The pitfalls of Philanthropy

February 12, 2004

I believe that philanthropy is one of the largest causes of human suffering in the past 100 years. In this piece I would like to explain why I think that is and at the same time show what I think is the real only solution out of most of these problems.

Please bear in mind I am a computer programmer by trade and an absolute amateur when it comes to economics, philosophy and serious study of history. I am however an avid amateur historian and I spent a good many years of my early life in the Social Democratic Youth in Denmark, where I earlier have argued for just about all the things that I now argue against. I have read more by Socialist philosphers than I have of Libertarian philosophers, which might show. So bear with me.

First lets examine philanthropy the core belief forming the foundation of most
political ideologies:

“\Phi*lan”thro*py\, n. [L. philanthropia, Gr. ?: cf. F. philanthropie.] Love to mankind; benevolence toward the whole human family; universal good will; desire and readiness to do good to all men; — opposed to misanthropy. —Jer. Taylor.” Webster’s Revised Unabridged via dictionary.com

Basically you want the best for man kind, no one should suffer, everyone should be happy. It is an admirable quality to have in a person and an ideology. Of course even the most misanthropic ideologies such as communism and naziism have a theoretical core ideology based of philanthropism. I will later explain why this happens.

Survival

Lets now examine “survival” the most basic feature of human nature, which as we shall see is often percieved as the enemy of Philanthropy. Survival forms the core of just about all of our behaviour. Most of the time this is instinctive and we dont think about it. It is a core feature of evolution. The strong and the adaptive survive. The human race has come this far by adapting to survival.

It is well documented that human nature is optimized towards short term immediate threats and not long term threats. I am not a psychologist and am not sure why that is, but this explains a lot. For example why “How am I going to eat today” is generally given higher priority to “How am I going to eat in 20 years”.

Also there is a certain general prioritization in survival which can be probably placed like this:

1. Survival of my offspring
2. Survival of spouse (to protect offspring)
3. Survival of me
4. Survival of extended family
5. Survival of Tribe/Community
6. Survival of Nation
7. Survival of World

Obviously there are more levels inbetween. Also a person without offspring might move himself above “survival of spouse”

Plato’s Scholars

Which brings us back to ideologies. The direct flaw with most utopian ideologies is that they discount human nature.

This was discovered very early solutions promoted by amongst other Plato form the basic feature of most political ideologies today.

This platonic view of the world states that there is but one truth in the world and due to human ignorance of this matter, the truth must be managed by scholars who can uncover truth for the rest of us. Thus in Plato’s republic the republic is managed by these scholars for greater good of humanity. “Greater Good” is a theme that we shall see throughout history used by benevolent and malevolent rulers alike. We give up our own rights to decide which method of survival is best for us to a group of rational scholars.

One of the main assumptions of this philosphy is that these scholars are above human nature. Through their studies they have found a way to be enlightened in such a way that they perform all actions in such a way as it is for the “Greater Good”.

How do you know if you qualify as a Platonic scholar? Have you ever said “If I ruled the world ….” or “Why are people so stupid?”, you pretty much qualify. It is a basic quality of people who like to think.

Survival’s Distortion of Philanthropy

Now Pelle’s 1st law (I’m sure someone stated this before, but for handy reference) states:

“The survival of anyone regardless of education and idealism, comes ahead of the greater good.”

Thus the scholars will always look after their own interests ahead of the societies.

Pelle’s 2nd law takes this one step further and states:

“A philantropic act becomes an economic act for one or more parties in the philanthropic chain when said parties become (or appears to be) dependent on their role for survival”

I define a philanthropic chain as the distribution chain used in the process of the philanthropic act.

Eg. a philanthropist employs Carlos to distribute money to the poor in the village of San Miguelito. The only person in the chain who doesnt depend on the act for his survival is the philanthropist himself. It is in the best interest of Carlos, that the philanthropist keeps giving. Obviously this is true for the poor in San Miguelito as well. Now lets say that San Miguelito hits a boom period and there are no more poor. It is in Carlos’ best interest to persuade the philanthropist that there is still suffering and poor. Thus Carlos’ self interests come ahead of the interests of the poor and the philanthropist.

Democracy

How do we see this in government then. The most ideal pure form of democracy is where everyone in a society votes on everything. The New England town meeting is a wonderful example of this. This generally works best in small communities (such as level 5 and above on my survival scale above), but with new technology we will hopefully see a renessaince of this in the coming years.

Essentially the key to democracy is that everyone has a say in performing philanthropic acts towards the Greater Good. Thus scholars and non-scholars alike have a say.

Representative Democracy

When you have slightly large society, you introduce representatives in to the loop, forming the reprensentative democracy. Thus we have legislatures, presidents etc. According to Pelle’s 2nd law, when this job of representing us becomes a paid job, we now have a vulnerability in the system. The representatives that we voted in are now dependent on their position of representing us and by definition is representing themselves first and us second. Thus they can rule us to increase their own economic gain from the system.

Thus to survive the representative must persuade the voters to keep voting him in. What is the best way to keep being voted in? Introduce his voters into the system as dependents, thus we see wellfare societies and big government as popular options for this. If you can manage to create beneficiaries out of 50% of the voters or more, you have pretty much got your survival guaranteed.

Generally speaking you finance most of this by taking money from the minority to pay your dependents. Cynics might say in other words that your average representative democracy becomes a mass cleptocracy.

In reality it is a semantic mistake to call a representative democracy a democracy. As in most cases they can be more accurately described as oligarchies.

Autocracy

If you have enough physical force you can create an dictatorship, which in most cases become a cleptocracy ruled by you. A pure autocracy is entirely dependent on your control of the community it self. In most cases however an autocracy is only as strong as it’s network of dependencies that it builds up through its burocracy, thus there are enough people in the society whos survival depends on your survival, that they are willing to support you at whatever cost.

Totalitarian Rule

The totalitarian rule is a form of autocracy with strong Platonic foundations, where a small group of “scholars” rule the “mass” in all aspects of society for the greater good of mankind.

Some of these start off as idealistic philanthropic ventures and recruit supporters due to these idealistic roots. However due to Pelle’s 2nd. law the leaders and their aparatnik become so dependent on their roles that these philantropic roots are soon forgotten and become nothing more than empty slogans supporting their actions.

This if a totalitarian state has enough people depedent on the system and they are physically strong, they dont need the voters that a representative democracy needs.

In many ways the differences between the two are a grey area. Two of the most powerful totalitarian systems in the 20th century (Nazy Germany and the Soviet Union) where started as representative democracies.

Thus if a representative democracy has enough physical power or a large enough group of dependencies it can convert itself easily into a totalitarian state.

Alternatives

So with the exception of the pure Autocracy above, all the types of state are founded with a core expectation of philanthropy. But as we see human nature distorts most of these away from the original core philanthropic purpose.

Now if we accept that human nature affects all aspects of society, why do we think that there is a small platonic group that isnt affected? If there was such a group, yes it would be an ideal situation. But in reality it becomes my survival vs. their survival.

On the road to doing good, why cant we just accept that human beings will always attempt a way at surviving in the best possible way for them. Thus in certain environments, human beings will organize at some sort of local level to protect against outside forces (Defence) they may also choose to agree on certain standard rules of behaviour to protect property and body within the group. This is a pretty natural development and almost all societies have some level of organisation like that.

How about social issues? A community might help each other out in times of need, because it is in the best interest of all involved. It is also in your best interest to not abuse the system as no one will help you out in the future. The minute denpendent intermediaries are introduced into the system (See Pelle’s 2nd law), the system in it self becomes an economic activity and starts falling apart.

In all of these systems, there is complete transparency and no intermediaries because of the local level. The systems spontaneously create and dissapear as and when there is a need for the survival economica and otherwise of all the parties. This can not happen the minute the system itself becomes an economic activity.

Markets

The market can drive just about any activity. It is a fully transparent and often as whole can be hard to understand for Platonic minds. The basic idea is that demand drives supply.

They key to markets are that it thrives on human nature. On pure unmanipulated markets, there are few loosers. A transaction in a market consists of two parties willing to exchange one thing for another. Lets say Bob is a dairy farmer and Alice is a wheat farmer. Bob might exchange milk in exchange for flour from Alice. From each parties perspective it is an act of survival:

• Bob: “I managed buy 2 pounds of flour for only 1 gallon of milk”
• Alice “I managed to by 1 gallon of milk for only 2 pounds of flour”

Platonic intellectuals would say that their will always be a weak party in the transaction, but that is generally speaking not true as Bob being a dairy farmer has a greater need for flour than more milk and Alice the other way around.

This simple mechanishm can control anything. Insurance for example is just another market driven approach to security. So Eve the insuror decides to offer Bob an insurance against mad cows disease.

• Eve: “If you pay me 1 gallon of milk every month, I will give you 100 gallons of milk in the event that your cows need to be put down.”
• Bob: “John offered me 120 gallons of milk, can you do the same?”
• Eve: “I’ll go one better and offer you 125 gallons of milk”

Thus Bob’s family is protected now against a disaster on his farm, without any goverment involvement. Bob could also just as easily say:

• Bob: “I would rather sell the gallon on the market and save my money in case that happens”

or

• Bob: “I dont think that will ever happen. My sons and I run a really good farm I dont need insurance”

Which really is Bob’s perogative. Why should anyone tell him that he HAS to get insurance. If he knows the goverment wont step into rescue him, he knows he needs to assess his own risks.

Regulate the market

The common platonic argument would be, “there should be a law to force Bob to have insurance for his own safety”. If you have decided in your society that you have a social wellfare society, that may be a good idea. However in a non wellfare society, there are enough incentives to people to protect their family in the way that makes most sense to them.

In a representative democracy the laws will always be made to protect the law makers and their dependents and not necessarily the parties involved in the law.

For example if there was a requirement in law to have insurance, there would most often also be a requiremnt to regulate insurors. Thus Joseph our representative ruler creates a regulating body, creating even more people dependent on him.

Pelle’s 3rd law: “Any regulation creates dependencies on it self and these depenencies distort the outcome of the original purpose of the regulation”

The regulating body creates regulations defining a insuror. The insurors that qualify under these regulations become automatic dependents of the regulating body, often times demanding stricter enforcement of the regulations thus raising the barriers to entry into the insurance market.

Thus the initial law creating a requirement for insurance, regulates demand. The second law requiring regulation of insurors regulates supply. This in all senses of the word, stops the original flexible market driven approach and thus creates a rule that will always favour:

1. Regulators
2. Regulator’s certified Suppliers

Thus the initial philanthropic goal to protect Bob has now failed as the system really protects the regulators and the artificially scarce market of their certified suppliers.

Proof of this can be seen just about anywhere in the world where regulators attempt to control things.

Socialized health care is a favorite issue that comes up and touches many peoples hearts. The socialized health care systems are failing the world over due to economic forces within the systems. Canada, England, Denmark, France and Panama for example all have national socialized health care systems.

There are no real examples anywhere in the world that I know of, where these systems offer as good care on average as for example the US health care system. Free health care means an infinte demand, for example more people go to the doctor for trivial ailments. While everyone in these societies accept that reforms are needed, there are no real urgencies in doing so as there are so many people dependent on the system as an economic activity.

High drug prices is an interesting derivative of this argument. Countries with out price control are the only countries where drug companies can make their profits to finance the development costs incurred for a specific drug.

Many countries such as England and Canada, regulated against being a “victim of the market”, thus directly forcing the prices up in places such as the US. Unless real strong international pressure, this is unlikely to happen in such places as deregulating the market would mean loss in job security for one dependent of the regulation (the law makers) based on unpopularity of another dependent (voters). Is the solution to regulate US drug prices? That would essentially kill almost all incentive for drug makers to develop new drugs, so I hope that doesnt happen.

While the US doesnt have a national health care system, they do have a highly regulated environment of insurors, health care providers and employers offering health care. This all leads to a non pure market, which has led to the prices rizing as this benefits the dependent parties of the regulations. Basically everyone except the insured person itself benefits from higher prices.

Regulation and non development in the 3rd world

The Peruvian economist Hernan de Soto has presented compelling evidence that much of the ills of the so called 3rd world has been caused by regulation, making it impossible for normal people to be part of the regulated world. Thus most such countries have large “informal economies”, that essentially function as unregulated free markets. However due to the constant insecurity provided by the regulators, economic growth will always be limited.

In any economy that is highly regulated such informal economies will always appear attacking the weak points of the regulated economy. Denmark for example have unrealisticly high costs for regular people hiring builders etc to do work in their homes. Thus there is a thriving market of “moon lighters”

Conclusion

Due to my conclusions on human nature I believe that any kind of regulation is bad. There is very little that cant be acheived in a superior way through markets and private contract.

In the short to medium term, this means as a matter of principle to not enable ANY new regulation regardless of its philanthropic purposes, secondly to start dismantling the existing regulations and dependent aparatniks.

This would in the long run lead to a world where people generally speaking are a lot happier.

Note: I have been having a longer email debate between my hopelessly liberal Mom about various aspects of Liberal vs. Libertarian arguments. This is mostly based on a piece that I wrote and would like to share for debate with the general blogosphere.

Update For an interesting point of view about European philanthropy in Africa and the damage it creates see Aid damages Africa