PtP: A Promising New Route to Creating Endowed Charitable Foundations

By Lester M. Salamon, Johns Hopkins University

 

Energetic efforts are being made at the present time to promote the development of community foundations or other community-based philanthropic institutions in less-developed and transition regions around the world. A crucial barrier to the success of these initiatives, however, is the general lack of capital to underwrite and sustain their operations. As a consequence, such efforts too often lead to burn-out and frustration among those leading these efforts.

Meanwhile, in many of the same regions where these foundation-building efforts are going starved for funds, enormous transactions are going forward that are transferring huge stores of government-owned, regulated, or subsidized assets into private hands. Unfortunately, these resources are largely hiding in plain sight to advocates of charitable foundations. They are in the ground in the form of royalties from mining and drilling operations; in the air in the form of auctions of broadband spectrum frequencies for cell phone usage; in settlements of court cases involving corporate misdeeds; in sales or leases of state-owned enterprises; in debt swaps; and in transformations of nonprofit or cooperative organizations into for-profit businesses.

If steps could be taken to channel even a small portion of the proceeds of such transactions into community-focused philanthropic endowments, an enormous break-through could be achieved in building a permanent charitable support base for civil society, social enterprise, and poverty alleviation objectives in less-developed regions of the world. For example, if only 5% of the US$700 million in proceeds of the recent sale of the Kenya telephone network to Vodaphone had been dedicated to the creation of a community-focused charitable foundation, the result would have been a $35 million philanthropic institution—many times larger than the existing Kenya Development Foundation and most other foundations elsewhere in Africa.

Fortunately, something quite like this has occurred in a number of places around the world. This includes the creation of enormous private foundations such as the California Endowment out of the conversions of nonprofit hospitals and health insurance plans in the United States; the huge Italian foundations of banking origin out of the privatization of Italy’s previous quasi-public co-op savings banks; the Volkswagen Foundation out of the sale of the state-owned Volkswagen Company in 1960; the Renova Foundation out of a penalty imposed on the Vale and BHP mining companies following the disastrous Marianna dam collapse in Brazil; and a substantial endowment for the Mozambique Community Foundation out of the proceeds of a debt swap.

PtP: A “Third Route” to Building Charitable Endowments

With help from the Mott, Ford, King Baudouin, and la Caixa Banking foundations, and ACRI, the network of Italian Foundations of Banking Origin, a major international project has been launched under the title of Philanthropication thru Privatization, or PtP for short. The goal of this project has been to conceptualize this “third route” to the formation of charitable foundations, to document its scale, and to promote its further implementation, particularly in regions so far lacking such charitable endowments but rich in the kinds of non-traditional assets that have led to the formation of such endowments elsewhere.

To date, this Project has identified over 630 endowed foundations that embody this concept. As reflected in Table 1, these foundations have been found in every region of the world and collectively hold more than US$200 billion in assets—over 13% of the world-wide US$1.5 trillion in foundation assets.[1] More such foundations come to light regularly, with over 100 having been discovered since the publication of the Project’s first report, Philanthropication thru Privatization: Building Permanent Endowments for the Common Good, in 2014.

Table 1: PtP foundations identified as of March 2020, by region and assets

Table 1-PtP Foundations by region

As shown in Table 2, PtP foundations have emerged from transactions involving eight different asset classes ranging from the sale of state-owned enterprises to government auctions of cell phone frequencies. What is more, the foundations emerging from such transactions are among the largest, most respected, and transparent such institutions in the world.

Table 2:  Types of Assets Giving Rise to PtP Foundations and Sample PtP Institutions

Table 2-PtP Asset types_3.2020

Underlying all of these institutions is the belief that the assets involved in such transactions are ultimately not the government’s assets, but the people’s assets—often their only such assets—created by the sweat and toil of a country’s workers, belonging to them as part of their birthright as citizens, or owed to them as a consequence of corporate misdeeds or official corruption. While the proceeds of such transactions can be used for a variety of purposes, the capture of some significant portion of them for the creation of charitable endowments has surfaced in hundreds of cases as a win-win way to resolve local obstacles, win support for controversial policies, or set aside precious resources to address priority issues requiring the kind of innovation and long-term attention that governments are often unable to sustain.

Next Steps: Putting the PtP Concept into Action

Most of these PtP foundations emerged independently, as sui generis responses to particular local circumstances, but without reference to the PtP concept and the commonalities to which it calls attention. Having documented the existence of this proven, if unconventional, route to the creation of charitable foundations, however, the PtP project is now working to encourage its more widespread application, particularly in regions where charitable institutions and charitable resources are in insufficient supply.

To this end, the Project has developed a series of case studies and “How-To” booklets designed to assist local partners to identify potential PtP transactions and bring the PtP concept to bear on them. In addition, it has launched PtP exploratory efforts in a number of countries, including Nigeria, Mexico, Brazil, Ukraine, Kyrgyzstan, and Uzbekistan. To support these efforts, the Project is in active discussions with USAID and the Inter-American Foundation to extend the effort to Kenya and the Western Balkans, and to Latin America, respectively.

We are eager to find additional potential partners to help implement the PtP concept in their locales and sources to support the Project’s on-going work. If you are aware of such possibilities, please contact us.

Conclusion

With the resources of governments growing slowly or in decline and sustainable charitable resources highly limited in many locales, the need to build permanent charitable resources to address long-term development needs, sustain civil society institutions, and protect human rights could not be more pressing. Fortunately, enormous resources are in play in many of the countries where charitable resources are in especially short supply. PtP offers a proven strategy for capturing significant portions of such assets and using them to finance a third route to the formation of charitable foundations, one that can leap-frog the normal foundation formational process requiring the multiple generational accumulation of individual wealth before substantial foundation assets can be created. The question now is whether we will have the courage to seize the opportunity this strategy has opened up to us. Given the resources already in play, it would be negligent for us not to try.

 

[1] World-wide foundation assets in 23 countries as identified in Paula D. Johnson, Global Philanthropy Report: Perspectives on the global financial sector, Harvard University Hauser Institute for Civil Society, 2018. Available at: https://cpl.hks.harvard.edu/files/cpl/files/global_philanthropy_report_final_april_2018.pdf

 


Circle Picture

 

 

Lester M. Salamon is an Emeritus Professor and Director of the Center for Civil Society Studies at Johns Hopkins University and Director of the Philanthropication thru Privatization Project at the East-West Management Institute.

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