Democracy and the Donor Class by Gara LaMarche

This article was originally published at The Democracy Journal

Foundations and philanthropists do much good, but these unelected actors have acquired enormous power to shape policy. Should they be reined in?

Though this is not the way I would usually describe my career, one way of looking at it is that I spent my first 20 working years trying to raise money, and the next 15 trying to give it away. The transition, which took place when I left Human Rights Watch in 1996 to found the United States Programs of George Soros’s Open Society Institute, was a challenging one.

On the one hand, having dealt with foundations over the years as a supplicant, I felt I knew their ways—and in particular, ways of behaving that I was eager to avoid. On the other hand, suddenly becoming the gatekeeper to many millions of philanthropic dollars altered most of my collegial relationships, and many of my personal ones, infecting all but a few of them with a new power dynamic. I found myself—as various wags have observed about philanthropy staff over the years—a great deal smarter, wiser, funnier, and probably handsomer than I had been only months before.

I managed that personal transition as well as I could. I vowed not to internalize the importance others now ascribed to me. What power I held was derivative and temporary, and I tried not to forget that. I think I was mostly successful in remembering, so my recent transition out of philanthropy, with the accompanying loss of certain kinds of power and capital, has been that much easier as a result. For the better part of those 15 years, I oversaw grants made by two of the world’s largest foundations, both with engaged and active donors, probably to the tune of about $3 billion in all. So I’ve had more experience helping to direct the largesse of the living rich than almost anyone, aside from Patty Stonesifer, Jeff Raikes, and Sue Desmond-Hellmann, the former and current CEOs of the Bill and Melinda Gates Foundation. Through that experience, I’ve been a vocal and persistent advocate for a certain kind of philanthropy, one that eschews simple charity—worthy but palliative measures like supporting a soup kitchen or personal gestures like providing a scholarship—for attention to policy, to the root causes and structural conditions that result in hunger or lack of access to education in the first place. I’ve preached to my philanthropic brethren the virtues of support for advocacy on the leading social-justice issues of the day, and tried in the positions I’ve held to model that in the hopes that others would follow, or in any case find it safer territory to explore. The grant made by Atlantic Philanthropies during my tenure to Health Care for America Now, the grassroots organizing campaign for universal health coverage—at $27 million, the largest advocacy grant ever made by a foundation—was perhaps the most prominent of many such examples.

And yet it was during that campaign, ironically, that I began to have my first real doubts about the legitimacy of philanthropy in its engagement with the democratic process. You’ll recall that one of the many attacks on President Obama’s health-care bill was that it would bust the budget, and the President was careful to state from the outset that this major social-welfare advance would be revenue-neutral, not adding to the deficit, and indeed saving money over time.

That meant finding a combination of savings and new revenue to finance the bill. One proposal from the Administration would have capped the income tax deduction for charitable contributions at the level it was during the Reagan Administration, 28 percent. Almost without exception, the organizations that purport to speak for foundations and the nonprofits they fund rose up in opposition to the proposal.

There are credible arguments on both sides about how much effect a change in the deduction would have on charitable giving in the United States. I tend to believe the studies—such as those by the Center on Philanthropy at Indiana University—that assert that there would be a modest effect, if any. But let’s assume for the sake of discussion that the effect would be more than modest—that wealthy Americans in particular would open their checkbooks for causes dear to them a bit less often without the incentive of a tax break. Is that a price worth paying?

I think so. We had a once-in-a-generation opportunity to advance universal health care, benefitting many millions of uninsured Americans, saving lives, staving off bankruptcies, and indeed saving public dollars that would otherwise be devoted to emergency-room care. We had a means of helping to pay for it by a slight alteration in a tax break used by the most well-off—and, undoubtedly, the most generously insured—members of society. Yet the collective leadership of American philanthropy—a leadership, by the way, that had been with few exceptions silent about the redistribution of wealth upward through the Bush tax cuts, silent about cuts in social programs, silent about the billions of dollars spent on the wars of the last decade—found its voice only when its tax exemption was threatened, and preferred to let the government go begging for revenue elsewhere, jeopardizing the prospects for health-care reform, in order to let rich, well-insured people go on shielding as much of their money as possible from taxation.

As you can tell, this steamed me up a lot, and it did again later when the same script played out during the fiscal cliff crisis. What that situation made plain to me was not just that philanthropy is quite capable of acting like agribusiness, oil, banks, or any other special-interest pleader when it thinks its interests are jeopardized. It helped me to see that however many well-intentioned and high-minded impulses animate philanthropy, the favorable tax treatment that supports it is a form of privatization. Money that would otherwise be available for tax revenue that could be democratically directed is shielded from public control for private use.

As Rob Reich, co-director of the Stanford University Center on Philanthropy and Civil Society, wrote in a 2013 cover article in Boston Review, “What Are Foundations For?”:

Philanthropy in the United States is not just the voluntary activity of a donor. Philanthropy in general, including the work of foundations, is generously tax-subsidized. The assets transferred to a foundation by a donor are left untaxed in two respects: the donor makes the donation more or less tax-free, diminishing the tax burden she would face in the absence of the donation; and the assets that constitute a foundation’s endowment, invested in the marketplace, are also mostly tax-free. …[F]oundations are partly the product of public subsidies. They are created voluntarily, but they result in a loss of funds that would otherwise be tax revenue. In 2011 tax subsidies for charitable giving cost the U.S. Treasury an estimated $53.7 billion. So foundations do not simply express the individual liberty of wealthy people. We all pay, in lost tax revenue, for foundations, and, by extension, for giving public expression to the preferences of rich people.

I can already hear the arguments that will be made against this view on the political right. They don’t believe in a strong government role in the economy and social welfare, and certainly not the taxes that support it. They prefer to let the private market deal with health and income security. They don’t view wealth as presumptively subject to taxation, and they think the idea that favorable tax treatment constitutes a subsidy turns the world on its head. I don’t agree with them, but I understand their worldview, and they have credible arguments that flow from it.

I do wonder, though, about my progressive friends. They believe in a strong government, in a fair tax system, in a robust social-welfare system, and in a vibrant democracy where all voices count equally. Why are they are not more concerned about the undemocratic and largely unaccountable nature of philanthropy? Why are we—since I too have failed, for years, to ask these big questions—hypersensitive to the dangers of big money in politics, and the way it perpetuates advantage and inequality, but blind, it seems, to the dangers of big philanthropy in the public sphere?

It wasn’t always so in our history. When the titans of their day, Andrew Carnegie and John D. Rockefeller, sought to set up trusts to spend some of their vast wealth for charitable purposes, Frank P. Walsh, a progressive lawyer who chaired a congressional inquiry into industrial relations, called the new Rockefeller Foundation and Carnegie Corporation “a menace to the future political and economic welfare of the nation.” In that period, 100 years ago, the foundations’ endowments surpassed what the federal government, in the pre-New Deal era, spent on education and public health. Walsh called for the “democratization of private benevolence” through more progressive taxation. In testimony before the Walsh Commission, Morris Hillquit, the labor lawyer and Socialist Party leader, said that large foundations like Rockefeller, Carnegie, and Russell Sage “represent in the domain of philanthropy just what trusts represent in the industrial field.” Edward P. Costigan, who would later represent Colorado in the Senate, called the Rockefeller Foundation “a supreme example of the philanthropy which deadens, by its large benefactions, a public criticism which otherwise would be as formidable as inevitable.” Even feudalism and slavery, Costigan went on, “boasted of their occasional generosity.” The Reverend John Haynes Holmes of the New York Church of the Messiah, who would serve for two decades as chair of the board of the American Civil Liberties Union, called foundations “essentially repugnant to the whole idea of a democratic society.”

In 2013 you’d be hard-pressed to find anyone close to the mainstream of American civic life and political thought raising those kinds of fundamental concerns. Is it because 100 years of practice has erased them? Or because philanthropy has deadened criticism, as Costigan warned, with its “large benefactions”?

Read the rest of Gara LaMarche's expose at the Democracy Journal