What Are Foundations For?

On the role of philanthropy in democratic societies

I’ve been writing about the role of philanthropy in democracy for the past few years. Through my work with the Stanford Center on Philanthropy and Civil Society, I’ve come to understand a little better the work of one significant component of American philanthropy: private philanthropic foundations.

Foundations are institutional oddities in democratic societies. They are largely unaccountable, non-transparent, permitted to exist in perpetuity, and the beneficiaries of significant tax breaks. Why create such an institutional form in democracy? What are foundations for?

That’s the question I explore in a forum in the Boston Review. There are interesting responses from Stanley Katz, Diane Ravitch, Christopher J. Coyne, Deborah Fung, Paul Brest, Rick Cohen, Scott Nielsen, Tyler Cowen, Seana Shiffrin, Pablo Eisenberg, Larry Kramer, Eric Beerbohm, Robert K. Ross, Gara LaMarche, and Emma Saunders-Hastings.

From the opening paragraphs:

Judge Richard Posner, one of the foremost American jurists outside the Supreme Court, once observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.” Why, he wondered, don’t we think of these foundations as “total scandals”?

If foundations are total scandals, then we have a massive problem on our hands. We are now living through the second golden age of American philanthropy. What Andrew Carnegie and John D. Rockefeller were to the early twentieth century, Bill Gates and Warren Buffett are to the early twenty-first century.

The last decade of the twentieth century witnessed the creation of unprecedentedly large foundations, such as Gates’s. The assets of the Gates Foundation and a separate Gates Trust, which holds wealth donated by the Gates family and Buffett, together total more than $65 Billion. If the combined entities were a nation, it would be 65th on the world GDP list. And it’s not just billionaires and their mega-foundations that command attention. Record wealth inequalities might be a foe to civic comity, but they are good for philanthropy. The boom in millionaires has fueled unprecedented growth in the number and assets of small foundations.

So foundations have seen explosive growth. But why are they a scandal? If Carnegie was right that the man who dies rich dies disgraced, then these foundations and their big donors should enjoy a good reputation, and, indeed, they do. A 2011 Gallup poll put Gates and Buffett among the ten most admired Americans. Shouldn’t we be grateful to the person who devotes his private wealth to public purposes, rather than consuming conspicuously or passing his wealth to children and relatives?

Perhaps. But whatever the personal virtues of wealthy philanthropists, Posner presents us with a forceful challenge to the role of foundations in a democracy. (Posner worries most about the perpetual charitable foundation, but the challenge is more general.) A democratic society is committed, at least in principle, to the equality of citizens. But foundations are, virtually by definition, the voice of plutocracy. The assets of a modern philanthropic foundation are set aside in a permanent, donor-directed, tax-advantaged private endowment and distributed for a public purpose. These considerable private assets give it considerable public power. And with growing wealth and income inequality, their apparent tension with democratic principles only intensifies.

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