The Soros Stimulus

George Soros is at it again, making waves with another big, controversial gift – this time of $35m to help New York’s poorest school children.

He may be the favourite bogeyman of the right, but, as this latest gift shows, Soros certainly understands philanthrocapitalism. Indeed, as we write in Philanthrocapitalism, regardless of whether or not you share his political perspective, in terms of his approach, he is in many ways the best example out there of a risk-taking giver, who shuns safe bets in favour of unlikely causes. He also has a great understanding of the limitations of private philanthropy unless it can leverage other money – especially that of big business and the government.

The latest gift is all about leverage. As “matching funds”, Soros’s gift has released a large chunk of federal government stimulus money. As a result, $175m will go to provide some 850,000 school children in New York state each with a $200 “back to school” grant to spend on books etc.

Soros’s enemies on the right have criticised these grants for undermining the incentives of poor parents to work, because families receiving them have to be on welfare or getting food stamps. This is a ludicrous allegation, however, as there is nothing in economics that suggests an explicitly one-off grant of $200 would have any effect on incentives. The bigger challenge will be to ensure that the money generates truly additional spending on books, rather than being diverted to extra beer and cigarettes for parents, though apparently various strategies will be tried to encourage the proper use of the money.

This is another timely reminder to philanthrocapitalists that there is a huge opportunity for them to use their money to leverage the far larger sums being put to work by government – especially given the Obama administration’s enthusiasm for public-philanthropic partnerships.

“Because we are in a particularly difficult period with a very severe recession,” Soros says. “Philanthropy has been badly hit by the financial crisis and so the usual donors actually are cutting back. I feel that people who can afford it should step up to the plate and actually increase their philanthropic donations.” Right-wing or left-wing, who can disagree with that?