Facebook IPO Gives the Rich (Even) More Clout

It's no secret that Facebook's IPO will feed one of the most troubling trends in America today: the extreme concentration of wealth in the hands of a tiny elite. As I point out in a new paper, co-authored with Jack Temple, Mark Zuckerberg is now worth more than the bottom fifth all U.S. households. And it's no secret that the company will exploit a massive tax loophole in the wake of the IPO to dodge some $3 billion in taxes. Or that co-founder Eduardo Saverin, who renounced his U.S. citizenship earlier this year, will sidestep his full tax bill as well -- despite getting rich precisely because of the benefits of America.

What's perhaps is less known, though, is that much of the wealth generated by Facebook may never be taxed at all because it will be donated to charity. Mark Zuckerberg has pledged to give away at least half of his wealth, as part of The Giving Pledge organized by Bill Gates and Warren Buffett. Zuckerberg has already begun giving away his money, most notably with a major gift to improve public schools in Newark. Co-founder Dustin Moskovitz has also pledged to give away at least half of his fortune.

The American tradition of philanthropy has yielded many positive benefits to the U.S. and to humanity, and the new philanthropists minted by Facebook are sure to do much good with their money. But a cautionary note is also in order as these vast new philanthropic fortunes come online: Philanthropy allows private individuals to use money sheltered from taxation to advance their own personal agenda for public policy, culture, science, and so on, and to exercise vastly more influence over society than ordinary citizens or voters can. In other words, all taxpayers are subsidizing the ability of the super wealthy to try to shape America or the world as they see fit.

Mark Zuckerberg’s gift to improve Newark’s schools shows the benefits and dangers of how the new wealth created by Facebook will be deployed in the public sphere. On the one hand, it’s positive that Zuckerberg is trying to help one of the poorest and most troubled school districts in America. On the other hand, the large size of the donation – $100 million, before matching gifts – cannot help but help shape the direction of school policy in Newark, which should more rightly be decided by the citizens of Newark. Education has traditionally been among the most democratic areas of American life. But that has changed in recent years as the result of large-scale philanthropy by donors like Bill Gates and Eli Broad, with these private individuals profoundly influencing public schools. Zuckerberg’s entry into this activity could exacerbate a troubling trend whereby ordinary citizens have diminished influence over crucial policy questions relative to wealthy philanthropists.

Facebook’s IPO will also put considerable political power in the hands of its shareholders, if the trajectory of other tech companies is any indication. Prior to Google’s IPO in 2004, its employees gave little money to political candidates. Such giving jumped dramatically after Google went public and its employees were among the top five groups bankrolling President Obama’s 2008 presidential campaign, ultimately giving Obama $814,540 according to OpenSecrets.org. (Google employees are again among the top five groups giving to Obama in the current election cycle.)

Facebook employees and directors are already using their wealth to try to influence electoral outcomes – donating $459,251 to candidates and party committees over the past three election cycles. COO Sheryl Sandberg alone has given $108,000.

Finally, Facebook can be expected to use some of the new funds raised by its IPO to expand its lobbying and PAC activity. The company’s spending on lobbying rose from $207,878 in 2009 to $1,350,000 in 2012. It is sure to increase further in coming years.

In short, the wealth of Facebook shareholders will allow them to have a much bigger say in U.S. politics than is available to most Americans, subverting the egalitarian ideal that lies at the heart of America’s democracy. And that is a problem.