William B. Walstad

The Multiple Effects of Entrepreneurship on Philanthropy, Society and Education

"Entrepreneurs do not start out to become philanthropists but they often assume that role when the business becomes successful." Dr. Walstad begins by citing examples of successful entrepreneurs who became philanthropists after amassing large fortunes, including Bill Gates, Andrew Carnegie, John D. Rockefeller, George Soros and Gordon Moore.

Dr. Walstad then describes the direct and indirect effects of entrepreneurship and wealth generation on philanthropy in the United States. Entrepreneurship has direct wealth-creating effects on the business founder and indirect effects on the business's major associates and investors. These indirect effects expand the pool of wealth far beyond the business founder.

Next, Dr. Walstad describes a feedback effect in which entrepreneurship promotes increased philanthropy which improves society and education which in turn encourages more entrepreneurship. He admits that this last connection between an improved society and increased entrepreneurship is the most tenuous of the three. He argues that this "weak link" is strengthened when improvements in society and education lead to improvements in the business climate, for example by: (a) improving entrepreneurs' access to start-up capital, (b) reducing the cost of government regulations for entrepreneurs, and (c) more entrepreneurship education throughout society.

In the following section of the paper, Dr. Walstad describes four major avenues for the redistribution of wealth: philanthropy, taxes, consumption expenditures and inheritance. He argues that all four of these avenues have an impact on society. Venture philanthropy and social entrepreneurship are presented as alternatives to traditional philanthropy. Dr. Walstad states that these new approaches to charitable giving have encouraged wealthy entrepreneurs and traditional philanthropists to be innovative about how best to make the nonprofit sector more accountable and create more social value from philanthropic funding.

In conclusion, entrepreneurship has the power to radically transform society through philanthropy, because it allows a wider diversity and flexibility of ideas, choices and programs to improve society as compared to government legislation and funding. Furthermore, as more entrepreneurs are created and successfully amass greater wealth, they will develop new, innovative approaches to redistributing their wealth so that it best benefits society.

Summary of Questions & Answers and Suggestions for Modifications/Enhancements

Ms. Holman asked whether the philanthropy that has come from successful entrepreneurs to the field of education has changed over time. In other words, has there been more or less money contributed from entrepreneurship to education over time? Dr. Walstad admitted that he has not had the opportunity to research this trend. He does believe, though, that there has been a shift of contributions from higher education to pre-college education initiatives.

Ms. Downing asked how the impact of philanthropy is measured and assessed. Dr. Walstad responded that it is very difficult to measure social impact, particularly with regard to philanthropic giving.

Dr. Kent asked Dr. Walstad if, as an economist, he was willing to contend that all expenditures made by the wealthy or by their heirs were equally valuable to the economy. Dr. Walstad clarified that in his paper he merely listed the effects of the different avenues of the redistribution of wealth, but did not weight them in terms of their value to the economy. He speculated that the direct effects are more valuable than the indirect ones, because they start the process of wealth redistribution.

Mr. Kolderie asked, how many foundations are narrowing their grant-making efforts to the K-12 sector and why? Dr. Walstad responded that he was not sure of the exact numbers, but in response to why there has been a shift, he perceived it as a natural economic shift. Since there are currently more problems in the pre-college sector, more attention and resources are being focused on this area. Unfortunately, one problem is that it is more difficult to see the impact of giving in the K-12 sector. Dr. Walstad provided the specific example of the five hundred million dollars that the Annenberg grants contributed to K-12 education, for which there has been little if any visible results. Mr. Kolderie challenged that the problem with measuring impact may not be that there is an impact that we cannot see, but rather that we can see that there is not an impact.

Ms. Smith asked whether highly concentrated wealth leads to more or less social impact when it is redistributed compared to wealth that is redistributed without being concentrated. Dr. Walstad suggested that from a decision-making point of view, it is much easier for giving to be focused when wealth is concentrated. The process becomes a more complex when giving is done collectively, as is done through reallocation of tax resources. Ms. Smith suggested that the strategic application of dollars leading to social impact is more important than the mechanism through which giving happens. For example, simply creating a foundation does not necessarily guarantee a more strategic impact than millions of people contributing to Habitat for Humanity to create houses. Consequently, it is necessary to be able to measure social impact to determine if wealth that is more concentrated and more strategically applied actually has a greater social impact.

Dr. Wilson suggested that Dr. Walstad use the Ford Foundation's revolutionizing of business education as a model to develop his feedback effect concept. The Ford Foundation leveraged their dollars to reinvent business education, starting with training the faculty at the best business schools who in turn trained faculty at other schools.

Ms. Kim commented that the government, through tax deductions, plays a large role in how much entrepreneurs engage in philanthropic giving. She further suggested that entrepreneurship alone would not necessarily cultivate more philanthropy, but rather that there are intermediate processes, such as government interventions.

Ms. Smith suggested that a distinction be made between entrepreneurship and business success that leads to wealth accumulation. For example, Dr. Walstad used Warren Buffet as an example of an entrepreneur, but Ms. Smith felt that most people consider him to be more of a successful investor than an entrepreneur. Dr. Walstad commented that he viewed Warren Buffet as an entrepreneurial investor who has set up innovative corporate structures for investing. Buffet is an example of an entrepreneur become philanthropist because he plans to give most of his wealth away when he passes on.

Ms. Holman suggested that Dr. Walstad compare philanthropic giving in education with giving in other sectors such as the arts or health care. She was interested in how people decided where they were going to contribute their money.

Mr. Slavkin commented that he believed the majority of total philanthropy in the U.S. came from "regular people" rather than people who had concentrated large amounts of wealth, such as Gates and Rockefeller. Ms. Smith offered the statistic that over two-thirds of total giving in the nation comes from individual contributions. Mr. Slavkin suggested that a change in tax policy that yielded an extra hundred dollars to every average American might have a larger gross impact on philanthropy in the U.S. than the creation of two new foundations from two new rich entrepreneurs.