(Illustration by iStock/sorbetto)
Corporate giving has risen among companies of all sizes, according to Charity Navigator, amounting to a record $20 billion in 2018. And while many business leaders would like Americans to believe that corporate philanthropy—donations to a charity or foundation whose mission is to deliver social impact—reflects social concern, scholars and activists have long expressed skepticism about their true motivations. A new paper by four economists describes how US companies use corporate philanthropy as a tool to seek political influence, involving sums that are much larger than what was previously understood.
Marianne Bertrand, a professor of economics at the University of Chicago’s Booth School of Business; Matilde Bombardini, a professor of economics at the University of British Columbia’s Vancouver School of Economics; Raymond Fisman, a professor of behavioral economics at Boston University; and Francesco Trebbi, a professor of business and public policy at the Haas School of Business at the University of California, Berkeley, scrutinized tax returns from tax-exempt charitable foundations funded by Fortune 500 and S&P 500 corporations. Bertrand and her coauthors found that corporate America is using charitable giving to disguise its political lobbying.
“We were guided by the idea that some corporate social responsibility (CSR) isn’t just companies wanting to do good, but also companies strategically trying to do good when they think they could also do well,” Bertrand says. “As far as we could see, the political angle was underexplored, and something we thought we could disentangle, empirically.”
Sifting through 17 years of lobbying records and congressional committee assignments, the four economists show that links between company interests and specific legislators predicted donations by a company’s foundation to charities in the legislator’s district and charities where the legislator sits on the board. Identifying “a robust positive relationship between charitable contributions and a more direct channel of political influence, political action committee (PAC) contributions,” the authors point to the ways in which political interests drive charitable giving, where disclosure requirements are weak. Their analysis found a correlation between politicians with congressional committee assignments that are important to a firm and donations by the firm’s foundation to charitable organizations in that legislator’s district. When a legislator leaves office, donations to his or her district disappear until the new member of Congress has become established, a pattern that closely resembles the ebb and flow of PAC contributions.
According to the authors, “6.3 percent of corporate charitable giving may be politically motivated,” but they explain that this figure more than doubles when less conservative specifications for corporate charity are used. In 2014, corporations spent $18 billion on charity, making “the implied dollar value” of politically motivated charitable giving at least $1.13 billion, which is “more than 2.5 times higher than annual PAC contributions made to candidates in the 2013-2014 cycle and about 35 percent of total annual lobbying expenditures in 2014.” Since companies rely on tax breaks for philanthropy, US taxpayers are subsidizing special interests under the guise of charity.
“This is the first paper to match charitable and political contributions, using a very detailed and disaggregated data set,” says Guido Tabellini, a professor of economics at Bocconi University in Milan. “This study is an important confirmation that large US corporations exert a great deal of political influence, using methods that are deceptive and questionable.”
In one example, the authors unravel the relationships between Joe Baca, a member of the US House of Representatives (2003-2013); the Joe Baca Foundation, which was established in his San Bernardino, California, district during his tenure; and donations from the Walmart Foundation while Baca sat on the House Financial Services Committee. “At the time,” the authors explain, “Walmart Stores was battling Visa/Mastercard on credit card fees and multiple financial issues, as disclosed in multiple lobbying reports.” Proving that donations from the Walmart Foundation drove Baca’s decision-making might be impossible, but the authors uncover a pattern that highlights an overlooked mechanism that allows companies to buy influence.
“What we are observing in our paper might just be the tip of the iceberg,” Bertrand says. “Giving via corporate foundations is not the only way corporations can give. Corporations can also give directly, so money can go from the treasury of the corporation to a particular nonprofit, and that we will not be able to study because that cannot be traced.”
Marianne Bertrand, Matilde Bombardini, Raymond Fisman, and Francesco Trebbi, “Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence,” American Economic Review, vol. 110, no. 7, 2020.
Read more stories by Daniela Blei.