The Perils of Philanthrocapitalism

68 Pages Posted: 15 Dec 2016 Last revised: 5 Dec 2018

Date Written: February 27, 2018

Abstract

For over a century, philosophers, politicians, and sociologists have bemoaned philanthropy's inherent antidemocratic, paternalistic, and amateuristic aspects. The antidemocratic nature of philanthropy is self-evident: when a wealthy person determines the best way to address a societal problem without the input of either society at large or the philanthropist's beneficiaries, the result is a deficit of democracy. Philanthropy's amateurism stems from the patently illogical belief that wealthy individuals ought to address some of the world's most complex and intransigent problems simply because they successfully amassed a fortune in the private sector. Finally, the paternalism critique focuses on the assumption that many of society's problems are born out of personality faults of the beneficiaries of charity.

Because most philanthropy was conducted through private foundations, the regime that regulates private foundations evolved to mitigate these negatives. More specifically, the law requires private foundations to avoid political activity, spend a certain percentage of funds in a charitable manner, and submit extensive annual reports. In effect, the legal regime struck a palatable balance between philanthropy's inherent negative aspects and philanthropy's obviously positive consequences.

However, the recent trend of philanthropists conducting charity through for-profit vehicles, such as limited liability companies (LLCs), effectively bypasses the restrictions placed upon private foundations. This Article discusses each of the traditional critiques of philanthropy and explores how they are exacerbated when philanthropic efforts are shifted to LLCs. Ultimately, this Article argues that philanthropy conducted through LLCs will undoubtedly be less democratic, more amateuristic, and more paternalistic than philanthropy conducted through private foundations. This Article concludes with some thoughts concerning some solutions to the problem, including the adjustment of incentives for private foundations and LLCs, imposing a regulatory regime over philanthropic activity, and extending existing licensing regimes to apply to certain philanthropic activity.

Keywords: Philanthropy, Philanthrocapitalism, Nonprofit, LLC, Limited Liability Company

Suggested Citation

Amarante, Eric Franklin, The Perils of Philanthrocapitalism (February 27, 2018). Maryland Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2885550 or http://dx.doi.org/10.2139/ssrn.2885550

Eric Franklin Amarante (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States

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