Is Big Philanthropy Compatible With Democracy?

A Stanford professor argues that it’s largely not—but that it could be reformed to promote equality, rather than undermine it.

In 1912, John D. Rockefeller went to Congress with a simple request. He wanted permission to take the vast wealth he’d accumulated, and pour it into a charitable foundation.

Many were outraged.

John Haynes Holmes, a Unitarian minister and a cofounder of the NAACP and ACLU, told the Senate that from the standpoint of the leaders of democracy, “this foundation, the very character, must be repugnant to the whole idea of a democratic society.” Rockefeller’s effort failed. He ultimately chartered it in the state of New York instead.

A few years later, Missouri Senator Frank Walsh cited the Rockefeller Foundation as he declared that “huge philanthropic trusts, known as foundations, appear to be a menace to the welfare of society.”

These were hardly isolated concerns. Contemporaries, as the Stanford professor and scholar of philanthropy Rob Reich has written, worried about how private foundations “undermine political equality, affect public policies, could exist in perpetuity, and [be] unaccountable except to a hand-picked assemblage of trustees.”

They are, he argues, extraordinary exercises of power. “Rather than responding to power with gratitude,” Reich said, “we should respond with skepticism and scrutiny.”

It’s an unfamiliar perspective. These days, wealthy philanthropists are more likely to be lauded, their names emblazoned on buildings, their pictures on magazine covers. And Reich delivered it in an unusual setting, speaking Tuesday at the Aspen Ideas Festival, which is co-hosted by the Aspen Institute and The Atlantic, to an audience that included more than a few philanthropists and foundation executives.

But he’s not alone. Judge Richard Posner, the idiosyncratic jurist and leading legal theorist, has complained that “a perpetual charitable foundation ... is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets ... and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.”

It’s a genuine dilemma. At its worst, big philanthropy represents less an exercise of individual freedom, Reich said, than a tax-subsidized means of taking private profit and converting it into public power. And he argued that big foundations possess the leverage to bend policy in their favored direction in a coercive manner, pointing to the example of the Gates Foundation’s funding of educational reform.

Not all his listeners were convinced. Steven Seleznow, who had worked for the Gates Foundation to fund public-education reform and now leads the Arizona Community Foundation, argued that there is already abundant accountability built into the system. He pointed out that educational grants had to be negotiated with public officials, and then approved by an elected school board, mayor, city council, or governor. Reich, though, believes that this elides the disparities in power between a foundation offering funds, and the government entity requesting them.

If large foundations are a threat to democracy, then, is there a way to reform them short of abolishing them altogether? Reich said yes, arguing for turning “the apparent vice of unaccountability” into a virtue. Philanthropies operate over longer time horizons than either government or private business. At their best, Reich said, they can serve as “an extra-governmental form of democratic experimentalism,” piloting risky or unproven policies, testing them, then presenting them to the public “for a stamp of democratic legitimacy.”

It’s only this sort of bold experimentation, Reich argued, that can ultimately justify the array of benefits and protections big philanthropy enjoys. “Foundations are free, unlike commercial entities, to fund public goods because they need not compete with other firms or exclude people from consuming the goods they fund,” he wrote in The Boston Review. “And they are free, unlike politicians who face future elections, to fund minority, experimental, or controversial public goods that are not favored by majorities or at levels above the median voter.”

In Aspen, Reich analogized this to academic tenure—granting freedom to work on unpopular subjects or long-term projects without the demand for immediate results. It would, he said, allow philanthropy to “domesticate plutocrats to serve democratic institutions.”

Of course, the vast majority of charitable foundations won’t have the resources to pursue the approach that Reich claims is the only potential justification for their existence. Of the 80,000 private foundations in the United States, 98 percent possess less than $50 million. “Rather than there being a ceiling on the size of foundations, there should be a floor,” Reich said. He argues that donors, instead of endowing their own, small charitable foundations, which may not be able to pursue bold, risky, long-term experiments, should write checks directly to nonprofit institutions and other charitable causes.

What Reich envisions would require a radical reimagination of the philanthropic sector: vastly fewer foundations, making much bolder bets, over longer time horizons. It wouldn’t be easy to achieve. But, Reich argues, it would have a crucial advantage: It would provide a model of philanthropy that would strengthen democracy, instead of undermining it.