Doing Well in Doing Good

Can capitalism work for charity?
Economists are no strangers to knee-jerk argumentation. Their soundest arguments are often those that strike most sharply at the beliefs non-economists hold dear, and statistics are not often enough to unseat them. Conventional wisdom, then, would suggest that Dan Pallotta should lower his expectations for the controversial argument laid out in Uncharitable: How Restraints on Nonprofits Undermine Their Potential. He wants charities to cease being non-profits and get in the business of making money, paid advertisements and high executive salaries, and fundraising that takes risks and investment in the long term rather than only in immediate relief. Luckily, conventional wisdom may be wrong; Uncharitable is a well organized, deliberately reasoned, and deeply convincing work, backed by strong and important economic arguments for such a system. Moreover, Pallotta succeeds by transcending economics to address a broad range of objections with historical, psychological, and ethical analyses.
Economically, Pallotta’s argument is simple and appealing, though perhaps somewhat high-strung (the problem is serious, but calling it an “economic apartheid” may be going a bit far). Pallotta explains that capitalist tools such as advertising, appropriate compensation, and long-term investment are the keys to traditional companies’ successes. Naturally, charities would also benefit from these tools, but because they are prohibited from turning a profit, they are essentially constantly forced to give as much of their money to the cause as they can. This prevents charities from growing, experimenting, and innovating, and since they are essentially competing with for-profit companies for people’s money, they are put at a huge disadvantage.
A problem of prudishness
Ethically, however, the situation can still appear to be an unholy trade-off. We may end up helping more people when using capitalist tools, but how can we justify profiting from suffering? The great success of this book is how Pallotta identifies and transcends this supposed conflict and shows that doing good and doing well do not have to be mutually exclusive.
He begins by identifying the origin of the idea that charity must involve self-sacrifice: Puritanism. Calvinist Puritans encouraged hard work and economic prosperity but believed wealth to be corruptive. This paradoxical view of affluence resulted in a system where one was required to give one’s wealth to charity as penance, causing altruism and sacrifice became conflated. While his explanation is appealing it is also rather ambitious; one would be hard-pressed to find any cultural supports for the conflation of altruism and personal gain. In fact, the varied religious tenets against usury suggest that our instinctive guilt arises not from some vestigial Puritanism but from an aversion to exploitation that is part of a deeper moral sensibility.
A new kind of charity
Nevertheless, the point Pallotta makes is groundbreaking: he suggests a wedding of capitalism and altruism. Going forward, society should treat giving to charity like purchasing any other good. He believes that if charities can compete with non-charities on even ground, then they will surely find a healthy demand. Altruism itself is self-interested because people like to help others. He argues that left to our own devices, without guilt or religion or obligation commanding us, we can still be trusted to be good people. It is a hopeful, affirming point that has implications beyond the corporate structure of non-profits.
Pallotta has an impressive grasp of the character of the problem. He is fighting against an instinctive, deeply rooted notion, and does so by drawing on human psychology, and simple economic logic. At the end of the day, people who give to charities want to do good for other, and the tools of capitalism will allow charities to do good better. Therefore, society ought to consider setting charities free from the constraints of self-sacrifice and short-term efficiency, allowing them to do more with our self-interest in helping others. The key to liberating charities from their shackles lies in the hearts, minds and pocketbooks of society, which gives some idea of the sheer size of the challenge posed. Changes of government policy are not enough. Pallotta believes that charities can change the world, but those agreeing with him will have nearly as much work to do to get there.