Inefficent, but Not Plutocratic

Rob Reich sees foundations as part of a diverse, competitive, and decentralized landscape for exploring competing visions of the good society. I agree, but I object to the path he takes to this conclusion.

The first part of Reich’s essay can be read as a devil’s advocacy, raising arguments that he will rebut later on. Still, he uses too many general and value-laden terms and prejudges substantive issues.

Reich says than a foundation represents an “institutional oddity in a democracy” because “its considerable private assets give it considerable public power.” I would sooner say that we live in a constitutional republic with strong democratic elements, not a democracy, and indeed influence was never intended to be egalitarian, nor should it be. With that rather different description, private foundations suddenly sound less odd.

The phrase “considerable public power” also obscures the reality. To be sure, foundations have some lobbying power, if only indirectly, but their essence—giving away some money and investing the rest—doesn’t rival more common coercive conceptions of power. The philanthropic process may be better described as an alternative to that power.

Maybe the power of wealthy foundations comes in stifling the expression of grant-seekers’ opinions: the arts community may be reluctant to criticize tobacco, for fear of hurting its connections with Altria (Philip Morris). But I have seen no evidence that this problem is significant. Some commentators complain about the far reach of the extremely wealthy Gates Foundation in economic development and education, but its net impact, relative to non-philanthropic institutions such as corporations and government, appears quite small. That could be said of philanthropy in most areas.

Reich repeatedly describes foundations as “plutocratic.” Some meanings of plutocracy refer mainly to influence, but, again, the term seems misplaced here. I don’t see foundations campaigning against “one man, one vote” or against basic human rights—quite the contrary. Or maybe one fears that the Peterson Institute, for example, will have disproportionate influence over future fiscal policy, but I observe politicians pandering to voters for the most part on the major issues; we would do better if foundations had more influence over public policy.

There is no conflict with principles of accountability.

Moreover, few if any foundations achieve donor-directed control in perpetuity or even past the first generation. The Ford Foundation and Pew Foundation are well-known cases. The law may “enshrine the donor’s wishes in perpetuity,” but this is largely an illusion in practice, and arguably for the better, as it limits the influence and power of the founders and initial grantees.

I also disagree with Reich’s complaint about foundations lacking accountability. But a similar complaint may be leveled about voters: to whom are they accountable? Or for that matter consumption decisions: to whom are consumers accountable? Accountability is not an endless chain where each party along the line is accountable to someone or something else. Assigning accountability to a foundation’s board of directors alone is not fundamentally in conflict with the principles of accountability underlying a free society.

Like Reich, I worry about the tax-subsidized nature of foundations, especially in a time of budget squeezes. Yet I feel uncomfortable calling this a subsidy, or grounding it in the view that foundation giving is part of a more public sphere.

Let’s consider a parallel. In many localities some items are subject to sales tax and others exempt, or perhaps subject to different rates. Let’s say that I spend my money on untaxed items or lower-taxed items. Does this untaxed expenditure—an indirect subsidy of sorts—imply that “the public” should have a greater say in how I spend my money? I see comparable judgments being applied, if only implicitly, to the untaxed status of private foundations.

I have some significant worries about foundations but prefer to view them in more concrete terms: foundation overhead is often extremely high and not for the better; many wealthy foundations become highly risk-averse or too averse to negative publicity and too much like massive bureaucracies; the balance between board and staff control very often misfires, often in ways harmful to all involved; and there is a tendency to pursue vanity projects.

So all is not well in the world of U.S. foundations, but Reich’s critique uses too broad a brush, and is too caught up in abstract political concepts to get at these very real and enduring problems.