Carnegie Reporter, Vol. 3, No. 1 | What Are Foundations For? page 4, (low-bandwidth)

If America’s large foundations have always been “theaters of creativity,” in the words of Charles Halpern, former president of the Nathan Cummings Foundation, they are likely to produce even more experimental theater in the future. That’s something they are uniquely positioned to provide, as Frumkin articulates: “Drawing on their tremendous resources and independence, foundations have...shown a willingness to attempt projects that government and business are either unwilling or unable to carry out for political or financial reasons.”

Chances are we’ll see more of these projects than ever, for the simple reason that, critics notwithstanding, we are going to see a lot more foundations. One reason is that the modern American economy is proving even more adept at creating wealthy citizens than it was in Andrew Carnegie’s day. There are something like 3.5 million households with a net worth of $1 million or more in America, the vast majority of them self-made by any reasonable definition of the term. While most have managed to amass a few million dollars despite modern income and other taxes (with which Carnegie and Rockefeller did not have to contend), the very richest Americans are increasing in number as well, and they are very rich indeed. Bill Gates, for example, who came from an affluent family but made his money on his own, is worth an estimated $46 billion, according to Forbes; his Bill & Melinda Gates Foundation, with a remarkable $24 billion in assets, is far and away the largest grantmaking foundation in the country.

Then there is the matter of inheritance. “Over the coming decades,” Frumkin asserts, “a massive intergenerational transfer of wealth, estimated at well over $40 trillion, is expected to redefine the landscape of giving.” Dowie figures that by sometime in the second half of this century, U.S. foundation assets could rise tenfold, and that by 2050 foundations could be granting more than $200 billion a year (up from $30 billion today).

There are other factors, too, some of them practical. Today’s deficits and demographics, for instance, strongly suggest that the future is likely to see higher income tax rates—which will make charitable giving of every kind more attractive on an after-tax basis. And in a development rife with poetic justice, foundations are now a possibility for more and more Americans outside of traditional elites because technology and private enterprise have driven down the cost of establishing and maintaining them.

Once upon a time, says Claire Costello, director of Citigroup Private Bank’s philanthropic-advisory service, $2 million was considered the minimum capital required to make a family foundation worthwhile due to the costs associated with establishing and maintaining it. But she believes that rule no longer holds. Foundation services firms such as Foundation Source in Norwalk, Conn., will set up a foundation, including legal work and government filing fees, for just $4,750. The company has a sliding fee scale that makes even tiny foundations plausible. For instance, they’ll take care of a foundation with just $250,000 in assets for an annual fee of $2,000 plus 30 basis points—or just $2,750. The result is a typically American democratization of an entity once the exclusive province of the very rich. Now even the routinely affluent, if they really want one, can establish a foundation of their very own with nothing more than the accumulated equity of a middle-class home.

Another big factor in the foundation boom is surely our persistent distrust of government. Frumkin, citing data from the late 1990s, reports that only a quarter of Americans trusted government to do the right thing, versus three-quarters 50 years earlier. Vietnam, Watergate, Iran-Contra, the Clinton sex scandal, the failings of NASA, intelligence shortcomings on 9/11 and Iraq, doubts about public education—the list goes on and on—have undermined faith in political institutions, and this disillusionment runs across the political spectrum. While conservatives attack big government, liberals decry government war-making, unresponsiveness and restrictions on civil liberties. And in recent years the polarization of the political process (thanks to various electoral factors, including gerrymandering on the basis of party purity) have only made it more difficult for Washington to get things done. It’s noteworthy that even among foundation critics, there is little faith that government could do more good with the money.

But trust in business is also sagging. Corporate scandals, spiraling CEO pay and companies that operate seemingly with little regard for workers or communities can only make nonprofits (like foundations) that much more attractive as vehicles for change. Indeed, corporate reformers have for years insisted that public companies put shareholders first, which would seem to leave little room for initiatives that don’t directly benefit the bottom line. Burton Weisbrod, writing almost a generation ago, understood that “there are likely to be both efficiency and equity failures in the private market,” and that “government, which might be expected to correct such failures, is not always able to do so.”

This will be no surprise to the new generation of entrepreneurial philanthropists whose cutting-edge ventures have generated so much wealth in recent years. For this iconoclastic group, not content merely to vote, pay taxes and make donations, what Peter Drucker has called “the counterculture of the Third Sector” has special appeal. And more than ever, the foundations they establish will be willing to embrace new ideas. These new philanthropists are bringing new strategies to grantmaking, including strategies more familiar in the world of business than that of foundations. Andrew Carnegie, who of course made his money in business, and whose legacy includes the men who pioneered what was then called “scientific philanthropy,” would have been delighted.

Daniel Akst is a writer in New York’s Hudson Valley.