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American FoundationsRoles and Contributions
By Helmut K. Anheier David C. Hammack
Brookings Institution PressCopyright © 2010 Helmut K. Anheier and David C. Hammack
All right reserved.
Chapter OneAmerican Foundations: Their Roles and Contributions to Society DAVID C. HAMMACK AND HELMUT K. ANHEIER
What have independent grant-making foundations contributed to the United States? What roles have foundations played over time, and what distinctive roles-if any-do they fill today? Are new roles for foundations currently emerging? This volume presents the product of a three-year effort to answer these questions.
America's grant-making foundations are significant by many measures. They numbered more than 112,000 in 2008, held more than $627 billion in assets, and had grown substantially over more than two decades. They command substantial resources even in the midst of the 2008-09 financial crisis. Entitled to considerable tax benefits and exemptions, and free from direct responsibility to shareholders and voters, foundations enjoy exceptional independence. They can invest the assets they hold, subject to modest restrictions and to an annual tax, generally 2 percent of investment income. So long as they give a minimum amount each year for "charitable purposes" defined in very broad terms, avoid enriching their donors or staffs, and do not directly support candidates for political office or lobby directly for specific legislation, American foundations can largely do as they please.
American law and practice define charity in wide terms. As the Internal Revenue Service puts it, "The term charitable is used in its generally accepted legal sense," which "includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency." Unlike an operating charity such as a school, hospital, research institute, social service agency, or museum, a foundation's board may, in almost all U.S. states, shift funds from one activity to another at any time. And foundation grants add up to a considerable total: the Foundation Center has estimated that in 2007, American foundations gave away more than $42 billion.
Among all industrial societies, the United States has long granted the most scope to philanthropy. While foundations exist in many countries-most prominently in Germany, the United Kingdom, Italy, the Netherlands, and Japan-the United States stands out: in no modern society are foundations more numerous, and nowhere have they become so prominent and visible. Compared with their counterparts in Europe and Asia, the philanthropic foundations of the United States look back to a longer and more continuous history.
In this book, however, our concern is not to explain why so many foundations have appeared in the United States or why they are more numerous and more influential here than in other countries. Instead, we ask, What difference have they made over time, and what difference are they making today? What have they contributed to American society over time, and what are they contributing today? How did foundations achieve impact in the past, and how are they attempting to make a difference today?
The Approach Taken in This Volume
In seeking answers to these questions, we asked each of our collaborators in this book to evaluate several hypotheses advanced by previous research, presented more fully below, paying particular attention to the resources available to foundations, the fields they engage, and the contributions of other institutions, whether government agencies, nonprofits, professionals, or business firms, to those fields. Research on the roles, performance, and contributions of businesses and public agencies fills libraries and is the focus of distinct academic disciplines. A more limited but rapidly growing literature considers nonprofit organizations. By contrast, the foundation, as a distinct organizational form, has received much less scholarly attention. Whereas foundations have from time to time been praised or damned in sweeping terms from one perspective or another, we contend that precisely because foundations have sought to do many different things over several distinct periods of American history, broad generalizations are neither illuminating nor useful. In this book, we are taking a more nuanced approach, being mindful also of heightened policy interest in foundations-in the causes they choose to support, in their potential to advance fields ranging from culture, education, and health to religion, the arts, social services, and effective government, and in their potential abuse.
When we began to explore foundations' roles and gauge their contributions, we quickly concluded that foundation impact, whatever it might be, could best be assessed in the context of particular fields at particular times. Ideally, we see "impact" in causal terms, as a measure of the effectiveness of specific activities intended to bring about sustained and observable change. But given the wide range of foundation purposes, the complexity of the changes they seek, the small size of foundation funds in relation to their fields of action, the limitations of the available data, and also the limited resources available for this project, we decided to combine qualitative and quantitative approaches by focusing on large grant-making foundations, while also noting other types such as community foundations; considering several quite diverse fields over extended periods of time; and using consistent approaches that take account of the best current analyses of work in the fields that foundations address.
The larger independent and community grant-making foundations are at the core of discussions about the contribution of foundations to American society. More than half of all independent grant-making foundations have less than a million dollars in assets. We focus not on these small foundations, which are numerous but whose total assets amount to just 3 percent of all foundation holdings, but on the largest 5 percent, which hold the bulk of philanthropic assets.
Foundations as Institutions
Large grant-making foundations are important not just for their wealth but also because they are notable institutions. Institutions make ideas and practices regular, routine, almost solid. They can provide a measure of predictability and a sense of consequence. Institutions define realities, concert resources, enhance or frustrate the power of those who work through them and with them, and generally help shape their environments.
Foundations are important institutions because they enable donors to reserve and invest charitable funds, to set terms for their distribution, to provide funds to one or many grantees over time, and to shift funds from one charitable activity to another. Foundations are also important because they focus grant-seekers' attention. In their financial capacity, foundations contribute in a minor way, together with individual and corporate donors and certain government agencies, to what some describe as a grants economy that provides about a fifth of the income of America's nonprofit organizations. In their civic capacity, foundations (like associations and nonprofit organizations) constitute sources of wealth, influence, and initiative independent of government and business. Foundations can help individuals discharge religious obligations and moral commitments, provide a secure basis for minority religious and cultural and scientific interests, and enable ambitious people to exchange economic wealth for social recognition and prestige.
Clearly, foundations do much more than give away money: when society permits, they can confer legitimacy and worthiness on, as well as enhance the recognition and status of, a donor. In conjunction with policymakers, tax authorities, judges, accountants, religious leaders, pundits, and many others, foundations can make real Americans' divergent and changing ideas as to what is really charitable or valuable. Foundations can shape the actions of others by granting money and defining particular activities, purposes, achievements, and people as worthy of gifts, grants, awards, and prizes.
Ancient and medieval foundations in Europe and the Ottoman Empire supported the saying of prayers; the preservation, copying, and study of sacred texts; the education of religious leaders; the symbolic feeding of the poor (especially widows and orphans); and the religious care of the sick and dying. Modern foundations continue to do all that, and they also reward heroism, good citizenship, writing on many topics, artistic endeavor, and scientific and applied research. When conditions have been favorable, modern foundations have successfully introduced public awareness campaigns, encouraged new social behavior, launched self-sustaining organizations, and even reorganized entire fields of activity.
U.S. foundations once helped define limits and indirectly served to maintain social barriers within American society by confining their gifts largely to white men. Since the civil rights and women's movements, many American foundations have instead sought to eliminate such limits and reduce barriers by emphasizing their willingness to include African Americans, Hispanics, Native Americans, members of other minority communities, and women among their grantees and among their trustees, as well-as a matter of course.
The existence of the foundation as an institution gives a donor an alternative. A donor who wishes to give outside his or her family and friends can give directly to a religious institution or other operating organization (or its endowment) or to an individual. A donor can also place funds in a foundation to be given over time to a developing field, a complicated project, or a cherished purpose, or to be given in a field-such as the production of works of art or literature; the mounting of theatrical, musical, or dance performances; or the celebration of religious rites and duties-in situations where stable organizations are lacking. Any person can also, of course, decide to make no gifts at all. To focus on foundations is to focus on just one of the legal and institutional instruments that the United States makes available to its donors.
U.S. foundations act chiefly through nonprofit organizations; in an important sense, giving money to a foundation is an alternative to giving to an operating charitable nonprofit organization, religious or secular. U.S. foundations also often give to state universities, public schools, county hospitals, national museums, and other government entities. Hence it is important to consider the implications of the fact that donors can give through foundations as well as directly to nonprofit organizations or agencies of government. Foundations can reinforce the autonomy of a nonprofit by providing distinctive sources of income; they can enable a nonprofit to launch a new initiative, to expand, even to pursue some difficult-to-fund course. Foundations can enhance the ability of a government entity to do its work. But foundation demands can also limit nonprofit autonomy and exert controversial influence on public agencies. Because foundations have the power to expand or contract their funding in accordance with their own purposes, they can help their grantees expand-and they can also lead grantees to distort their missions.
One of our key findings, not sufficiently appreciated in general discussion, is that as nonprofit organizations and government agencies have grown in recent decades, foundations have grown much more slowly and have, as a result, become less important. Over the past forty years, private colleges, not-for-profit hospitals, state universities, county hospitals, nonprofit job training centers, and similar entities have dramatically increased their earned income. They have also benefited since 1966 from increased federal funding through Medicaid, Medicare, federal grants and loans to college students, and massive federal investment in job training. Huge increases in other federal programs, ranging from the National Science Foundation and the National Institutes of Health to subsidies for housing and support for the disabled, have produced a steady increase in government funding for nonprofits as well as for state and local schools, hospitals, clinics, and other agencies.
Meanwhile, private giving of all kinds, including giving to and through foundations, has not increased in relative terms but has remained quite steady at a little less than 2 percent of disposable income. Thus in recent decades American foundations have been operating in a new and rapidly changing environment in which their resources have been declining relative to the resources devoted to the fields with which they engage. For nonprofit organizations, earned income now amounts to three or four times as much as all private donated income. And, if we count medical insurance payments as "earned," even though they are heavily subsidized and regulated by the federal government, earned income also exceeds government funding of nonprofits by about 50 percent. "Charitable" American nonprofits gain that designation through the character of the services they provide and through the spirit of their operations, more than through reliance on private donations. This has always been true to a considerable degree; it is now more true than ever.
So we began this project knowing that impressive though they are, foundation assets are small and declining in relation to the fields and the needs they seek to address. Previous work had also made it clear in a general way that, precisely because their assets are limited, the most effective foundations have always demonstrated notable creativity and strategic thinking. Foundations that achieve real impact must have a shrewd understanding of the dynamics of the fields in which they operate and a thoughtful mastery of ways to use limited funds with maximum leverage. Even as foundation assets have seen relative decline, federal and state regulation of activity in most fields relevant to foundation interest has greatly increased. With increased wealth, Americans can and do pay for more and more of the kinds of services that foundations support. Today's foundations must adapt their strategies and tools, perhaps even downsize their ambitions, and in any case carefully reconsider the fields and issues they choose to address. In so doing, autonomy in the use of assets gives foundations their great potential. Our ambition here is to begin to develop a more precise empirical assessment of how foundations use their exceptional position, and with what impact.
Roles and Contributions
As they seek to make an impact, foundations above all distribute money. Foundations have also been able to offer resources that are less tangible than money but that under the right circumstances can be even more valuable. Through longevity, consistency, and good judgment-and, more generally, through the basic terms of their programs-foundations can confer honor, prestige, or authority, and in this way they can encourage desired behaviors and actions. Sometimes foundations have done this by offering prizes for notable achievement; sometimes by supporting research, creative work, or collegial activity; sometimes through scholarships designed to attract newcomers into a field. Some foundations have sought to make a mark even more programmatically, by devoting resources to operating institutions that seek their own distinctive reputations for excellence.
It is important to consider not just what foundations provide in the way of money and other resources but also intent and method. As has been noted, in legal terms, all foundation grants must be "charitable"; in practice, foundation approaches can be seen as attempting to contribute to society in three main ways: through relief of immediate needs, through philanthropy, or through control.
Relief of immediate need occurs when foundations pay for services or goods that benefit others-for example, characteristically, the poor or the disabled-within an existing framework. Counterproductive efforts of this sort encourage dependency-or are insufficient. We identify two chief forms: complementarity, whereby foundation gifts supplement tax funds and individual gifts in paying for services or goods for otherwise undersupplied groups; and substitution, whereby foundation grants replace tax funds and individual gifts in providing services or goods.
Excerpted from American Foundations by Helmut K. Anheier David C. Hammack Copyright © 2010 by Helmut K. Anheier and David C. Hammack. Excerpted by permission.
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