Philanthropication thru Privatization: A way to build charitable assets?

by Project Director Lester Salamon

I had the good fortune to be called out by name recently by celebrated Economist Magazine columnist Matthew Bishop for having put together his “dream conference” combining his “two favorite themes: privatization and philanthrocapitalism.”

The occasion for this comment was a conference hosted by the Volkswagen Foundation in Hanover, Germany on 13 September to review the results of an unlikely project I have carried out in cooperation with a superb team of colleagues. The aim is to explore the potential for capturing in charitable endowments at least some of the proceeds of the sales of state-owned enterprises or common-use resources now under way around the world — a phenomenon I have been calling “Philanthropication thru Privatization,” or “PtP” for short.

We have so far identified over 500 foundations that have emerged from such privatization transactions around the world, and the Hanover Conference was convened to review the exposure draft of a report on how this came about, what it has achieved, and what the prospects are for using this approach to build charitable endowments in other areas, particularly in the global South. A wide representation of foundation, civil society, government, and business leaders from Western Europe, Central Europe, Asia, Africa, and South America took part in the event, and most participants were intrigued by the idea, even while acknowledging some of its difficulties.

Conference and PtP Project Advisory Committee Chair Dr. Wilhelm Krull, Secretary General of the Volkswagen Foundation, kicked the conference off by pointing to the record of the Volkswagen Foundation, itself the beneficiary of a PtP transaction, as evidence of the value and workability of the PtP concept.

Piero Gastaldo, Secretary General of the Compagnia di San Paolo, noted that this “philanthropication” was only natural in the case of the Italian foundations of banking origin because “in Italy we really had banks of foundation origin.” Ezra Mbogori of the African Grantmakers Network saw PtP as providing a unique and “important” opportunity to “free African civil society organizations from sole dependence on external funding and create meaningful, local sources of revenue.” He saw particular value in the PtP Project’s emphasis on tapping into mineral rights payments from Africa’s vast mineral and petroleum resources, the true birthright of the continent’s peoples. “There have been too many lost opportunities already,” he noted.

Jenny Hodgson of the Global Fund for Community Foundations echoed this observation and agreed that there are important possibilities to use the PtP concept to buttress a number of promising, but still struggling, community foundations in the South. Tao Ze of the China Foundation Center saw great opportunities for PtP in China because the government is pushing for the privatization some 200,000 state-owned companies and is encouraging the formation of foundations by the rich. The big question is whether it will be willing to share meaningful power with civil society and foundations and suggested convening a next PtP Conference in China to promote the idea.

Chet Tchozewski endorsed PtP as a “faster, better, cheaper” way to generate philanthropic resources. Prof. William Megginson, an international expert on the privatization process, assured participants that privatization is by no means over – that a new wave just seems to be forming, and that PtP could be attractive to governments as a way to overcome the opposition privatization has recently been encountering. Marcos Kisil, CEO and Founder of IDIS in Brazil agreed that PtP could usefully be extended to Latin America, where a number of huge privatizations have recently taken place. And Alessandro Carpinella of KPMG-Italy, while acknowledging that PtP might not work for all assets, felt that it could certainly work for some, and offered the social housing estates in Italy as one possible application.
Others voiced various cautions. Diana Leat was perhaps most skeptical, raising questions about the whole idea of shifting public assets into foundations since foundations are far from ideal institutions and it is not at all clear that what they do is truly in the “public interest.” Franz Karl Prueller of the Erste Foundation, another PtP institution, was unhappy with the term “philanthropication” and suggested using something like “privatization for the common good.” Marco Demarie of the Compagnia di San Paolo called PtP “a brilliant concept,” but also “a difficult one that will have to be adjusted to local realities.”

Nick Deychakiwsky of the Charles Stewart Mott Foundation reminded participants that community-based philanthropy is not just about the money, and that it will be important not to lose sight of the citizen engagement and empowerment aspects of it. He also urged that as PtP goes forward consideration be given to building on existing institutions rather than necessarily creating entirely new ones. Attorney Brigitte Weitemeyer noted that some of the rationales for supporting PtP transactions in Germany were spurious.
Expressing some frustration, Gerry Salole of the European Foundation Center urged participants not to lose sight of the importance of this PtP concept as one of the few concrete ways to build philanthropic assets in locations where wealthy individuals are simply not present and will not be for a generation. He further reminded participants that concerns about whether Africa was “ready” for PtP failed to take account of the vast, informal credit networks that span the continent and the bonds of trust on which they rest.

At the end of the day, Matthew Bishop seemed to sum up the session well, noting that neither “privatization” nor “philanthropy” is an unmitigated good. But both are capable of good if designed and carried out properly. And in a sense, one may be a corrective of the other. PtP therefore just could, he concluded, end up being “a big idea.” Or, as Pier Mario Vello, General Secretary of the Cariplo Foundation put it: “‘Philanthropication through privatization’—despite its difficult name—is a way worth going on.”

Join the conversation

Do you know of other cases of PtP? Is privatization or mineral rights development under way in your region? Does PtP seem a possible way to capture assets built up by the sweat and toil of local citizens for long-term charitable endowments dedicated to the strengthening of civil society or the improvement of local living conditions? If so, please contact Chelsea Newhouse at the Johns Hopkins Center for Civil Society Studies to discuss your experiences with and thoughts on PtP.