘A failure of imagination’?

Peter Laugharn remarks that ‘in the present crisis the most useful foundation contribution is likely to be a combination of our two strengths: long-term vision and commitment, and short-term flexibility.’ Whether these strengths have been effectively deployed is debatable. What seems clear is that foundations have not on the whole adopted radically new ways of working in response to the changing economic circumstances they face.

Is it fair to call this a ‘failure of imagination’, as Barry Knight does? ‘It’s all too easy to live in a bubble,’ he says, ‘particularly if you have an endowment. The field has no external challenge of any significance.’ Christopher Harris sums it up a little more gently: ‘The biggest issue for philanthropy, I believe, is the slowness by most to rethink how they will fulfil their missions in such dramatically changed conditions. While some foundations have taken very impressive and creative approaches, too few have been willing to consider bolder and more substantial changes to business as usual.’

Some key challenges for philanthropy sectors around the world

  • Maximizing impact Volker Then, Massimo Lanza and Vanessa Meachen all note the need to focus on impact, and to get better at measuring it. Atallah Kuttab stresses its importance for would-be corporate donors in the Arab region.
  • Achieving scale Foundations don’t have the resources to cope with the problems their societies are facing. This was always true and it’s even more so now. Working more with each other and with partners from other sectors is one answer.
  • Focusing on inequality and social change Ingrid Srinath, Maria Chertok and Marcos Kisil would all like to see more of a focus on long-term social change. ‘Brazilian philanthropy still needs to move from a charity mode to a social investment one to become strategic and generate the impact that is required,’ says Kisil. Both Massimo Lanza and Michael Alberg-Seberich feel foundations should focus more on poverty.
  • Government attitudes As Halima Mahomed and Ingrid Srinath point out, government attitudes to opposition or criticism can make it difficult for a vigorous and effective civil society to exist.
  • Lack of a conducive legal and fiscal environment Noted by Marcos Kisil, Akwasi Aidoo, Halima Mahomed and Atallah Kuttab. Aidoo speaks of the ‘disenabling fiscal policies that provide absolutely no incentives for the tax-paying African middle class to donate for addressing social needs’.
  • Lack of data An issue mentioned by Ingrid Srinath and Halima Mahomed, among others, lack of data can hinder the development of a concerted response to problems.

Alliance would like to thank the following for their contributions to this article:

Akwasi Aidoo  Africa
Michael Alberg-Seberich  Germany
Maria Chertok  Russia
Alan Fowler  South Africa
Christopher Harris  USA
Marcos Kisil  Brazil
Barry Knight  UK
Atallah Kuttab  Arab region
Massimo Lanza  Italy
Janet Mawiyoo  Kenya
Peter Laugharn  USA
Halima Mahomed  South Africa
Vanessa Meachen  Australia
Timothy Ogden  USA
Ingrid Srinath  India
Boris Strečanský  Slovakia
Volker Then  Germany

Our special thanks to Vanessa Meachen of Philanthropy Australia, who is not an Alliance editorial board member, for her contribution.

Andrew Milner is associate editor of Alliance. Email
Caroline Hartnell is editor of Alliance.

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