Democratic Standards for Philanthropy

The great diversity of replies to my essay—some very sympathetic to foundations, others very critical—reflects the unsettled views about what foundations do and how we ought to assess their performance. I learned much from perspectives that focused on foundation performance, almost all skeptical that foundations are doing well. My own aim is not to provide a considered judgment about performance, but to identify the appropriate standard for assessing foundations in a democracy: whether they provide a distinctive, perhaps unique, contribution to what I call pluralism and discovery.

On the question of standards, then, I see an important division among the respondents: whether they accept my premise that foundations, in light of their lack of accountability, elevation of plutocratic voice across generations, and special tax advantages, are institutional oddities in democratic societies. Some who accept my premise worry that pluralism and discovery may not be enough to justify foundations. They suggest greater regulation and public scrutiny. Others reject the premise. They believe that the modern foundation form needs no special justification.

Rick Cohen, Pablo Eisenberg, Stanley Katz, Diane Ravitch, and Seana Shiffrin are in the first camp. They are critical in various ways about what the plutocratic voice of foundations delivers in a democracy.

Cohen hopes that the recipients of foundation dollars, nonprofit grantees, will organize and serve as a counterweight to the increasingly top-down public policy orientation of the wealthy as channeled through foundations.

Ravitch decries the coordinated effort by certain large foundations to push controversial policy changes in public schooling. But is Ravitch’s objection to the content of the education reform agenda among some of the largest foundations or to the fact that it is a coordinated agenda? I wonder if Ravitch would celebrate, not criticize, the Gates, Broad, and Walton Foundations were they promoting her preferred brand of school reform. Objections to policy advocacy seem misplaced when they reflect brute disagreement with particular foundation-preferred policies.

Whatever the case, both Cohen and Ravitch reject the kind of full-throated, foundation-led policy advocacy that, by contrast, Paul Brest champions. My view: if foundation activity generates innovations in public policy that come to win the approval of citizens and public officials, this is in keeping with the discovery justification.

Now, one might worry about the megaphone that mega-foundations possess when it comes to policy innovation and advocacy. Eisenberg and Katz propose a $5 or $15 billion ceiling on foundation assets in order to temper foundation influence (whereas I suggest a $10 or $50 million floor, so that foundations can have influence). I don’t see capping foundation size as a pressing concern, so long as foundation activity is consistent with the pluralism and discovery arguments.

After all, foundation assets, while large, pale in comparison to the assets of commercial ventures and public institutions. Public spending on primary and secondary education in the United States exceeds $600 billion annually; the combined resources of the commercial sector and the federal government (such as the National Science Foundation) provide more than $350 billion in annual funding for research and development. The Gates Foundation’s annual $3 billion of grant making is puny by contrast. I do, however, appreciate Katz’s reminder about historical context: anti-plutocratic sentiment was at the heart of early resistance to the Carnegie Corporation and the Rockefeller Foundation, and similar resistance can be seen today.

Plutocratic voices can support democratic ends.

Shiffrin identifies an important concern: that foundation behavior can compromise the independent decision-making and governance of grantees. When this happens, the unaccountable form of the foundation spills over to the organizational structure of the grantee. This is so not merely because grantees are often dependent on foundations for funding, but also because foundations sometimes create partnerships with grantees or with public agencies, or because they insist—as with venture philanthropy—on high involvement with grantee decision-making, even claiming positions on grantee boards. Shiffrin proposes some modest governance changes in foundations to deter such behavior. I agree.

But are foundations really institutional oddities in a democracy? Tyler Cowen, Christopher Coyne, Larry Kramer, and Scott Nielsen resist this characterization and wonder if foundations require such vigorous defense.

Coyne accepts the pluralism and discovery arguments, but thinks we should consider the creation of foundations a form of consumption. Some prefer fancy cars, others prefer creating public goods through a foundation. Both represent the voluntary activity of individuals. But as I emphasize in my essay, foundations are not just the result of the freedom exercised by donors to do what they wish with their wealth. Tax incentives for foundations are intended to subsidize and stimulate the exercise of individual liberty. If Coyne genuinely believes the operation of foundations is another form of consumption, on a par with purchasing a car, let him call for the abolition of tax incentives for giving. Moreover, let him subject the decision to set up a foundation to the same state and local sales taxes applicable to buying a car.

Cowen accepts my defense of foundations’ potential value in a democracy, but thinks that in practice foundations are plenty accountable. And he does not observe donor control in perpetuity. I disagree. He also is “uncomfortable” with my use of “value-laden” terms such as “democracy,” “egalitarian,” and “plutocratic.” I do deploy value-laden, or normative, terms, and I do not see how one could avoid that when discussing the role of foundations in a democracy. Does Cowen believe that his support (or criticism) of foundations is not underwritten by value commitments? What motivates him other than a value-laden understanding of democracy when he notes “politicians pandering to voters for the most part on the major issues” and suggests that “we would do better if foundations had more influence over public policy”? I find this seemingly unreflective positivism surprising from an economist whose own work engages routinely and creatively with that of moral and political philosophers.

Kramer, who has recently become president of the Hewlett Foundation, feels accountable not through formal oversight but thanks to public scrutiny and the court of public opinion. I agree that reputation is a possible source of foundation accountability. But I disagree that it is an appropriate and welcome source. Concern about a foundation’s reputation cuts against the discovery argument, for if a foundation is concerned to maintain its reputation, it will be less willing to fail. The reputation of an established foundation can become a millstone for its current leaders, creating incentives to avoid risk and chase public approval. This is one reason to favor sunset provisions—commitments to spending down all assets—such as the Gates Foundation has chosen.

Finally, Nielsen rejects the idea that foundations are in any way plutocratic. On his view, foundations champion ideas and do not directly influence public policy. Perhaps, but in foundations the capacity to champion ideas and thereby influence policy is a function not of equal voice, not even equality of opportunity for voice, but of the size of one’s endowment. In this respect foundations are paradigmatic plutocratic actors.

And whether the influence on public policy is direct or indirect, foundations certainly aspire to public policy change. Brest’s endorsement of policy advocacy by foundations reflects this aspiration; Deborah Fung’s wonderful account of the Fireman Foundation attests to success in the endeavor. Foundations are plutocratic. We should not pretend otherwise. Instead, we should ask whether and how such plutocratic voices might nevertheless be supportive of democratic ends.


Editor’s Note: Rob Reich’s lead essay received further Web-only responses from Eric Beerbohm, Robert K. Ross, Gara LaMarche, and Emma Saunders-Hastings. Reich’s reply to them follows.

The online responses to my essay reflect similarly unsettled views about what foundations do and how we ought to assess their legitimacy and performance. Robert Ross sees nothing peculiar about foundations, lauding them as “necessary tools of democracies” and “required to help make [democratic] governance” work. By contrast, Emma Saunders-Hastings questions whether democrats should ever be reconciled to the existence of plutocratic foundations, proposing alternative mechanisms for realizing the pluralism and discovery functions that she agrees are important in a democracy.

Ross is a foundation CEO, while Saunders-Hastings a political theorist. So one might be tempted to think that the starkly different responses are explained by their respective professions. But that thought is dispelled when considering the replies of Gara LaMarche and Eric Beerbohm. LaMarche, former president of Atlantic Philanthropies and vice president at the Open Society Institute, two of the largest foundations in the United States, welcomes my skeptical questions about foundations because he worries about the nearly century-long silence of such debate. Unlike Ross, LaMarche finds much to criticize in both the institutional form and actual performance of foundations. He broaches the ideas of limiting foundation size and lifespan, incorporating community governance, and diminishing or eliminating tax advantages. Beerbohm, another political theorist, is more sanguine about foundations. He approves of the discovery justification but wonders whether the permission to exist in perpetuity is genuinely necessary.

My own position is between those of Ross and Saunders-Hastings. Ross’s view that foundations are necessary tools of democracies is mistaken. They are neither necessary nor inevitable elements in democratic societies. They did not develop in the United States until the late nineteenth century, and their current form is more a product of historical contingency—a byproduct of the introduction of the federal income tax—than deliberate policy formation. We can point to decent democratic societies—France, for example—that have nothing close to the institutional form of the American foundation.

Saunders-Hastings agrees with me that pluralism and discovery are important in democratic societies, but she wants to see these functions distributed more broadly. Democracy should treat with the “deepest suspicion” the idea that the rich are better suited to promoting pluralism and discovery than are democratic citizens. I am ambivalent about the pluralism-supporting role of foundations, for this role might also be played by the garden-variety charitable contributions of all citizens. Discovery, I think, is a better justification for foundations. But even there democracy can deploy alternative mechanisms, such as federalism, to stimulate discovery. Saunders-Hastings suggests further alternatives, such as government-sponsored pluralism or discovery grants for which citizens can apply, with selections by jury or lot. This seems to me no different from what the National Science Foundation (NSF) or National Endowment for the Humanities (NEH) do.

She is correct that democratic institutions are wise to provide support through such mechanisms, but I think she misses two distinctive virtues of foundations in support of discovery. First, the unaccountability of foundations insulates them from certain kinds of political pressures and permits them to operate on a longer time horizon. The rancor directed at the NEH after it funded an award for Andres Serrano’s Piss Christ and the Senate’s recent passage of a bill to defund nearly all political science research supported by the NSF are good examples of politics unduly intruding into the work of pluralism and discovery. Second, foundations can do the work of discovery at lower cost than can the government, for, despite their tax subsidies, foundations are supported mainly by private assets.

But do foundations actually provide discovery? Do they deliver for democracy what their distinctive institutional form makes possible? Are they undertaking bold policy experiments with their eyes on the future? In other words, is the work foundations do enough to justify the considerable public subsidies they enjoy?

I don’t know, and for this reason, above all else I agree with LaMarche that significantly greater media scrutiny of the work of foundations is needed. And I welcome his call for broader public discussion about the work of foundations and their effects on democratic society. May this Boston Review discussion be the start of many more to come.