Why Can't We Sell Charity Like We Sell Perfume? Dan Pallotta - WSJ.com
go to original September 18, 2012

Want to pay someone a half-million dollars to try to find a cure for pediatric leukemia? You're considered a parasite. (Getty Images)

In his 1630 sermon "A Model of Christian Charity," Gov. John Winthrop of the Massachusetts Bay Colony warned his Puritan followers about the perils of pursuing worldly riches. By turning to "pleasure and profit," he wrote, "we shall surely perish." Gov. Winthrop himself would have been well acquainted with those perils: At the same time, he and his business partner were busy calculating how much they might earn by trading in a range of goods, from hemp to iron.

The early Puritan settlers in the New World were pulled in opposite directions by competing value systems. They were extremely aggressive capitalists, but they were also strict Calvinists, taught that self-interest was a sure path to eternal damnation. How could they negotiate this psychological tension? Charity became a big part of the answer - an economic sanctuary in which they could do penance for their profit-making tendencies, at five cents on the dollar.

Today, Americans are the world's most generous contributors to philanthropic causes. Each year, we give about 2% of our GDP to nonprofit organizations, nearly twice as much as the U.K., the next closest nation, according to the Chronicle of Philanthropy. Some 65% of all American households with an income of less than $100,000 donate to some type of charity, according to the Center on Philanthropy at Indiana University, as does nearly every household with an income greater than $100,000. These contributions average out to about $732 a year for every man, woman and child in America.

Yet we cling to a puritan approach to how those donations are spent: Self-deprivation is our strategy for social change. The dysfunction at the heart of our approach is neatly captured by our narrow, negative label for the charitable sector: "not-for-profit."

It's time to change how society thinks about charity and social reform. The donating public is obsessed with restrictions - nonprofits shouldn't pay executives too much, or spend a lot on overhead or take risks with donated dollars. It should be asking whether these organizations have what they need to actually solve problems. The conventional wisdom is that low costs serve the higher good. But this view is killing the ability of nonprofits to make progress against our most pressing problems. Long-term solutions require investment in things that don't show results in the short term.

We have two separate rule books: one for charity and one for the rest of the economic world. The result is discrimination against charities in five critical areas.

First, we allow the for-profit sector to pay people competitive wages based on the value they produce. But we have a visceral reaction to the idea of anyone making very much money helping other people. Want to pay someone $5 million to develop a blockbuster videogame filled with violence? Go for it. Want to pay someone a half-million dollars to try to find a cure for pediatric leukemia? You're considered a parasite.

Two years ago, a group of senators raised questions about the compensation of the CEO of the Boys & Girls Clubs of America, which totaled $998,591 for 2008, nearly half of which consisted of catch-up obligations for her retirement. The critics ignored the fact that over the previous eight years, the CEO had tripled the Clubs' network-wide revenue to $1.5 billion. Would the Clubs have been better off hiring a less talented CEO for $100,000 and leaving revenue stagnant, at a loss of $1 billion?

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