Book Reviews

Philanthropic Harm

Not only can’t philanthropy replace a strong public sector—it needs one to promote the common good effectively.

By Mark Schmitt

Tagged InequalityPhilanthropy

Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better by Rob Reich • Princeton University Press • 2018 • 256 Pages • $27.95

To say that the very wealthy exert disproportionate, even extreme influence over American public life is no longer a controversial or interesting point. But what form does that influence take? Too often, the story is simplified to “Citizens United,” The Supreme Court case that is a metaphor for the idea that campaign contributions buy influence over economic decisions.

But that’s really just a miniscule part of it. All the money spent on federal elections in a presidential year totals about $6 billion. Meanwhile, almost $410 billion dollars flows through the charitable sector and organized philanthropy. Some of this money is just routine local charity, but much of it has profound influence, for good or ill, on education (think of the decades-long campaign for charter schools), economic thought (all the academic chairs funded by the Kochs and Olins), arts and culture, criminal justice, the environment, and much more.

The giving of the wealthy often reflects their peculiar passions and quirks as much as their immediate financial interests. Imagine how different American public life would be if George Soros had never encountered Karl Popper and become entranced by the idea of the “open society”? If Tom Steyer didn’t care about climate or Bill and Melinda Gates about education? If Eli Broad preferred Old Masters to contemporary art?

I spent seven years working at a foundation—Soros’s Open Society Institute (OSI), now called Open Society Foundations, in the late 1990s and early 2000s, when it was expanding its presence in the United States. Then and since, I have thought that the vast philanthropic and nonprofit sector desperately needed more skeptical examination, beyond press-release journalism celebrating big grants. Otherwise, there’s no external accountability for the decisions made, in sharp contrast to government, where I’d worked before.

Only recently has this overdue scrutiny begun to appear, in both journalism and the social sciences. In 2013, David Callahan founded the online news site Inside Philanthropy and in 2017 published The Givers; in the last year, Anand Giridharadas’s Winners Take All, like Stanford political scientist Rob Reich’s Just Giving, challenged the assumption that all giving is good, and established that philanthropy, far from being an antidote, could and does actually support the structures that perpetuate inequality and reinforce the social advantages, as well as the particular and sometimes peculiar preferences, of the wealthy.

Back at the turn of the millennium, the sharpest critique of institutional philanthropy from the left was that “[M]ainstream foundations prefer to make modest, on-the-ground improvements in specific neighborhoods,” rather than joining the ideological fight in the courts, legislatures, and media, in the words of an influential 1997 report by Sally Covington, published by the Committee for Responsive Philanthropy. The report showed that conservative foundations, such as Olin, had less money than “mainstream” or center-left foundations such as Ford, but invested it more effectively in ideas, such as school vouchers, and in ideological institutions such as think tanks.

From the right, the critique of philanthropy is as old as Henry Ford II’s complaint when he quit the board of the Ford Foundation in 1976: that the original intention of donors, usually conservative white men, had been twisted to the left by professional “philanthropoids” (a word coined by Dwight Macdonald in his 1955 New Yorker series about Ford).

How quaint those concerns seem now! In the two decades since that report, foundations and individual donors have become much more enthusiastic about promoting and lobbying for their ideas and have embraced sophisticated communications strategies. A few have even launched affiliated 501(c)(4) organizations, which get more limited tax benefits but are free to lobby. The Gates Foundation, while not yet 20 years old, long ago surpassed Ford and MacArthur and now holds more than $40 billion in assets. It’s one of many new philanthropic ventures whose principal donors are alive and fully engaged in setting direction, inspired by the idea of “giving while living.” Henry Ford II was not wrong to intuit that the cultural difference between the person who amassed or inherited the wealth, and the professionals who tend to staff foundations, is significant. Living donors may be more conservative in their politics, but also more impulsive and eager for tangible, short-term results.

Also during this period, the clearly defined roles of funder and grantee have been swamped by a sea of intermediary organizations, including consulting firms such as Arabella Advisors, and well-staffed “affinity groups” that mediate among foundations and organizations with shared interests. The world of philanthropy has grown bigger, richer, more influential, more complex, and more insular.

Many newer foundations, such as the network of organizations created by eBay founder Pierre Omidyar, simultaneously make grants and operate their own research or advocacy programs. Other new donors, including Mark Zuckerberg and Priscilla Chan, as well as Laurene Powell Jobs, have eschewed the traditional structure of a private foundation organized under section 501(c)(3) of the tax code in favor of LLCs that allow them to move smoothly across the lines that define charitable, political, and for-profit projects.

While Inside Philanthropy’s Callahan was a prominent voice in the earlier left criticism of foundations for their restraint about policy and ideology, by the time he published The Givers, he had come to worry more about the staggering influence of donors such as Gates and Zuckerberg and their power in, for one, education policy. The two more recent books, by Giridharadas and Reich, raise similar concerns about whether philanthropy exacerbates inequality. While often paired in reviews, they could not be more different. Giridharadas is acid and unsparing in his pen-portraits of donors and dilettantes infatuated with their own “win-win” or “double bottom line” solutions. Darren Walker, the magnificently self-aware president of the Ford Foundation, plays the role of Virgil in Giridharadas’s journey through endless self-congratulatory convenings and TED-talk style presentations punctuated by projections of beautiful photographs of grateful African children.

Reich, one of a handful of political scientists who treat philanthropy as a source of public power worth studying, is by comparison dry, careful, impersonal, grounded in democratic theory. He doesn’t name names because names aren’t the point. As writers, they are as different as Tom Wolfe and John Rawls. (Wolfe’s Radical Chic and Rawls’s Theory of Justice were also published within a few months of each other, in 1970-71.) While Giridharadas is more likely to make you spit out your coffee with a mix of amusement and outrage, Reich’s work will likely be the more lasting and relevant critique, and one that covers the whole philanthropic sector, not just its Davos-inflected absurdities.

For Reich, the inequality promoted by philanthropy is inherent to its structure and tax advantages, both of which he strips down to their unquestioned premises. Tax preferences for charitable giving, because they are structured as a deduction and are available only to those who itemize deductions, overwhelmingly benefit those wealthy enough to itemize—those in the higher marginal tax brackets. A $100 donation costs someone in the top tax bracket effectively $60, or even less depending on state income taxes, whereas it costs someone in the 10 percent bracket $90, or the full $100 if they’re among the majority who don’t itemize their deductions.

It’s under conditions of scarcity in the public sector that philanthrophy’s role shifts from new discovery to something more like undue influence.

Many of the benefits of giving are “rival and excludable” goods that largely benefit the donors and their immediate community, Reich argues, deliberately using the inverse of the economist’s definition of “public goods.” Donations to one’s church, for example, may support programs that benefit the donor herself, her family, neighbors, and co-congregants, but that only in limited ways help the larger community. On a much grander scale, financier Stephen Schwarzman, after years of negotiation, agreed to give Yale $150 million to renovate a dining hall and rename it “The Schwarzman Center,” while maintaining the power to provide his own input on “any aspect of the project,” according to Yale president Peter Salovey. While there is a larger benefit to the community of having a nicer dining hall, the naming rights and operational role represent, at the same time, a private benefit to one of the world’s wealthiest people.

Or, another of many specific examples of philanthropy exacerbating inequality: Private donations from parents, in support of public schools, flow to the schools attended by their own children, which are usually those that need help the least. Likewise, foundations organized in perpetuity, giving away only the legally required 5 percent, as well as the more recent explosion of donor-advised funds (a financial instrument that allows wealthy people to set aside money for future giving), can lock money away from both the tax system and charitable purposes for generations.

Reich proceeds methodically through all the potential rationales for subsidizing and encouraging philanthropy, rejecting several persuasively. For example, he argues that philanthropy shouldn’t be considered a more effective means of delivering public goods or services or redistributing wealth unless philanthropy can “do better than the state would do had it taxed the philanthropic assets.” That can rarely be shown, especially given that tax-deductible giving supports

“puppet theaters and soup kitchens alike.” He makes an uneasy peace with what he calls the pluralism argument—that philanthropy encourages the rich tapestry of nongovernmental associations that make up civil society—but observes that “[T]here was no charitable contributions tax deduction when Tocqueville toured the United States.”

Ultimately, Reich settles on a rationale for philanthropic subsidy that he can endorse: “discovery.” Foundations and non-profits can develop and test policy ideas that government, or democracy, aren’t ready for yet. The way I’d put it is that the American philanthropic sector can be a kind of distributed, pluralistic, subsidized research and development arm for public policy—if it thinks of its work in those terms and acknowledges a deep public obligation. From my own experience, a good example was OSI’s investments in needle-exchange programs in the late 1990s, at a time when the politics of the drug war made it impossible for government to even test whether that would be an effective public health intervention.

Foundations can go beyond just testing specific policy ideas; they can also test new political coalitions before most elected officials are ready to consider them. The recent breakthrough on criminal justice reform, for which Jared Kushner got an odd amount of credit, really has its roots in conferences and grantmaking at OSI that date as far back as the mid-1990s, when the organization worked with Republican corrections commissioners and faith-based organizations, such as Prison Ministries, to find common ground with ex-offenders and activists from the left. The Koch family’s philanthropies played a similar role in more recent years. Atlantic Philanthropies, in 2007, put $50 million into the coalition of traditional health reform advocacy groups and progressive organizations that would build a constituency for the Affordable Care Act. That’s similarly a form of “discovery”—not just a policy idea, but using grantmaking to build new coalitions that wouldn’t form otherwise.

That approach to philanthropy, which may be more common among larger foundations than Reich recognizes, requires that two conditions be met. First, funders must be genuinely committed to discovery, which means honestly acknowledging ideas that didn’t work, as well as advocating for those that show genuine promise. Although foundations have literally nothing to lose by admitting failure, they still seem reluctant to shift course, for obvious reasons of human and organizational psychology, but also because success or failure can be difficult to measure, especially when the work involves advocacy for change. (Criminal justice reform didn’t seem to be going anywhere at the federal level, until suddenly, it did!) But there are exemplary cases where even the biggest and slowest moving foundations have acknowledged error, such as the Gates Foundation’s decision to reverse its push for smaller high schools when evaluations showed they didn’t improve student performance.

The second necessary condition for philanthropy to play a legitimate, democracy-enhancing role in policy discovery falls largely outside the domain of philanthropy itself. The public sector must have the capacity—democratic capacity and fiscal resources—to work with philanthropy in a balanced and responsive way. Otherwise, the public sector becomes so dependent on philanthropic interventions that it can’t make its own choices, democratically or based on experience.

Reich quotes Diane Ravitch, who has called Bill Gates “the nation’s unelected school superintendent,” an apt description of the Gates, Broad, and Walton foundations’ interventions in Washington, D.C., and Zuckerberg’s role in Newark. In Washington, several major education foundations (though not Gates’s) in 2010 threatened to pull $64.5 million in funding if the city’s mayoral election resulted in the ouster of the politically inept schools chancellor Michelle Rhee. (In the end, Rhee left but her replacement continued her reforms with a savvier hand.) The foundations weren’t really to blame, since they were interested in promoting one vision of education reform, based on tying teacher salaries to student performance on standardized tests, not in supporting Washington’s schools in general. To D.C. voters, however, it felt a bit like blackmail.

It’s under conditions of scarcity in the public sector that philanthropy’s role shifts from Reich’s ideal of discovery to something more like undue influence. Just as politicians hesitate to say no to their biggest donors, public entities and nonprofits are often so desperate for resources that it’s hard for them to set their own course.

And so we have come almost full circle, back to the critiques of philanthropy of the late 1990s. In order for philanthropy to fulfill its most legitimate role, it should recognize not only its own public obligations, but the need for a robust, adequately funded public sector and a responsive democracy. It’s not just that philanthropy can’t replace or fill the gaps in an inadequate public sector, but that it needs a vibrant and independent public sector, which means joining a fight that will be, at times, ideological. Foundations can play a role (and some do) in fighting for those conditions, but it is a long-term, multi-issue struggle, not a matter of a demonstration program here and a single-issue campaign there. It’s necessary not only as a good in itself, but for philanthropy to fulfill its most legitimate role in a mixed economy and democratic society.

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Mark Schmitt is the director of the political reform program at New America.

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