American Capitalism, Entrepreneurship, & Philanthropy—But Where is Civic Engagement?

Print Share on LinkedIn More



July 9, 2014; Philanthropy Daily

A few articles on the Internet are building upon each other, arguing that entrepreneurship and philanthropy are inherently related and represent a good reason why America ranks as the most generous nation in the world.

To this latter point, a recent study published by Johns Hopkins Center for Civil Society Studies shows that in the United States, charitable giving in the form of monetary donations is currently at 1.9% of the Gross Domestic Product, or GDP. The next most generous nations are Israel at 1.3%, Canada at 1.2% and Argentina at 1.09%. All other nations give at a rate of less than 1% of their GDP.

One article, by Zoltan Acs and Ronnie Phillips, suggests that American capitalism is unique in that it is based on both the creation of wealth and the reconstitution of wealth—the former in the form of entrepreneurship, amassing large amounts of money, and the latter in the form of philanthropy, giving it away in order to benefit the rest of society. In this way, Acs and Phillips suggest, the entrepreneurs are contributing to increased prosperity through knowledge creation, and this may be one reason for America’s economic dominance. (This, of course, sounds a lot like the Giving Pledge established by Bill Gates and Warren Buffett.)

Building on this argument, Nima and Tino Sanandaji ponder whether American entrepreneurs are more generous than any others and, if so, why. In European nations such as France, for example, the tradition is for the rich to pass their wealth along to their descendants, creating dynasties that mirror, in a sense, the tradition of monarchy in which a country’s leadership passed down a family tree. America had no such tradition and, as Tocqueville pointed out, was founded in large part on Protestant norms of “industry, frugality, charity, and humility.” The writers point out it may not be coincidental that America, the most generous nation, also has the largest number of what they call “SuperEntrepreneurs.”

{loadmodule mod_banners,Ads for Advertisers 5}

The third article takes a somewhat self-congratulatory approach about American capitalism, building on the previous arguments to suggest that this correlation between SuperEntrepreurs and generosity is one reason why America should celebrate its economic structure. In his article at Philanthropy Daily, Scott Walter goes on to say that entrepreneurship and philanthropy are in fact co-dependent. Entrepreneurs are the lifeblood of the economy, and by giving their wealth away, they maintain a system that invests in, supports, and encourages the next wave of entrepreneurs to rise. Hard-line capitalists, he argues, must realize that the impulse to give is just as strong as the impulse to get, and that impulse should be taken into account in economic theories. On the other hand, the leaders of civil society must recognize that the people who give in large sums to social causes are the entrepreneur billionaires, so we should not demand they be taxed and taxed again.

It is worth pointing out that although the United States ranks high in the Johns Hopkins study in terms of cash donations, the same is not true when looking at the broader picture of civic engagement. When the rate of volunteerism is included, added to cash donations as a percentage of the GDP, the Netherlands emerges as the most civically engaged nation, Sweden second, and the United States third. When looking solely at volunteering as a percentage of the GDP, the United States ranks a sad eighth in the world, behind such nations as Norway, France, Germany, and Tanzania. The nature of any correlation between entrepreneurship and civic engagement may warrant further study.

We actually find this whole picture a bit disturbing, but we would love to hear from our readers about it.—Rob Meiksins

  • emleichter

    Discussions about the generosity of billionaire entrepreneurs miss a huge point. I won’t be impressed by any entrepreneur’s proclivity for giving handouts unless that same entrepreneur is paying his/her employees a true living wage. A billionaire’s self agrandizing “charity” means little if the workers who helped contribute to his/her wealth are stuck among the ranks of the working poor.

  • Tara

    And, I would add, if they are engaging in offshoring to escape taxes, living wage requirements and encouraging violence as in the conflict mineral situation in DRC… The reality is that this is not a democratic form of social good, but one that dictates what needs will be addressed and how by persons that make their money outside of the social sector.

  • Beverly

    I guess that generally longer working hours and higher tension and competition in US workers could be one of the
    factors of less volunteering in USA. But they have cheerful hearts for monetary giving.

  • Zoltan Acs

    Any body interested in this debate should read my new book, Why Philanthropy Matters, Princeton University Press 2013 . The basic argument is that giving money away as opposed to just making it is what propellers the capitalist system into overdrive. Without it is cannot succeed and is not sustainable. Also see my blog at

  • zoltan acs

    The Piketty Conundrum

    When I asked my publicist what makes a best sellers he replied—four factors: How well known the author; How interesting the subject matter. How large is the book’s scope and reach and the X factor. Appling this logic to Thomas Piketty’s new book Capital the author was not very well known. The subject is not all that interesting. The book had reach but the X factor turned out to be huge. Capital in the 21st Century went on to become an international sensation.
    Of course the question is what was the X factor that catapulted Capital to a best seller? Well, I believe, the book fed into a growing debate about economics, specifically the long-term evolution of capitalism, inequality, the concentration of wealth and the prospects for social stability. From this perspective it is perhaps the first really important book in political economy in close to 100 years. The main drivers of inequality according to Piketty are the tendency of returns on capital to exceed the rate of economic growth, r > g, where historically r is close to 5 percent and growth in OECD countries is below 2 percent. But the real X factor, I believe, was the policy prescription, a global tax on capital—that was embraced by the left and lamented by the right. Therefore, the real issue is whether capitalism can be both economically and morally robust.
    To understand the question of, “How inequality matters for our economic well-being?” we need to examine the laws of capitalism. Here Piketty is brilliant. The first fundamental law of capitalism, which links the stock of capital to the flow of income from capital is the capital/income ratio, r is the rate of return on capital. This accounting identity is examined in great detail over the past two centuries.
    The second fundamental law of capitalism elates the capital income ratio to the savings rate and the growth rate. In the long-run the capital income ratio is related in a simple and transparent way to the savings rate s and the growth rate of national income g. Fundamentally, a country that saves a lot and grows a little will accumulate an enormous stock of capital relative to income. The law is asymptotic meaning that it is only valid in the long run. The difference between the first law and the second is that the first law is an accounting identity whereas the second law is the result of a dynamic process towards which the economy tends given the savings rate s and growth rate g.
    Philanthropy matters in this debate because it (philanthropy) offers an alternative solution to the Piketty conundrum without relying exclusively on a wealth tax. So how does philanthropy solve the conundrum? The answer to the riddle is rather simple. You want to increase the growth rate of the economy g so as to militate the difference between r > g and reduce the share of income going to the owner of capital. By thinking of the two laws together you want to maintain the dynamism of the system and solve the rising income inequality, in part, by increasing growth and reducing the share of capital income going to the rich. Like taxes the focus is on the capital income ratio but it focuses on the stock of capital (wealth) and not the flow of income. Philanthropy does not affect the stock of capital but redirects the flow of income to opportunity creating activities. In other words, it turns a share of capital into moral capital.
    What we would expect to find is that moral capital has found its way into the universities where opportunity for many is created. In the U.S. a half a trillion dollars sits in University endowments of the top 1,000 schools each with an average endowment of $500 million. The largest endowment at Harvard University of over $30 billion is larger than the combined endowment of all European universities. The second source of moral capital is found in the foundations. Over half a trillion dollars sits in the largest 100 foundations in the U.S. with over $30 billion in the gates foundation.
    Philanthropy has long been a distinctive feature of American culture, but its crucial role in the economic well-being of the nation—and the world—has remained largely unexplored. Philanthropy achieves three crucial outcomes: it deals with the question of what to do with capital—keep it, tax it, or give it away. By putting a part of your capital in a foundation for the public good you maintain the stock of capital and the capital/income ratio but income flows to a privately created public good. It complements government in creating public goods. And by focusing on education, science and medicine, philanthropy has a positive effect on long-run economic growth.
    For wealth to invigorate the capitalism system it needs to be ‘kept in rotation’ like the planets round he sun. Philanthropy strengths capitalism in two ways: the first is that philanthropy, when targeted to universities, research and other productive uses, lays the groundwork for new cycles of innovation and enterprise. The second way philanthropy strengths capitalism is that philanthropy—like creative destruction—provides a mechanism for dismantling the accumulated wealth tied to the past and reinvesting it to strengthen the entrepreneurial potential of the future. When philanthropy is absent, capital remains concentrated, rent seeking flourished and innovation and entrepreneurship suffers.
    But how could philanthropy be a part of capitalism? Capitalism as Max Weber showed is a cultural system, a relatively orderly system of institutions and incentives governed by the tractable logic of supply and demand. Philanthropy by contrast lacks a set of laws to explain its ebbs and flows. Like the art patronages in royal courts throughout European history, philanthropy is subject to the whims of the wealthy. Furthermore, philanthropy is not only largely ungoverned by economic principles but also relatively free from the checks and balances of democracy, such as elections, referendums and recalls.
    The answer to this puzzle is found in the writings of the moral philosopher Adam Smith who wrote, “…there are evidently some principles of his nature, which interest him in the fortune of others and renders their happiness necessary to him….” So philanthropy is governed by natural principles: embedded altruism, while capitalism is governed by culture and institutions.
    While philanthropy has been loyal to the institutions of Capitalism, rarely is it understood, as an entity intertwined with capitalism. Yet, it has both emanated from the capitalism system and continually nurtured the system. It is the invisible underappreciated force for progress in American-style capitalism, the secret ingredient that fails to get mentioned in economic accounts of capitalism, like Capital.
    Philanthropy does not interfere with the dynamics of capitalism. Individuals are free to accumulate capital and the growth rate of the economy is not compromised with taxes so the capital income ratio can rise in the long-run.
    I have argued that it is philanthropy, not just government and taxes that propels the basic machinery of capitalism. So in addition to well-functioning markets, property rights, contract law, capital market, and the like, philanthropy—a little understood economic force—provides a super-institution element that serves to promote vital nonmonetary institutional forces necessary for achieving growth through technological innovation promoting economic equality and cultivating economic security.

    *Zoltan J. Acs is professor at the London School of Economics and author of, Why Philanthropy Matters: How the Wealthy Give, and what it Means for our Economic Well-Being, Princeton University Press, 2013.

  • Wendall N. Chin

    Thank you for presenting this perspective. Yes, there is perhaps one or several bottle-necks in this cycle of finances and social change, revolving around civic engagement and volunteerism, not to mention politics!