In Why Philanthropy Matters, Zoltan J. Acs makes the case. I was sent a review copy, which I only skimmed. p. 202-203:
what differentiates American-style capitalism from all other forms of capitalism is its historical focus on both the creation of wealth (entrepreneurship) and the reconstitution of wealth (philanthropy)…
…Historically, much of the new wealth created in the United States has been given back to the community to build up the social institutions that enhance future economic growth.
He is thinking of philanthropic support for education, scientific research, and the like. He claims that little of this take place in Europe. The picture there is one in which the wealth of the rich goes toward their own spending or toward taxes, with little in the way of philanthropy.
I am not such a fan of the non-profit sector. I prefer consumer sovereignty to donor sovereignty. In the academy, donors build too many buildings and do not offer enough research prizes.
Yes, I believe that philanthropists are better than government at investing in public goods. So, the choice is between taxes/government on the one hand and philanthropy on the other, I favor philanthropy. But if we hold the size of government constant, at the margin I think we are better off with a larger for-profit sector and a smaller non-profit sector.
Philanthropy, as it is used to attract business, works probably just as well as overt advertising. Beyond that, I agree that philanthropy is less efficient than for-profit efforts. However, for-profit efforts can never reach, have no incentive to reach, what some would call the “least of these.” Those people who offer no hope of being part of the productive process. Invalids they used to be called. Philanthropy toward these requires very specific knowledge to avoid moral hazard. Philanthropy which is truly effective then should be direct, small, and local. We understand intuitively that this philanthropy is effective, and favor it since we can sympathize with it when we spectate it. What we have trouble with is understanding that philanthropy of this sort does not scale due to knowledge problems. Too much cure is prescribed for the sickness, with too much dependence on third parties (similar to the problem you describe in Crisis of Abundance.) We romantically think more can be done collectively. We need to clearly articulate which systems scale with good consequences (price based) and which do not, leading to bad consequences, (sympathy based).