Posts Tagged ‘philanthropy’

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The release of the so-called Paradise Papers confirms, with additional names and more salacious details, what we already knew from the Panama Papers and other sources: the world’s wealthy increasingly use offshore tax havens to engage in conspicuous tax evasion.

That’s on top of their participation in conspicuous consumption, conspicuous philanthropy, and conspicuous productivity.

According to Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, in a study published before the release of the Paradise Papers, the equivalent of 10 percent of world GDP is held in tax havens globally—and that’s only counting bank deposits, not the portfolios of equities, bonds, and mutual fund shares that wealthy individuals entrust to offshore banks.

And, as it turns out, offshore wealth is extremely concentrated: the top 0.1 percent of richest households own about 80 percent of it, while the top 0.01 percent own about 50 percent of offshore wealth.

So, how does it work? There is a great deal of evidence that the vast majority of offshore wealth, both legal and illegal, is not reported on tax returns. That’s because offshore wealth is done “by combining trusts, foundations, and holding companies, so as to disconnect assets from their beneficial owners.” Thus, tax authorities won’t be able to observe or collect taxes on either the wealth or investment income earned or reported offshore, except in rare circumstances (e.g., a taxable and properly declared inter-generational transfer of assets).

That means the tax burden is shifted onto the rest of us who don’t hold offshore wealth and aren’t able to—or choose not to—engage in conspicuous tax evasion.

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Not surprisingly, accounting for offshore assets increases the top 0.01 percent wealth share substantially. However, the magnitude of the effect varies a lot across countries.

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In Scandinavia (Norway, Sweden, and Denmark, the blue lines in the charts above), which does not use tax havens extensively, the top 0.01 percent wealth share rises from about 4 percent to around 5 percent. Offshore holdings have a much larger effect on wealth inequality in Europe (the United Kingdom, France, and Spain, the red lines), where by the estimates of Alstadsæter et al. 30-40 percent of the wealth of the 0.01 percent of richest households is held abroad.

In the United States (the green lines in the charts), offshore wealth also increases inequality but the effect is much more muted than in Europe. That’s only because the U.S. top wealth share is already very high—9.9 percent, without offshore wealth in 2010, compared to 11.1 percent when offshore wealth is included.

Clearly, the world’s wealthiest individuals—including those who call Scandinavia, Europe, and the United States home—have plenty of opportunities via their offshore paradises to engage in conspicuous tax evasion.

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Yes, indeed, as state and local governments struggle with budget deficits and the social infrastructure continues to crumble, rich Americans are sliding “into the driver’s seat of public life, with private funders tackling problems that government can’t or won’t.”

Look in any area — the arts, education, science, health, urban development — and you’ll find a growing array of wealthy donors giving record sums. Philanthropists have helped fund thousands of charter schools across the country, creating a parallel education system in many cities. The most ambitious urban parks in decades are being built with financing from billionaires. Some of the boldest research to attack diseases like cancer and Alzheimer’s is funded by philanthropy. Private funders, led by the Gates Foundation, play a growing role in promoting global health and development.

But as “Bill,” one of the readers who commented on the New York Times article, understands, what we’re seeing “is an undemocratic system that disproportionately allocates the wealth produced by society as a whole to a few unelected people at the top, and expects them to redistribute it in some way. Some do, some don’t.”

The fact is, there’s a close correlation between the growth in the surplus captured by the top 1 percent (as seen by the red line in the chart above) and the real amount of charitable giving in the United States (the blue line in the chart).

The system is undemocratic, first, because the workers who produce the surplus have no say in how much is distributed to others, including the tiny group at the top. Second, it’s undemocratic because the top 1 percent, who have managed to capture a large share of the surplus, are the ones who decide whether or not to give to philanthropy—and on what projects.

They’re the ones who get to decide what kinds of schools American children will attend, whether or not there will be urban parks, what kind of research will be done on which diseases, and so on. They’re literally remaking social life in their own image.

Ultimately, efforts to level the playing field of civic life won’t get very far as long as economic inequality remains so high, putting outsize resources in the hands of a sliver of supercitizens.

Today, as in the first Gilded Age, economic inequality and undemocratic philanthropy go hand in hand.

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First, it was conspicuous consumption. Then, it was conspicuous philanthropy. Now, apparently, it’s conspicuous productivity.

According to Ben Tarnoff,

the acquisition of insanely expensive commodities isn’t the only way that modern elites project power. More recently, another form of status display has emerged. In the new Gilded Age, identifying oneself as a member of the ruling class doesn’t just require conspicuous consumption. It requires conspicuous production.

If conspicuous consumption involves the worship of luxury, conspicuous production involves the worship of labor. It isn’t about how much you spend. It’s about how hard you work.

And that makes a lot of sense, for at least two reasons. First, CEO salaries in the United States continue to be much higher than average workers’ pay—276 times as much in 2015. CEOs need to publicize the long hours they work in order to attempt to justify the large gap between what they take home and what they pay their workers. As Tarnoff explains, “In an era of extreme inequality, elites need to demonstrate to themselves and others that they deserve to own orders of magnitude more wealth than everyone else.”

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The problem, of course, is many American workers are working long hours these days. According to the Bureau of Labor Statistics, in 2015, employed persons ages 25 to 54, who lived in households with children under 18, spent an average of 8.8 hours working or in work-related activities and the rest sleeping (7.8 hours), doing leisure and sports activities (2.6 hours), and caring for others, including children (1.2 hours ).

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And, on a weekly basis (taking into account public holidays, annual leaves, and so on), U.S. workers put in almost 25 percent more hours—or about an hour more per workday—than Europeans.

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The other reason why conspicuous productivity matters is because, in comparison to the First Gilded Age (when Thorstein Veblen first invented the term conspicuous consumption), a larger share of the surplus captured by the top 1 percent takes the form of labor income during the Second Gilded Age. They get—and deserve—that large and growing share because they work long hours.

The problem, of course, as I showed the other day, that composition of income has changed since 2000. Since then, the capital share of their income has bounced back. Thus, the “working rich” of the late-twentieth century are increasingly living off their capital income, or are in the process of being replaced by their offspring who are living off their inheritances.

This was my conclusion:

It looks then as if those at the top have either turned into or been replaced by rentiers, thus joining the existing owners of capital at the very top—thereby mirroring, after a short interruption, the structure of inequality last seen during the first Gilded Age.

That’s perhaps why conspicuous productivity was invented. Increasingly, those at the top are able to capture a large share of the surplus not because they do, but because they own. But if they can hide that by boasting about the long hours they work, they can attempt to defend their class power.

Or so they hope. . .

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Many of my well-intentioned students are in awe of Bill Gates. He’s a rich guy, a successful businessman, who is giving away a large portion of his income to help solve the world’s economic and social problems through the Bill and Melinda Gates Foundation. What could be more admirable?

I do remind them that it’s Gates alone who gets to decide what the problems are, what the solutions are, and how those solutions will be enacted. We’ve seen that already in the area of education reform. The rest of us have no say in the matter. In other words, it’s the problem of philanthropy in an increasingly unequal country and world.

One of the areas in which the Gates Foundation has been allocating more and more money is food and agriculture, especially the problems of hunger and agricultural production in Africa, guided by the motto of “Listening to farmers and addressing their specific needs.” In 2007, it spent over half a billion dollars on agricultural projects, and has maintained funding at around this level. Since spending so much money gives the foundation significant influence over agricultural research and development agendas, the folks at GRAIN [ht: mfa], a “a small international non-profit organisation that works to support small farmers and social movements in their struggles for community-controlled and biodiversity-based food systems,” decided to look into where the money is going and what it’s being spent on.

What they discovered is that, first, the Gates Foundation fights hunger in the South by giving money to the North.

Roughly half of the foundation’s grants for agriculture went to four big groupings: the CGIAR’s global agriculture research network, international organisations (World Bank, UN agencies, etc.), AGRA (set up by Gates itself) and the African Agricultural Technology Foundation (AATF). The other half ended up with hundreds of different research, development and policy organisations across the world. Of this last group, over 80% of the grants were given to organisations in the US and Europe, 10% went to groups in Africa, and the remainder elsewhere.

Second, the Gates Foundation gives to scientists, not farmers.

the single biggest recipient of grants from the Gates Foundation is the CGIAR, a consortium of 15 international agricultural research centres. In the 1960s and 70s, these centres were responsible for the development and spread of a controversial Green Revolution model of agriculture in parts of Asia and Latin America which focused on the mass distribution of a few varieties of seeds that could produce high yields – with the generous application of chemical fertilisers and pesticides.

We could find no evidence of any support from the Gates Foundation for programmes of research or technology development carried out by farmers or based on farmers’ knowledge, despite the multitude of such initiatives that exist across the continent.

Third, the Gates Foundation buys political influence.

Does the Gates Foundation use its money to tell African governments what to do? Not directly. The Gates Foundation set up the Alliance for a Green Revolution in Africa in 2006 and has supported it with $414 million since then. It holds two seats on the Alliance’s board and describes it as the “African face and voice for our work”. . .

AGRA intervenes directly in the formulation and revision of agricultural policies and regulations in Africa on such issues as land and seeds. It does so through national “policy action nodes” of experts, selected by AGRA, that work to advance particular policy changes.

Finally, the Gates Foundation is not listening to farmers.

Listening to someone, if it has any real significance, should also include the intent to learn. But nowhere in the programmes funded by the Gates Foundation is there any indication that it believes that Africa’s small farmers have anything to teach, that they have anything to contribute to research, development and policy agendas. The continent’s farmers are always cast as the recipients, the consumers of knowledge and technology from others. In practice, the foundation’s first guiding principle appears to be a marketing exercise to sell its technologies to farmers. In that, it looks, not surprisingly, a lot like Microsoft.

Thanks to GRAIN, we now have another example of the problem of philanthropy in an age of growing inequality.

The super rich affect policy in our supposedly democratic society in lots of different ways, from deciding how they run their partnerships and corporations to contributing large sums of money to politicians and political parties. Now they have a new way: through philanthropy.

Nicholas Confessore begins his analysis of “policymaking billionaires” by arguing that, as the distribution of income has become increasingly unequal over the course of the past three decades, total philanthropic giving has grown enormously.

Confessore is right in terms of the total amount of real (inflation-adjusted) dollars and, as it turns out, in terms of charitable giving as a percentage of GDP (according to the Giving USA Foundation).

On the face of it, more charitable giving can benefit society. But there are two problems. First, as Confessor points out, the super rich are becoming increasingly involved in making policy—with respect to healthcare, schools, and so on—through their philanthropic foundations. They are deciding—directly, through their foundations, and indirectly, by “pouring billions of dollars into advocacy at the federal, state and local levels”—which policies will be adopted and which ones won’t.

The second problem is, they’re the ones deciding what is done with the billions of dollars they devote to philanthropic initiatives. They are they alone. Not only do the rest of us have no say in how such enormous sums are spent; we often don’t even know how much is being spent.

Just as the super rich exercise despotic control within the enterprises they own and control, they have increasingly become the self-appointed despots of public policy.