Money, Power, and Constraint
The concern Rob Reich voices is most often heard from critics of private foundations: that they are “unaccountable.” He quotes Richard Posner to the effect that, because foundations are regulated by neither political nor market mechanisms, they are “completely irresponsible” institutions. Putting aside the irony of hearing this from a federal judge, it reflects an overly formalistic—which is to say, unrealistic and misdirected—understanding of accountability.
On second thought, let’s not skip Posner’s status as a federal judge, which helps illustrate the point. Are federal judges unaccountable? Think of Mr. Dooley’s famous observation that the Supreme Court “follows the election returns”—a well-documented fact that exemplifies the way in which informal mechanisms of accountability can be as powerful as formal ones. Whatever its technical independence, the Court turns out to be accountable because justices care about their reputations and legacy, do not like to be publicly excoriated, and, most important, worry about legislative backlash. There is, to be sure, ongoing controversy about whether this accountability is a good thing. Most people today think not. They think the Court should be supreme when it comes to interpreting the Constitution and treat even strong verbal criticism, much less threats of legislative punishment, as alarming and inappropriate. My own view is the opposite: judicial supremacy has no basis in the Constitution, and acceptance of this idea has made the Court too little accountable.
Accountability is a matter of vulnerability to the opinions and potential control of others, however produced. Formal oversight is one way to create this vulnerability, but it is not the only way and sometimes not even the most effective one. Foundations are accountable for the same kinds of reasons that courts are (or used to be): because they are situated within a system of public scrutiny that affects their reputations and ability to function. Foundations are, in fact, considerably more vulnerable than courts, for they operate under far greater threat of legislative action, not to mention IRS oversight. There is no doctrine of “foundation supremacy” to protect them from irritated or opportunistic legislators. Indeed, foundations are often criticized for tiptoeing around politically sensitive subjects. Unaccountable? I’ve been inside a foundation for only a short while. And while I have discovered many new freedoms, a feeling of unaccountability most definitely is not among them.
The issue is not foundations as such, but wealth.
One should not overstate the point. Accountability exists on a continuum, and foundations assuredly have more room to act than do many institutions. This, Reich suggests, makes them “institutional oddities” in a democracy: large aggregations of wealth, free from direct popular control, able to throw their weight around to affect public policy. Yet what worries Reich in this respect is not foundations as such. It is wealth—for the power he fears is wielded equally by every rich person who uses his or her money to affect policy. Indeed, wealthy individuals represent a far greater oddity for democracy, in Reich’s terms, than private foundations do, since wealthy people are not obligated to disclose what they do and are not subject to the limitations on direct lobbying that constrain foundations.
Reich recognizes the problem of spending by wealthy individuals. But, he says, the creation of a foundation goes beyond such exercises of individual liberty because foundations are tax subsidized. Yet so too are wealthy individuals—through low capital gains taxes and a myriad of other tax expenditures that favor accumulated wealth. Nor should we overlook various estate planning devices that enable wealthy people to keep their fortunes whole long after they die, passing on the same freedom and power to their heirs. True, these tax benefits are not conferred for the purpose of enhancing the ability of wealthy individuals to influence society, as are the laws that make foundations possible. But why should that matter if they have the same effect?
We could eliminate all tax subsidies. Yet that would not eliminate disparities in wealth and so would not eliminate the disparate effects of wealth in influencing society. It might eliminate foundations, but that would hardly make society better—for many reasons, including those Reich discusses. To solve the dilemma that troubles him, we must eliminate all differences in power, or all differences that are a product of anything other than better reasoning. In that world, we could indeed do without foundations. But I’m certainly not going to hold my breath.