A Versatile American Institution

The Changing Ideals and Realities of Philanthropic FoundationsBy DAVID C. HAMMACK HELMUT K. ANHEIER

BROOKINGS INSTITUTION PRESS

Copyright © 2013 THE BROOKINGS INSTITUTION
All right reserved.
ISBN: 978-0-8157-2194-9

Contents

Preface………………………………………………………………………………………..vii1. Foundations in the United States……………………………………………………………….12. Remarkable Nineteenth-Century Foundations……………………………………………………….193. The Classic Institution-Building Period, 1900–50…………………………………………….434. After World War II: Readjustment and Redefinition………………………………………………..755. Variety and Relevance: American Foundations at the Start of the Twenty-First Century…………………117A. What Is a “Foundation”?……………………………………………………………………….157B. On Sources…………………………………………………………………………………..162Acknowledgments…………………………………………………………………………………173Notes………………………………………………………………………………………….177References……………………………………………………………………………………..217Index of Foundation Names………………………………………………………………………..249Index of Subjects……………………………………………………………………………….255

Chapter One

Foundations in the United States

As symbols and embodiments of private power, religious authority, modernism, and capitalism, America’s philanthropic foundations have always attracted strong views. Critics object that foundations impose the arbitrary will of the “dead hand” on the pressing needs of the present; that they give unearned weight to religious orthodoxies—or that, by holding substantial assets, foundations violate a religious injunction to accept that “God will provide”; that they seek to remake social institutions in accord with a standardizing ambition that ignores tradition and popular preference; that they reinforce vested social and economic interests; that they provide cover for the secret, undemocratic ambitions of governments; and that they are the wasteful playgrounds of and for the rich.

Other critics reject such critiques and praise foundations for their potential to do great things—but complain that they do not do the things that a particular critic prefers. Or that they do approved things in ways that are ill-considered and ineffective.

American foundations live with controversy. Facing harsh and contradictory attacks, foundations often respond cautiously, blandly, and with copious amounts of information that is often vague and incomplete.

Whatever their overall view of American foundations, most writers work from a common but incomplete, and even mythic, understanding of foundation history. Philanthropic foundations, it is usually said, first appeared after the Civil War—anticipated by the Peabody Education Fund, modernized through writings by Andrew Carnegie and John D. Rockefeller, and made important by large monetary gifts from a number of foundation-creators between 1900 and 1920. Endowed with fabulous wealth and led by exceptionally well-connected administrators, American foundations did extraordinary things and can rightly point to remarkable achievements. Described as secular and committed to science, it is said that they launched whole classes of institutions, backed far-reaching social movements, and gave direction to government policy in many fields, and that they have continued to do all this. Much of this accepted story is a myth, however, as we will show in the following chapters when we examine the historical record of American foundations and look at the present.

America’s foundations first appeared in the wake of the American Revolution and played important roles throughout the entire nineteenth century—including key roles in building the nation’s “mainstream” Protestant denominations. Carnegie and Rockefeller did not invent the American foundation, though their funds did do remarkable things, especially in the first three decades of the twentieth century. And the relative position of the American foundation changed dramatically after World War II, as incomes rose to hitherto unimagined levels and as government spending on health, education, and welfare—the chief objects of foundation giving—soared. For several postwar decades, foundations struggled to understand what they could do as the rise of other forces reduced their leverage. From the 1990s, we venture to conclude, foundations have come to accept a new place for themsleves.

With this book we set out to enrich the discussion of foundation policy with a historical perspective. We think it worthwhile to test the adequacy of the generalizations so often advanced to justify calls for change in American foundations. We also think that historical studies are more credible if they make their terms clear and explicit. A more accurate understanding of the development of American foundations will, we believe, provide a more reliable basis for policy. Specifically we ask, What have American foundations contributed to our country—and to our democracy? What have they contributed to particular fields? How have they changed, grown, and adapted as new circumstances have emerged over the decades? Where and in what fields have they been most active?

Historians and social scientists have answered some of these questions. Relying on their work and on both historical and current evidence that we have developed, we believe we can provide answers. And we hope to encourage other researchers to take current foundation realities seriously and to consider how they came to be. Most generally, we ask what difference has the foundation, as an institution, made to the United States?

Foundations Today: Diverse Purposes, Many Sizes

America’s grantmaking foundations—numbering more than 76,600 in 2011 and worth $646 billion in assets—have grown rapidly over the last two decades despite the dot-com bust of 2000 and the Great Recession following the financial crisis of 2008. Grantmaking foundations differ considerably from state to state, and local foundations are quite active in most metropolitan regions across the United States. Foundations have grown so numerous, and so diverse in size and in purpose, that it has become impossible to describe their contributions in a single set of phrases or to provide a single set of numbers to measure their impact.

While their promise makes them important, it is wealth that makes foundations possible and impressive. The funds they donate add up: according to the Foundation Center, in 2011 American foundations gave away nearly $47 billion. Yet despite the attention their wealth attracts, American foundations are much smaller than is often assumed. In recent decades foundation gifts have run to about 8 percent of asset values. Assets first seem to have reached a level of at least 2 percent of the value of all outstanding U.S. common stocks in the 1920s, and since the 1950s assets have ranged from 3 percent to 4 percent. Because foundations have always held bonds, land, and other assets in addition to shares of corporate stock—and because foundations did not have to report their assets fully until the late 1960s, estimates for decades before the 1970s can only be suggestive. Foundation wealth has never been sufficient to influence the entire U.S. economy, and in recent decades foundation assets have been surpassed by the funds held as endowment by universities, medical research institutes, hospitals, museums, and other charities. Although their wealth has declined sharply in relation to the other resources engaged in their fields of work, grantmaking foundations continue to hold sums large enough to make a difference. Sums, we hasten to add, that are strongly concentrated in the largest foundations. In 2006 the 2 percent of all foundations whose assets topped $25 million employed essentially all of the professional foundation staff and held three-quarters of all foundation assets. The 100 largest foundations, with assets in 2009 ranging from $564 million to $30 billion, held more than one-third of all foundation assets. Many of the best studies of American foundations (like most of the best studies of universities, government agencies, or business firms) have understandably focused on the small group of very large cases.

Size certainly matters. The 100 largest foundations whose 2011 assets exceeded $669.86 million (let alone the ten or twelve foundations whose assets exceeded $5 billion) clearly attract much more attention and arouse higher expectations than the 96 percent of foundations that give away less than $500,000 a year. More than half of all foundations have less than $1 million in assets and give away less than $80,000 a year; most of these operate more as the charitable checkbooks of generous families than as independent institutions. Altogether these smallest funds hold less than 3 percent of all foundation assets. Community foundations—and related forms such as supporting foundations that take in numerous gifts of varying size—constitute the fastest-growing segment among American foundations. Some community foundations and a few supporting foundations are among the largest of all grantmakers. But as “public charities” that continuously raise money as well as give it away, these entities operate under distinctive and somewhat less restrictive regulations. Even when they are very large, most community foundations operate more as charitable banking institutions for their donors than as unified civic actors on their own account.

Foundations vary enormously in size. We focus primarily on larger foundations, though we also consider smaller foundations where possible. The definition of what constitutes a “larger” foundation has changed over time and depends on the field or topic, but we have typically focused on the 100, 500, or 1,000 largest foundations in existence at a given time or on the 100 or 500 largest grants. We are mostly concerned with the 3,000 U.S. grantmaking foundations that have paid staffs.

Although a few foundations hold the bulk of foundation wealth and attract the most attention, compelling reasons exist to cast a wider net, particularly because a single set of laws and regulations applies to small and large foundations alike. Yet it is difficult to find good systematic information on smaller foundations; our own investigations have certainly lacked sufficient resources to undertake such a study. Every year, thousands of Americans create foundations or donor-advised funds or give money to community foundations. Most of these foundations and funds involve less than $1 million; each year only one or two of them exceed $500 million. Every day, regulators, judges, legislators, fund-seekers, journalists, and neighbors critique and evaluate foundations. But regulators have few resources and must focus their attention on egregious and controversial cases. When occasionally a foundation gets into publicized trouble, more often than not it is a smaller, more obscure one, but two of the most careful analysts in the field have concluded, “We really do not know the extent of abuse in small foundations.”

Foundations are neither unique to the United States nor uniquely American. Since ancient times, and across many cultures, substantial assets have been set aside for specific charitable and religious purposes. Muslims preserve resources for religious and religiously prescribed social welfare and educational activity through traditional “vakif.” Foundations played major religious and charitable roles in medieval Europe and the Ottoman Empire. Foundations became, as elements of the ancien régime and as patrons separate from the national state, targets of the French Revolution. In several European countries, foundations and trusts did emerge during the nineteenth century as significant underwriters of science, culture, and welfare. In Britain they helped define the need for reform in the fields of housing and social welfare; in Italy they helped advance the causes of literacy and science as the nation slowly became unified; in Germany they offered responses to social needs and did much to build great universities and cultural institutions. But in Europe and elsewhere during the early and middle decades of the twentieth century, many foundations saw their endowments erased by economic and political crises or by the hostility of some governments to independent centers of initiative. This was true not only in Germany and Poland but also in England, where governments redefined the purposes as well as the investment policies of foundations.

New and revived foundations, such as Stephen Batory in Poland, Fritt Ord in Norway, Bosch and Mercator in Germany, the King Baudouin Foundation in Belgium, and the Compania di San Paolo in Italy have contributed to the cultural vibrancy of postwar Europe and also to the development of civil society and international engagement in postcommunist countries and throughout the expanded European Union. Today, notable groups of foundations exist in Australia, Canada, Germany, the United Kingdom, Scandinavia, Italy, the Netherlands, Spain, and Japan; recent policy developments encourage their proliferation in nations as diverse as France, Brazil, Qatar, Singapore, and even China. Yet the United States stands out. In no other modern society are grantmaking foundations more numerous. Nowhere are they so prominent. Nowhere have foundations enjoyed such sustained autonomy for such a long period of time.

Defining Terms: “Charity” and “Philanthropy”

To determine what difference foundations have made to the United States we must begin by defining terms. This is a more complicated task than we might assume, because key terms are used in different ways in different contexts. In legal contexts where some terms are of critical importance, meanings have emerged through a long history of judicial rulings, legislation, and regulation. Common parlance shapes the meanings of many terms in ever-changing ways. We treat some technical matters of definition in a note in appendix A, but some questions about the meanings of ordinary words call for some discussion here.

United States law defines the words “charity” and “charitable” in special ways; critics who rely on common understandings often employ these words in ways inconsistent with their American legal definitions. Current federal tax law defines “charity,” as we noted in the preface, in broad ways to include religious, educational, scientific, literary, safety-testing, and cruelty-preventing purposes. The Internal Revenue Service also notes, regarding “exempt purposes,” that the “generally accepted legal sense” of “the term charitable” 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.” Congress, the courts, the U.S. Department of the Treasury, and the individual states use these broad definitions to determine whether a foundation or an organization enjoys exemption from income tax, property tax, or sales tax; whether donors to the organization can count their gifts as charitable in calculating their own taxes; whether an organization or its employees enjoy any form of “charitable immunity”; and whether a foundation’s board has acted properly in approving grants, making investments, dealing with suppliers, acknowledging donors, or expressing views on questions relevant to politics.

Much commentary and criticism uses the word “charity” in ways shaped by nonlegal contexts. Most important are religious uses that continue to have a powerful influence, not only among professing Christians but also through common English-language phrases. Until the middle of the twentieth century, most writers on charity in the United States took for granted that a very large share of their readers had learned English in considerable part in Christian settings, so it is useful to take these historical contexts into account. One of the most frequently discussed passages in the King James version of the Bible, for example, is the translation of 1 Corinthians 13, in which the apostle Paul discusses “charity” in challenging terms as the greatest of “spiritual gifts.” It says in part:

And though I bestow all my goods to feed the poor, and though I give my body to be burned, and have not charity, it profiteth me nothing.

Charity suffereth long, and is kind: charity envies not: charity vaunteth not itself, is not puffed up, Doth not behave itself unseemly, seeketh not her own, is not easily provoked, thinks no evil, Rejoyces not in iniquity, but rejoyces in the truth:

Charity never fails: but whether there be prophesies, they shall fail; whether there be tongues, they shall cease; whether there be knowledge, it shall vanish away. For we know in part, and we prophesy in part. But when that which is perfect is come, then that which is in part, shall be done away.

When I was a child, I spoke as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things. For now we see through a glass, darkely: but then face to face: now I know in part, but then shall I know even as also I am known. And now abideth faith, hope, charity, these three, but the greatest of these is charity.

The Catholic Douay Bible uses almost the same English words: “And now there remain faith, hope, and charity, these three: but the greatest of these is charity.” More recent translations generally replace “charity” in this verse with “love,” but these uses of “charity” are deeply embedded in English literature. Every year, many thousands of sermons and homilies quote these words about “charity” and reflect on their many meanings, which derive, at least in part, from the tradition restated by St. Augustine that love for God elevates Christians and leads them also toward true love for humankind—a tradition embraced by the Latin word “caritas.” Adherents of other religious traditions have their own language for such discussions, and religious and nonreligious people alike debate the meanings. Altogether, “charity” has meanings that are simultaneously technical, broad, and disparate in legal and religious contexts.

(Continues…)

Excerpted from A Versatile American Institutionby DAVID C. HAMMACK HELMUT K. ANHEIER Copyright © 2013 by THE BROOKINGS INSTITUTION. Excerpted by permission of BROOKINGS INSTITUTION PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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