Monday, December 29, 2008

What's More Important, Idealogy Or Actually Helping People?

I missed this Nicholas Kristoff piece at the Times last week on the moral dilemma of having for-profit business people running charities while making a profit.

Here’s a question for the holiday season: If a businessman rakes in a hefty profit while doing good works, is that charity or greed? Do we applaud or hiss?

A new book, “Uncharitable,” seethes with indignation at public expectations that charities be prudent, nonprofit and saintly. The author, Dan Pallotta, argues that those expectations make them less effective, and he has a point.

Mr. Pallotta’s frustration is intertwined with his own history as the inventor of fund-raisers like AIDSRides and Breast Cancer 3-Days — events that, he says, netted $305 million over nine years for unrestricted use by charities. In the aid world, that’s a breathtaking sum.

But Mr. Pallotta’s company wasn’t a charity, but rather a for-profit company that created charitable events. Critics railed at his $394,500 salary — low for a corporate chief executive, but stratospheric in the aid world — and at the millions of dollars spent on advertising and marketing and other expenses.

“Shame on Pallotta,” declared one critic at the time, accusing him of “greed and unabashed profiteering.” In the aftermath of a wave of criticism, his company collapsed.

One breast cancer charity that parted ways with Mr. Pallotta began producing its own fund-raising walks, but the net sum raised by those walks for breast cancer research plummeted from $71 million to $11 million, he says.

Mr. Pallotta argues powerfully that the aid world is stunted because groups are discouraged from using such standard business tools as advertising, risk-taking, competitive salaries and profits to lure capital.

I just love the figures. Critics slammed him, charities dropped him, and that one particular breast cancer charity saw it's net amount raised fall by 60 million dollars. This is just the argument about income disparity, transferred to a different forum. Instead of critics claiming to be compassionate about the poor who are merely just envious of the wealthy, we have charitable causes that would rather get upset about profits than actually worry about championing their charitable cause. In the income disparity game, the problem is that smaller disparities in income doesn't mean those at the bottom are better off. Most of us would take a world where the poorest make 5 dollars a day and the richest make 100, but the income disparity folks would have us choose a world where the rich don't make any more than 10, but the poor make only 2. Just like income, charitable giving is not a zero sum game. Maybe you don't like the idea of profits being made on charity, but if the work to get you those profits can bring in six times the money, then what's the problem?

I don't let my libertarianism get in the way of the government doling out assistance to the very poor (I only quibble with how it's done). So why let a little profit get in the way of charity?


Blogger McMc said...

This is an interesting story to say the least, but the obvious problem is that people were donating money to a cause, only to see that go into someone elses pocket. Not only that, but I bet the people donating had no idea.

Business is about making profit, charity is not. Maybe it is a good idea -- in principle -- to use business tactics to make money for charity. But that raises a ton of ethical questions and it also begs you to ask the question, is it still "charity" when someone is profitting?

This story gives us the plus side to it all but that doesn't mean that if this were more prevelant, there wouldn't be any fraud.

Again, it's an interesting story but not one that paints a complete picture.

3:48 PM  
Blogger lonely libertarian said...

I didn't quote the last line of the article, from Mr. Pallotta, but I will now:

“People continue to die as a result,” he says bluntly. “This we call morality.”

I think you're very right about people wanting to know where their money is going when they donate to a good cause, but that's an issue regardless of whether someone is profiting or not. For instance, a charity that has 50% of donations going to the bureaucratic costs of running a charity has far less money actually going to help people than an organization that uses only 10% of donations for operating expenses. But that's an issue of transparency and accountability, not profit.

Again, to keep going with my example, you could have an honest business running a charity while making a profit and sending a lot of money to help people, and you could have a sleazy charity where no one makes a profit so to speak, but favors are doled out and family and friends get paid salaries to do little work.

You're right about fraud, but like I said, that's more about transparency and accountability than it is forms of organization.

4:26 PM  

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