The Foundation Business: On Olivier Zunz

The Foundation Business: On Olivier Zunz

The Foundation Business: On Olivier Zunz

There’s more to American nonprofits than the success of wealthy donors and their large foundations.


In a sweeping, insightful history, Olivier Zunz has traced the evolution of American philanthropy over the past 150 years and its contribution to democracy and civil society. What is particularly satisfying is his focus—somewhat rare among books about American philanthropy—on the extent to which foundations and other grantmaking programs have been involved in shaping national affairs and public policy. This involvement, Zunz rightfully claims, has been an important force not only in strengthening American democracy but in establishing philanthropic institutions as integral parts of society.

From the first modern foundation, the Peabody Education Fund, established in 1867, to the recent growth of mega-organizations like the Gates Foundation, Zunz explains the transformation of charitable giving from individual acts of financial relief to the formidable efforts of institutions to influence education, health and welfare policies, and the operations of government and private institutions. Zunz’s interest in political and policy advocacy leads him to concentrate almost entirely on the country’s biggest foundations, such as Ford, Rockefeller and Carnegie. Smaller family foundations, some 100,000 in number, constitute by far the largest part of our foundation galaxy, but Zunz pays them little attention because they offer less financial support than their larger counterparts and have shied away from policy and advocacy.

Similarly, Zunz gives short shrift to the hundreds of community foundations (some with very large assets), other grantmaking programs like the United Way and the many religiously oriented funders. These organizations, too, tend as a rule to avoid giving to activist and otherwise contentious organizations, yet they support an enormous number of essential services at the local, state and regional levels, something that the largest foundations have been unwilling and unable to do. The tragic impact of Hurricane Katrina on low-income and minority constituencies in Louisiana, Mississippi and Alabama was partly caused by the failure of large foundations to build in those states a nonprofit infrastructure that could have assisted in the rebuilding process. Perhaps Zunz will write a second volume about the smaller yet significant players in the history of American philanthropy. Their story deserves to be told.

The government recognized the importance of philanthropic institutions when it passed the Sixteenth Amendment in 1913, which besides instituting the income tax also laid the groundwork for tax exemptions to charitable organizations and donors. “Tax exemption has not only nurtured philanthropy in society, it has entrenched it,” Zunz observes. One can question whether tax exemption has been as vital to charitable giving in America as its proponents claim. After all, before 1913 a tradition of individual and institutional giving had already been established here. Yet how many foundations, United Way campaigns and other forms of giving would have developed without tax incentives? Also, because the United States has established through the years a charitable sector far greater than that of any other country, it has claimed the reputation as a nation of great individual generosity. But if the majority of people give primarily because they receive a tax break, can it still be said that Americans are the most generous—or altruistic—people in the world?

Indeed, we have the fifth-lowest tax rate of any developed country, yet our citizens and politicians refuse to increase taxes to reinforce the safety net for the unemployed and working poor, or to repair crumbling infrastructure or provide decent health benefits, social services and education to the population at large. How could such miserliness be a manifestation of our collective generosity? How should generosity be measured? We need additional research to make a convincing case that Americans would give generously to philanthropic organizations even without a tax advantage.

In describing the tensions that have characterized the relationship between government and the nonprofit world, Zunz succinctly recounts the efforts of Congress to restrict legislative or lobbying activities of nonprofits, including the ongoing campaign by right-wing politicians to prohibit nonprofits that receive federal money from undertaking any legislative action, even with private funds. It is frightening to remember that one such measure—the Istook Amendment—was overwhelmingly approved by the House of Representatives in 1995 but died in the Senate, where it fell short of passage by only a few votes.

While Congress has prohibited direct foundation giving for lobbying activities, limited the amount of nonprofit budgets that can be used for lobbying, and banned foundations and nonprofits from supporting political campaigns, it has been quite generous in permitting nonprofits to conduct legislative activities with a reasonable portion of their resources. But only a few nonprofits—just a little more than 1 percent—exercise their lobbying rights. Clearly, the legal capacity of nonprofits to engage in lobbying has barely been tapped. This potential doesn’t impress those philanthropists and agitators who believe that nonprofits should be freed of all Congressional constraints on their political activities. It is unlikely, however, that politicians will want to upset the delicate balance they have established between permitting nonprofits to be outspoken advocates for their constituencies and clients and prohibiting them from becoming political advocacy organizations.

* * *

To do so would be to risk a reprise of the 1950s and ’60s, when a large number of foundations became largely unaccountable, riddled by self-dealing and conflicts of interest. Many simply became instruments by which their donors accrued wealth, using their exemptions to protect their assets from taxation and in some cases giving next to nothing to charity from their growing funds. The time for reform had come. The pressure for it was applied by Congressional populists like Wright Patman of Texas, Russell Long of Louisiana and Herman Talmadge of Georgia, who wanted to tame the so-called liberal foundations.

Many accounts of the Tax Reform Act of 1969 attribute the heat and acrimony of the hearings that preceded the measure to Congressional outrage about the scandalous financial behavior of the foundation world. But Zunz provides a more nuanced and accurate explanation of the motives that triggered the act. He points to the racism of Congressional segregationists as a major fillip for changing the behavior of foundations. Voter registration and education drives in the South financed by Ford and several small foundations had infuriated Southerners determined to bar potential black voters from the polls. In the North, Ford’s financial support of voter registration efforts in Cleveland by the Congress of Racial Equality (CORE) led to the election in 1967 of a black mayor, Carl Stokes, thereby crossing the philanthropic divide between education and advocacy. This, too, enraged white Southern Congressmen and their supporters, who turned to tax reform as a means to undermine financial support for the civil rights movement.

Curiously enough, as Zunz notes, the Tax Reform Act also attracted opposition from liberal philanthropists who, one might have suspected, would have supported efforts to clean up their messy field. On the contrary, they cited the good works of their large foundations and pointed to the dangers of government interference in the private sector. Little did they realize that the act would turn out to be the savior of the foundation world. Without the act’s regulations on foundations—annual reports to the Internal Revenue Service, elimination of self-dealing, an annual minimum payout to nonprofits from their net assets—foundations most likely would have been shut down or severely limited in their activities.

Even after its passage the act made many leaders in the private sector nervous. John D. Rockefeller, William Simon, John Gardner of Carnegie (and later Common Cause) and Alan Pifer of Carnegie worried that government would overshadow the nonprofit sector. Strengthening volunteerism and the financing of nonprofit organizations was one way to prevent that from occurring. To discuss these concerns publicly, Rockefeller and others created the most important commission on private philanthropy to date.

From 1973 to 1975 the Commission on Private Philanthropy and Public Needs, headed by John Filer, chair of the Aetna Life and Casualty Company, prepared eighty-five research studies, examined taxpayers’ giving practices, underwrote a “donee group” to broaden its outreach, recommended standards of behavior for foundations and nonprofits, and proposed the creation of a permanent quasi-public national committee on the nonprofit sector. It strongly affirmed the principle that philanthropic money was not just private money but quasi-public funds set aside to serve urgent public needs. The Filer Commission was a stunning effort.

For some inexplicable reason, Zunz characterizes Filer as a person who “did not rise to the occasion.” As a participant in the donee group and Filer Commission proceedings, I find this statement inaccurate and unfair. Filer was instrumental in the commission’s success. Not only did he finance the broadly diverse donee group that partly counterbalanced an unrepresentative commission that he did not appoint; he also had the sensitivity to persuade the commission to focus on nonprofits and their struggle for viability. It was he who, with the support of the donee group, lobbied for the final report’s recommendation that the philanthropic grantmaking process be remedied to allow for greater accountability, access and equity.

* * *

Zunz chronicles the efforts of foundations over the past 100 years to influence and change national policies in the realms of science, education, health, economic development and anti-poverty programs. The Rosenwald Foundation’s construction of more than 5,000 schools for African-Americans in the South in the early twentieth century; the Jeanes Foundation’s training of hundreds of African-American teachers in thirteen Southern states; the eradication of hookworm disease and improvements in agriculture—all were elements of a Southern strategy to improve economic and social conditions in a depressed area of the country. More generally, the introduction of humanitarian aid during World War II and the cold war; the financing of the Green Revolution to increase agricultural productivity in developing countries; the support of new, secular universities and colleges; the creation of think tanks to research major national problem areas and recommend solutions; and the provision of additional resources for science and medical research were all launched by large foundations.

Though most of the large foundations involved with these policy and institutional changes could be described as progressive or centrist, conservative institutions soon began to assert themselves. In 1948 the oil millionaire Howard Pew established a small group of foundations, recently merged into The Pew Charitable Trusts, to combat liberalism, underwrite Billy Graham’s Crusade for Christ and support conservative causes and organizations in general. Pew was soon joined by such other foundations as the Olin, Smith Richardson, Sarah Mellon Scaife, Lynde and Harry Bradley, and the various Walton family foundations. These foundations have been major backers of the Heritage Foundation, the American Enterprise Institute, charter schools and voucher programs.

Zunz shines a little light on the “faith-based initiatives” that marked the administration of George W. Bush. Wanting to appeal to evangelical and small black churches, President Bush offered a small pot of money, including direct grants, and technical assistance to these churches as well as to their nonprofit 501(c)(3) organizations, without any real requirements for accountability. The Bush administration also stated as policy that churches receiving federal funds could discriminate in their employment practices—an apparent violation of law—by hiring only employees from their own denominations. Ironically, the Obama administration has not yet revoked this policy, thereby permitting employment discrimination on the basis of religion.

Zunz concludes by discussing recent philanthropic initiatives that are having an impact on both domestic and international fronts. These include the Open Society Institute’s support for nongovernmental institutions in Eastern Europe, which have helped former communist regimes shed their authoritarian practices; the promotion of community foundations overseas by the big foundations to stimulate local giving and grantmaking; the Ford Foundation’s involvement in the creation of the Grameen Bank in Bangladesh to encourage microlending; and the work of the Gates Foundation in assembling and heading a consortium of foundations in a global program to eradicate some of the world’s most dangerous diseases. Zunz also praises the efforts of Bill Gates and Warren Buffett to persuade American billionaires to pledge at least half of their fortunes to charity within their lifetimes: “If there is a lesson from the history I have told, it is that philanthropy enlarges democracy when it is an activity in which the many participate.”

Yet Zunz is uncritical of the claims that “giving pledges” and the growth of gigantic foundations “enlarge democracy” or diminish the scope and power of democratic institutions. I and others have argued that the rapid creation of megafoundations like Gates and the Walton group, governed by two or three family members, are a serious menace to democracy. They are not publicly accountable; they set priorities without any public discussion and operate outside the political process. With their billions of dollars, they can in effect determine national and international policy priorities. As such, they are forces outside the control of representative government, undermining the very democracy that Zunz claims has been a main beneficiary of philanthropic enterprises.

Zunz’s history is essentially a recounting of the successes by wealthy donors and their large foundations. It portrays a very small slice of the foundation world, one of the most elite realms in the nation. Readers might mistakenly assume that all philanthropy has been positive, innovative, accountable and equitable in its distribution of funds. They might not realize that, with few exceptions, foundations are governed by boards composed of the wealthiest and most highly paid professionals in our society, totally unrepresentative of what democratic institutions should look like. They might be surprised to hear that foundation grantmaking procedures are often geared more to the interests of foundation boards and staff than to the needs of grantees. And rather than being an activity of citizen involvement, the setting of priorities among foundations has been an exercise of the “very few.” Like our society in general, philanthropy often reflects the severe inequities of wealth and income in our country. The large, established nonprofit organizations are getting richer, while smaller, more grassroots groups are getting poorer.

Similarly, the overwhelming amount of foundation money flows to established institutions in the fields of higher education, health and the arts. Very little foundation money has been directed to policy, advocacy or organizing efforts, or to risk-taking projects. The poor, minorities, women, the disabled and other disadvantaged constituencies and their nonprofit organizations have historically received only a tiny portion of philanthropy’s largesse.

What is disturbing today is that few observers of philanthropy are asking tough questions about its future. Reporters and analysts seem awed by wealthy people and big donors like Buffett, Gates and George Soros. At press briefings and other media events, they fawn over these benefactors, never asking them penetrating questions or pressing them for clear answers. When Gates and Buffett announced their initiative to secure giving pledges from their billionaire colleagues, few if any reporters or observers asked them if such pledges were good for American democracy. Nobody asked if the pledges might exacerbate inequities in our philanthropic system. It’s reasonable to assume that they could, because research has shown that very wealthy people give little or nothing to local, low-income, minority, grassroots or neighborhood social service groups, and instead give almost all their money to higher education, big health organizations and the arts. For donors with deep pockets, giving more will most likely entail larger sums to the wealthy charities to which they already direct much of their charitable giving.

How can fundamentally elite institutions transform their vision and grantmaking practices into policies and programs that truly promote democracy for all Americans? Can foundations shift their priorities to meet, as the Filer Commission advised, the most urgent public needs of the country? What should be the role of the government and its regulators in ensuring greater accountability and democracy within the foundation world? Olivier Zunz has written a splendid book about philanthropy in America. It now needs to be supplemented by studies that scrutinize how foundations define their missions and manage their business.

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