Why Philanthropy MattersThis is the third post reviewing the book ”Why Philanthropy Matters:  How the Wealthy Give, and What It Means for Our Economic Well-Being” by Zoltan J. Acs (Princeton University Press 2013)

In “Why Philanthropy Matters”, Zolton Acs explains how American style capitalism has developed, evolved, and fueled philanthropy. He describes the history and evolution of American capitalism, from the masters of commerce in colonial America, to the industrial revolution of the late 19th century, to the “managerial economy” of the early and mid-20th century, to the “entrepreneurial economy” of today. In doing so, Acs answers the question “Why did the information revolution happen in the US?” The short answer is this:

America has always created opportunity for its citizens through education and the resulting acquisition of knowledge, providing fertile ground for the information revolution.

The arc of American capitalism from the dawn of the Republic to modern times described in “Why Philanthropy Matters” is a fascinating history lesson and well worth the read. I won’t condense it all here. But one of its more pertinent features to the topic of philanthropy is the transition from the managerial economy of early to mid-20thcentury to the entrepreneurial economy of the late 20th century, a transition that has ushered in a new golden age of economic growth.

During the decades of the managerial economy, monopolies flourished and companies grew to epic proportions. Acs points out that at mid-century, only three companies controlled the entire steel industry. Two companies controlled the electrical equipment and appliance industry. Three companies controlled the chemical industry. And three networks ruled the TV airwaves. White collar and blue collar workers had jobs for life, and income disparity was at record low levels. The US was so far ahead of the rest of the world that it enjoyed almost no competition.

However, Acs argues that innovation is stifled and bureaucracy is omnipresent in such a system. Progress is slow, change incremental. The managerial economy was not known for its innovative advances.

This all started to change in the 1970’s when the managerial economy gave way in the face of the information revolution. By 1975 the microprocessor had been developed by Intel and high tech advances in personal computers, software, and communications were underway. International competition stiffened. The era of big business simply ended as our economy became more and more entrepreneurial and shaped by innovation in small, rather than large, companies.

The evolution from a managed to an entrepreneurial economy was caused by the creative destruction of innovation. Creative destruction is in the DNA of our current brand of capitalism, one in which innovation triumphs and the entrepreneur is rewarded with wealth creation.

My next post on “Why Philanthropy Matters” explores this wealth creation in America and its formative impact on private foundations and universities.