The Transformation of Philanthropy: Causes, Processes, and … · 2016. 8. 29. · Beneficence...

www.thephilanthropicenterprise.org No. 10 (2015)Beneficence

Paradigm Shifts—How They Work,and How to Work With ThemPhilanthropy is undergoing a classic paradigmshift—a particular kind of historical change,which has a usefully intelligible character anddirection. The generic phenomenon was iden-tified by Thomas Kuhn, in The Structure of Sci-entific Revolutions (Chicago, 1962), and wasreadily applied in other fields of historicalscholarship, especially to describe revolutionarychange. More broadly applied, it refers to thetotal transformation of a mature field of humanendeavor—“mature” in the sense of fully andcoherently organized in its conceptualization,methodology, technology, and demographics,and fitting into its broader historical milieu, in-cluding technology, economy, societal infra-structure, cultural norms, and institutions.

Though powerful in historical scholarship,the concept is not much used in practical sit-uations such as ours today in philanthropy.We know that changes and innovations arehappening all around us, but unless we havethis conceptual tool and model of paradigmshift in mind, the turbulence seems simply

disorderly and chaotic, and its results impos-sible to predict. Kuhn himself thought it wasimpossible to predict what a New Paradigmwould be until it was established and gov-erning its field, because decisive innovationscould happen very late in the game, even atthe last minute. I agreed with that until veryrecently; I now believe that in some cases dis-cernible outlines of a new paradigm canemerge gradually, so that the end becomes ap-proximately foreseeable. We are now at thatmoment in philanthropy.

The first notice that we might be entering aparadigm shift appeared in the 1999 Cata-logue for Philanthropy. In 2000 I publicized itto the profession in two articles of FoundationNews, asking “Are We Entering a ParadigmShift?” and “Are Foundations Being Margin-alized?” It was already clear that the techno-logical revolution of computers and theInternet was transforming everything theytouched, and that philanthropy’s economywas being transformed by the huge newwealth in younger hands created by that tech-nology and the globalization of commerce.

The Transformation of Philanthropy:Causes, Processes, and Foreseeable Results

George McCullyPresident, Catalogue for Philanthropy

Beneficence Newsletter-Fall 2015_Layout 1 11/19/15 11:23 AM

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The Transformation of Philanthropy:Causes, Processes, and Foreseeable Results —continued

Old Paradigm —20th CenturyTechnology:• Telephone• Snail-mail• Printing on paper

Economy:• National, post-World War II manufacturing, stable, steady-growth, large national

corporations, local-community oriented

Institutions:• Large private foundations lead and professionalize the field• Community foundations multiply• Large national corporate charities, some federated, industrialize fundraising by direct mail

and telemarketing• National professional associations created for grant-makers, fundraisers, and charities,

dividing philanthropic community into separate constituencies• IRS-based data conflates and confuses charities with “nonprofits”—hugely inflates numbers• National Taxonomy of Exempt Entities (NTEE) sorts into smaller interest groups named

idiosyncratically, not logically or systematically

People:• Professionalization makes philanthropy highly technical, dominated by social science-

trained professionals and technical, procedural lingo

Practices:• Industrialized mass fundraising by telemarketing and direct mail• Donors not represented by national institution. Independent Sector formed to represent

everybody, but actually composed of national foundations• Grant seeking and fundraising become sales transactions, increasingly competitive and

adversarial, pitting fundraisers against grant makers and donors

Culture:• Social scientific; social engineering, purporting to attack roots of problems; vocabulary is technical• The word and concept of “philanthropy” falls into disuse

Rhetoric:• Inadvertently negative and moralistic: "Giving back," "Giving away," through “nonprofits,”

or “tax-exempt entities” in the “third sector” to the “disadvantaged” and “needy”• Generosity = how much one gives

Results:• Giving = < 2% Gross Domestic Product and Adjusted Gross Income• Only 25% of taxpayers itemize charitable deductions• Less than 20% of estates over $650,000 make charitable bequests• 5% of largest charities get 80% grant dollars

The paradigm-shift depicted above is in progress. The “New Paradigm” column is, therefore, a projection—not just ofcertainties, but also of what seem to be probabilities. This chart’s purpose is to encourage and assist future planning.

George McCully – Catalogue for Philanthropy - © 2015 [For more information: [email protected]]


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NEW Paradigm —21ST CenturyTechnology:• Information and communications revolution with computers and Internet• Global, universally accessible, instantaneous telecommunications• All charities become visible and accessible by everyone• Multimedia, hand-held devices, social networks, crowd-fundraising• Widgets enable frictionless, instantaneous one-click grants and donations• Unlimited, low-cost databases and spreadsheets enable “Big Data”Economy:• Global, high-technology, service economy• Rapidly expansive, innovative, generating huge new wealth• Old companies merging to take advantage of global markets• Corporations less local-community orientedInstitutions:• New mega-foundations with new styles bring new leadership• Donor-advised funds rapidly grow and multiply• Innovations abound; Internet speeds up communications and eliminates geographic

impediments, reducing need for national top-down associations and conventions, and creating new online professional networks (e.g. Facebook, LinkedIn)

• Decentralized virtual philanthropic communities emerge in cyberspace• Internet promotes systematization—e.g., of data systems, taxonomy of fields, searches

for and direct access to all charities• Leading national donor-advised funds (NDAFs) develop virtually complete, donor-

based charities datasets, systematically taxonomized for donor education, liberating philanthropy from IRS-based conflation and confusion with “nonprofits”

• NDAF donor datasets enable new depth and breadth in statistical analyses of donor behaviorPeople:• New wealth-creators emerge as risk-taking donor-investors and explore unconventional

modes of giving and volunteering• Major donors are younger, systematic, data-driven quantifiers. They reject the negative

vocabulary, conceptualization, and rhetoric of the Old Paradigm• Want constructively to improve the human condition, more like the classical concept of

philanthropyPractices:• Promoting increased giving and philanthropy itself• Donor education; venture philanthropy; giving circles; e-philanthropy• Social network systems; collaborations in and among constituencies and sectors• Professional community broadens to include philanthropic advisors, scholars, and mediaCulture:• Humanistic and social-scientific self-development for both donors and beneficiaries;

social scientific tools for explicitly humanistic ends• Use of the word and concept of “philanthropy” is revived• Classical humanistic culture of philanthropy seen as quintessentially American—

informed building Colonial society, the Revolution, the Constitution, anti-slavery, and women’s suffrage movements

Rhetoric:• Constructive appeal; “Donor-Investors,” “Making a difference,” quantifiable impacts,

“social change,” and “charities”• Generosity = relation of giving to wealthResults• Too soon to tell—combined factors above will drive significant increase




The tipping point for my thinking was datagleaned from studies of the new, young,wealth-creating mega-donors, reporting thatthey were uniformly rejecting the traditionalrhetoric and conceptualization of “givingback,” “giving away,” to “nonprofits,” in the“third sector,” etc. They found this too nega-tive and academic, and instead were think-ing in positive personal terms based on theirexperience in venture capitalism and start-ups, about “investing” in “changing theworld,” “making a difference,” and “venturephilanthropy.” When the technology, econ-omy, demographics, vocabulary, and cultureof a field are changing simultaneously, almostcertainly a paradigm shift is happening.

Encouraged by the suggestion that all of phi-lanthropy would be in flux and thus up forreconsideration, the Catalogue for Philan-thropy immediately began to innovate freelyin developing our own ideal systems of“donor education to increase charitable giv-ing.” By 2008, mounting evidence of the shiftwas undeniable, so we published a bookabout it: Philanthropy Reconsidered. From thatpoint on, we were consciously thinkingabout what might be the best way to organ-ize American philanthropy for maximal pro-ductivity in charitable giving.

The chart on the previous pages depicts theparadigm shift in philanthropy as it currentlyappears.

First, notice its structure. The various factorsin each vertical column are interconnected,in a coherent system of mutually reinforcingand coordinated parts, comprising a para-digm, or the governing model, of philan-thropy—how it used to work. The horizontalrows suggest the transformation from the Old(OP) to the New Paradigm (NP) that is oc-curring in each factor area. Since the shift isstill in progress, much of the right-hand col-umn is hypothetical—not yet fully estab-lished. Only a few of its elements already existand seem likely to persist and interconnect;others are foreseeable but their vertical con-

nections are not yet solid facts. The secondcolumn is only an outline of what the NPmight be; its final features are as yet indefinite.

Second, this means that the process by whichthe New Paradigm takes shape works in twoways: a sorting-out in practice of the many in-novations that are created under the pres-sures and stimuli of change all around,discarding those that turn out to beephemeral, and leaving those that gain trac-tion and persist; and a connecting of the sur-vivors into the cohesive over-all verticalstructure of mutually-reinforcing parts thatwill constitute the New Paradigm.

The process is not neat. Some elements of theOld Paradigm will last longer than others,and may even survive the turmoil with someadaptation; many will go extinct because theyfail to adapt and their characteristic featuresare incompatible with the New Paradigm.Some innovations will turn out to be tempo-rary, perhaps with early success that does notlast because they either cling to Old Para-digm elements that are dying, or fail to con-nect with other New Paradigm candidates.Finally, some innovations will succeed andflourish, connecting effectively with others.An innovation is more likely to succeed andconnect if it is more fundamental to the suc-cess of the field itself and of the New Para-digm—in this case, of philanthropy as it isemerging from the transition. Superficial in-novations are either flashes in the pan or pos-sible successors as minor features adheringto parts of the New Paradigm.

This analytical tool also makes possible someinfluence on the transformation process andin navigating through it. If the name of thegame is paradigm shift, then the challenge isto find, among the myriad innovations thatare occurring all around, those most likely togain traction, succeed, and endure, knowingthat many and perhaps most will not; thento ally with the likely winners, and to disso-ciate from the probable losers. It is importantto realize that paradigm shifts are serious


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business—they have winners and losers, andtheir innovations are both constructive anddestructive. Thus we should ask which arethe dinosaurs, stuck in the mud of the OldParadigm? Which are the smaller furry mam-mals, scurrying around under and aroundthe dinosaurs, creating their own new ecosys-tem? Which are the dead-end aberrations?What new practices should we adopt, andwith what new players should we collaboratesymbiotically, to increase our own probabili-ties of success under the new regime? Sur-vival will depend on the right combinationof prudence, opportunism, and creativity, re-alizing that it is probably not wise just to sitstill and hope for the best.

Third, this chart is about American philan-thropy as a whole, but its methodology canalso be applied to specific parts, fields, loca-tions, or microsystems therein. One mightcompose a similar chart for one’s own organ-ization in its own philanthropic neighbor-hood or market. What is the Old Paradigmin this region? Which of its elements areprobable dinosaurs? What innovations arebeing introduced, and which of those seemmost promising to succeed and flourish?How should we relate to them for our mu-tual best interests? Collaboration is a betterstrategy than competition; philanthropistsare all on the same team, for greater good.

Finally, notice how meager were the “Results”of the Old Paradigm in charitable giving,which remained static at less than 2 percentof GDP and personal income for the entirelast half of the twentieth century, eventhough the techniques of fundraising weresteadily improving and being perfected(within the constraints of that paradigm).Was this the best that we in philanthropy cando? No, because the Old Paradigm was fun-damentally flawed.

The New ParadigmIn 2012 we found what we believe might bethe revolutionary keystone of a New Para-digm. But first, some caveats: The historical

transformation from the Old to the New Par-adigm, which began in the 1990s, will takesome unpredictable length of time to com-plete, dependent as it is on human behaviorand unforeseeable innovations. For the samereasons, various parts or factors of the transi-tion will also take various and unpredictabletimes for fulfillment. The chart can only iden-tify salient features of each paradigm, andhow they can be classified in factor groupsthat suggest transitions within each group,from Old to New—e.g., technology, econ-omy, demographics, etc. Factors in the vari-ous groups can exert influences on factors inother groups, of course, which further com-plicates the timing of transitions. Nor is thepace of change consistently related to the ob-viousness of practical advantages to begained. Some changes, which may seem tobe obvious “no-brainers,” will nonethelessdevelop or be adopted slowly, owing to theirties with the past. Connecting them all willalso take unpredictable time. The bottom lineis that over all, though this revolutionary andtotal transformation is inexorable, its detailsnow predicted will remain uncertain untilthey are actually established.

Some of these changes are conceptually sim-ple and obvious. The technological revolu-tion of computers and the Internet is clearlythe engine driving this paradigm shift, but itis a revolution still unfolding, with surpris-ing innovations at a seemingly acceleratingpace; whether and where it will settle downto an established New Paradigm, with newnorms of operation, is an open question. It isnot unlikely—and we should think aboutthis—that continuing and accelerating techno-logical transformations may be a constant con-dition in future philanthropy.

At the other extreme of speed is the replace-ment of obviously flawed and fallacious OldParadigm technical equipment by clearly ad-vantageous innovations. The confusion andconflation of “philanthropy” with the IRSrubric of “nonprofits” was always factually in-correct—hence unwise, misleading, and use-




less—but the dataset from which it was de-rived had no competition and was so un-manageably large—over a millionorganizations nationwide, especially usingOld Paradigm technology of typewriters andpaper printing—that there was never muchpoint in examining it either as a whole or indetail. Today, armed with an etymologicallyand historically accurate and clear definitionof “philanthropy,” and with computers,spreadsheets, and the Internet, the Old Par-adigm fallacies have become embarrassinglyvisible and indefensible. State-by-state MasterNonprofit Data Files are now downloadable,so the evidence is easily available and con-clusive. The problem now is that the largestand mainstay institutions of philanthropy arelocked into the obsolete conceptualizationand dataset, so they have fundamental re-thinking to do—never easy.

The Catalogue, not burdened by tradition andwith strong reason to start afresh, downloadedand examined the Massachusett’s dataset of42,000 organizations, and we found that onlyabout 4,000 were truly philanthropic—“pri-vate initiatives for public good,” and reportingany revenue from grants and donations. Thisratio of 1:10, projected nationwide, meansthat there are only 200,000-300,000 philan-thropies in the United States—far fewer thanthe 2.2 million “nonprofits.” This 1:10 projec-tion is independently confirmed—nationally,by donor-based charities datasets comfortablywithin the 200,000-300,000 range, generatedby millions of gift and grant decisions since1991 by nationwide donor-advised funds(NDAFs—Fidelity, Schwab, and Vanguard);and at state levels by state portions of theNDAFs and statewide community foundationdatasets; as well as by the rapidly growingdonor-based datasets of online giving plat-forms (e.g., Network for Good), and even byusers of GuideStar (not its managers, who stilltalk about 2.2 million “nonprofits” for whichthey claim to keep useful data). Both scholarsand practitioners are increasingly movingaway from the synonymy of “philanthropy”with “nonprofits.” It is doomed.

Another obvious candidate for extinction isthe NTEE (National Taxonomy of ExemptEntities) of “nonprofit” (including philan-thropic) fields, which is intellectually an un-systematic and linguistic mess that noamount of tinkering will save. Because com-puterization promotes systematization, it willinevitably be replaced by a clear, systematicarrangement of fields with ordinary Englishnames—e.g., “Nature,” “Culture,” and “Peo-ple.” The Catalogue began to create its ownalternative taxonomy in 1997, when wefound the NTEE useless for either data man-agement or donor education. In 2011 weconnected our taxonomy with our newlycleansed charities dataset for Massachusetts,to create the Massachusetts Philanthropic Di-rectory system for donor education. It is beingawarded a U.S. patent, to help protect itsquality from inferior knock-offs. We are nowbroadening its usage through collaborationwith other states and institutions nationwide.

With this alternative, which we are happy toshare, NDAFs and statewide community foun-dations could do the conversion either bythemselves or with our help, to vastly improvetheir internal data management and donor ed-ucation programs. NDAFs especially have ahuge opportunity to share their data with thepublic for marketing advantages, and collabo-ratively as a philanthropic public service. Theyare growing at five to six times the rate of therest of philanthropy—the top three are alreadyin the top five of public charities nationally inannual revenues. Their increasing conspicu-ousness at that level will evoke increasing pub-lic pressure to share their datasets of charitiesand (for statistical purposes only) donors.Statewide community foundations with muchsmaller datasets can advance more rapidly tocreate state-based systems of donor educationto increase charitable giving. This would alsostrengthen their competitive position vis-a-visthe NDAFs in attracting donor-advised funds.The superiority of the new system from thesevarious directions will be clear, so earlyadopters will have the leadership advantage,precipitating falling-domino effects.


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This process will create the cornerstone of theNew Paradigm. When these charities datasetsare combined, which with so many changeagents seems inevitable, knowledge about phi-lanthropy will become donor-based and sys-tematically taxonomized for donor education,action, research, and statistical analyses. At thatpoint philanthropic data will be permanentlyliberated from the NTEE and the IRS-basedconfusion and conflation with “nonprofits”—clearly a revolution, with a catalytic effect: theNew Paradigm will quickly coalesce into a newinfrastructure for philanthropy.

When that happens, all charities—even thesmallest, in the smallest and most reconditefields, in the most remote locations—will beeasily searchable, visible, and directly acces-sible online by everyone. There will be aknowledge explosion in philanthropy, ascharities and donor behavior will be illumi-nated in far greater detail, from far largernumbers of each, than ever before. The OldParadigm knowledge and understanding ofphilanthropy will fade away.

Technology is also transforming the transac-tions of charitable giving. By 2014, widgetsand links had been created for holders ofdonor-advised funds to make grants elec-tronically, even on hand-held devices. Char-ities can also register with the hosts of thefunds so that the instant a grant is made, thedollars are transmitted electronically directlyfrom the donor-advised fund—or eventually,no doubt, a personal bank account—into thebank account of the charity. In other words,instantaneous, frictionless, nearly effortlessgrantmaking and giving is now a reality andneeds only to be extended for universal par-ticipation. Giving will certainly and signifi-cantly increase, and fundraising will open upnew opportunities.

The institutional infrastructure of professionalphilanthropy is also being transformed bytechnology. Under the Old Paradigm, nationalprofessional associations were created by thelargest foundations to professionalize philan-

thropy—to train, certify, and facilitate com-munication within each constituency: grant-makers (generally; then community,corporate, family, and small foundations);fundraisers; philanthropic advisors; “non-profit” executives; and scholars. Today thoseservices are no longer needed from nationalorganizations; their constituencies have beenprofessionalized, communications and train-ing are ubiquitous online, professional groupsform, multiply, and diversify spontaneously inonline social networks, all at extremely lowcost and responding to felt needs. As a result,costly memberships in national membershiporganizations have declined and their fiscaldeficits have increased; they are all engaged instrategic planning and re-tooling to justifytheir existence and establish new revenuestreams. Many have chosen to offer onlinetraining workshops, webinars, etc.—alreadyan overcrowded competitive arena. Wherethis will end is unknown, but the prolifera-tion of novel programs is evidence of systemicdecline, not growth.

Two national professional associations, how-ever, might survive and even flourish.

The clearest example is NTEN—the NonprofitTechnology Enterprise Network. Founded in2000 as an association of techies in (mainly)philanthropy, to defend, keep abreast of, andpromote their rapidly growing field, theirmembership has exploded, paralleling tech-nology’s own transformation of philanthropyin the paradigm shift. NTEN now has 9,000dues-paying institutional and individual mem-bers, and 50,000 participants in its variousprograms, both nationwide and abroad. Theywill certainly be one of the cornerstones of theNew Paradigm infrastructure, but even theyhave some adapting to do, perhaps startingwith changing their Old Paradigm name.

Another possible survivor is Independent Sec-tor (IS), founded in the early 1980s to bringtogether the philanthropic community as awhole, including donors, in response to thefragmentation of the profession into silos by



NOTE1 George McCully, Philanthropy Reconsidered—Private Initiatives, Public Good, Quality of Life(A Catalogue for Philanthropy Publication, Bloomington, IN: AuthorHouse, 2008). See also thereview of Olivier Zunz’ Philanthropy in America: A History (Princeton, 2011) in Beneficence 1,no. 2 (Spring 2012).


their separate associations. Because the NewParadigm will probably work back the otherway, toward consolidation and building phil-anthropic community to promote a culture ofphilanthropy in America, IS could, with pru-dence and opportunism, provide a natural in-stitutional nucleus of that strategic direction.This would require strategic leadership andsubstantial adaptation in the paradigm shift,and it is not clear that IS is so inclined.

ConclusionBuilding a national culture of philanthropyin America is a top priority for the New Par-adigm. The Old Paradigm could not, andthus did not, develop a culture around theIRS-related concept of “nonprofits.” Thus ithad almost no cultural influence on its envi-ronment. Its academic, social-scientific, fac-tually spurious, and inadvertently negativelanguage (“non-profit,” “tax-exempt,” “thirdsector,” the NTEE, “giving back,” “givingaway,” etc.) produced uninspired low resultsin charitable giving, professional fragmenta-tion, and intellectual weakness and disorder.The New Paradigm is rediscovering the longhumanistic tradition of “philanthropy” andits values—“love (cultivation) of humaneness

among both benefactors and beneficiaries,through identification and exercise of valuesthrough giving and volunteering, in privateinitiatives for public good.

The Catalogue for Philanthropy’s discovery inthe late 1990s that charitable giving couldeasily be increased through donor-educa-tion—not mere advertising, but increasingand promoting public knowledge and un-derstanding of philanthropy—was entirelyconsistent with the Classical concept of phil-anthropía—historically a synonym for hu-manistic education and culture. If the NewParadigm succeeds in reviving this Classicalview of philanthropy and illuminating itsformative influence as a quintessential Amer-ican value on our Founders, the AmericanRevolution, and our Constitution,1 the NewParadigm can powerfully enrich Americanculture in general, with positive ramificationsfar beyond the increase of charitable giving.This could include a revival of liberal educa-tion and a re-invigoration of State Humani-ties Councils as promoters ofphilanthropy—strengthening both. All of thiscould help create an American Renaissance.


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