Ahead of a fundraising innovation workshop next week, I’ve been thinking again about the differences between philanthropic and capitalistic thinking for charities.

For the purposes of this rambling stream of thoughts about how charities can understanding ‘giving’ in a different way, here’s some definitions:

Philanthropy: private initiatives, for the public good.
Capitalism: private initiatives, for the private good.
(For completeness, Government is public initiatives for public good)

From a Charity (big ‘C’: organisation with charitable aims, rather than small ‘c’: being charitable) perspective, philanthropy is a one-way value exchange, meaning supporters pass value, mostly through financial donations to the charity but don’t receive any value in return. And capitalism is a two-way value exchange, meaning customers pass the value of their cash to an organisation or other person in return for receiving the value of goods or services.

Capitalism, as the dominate economic model in western society, has lots of history and theoretical models behind it to help us understand it and apply some of that thinking to charity fundraising, but first where did philanthropy come from?

Where does making charitable donations come from?

Financial donations to charitable organisations was fashionable among the middle classes in the 19th century, and through the twentieth century, with shift social classes and social mobility, making donations became something other classes did too.

This means that the making of charitable donations has always been very closely connected to social class.

The BBC class survey showed the class make up across the UK as:

  • 6% Elite – the wealthiest and most privileged group in the UK
  • 25% Established middle class – the most gregarious and the second wealthiest of all the class groups.
  • 6% Technical middle class – a small, distinctive and prosperous new class group.
  • 15% New affluent workers – this group is sociable, has lots of cultural interests and is in the middle of all the class groups in terms of wealth.
  • 14% Traditional working class – this class group scores low for economic, social and cultural factors, but they do have some financial security.
  • 19% Emergent service workers – this class group is financially insecure, scoring low for savings and house value, but high for social and cultural factors.
  • 15% Precariat – this is the poorest and most deprived class group.

Understanding social class is important in understanding charitable giving as class is made up of income, education, social networks, and social contacts, and all of these things that affect a persons ability and proclivity to donate.

Donating is a social act.

What makes people donate?

Reasons for donating to charity can fit into three broad categories:

  • Purely altruistic – motivated by supporting the good done by the charity.
  • Impurely altruistic – motivated by the expectation of getting some value from knowing they have contributed to the good for the charity.
  • Not altruistic – motivated by wanting to show friends and family that they are a ‘good’ person.

Charities assume, under the philanthropic model, that all charitable giving is ‘purely altruistic’. Capitalistic thinking might say that pure altruism is a myth and that a donor is always motivated to derive some value, even if it’s just feeling like a good person.

Supply and demand in charitable fundraising

Supply and demand
“In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted.”

The same thinking could be applied to the supply of fundraising products by charities against the demand from impurely-altruistic and not-altruistic supporters. In this context ‘price’ means the value derived by the customer.

Quantity of fundraising products in the market

If there are fewer causes to donate to (either perceived or actual), the value of those causes increases. The value here can be thought of in terms of greater awareness for supporters and so an increased propensity to donate.

The more ‘asks’ that are put in front of supporters, the lower the value of those asks. A flooded market is no good for charities or supporters as it drives down the value of each fundraising product.

Imagine a world with perfect social equality, no environmental damage, and no disease or life-threatening health conditions. The majority of charities would have no reason to exist. Those that managed to find a reason would operate within a high demand market, pushing up the value of their fundraising offer.

Value of fundraising products in the market

This is where social contracts/act of donating comes in. If making a donation meets the needs of affirming a donors values, triggers empathy and connection, allows to let people know they’re doing a good thing, etc., then it has a higher value in the market than an ‘ask’ that doesn’t deliver these benefits.

Would you rather donate £10 anonymously to provide massages for stressed businessmen in Tokyo or to provide nurses for sick children in your local town and be able to post about it on Facebook? Option A doesn’t meet the social contract of donating and so has low market value, whereas option B has a higher market value as it includes aspects of the social contract.

The right number of asks giving the right value return equals equilibrium and so optimisation for the fundraising offer.

However, it often seems that charities, working under the philanthropic model, do a lot of work in trying to get the ‘ask’ right; creating new campaigns, testing images, optimising donation forms of web pages, etc., but do very little about delivering value to the donor. Made a donation? Here, have a thank you letter. Not a great value exchange, if you think about it from a capitalist point-of-view.

So, charity fundraising as an industry, charities, and those who work in fundraising, need to shift away from the idea of philanthropy as one-way value from donor to charity, to capitalism as a two-way value exchange between donor and charity. Once this kind of thinking is embedded, then they can start asking the question: what do donors really want in return for their donation.