The downside of Sean Parker's "hacker philanthropy"

Last week, Sean Parker, co-founder of Napster and founding president of Facebook, announced the launch of the health-focused Parker Foundation with a $600 million gift. This week, on a much larger scale, one of the world's wealthiest men, Prince Alwaleed bin Talal of Saudi Arabia, stepped forward to pledge his entire $32 billion fortune to charity.

These supersize gifts are part of a new trend toward mega philanthropic spending, dubbed philanthrocapitalism. The gap between the rich and poor is growing, and so too is the number of billionaires — from the Koch brothers to Bill and Melinda Gates to Saudi princes — with private foundations dedicated to solving the world's problems. Parker even coined a term for the fortune that's flooding from anti-establishment Silicon Valley entrepreneurs and into charity: "hacker philanthropy."

But while this incredible generosity is rightly applauded in the press, it should also raise questions. Namely, we have no way of knowing whether the massive tax breaks these charities get are actually value for money. They've emerged in a lax regulatory environment with little oversight and accountability — except to themselves — and a disproportionate influence on public policy in the countries and fields they give to.

We have no way of knowing whether the massive tax breaks billionaire charities get are value for money

Consider the Bill and Melinda Gates Foundation. In a recent look at them, I learned that they now spends more on global health every year than the World Health Organization and most countries on the planet.

While the Gates Foundation puts a lot of emphasis on measuring the impact and outcomes of their work, I also learned that the foundation is only really accountable to its main trustees: Bill, Melinda, and Warren Buffett. Meanwhile, there's been no overhaul of legislation governing philanthropic foundations in the US since the 1950s — despite the fact that the scale and influence of private philanthropists has grown enormously in recent years.

Back then, reforms came out of concerns about the outsize role of philanthropic groups such the Carnegies and the Rockefellers. This led to The Tax Reform Act of 1969, and new obligations for philanthropic groups including minimum yearly payouts of a foundation's endowments (so they couldn't just sit on money and claim you're a nonprofit with all the benefits of tax exemptions).

But that might not be enough today, say critics like the Inside Philanthropy founder David Callahan. Despite the increasing influence of foundations, he wrote in a recent New York Times piece, "perhaps no sector is less accountable to outsiders."

"The charitable sector is a bit like the Wild West — by design," he continued. "Foundations don’t have to prove that they’re making good use of billions of dollars of tax-subsidized funds, and nonprofits don’t have to identify their donors, as we’ve learned from the Clinton Foundation saga."

This means there's no way for citizens to answer questions about whether the tax breaks these groups get are value for money, according to Callahan:

Philanthropy still does enormous good, perhaps now more than ever. But it’s alarming how in an era of high inequality, private funders have a growing say over central areas of civic life like education and public parks, and how this influence is often wielded against a backdrop of secrecy.

It also means they're able to influence policy without any input from the public. As Georgetown Public Policy Institute's Pablo Eisenberg told Nature: "You may have foundations with assets larger than almost 70 percent of the world’s nations making decisions about public policy and public priorities, without any public discussion or political process."

There's a lot of talk about philanthropic reform

Saudi Arabia's Prince Alwaleed bin Talal, who just pledged his $32-billion fortune to charitable projects. (FAYEZ NURELDINE/AFP/Getty Images)

There's a move to rein in the benevolent billionaires. Reform suggestions include more public representation on foundation boards, increasing the payout requirements of their tax-exempt dollars, and even capping foundations' permissible size.

The concerned researchers I spoke to earlier also called for more scrutiny of all foundations, no matter how well-meaning they seem.

As University of Essex sociologist Linsey McGoey put it: "There's a tendency to see the Gates Foundation as a benevolent force. Unlike the Kochs, it's not [seen as trying] to further its own interest. But if you want to rein in the influence of large philanthropic funders like Koch, then you have to pay attention to the role of Gates."