Few people paid much mind in August when Microsoft's Bill Gates deposited a new block of stock into his private foundation, making it the biggest in the country with a permanent endowment of $17 billion. But when Gates announced two weeks ago that he would give $1 billion to fund science scholarships for minority college students--one of the largest single philanthropic commitments ever--his decision was met with doubts about the wisdom of investing such large sums in such a targeted manner.
Philanthropy has become a controversial matter these days, particularly when donors make their own decisions about how and when to spend their money rather than leaving those details to professionals in the foundations they have set up. Yet we all stand to benefit from this very personal form of giving--and from active, committed donors who use their funding to express their own, sometimes quirky, visions of the common good.
Why should we value such donor-driven philanthropy? On the face of it, some large donations seem bizarre, perhaps even misguided. In San Francisco, for example, PeopleSoft Inc. co-founder David A. Duffield committed his foundation to spending $200 million to make sure that every cat and dog in America has a home--because of his affection for his miniature schnauzers. Individual donors often choose to do things on a scale that few perpetual foundations or government agencies would entertain. In Madison, Wis., toy maker W. Jerome Frautschi decided that his hometown would benefit from a downtown arts district. So he pledged $100 million--a donation equivalent to the annual budget of the National Endowment for the Arts and that dwarfs the arts grants usually disbursed by foundations--to see his vision enacted. In New York City, Irene Diamond spent her foundation right out of existence in part by funding AIDS research because she felt the work simply could not wait.
While consensus may have existed in the past about how the wealthy should conduct their giving, philanthropy is now entering a period of great flux, uncertainty and experimentation. How the growing ranks of billionaires, the surging number of multimillionaires, and the millions of millionaires make their decisions is going to grow ever more controversial as the amount of philanthropy in the coming decades continues to rise with the anticipated $10 trillion transfer of wealth from members of the baby boom generation to their descendants.
Donors have long faced two options when they approach the question of how best to disburse their funds. First, they can take charge of their giving, forgoing a foundation completely or setting one up merely as a vehicle for current donations. Second, they can avoid the topic by postponing their giving until after their deaths and by placing funds into private foundations. Since the turn of the century, the United States has been famous for the latter approach: Americans have created some 50,000 private foundations, most established in perpetuity and many with very broad and amorphous charters. Private foundations now control assets totaling more than $350 billion and disburse about $18 billion in grants each year to nonprofit service providers. Roughly half of all foundation grants are made by the 300 largest institutions. Beneath that stratum, thousands of small and mid-size foundations are the vehicles through which individual donors and families give.
Foundations have not always been a politically popular solution to the giving problem. When John D. Rockefeller approached Congress in 1911 with the goal of getting a charter for his foundation, he was rebuffed, and the idea of a foundation was dismissed as a scheme to perpetuate wealth indefinitely. Since then, foundations have been regulated to some extent and their operations have been transformed by a growing cadre of professional managers who now take care of most of the details involved in giving money away. Perpetual foundations continue to represent a viable solution for donors who are interested in leaving a lasting legacy and are willing to delegate, after their death, decisions about how exactly their funds should be used.
Investor Warren Buffett, for one, has argued that his talent lies in making his money grow, not in figuring out how to give it away. As a consequence, Buffett has declared his intention to create a foundation that will receive the bulk of his estate after his death; trusted and talented scientists and experts will then administer it in the public interest.
In recent years, however, the monopoly that perpetual private foundations have held on the imaginations of the wealthy appears to be slipping. Questions about the permanence of the donors' intent, issues of intergenerational equity and doubts about the wisdom of professionalizing philanthropy are pushing some younger donors to define a do-it-yourself option. Many high-tech entrepreneurs who have made their fortunes through a hands-on approach to business are unwilling to leave the decisions to others. A new rhetoric of "social investing" has caught on among these younger givers, many of whom want to see concrete results for each grant they make.
One of the most imitated models was established in Seattle by Paul Brainerd, founder of the software company Aldus. Brainerd created Social Venture Partners, a group of affluent young people committed to high-engagement, personal philanthropy. Instead of just writing checks, these donors get involved with the organization they support, and share their financial and management expertise where needed. Other small groups of young donors seeking to learn about giving have been formed, most with the goal of reclaiming for donors an active role in spending the money they donate.
Among donors with more modest resources, there is also a trend away from creating small foundations or giving to community foundations. Fidelity Investments and other mutual fund companies have had tremendous success in creating charitable gift funds for their customers. These allow donors to maintain full control over their charitable donations and to disburse grants whenever and however they desire. These gift funds bypass the growing number of philanthropic consultants and grant administrators. Many members of the new generation of donors thus appear to be reconsidering and acting upon steel magnate and philanthropist Andrew Carnegie's famous dictum that to die rich is to die disgraced.
The shift is controversial. Some onlookers are made wary by the prospect of large amounts of philanthropic money being used to advance individual, even idiosyncratic, visions rather than being placed in a foundation for perpetuity in order to accomplish more neutral collective purposes. In their eyes, the tradition of large foundations is comforting, precisely because decisions about the use of philanthropic funds are eventually distanced from the values and interests of the donor. After all, some see the tax exemption given philanthropic funds as a reason for viewing them as quasi-public funds. But such an interpretation of the purpose of philanthropy is misguided: Philanthropy is most powerful and best serves the common good when it expresses personal values. It deserves not just the recognition it gets through the tax code, but a high level of public tolerance.
When donors choose a direction or a cause and define a particular private vision of the public good, they can at times challenge wisdom built up through years of public-sector priority setting and spending. Gifts for arts centers and animal shelters ultimately reaffirm that there is more than one way of setting our collective priorities and of building a better society. In the case of Irene Diamond, the donor's commitment, vision and funding played a key role in the discovery of protease inhibitors, one of the most promising treatments for AIDS to date.
Still, when Gates decides to commit $1 billion to minority science education, he inevitably opens himself up to criticism. Some have already protested that he would have been better off focusing on financial need rather than targeting a particular group. Controversy is simply an unavoidable consequence of such donor-directed philanthropy.
As gifts get larger and larger, the private interests and values of donors are only going to get more controversial. Nevertheless, huge donations such as Walter Annenberg's commitment to improving public schools, Ted Turner's billion-dollar pledge to the United Nations, and Gates's scholarships signal that donors of large amounts are beginning to assert themselves as never before. This new period of personal giving is challenging us to think differently about the meaning and rationale for philanthropy. Rather than second-guess the specific causes that donors choose to support, we should encourage a broad and active market of competing private visions of the public good, while celebrating the huge wave of unfiltered pluralism that donor-driven philanthropy is beginning to unleash on American society.
Peter Frumkin is an assistant professor of public policy at Harvard University's John F. Kennedy School of Government, where he is affiliated with the Hauser Center for Nonprofit Organizations.