Curb Mega-Foundations

Rob Reich asks a good and difficult question: What is a foundation for? The obvious historical answer is: to serve the desire of the wealthy to give away their money to others in a responsible, planned, and efficient manner. But few foundation donors ask themselves the underlying question that really exercises Reich: Can the legal and economic advantages conferred by American society upon me as a donor be squared with democratic theory?

Reich’s answer to this question seems to be no, unless one can construct a pluralistic rationale for private giving that can temper what he calls “government orthodoxy.” Beyond the basically undemocratic character of foundation philanthropy, which seems unarguable, he is also troubled by its plutocratic character—foundations, especially large foundations, give the rich excessive political influence.

The notion that the desires of the 1 percent drive American political choices is pretty widespread in post–Citizens United America. But Reich never employs history in his analysis. If he did, he would recognize that the earliest philanthropic foundations faced the same anti-plutocractic sentiment. These novel institutions, especially the Carnegie Corporation and the Rockefeller Foundation, were funded by what many considered the ill-gotten gains of robber barons who were seeking to cleanse their evil reputations through a spurious form of altruism. Congressional hearings investigating these foundations were replete with accusations that the enormous concentrations of wealth packaged as philanthropy were sure to undermine democratic process and enable the rich covertly to rule the country.

Surprisingly, such fears have mostly disappeared. It is striking that the current discussion (such as there is) of giving by the country’s two richest men, Bill Gates and Warren Buffett, is almost entirely laudatory. There has been little discussion of the fact that their and similar gifts are content-free. The public does not seem to care what the billionaires will give away their money for. Indeed, upon making his pledge to the Gates Foundation, Buffett proudly asserted that he did not know what his donation should be used for. Only in America.

The public does not seem to care what billionaires give their money to.

Reich is an extraordinarily fair-minded scholar, and I think he is doing his best to make the case that philanthropy might possibly be a good thing even when the logic of his argument condemns foundations. In his conclusion, and in defense of foundations, he says that it is clear that foundations “are performing, and at increasingly high rates.” I am not sure what he means by “performing,” but I doubt that this is an assertion that can easily be sustained empirically. He ends by saying that we need to learn more about foundation performance (amen) and judge it against the “standards of fostering pluralism and encouraging discovery.” But he really does not make clear what those standards are, unless foundations are to be held to the same standards as the state (the imperative that the state treat all citizens equally, for instance), in which case it is hard to see what the foundations’ advantage might be. The argument from pluralism seems naïve and hard to sustain.

Furthermore, Reich puts Gates and Buffett beside Carnegie and Rockefeller, but this is dead wrong as a historical comparison, save for the fact that these are the richest pairs of Americans a century apart. Carnegie and Rockefeller each took a lifetime to make great fortunes in great businesses based on extractive industries. They literally invented the philanthropic foundation as an organizational form, and they intended their foundations to survive them and be guided by self-perpetuating boards of trustees.

But Gates and the other new billionaire philanthropists (note that Buffett has rejected the idea of creating his own foundation) are living, frequently managing, directors of their foundations, little dependent upon intermediary boards of trustees. They have strong personal ideas about desirable aims, and intend their foundations to be openly political actors. Carnegie and Rockefeller felt significantly more constrained in what they could do.

Reich’s case would more compelling if it considered the social and political implications of the new philanthropic plutocracy, dominated by 65 foundations with assets of more than $1 billion. Reich suggests that it might be a good idea to forbid the formation of foundations with assets less than $10 or $50 million, but shouldn’t he consider the implications of an upper limit of, say, $5 billion per foundation? That would somewhat curb plutocracy at the upper end and begin to address the situation in which the new mega-foundations must move hundreds of millions of dollars out the door annually, resulting in big bets that may not be based on reasoned investment decisions. This would worth doing because, right now, the Gates Foundation is making the fears of the early twentieth-century foundation critics appear prescient.