Thursday 12 July 2012 7:29 pm

Philanthropy only works when big donors treat charity like investment

THIS week’s announcement that British venture capitalist Michael Moritz has given £75m to Oxford University is a welcome reminder of the great contribution that many in the financial services industry continue to make to worthy causes, either in public or behind the scenes. Moritz’s gift will support scholarships for the poorest students. In so doing, he joins the likes of hedge fund billionaire Arpad Busson and his Absolute Return for Kids charity and Lord Stanley Fink, the former Man Group chief executive, who donates 30 per cent of his income every year to charity, and City A.M., which raised £1.5m in its 2011 Christmas appeal. But today’s big business givers share something else as well: their focus on managing outcomes. This approach, dubbed venture philanthropy, seeks to apply the same discipline to achieving charitable aims as its patrons would apply to turning a profit in venture capital or through a hedge fund. It’s an idea that one of the most famous industrial age philanthropists, Andrew Carnegie, would have understood completely. The steel magnate opened his Gospel of Wealth in 1889 with the words: “The problem of our age is the proper administration of wealth.” Not distribution, note, as many lazy thinkers might prefer, but administration. Carnegie is better remembered today for the surviving products of his philanthropy – Carnegie libraries across the English-speaking world, New York’s Carnegie Hall and the Carnegie Corporation of New York, still making charitable grants 100 years on. But the philosophy behind his giving also deserves attention. Carnegie would have appreciated only too well another, sadder story this week – the death of Eva Rausing, wife of the Tetra Pak heir. The Gospel of Wealth states that “it is no longer questionable that great sums bequeathed oftener work more for the injury than for the good of the recipient.” The shrewd businessman in Carnegie saw that simply handing over large sums of money to charity at death was not terribly effective. He wrote: “It is well to remember that it requires the exercise of not less ability than that which acquired the wealth to use it so as to be really beneficial to the community.” He concludes that if those who create wealth would like to put it to charitable uses, they have no choice but to administer the process themselves. Only such a discipline can fight the dangers that charity brings – waste, perverse incentives and the creation of dependency. Carnegie’s gospel has a flawed enthusiasm for punitive death duties and a puritan dislike for conspicuous consumption that seem outdated today, but its central thesis remains radical: it is a mistake to see a wealthy business-owner as just a purse to be emptied; charity can easily do more harm than good; and the level of skill required to make a fortune is also needed to spend one to good effect. Today’s business philanthropists are following in his footsteps, and enriching us all in the process. Marc Sidwell is City A.M.’s managing editor.

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