Saturday, September 10, 2016

Doing Good Works On Rich People's Dime - The Good, The Bad, And The Ugly

I thought this piece, The Facts And Falsehoods Of The Clinton Foundation, interesting and worth reading, if only to show the inherent complexity of the situation.  Rather than take the where-there's-smoke-there-must-be-fire approach, let's think this through from the bottom up to try to understand what's going on.

We should begin with a social issue that most everybody would agree should be addressed, like eradicating malaria in Africa.  We should be able to agree that doing that would be a good thing.  The issue is how to get it done and who pays for that.

In my view of the world, tax rates in the U.S. would be higher and eradication of disease internationally would be one of our goals as part of U.S foreign policy, a goal that would be amply supported with tax revenue.  I'm going to call this the first best solution.  Given our current national politics however, this solution is entirely out of reach, witness the debacle in Congress over funding to fight the Zika virus.  So one would sensibly look for a second best solution, one that can be implemented.

The second best solution would have some NGO act to coordinate efforts and get funding in line to accomplish the job.  In effect, this NGO is acting as a substitute for government.  It gets revenue to do these good works via charitable contributions rather than via taxation.  So part of the NGO's job is fundraising.  The other part is directing those monies to do the good works.

This is where it begins to get interesting.  How exactly does fundraising work?  Why do the people who give make their donations?  What are their expectations?

Now a bit of an aside to consider the little I know about fundraising in the university setting, where the bulk of the giving comes from wealthy alumni and other wealthy friends of the university.  Anybody who knows what Deans do is aware that they spend an inordinate amount of time on the road schmoozing the high rollers.  The high rollers clearly expect access to campus leadership.  That seems like a minimal requirement for giving.  Do they expect other things as well?  In other words, do they expect to be able to micromanage university function in some ways as a consequence of their gifts?  That is the charge about corporatist higher education as offered up, for example in the book, University, Inc.   How does a dean who tries to be ethical but also knows that job performance is measured in part by success in fundraising balance these dual objectives?

And now another aside, this time a quote from an episode of The West Wing, In God We Trust.

Sen. Arnold Vinick: If you can't drink their booze, take their money and then vote against them, then you're in the wrong business.

It's a good line.  It seems to strike the right balance.  I will point out, however, that if it were common knowledge that this is the behavior then, in the language of economics, this is not an equilibrium.  If you are going to vote against them, why should they be giving you the money?  For this to be an equilibrium, they have to be fuzzy on how you will vote and be uncertain about whether their money will influence your vote or not.  With the fuzziness and the uncertainty, then something like this is possible.  But then we need to ask, how does the fuzziness and uncertainty get maintained?

Now I want to change the perspective and envision an outsider looking in, first one who does not have a political agenda, but is merely trying to understand what is going on.  For this it helps to put on the table the most egregious type of unethical behavior possible embodied, for example, in the persona of Rod Blagojevich and his use of pay to play and influence peddling.   Can the outsider distinguish between an Arnie Vinick approach and the Rod Blagojevich alternative?  How hard is it to do that?  If it is not so easy to distinguish the two doesn't that provide ammunition for those who do have a political agenda to assert there is corruption going on here?

Finally, let's get at the question of whether it would be better for there not to be this NGO so as to avoid any appearance of corruption whatsoever.  Instead what we'd have is a bunch of foundations operating largely independently, each trying to do good works but in a far less coordinated way.  In my view, this is third best, but it does remove any appearance of corruption from the equation as these independent foundations are formed largely by the bequests of the founders, so they need not do further fundraising themselves.

One question then is whether forgoing the coordination work of the NGO is too high a price to pay to avoid the appearance of corruption.   If the NGO does operate, another question is whether there is much evidence that corruption actually occurred.  These are the issues to consider when reading the Benjamin Wallace-Wells piece linked to at the top of this essay.  People seem to want easy answers when considering these issues.  If you buy the analysis I've given, there aren't any easy answers.  The evidence that Wallace-Wells presents suggests there really wasn't corruption, but that many rich donors got played some.  That's quite close to the Arnie Vinick approach, though many readers might still find it unsettling.

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