Philanthropy and the State / Philanthropy in Sweden

A new social contract: Reconciling the welfare state and societal change through philanthropy

Editors’ Note: HistPhil‘s forum on philanthropy in Sweden closes with a contribution from Johanna Palmberg and Pontus Braunerhjelm. The two authors describe shifting intellectual currents in Sweden (and Europe more broadly) which are making it increasingly favorable for philanthropy and conclude by suggesting ways for philanthropic giving to play an increasingly greater role in European societies such as Sweden. 

Whereas welfare and capitalism are well-defined concepts with which most people can associate an image and purpose in society, philanthropy is more elusive. In this discussion, we define philanthropy as the art of putting wealth to work for the common good, or rather, the art of relocating private wealth into productive use in society.

Large parts of Continental Europe, specifically Nordic countries such as Sweden, are characterized by an egalitarian tradition where extensive and universal tax-funded welfare systems are an essential part of the societal contract between those in power and the public. Anglo-Saxon countries and particularly the U.S., on the other hand, are characterized by considerably smaller welfare regimes. Steeped in their political traditions, both Swedes and Americans have long tended to view their societies as quintessential models of democracies. For example, Swedish Social Democrats equate a robust welfare state with an egalitarian democracy, whereas leading Americans argue that a robust civil society—private actors providing for fellow citizens—strengthens democracy. Earlier contributors to HistPhil such as Olivier Zunz and Emma Saunders-Hastings note that Alexis de Tocqueville’s observations of U.S. life in Democracy in America (1835, 1840) reflect this US perspective.

However, the differences between these varying models of democratic societies are narrowing. In this piece, we offer an overview of the shifting intellectual currents making it favorable for philanthropy in Sweden. We also present and respond to Swedes’ (and more broadly, Europeans’) key criticisms of philanthropy. The discussion ends with recommendations for a successful model of philanthropy in Sweden and throughout Europe.

Over the last 15 years, European welfare societies have witnessed an increased interest in philanthropy as a complement to public financing. For example, according to interviews with Swedish bank representatives there has been a continuous increase in the number of philanthropic foundations since the millennium shift. This upward trend has been facilitated and propelled by public policy reforms that have facilitated donations but also extended the scope of foundations’ work to reach beyond research funding and to include cultural, social and religious causes.

Moreover, in a global economy characterized by increasing mobility of individuals, capital, and investments, the role of philanthropy is expected to increase. We identify four main explanations. First, over recent decades most European countries have experienced increasing private wealth accumulation. For example, in Sweden the numbers of billionaires (in Swedish krona) has increased from 35 to 184 over the last twenty years (Veckans Affärer, 2017). Second, the globalization process has generated an international tax environment that enables wealthy individuals to more freely locate their tax base. Holding companies may be registered and active in countries with low or zero capital taxes, and European Union (EU) citizens may choose their residence much more freely as compared to the situation before the EU was founded. Third, influences from the US, with many strong and successful role models such as the signatories of the Giving Pledge initiative, have created a much more positive view of philanthropy and illustrated how private giving can contribute to a more dynamic and entrepreneurial market economy. Finally, the European welfare state has gradually been challenged, and to some extent dismantled due to increasing demand for societal benefits, an elderly population and escalating migration.

Put differently, increasing private wealth accumulation in a global tax environment has generated financial capital available for philanthropy and, at the same time, a more positive view of private initiatives has emerged which also has influenced philanthropy positively in the traditional welfare states.

Notwithstanding an increasingly positive attitude toward philanthropy in European countries such as Sweden, some citizens still resist and question the value of private giving for several reasons. For example, some question philanthropy’s potential for threatening the general impartiality of wealth redistribution in society. They also worry that, in the process of inviting a greater role for philanthropy, the society might become dependent on private sources. Another objection put forth is that philanthropy can only be expected to have marginal (or no) impact on solving complex societal challenges. However, previous research seems to challenge that view, claiming that donations to scientific research and education have a positive impact on societal change (see for instance Taylor et al., (2014) for a discussion of how philanthropy can contribute to the development of societies). For example, it is argued that the US has earned its top position in fields such as, bio-tech, bio-med, and information, communication and technology (ICT) – sector, due to private donations when research was still in an early stage (Acs and Braunerhjelm, 2005). Another critique of philanthropy is that private donations might be short-sighted and erratic. However, philanthropy should be seen as one source of financing and a complement to public funding, not as a substitute. Its main contribution may well be to provide new solutions to old problems, not only to augment funding: Well into the future, then, government can still be expected to continue serving its role as principal funder for research and public goods in general. For example, philanthropy amounts to about two percent of GDP in the US (Giving USA, 2016).

The understanding that philanthropy can influence countries’ economic development has consequently gained wider acceptance in the Nordic countries. Swedish policymakers have extended the range of causes that private foundations can fund; and in Finland and Norway, there have been direct initiatives to match private donation with governmental funding (Braunerhjelm and Palmberg, 2017).

We argue that European countries would benefit from a strengthened philanthropic culture and a greater acceptance of philanthropy. Particularly appealing to a Nordic audience, advocates of philanthropy stress that private giving can help prevent wealth from becoming too concentrated (Acs, 2013). In this sense philanthropy aligns with the values of the traditional welfare state even as capitalism is legitimized: Markets are encouraged to maximize value (a capitalist goal) while some aspects of this generated wealth is distributed to less fortunate individuals and organizations (an egalitarian value shared by welfare states). Several aspects of philanthropy—from modifying the social contract and engaging individuals in complex problems affecting society to contributing with funding of urgent needs—have to be taken into account when considering philanthropy as a catalytic factor for innovations, entrepreneurship, economic development, and the promotion of societal values.

The question is whether European welfare states are ready to accept a societal norm that leaves more room for philanthropy. A first condition is for European politicians, emulating their colleagues in the U.S., to embrace and promote philanthropy. The US  Senate state in a Report on Finance (Treasury Department Report on Private Foundations, page 5) already in 1965 that philanthropy is “…..uniquely qualified to initiate thought and action, experiment with new and untried ventures, dissent from prevailing attitudes, and act quickly and flexibly.” No similar public statement has been issued in welfare economies such as Sweden. Furthermore, the U.S. government encourages philanthropy through generous tax rules, where donations to charity and philanthropic purposes are deductible. The rationale is not simply to promote monetary transfers to purposes such as culture, charity, education and science, but also because implicit in the American social contract, participation (with both monetary and non-monetary resources) in the civil sector is seen as an important part of a well-functioning society. Thus, both the social norm and the legal structure in the U.S. support philanthropic efforts. Some European countries have taken measures in the opposite direction: For example, Sweden recently abolished a modest tax deduction possibility for gifts by individuals. This illustrates the challenges involved in changing the current social contract in European welfare states to incorporate a U.S. model of philanthropy.

We reason, though, that such a shift can occur if philanthropy in the European (and thus too Swedish context) is shown to benefit the welfare state in two significant ways. First, philanthropists and their advocates should consider supporting educational and research institutions that promote opportunities for the individual, opportunities that also benefit society.

For example, philanthropists and their advocates should take note that the individual donor is invested in increasing the probability of improved standards of living and social mobility including attractive and secure environments. In the process of encouraging such opportunities for the individual, philanthropy will be benefiting the whole of society. After all, society tends to gain from better use of talented citizens, knowledge spill-overs and increased research. It also benefits from the increased opportunities for innovation and business creation sparked by this increased support for individual opportunities.

Second, philanthropy can also serve as an additional mechanism to distribute wealth made in the past and channel it to productive areas that strengthens opportunities for citizens. It can do so by recycling wealth and by re-investing it in common goods. To some extent, that is, philanthropy can mitigate significant income inequalities and thus contribute to a more just and prosperous society: a value that Nordic countries such as Sweden continue to maintain. Combining those insights with the revival in the belief in entrepreneurship and innovations as core factors in the development of advanced knowledge economies provides an excellent opportunity for philanthropists and their advocates in the Nordic countries to extend the social contract to include philanthropy.

-Johanna Palmberg and Pontus Braunerhjelm

Johanna Palmberg is Associate Professor in Economics and Senior Lecturer at Södertörn University, Stockholm. She is also Research Director at Swedish Entrepreneurship Forum. Palmberg earned her Ph. D. in Economica at Jönköping International Business School in 2010. Her research is about entrepreneurship and innovation, family firms and corporate governance, social entrepreneurship, social innovations and philanthropy. Pontus Braunerhjelm earned his Ph. D. at the Graduate Institute of International Studies, Geneva, Switzerland in 1994, followed by an ek.dr. at Jönköping International Business School in 1999. He is a member of The Royal Swedish Academy of Engineering Sciences (IVA) and is currently serving at the boards of IVA, The Royal Swedish Theatre and Limina Solutions AB (chair). His previous positions include The Center for Business and Policy Studies (SNS), The Research Institute of Industrial Economics (IFN), Linköping University and Head of Department at Industrial Economics and Management (KTH). Pontus Braunerhjelm has been responsible for several high-level governmental commissions.Altogether he has about 200 published scientific publications. He has participated in a number governmental and international committees and projects.

References:

Acs, Z., (2013), Why Philanthropy Matters, Princeton University Press, Princeton: NJ US and Princeton University: Oxfordshire, UK.

Acs, Z., and Braunerhjelm, P., (2005), “The Entrepreneurship-Philanthropy Nexus: Implication for internationalization”, Management International Review, 45(3), 111-144.

Braunerhjelm P., and Palmberg, J., (2017), Creating impact through Philanthropy: A Nordic perspective, UBS and the Swedish Entrepreneurship Forum.

Taylor, M., Strom, R., and Renz, D., (2014), Handbook of Research on Entrepreneurs Engagement in Philanthropy: Perspectives, Edward Elgar Publishing, Cheltenham UK and Northampton, MA, USA.

Treasury Department Report on Private Foundations, (1965), Committee on Finance United States Senate, U.S. Government Printing Office 42-063 Washington, https://www.finance.senate.gov/imo/media/doc/SPrt101.pdf

Veckans Affärer, (2017), ”Hela listan: Sveriges alla miljardärer 2017”, https://www.va.se/nyheter/2017/12/12/sveriges-miljardarer-2017/

Web sources:

Giving USA, (2016), Giving USA Foundation, Indiana University Lilly Family School of Philanthropy. www.givingusa.org

Saunders-Hastings, Emma, “Is American Philanthropy Really Democratic in the Tocquevillian Sense,” HistPhil (July 15, 2015).

Zunz, Olivier, “Alexis de Tocqueville on Associations and Philanthropy,” HistPhil (July 13, 2015).

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