Similar charges have dogged philanthropic organizations for more than a century, since long before seemingly every CEO, celebrity, and soft-drink company had a charitable foundation. When the oil magnate John D. Rockefeller set out to establish the Rockefeller Foundation in the early 1910s, his contemporaries worried that such organizations were, as Reich has written, “a deeply and fundamentally anti-democratic institution, an entity that would undermine political equality, affect public policies, [potentially] exist in perpetuity, and that was unaccountable except to a hand-picked assemblage of trustees.” Rockefeller was met with similar concern from lawmakers when he applied for a federal charter for his foundation. Wary of the influence he might exert over spending, the Senate declined to grant it to him.
Philanthropy didn’t find champions in the progressive scholars and activists then clamoring for social reform either. “Private unendowed charities must, on the whole, be listed among the static rather than the dynamic forces in society,” the sociologist Edward Alsworth Ross wrote in a 1914 Atlantic article. Seven years later, the writer and outspoken feminist Cornelia J. Cannon outlined a similar argument in the magazine: “The philanthropists serve unconsciously as a bulwark of the status quo, for whose defects they are ready and eager to apply palliatives,” she wrote. “They are the great menders and patchers-up of society, not the surgeons who cut deep into the festering sore and scrape the bone.”
Read: The problem with modern philanthropy
Philanthropists, Cannon wrote, were loath to “surrender their work to the community itself.” But she argued that in order for democracy to succeed, they would have to redirect their “professional ability” and “intellectual enthusiasm” away from the charitable foundations they controlled and toward public institutions.
That’s not what happened. In fact, many of the philanthropic organizations of that era, including the Rockefeller Foundation, remain active, privately controlled, and generously funded today. And though the Senate turned Rockefeller away in 1912, Congress established the country’s first tax incentives for charitable giving and tax exemptions for philanthropic foundations before the decade was over.
Those policies have evolved over the past century to create, Reich said, “the most idiosyncratic organizational forms we have in the United States”: 501(c)(3) organizations. These charitable foundations, he explained, are “almost entirely unaccountable” to the public, directed by leaders who can’t be voted out of their positions, faced with “no real marketplace competition,” required to provide “almost zero transparency,” governed by donors’ whims in perpetuity, and “lavishly tax-advantaged.”
“You can get away, in the United States, with being a nonprofit organization and having almost any mission so long as you don’t enrich your shareholders or yourself in any egregious way,” Reich said in another conversation at the festival. In that sense, he noted, organizations that work to reduce social and economic inequality are treated the same way under the tax code as those that give to art museums and, until it dissolved last December, as the Trump Foundation.