What is the relationship between philanthropic and regional economic activity? The traditional, and still typical if often implicit, conception of philanthropy is a unidirectional one in which economic growth leads to greater charitable giving. But this mostly unidirectional view should not be taken for granted.
Key questions we asked include: What do major donors think the relationship is between their philanthropic activity and further wealth generation in their region? And, if they do believe philanthropy boosts the economy, how (by which mechanisms) do they think philanthropy is not only a beneficiary, but also an enabler of wealth creation?
To that end, as part of a larger study, we interviewed 32 major donors in San Diego—a city that has experienced significant GDP growth in recent decades. Each interviewee had given at least $1 million to San Diego-based recipients in recent years, some many times more. While we did presume that many would see their philanthropic giving as beneficial to the economy per se, we were surprised to find unanimity among our interviewees, who all answered in the affirmative.
We suggest that nonprofit leaders, development professionals, and scholars of philanthropy would benefit from developing a greater understanding of this perspective. Further, almost all of our interviewees saw economic development as an important, if not central, purpose of philanthropy.
For most of our interviewees, economic development was a very intentional goal. Some saw philanthropy as a central driver of economic development and community building. In fact, for some the link between philanthropy and boosting the regional economy was so clear that they acted as if it were obvious, such as when one donor answered our question with, “It better.”1
Another donor told us that philanthropy “helps plug the void to help build a strong local economy.” Or, as the wife in a donor-couple stated, “A profitable, innovative region will reap the rewards that get put back into philanthropy, and vice versa.” Even a donor who saw economic development as merely supplemental still said, “Well, economic growth isn’t exactly why I give, but I would sure hope that improving lives also means improving standards of living.”
Predicting exact-dollar amounts of improved regional economic capacity developed by philanthropic activity is beyond the scope of this article, but we did tease out four pathways through which major donors believe this happens. The four themes mapped relatively well onto work around types of capital: human capital (Schultz, 1961) and cultural, economic, and social capital (Bourdieu, 1986). The first two categories (A and B below) represent what may be called more traditional types of philanthropy, namely support for:
A. Education pipelines and job/skill training (building human capital)
B. Community revitalization and improving the amenities of place (infusing cultural capital)
The second two categories represent somewhat newer approaches to philanthropy:
C. Social impact investing (innovating economic capital)
D. Bundling money and networks among sectors (leveraging social capital)
We expand on each below.
A. Building Human Capital: Education Pipelines and Job or Skills (Re)Training
Building human capital was expressed in several ways, most often in the form of college scholarships. Several individuals and families indicated a preference for scholarships. Some were “paying it back” for scholarships they had received, and others were “paying it forward.” Relatedly, several donors had given to programs aimed to help students in under-resourced neighborhoods receive a better K–12 education, whether through school improvement or student support like tutoring, summer programs, camps, and other initiatives.
For others, job training or reskilling programs were most important. One family explained that their father, who had built their family’s fortune, had always expressed interest in “helping people become self-sufficient,” especially through entrepreneurship. He felt, as they paraphrased it, “Charity is demeaning. The most charitable thing you can do is give someone a job.”
A couple of families made place-based economic development their primary focus. They were motivated by the desire to help families who were economically disadvantaged “bootstrap” themselves through better employment, housing, and neighborhood development. One family expressed their belief system as, “It takes a combination of both economic development stimulation and meeting humanitarian needs to really change a community.”
B. Infusing Cultural Capital: Community Revitalization and Amenities of Place as a Draw to Workers and Firms
The second main theme that emerged had to do with making the region a place that could easily attract and retain employees and employers. For example, a longtime leader of a local foundation said, “Economic development is not just job training—it is also about amenities of place.” We heard this type of comment repeatedly, perhaps most elegantly stated by one donor, who said:
Every great community needs an opera house, zoo, football team, Midway Museum, nonprofit types of things. You can’t have well-thought-out and strong communities without philanthropy. I don’t care about the opera, but having an opera puts a spark in the community. Philanthropy is essential to have the best place for people to work, live, and play.
Philanthropists, understandably, also demonstrated greater involvement in subsectors of interest: those with a passion for the arts funded the opera and symphony; those that perceive education as a key pillar of success were more likely to fund academic programs and institutions; and those that value journalism funded media organizations. City beautification efforts were also mentioned. One supporter of community beautification and revitalization explained the benefits in light of the recent competition over Amazon’s second headquarters. Rather than provide tax breaks going to one mega-employer, philanthropic grants increase the draw for firms of all sizes.
C. Innovating Economic Capital: Social Impact Investing for Sustainable Double and Triple Bottom-Line Initiatives
While the for-profit sector focuses on financial earnings, nonprofits regularly seek both economic and social returns. This is commonly referred to as the “double” and/or “triple bottom line.” The double bottom line is economic profit and social good. The triple bottom line also includes environmental consciousness, expressed by two respondents as “people, profit, planet.” While all organizations produce economic, social, and environmental outputs, “Somehow this fundamental truth has been lost to a world that sees value as being only economic (created by for-profit companies) or social (created by nonprofit organizations or government)” (Bugg-Levine and Emerson, 2011, 14).
A few interviewees attributed the growth of multiple-bottom-line thinking to technological developments like social networking. This is likely true of emerging millennial donors (Gorczyca and Hartman, 2017). Others saw impact investing in a more tactical light, as simply a more efficient way to mobilize dollars. One example from our interviewees was an income-share agreement (ISA) system that had been set up for under-resourced San Diegans to borrow money for job re-training in specific high-demand technical sectors. After completing their training program, the participants then had to pay the money back as a fixed percentage of their income for a set number of years. But unlike a normal loan, they only had to pay it back if they were able to find a job at the completion of the program.
Further, because it was a fixed percentage, if the job was high paying, the fund may make money; but if the job was low paying it may not quite break even. In any case, the recipient would not be stuck with debt they could not afford, and the economy could more quickly pivot workers from one job and firm to another as needs evolved.
Not only did a number of the “new” philanthropists believe that social and economic outcomes should be intertwined, but a vocal subset insisted it be data-driven. While this is a hot trend, questions remain around who pays for the evaluations. What happens to the data collected (i.e., is it a private or a public good)? What is the appropriate timeframe for measuring the impact of the gift/grant? For example, many gifts/grants may have shorter-term effects, which would be easy to measure, but their real value/impact is long-term— often across multiple generations.
D. Leveraging Social Capital: Bundling Monies and Networks Among Sectors
While some spoke about their efforts quite individually, others were keenly aware of the economy-boosting role of dense social networks. Discussion of networks tended to fall in two main categories: first, the importance of enhancing industry clusters, and second, the need for more philanthropic leadership to direct and inspire additional gifts.
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Industry Clusters. Industry clusters are formed from grouping companies that share similar technologies, worker skillset needs, or common markets, and are often linked by buyer-seller relationships in a defined geography. Many of San Diego’s traded clusters branched off from the military and healthcare industries. The San Diego economy would likely not be what it is today if it were not for 20th-century philanthropists who catapulted research and development in healthcare, leading the way for spin-off clusters.
Institutions created then, such as Scripps Institution of Oceanography, the Bishop’s School, La Jolla Women’s Club, Scripps Memorial Hospital and Research Center, and the Metabolic Clinic (now Scripps Research Institute), continue to thrive today. Important research has been done showing that dense regional networks are an essential driver in economic growth (Hwang and Horowitt, 2012; Venkataraman, 2004), particularly as they can lead to “cross-network transfer” (Padgett and Powell, 2012, 460), where ideas flow across sectors and disciplines.
Philanthropic Mentoring and Leadership. The second main theme in this area pertains to the power of philanthropy to rally others. Veteran philanthropists voiced the need for greater mentoring to help potential donors with their first gift of seven (plus) figures. This kind of mentoring can lead to what sociologist’s call “cooperative behavior cascades” in social networks (Fowler and Christakis, 2010).
Some philanthropists strongly recommended leveraging multiple organizations to establish partnerships and collaboration. The 2016 US Trust® Study of High Net Worth Philanthropy found that nearly 40 percent of US high net worth households donated to organizations serving combined purposes (such as United Way, United Jewish Appeal, Catholic Charities, and community foundations) in 2015 (Indiana University Family School of Philanthropy 2016).
Philanthropists have the influence to leverage commitment and encourage others to donate. Additionally, relationships among philanthropists can lead to what one interviewee called “serial reciprocity,” in which individuals donate to another philanthropist’s cause in exchange for donations to their own charity of choice—either now or later. An abundance of new wealth gets housed in donor-advised funds (DAFs), which one of our interviewees lamented are just “gigantic parking lots for people who are still deciding what they want to do.”
Final Field Observation: A Continuum of Donor Satisfaction toward Existing Institutions
In our interviews, we noticed a range of donor perspectives situated along a continuum of support for, or frustration with, existing institutions and regional organizations. While some wanted to invest in the long-standing organizations, others wanted to start something new. A few went even further, expressing a desire to wipe out existing institutions—typically couched in the entrepreneurial language of “creative destruction” (see Schumpeter, 1994).
Those pleased with existing institutions, for example, may be happy to give to a university endowment creating student scholarships; while those who had greater frustration with existing institutions might do something akin to what Peter Theil did with the controversial Theil Fellowship2—giving scholarships to students who dropped out of college to attempt start-ups.
Obviously, many factors play into donor intentions: culture, background, and more. But fundraising professionals should be advised that the satisfaction or dissatisfaction that a donor feels with the region’s existing institutions will affect how much she or he will donate to initiatives that are striving for incremental improvement versus disruptive change.
Sometimes dissatisfaction concerned the slow pace of change in the current system. Several philanthropists advocated radical and disruptive change—not with an anti-social tone, but again, couched in the increasingly common language of creative destruction emanating from the startup and new-venture subculture. For another, this sentiment originated from disillusionment with the low magnitude of corporate donations, and for yet another it came from discontent with bureaucratic hurdles in the public sector, including zoning challenges.
On the other hand, many donors were quite happy to give to existing institutions. Some really believed in them; in a couple of cases because of formative personal experiences with a public school or with a hospital. Others wanted to give to existing institutions because they saw greater networking opportunity by working with the key players already leading important civic organizations.
A perhaps outdated or incomplete perception of philanthropy is that it is a unidirectional beneficiary of business success. Our interviews, by contrast, suggest that most major donors, to varying degrees, view their philanthropic investments as part of a feedback loop of philanthropic and industry successes that mutually reinforce regional economic advances.
Donor perspectives of how this happens tend to fall into four broad areas: building the workforce, revitalizing the region as an attractive place to work and live, broadening philanthropic understandings to include strategic impact investing, and catalyzing dense networks of innovators and investors. We identify these as mapping on to social theory about building human capital, infusing cultural capital, innovating economic capital, and leveraging social capital—respectively.
Within these four most-common themes of how philanthropy enables economic growth, development professionals will do well to consider the degree to which a potential donor wishes to work with established organizations or to pursue alternative and disruptive initiatives. Future studies should seek to quantify the degree to which these four areas lead to greater fiscal growth. Also, while we do not claim our four categories are exhaustive, they did seem to be relatively comprehensive within our sample. Other researchers could search for additional arenas where large donors see their investments as helping to advance regional economies.
Bourdieu, P. (2011). “The forms of capital.” Chapter 5 in Granovetter, M. and Swedberg, R.’s (eds.) The Sociology of Economic Life. Abingdon, UK: Routledge.
Fowler, J. H. & Christakis, N. A. (2010). “Cooperative behavior cascades in human social networks.” Proceedings of the National Academy of Sciences (PNAS), 107(12), 5334- 5338.
Gorczyca, M. & Hartman, R. L. (2017). “The new face of philanthropy: The role of intrinsic motivation in millennials’ attitudes and intent to donate to charitable organizations.” Journal of Nonprofit and Public Sector Marketing, 29(4), 415-433.
Hwang, V. W. & Horowitt, G. (2012). The rainforest: The secret to building the next Silicon Valley. Los Altos Hills, CA: Regenwald.
Indiana University Lilly Family School of Philanthropy. (2016). “The 2016 U.S. Trust® study of high net worth philanthropy: Charitable practices and preferences of wealthy households.” Retrieved on April 19, 2019.
Powell, W. W., Packalen, K. & Whittington, K. (2012) “Organizational and institutional genesis: The emergence of high-tech clusters in the life sciences.” in Padgett, J. F. and Powell, W. W. (eds.), The emergence of organizations and markets, Princeton, NJ: Princeton University Press.
Schultz, T. W. (1961). “Investment in human capital.” The American Economic Review, 51(1), 1- 17.
Schumpeter, J. A. (1994) . Capitalism, Socialism and Democracy. London, UK: Routledge.
Venkataraman, S. (2004). “Regional transformation through technological entrepreneurship.” Journal of Business Venturing, 19, 153-167.
- We generally do not use demographic information to describe interviewees throughout this paper because of the easily identifiable nature of our very select pool of highly prominent major donor interviewees. This is also why we do not use pseudonyms, which typically have gender, age cohort, and ethnic clues as to interviewee identity.
- See: https://thielfellowship.org/faq/