“To my friends everything, to my enemies, the law.” This principle of government action has been attributed to diverse Latin American totalitarian populists. Unfortunately it seems it could well apply to the Obama administration. Using this principle to guide the monitoring of philanthropic activities in the United States can have a major destructive impact.
Saint Antonine of Florence (1389-1459) has been recognized as one of the world’s first outstanding economic thinkers. His city had one of the most dynamic business climates of the times. Entrepreneurs, political leaders, and merchants consulted with him as the great expert on ethical business practices. But the city also had its dose of political problems. Rulers have often resorted to using the apparatus of the state to punish political enemies. Florence was no exception.
The most powerful Florentine figure at the time was Cosimo de Medici (1389-1464). He ruled for three decades and used his wealth and power to achieve total control. Historians describe how he squeezed his opponents into financial extinction. Some of these were rich and noble. Left with no money and business they did not seek help or alms. It was too shameful for them. It was then when St. Antonino founded a charity to help the “Shame-faced Poor”, the Provveditori di Poveri Vergognosi. The work of this philanthropy was carried on by the “Good men of San Martino” the Buonomini of San Martino a brotherhood founded in 1441. For those who regard all the middle ages as dark-ages, and today’s world as an enlightened and “libertarian” world, their history provides valuable lessons.
St. Antonine did not allow authorities to have access to the accounting books. No one had the right of knowing the names of donors or the “grantees.” He argued we should all follow the Scriptures: “Beware of practicing your piety before men in order to be seen by them: for then you will have no reward from your Father who is in heaven. Thus, when you give alms, sound no trumpet before you, as the hypocrites do in the synagogues and in the streets, that they may be praised by men. Truly, I say to you, they have their reward. But when you give alms, do not let your left hand know what your right hand is doing, so that your alms may be in secret; and your Father who sees in secret will reward you.” Matthew 6:1-4.
The charity created by St. Antonine was able to operate with biblical secrecy for over 400 years. Similar procedures would not be legal today in the United States.
Another of his principles was that the donations received should be spent as fast as possible. This reduced the temptation to use donations for the foundation’s small bureaucracy rather than to help the needy. Another reason for this management practice is that it is much easier to know who the needy are today, than who will need support in the future.
The United States has one of the most extended and vibrant philanthropic sectors of the world. It is also one of the most transparent. Although some of the best charitable activities go unrecorded, most are reported in federal tax forms (IRS Form 990). Some state laws are also aimed at maintaining the donor’s intent and require specific disclosures.
The Philanthropy Roundtable, a “network of charitable donors working to strengthen our free society, uphold donor intent, and protect the freedom to give,” recently published “Transparency in Philanthropy” by John Tyler (2013). Tyler is the general counsel of the Ewing Marion Kauffman Foundation.
“Transparency in Philanthropy” tries to address the demands for legally imposed philanthropic transparency. The first sentence of the conclusion of this book describes the fine path walked by the author: “Transparency is complicated.” When to a basic question we get the answer “it is complicated” we usually smell trouble and become suspicious.
If I wouldn’t have known the history of St. Antonine’s philanthropies, and the rich tradition of charitable giving before the imposition of the income tax, I might have been troubled by Tyler’s cautious conclusions. Tyler, however, is correct. There are good arguments for organizations being transparent on a voluntary basis, but creating a new set of legal disclosure requirements could have devastating effects. Through websites such as www.guidestar.org, anyone in the world today can access the tax returns of U.S. foundations that have the official 501 (c)( 3) non-profit status. In countries with weak rule of law, such information could be used to harass and pressure donors. As a consequence, few countries impose such requirements. Where they do, they tend to drive people away from the formal philanthropic sector. Although the list of major donations received by grant-seeking non-profits is not shared with the general public, the names and donation amounts are shared with the Internal Revenue Service.
Tyler calls for measured transparency “undertaken in light of a foundation’s mission and the potential costs that would go along with that disclosure.” His book addresses “The Misnomer of Philanthropic Stakeholders.” But the answer is also “complicated.” He acknowledges that foundations have legitimate stakeholders and that they need to be “accountable and transparent, legally and socially, to those stakeholders” and he correctly cautions that “there are critical differences between legal and social accountability and the degree of transparency applicable to each.”
Another reason for demanding more transparency is that it would make it easier to evaluate the effectiveness of philanthropic efforts. One example would be more openness in sharing failures. Donors and grantees agree that such information can be very valuable. Tyler, however, correctly points out some of the legal and operational dangers of such transparency, especially when mandated by government.
In the light of the recent IRS scandal, calls for more government mandated transparency to further ensure that philanthropy serves “public purposes” will be greeted with healthy skepticism. I doubt that we will return soon to a world when, like in St. Antonino’s time, foundations will be allowed the same degree of privacy as he enjoyed. But the reaction by important segments of civil society is a source for some optimism that the philanthropic sector, so essential to the free society, will be able to maintain its independence.
This post originally appeared on Forbes.com. It is reprinted here by permission of the author.