OH, THAT'S RICH

We Can't Rely on the Kindness of Billionaires

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By David Nasaw
Sunday, September 23, 2007

"Giving," Bill Clinton's folksy first-person tour of worthy causes and the good people who support them, is so relentlessly upbeat that only the most churlish professor would say a discouraging word about the book. But the former president is so intent on celebrating 21st-century philanthropy -- and highlighting his and Hillary's role in promoting "the explosion of private citizens doing public good" -- that he blithely ignores a hard reality: Philanthropy and democracy don't get along nearly as seamlessly as "Giving" would have us believe.

Private giving is not the panacea for all that ails us. Clinton concedes early on that many problems "cannot be adequately addressed without more enlightened government policies," but he then devotes only 19 of his 211 pages to government's role in advancing the common welfare. In urging us to do good privately, he tacitly reinforces a lack of faith in the capacity of democratic governance to cure our social ills.

As Clinton remarks, without comment or regret, today's startling expansion of the philanthropic sector is being fueled by a "vast pool of new wealth." According to a recent study by two economists, "the share of gross personal income of the top 1 percent of American earners rose to 17.4 percent in 2005, from 8.2 percent in 1980." Some of this new wealth is being given away, but not nearly as much as we might wish. "The rich when alive give away a smaller share of their income than the rest of us," Fortune magazine noted. "And when it comes time to die, the rich leave their money mostly to their children." About 9 percent goes to charitable causes. Pets get about 2 percent.

The recent philanthropic surge has been fueled by a few highly publicized mega-gifts. In 2006, 21 individuals each gave $100 million or more to philanthropy. The largest donation was Warren Buffett's pledge of $31 billion to the Bill and Melinda Gates Foundation, which focuses on global health and education. In 2005, the largest benefaction was Cordelia Scaife May's gift of most of her $400 million estate to the Colcom Foundation of Pittsburgh, which, while also funding conservation efforts and cultural institutions in the Pittsburgh area and giving $1.3 million for a bronze statue of Mr. Rogers, directs the greatest part of its funding toward "efforts to significantly reduce immigration levels in the U.S."

The largest gift given this year will most likely be one from Helen Walton, wife of Wal-Mart founder Sam Walton. She died in April, and her $16 billion estate is widely expected to go to the Walton Family Foundation, making it the second largest in the United States. The Waltons' foundations contribute millions each year to charter schools, charter-school advocacy groups and think tanks such as the American Enterprise Institute and the Heritage Foundation, whose "top policy analysts," the New York Times reported in 2005, have defended Wal-Mart against its critics in op-eds, interviews and testimony before government committees. Such foundations can pretty much do as they please with their grants, as long as they spend at least 5 percent of their assets every year and don't blatantly enrich their directors or donors.

In 1915, during the first great wave of giving, the Commission on Industrial Relations -- created by Congress -- undertook what its chairman called "a sweeping investigation of the country's greatest benevolent organizations . . . to ascertain if they were a menace to the Republic's future." Missouri lawyer Frank P. Walsh, the chairman, feared that self-perpetuating, tax-exempt foundations would expand the power of the rich so far that democratic decision-making would be threatened. He suggested that the federal government "take over such accumulations of wealth" as held by the Rockefeller, Carnegie and Russell Sage foundations "by taxation similar to the income tax" and use the money for widely agreed-upon public projects. The commission urged Congress to spend more on education and social services to counter the foundations' influence, investigate all endowed institutions and force foundations to accept federal regulation.

A year ago, while applauding Buffett's commitment to give billions to the Gates foundation, I raised questions similar to those the commission asked in 1915: Is society well-served by letting so few accumulate so much? What becomes of a society that relies on "gifts" from a handful of socially conscious billionaires to save schools, cure disease and alleviate poverty? The conservative journalist Bill O'Reilly suggested, somewhat longingly, that 50 years earlier, such questions would have resulted in my "invitation to appear before the House Committee on Un-American Activities."

My remarks may have upset O'Reilly because they questioned powerful assumptions about the relationship among capitalism, philanthropy and democracy so famously articulated by Andrew Carnegie, the founder of modern American philanthropy. Philanthropy, as Carnegie understood full well, was not a democratic institution.

Carnegie's advice on the "best methods" for giving away money was fiercely autocratic. He urged his fellow millionaires to donate to causes that appealed to them, so long as they did not encourage dependence. Neither the people nor their elected officials were to be consulted. In 1895, at the dedication of his new library in Pittsburgh, Carnegie acknowledged that the thousands of men working in his steel mills would have preferred that he give his money to them to spend as they saw fit. He refused because he believed he knew better than they did what they "required." Had his money gone directly to the people in the form of bigger paychecks, it would have been "frittered away, nine times out of 10, in things which pertain to the body and not to the spirit; upon richer food and drink, better clothing, more extravagant living, which are beneficial neither to rich nor poor." Instead, he gave them a multimillion-dollar complex with a museum, an art gallery and a concert hall to minister "to the higher, the divine, part of man."

Many of today's millionaires are following Carnegie's lead: setting up their own foundations and choosing their own causes. "New age donors are hands-on," the Hudson Institute reported in its 2007 Index of Global Philanthropy. "They want to participate directly in the design, operation and measurement of their endeavors."

He who pays the piper calls the tune. Researchers in New York have discovered, to no one's surprise, that parks in the city's wealthier neighborhoods receive more private money and are cleaner, safer and better maintained than those in poorer areas. The same process is at work in other public institutions that have begun to rely on private funding. Wealthy donors are more likely to give to the schools, colleges and cultural institutions that they or their families use.

These inequities get worse when we factor in the effects of charitable deductions allowed by the tax code. For every $3 the wealthy give away, the federal government adds the fourth that would have been collected in taxes had charitable deductions not been permitted. In effect, Washington is contributing $40 billion to institutions and causes selected for funding by foundations and individuals who earn enough to justify itemizing their deductions.


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© 2007 The Washington Post Company

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