Carnegie Reporter, Vol. 3, No. 1 | What Are Foundations For?

In the U.S. today, there are about 65,000 grantmaking foundations; they have both critics and supporters. This essay by author Daniel Akst examines some of the reasons why.

When Andrew Carnegie sold his steel interests to J.P. Morgan in 1901 for a staggering $480 million—something like $10 billion in today’s money—America was a very different place than it is in 2004.

There were only a quarter as many people. Newborn life expectancy was just 47 years. The middle class was tiny, the federal government equally so, and the social safety net was almost nonexistent aside from the voluntary associations of working men, immigrants and African Americans. Nine-out-of-10 blacks dwelled in the Jim Crow South, many in near-feudal conditions that reinforced their powerlessness and humiliation daily. Cities were booming, but 60 percent of Americans lived a rural life, and most didn’t go far; although railroads were extensive, there were just 8,000 cars and fewer than 10 miles of concrete roads. Business was red in tooth and claw; cartels known as “trusts” controlled coal and other vital industries, and the rights of employees were few. Immigrants were pouring in at a rate that would never again be equaled—even today—and technology, while advancing, was primitive by modern standards. The Wright brothers wouldn’t take wing until 1903. There was no income tax.

The array of needs, in other words, was vast, but the means for meeting them scant. This was the world in which, hard on the sale to Morgan and after years of giving money away independently, Carnegie began to set up his various perpetual trusts. A decade later he inaugurated the modern era of foundation philanthropy by launching his Carnegie Corporation of New York as an enduring monument to his dreams for the future. John D. Rockefeller followed suit just two years later with a great foundation of his own.

Benevolent trusts of various kinds are almost as old as recorded history; when Plato died in 347 he bequeathed income from his estate to fund his academy, which lasted until 529 AD, when Justinian closed it for spreading pagan doctrines (even then, foundations were getting in trouble for backing controversial ideas). Before the turn of the 20th century there were just 18 foundations in this country, according to Randall G. Holcombe, author of Writing Off Ideas: Taxation, Philanthropy and America’s Nonprofit Foundations (Transaction Publishers, 2000). The charitable focus of these organizations was largely on helping the needy.

But Carnegie and Rockefeller, who knew one another and discussed their ideas, went off in a different direction, hoping with their vast wealth to attack the root causes of social ills rather than fund mere palliatives. Their decision reverberates loudly to this day.

A century later, in a nation of 300 million people and a gross domestic product pushing $12 trillion, there are roughly 65,000 grantmaking foundations, a number that is up 67 percent in just 10 years. Foundation assets have grown even faster, to perhaps half a trillion dollars (depending on where the stock market happens to be when you read this). Foundations are important; even their critics—perhaps especially their critics—acknowledge their influence. “The complexion and quality of the nation’s life are profoundly affected every day, for better and for worse, by the trustees and staffs of a few hundred private and community foundations,” affirms Mark Dowie, whose 2001 work American Foundations: an Investigative History (MIT Press) prods these trustees and staffs for their many shortcomings.

Detractors notwithstanding, all signs indicate that the recent proliferation of foundations is probably only the beginning of a period of explosive growth in both the number and size of these institutions, which though they exist elsewhere, play a role in this country’s life that is peculiarly American. Indeed, an array of social, political and demographic developments have come together to make the decades ahead look something like the age of philanthropy. The implications are huge. Writes Peter Frumkin, a Harvard University expert on nonprofits: “As philanthropy braces itself for an infusion of new funds and new practices, the line dividing public and private spheres will all but surely be redrawn in ways that will have consequences for the shape of our democracy.”

These new developments beg some very old questions. What are foundations for? Are they inherently undemocratic? Should the wealth that sustains them be taxed and allocated by government instead? Can perpetual organizations that are sheltered from competition remain perpetually vital? In a polarized political culture, what is the future of this “third sector” that is neither government nor business?

Given the mass inheritance that will occur in the years ahead and the expected growth in foundations, these questions have never been more timely. And they reflect many of the central issues facing society, including the limits of government, the obligations of one generation to the next, and how best any of us might do good. Timely as they are, these are enduring questions, in other words, and in every era American philanthropic foundations—time-tested vehicles for channeling private wealth into public purposes—have worked hard to provide answers.

They have had to, if only because their critics have been around as long as the foundations themselves. “Foundations have been viewed with suspicion and distrust throughout the twentieth century,” Holcombe reports. Historian Ellen Condliffe Lagemann notes that even before there was a Carnegie Corporation, some people resented being objects of Andrew Carnegie’s philanthropy, while others complained that he might have done more good simply by raising his workers’ wages. Socialist labor leader Eugene V. Debs went so far as to urge communities to reject Carnegie’s library-building gifts, assuring them of libraries aplenty in the future, “when capitalism is abolished and working men are no longer robbed by the philanthropic pirates of the Carnegie class.”

Rooted in the class conflicts of the Gilded Age, when the poverty of most Americans contrasted with the fabulous wealth of the new industrialists, resentment arose not just against the philanthropy of the super-rich but against the entities that they hoped would perpetuate their giving. “When the Carnegie and Rockefeller foundations were created prior to World War I, critics charged that capitalist robber barons were not content only to control American business,” Holcombe writes. “Rather, through the reach of their foundations they wanted to control our educational institutions, our social services, and even our governments.”

Next page: Detractors notwithstanding, all signs indicate that the recent proliferation of foundations is probably only the beginning of a period of explosive growth in both the number and size of these institutions.

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