Shelagh Gastrow: South Africa and philanthropic freedom
Philanthropic funding is only a small percentage of that required for real human development. The advantage of leverage, innovation and pilot projects to try new things is the real strength of philanthropy.
Philanthropy is usually defined as action for the “love of humankind” and currently there are a range of activities that now fall under the rubric of philanthropy. These can range from charity, gifting, social entrepreneurship, impact investing, development finance; diaspora remittances and corporate social investment. However, for the sake of argument, this article will focus on the activities of private philanthropic foundations, charitable trusts and individuals who give money to various causes.
Philanthropic foundations play a key role in civil society and are part of the continuum of activism. While it is accepted that it is citizens themselves that change societies, interventions made through philanthropy in partnership with those citizens, organisations and institutions can create leverage for change. However, levels of philanthropic freedom in various countries differ and according to a report entitled The Index of Philanthropic Freedom prepared for the Worldwide Initiatives for Grantmaker Support (WINGS), an organisation that brings philanthropic networks together, South Africa is ranked 29th out of 64 countries reviewed in 2016.
The key elements that formed part of the review included government regulations on civil society organisations; tax regulations; cross border flows of funding and socio-cultural views relating to philanthropy. A further interesting document on philanthropic freedom was a statement of principles produced by the American Legislative Exchange Council which indicated that a “free and vibrant civil society, which includes foundations and charities, is quintessentially American and is well worth protecting”.
It calls on US legislatures to preserve the contributions made by such foundations and charities; to safeguard the freedom of foundations to carry out their objectives; and to maintain “common sense” laws and regulations that would penalise wrongdoers, but “without trapping the innocent or wasting valuable charitable assets”.
The notion of philanthropic freedom recognises that private philanthropy can take risks that government and the corporate sector are unable or unwilling to take. As a result, many innovations that can respond to some of society’s key challenges are funded by philanthropy and it is important that legislation and socio-cultural attitudes to philanthropy recognise and protect its independence. For example, last week the University of Washington’s Institute for Protein Design received a $11.3-million grant from the Open Philanthropy Project to develop a universal influenza vaccine. The polio vaccine itself was developed with philanthropic funds.
Private philanthropy in South Africa continues to grow and there is no real hindrance to the registration of private philanthropic foundations as non-profit companies or trusts. However, public benefit status (i.e. tax exemption) is more tightly controlled and currently there are no tax benefits if the philanthropist wants to transfer a lump sum to a newly established foundation to ensure its survival in perpetuity. This reduces philanthropic freedom in that many people will seek some tax benefit and will rather choose to make annual donations that enable tax relief through Section 18A of the Income Tax Act.
These donations have to be spent within two years and fly against the concept of endowment building whereby a principal sum is given to the foundation and grants or donations are made from the income of the invested sum. South African tax legislation therefore encourages a form of charitable giving rather than the creation of long term sustainable philanthropic institutions.
As philanthropic foundations are registered as trusts or non-profit companies and are tax exempt, they fall within the realm of civil society and therefore the legislation pertaining to civil society affects their activities. According to the Index on Philanthropic Freedom, the establishment of organisations including foundations falls under Clause 18 of the South African constitution which relates to freedom of association. This is a critical democratic right as it enables people to form organisations to represent their interests and to undertake the objectives of the group.
In addition to the right of free association, South African civil society organisations are generally independent of government, other than their tax reporting requirements. Registration as a non-profit organisation with the Department of Social Development is voluntary and many foundations are not registered as NPOs. The key registration for a philanthropic entity is as a Public Benefit Organisation with the South African Revenue Services. However, an organisation can lose its tax exempt status if the SA Revenue Services find that income has been generated from activities not in line with the founding document.
While government representatives have been known to be critical of civil society organisations and their funders, especially those that fall within the social justice space and call government to account, there is very little possibility of government shutting down organisations under the South African constitution and our current legislation. To its credit and despite massive pressure during 2017, the South African government took no overt action against the many organisations and pressure groups involved in frequent demonstrations, including investigative journalism organisations, nor their funders.
Philanthropic freedom is affected by people’s attitudes to philanthropy. In South Africa there has been debate about the role of large foundations, particularly international foundations that have supported organisations critical of government. In addition, there have been other critiques of philanthropy and its lack of accountability and often secrecy. The latter are global issues and relate to the fact that philanthropic money is private money. It does not belong to taxpayers or shareholders. Living donors also find that publicity can result in a deluge of requests for funding and often a complete invasion of their and their family’s privacy.
In a recent article, William Gumede, Executive Chair of the Democracy Works Foundation, pointed out that, in his view, local philanthropy was not adequately focused on social justice issues or reducing inequality. This critique is correct in that most private philanthropic funding in the current context does not have a socio-political focus.
In fact, most of the funding goes to education which is, in essence, a social justice matter. However, the underlying issue is freedom of choice. If an individual wishes to save the rhino or support animal welfare, that is their prerogative. Diversity within philanthropy is as important as diversity is in our society. In addition, those working within philanthropic foundations cannot shift the focus away from the set objectives in the founding document. They may well re-interpret those objectives, but they cannot in good consciousness move way beyond the wishes of the founder.
If we are going to compare South Africa to other countries, we should explore philanthropic freedom in the BRICS bloc. The Index rates the others as follows : Brazil 33rd; China 52nd; Russia 50th and India 46th. In this respect, South Africa has a higher philanthropic freedom rating than its key partners. In China, for example, civil society organisations focussed on civil rights are prohibited. In addition organisations can be shut down through an administrative decision without recourse to a court of law. In Russia, organisations are closely monitored and civil action is risky for the individuals involved.
Philanthropy has a unique place in a democracy and it is open to critique. Governments and often the corporate sector can feel threatened as they have little control over independent funding. However, it is important to note that philanthropic funding is only a small percentage of that required for real human development. The advantage of leverage, innovation and pilot projects to try new things is the real strength of philanthropy.
The corporate sector and government with their massive resources need to come on board to take the innovations or systemic changes forward. However, when it comes to deep systemic shifts, people will change their societies, with or without the support of philanthropy. DM