Private Investment: Charity and the State

Private Investment:  Charity and the State

The state machinery has stalled, unable to change direction and often incapable of either adapting to the breakneck pace of change in the environment or even keeping up with it. Philanthropic and charitable foundations could take upon themselves the admirable mission of testing out and introducing new cultural and educational models and practices and also innovations in culture and the arts. This was beyond any question for the participants in the panel discussion Charity and Philanthropy—Meeting Future Challenges which took place at the 20th Saint Petersburg International Economic Forum in order to discuss the collaboration between donors and the government in developing philanthropy.

Supporting Russian higher education

How can the efforts of donors and the state be combined in education and the preservation of our cultural heritage? What is the optimal way to blend the resources of private foundations and philanthropists with governmental initiatives?

Alexei Kudrin, Deputy Chairman of the Economic Council of the president of the RF, Dean of Liberal Arts and Sciences at Saint Petersburg University, and Chairman of the Board of the Centre for Strategic Research, is involved with five endowment funds for Russian educational and research institutions. He believes that any discussion of human capital and new models for support of education will hinge to a large extent on private resources in the future. Kudrin maintains that without the commitment of private investors education will not have the new capabilities required for maintaining progress and competitiveness.

‘I would like to see a time when most of our major businessmen would see it as their duty to serve on the boards of trustees of universities’, says Kudrin. ‘In developed countries the welfare of academic and scientific institutions is mainly up to the private sector. In Russia many wealthy people are on the boards of trustees of the world’s leading universities; they would like a place in history and to have their children study in these centres of learning. They will often help out the largest Russian institutions, but the scale of their investment is not nearly enough. Our well-known players have invested tens of millions of dollars in the West’s universities. I would like the same thing to happen in Russia.’

There are already some suitable examples. Alrosa has given money to the endowment fund of the Northeast Federal University of Yakutsk and the Northern Arctic Federal University of Arkhangelsk. The funding for the Skolkovo School of Management came from private contributions.

Alisher Usmanov, Vladimir Yevtushenkov, Vladimir Potanin, Roman Abramovich and Ziyavudin Magomedov have invested in the endowment fund of the European University at Saint Petersburg, the second largest in Russia after the endowment fund for the Moscow Institute of International Relations. This amounts to tens of millions of dollars.

What private foundations can do

What is the role of private donors, and what should the state do to help them? When state funding is employed, there are usually bureaucratic restrictions. In addition the state is usually late in responding to the inception of new programmes and in supporting professors, academics, and talented students.

‘Private funding permits rapid development and trials of new approaches’, says Polina Filippova, director of the PERI Charitable Foundation. ‘When the government tries to respond promptly, the system begins to break down. Private foundations can quickly test out this or that method, modify and improve it as needed, and then offer a better proposal to the government.’

In many cases attracting non-state funding allows a faster pace in bringing projects to fruition. The concert hall of the Mariinsky Theatre was constructed in just ten months, mostly because construction costs were covered by private donations. Valery Gergiev, artistic director of the Mariinsky Theatre, made this point when he appeared at the Saint Petersburg International Forum to discuss the potential for development in the creative industries.

Charitable foundations are enthusiastic about experiments. The way they work allows them to create Russian versions of foreign information and education initiatives that they find applicable. In 2015 Sberbank Russia helped launch the Teacher for Russia project, a domestic version of the USA’s not-for-profit Teach for America project in which young graduates from prestigious universities who do not have teaching certification work as teachers at disadvantaged schools mostly located in the regions. According to the theorists for this programme, the young teachers will enrich their experience of life and develop valuable personal skills, while the students will obtain a stimulus to personal growth in addition to knowledge.

‘The tectonic shifts that are now taking place in the world must be reflected at school. We can see that there must be new educational programmes and ways to judge the results, and it is even more vital that a new breed of teachers come to the classroom’, says Yulia Chechet, who is the director of the Contribution to the Future foundation that Sberbank finances. ‘We already see excellent results. The students are winning olympiads, and a great many clubs and studios have opened. The programme’s future is very promising. In April 2015 Sberbank took on itself all the financing for the project, but now the governors in the regions are cooperating with us. We are getting more than merely administrative support—we are receiving co-financing.’

Some kinds of philanthropy that are widespread in developed countries will not thrive in Russia. So far only two Russians have signed on to the Giving Pledge, which is a global philanthropic initiative of Bill Gates and Warren Buffett. Those two are Vladimir Potanin, owner and president of the Interros investment company, and Yuri Milner, co-owner of the DST Global/ Group.

In 2010 Buffett and Gates called upon wealthy people all over the planet to commit at least half of their wealth to charitable causes, and they did just that with their own riches. Among those joining in this campaign were Michael Bloomberg, David Rockefeller, George Lucas, Mark Zuckerberg, Richard Branson, Larry Ellison, and Azim Premji.

‘The Giving Pledge has not just encouraged us to invest in problem-solving’, Yuri Milner has written and posted on the project’s site. ‘It has also brought something approaching the scientific method to philanthropy. This means not just giving, but trying to learn from real-world experience what is effective. That is a definite sign of progress—we find more answers and also get more benefit when we ask the right questions.’

Practical applications

In funding educational programmes and projects that support talented young people, businesses are pursuing a thoroughly practical goal. In 2011 the Sistema Corporation launched its Lift to the Future project, a national social programme in support of talented young people designed to start gifted youth on their way up in society.

‘The idea behind charitable activities is more than just our taking on some responsibility to support the society in which we live and operate our businesses’, says Mikhail Shamolin, the president, CEO and executive board director of Sistema. ‘For example, the Lift to the Future project has some practical applications. It is clear that there is a need for a social escalator, especially for talented young people, who cannot always make their way in the currently established business structure. We put to use the opportunities in our own business, our investment potential, and practical connections. By concentrating on capable people we can boost their careers and benefit ourselves, our partners, and the country.’

Viktoria Shamlikashvili, chair of the board of trustees of the Boris Eifman endowment fund and member of the boards of trustees of several foundations involved in education, the arts and health care, reminds us that private funding is needed not only by universities. It is also necessary for specialized intermediate technical vocational education.

‘In Russia we see a very noticeable scarcity of personnel in many industrial sectors. It is essential to build a system of high quality intermediate specialized education and go back to the way large industrial enterprises used to have their own schools and college courses,’ Viktoria Shamlikashvili suggests.

Those in on this discussion acknowledge that the quantity of charitable donations remains less than in developed countries. ‘Our statistics show that in 2015 about 0.3% of Russian GDP (about $4 billion) was spent on charity; in the USA the corresponding figure is 2% of GDP (about $370 billion)’, Mr Shamolin points out. ‘And the distribution of charitable funding also differs. In Western countries roughly 80% of donations come from private individuals, and 20% from companies and corporations. But in Russia it is the other way around. Why is that? Russian companies are advised to give money to one charitable project or another by prominent people at various levels speaking with differing degrees of urgency. Reasonably enough, the companies follow such advice, but this way of doing things has a definite limit; therefore ordinary citizens need to be brought into the process.’

Mr Shamolin thinks that the government’s propaganda machine is in the best position to rally a broad cross-section of Russians to the cause of charitable giving.

Motivation is needed

In Mr Shamolin’s opinion, the potential for charitable donations is immense and the need for them is just as great, especially for education and scientific and medical research. However, businessmen argue that increasing private charitable funding would be pointless without effective and well-designed mechanisms to stimulate philanthropists. The first of those usually considered are tax exemptions.

On this point Mikhail Shamolin is in agreement with Princess Gloria von Thurn und Taxis, who manages a family fortune on an international scale. ‘The state must find ways to motivate philanthropists, and tax exemptions are a tried and true method’, she believes. ‘In addition, philanthropists must be made aware that charity is an excellent investment in their image. Such public recognition will bring in very tangible dividends for one’s image.’

Alexei Kudrin is convinced that the amount of annual donations to endowments in Russia could be doubled or even tripled. He and his colleagues have regularly canvassed potential donors for the past several years, and they usually get the same response: we want to see noteworthy, unusual and worthwhile results; make this story matter to me personally.

According to Viktoria Shamlikashvili, the mechanisms for cooperation between government and philanthropists must first of all be transparent. ‘Charitable funding requires transparency and predictability. Firmly established clear-cut regulations and laws that are unambiguous are what are needed’, Viktoria Shamlikashvili states. ‘And certainly philanthropists must be confident that the money is being spent wisely and not merely handed over to a worthy cause. Measured per capita, the amount Russians spend on education is not at all negligible, but we are far from seeing such a satisfactory outcome all the time.’

‘People who have started their own successful businesses want results that are visible’, explains Mr Kudrin. ‘They have a desire to leave behind something meaningful, and the arguments for it have to be quite persuasive. I approached one wealthy individual for three years running. In principle he was ready to set up an endowment for specific research on legal issues and the function of law enforcement agencies. Only after the third year, when he could see a result, was he willing to commit $3 million. Up until that time we used other ways to finance the project. Much the same thing has gone on with several other investors, and I see a need now for setting up an institute for fundraisers—people who know how to formulate goals, “package” them, connect them with funding, and then conduct monitoring. That is a very worthwhile and necessary job.’

Galina Stolyarova