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November 17, 2004

Why the welfare state kills philantropy

By Lene Johansen

Having lived some time in Kansas City I am pleased to still find treasures that I had not discovered previously. This weekend I found a new gem. It is called Linda Hall Library and is situated on 51st and Cherry, right off the Plaza. It is housed in a beautiful building with big open windows. Inside you find helpful and knowledgeable staff that seems to love their job with a vengeance. They have several great pieces of art displayed and plenty of space to study. The big windows that cover the entire south side of the building overlook the garden.

Libraries are amazing things and the Linda Hall Library is extraordinary. It is the largest collection of books on science, technology and engineering in the world and it was right here in my backyard all this time. What makes the collection even more extraordinary is that the library is privately owned and funded.

Regardless of all good intentions, this library could not have existed in Scandinavia. When we established the welfare states in the post World War II era, we simultaneously killed off all philanthropic tradition. For some, this was an unintended consequence of the project, for others it was a desired effect.

The welfare state took over the funding efforts for all non-profit organizations in Norway, ranging from the political parties' youth organizations to charities. To make the contributions less arbitrary they designed rules for how to be eligible and hired bureaucrats to process the applications. This happened on all three levels of government.

Through the eligibility rules the government changed the behavior of the organizations. The rules favored certain particular organization models, membership models and activity patterns. If you went outside of this model, your organizations would loose funding. The focus on structure that was the basis of the funding model also took effort and energy away from the issues the organizations were meant to pursue.

The times changed however, and the organization models of the 50's do not fit as snugly with the lifestyle of the 00's. The 80's and 90's resulted in a massive decline in memberships. In an effort to retain their funding, several organizations including the Norwegian Labor party’s youth organization AUF started organized fraud schemes to pump up their membership numbers and activity lists.

The behavior of these individuals was inexcusable, but would the extent of their fraud have been possible in the American philanthropic tradition where the donors are involved in the daily operations? I do not think so. It would have been counterproductive for the effect the donors wanted to achieve by spending time and money on a cause.

The welfare state non-profit model also discourages private donations for causes. There are no tax incentives for private contributions, and Sweden even adds an additional tax on the gifts. I can not think of any other motivation for this policy than to prevent the government from loosing control over what causes get contributions and which do not. Some of the effects of this have been that some causes never get started, or if they do, they do not last long. Particularly if they do not fit the cookie cutter mold of society.

The high tax rates in Norway and the contribution by proxy have several effects as well. First of all, a lot of Norwegians feel that they have contributed their share to society through the tax bill. They might contribute more if the opportunity arises, or if they are personally involved in a cause. But this is a minority. The most important difference however is that philanthropy is considered to be for rich people only.

Norwegians are not a poor lot by any means; a majority of the population is middleclass. The main difference between a Norwegian and an American is that the assets of a Norwegian primarily consists of their house, while the American will have retirement savings and other capital assets to their name as well. The mandatory public retirement savings and the tax level means that there are few "rich" in Norway.

The end result is the same; the philanthropic tradition in Scandinavia is utterly and thoroughly gone. An amazing institution like the Linda Hall Library, with their extensive collection, their beautiful garden and their helpful staff would not have existed if Linda Hall had lived anywhere but USA.

Posted by Waldemar at November 17, 2004 09:15 AM