Background

Inequality, today, is intolerable. During globalisation private investment was highly encouraged for profit and the role of government was defined as a coordinator and welfare provider. Private sector obviously as a profit maker have done tremendous progress, but government is forced to apply austerity measures and now ‘welfare state’ is being questioned by experts. Globalisation was effective during the transition that appeared after the collapse of  Soviet Union and Berlin Wall, but since global  financial crisis began in 2007 the world economy has been hanging on the cliff to get up. Financial crisis, indeed, the outcome of Washington Consensus and finally inequality too. Still more than half of the world population are left hungry despite development process. Now, no more time is left. So, a remedy to reduce global inequality and foster economic growth has desperately been expected and ‘creative philanthropy’ could be an alternative.

Introduction

Let’s start from inequality. According to Cambridge on-line dictionary inequality is ‘‘the unfair situation in society when some people have more opportunities, money, etc. than other people’’ Social inequality is characterised by the existence of unequal opportunities and rewards for different social positions or statuses within a group or society. There are vertical and horizontal inequality. social inequality can be measured based on opportunities and conditions. Mathematically Gini-Coefficient is the best ever to measure income inequality. More equal societies have .3 Gini coefficients or below and most unequal societies have .5 Gini coefficient or above. America had Gini coefficient of .47 in 2012.(Stiglitz:2012)

Much of the inequality that exists today is a result of government policy, both what the government does and what it doesn’t do (Stiglitz, 2012). According to a Oxfam’s recent study, the 85 richest people in the world have accumulated the same wealth as the bottom 3.5 billion. One in eight people go to bed hungry every night, while 1.4 billion adults are overweight. Top CEOs were remarkably successful in maintaining their high pay. The ratio between earnings of a CEO and a worker is 243 to 1 as of 2010 (Stiglitz).

Is inequality an outcome caused by lack of resources !

Obviously not. Let’s take an example ‘’The estimated hydro power potential of Nepal is 83,000 MW of which 114 projects having 45, 610 MW have been identified economically feasible. Current total production is less than 1000 MW.(Wagle) Government is seeking investment from international community but there is self interest within communities. In India, there is power shortage of 5,547 MW out of total demand,  in Pakistan there is 8-10 hours in a day power cut, Bangladesh import 500 -1000 MW hydro power every day from India, Sri Lanka had extended per day power cut hour. Power shortage is major problem of developing country despite having huge potentials. Actually, Available water resources in Nepal is an opportunity for all as Nepal alone can not use it. But Nepal is still poorest owing to proper utilisation policy. Indeed, There was lack of global policy how to address globally available natural resources. Hence globalisation was done without globalising opportunity. Stiglitz has argued in his book ‘‘Globalisation and its Discontents’’ that western countries pushed poor countries to eliminate trade barriers by keeping their own barriers as it is. And also developing countries were prevented from exporting their agricultural products (Stiglitz, 2012). In a sentence of United Nations Research Institute for Social Development (Combating Poverty and Inequality, 2010) ‘‘globalisation and liberalisation have not created an environment conducive to sustainable and equitable social development’’. This is a reality of increasing inequality we have been facing now. Finally according to Professor Joseph Stiglitz- ‘‘today’s divided society endangers our future, So another world is possible’’.

Philanthropy under cloud

The word philanthropy was first coined by the dramatist Aeschylus in 5th century BC to describe Prometheus’ character as ‘philanthropos tropos’ meaning was humanity loving. Traditionally philanthropy mean a charity or donation from rich to poor. Later it has been used as a shield by few elite to protect their business from taxation (Dasgupta K et.al 2007). Today philanthropy has been strategically accepted for the sole benefit of the organization’ not for others.

Microsoft giant Bill Gates and Facebook giant Mark Zuckerberg has been donating from their profit. Charity Navigator writes that, according to Giving USA, Americans gave $298.42 billion in 2011 (about 2% of GDP).The majority of donations were from individuals (73%), then from bequests (about 12%), foundations (1.8%) and less than 1% from corporations. Donations are given without return consideration. This lack of return consideration means that, in common law, an agreement to make a donation is an “imperfect contract void for want of consideration.

Between 2001 and 2011, the number of nonprofit sector increased 25 percent. Their growth rate now exceeds that of both the business and government sectors. It’s a massive business, with approximately $316 billion given away in 2012 in the United States alone’’, But on the contrary inequality is increasing. (Buffett, NY Times, 2013).

Here I have tried how today’s private investment works for. It is capital for profit and profit for further investment of infinite profit. Private sector is devoted only for profit and liable to tax. The amount of tax is a matter whether they are honest enough. Because private sector does always bargain to gain more. Due to asymmetric information there is weak presence of consumer society although it is said consumerism. Profit sometimes can be rude. Profit, now, is the sole motto of private investment.That’s why investors seem hesitant to care the need of poor as they says they do pay tax.  Due to their rude but essential nature of excessive profit poor misunderstand to rich and rich always misunderstand to poor. This is a conflict may come up  in surface by any time soon that is costly instability. Figure may help to understand more:

                          Figure 1

Without profit or capital  investment is not possible. Profit is the source of perennial capital, which is left over from consumption. Consumption is essential to encourage business. So private sector do believe in consumerism as consumer work as battery of a torch to produce light. Considering profit welfare comes on always least priority.

           Figure 2  

This is the philosophy we would believe in during the globalization. As a result society is being extremely divided by haves and have not. Now it is extremely felt that something need to be done to create justice and equality.

Philanthropy was treated as a source of ‘tax exemption’ rather than reducing inequality. Stanford professor Rob Reich wrote that ‘‘without significant progress in easing disparity, philanthropy will have a very hard time continuing to justify its tax- privileged’’. Today, incorporating philanthropy in business is  developing a strategy cover values of the organization and exemption of taxation. If private sector is earning by using limited resources then they have to think about welfare as well. Suggestions have been made subsequently how philanthropy work to reduce inequality.

Strong desire on philanthropy

Because of need of quick reform philanthropy is being viewed as a potential tool to reduce inequality. Former US President and founder of Clinton Foundation Bill Clinton wrote in Finance and Development that ‘‘We need to find new ways to extend the circle of opportunity…with systems, infrastructure, and networks that enable growth…it enhances the stability of societies, and equally important, it shifts the work of the international aid community from philanthropy to partnerships.’’ In his recent article, World Bank President Jim Yong Kim argued ‘‘how the rich live, is now out… And all of us — all 7 billion of us — face an impending disaster from climate change if we do not act today with a plan equal to the challenge.’’ Nemat Shafik, Deputy Managing Director of IMF,  highlighted that income inequality has widened, chronic unemployment and pervasive underemployment have escalated, populations are growing unevenly and climate change is worsening, and further she said that ‘’By 2050, the global economy must provide food and jobs for more than 9 billion people, 85 percent of whom will live in what are now developing countries.A new agenda needs to be truly global in scope, relevant to all in its goals, and realistic in how it assigns responsibilities—to advanced, emerging market, and developing economies. Philanthropy could be a truly global agenda.’’ Because of inequality, Stiglitz says that ‘‘the darkest sides of the market economy that came to the light were the large and growing inequality, … we can achieve our fundamental values, with more opportunity, higher total income, a stronger democracy and higher living standard … by political decisions’’. The CEO of Unilever Paul Polman et.al wrote that ‘‘The capitalist threat to capitalism…Addressing the failures of modern capitalism will require strong leadership and extensive cooperation between businesses, governments, and NGOs.’’ ProjectSyndicate). Jim O’Neill forecasts BRICs would be the most powerful bloc by 2050. (Wagle)

Realization of real problem and things need to be addressed  by core group of Washington Consensus specially from the USA, the IMF and the World bank is the hope for future and change is possible and easier if they work together in democratic manner as they deserve it.

Making philanthropy work

Recent division of richest and poorest are the output of globalization. Now Richest have strong attachment on employment, investment and economy as a whole. They did nothing wrong, just played the game of investment offered by the state. Even though richest are not safe where poor and hungry neighbours spend their nights without food. Much of the inequality that exists today is a result of government policy, both what the government does and what it doesn’t do (Stiglitz 2012). For the well being of rich and poor rational equality is a minimum condition for socio-economic sustainability.

The genuine question of how the rich are being richer needs to be checked and the poor should be pulled out of an empty ditch that they are currently in. This is a genuine reason for philanthropy. This strong desire of change must be address in due course. For that, rich may contribute for the purpose of reducing inequality. Here is the figure I have predicted how philanthropy will be an assertive measure to reduce inequality.

            Figure 3

increasing donation on ‘welfare’ towards point E reduce income gap.   

increasing investment on welfare increase income level of many poor .

Government can encourage private sector to allocate compulsory fund in welfare that should be a global mission under corporate social responsibility. After death of investors certain portion of their private wealth can be capitalised by the nation and in lieu of that, government may set a ‘philanthropist reward’ program to remember their contribution. This welfare fund goes to social sector which is designed by the government in line with national requirement. There will be sufficient fund to invest in social sector. Hence rich will ultimately make themselves more sustainable by supporting such creative real philanthropic mission that will be a mission of harmony too. Here, private capital accumulated from long term profit must be invested for  further profit generation and equally for welfare too. In contrast current private investment believe on profit only, their responsibility on welfare has not been stated clearly, they are just liable to pay tax. State must be responsible to protect the interest of weaker while protecting the interest of stronger/rich because the resources used by rich to gain profit are common. Moreover, welfare state needs private sector’s art of handling resources and capital for sustainability. Indeed, sustainability is a attainable programme but not a demonstration of attractive words on the screen. It is right time to prove private sector as a good leader of society which ultimately protect their welfare too. Private sector can be defined as a welfare state too by making compulsory provision to allocate fund for in welfare provision, so that private sector will gain more public faith which will be a reward of private business too. Here I have proposed the way how to invest private capital.

  figure 4: 

Accumulated private capital from long term profit need to be divided into investment for further profit and investment for welfare so that social justice and equality are possible forever. And also taxation system need to be changed. Low income group must be refunded or exempted either from direct or indirect tax as now they are  liable double taxation.

Making philanthropy work will not be easy. Who is benefited from the current system will resist change (Stiglitz, 2012), and they are powerful. Of course there are many billionaires like Andrew Carnegie (1835 – 1919)really desperate to serve the society. For that state mechanism must be translated to ‘real’ democratic norms and  basic right. Food , shelter, cloth, education, health and security are people’s right not a charity work nor a matter of donation. But there were ‘‘Democratic deficit’’ while taking decisions by International economic institutions (Stiglitz, 2012) and also in government’s decisions inside the nation.

The more well being of people the more consumption possibility meaning there may increase tremendous purchasing power of people. This is basic principle of market expansion and market sustainability. To increase purchasing power of 3.5 billion poorest people means creation of demand too. Here is the private sector should be able to expansion their role in future by making consumer world really.

Conclusion

Due to increasing inequality something is urgent to be done. Philanthropy till now is considered as donation or charity work. Donation or philanthropy is a synonymous of tax exemption and tool for business expansion.

Richest are the output of the state. Now they have their own responsibility. Ignoring their role is neither feasible nor acceptable so as globalization. They do charity work optionally to fulfill their own interest. But what need to be done is private sector need to investment in welfare state as well, not only for their business motive. Certain per cent of profit must go to welfare fund. Weak must be protected not only by the state but private sector is also equally responsible. The contribution to the society will help to increase purchasing power of low income consumer. Increasing purchasing power means consumer society can play effective role in the market as consumer, private and government are parts of triangular shaped relation in liberal economy. 

Private sector’s role of welfare, as explained above, is a basic set of philanthropy that must be above of personal charity work. Good deed must be recognised by the state.  Finally, unequal income distribution can be checked. Due to strong welfare weak will stand up so that the meeting point of equality won’t be so far. Welfare must be an agenda of private investment too. This is one of the best ways to achieve social justice. 

Reference

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