The future is hot. Everywhere you look there are new predictions covering technological innovation, business, employment patterns, and international relations. There are even prognostications about change in family relations and religion. The end of the millennium has helped to fuel some of this speculation, as when the President invites physicist Stephen Hawking to the White House to show a clip from Star Trek and explain his vision of the 21st century (“It will be very different”).
But amid all the chatter about the future, there is remarkably little attention devoted to what may be the most dramatic change ahead for American society and the institutions that sustain it. If the next century brings a revolution, it will have less to do with Star Trek than with the convergence of three trends: a broad and popular faith in free markets; a realization that what the Rev. Martin Luther King Jr. called the “content of our character” is critical to our individual and collective well-being; and historic high levels of wealth in many private hands.
For decades, one of the most powerful challenges to the American claim of “liberty and justice for all” was the charge that capitalism necessarily caused the impoverishment and exploitation of some part of society for the benefit of the “ruling” part. In its more radical forms, this meant full-blown revolution, carried out in the name of the poor. Less extreme variants called for the creation of special “welfare programs” and “progressive” measures to redistribute at least some wealth to capitalism’s victims. We are finally witnessing the death rattle of this feature of the last century.
The two most visible symbols of the Left’s meltdown are the fall of the Soviet Union and the enactment of welfare reform legislation. As the West sends billions of dollars in aid to strengthen the Russian economy and more than six million former welfare recipients return to productive work, it is the old argument about “capitalist exploitation” that seems relegated to the “dustbin of history.” Trade and “market solutions” are the order of the day.
Most significant for private philanthropy, market solutions are the tool of choice for helping everyone from “welfare moms” to recovering addicts to those with physical and cognitive disabilities find employment and re-enter the mainstream of American life. In addition, many traditional charities are rushing to adopt private sector “business practices” in regard to management, finance and fundraising, strategic planning, marketing, and evaluation. Nonprofit business activity is exploding.
And when we face the limits of what business can do, we look to religion. It now seems that all aspiring presidential candidates support faith-based programs for helping the poor and the addicted, as well as criminals and anyone else whose behavior prevents them from taking full advantage of the opportunity and promise of American life. This reflects a deep consensus—across political lines—that “the content of our character” is crucial but was not being addressed by the large, bureaucratic social-welfare agencies which dispense needed funds but little else. It is not that we now despise social workers and idolize missionaries. It is rather that there has been a popular recognition of the ability of faith-centered institutions to lift up the downtrodden and rebuild shattered lives in ways unthinkable to their secular counterparts.
Revolution At The Trunk?
In the middle of fundamental change there are striking contradictions between the old and the new. For example, market-based anything seems at odds with big government. A centralized, heavily-regulated source of support does not typically produce innovation and efficiency. The conventional wisdom dismisses this problem by declaring that small, local nonprofits will be powerless without federal money. Vice President Al Gore summed up this view in his speech this May on faith-based organizations:
Some past national political leaders have asked us to rely on a fragile patchwork of well-intentioned volunteerism to feed the hungry and house the homeless. That approach, optimistic though it was, was not adequate for the problems too many Americans face. It left too many American children behind to suffer. If all the private foundations in America gave away all their endowments, it would cover about one year of our current national commitment to meeting social challenges. In contrast, faith- and values-based organizations show a strength that goes beyond “volunteerism.” These groups nationwide have shown a muscular commitment to facing down poverty, drug addiction, domestic violence and homelessness. And when they have worked out a partnership with government, they have created programs and organizations that have woven a resilient web of life support under the most helpless among us.
In short, whatever the advantages of privatizing both the efforts to help those in need and the resources that support those efforts, there is not enough money in private foundations to do so. The only solution is “a partnership with government”—a marriage of necessity. There may be reform and improvement down this path, but it will be limited to what government can support both financially and in regard to accommodating religious practice.
But is this assessment correct? Does it even frame the issue properly? Indeed, it seems to make three rather dubious assumptions:
That it does not make sense for the private sphere to do more—much more—in the many areas where there are sufficient private resources;
That the extent of charitable resources in private hands will remain static; and
That levels of need will remain fixed despite ongoing welfare reforms and a variety of promising new approaches in related areas.
In fact, the conventional wisdom seems wrong on all three counts.
Cruising to $100 Billion
News stories on the rapid growth of foundation assets, the even faster growth in many college and university endowments, and the continued increases in charitable giving overall have become regular fare. The same is true of articles on the related question of the “great inter-generational transfer of wealth,” as Baby-Boomer parents pass their wealth to the Boomers, and the Boomers in turn transfer their wealth to their children. Experts speak of trillions of dollars moving from generation to generation in the next several decades. But despite this coverage there seems to be little appreciation of just how much money is poised to enter the world of charity and philanthropy.
Vice President Gore, it turns out, has it exactly backwards. The key to really understanding the potential of charitable giving is precisely to stop thinking in terms of the local nonprofit’s budget (tens and hundreds of thousands of dollars) and start thinking in terms of the federal budget (billions and trillions of dollars). Between 1982 and 1995, foundation assets grew by 13.5 percent a year. If this growth continues and only 5 percent of the assets are paid each year, excluding all new gifts and bequests, foundation assets will grow to between $4 trillion and $5.9 trillion by 2035, according to some estimates.
For example, when J. Paul Getty died in the mid-1970s his wealth stood at approximately $1.5 billion. In the years since, Getty’s bequest has grown dramatically. Roughly $4 billion has been spent making and executing plans for the J. Paul Getty Museum and its related acquisitions and programs since J. Paul’s death—acquisitions on such a scale that the Getty is regularly charged with driving up art prices throughout the world and absconding to Southern California with large parts of the artistic legacy of Western Civilization (see related story page 16). And even after that more than $4 billion in spending, the Getty endowment retains a comfy $5 billion.
But this is wealth on the 1970s scale. As Bill Gates cruises to a net worth of $100 billion, consider that if he never makes another penny, and if only $80 billion of his current pile is placed in a foundation (he has pledged to leave most of his wealth to charity), the required annual payout on that sum would be $4 billion—the equivalent of a new Getty every year.
Imagine the institutions that can be created—and the influence that can be exerted—with that kind of war chest. Libraries? That translates into 200 million books each year—twelve times the collection of the Library of Congress and a dollar amount three times that of amazon.com’s yearly sales. Sports? How about a new athletic center for every Division I college, every year. Scholarships? That’s a $4,000 scholarship for one million students. Think tanks? The annual budgets for all the major think tanks in Washington, D.C. (Right, Left, Maoist—you name it) total less than $200 million. The putative Gates Megafoundation could fund, in perpetuity, a public policy apparatus 20 times larger than everything that already exists.
The Big Middle
Bill Gates is not alone, moreover. In 1982, there were 13 billionaires in the United States; last year there were 189 (along with an estimated 4-5 million millionaires). Yet what is even more astonishing is that Bill Gates and the super-rich who get most of the attention in these matters will not be the source of the vast majority of future giving, which will continue to come mostly from the broad middle class.
Even amidst the current explosion of prosperity, Americans are perennially guilty of underestimating how wealthy and generous they are as a nation. According to the Federal Reserve: “From 1991 through the middle of 1998, the aggregate value of household equity increased by $9.45 trillion, or 260 percent.” And as the Fed noted, “an increase in the stock market makes people richer. In general, the richer people are the more they spend.” That principle applies to giving as well as other spending.
Giving USA 1999 reports that last year individual Americans gave almost $135 billion, dwarfing the more than $26 billion given by all foundations and corporations put together (see Figure 1). Between 1996 and 1998, total giving grew almost 31 percent, or by over $41 billion, and $32 billion of that increase (almost 80 percent) came from individual donors.
The best analysis by Paul Schervisch and his colleagues at Boston College indicates that the highest income households (those with annual incomes of $1 million and above, and representing just 0.08 percent of all households), give much more than their proportionate share—20 percent of annual charitable dollars by individuals (see Figure 2). But, even more remarkably, 54 percent of all charitable contributions are given by the 96 percent of households with annual incomes of $125,000 and below. Put another way, the super-wealthy who get most of the attention are actually only a bit more than the tip of the iceberg.
Money In, Money Out?
Where is the iceberg heading? Well, if current patterns are any guide (see Figure 3), the great bulk of future philanthropy will go to churches and synagogues, and the programs they administer. (In 1998 almost 44 percent of all giving went to religion.) For those concerned about the spiritual health of the nation, a vast increase in religious giving could be a welcome prospect.
Current trends also suggest that much of the new money will go to educational institutions. Over $24.5 billion (14 percent of total giving) fell into this category in 1998. Recent years have brought some much-publicized expenditures on elementary and secondary education, and, particularly, support for reform efforts like vouchers or private scholarships and charter schools. All of these efforts show promise of continued growth. This year, for instance, the Children’s Scholar-
ship Fund, which is headed by Ted Forstmann and John Walton, awarded 40,000 grants to children in low-income families, worth $160 million in all.
Historically, the largest share of education giving has gone to colleges and universities ($18.4 billion of the $24.5 billion in 1998), with elite institutions receiving the greatest portion. This trend may not continue, however, as the wealthiest colleges and universities fall under increasing criticism for building bigger and bigger endowments—Harvard, Yale, and the University of Texas system together are worth more than the GDP of Bolivia—rather than spending resources on their students and their institutions. Some schools, most notably Harvard, have raised their endowment spending slightly in response to such complaints, but new windfalls are likely to intensify the scrutiny of current patterns in higher education giving.
The other major current areas of giving—human services, health, arts and culture, and environment and wildlife—will also continue to grow, and it is the sheer magnitude of this growth that raises the question of whether a simple projection of current patterns is really a helpful or accurate predictor of the future. The $135 billion given by individuals in 1998 is already equal to well over a third of the domestic discretionary budget requested for the federal government for fiscal year 2000, and it is more than half of what the federal government will spend on means-tested programs in 1999. It is also about to force a fundamental reconsideration of current institutional arrangements and how they are sustained.
Butting Heads with Uncle Sam
When self-appointed representatives of the foundation and nonprofit worlds were asked to help beat back the devolution proposals of the new Republican congressional majority in 1995 and 1996, they did so by invoking a kind of ritualized poor mouthing, arguing that the private sector could never afford to take over the funding of government domestic programs, particularly entitlements. What calls this analysis into question is the enormous and unexpected growth in private wealth since then, and the nation’s astonishing progress—read “welfare reform”—in reducing the size of the problem.
Expecting the private sector to address the needs of millions of welfare cases may seem farfetched, but what if there aren’t millions of cases? Consider Milwaukee, which has just 10,000 people remaining on its welfare rolls. Is helping 10,000 people really beyond the financial, human, and spiritual means of the community in a city the size of Milwaukee? In Milwaukee today there are no waiting lists for job training. In fact, job training and placement programs have hired churches to “find” those who need services and bring them to the programs. And what if, as locally responsive institutions grow in scope, they increase effectiveness in new ways. Consider the revolution that has occurred among daycare providers in Milwaukee, many of which have added a range of services for parents to help them get and keep jobs, so that the provider can keep a stable and satisfied client base.
Certainly there are challenges in the path of institutional change to re-privatize important aspects of our domestic life. One is the fact that the wealthy are not always located in proximity to the needy. But for a philanthropic community that has in the past dedicated itself to ending war, racism, and curbing world population growth, the task of matching up needs and resources in our own backyards would seem modest indeed.
This is not to argue that all government programs should be privatized. What it does mean is that a much larger share of social programs can be reconfigured to rely on local, private funding and, therefore, be accountable to local concerns.
It is a mistake, of course, to assume that money is well-spent simply because it comes from the private sphere and not from government. In recent months the press reported that the Andy Warhol Foundation for the Visual Arts announced it had joined with others to raise what it hopes will be $40 million over the next 20 years. It goal is “to combat the effects of cuts in federal funding for the arts” and “help support artists whose work challenges social and artistic conventions.” The products of this new fund can only be imagined at this point, but it highlights the fact that truly historic amounts of wealth entering the philanthropic world can be both a blessing and a curse.
This is another important reason to give some serious thought to wealth, giving, and the future of American institutions. As the nation was reminded in the long debate that culminated in welfare reform, the mere transfer of wealth is almost never by itself a solution to the problem of poverty or other societal needs. In fact, we know only too well that “philanthropic” dollars spent badly or wastefully make things worse, in some cases much worse. And finally, there is nothing about the ability of private individuals to provide for those in need that makes such private giving inevitable. Increasing it will require the individual decisions of many Americans, and their hard work.
As the 20th century reaches a close, Americans can take pride in, and give thanks for, the nation’s unparalleled record of generosity. In looking to the future, we should remember that the great engine of American philanthropy has two fundamental parts, the free-enterprise economy that generates astounding prosperity, and the good character of the American people that leads them to share their wealth for the benefit of so many. If we can maintain the vitality of both parts, the future holds the promise of truly revolutionary achievement.
John Walters is the publisher of Philanthropy.