Is US Philanthropy exceptional?

Is US philanthropy exceptional and is it unfair to judge Australia against US standards for wealth and philanthropy? Those were two questions posed in media I read last week.

"We overdo this thing about philanthropy because we don't compare with the Americans. There is no one with money in Australia if you compare us to the wealth in the US," said Harvey Norman chief, Gerry Harvey in TheAustralian. 

My friend, Sabith Khan posed the question, "Is US philanthropy exceptional?" in his blog The Clockwork Muse.   My response? US philanthropy is not exceptional and we do ourselves a disservice by thinking so.  Yes, it involves institutions which are native to the USA - such as the US tax treatment of donations.  But the US concept of philanthropy was inherited and remains consistent with other, much older cultures including the Islamic culture of giving which in turn spread to Europe around the 13th century.  Many of the institutions of philanthropy in the US were adopted from Britain. Among the institutions inherited from Britain was the legal concept of 'charity' which is based on the Elizabethan statute of 1601. 

British philanthropy was well developed in the nineteenth century at the time that it was only beginning to take root in the US. Its development from Tudor times to the early nineteenth century is described by the two great histories of British charity written by WK Jordan and D Owen. Reduced to its essence it is a tale of the emerging haves recognising a responsibility for - even a self-interest in - alleviating poverty and providing better education and health.  Many of the ways in which 18th and 19th century British philanthropists met these challenges were equal in their innovation to today's so called, "new philanthropy".

The newly wealthy US industrialists, moved by similar concerns about the welfare of the communities from which their fortunes had been created, looked across the Atlantic for ideas.  Some such as Andrew Carnegie and George Peabody were active in both Britain and the USA.

Some of the significant differences, especially the significantly higher levels of donations by US taxpayers stem from the era of World War I and its aftermath. By that time the British state had begun to take more responsibility for welfare and the relief of poverty.  For example, the old age pension was created for Britons in 1908.  After the War, under the influence of the Fabian movement, the British government took further responsibility for education, culture, health, welfare and religion. The influence of the Fabians was significant in the development of these social institutions in Australia and New Zealand too.

Conversely, in the USA much of this responsibility for welfare and poverty was taken up by philanthropy - supported, nonetheless, indirectly by the state through the generous tax treatment of philanthropy.  Tax rebates on philanthropy were created in 1913 when income tax was first introduced in the US. Olivier Zunz describes US philanthropy as "self-taxing for the common good" and cites Tocqueville who talked of it in his descriptions of Jeffersonian (early 19th century) America, as "self interest properly understood". (Zunz O, 2012, Philanthropy in America: a History, Princeton University Press, Princeton).

Britain has no such direct tax relief on charitable donations though relief is available to a donor who "covenants" a regular payment to a charity. Instead through Gift Aid, the charity receiving a donation also can claim an additional amount equivalent to the tax payable by the donor on her donations.

In contrast, however, Australia actually preceded the US by introducing tax deductibility for gifts to charity as early as 1907 in Victoria.  Tax deductibility was enacted federally in 1915. So in that regard, Australia cannot claim to be different from the USA.*

What about wealth, as suggested by Gerry Harvey?  The following data from Wealth-X Ultra High Net Worth Report ought to give pause for reflection. The USA has 60,280 UHNWIs (i.e. with over $30 million financial assets) with an average worth of $133 million.  Australia has 3,350 worth on average $122 million.**   As percentages of their respective populations, UNHWIs represent 0.019% of the USA total population, 0.015% of Australia.*** Oceania saw the greatest growth in UHNW population, with an increase of 5.9%, largely driven by the continued growth of Australia. That excuse is disappearing as fast as the wealth gap is narrowing!

  

*New Zealand also offers tax relief on donations though until recently it was capped at a very low level.

**New Zealand 485 worth $126 million. UK, 10,515 worth $126 million.

***0.011% of New Zealand and 0.017% of UK population.

Is this any way to fundraise?

You might not go quite as far as Manuela Hoelterhoff's recommendation  in Bloomberg, "City Opera’s Board Should be Pilloried”, but you do have to wonder about the board of New York City Opera.

In early September this year, City Opera, New York’s number two opera company announced that it would be forced to cancel most of its current season and all of its next season if it failed to raise $20 million by year’s end; the first $7 million was needed by end of September. On Oct 3 the company filed for bankruptcy.

Apparently they were persuaded by one of the development team to raise $1 million of this via Kickstarter. The Kickstarter crowd funding closed $700,000 short.  What on earth let the board and CEO to believe that any of this crisis fuelled fundraising was possible, especially in the light of their past performance?  If fundraising is about relationships, trust, good stewardship and knowing your donors and prospects, what follows is a story of how not to fundraise.

Much of the back story is told in the Metropolitan Opera Guild's Opera News. The author describes it as, "… an epic saga of economic hardship, mismanagement and just plain bad luck". Money problems had dogged City Opera throughout its history. Even in its heyday, under the general directorship of Beverley Sills, the company racked up a $3-million deficit. Yet Sills was a consummate fund raiser as well as a terrific artistic leader. She worked her social connections for everything they were worth. "She knew who had money and knew who would give it," according to one person who worked with her. "And she had no problem asking anybody for it."  She was the face of the company — and she knew it," said another former employee. The donors who gave to New York City Opera were giving money to her, someone whom they trusted and respected. Unfortunately none of her successors had the same strengths at fundraising.

But there was an endowment. In 2003, City Opera was sitting on an endowment of $57 million. That seemed like insurance against hard times ahead. But it didn't last for long.  As the New York Times  noted by 2009 City Opera had raided these funds.  They had been reduced to $16 million, to pay off debts and cover operating expenses. The practice is known in the US as endowment invasion - Wikipedia gives some background. Another egregious recent example of endowment raiding was Brooklyn’s Long Island College Hospital.

[For more on the endowment read this story in The New York Times published after this blog was originally written]

The board's penultimate appointment as CEO was Gerard Mortier, a former artistic director of La Monnaie in Brussels, the Salzburg Festival and Paris Opera. In each of his previous roles Mr Mortier had been well insulated from the pressures of box office and fundraising by the very, very generous government subsidies that were the norm in Europe at the time. Mortier resigned in November 2008 at the height of the Wall Street crash on discovering that a promised budget of $60 million was a chimera. According to the New York Times  the board had counted on his name  and help in fundraising to make the larger budgets he was asking for possible:  “The board understood they were going to work closely with Gerard towards the raising of $60 million.”

The present CEO, George Steel, was untried in the complex and demanding role of managing a large arts company. He had been a success at Columbia University's small music theatre space, Miller Theater.  From there he had been briefly, and some say unsuccessfully, at Dallas Opera.  His City Opera programming failed to draw audiences. Ticket sales for the 2010–11 season hovered near a dismal 40 percent of capacity. In 2012 the company announced that it would finally be leaving Lincoln Center, the company's home for more than forty years. 

The final last efforts to raise funds saw acts of desperation such as approaching George Vilar. Vilar has served time for fraud and his name had to be chiseled off the walls of Royal Opera House Covent Garden among other opera companies to whom he had promised donations that were never fulfilled.

The denouement may well have been the final production staged by the company. The work was 'Anna Nicole', a salute to the tragic life and death of blonde model/actress/reality-show-star, Anna Nicole Smith. Anna Nicole had married J. Howard Marshall II, an oil tycoon. The rest of the  Marshall family loathed her, fighting bitterly to keep her from inheriting any of the family estate. Billionaire philanthropist David H. Koch had in the past been a big donor to City Opera. However, Marshall once had been a big investor in Koch Industries. When approached , Koch declined to make the kind of gift that might have saved the New York City Opera - "Out of respect for the wishes of the Marshall family".

Another version of this story by me appeared as a Nonprofit Quarterly Newswire