Crowdfunding vs. Philanthropy: Which is Better?

Crowdfunding vs. Philanthropy: Which is Better?

Crowdfunding vs. Philanthropy: Which is Better?

Stack of US Bills, CC by "401(K) 2012" on Flickr

Some friends of mine were having an interesting Facebook discussion around Ellen Cushing’s recent article in the East Bay Express, about crowdfunding, philanthropy, and what the young and well-to-do of Silicon Valley mean for the future of the arts. The issue was whether or not crowdfunding was replacing traditional arts philanthropy and what this means for the long-term viability of arts organizations. Kickstarter campaigns are great for early-stage artists, but they couldn’t reasonably sustain something like the San Francisco Symphony, or even smaller chamber organizations like SFCMP or SFSound. So if young people with a lot of money are eschewing the traditional philanthropic route in favor of crowdfunding, what does that mean for arts organizations?

Nothing. Crowdfunding is a new category of fundraising, and it draws a different set of people for reasons unrelated to traditional philanthropy—each addresses a separate “need” for the donor that the other doesn’t. The reduction in philanthropic support for the arts right now is not tied to crowdfunding, but rather to larger shifts in cultural priorities.

Philosophies of Philanthropy

There are many reasons people give money away, but I think there are five main categories, none of them mutually exclusive:

  1. Because it’s morally right: if someone is in need and you can help, then you might feel obligated
  2. Because you want others to realize their potential: if someone can be incentivized to make better choices, everyone benefits
  3. Because it provides you with status: you gain power and influence by strategically giving away money
  4. Because it reduces your tax obligations (no explanation necessary)
  5. Because you don’t have a better option: debt amnesties, freeing the slaves, and periodic gifts to the less fortunate have been the go-to method of preventing revolutions worldwide since at least 2500 BC

Looking at those motivations helps to explain where traditional American philanthropic models came from. American orchestras were essentially founded on these principles, and they continue to be supported by them. There was a push in the late 19th and early 20th centuries to develop high-calibre professional orchestras that proved America’s cultural independence from Europe—to show America’s artistic potential. Building an orchestra was considered a net good for the community (morally right), and those who did manage to found and sustain large arts organizations gained status among their peers. In addition, all of these developments happened in the same era that invented an income tax not tied to a war (1894), legitimized it through the 16th Amendment (1913), saw the top income tax rate go from 6% in 1913 to 77% in 1918 (yes, seventy-seven), and began cracking down on robber barons with anti-trust laws. That kind of pressure would make any rich man want to give his money away, not that he had much choice.

Today these specific motivations no longer exist, but the core principles still hold. Corporations might donate to large arts organizations because it shows that they are concerned with enriching the community around them. Individuals might donate because they see competition from other art forms and they genuinely like going to the symphony—in essence volunteering to pay higher ticket prices. For all involved there are still the tax breaks of course, and people who donate often think it’s the right thing to do culturally. But all in all we live in a much less progressive and much more pluralistic time, which means the wealthy can find all sorts of defensible reasons to contribute to other causes or not contribute at all.

Infatuation with Entrepreneurship

Crowdfunding works on an entirely separate model. The basic incentives of philanthropy don’t apply because the relationship between donors, their peers, and the recipients is totally different. You may gain some influence in your peer group by donating to a Kickstarter campaign, but nothing like the pull someone with old-money connections would get by donating to the symphony. So although crowdfunding has been rightly touted as a democratic approach to fundraising, democracy implies a certain lack of status: you’re not particularly special when you donate a few bucks toward someone’s demo CD, you’re just a face in the crowd.

In many cases, people don’t even approach crowdfunding in a philanthropic spirit, something Cushing dwells on. Instead, they consider it a form of venture capitalism, although this too is incorrect because the VC culture of Silicon Valley is based on exclusivity, vast sums of money, and the potential for astronomical returns. If you’re investing $20 in a crowdfunding campaign you probably have some interest in seeing it succeed, but you won’t spend weeks refining a business or production plan. You won’t do extensive market research to support your theories. You won’t make phone calls and introductions to help sell your investment to other people. You won’t consult experts in the field or recommend people for a board of directors. With smaller investments of capital come smaller investments of effort: the fact that you chose to support the cause via crowdfunding instead of direct donation or cosigning a loan or helping them set up a 501(c)3 in their name means you don’t really care all that much about the success of the venture. It’s something that would be nice to have, but nothing you’d be willing to lose any sleep over. That doesn’t sound much like the stories of VCs and angel investors I’ve heard.

Crowdfunding then is neither a philanthropic process nor a democratization of venture capitalism. It’s essentially a money-based “game” modeled on venture capitalism and designed to push certain cultural buttons. As one of Cushing’s sources comments, we’re infatuated with entrepreneurship nowadays; that entrepreneurship is a good thing is probably the only ideological statement accepted by both the modern right and left. So when a cooperative, technology-enabled platform (liberal) meets a self-sufficient, pull-yourself-up-by-the-bootstraps work ethic (conservative), everyone signs up enthusiastically. Because giving away money makes you feel like a good person, and because entrepreneurs can apparently do no wrong, everyone feels great. Plus it’s fun: you get a sense of participating in the entrepreneurial process without having to go through the hypertension-inducing process of actually founding a startup yourself.

Supporting Long-term Visions

Cushing worries that the conflation between crowdfunding and philanthropy will lead to a permanent drop in donations to the arts and the inability for cultural organizations to budget over the long term. She frets that the well-to-do young have little long-term vision for the arts and that if they stay rooted in crowdfunding models, we will lose a lot of culture. Obviously that would be catastrophic, but I don’t think it’s a likely scenario.

While crowdfunding can sort of feel like philanthropy on the surface, as I’ve said it doesn’t actually provide the same benefits to the donor. At some point, even narcissistic rich kids grow up and find themselves caring more about the issues at stake than the free t-shirts they get by donating. That will lead them to discover true philanthropy, as they donate time and money to the concerns that are genuinely important to them. Similarly, as young donors age, their priorities will change, and a certain percentage of them will want the status and influence that comes from old-fashioned, endowment-building philanthropy. Others will be moved by personal experience to donate to causes that help people achieve their full potential, while many more will hire good accountants that will help them part with their money as strategically as possible. Of course, none of this means existing arts institutions will survive per se, but philanthropy won’t go away.

That 20-somethings earning money for the first time in their lives don’t have much of a long-term vision for art and culture shouldn’t surprise us—they don’t have much of a long-term vision for anything, and a six-figure salary doesn’t automatically change that. Especially during a time that celebrates entrepreneurialism and the gamification of everything, it makes sense that the young would flock to a pastime as fun as crowdfunding.

Besides, long-term visions are overrated. I can’t count how many times I’ve read a celebrated artist saying something like, “I didn’t think about it much, I just sort of fell into it.” Today’s long-term vision becomes tomorrow’s stubborn narrow-mindedness (cf. Robert Moses; we’re still paying for the damage caused by his long-term vision). So maybe we should just chill out and let kids be kids.

To my mind, the only real question is what crowdfunding itself actually contributes. I lean toward seeing it as a net good, because money circulating creates value whereas stagnant money doesn’t. And even if that money is circulating among artists supporting each others’ projects, at least it’s circulating among artists instead of flowing from artists to some corporate entity trying to maximize profits. True, the vast majority of crowdfunded projects are less than world-changing, but at least some good ideas will get a break they wouldn’t have otherwise. Beyond that, lots of people are learning the value of effective mass communication, of having professional failures, of reaching out to one’s network.

Those are all good things. Crowdfunding is certainly improving society by capitalizing on a previously untapped source of financial efficiency. But it’s not philanthropy and it doesn’t fulfill the deep-seated social functions that the old-school philanthropic models do. So unless donors eventually find that they no longer need the unique benefits of philanthropy (unlikely), traditional models will continue to thrive alongside the newer crowdfunding system.

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