Citizen 501(c)(3)

An increasingly powerful agent in American life is also one of the least noticed.

Citizen 501(c)(3)

ACCORDING to the 1981 edition of The Foundation Directory, the twenty-five largest charitable foundations in the United States at that time together controlled $13.4 billion in assets, and the twenty-five most generous foundations gave away $654 million. The most recent edition of The Foundation Directory, for 1996, puts the assets of the twenty-five largest foundations at $55.2 billion, and the gifts of the twenty-five most generous at $2.2 billion. These figures aren't adjusted for inflation, but the growth of the big foundations over fifteen years is nevertheless remarkable. In roughly the same period the number of foundations of all sizes has nearly doubled, from 22,000 to 39,000. The value of gifts to foundations rose from just under $2 billion in 1980 to more than $8 billion in 1994. Overall, private foundations -- institutions that give money away, as opposed to charities, such as the Red Cross and the March of Dimes, which actively collect it in order to provide services -- have just passed $200 billion in net worth. Their magnitude, along with their desire to affect the course of events in the United States and the world, has made foundations one of the handful of major actors in our society -- but they are the one that draws the least public attention.

The main force at work in making foundations richer has been the boom in the stock market, which is where most foundations' assets are kept. In 1981 foundations successfully lobbied Congress to allow them, in effect, to keep part of their income every year. Then, fortuitously, the stock market took off, and the foundations were able to bank some of their good fortune. Roughly the same economic conditions that are increasing the foundations' assets are also creating more new substantial personal fortunes than this country has seen since the Gilded Age. Many of these will eventually wind up in new foundations, sheltered under clause 501(c)(3) of the Internal Revenue Service code. The two richest people in the world, Bill Gates and Warren Buffett, have both said that they plan to leave the bulk of their billions to charity. Another prominent billionaire, Ted Turner, has publicly chastised his peer group for being too stingy, and so he will presumably be very generous. Foundations established by George Soros, the author of this month's cover story, gave away more than $350 million in 1995.

Another, more particular factor in the growth of foundations is the national trend toward the privatization of health care. The IRS requires that when a for-profit business acquires a nonprofit organization, the proceeds of the sale be used for charitable purposes. A generation ago the vast majority of hospitals, health-maintenance organizations, and health-insurance cooperatives were nonprofit. Today, when one of these is taken over by a for-profit business, a new foundation is usually created. Sixty-four hospitals were privatized in 1994 and 1995, and two hundred more are in negotiations to be sold. The big-ticket items in health-care privatization are not hospitals at all but insurers in large states. When a California insurer called Health Net became a for-profit company, in 1992, the California Wellness Foundation, whose assets now stand at $880 million, was established. When California's Blue Cross completed its conversion to for-profit status, foundations with assets in excess of $3 billion resulted.

Since 1969 the IRS has required that foundations give away a fixed percent of their assets every year. This means that as the magnitude of foundations' assets grows, so must the magnitude of their giving. As foundations have gotten bigger, they have also become more ambitious. Foundations have increasingly sought not just to support culture and scholarship and give alms to the needy but also to generate social and political change.


. . .

For many years conservatives burned with resentment as they watched the big foundations, which have a distinctly liberal cast, use their tax-exempt dollars to fund everything from the civil-rights movement to studies supporting the expansion of the welfare state to disarmament and population control abroad. (A recent article about foundations by Heather Mac Donald in City Journal, the conservative Manhattan Institute's magazine, ran under the line "The Billions of Dollars That Made Things Worse.") Beginning in the 1970s the conservative movement built up its own network of foundations -- smaller but much more aggressive and openly political than the likes of the Ford Foundation, the Rockefeller Foundation, and the Pew Charitable Trust. Conservative foundations have been particularly successful in training cadres of activists and policymakers to serve their causes, by subsidizing books that change the tenor of public discourse (for example, Dinesh D'Souza's Illiberal Education) and supplying the government with policy ideas (the Heritage Foundation's blueprint for the early Reagan Administration, Mandate for Leadership).

Now it's the liberal foundations that resent the conservatives, for having won a more obvious kind of influence through their willingness to play the game less genteelly. The big foundations seem to be responding by becoming more political themselves. The Robert Wood Johnson Foundation was closely associated with the development of the Clinton Administration's 1993 health-care-reform plan; the foundation supplied five members of the task force that promulgated the plan and paid for a series of town meetings where Hillary Clinton built support for its introduction. The Ford Foundation last year contributed $1.4 million to activities aimed at defending affirmative action against political attack. The California Wellness Foundation was considering spending millions of dollars on an "informational" television advertising campaign opposing Proposition 209, an anti-affirmative-action ballot initiative, until California's Republican attorney general did enough saber-rattling to dissuade it from doing so.

Presented by

Nicholas Lemann

"The Atlantic has a national constituency of readers who are interested in high-quality writing about what's going on in the country and in the world," says Nicholas Lemann, "not just in politics and economics but also in their own personal lives. The Atlantic is a single source they can really trust to give them what they want."

Over the years, Lemann has written cover articles on the underclass, the War on Poverty, and the history of standardized testing in the United States. The articles on the underclass were "field tests," he says, for his best-selling book The Promised Land (1991), which received virtually unanimous acclaim from a spectrum of sources. The book established him as a sought-after commentator on race relations and other fundamental aspects of American society. "Thanks to Lemann, white America will never be able to think about the ghetto poor in quite the same way again," Esquire observed.

Lemann joined The Atlantic Monthly as national correspondent in 1983. His first cover article, "In the Forties" (January, 1983), introduced a striking portfolio of photographs that, Lemann wrote, "have the power to suggest the finality with which the life of the nation changed in a generation."

Lemann has also written numerous pieces in The Atlantic Monthly on subjects spanning national and local politics, education, television, and biography. He has contributed numerous book reviews and, in the Travel section, has guided readers through the past history and present beauty of the Catskill Mountains.

Lemann was born and raised in New Orleans. He attended Harvard, graduating in 1976 with a degree in American history and literature. Before joining the staff of The Atlantic Monthly, he worked at The Washington Monthly, Texas Monthly, and The Washington Post.

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