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"As usual for the award-winning Dowie, this book is right on time." Jim Dulzo
The MIT Press
"His studies of specific foundations and their programs are fascinating." Mary
The MIT Press
"This book is a thorough review of the world of American philanthropy." Colin Greer
The MIT Press
Anticipate charity by preventing poverty.
The system that makes the foundation possible is probably worth preserving.
—Henry Ford II, Former Chairman, Ford Foundation
Although from its earliest days organized philanthropy has been integralto American culture, foundations are not an American invention.In fact, many civilizations whose inhabitants accumulated private wealtheventually developed institutional ways to put excess profit to workfor society—though not always in ways that we would today call "philanthropic."In fifteenth-century England, for example, the Week's Charitywas created to purchase firewood for burning heretics.
In ancient Persia the practice of establishing small trust funds calledvaqfs (pronounced waffs) for charitable purposes has existed for a thousandyears or more. In pre-revolutionary France there were also numerouslarge foundations; they were eliminated after 1789, however, by aregime that repudiated plutocracy and envisioned a state far better ableto serve the interests of charity. The foundations of modern Europe, whilelarger than vaqfs and more like their American counterparts in structureand practice, are comparatively few and far between.
Massive trusts numbering in the thousands, some with $10- and $20-billiondollar endowments growing ever larger as new wealth is created,are a uniquely American institution. They arose in the late nineteenth andearly twentieth centuries as a few fabulously rich American industrialistsbegan casting about for a means to avoidtaxes and put their wealth touse in new and imaginative ways. Throughout the twentieth centuryAmerican foundations, with their elite, self-perpetuating boards and largeprofessional staffs, exerted subtle but profound influence over key sectorsof government and civil society.
We can conceive of that first century of American foundation historyas three, somewhat indistinct waves or periods of development, each withits own overriding purpose The waves overlap and are only impreciselybounded by particular historical events. Although many common themesendure through all three periods, they are differentiated by significantshifts in emphasis and in the priority placed on particular initiatives.
The first wave, which began around the turn of the twentieth century,lasted for about forty years and focused principally on the advancementof formal knowledge. In the second wave, starting around 1945, the foundationsbegan to see themselves as mediators in the formulation of publicpolicy. And in the third wave, which began in the 1960s and is still withus, they sought to promote, quite cautiously, their own conceptions ofsocial justice. The binding theme of all three waves has been the foundations'shared commitment to building a better society. Thus, the commongoal of American organized philanthropy throughout its first century ofexistence has been change.
During each wave, the size and number of foundations grew steadily,from the eighteen that existed before 1910—only one of which (RussellSage) held assets over $10 million—to today's almost fifty thousand private,corporate, community, and operating foundations whose combinedassets approach $425 billion. (About forty foundations each boast endowmentsgreater than $1 billion.) As one wave followed another andtheir numbers increased, the foundations learned to multiply the impactof their fast-growing wealth through leverage (see box insert). Thus thegrowth of their social influence has outpaced even the increase in theirnumber and assets.
While many foundations were originally formed to pursue such singulargoals as advancement of a particular branch of science, promotion ofa religious denomination, or cure of a rare disease, behind these explicitintentions lay an implicit concern for human welfare—deeper in somefounders than in others. In that light, the adjective philanthropic (lovinghumanity) was appropriate. But as change, not charity, became the drivingforce behind these institutions, the word philanthropy gradually tookon a different meaning. Though philanthropists, their survivors, trustees,employees, historians, and other observers argue endlessly over the definitionof the word and the effectiveness of specific philanthropic programsand strategies, they generally agree that the purpose of their workis to imagine a better society and help bring it into existence by fosteringchange with money.
From Ripple to Tidal Wave
History can be a tricky and unreliable teacher, its lessons elusive and contested.
Although a few small foundations were created during the late nineteenthcentury, the first noticeable wave of organized philanthropy began inthe early twentieth century with America's two wealthiest industrialists.John D. Rockefeller (JDR) and Andrew Carnegie decided, almost simultaneously,to do something unusual with their fortunes—becomereformers.
Carnegie and JDR were unique in their time. Most American robberbarons were ruthlessly parsimonious men. Some even devised elaborateschemes to keep heirs from using their estates for philanthropic endeavors.It seems, unfortunately, that the ratio between the philanthropic andnonphilanthropic super-rich has changed very little since that era. In fact,recent studies of individual giving suggest that low- and middle-incomedonors became more generous as the twentieth century progressed, whilethe wealthy decreased their giving. Nonetheless, as wealth expanded,enough millionaires and billionaires chose the path of Carnegie and JDRto make foundations one of the defining institutions of American society.
The founders of that first wave of American foundations shared a convictionthat society was advanced by the generation and sharing ofknowledge. They believed that new learning would create progress, expandwealth, and advance civilization and human welfare. And it wouldprevent reoccurrence of the enormous social unrest that had marked thelate nineteenth century and brought the specter of socialism to the attentionof America's capitalists.
Early donors and their advisers recognized that the advancement ofknowledge called for massive investments in education, science, and technology;they were eager to build systems and institutions for both furtheringknowledge and distributing it as widely as possible. What came tobe known as "scientific philanthropy" would, they felt sure, allow societyas a whole to benefit fully from knowledge. According to historian JudithSealander, the early philanthropists "were seekers of system," not—asso many critics have described them since—"defenders of system." Theimpulse to use philanthropic resources to defend capitalism came laterand, strangely enough, was more often initiated by foundation trusteesthan by original donors.
In dividing foundation history into three waves I do not, however, suggestthat foundation grants during the first thirty years of the twentiethcentury went primarily to the creation of knowledge and only secondarilyto policy studies. The founders' interest in public policy emerged earlyin the first wave and overlapped with their dedication to science and otherforms of knowledge. Today, two waves later, projects in public policystill receive about a third of the money all foundations provide.
In the early decades of the century questions of public policy and socialreform in America were debated primarily by private foundations, whichimmersed themselves in issues such as affordable housing, working conditions,and race relations. While other western societies sought to solvesuch social problems through their central governments, American foundationsand nonprofit institutions created privately supported and directedsystems of social reform and welfare. When, during the GreatDepression, the federal government was finally forced by market disruptionsand poverty beyond the reach of private charity to accept roles ithad previously rejected, it embraced systems that had been designed,tested, and promoted by private philanthropy.
The second wave of American philanthropy began soon after World WarII. American military technology had proven that, at least in science andengineering, America was no longer a second-rate power. However, socialproblems and inequities persisted. It was time, philanthropists believed,to shift focus. Foundation leaders developed a new theory ofchange arguing that the best return on the philanthropic dollar wouldcome from investing in the formulation of progressive public policy. Theresources devoted to policy analysis and public advocacy were increasedas foundations used the power of grantsmanship to create links amongnonprofit organizations, social science researchers, reformers, and governmentagencies.
During the early 1950s foundation leaders became the mediators betweenacademic experts and government. Research institutes establishedat the margins of government enormously increased the prestige of anemerging national elite of scholars in every field of interest vital to industrialadvancement, particularly the social sciences.
Second-wave foundations used the knowledge gained during the firstwave of their existence to promote formation of a national society. Theresponsibility of the federal government to assure equal opportunity, enforcecivil rights, and protect the environment now taken for grantedby most Americans was originally supported and promoted by privatephilanthropy during this period. It was time, foundation trustees werepersuaded, for the government to "scale up" and implement nationallythe models of human welfare developed with foundation support in varioussmaller communities. It was also time, they believed, for the federalgovernment to invest directly in the advancement of knowledge, whichit eventually did through the National Science Foundation, the NationalInstitutes of Health, and the National Academy of Science. Foundationofficers saw their own organizations' task as researching and proposingways to use science to formulate progressive public policy and pave theway to the modern state.
This quest resulted in various strategies aimed at establishing orstrengthening large, quasi-public institutions like the Social Science ResearchCouncil, the National Bureau of Economic Research, and theBrookings Institution. These organizations, which were modeled on suchearlier private organizations as the Rockefeller Institute of MedicalResearch and the Carnegie Institution of Washington, operated alongsidea host of smaller, private research institutes we now call "thinktanks."
Although the medical and physical sciences continued to receive majorfoundation support, grants were also awarded for purposes that went farbeyond simply uncovering new knowledge. Brilliant strategists of an earlierera like Warren Weaver, the godfather of interdisciplinary science,became revered figures as the search for knowledge was subsumed by theage of policy and applied science.
Eventually, the involvement of private wealth in creating and staffinginstitutions with the power to generate, communicate, and design publicpolicy drew the attention of critics inside and outside government. But bythen a small cadre of large foundations had already become indispensablefinanciers of policy research.
The third wave of American philanthropists emerged in the early 1960s.Having watched second-wave foundations struggle with politicians andbureaucrats, the new class of philanthrocrats (the professional foundationofficers who by then ran the major foundations) believed that thenext stage of national progress could not be reached by relying solely ongovernment policy and initiatives. Social movements, they concluded,were necessary catalysts to such changes. The foundations thus emergedas noticeable, though cautious, advocates and financial champions of civilrights; a little later they lent their support to environmentalism and, eventually,to moderate feminism. By the end of the twentieth century theonly American social movement overlooked by organized philanthropywas, quite understandably, organized labor. (Why would captains of industryand their heirs support a movement that increased their cost ofdoing business and, by its very existence, challenged the primacy andauthority of capital?)
Early in the third wave politics became a philanthropic issue, and ideologicaldifferences between conservative and liberal foundations becamediscernible. The debate over funding social movements precipitated organizedphilanthropy's first schism. The split has since become so acrimoniousthat conservative foundations spend millions of dollars on researchattempting to prove that social-movement philanthropy and the activismit encourages is destructive to American civilization. Their findings, however,have done little to stem the tide of liberal philanthropy's social advocacy,or to stifle conservative foundations' own support for groups onthe opposite side.
The Life Cycle of Foundations
I want to be a great philanthropist.
But you have to have a lot of money to be a great philanthropist.
I want to be a great philanthropist with someone else's money.
Individual foundations have a life cycle of their own that in many waysreflects the historical evolution of organized philanthropy as a whole.Both begin with charity (L., caritas: love of other). John D. Rockefeller,a devout Baptist, gave 10 percent of his first paycheck to the church; hecontinued the practice for many years before he thought of creating afoundation. Like JDR, other early creators of America's great foundationstithed themselves long before they institutionalized their charity.Like him, they established foundations simply because personally managingthe X percent of their income they devoted to charitable purposesbecame burdensome. Moreover, as word of their generosity spread, representativesof every church and organization serving the dispossessedappeared at their doors, hat in hand. Industrialists were simply makingmoney faster than they could give it away, and as their fortunes grewtheir eleemosynary affairs became unwieldy. Thus, charitable organizationswere organized, and organized charity evolved into philanthropy.
The early foundations that gave shape to the whole venture of organizedphilanthropy were, with occasional exceptions, founded by industrialistscommitted to organization, efficiency, and rationality. Convincedthat the same scientific principles that led to industrial success could solvesocial problems, these men structured and operated their foundationsmuch as they did their business organizations. Today many graduateschools of business accept that premise and offer courses and degrees innonprofit management (including the management of foundations) thatdiverge somewhat from the corporate model, though they preserve theprinciple of applying business standards of investment and accountabilityto organized philanthropy. Whether the corporate (or Harvard BusinessSchool) model of nonprofit management has increased charitable activitiesor produced more desirable results is a question implicit in any studyof foundations. I discuss the answer, a variation of sometimes-but-not-always,in subsequent chapters. In any case, corporate culture remainsfirmly entrenched in American foundations, and one hears few proposalsto institute anything noticeably different.
For the possessor of great wealth the impulse to create a foundationis only the first step toward abandoning control and ownership. Asthe founder weakens and dies control of the foundation usually passesto family members, a few trusted business associates, and perhaps alawyer or trust officer. In the second phase of its existence, authority isgenerally vested in a few wealthy or accomplished patricians, mostlymen somehow connected to the founder or his family. Most of these menbelieve that they understand the domestic and international challengesfacing the nation and the world and, moreover, possess the wisdom tosolve them. A few wives, and even fewer daughters, may sit quietly atthe table as the patriarchs in their midst haggle, often acrimoniously, overstrategy and priorities. At this point in their development, many foundationsare paralyzed by disagreements among trustees and remain so formonths, sometimes years; in the worst cases, they are unable to reachagreement for whole generations. Regardless of their uncertainty aboutthe foundation's purpose and management, trustees during this phaseoften plant the seeds of institutional arrogance; in larger foundations thisstage can last for another generation or two. Indeed, arrogant is the mostcommon characterization of foundations used by others in the nonprofitworld.
By a full generation after the death of the original donor (twenty-fiveto thirty years) most foundations are in the hands of complete strangers.A family member or two may still sit on the board of trustees, and perhapsa young partner from the founder's favorite law firm. But as a generalrule the foundation is on its way to becoming a quasi-public institution.This is the third of many steps that lead toward becoming a democraticinstitution—a status that only a handful of America's fifty thousand orso foundations has yet attained.
During this third stage, patrician trustees are replaced on the boardby experts, generally highly accomplished professionals and educatorsin fields of particular interest to the foundation and consistent with thefounder's original intent. During this phase university presidents, Nobellaureates, and eminent scientists and scholars find their way onto foundationboards, where—as one would expect—their presence does little todiminish organizational arrogance.
The fourth phase occurs gradually, as the staff of a large foundationgrows and becomes increasingly more professional and bureaucratized.Preoccupied with their individual interests and institutions, the trusteesincreasingly defer in their decisions to the studies and recommendationsof professional philanthrocrats. The latter spend much of the foundation'stime and money documenting social crises and designing programsto alleviate them with money. Unfortunately, there tends to be no declinein arrogance during this phase, only a slight shift in its expression fromboard members to professional staff.
The history of the Ford Foundation provides a good example of thekind of internal disputes that emerge as a foundation evolves from afamily trust to a staff bureaucracy. During the presidencies of GeorgeKennan, Robert Hutchins, and Paul Hoffman in the 1970s and 1980s,competing camps dueled over, first, international development; second,the foundation's role in assuring world peace; and, somewhat later, theproper relationship between foundations and social movements. Thewhole spectrum of thought on these international and domestic issueswas represented on the board. All three presidents became targets of thepublic's growing public distrust of large foundations and of private philanthropy'smost vocal critics on the Right and Left.
Hoffman, who was president of the foundation in the late 1970s, wasburdened with the additional challenge of having to "devote my life tothe education of a young ignoramus." He was referring, of course, toHenry Ford II, the last member of the family dynasty to chair the boardof trustees. Early in 1977 conservative attacks on the foundation reacheda fever pitch, and Ford joined the chorus. He resigned his position in ahuff, leaving behind a letter that is still widely quoted by free-marketideologues and defenders of original intent. Their favorite passage is wellworth quoting. "I'm not playing the role of the hard-nosed tycoon whothinks all philanthropists are socialists and all university professors arecommunists," Ford wrote. "I am just suggesting to the trustees and thestaff that the system that makes the foundation possible is probablyworth preserving."
It is unlikely that any of Ford's fellow trustees had lost sight of the factthat private foundations operate within the context of capitalism. Butthey may have agreed with him that they had lost control of the staff.Since then, many others have come to believe that the grant decisionsmade by philanthrocrats, even foundation presidents, too often challengethe mother lode.
As control over foundation assets and grant making shifts from founder,to family, to patrician trustees, to expert trustees, and to professionalstaff, a concurrent evolution in the organization's purpose—from reliefto improvement to reform—occurs within most foundations. The operatingprinciple of the early era is compassion, a holdover of the originaldonors' intentions to provide short-term relief. During the second phase,as the founder's descendants and unrelated trustees gain influence, theemphasis shifts toward improvement in particular areas of the social andintellectual environment. The overriding goal of the foundations in thisphase becomes progress, and the purpose of grant making the maximizationof human potential.
In the transition from the second to third phase, as the third or fourthgeneration of trustees comes on board and the office is staffed increasinglyby experts, foundations define and express their political positions. Atthis point most, but by no means all, foundations take an active interestin major social reform. Justice, vaguely defined, becomes a guiding principlefor decision making, and the foundation's aim is identified as the supportof research, program development, and implementation of solutionsto major social problems.
We can discern the political diversity of foundations in their identificationand prioritizing of social problems and in the solutions they advocate.The trustees and staffs of the Ford Foundation and the BradleyFoundation, for example, both express grave concern about the deteriorationof civil society in America. But they define civil society quite differentlyand express widely disparate views about how to heal it. In chapter9 I describe the breadth of foundations' disparities, the depth of theirdisagreements, and the intensity of the emotions that surface during theirinternal debates over the future of civil society.
Excerpted from American Foundations by Mark Dowie. Copyright © 2001 by Mark Dowie. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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