Charities and nonprofits play a major role in Canada, supporting social, environmental and cultural causes all over the country. Yet, their revenues are at least in part derived from a philanthropic system highly dependent on extractive industries and the unmitigated growth of global financial markets.
“How do we use capital to liberate capital?” wondered Lynn Murphy, whose career as a fundraiser led her to co-found the Transition Resource Circle, a U.S.-based organization challenging contemporary views on philanthropy.
There are now some who believe they have found an answer to her question.
This summer, the U.K. foundation Lankelly Chase did what, just years ago, would have been unthinkable: it established a five-year deadline to donate all of its assets and “dismantle and close itself.”
In Canada, we have our own example with the Ivey Foundation: the 75 year old organization, focused on efforts to fight climate change, announced a similar decision last fall. In an open letter, its board of directors rejected the idea that foundations should exist in “perpetuity for perpetuity’s sake. There is a strong argument that philanthropic resources can, and in some cases should, be fully utilized for the most critical issues we face today.”
As such, they have committed to donate their $100 million endowment by 2027.
Their decision to, as Lankelly Chase put it, “relinquish control of their assets, [...] so that money can flow freely to those doing life-affirming social justice work,” reflects a growing unease with the status quo — where social and environmental causes are supported by money originating from the same capitalistic system that is both creating and exacerbating the problems.
The most in need are falling through the cracks
Philanthropy plays an essential role in our society, especially in the midst of rapidly increasing inequality. However, it’s an outsized band-aid role when it comes to basic needs for survival, such as food, clothing and shelter.
A report this month from Food Banks Canada shows the country is not performing well when it comes to poverty: almost half of all Canadians are “feeling financially worse off compared to last year.” More than a third have inadequate (29.1 per cent) or severely inadequate standards of living (12.3 per cent) and “food insecurity is rising quickly.”
As a result, with fewer and fewer public resources and financial supports available, people are increasingly forced to turn to charities and nonprofits for help. According to The Giving Report 2023, an annual overview of the philanthropy sector by CanadaHelps, 22 per cent of Canadians rely on charities to meet basic needs. A quarter of them are parents, while a third are aged 18 to 34 years old.
Diana Chan McNally is a Toronto-based frontline community outreach worker, advocate for unhoused communities, and case manager with All Saints Church. She says the dependency on charities is a policy failure propping up a broken system. “We are doing what the government should be doing with their billions of dollars, which unfortunately is not materializing.”
Right now, it’s up to charities and nonprofit organizations to fill in the gaps. And McNally says “it's definitely getting worse.”
According to Lisa Davey, Vice President of the Association of Fundraising Professionals, an organization that supports fundraising efforts in Canada, the U.S. and Mexico, “not only do we help to change lives, but we're a strong economic driver of the community.”
In 2022, the charity and not-for-profit sector represented 8.4 per cent of Canada’s GDP, a staggering number when compared, for example, to the agricultural sector, which, for that same year, accounted for 7 per cent of GDP. And around a third of their revenues, or, according to data received by the CRA, $18.6 billion, came from donations.
However, despite an increasing demand for their services, more than half of Canadian charities struggle with a lack of resources, and are faced with decreasing rates of donations, the Giving Report also highlights.
Following a peak in giving in early 2021, donations have started to plummet since the spring of the same year, as the continued uncertainty caused by the pandemic and widening inequality has since been magnified with a rapidly rising cost of living crisis, adding stress to a system already stretched so thin, and opening the door for serious critique of the sector as a whole.
McNally says the sector has reached a critical breaking point. Frontline workers are completely burned out, donations have dried up, and the people most in need are struggling more than ever. “It's not sustainable, and the only thing that would be sustainable is a government led approach.”
Philanthropy can’t be separated from capitalism
A common criticism of philanthropy, as the examples from the Lankelly Chase and Ivey Foundations show, is that, most often than not, charities are part of the same system that is at the root of the issues they are trying to solve — donations flow as a result of profits from harmful industries, both directly or indirectly, such as nonprofits accepting donations from major financial institutions, which are deeply invested in fossil fuels.
“There's still a deep justification of continuing to grow endowments, and paying out very little, while those endowments are inextricably linked to the very things that are causing a lot of the catastrophes,” says Murphy, from the Transition Resource Circle.
Sarah Matte, Chief Development Officer at Save the Children Canada, says the philanthropic sector has been slow to change. “The white saviour sort of approach is very old school, but still reminiscent in the philanthropic community.”
She says Save the Children Canada has established a rating system to evaluate potential partnerships. That helps ensure “that there's no conflict, especially at the value system level.” For example, she mentions, because of their history of child exploitment, mining and extractive companies are “flagged as a high risk” by Save the Children and their potential support would have to be carefully evaluated. That is done on a case-by-case basis, she says.
This is a key component of ethical fundraising, Davey says. “It's important for charities, when they look at their values in their mission, to make sure that their funding sources are aligned with them.”
Big money donors
Philanthropy also has the potential to give major donors and foundations excess power, allowing them to potentially interfere with the causes they are supporting and, in the more extreme cases, influence policy-making related to that cause.
A large donation from a major donor may unlock the power to influence government decision-making — giving unelected individuals a say as to which issues are worthy of support, and which are not, effectively undermining the democratic process.
Increasingly, questions have been raised about the impact of these mega-donations and whether or not this type of philanthropy is even responding to the most urgent needs of society.
In January, Mark Suzman, CEO of the Bill & Melinda Gates Foundation (whose founders’ willingness to pay taxes is yet to be confirmed), one of the most influential foundations in the world and one that has had significant impact on health globally, made headlines when he said that “it's not right for a private philanthropy to be one of the largest funders of multinational global health efforts.”
Additionally, more often than not, the priorities of major donors are not aligned with the needs of most of the population. In the U.S., barely a fifth of the money donated by major donors goes to helping the poor. Research also shows that the wealthiest Americans are more conservative than the average citizen and yet, it is this one per cent that is choosing which problems are worthy of being addressed.
In the U.S. and Canada, universities are the major recipients of donations, often thanks to large fundraising teams and wealthy alumni. Among the top 10 charities supported in Canada in 2022, only two were not universities: Food Banks Canada and Doctors Without Borders. In the U.S. most philanthropic money goes to the arts, sports teams and other cultural pursuits, in addition to Ivy League universities.
This is exacerbated by the increasing number of non-profit organizations applying business values to social justice and cultural initiatives that are evaluated based on demands for growth and proof of “impact” — rather than the needs of the community.
Jean-Marc Mangin, President and CEO of Philanthropic Foundations Canada (PFC), says some Canadian foundations currently are looking at ways to invest in communities — and that could even mean generating revenues from profits gained in the rental housing market.
“An increasing number of foundations are looking at making investments that provide social return that fall within the charitable purpose. It could be in social housing, it could be on the rental front, as long as they provide a return, so that, over time, there’s still a return to the foundations and to the endowments,” he says.
This “philanthrocapitalist” approach is based, according to journalist Anand Giridharadas in his book Winners take all: The Elite Charade of Changing the World, on a “win-win” ideal. That means, this type of philanthropy is “defined by the concurrent drives to do well and do good, to change the world, while also profiting from the status quo.”
Giridharadas warns that this rise of powerful individuals using their immense wealth and influence to reshape systems of governance is eroding democracy globally. “Their do-gooding often results in greater harm,” he told Time.
The losers in the philanthrocapitalist approach are usually the small, community-driven organizations whose work is invisible to the masses, but have a meaningful impact on those who benefit from their services. Often, observes Mangin, it’s BIPOC-led or climate change initiatives that are harmed the most.
McNally says that all three levels of government have allowed this shift to happen — resulting in an erosion of the social safety net. “The reality is that a lot of the work falls on nonprofits, who are extremely under-resourced, especially in our field,” she says. “And even worse than that, it falls on volunteer groups and people who are unhoused and struggle to take care of themselves.
“Really what we need is the government to be more preventative in its policies, instead of reactive when it's an emergency.”
Can we do away with the need for giving?
Some people believe it’s possible. The co-founders of the Transition Resource Circle say they want to “work with funders and funder activists to rethink how philanthropy can be in service to this moment.”
Both Murphy and Alnoor Ladha are encouraging funders to release funds for immediate and unrestricted support to social movements.
“There's going to be a moment in our lifetimes where capital will collapse on its own way,” explains Ladha. “And so, part of the provocation is: how do we use capital in this short period of time when it's useful, rather than hoarding it?”
Ivey and Lankelly Chase say they are leading by example: by spending down their endowments, they are making the conscious decision to stop leveraging on the system to ensure their survival and instead share all of their resources with the community.
But, Mangin points out, these are extreme examples, representing “a minority of foundations.”
More democracy needed
An even more radical alternative is actually letting democratically-elected institutions take care of solving the systemic issues, expanding public services, and maintaining a strong social safety net.
Back in 2019, Dutch historian and economist Rutger Bregman told a room full of billionaires at the Davos World Economic Forum that they need to step up and pay their fair share when he bluntly called for less philanthropy and more “taxes, taxes, taxes.”
“I hear people talking in the language of participation and justice and equality and transparency, but almost no one raises the real issue of tax avoidance, right?... We can talk for a long time about all these stupid philanthropy schemes, but we’ve got to be talking about taxes. Just stop talking about philanthropy and start talking about taxes. All the rest is bullshit in my opinion.”
David Macdonald, a Senior Economist at the Canadian Centre for Policy Alternatives, says the benefit with taxes over donations is that they’re not voluntary.
“Only a minority of people actually make donations,” he says. “As such, taxes are fundamentally more democratic. If governments were spending that money, there would be potentially more democratic oversight of the funds being spent.”
Taxes are the main source of revenue for the Canadian government, with personal income tax accounting for 48 per cent of all the money collected in 2021-2022 (corporate income tax, by contrast, only accounted for 19 per cent). Increasing tax revenue from high income earners, taxing wealth and inheritance, and closing tax loopholes, as a way to increase revenue to replace philanthropic support to charitable causes makes sense, he says.
Another idea would be to reduce or abolish the tax credits on charitable donations, which, at the moment, can account for between 15 and 30 per cent of the donations made over the year (and are so popular that some organisations, like the Red Cross, even include a calculator to estimate the value of the credit on a gift).
“A big portion of any philanthropic fund is, in essence, taxes forgone,” according to Macdonald.
Indeed, just in 2022, these credits cost the federal government $4,1 billion, and that’s without taking into account provincial rebates (each province offers different benefits). And since tax credits are most commonly claimed by the wealthiest, they offer them a chance to redirect tax money to the causes they prefer. Research studies show that, in the long-term, abolishing such rebates (or replacing them with a matching scheme would not have an impact on charitable giving, and would increase government revenues.
A second possibility could be the direct increase of taxes on the wealthiest. Nobel Prize winner Joseph Stiglitz would not disagree. In his book The Price of Inequality, tax reform, meant to create a “more progressive income and corporate tax system,” is a key factor in increasing equality, by allowing a redistribution of wealth across all income levels.
When it comes to income taxes, the Canadian fiscal system is already quite progressive, in comparison to other developed countries. Taxes paid by the top 10 per cent earners in the country account for 53 per cent of income taxes collected, but their share of income is only 32.6 per cent.
What is missing, however, is a wealth tax.
As a 2023 Oxfam report highlights, worldwide “only 4 cents in every dollar of tax revenue comes from wealth taxes” and yet, “a tax of up to 5 per cent on the world’s multi-millionaires and billionaires could raise $1.7 trillion a year, enough to lift 2 billion people out of poverty, and fund a global plan to end hunger.”
In recent years, there have been increasing calls on the government to approve a wealth tax of at least one per cent on the wealthiest Canadians (with proposed thresholds starting at $10 million, the average Canadian would not be impacted). So far, these calls have gone unanswered.
According to Macdonald, “we could be taxing wealth much more.” One way to do it would be through property taxes, but, looking at wealth more broadly, stocks and investments could also be included, as well as closing tax loopholes.
“There would be a very small tax on those things at a very high wealth level, so 99 per cent of Canadians would never pay this tax,” says Macdonald.
And when it comes to corporate tax, “there are a variety of things you could do, not only in terms of increasing the rate itself, but also in changing how loopholes are used,” explains Macdonald, mentioning how many companies shift their profits to countries with lower tax rates. “Wealthy people and wealthy companies will attempt to pay no taxes. That is their goal... That’s not a reason not to tax them though.”
Finding a balance
So, what is the solution? While there’s not a single correct answer, it would probably be to shift to a model with a strong publicly-funded social safety net that supports people’s basic needs, but leaves some spaces for philanthropy to play a role, support community initiatives, and cover the government’s blindspots.
After all, as Mangin says, donors are often able to offer the kind of support that “governments are either unwilling or unable to provide, or that cooperation or the markets are unwilling and unable to provide.”
As Chan McNally notes, “with government funding, agencies don’t get core funding anymore,” only program-related grants, making it hard to pay salaries, rents and other operational costs.
Mangin adds that, often, foundations have an important advantage over public funding, which is dependent on the will of the government, making charities depend anxiously on the results of each election.
And, Chan McNally adds, “when it comes to government funding, there’s often lots of strings attached,” strings that are often at odds with the needs and reality of the charity or the community being served.
Maybe, as Ladha says, it is not a matter of criticizing “philanthropy for the sake of it, but to make it more transparent and generous and flexible and contextually-sensitive and contextually-relevant.”