There used to be a thing we called “philanthropy.” Even though the concept of corporate-funded charity has raised thorny ethical questions since its Gilded Age birth (asking, for example, why companies give money away while workers struggle), the idea historically at least had some coherence. Industrial titans like J.D. Rockefeller and Andrew Carnegie took profits from their firms, however troubled their origins, and generally channeled them toward the disadvantaged and afflicted, funding public libraries, museums and disease research among other socially useful projects. The rich, in other words, idiosyncratically and undemocratically, gave to the poor.
In our new Gilded Age, however, even this arrangement seems like a golden vision from a picture-book past.
Stephen Schwarzman, the private equity tycoon who cofounded the Blackstone Group, is the face of a new kind of philanthropy. To borrow the language of Silicon Valley and Wall Street, he has “innovated” novel ways in which the rich can give back to themselves, cementing and heightening their power while claiming they’re doing the rest of us a favor. Ostensibly charitable ventures need no longer benefit the disadvantaged at all; they just need to be marketed that way.
In the late ’90s, even before he amassed much of his $6.5 billion fortune, Schwarzman conducted an early trial of this idea at his alma mater Yale, proposing a $17 million donation in exchange for renaming the freshman dining hall for him. The offer was ultimately turned down after Yale discovered it was actually “a contribution to one of Blackstone’s investment partnerships on Yale’s behalf.” The university wouldn’t receive money until the fund was liquidated, essentially exposing it to a bet on the donation’s ultimate size. Years later, Schwarzman found more success with a $100 million gift to the New York Public Library, but only after a dispute over how many times his name would be engraved into its faÃ§ade, another brand-building gambit that soured in the end.
Still, these million-dollar overtures seem trivial in comparison to Schwarzman’s latest and largest philanthropic project, a postgraduate China scholarship aptly titled the “Schwarzman Scholars” program. Based at Beijing’s Tsinghua University, the initiative will offer 10,000 students over the next 50 years the opportunity to enroll in an all-expenses-paid master’s program designed to “rival the Rhodes scholarship in prestige and influence.” At $300 million—including $100 million of Schwarzman’s own money—the program’s endowment is already slated to far outstrip the $203 million Rhodes fund.
The scholarship has attracted an impressive roster of backers, counting Ivy League presidents, business executives, former heads of state, and other powerful names among its many advisors and funders. Adding his endorsement alongside two former secretaries of state, current Secretary John Kerry lauded the program as “a terrific one,” thanking Schwarzman for his “vision and commitment” in a video address filmed specially for the website. Yale president Richard Levin, echoing a common theme among the endorsers, gushed: “The U.S.-China relationship has never been more important, which makes this program much needed and timely.” Boeing’s chairman, president and CEO W. James McNerney, Jr. threw in his company’s support “because it will help develop future leaders with global sensibilities and further strengthen the ties between our two countries.”
To be clear: the ties and relationships they’re discussing here are business ones. Many of the Schwarzman scholarship’s top donors have lucrative interests in China, where government regulators still retain extensive control over foreign companies’ access to markets. As the New York Times notes, Schwarzman’s personal role will “raise his political profile in China,” giving him and Blackstone “increased access to Chinese leaders.” The second-biggest donor for the program is BP, among China’s largest foreign investors, with nearly $5 billion tied up in fossil fuel extraction and chemical processing plants. Other top donors include Boeing (China is the second-largest aircraft market), Caterpillar (China is the world’s top construction market), and an array of big banks seeking expanded access to China’s state-owned financial sector.
The choice of Tsinghua University as a site for the “Schwarzman College” facility is particularly astute. One of China’s most prestigious institutions, Tsinghua has educated many of the country’s political elite. President Xi Jinping, former president Hu Jintao, and Zhou Xiaochuan, head of the People’s Bank of China, are among its alumni, along with a number of other top Communist Party officials. Housing the program at Tsinghua (and advertising it as the largest-ever philanthropic effort in China) is an obvious way to gain access to that country’s future leaders as well as its current ones.
This basic project, disguising a profit-oriented power play as social development, may seem distasteful even by Wall Street standards. Then again, it’s a central strategy of the industry that fueled Schwarzman’s rise in the first place. During the buyout boom of the years preceding the 2008 financial crash, Schwarzman’s private equity firm Blackstone Group made a name for itself completing some of the largest ever leveraged buyouts (LBOs) of companies. If this sounds familiar, it’s the same financial practice, popularly dubbed “vulture capitalism,” for which Mitt Romney (a close friend of Schwarzman’s) faced harsh scrutiny during his most recent presidential bid. Despite Romney’s fate—and a growing body of academic research demonstrating private equity’s net harmful social effects—Schwarzman and his industry doggedly continue insisting private equity helps us all out.
But it doesn’t take a PhD to understand the social damage done by private equity firms. As Shirley Kimber, a laid-off 64-year-old factory worker told Bloomberg News after one particularly nasty buyout, “They just used us. That’s exactly what they did. And then they kicked us to the curb.” Kimber and 270 of her colleagues were fired when Blackstone took control of her food processing plant and promptly shut it down. A similar story played out during Blackstone’s $4 billion purchase of Travelport in 2006, which ultimately resulted in the firing of 2,300 workers, or nearly 30% of the company’s workforce. Blackstone made its money back in seven months.
As these workers discovered firsthand, a typical LBO runs a predictable course. A private equity firm like Blackstone first purchases a controlling stake in struggling companies they hope to “turn around,” usually borrowing 60-90% of the money from big banks. The firm then charges the client company steep annual “management costs” on top of the debt payments used to finance its own buyout. At this stage, many companies lay off a huge number of workers to balance budgets, opening themselves up to be profitably resold by the Blackstones of the world. On the other hand, about 7% of companies targeted by private equity buyouts simply go bankrupt, deserting entire communities.
Schwarzman’s personal resistance to attempts to make his industry more socially responsible has been especially revealing. In the aftermath of the 2008 financial crisis, he emerged as a fierce opponent of banking regulations, publishing op-eds in newspapers like the Wall Street Journal and the Washington Post while making headlines in other outlets in opposition to proposed reforms. “It’s a war,” he told board members in 2010, venting about efforts to close the tax loophole on carried interest that allows people like Schwarzman to pay a maximum rate of 15% instead of the 35% paid on regular income. “It’s like when Hitler invaded Poland in 1939.”
His is a class that hoards its wealth so closely it has insulated itself from our most basic sensibilities, which tell us that Wall Street traders paying the same tax rate as New York schoolteachers is nothing like the Third Reich. Or that suggest Stephen Schwarzman—with only 56 Americans and 181 people richer than him—may be deluded when saying things like “I don’t feel like a wealthy person. Other people think of me as a wealthy person, but I don’t.”
As spotty as his record of genuine philanthropy may be, Schwarzman has proven himself to be an outstanding philanthropist when it comes to giving to himself. The infamous $3 million birthday party he threw for himself in 2007 is a shining example, for which he had New York’s Park Avenue Armory transformed into a replica of his 35-room Park Avenue residence. To be fair, he also treated a group of 500 friends—including future Schwarzman Scholars advisory board appointee Colin Powell, future funder New York Mayor Michael Bloomberg, and a host of other politicians, celebrities and bank chiefs—to filet mignon, lobster and fine wines. Lest we think his everyday life is any less spectacular, Schwarzman has assured reporters that he “loves houses” enough to spend $125 million on five estates, where he shells out around $3,000 per weekend on meals.
The Schwarzman Scholars program is simply the latest crystallization of Schwarzman’s peculiar kind of philanthropy, the Park Avenue ball multiplied hundredfold. To assemble its “leadership” roster, he’s once again gathered the circle of plutocrats with whom he dines on special evenings, heroes in his world and villains in ours. Among the enlisted are former Treasury secretaries Robert Rubin and Hank Paulson, leaders of the deregulatory wave that precipitated the 2008 crash. There’s former secretaries of state Henry Kissinger, Condoleezza Rice, and Colin Powell, as well as former British Prime Minister Tony Blair and Sir James Wolfensohn, ex-president of the World Bank. And that’s just a small sampler plate of the Schwarzman program’s best-known advisors.
While the Schwarzman Scholars page features its advisory board prominently and describes its future campus in exceptional detail, it remains remarkably barren of information about the program itself (or, the whole point). We’re given a rudimentary outline of core curriculum subjects (public policy, economics and business, international relations, and in the future, engineering), a breakdown of the international composition of the students, lots of high-flown rhetoric about leadership and collaboration, and little else.
At its heart, it’s already clear that the Schwarzman Scholars program is, in the long run, meant to create a new elite of Stephen Schwarzmans, grooming the brightest young people already at the world’s top universities in the dos and don’ts of an LBO world. The curriculum will plainly be an education in how to disregard all social imperatives besides the economic ones. Privileging these young scholars above the rest of their peers and acculturating them into Schwarzman’s rarefied realm is just another way of keeping it in the family. Far more immediate motives complement this long-term investment strategy—namely, access to and favor from the leaders of the global economy’s newest superpower. Paralleling the university trustees that oversee personally enriching endowment investments, programs like the Schwarzman Scholars offer unique business opportunities in themselves, as BP, Boeing, Bank of America, GE, and other heavyweight corporations have recognized.
Sadly, when philanthropy goes to the rich, the rest of the world misses out on their private feeding frenzy. Left in the dust are those disadvantaged students who can’t afford tuition at the world’s top universities or never had the prospect of going to the Oxfords, Harvards and Stanfords that will inevitably be culled; artists and humanists using their time at college to educate themselves broadly rather than as a measured investment; struggling academic departments that could use more bright scholars but can’t compete with “all-expenses paid”; and, of course, the countless multitudes on whom the externalities of war and finance are inevitably piled.
But we can give the Schwarzman Scholars program the sole credit it deserves: for being at the forefront of a toxic new form of giving, a philanthropy of, for and by the privileged, the most hollow sort of charity there ever was.
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