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Chapter 3: Planting Seeds for the Long Run

Rather than press the government and the public directly for changed policies, some philanthropists have chosen to have their effect by transforming aspects of intellectual life. Creating a new movement of thought usually requires long and steady investment, a canny strategy, great patience, and an ability to exploit opportunities when they arise. Those who succeed will often eventually see this new line of thinking transform people, institutions, laws, and culture. The changes may not be direct or immediate, but a new cadre of leaders with seeds of revised thinking planted in their breasts can sometimes have wide long-term influence.

Though it labors under a dull name, the “law and economics” movement is one of the more creative and influential departures in public thinking of the last half century. Over the course of a generation, it revolutionized legal culture, inspiring judges, lawyers, and law professors to rethink many of their basic assumptions about the consequences of laws and court decisions. The central premise of law and economics is simple: The lessons and tools of modern economics should be applied to legal rules and procedures. In addition to traditional factors like truth and fairness, legal rulings should consider economic outcomes and incentives in the dispensing of justice. The movement has been described by Yale professor Bruce Ackerman as “the most important thing in legal education since the birth of Harvard Law School.”

This movement, described as the most important development in legal education since the birth of Harvard Law School, was largely the work of one insightful donor.

This new approach to jurisprudence was largely the work of one insightful donor: the John M. Olin Foundation. When Ronald Coase of the University of Chicago Law School won the Nobel Prize in economics in 1991, the president of the Olin Foundation, William E. Simon, sent him a note of congratulations. Coase replied in a handwritten letter: “You should not forget that without all the work in law and economics, a great part of which has been supported by the John M. Olin Foundation, it is doubtful whether the importance of my work would have been recognized. So I give you special thanks.”

The Olin Foundation birthed a variety of important intellectual movements during its existence. (The organization’s grantmaking essentially ceased in 2005, after the foundation deliberately depleted its endowment.) Olin invested more of its resources in law and economics than any other single area, though, with the total value of its grants there topping $68 million. Its support of this subject was especially determined, especially long-lived, and sharply focused on elite institutions, with a gimlet eye for unexpected opportunities.

The intellectual roots of law and economics stretch back to David Hume and Adam Smith. The modern movement, though, began to take shape at the University of Chicago in the 1950s. Aaron Director, whose sister, Rose, married Milton Friedman, was an economist on the faculty of the law school, hired to help law students understand economics. In his day, however, legal economics confined itself to a few narrow fields, such as antitrust regulation. Director and his students, who included future prominent judges like Robert Bork and Richard Posner, introduced economic thinking into entirely new areas. After Ronald Coase (the Nobel laureate) succeeded Director on Chicago’s law-school faculty, he quipped that “I regarded my role as that of Saint Paul to Aaron Director’s Christ.”

The gospel of law and economics began to spread to other institutions after it came to the attention of the Olin Foundation in 1973. Frank O’Connell, who then ran the foundation, became acquainted with another disciple of Director, Henry Manne, who was trying to start a new law school that would make economic education a centerpiece of its instruction. When O’Connell first presented the concept to John Olin himself, the industrialist snapped skeptically: “What the hell is a lawyer doing teaching economics?” Olin changed his mind, however, after looking over materials O’Connell left with him. He sensed the real-world discipline that economic logic could bring to law, and decided to become the great patron of the effort.

His foundation’s first grant in this area, worth $100,000, supported Manne in 1974 as he established the Law and Economics Center at the University of Miami. Its mission was to provide law-school fellowships for students with advanced degrees in economics. In what would become perhaps its most important activity, it also hosted economics seminars for judges. Over time, Manne’s LEC moved from Miami to Emory University in Atlanta, and then finally to George Mason University, just outside Washington, D.C., in northern Virginia.

In parallel, the Olin Foundation made special efforts to introduce law and economics scholars into the nation’s very top tier of law schools. It took aim at places where “faculties, alumni, and students tend to influence the climate of opinion.” One of its savviest interventions came at Harvard Law School, which in the 1980s had become torn by internal strife.

Harvard Law had experienced an influx of scholars associated with a trendy field called critical legal studies, which viewed the law as an oppressive tool of the ruling class. These scholars were so aggressive they made it impossible for several years for the school to hire anybody outside of their claque for a tenured job. Relations between new and older professors turned hostile, and frostiness enveloped the faculty.

“It was ludicrous,” recalled Stephen Shavell of this time at the law school. “Students would hiss in the classroom. The climate was simply unbelievable.”

Matters boiled over when one of the professors who specialized in critical legal studies urged young law-school graduates to act as subversives within corporate law firms. “Young associates should think of it as a requirement of moral hygiene that they defy the people they work for, and do it at regular intervals,” wrote Duncan Kennedy, giving alumni and potential employers great concern.

Sensing an opportunity, Olin stepped into the breach. The foundation offered to fund a new program in law and economics with a multiyear grant. This would introduce a fresh intellectual spark into the school, and help balance the perception that it had become a one-party-line monolith run by Marxists. Harvard president Derek Bok leaped at the offer. The John M. Olin Center for Law, Economics, and Business eventually received more than $18 million from the Olin Foundation, and it was a smashing success. By 2005, the number of Harvard faculty whose central interests could be defined within the sphere of law and economics had jumped to 23. More than four dozen alumni of the program had been hired as faculty at other law schools, bringing law and economics insights to top schools like University of California-Berkeley and Michigan. The John M. Olin Fellowships for students have turned into springboards to prominent clerkships.

Similar programs were established by Olin at the law schools of Stanford and Yale, and they experienced equivalent successes. The Olin Foundation had a small number of misfires—a law and economics center at Duke flopped—but these were the exception. The foundation also helped create the American Law and Economics Association, which linked scholars at all schools and helped them collaborate through conferences and publications.

Very soon the fresh insights and activism of the law and economics movement began to produce victories in courtrooms and legislatures. Takings, a 1985 book by law and economics pioneer Richard Epstein of the University of Chicago, focused new attention on the clause of the Fifth Amendment to the Constitution that asserted: “...nor shall private property be taken for public use without just compensation.” Epstein argued that government should reimburse property owners not only when it takes full possession of their holdings but also if it imposes new regulations that dramatically degrade the use or value of private property. This legal logic bolstered an emerging property-rights movement, and formed the basis of a Supreme Court decision that ordered South ­Carolina to compensate a beachfront landowner after a new law forbade him from building homes as he had planned under prior regulations.

Although law and economics is often viewed as a force for conservative politics and policy, it is in fact better understood as utilitarian. It strives to obtain the greatest good for the greatest number of people. It puts its faith in people’s preferences as expressed by their market behavior. It prefers evolved voluntary solutions to government directives.

Because it becomes a powerful analytical tool for decentralized ­decision-making rather than dictates by a mandarin class, and substitutes rational logic for sentimental visions of justice and resource allocation, law and economics has, however, been welcomed by many conservative intellectuals and donors. Lots of subfields within the law continue to be dominated by the Left—labor law, family law, constitutional law, civil-rights law, etc. Thanks to John Olin’s determined backing, however, the law and economics movement has introduced a measure of balance to American legal education and practice.

Policy Player Profile: Gara LaMarche

Gara LaMarche leads America’s savviest network of large-scale liberal policy and politics donors—the Democracy Alliance. Roughly 100 of the country’s wealthiest left-leaning philanthropists, like George and Jonathan Soros, Tom Steyer, Chris Hughes, Weston Milliken, and others participate. They collectively channel around $70 million per year of donations to nonprofits anointed by the Alliance as carriers of the progressive torch.

“Democracy Alliance was organized around the idea that there were institutions on the progressive side of the spectrum that needed to be created or built up,” LaMarche explains. “To a great extent we were inspired by people on the right who had invested over a period of 30 or 40 years in key institutions that were policy focused. The Bradley Foundation or the Olin Foundation, for instance. We saw donors giving multiyear support to organizations like the Federalist Society and the Heritage Foundation. The Right really understood the need for infrastructure building.”

“On the progressive side we saw gaps in think tanks, media work, and leadership development. So the Democracy Alliance looks for investments that can build policy and politics infrastructure. Our donors agree to be advised by us on key investments and give hundreds of thousands of dollars to causes and institutions that we identify. We are like a venture-capital organization for progressive institutions. And we also work with recipient groups on their business plans, funding needs, and metrics.”

“The organizations we recommend for donors are a mix of 501(c)(3) charities and 501(c)(4) advocacy groups. For instance, the progressive counterpart to the Federalist Society is the American Constitution Society. It’s a (c)(3) operation that runs campus chapters for students very similar to the Federalist Society’s. The Center on Budget and Policy Priorities and the Brennan Center for Justice are likewise 501(c)(3) charities. Organizations like Center for American Progress and the Center for Community Change, on the other hand, have both a (c)(3) and a (c)4 arm.”

Prior to becoming president of the Democracy Alliance, LaMarche was a top executive at two of the largest left-wing foundations: Chuck Feeney’s Atlantic Philanthropies and George Soros’s Open Society Foundations. “Soros’s early philanthropy was to promote democracy and independent media in Eastern Europe and the former Soviet Union, so he had many conservative allies circa 1993-1994. Then he began to be involved in the United States.” Soros took up issues like euthanasia and drug legalization, “commissioned papers, studies, and public fora, and tried to shake up debate.”

On drugs, Soros felt that “the harm caused by the war on drugs and the costs associated with the war on drugs were arguably more harmful than the drug problem itself. For many, many years, we faced a lot of criticism and opposition from all parts of the political spectrum, because it was a toxic issue. We funded a social movement to enable communities of color and families of people incarcerated to agitate for change. We supported organizations like Families Against Mandatory Minimums and the Drug Policy Alliance. Now we have a bill, the REDEEM Act, sponsored by Rand Paul and Cory Booker together.”

“The general lesson in any significant social change is that it is a long-term proposition. Immigration reform has slipped from our grasp for the moment and probably awaits at least a new Congress if not a new administration. People have been at it for 15 years. The last significant immigration reform was almost 30 years ago. It’s a long-haul proposition which involves steady investment.”

“When Atlantic Philanthropies put $27 million into advocacy for health-care reform while I was there, we were following the failed efforts of the Clinton administration. But a lot of the policy groundwork was laid by previous investments by foundations concerned with health care. Atlantic came in to fund a certain kind of activism to push Obamacare over the line.”

“We made a grant to launch Health Care for America Now, a coalition of labor, civil rights, and religious groups backing what became the Affordable Care Act. We were holding town hall meetings, and advertising, and meeting with legislators. A member of Congress might be greeted at the airport by people congratulating his vote on health care. There was polling. There were all the elements of a modern campaign.” (Because Atlantic Philanthropies is based in Bermuda, it was able to fund direct lobbying and other activities that U.S. foundations are forbidden from being directly involved in.)

“Sometimes you have to create the opportunity if the opportunity does not exist.

And once you pass a major piece of social legislation, you can’t just go away. You have to focus on the implementation of it. Obamacare shows that very clearly. We stayed involved for a couple of years afterward in defense of the bill.”

“Atlantic put a lot of money into health care, and a lot of people would say that we made a critical difference to getting Obamacare passed. I hope that’s true. But it’s hard to know. It passed by one vote and could just as easily have failed.”

“Our tendency with big issues has been to fund collaborative campaigns which bring a number of people together. So HCAN was a coalition for the period of time when the health-care fight was on. It doesn’t exist anymore. Our similar immigration campaign, the Alliance for Citizenship, stayed together even though the prospects are dim at the moment.”

“One of the diseases of philanthropy is people are so afraid of being partisan that they end up splitting the difference and funding a lot of conflicting strategies. It helps to have an actual point of view.”

“I think one of the reasons the Right has been successful is because they have a world view, they have a coherent ideology, and they are willing to lose rather than compromise sometimes. Often, change is incremental, but I think you start out with a point of view and try to see what you can get. See what gets you closest to your goal and does not violate your core principles.”

LaMarche has watched donors debate the merits of investing in policy ideas and infrastructure versus investing in politicians. “In 2003, Soros thought that Bush was an obstacle to his work. If only he could get rid of Bush. So he spent tens of millions of dollars on politics in 2004—all from his personal funds, not from the foundation. Yet Bush won. It was a calculation.”

In the war of ideas, LaMarche is somewhat skeptical of shortcuts. “One of the things those of us on the left admire about conservative policy philanthropy was that it took a long view. It was very ideas-focused, and it didn’t expect change to happen tomorrow. It was understood that you lay the groundwork for change over a period of time with ideas first. In my view, that was the hallmark of philanthropy on the right. More recently, though, there has been a lot of focus on givers who are very, very focused on elections.”

“Of course we worry about the Kochs, because they’re a challenge for us on the Left. But I also hear disquiet from intellectual parts of conservative philanthropy, where some feel the shift from long-term infrastructure and idea-building to a more short-term electoral strategy is ill-considered.”

“We have these tensions too among my donors at the Democracy Alliance. We all want to be politically active. But we also believe we need to invest in infrastructure and ideas over a period of time. So my job is to say it’s a false dichotomy—that if you’re interested in politics of course you need to be electorally engaged, but that electing the right people is only a predicate for change, and not sufficient. Politicians always disappoint and need to be held accountable or pushed. You’re trying to build a movement that will hold someone accountable. The idea that you can short circuit movement-building and idea-building and just elect the right person and go home doesn’t really work.”

Policy Player Profile: Kim Dennis

When Kim Dennis started as a staffer at the Olin Foundation back in 1980, the body of funders and nonprofits trying to nudge public policy from the right “was a very small universe. The Bradley Foundation didn’t exist back then. It was Olin, Smith Richardson, Scaife, and JM. The Institute for Educational Affairs was making some grants. The American Enterprise Institute was around, and the Heritage Foundation was small. They were working on economic policies, but it wasn’t fine-grained down-in-the-weeds empirical studies. It was much more about the broad principles of free-market economics. The principles weren’t practiced in policy at that time, and people were rediscovering them. So the research and the activities going on were basic, about the advantages of free markets as opposed to socialism.”

“By the end of the ’80s, we won that argument. People came to understand that free markets were much more efficient and produced more prosperity and freedom than redistributed socialistic ways of organizing. The disappointment for a lot of us now is that in 2014 society seems to have forgotten much of what it learned.” Questions about the morality of a free-market economy and frettings about income inequality haven’t died down, but rather intensified.

The data are much richer today, however, and there are many more actors and voices. “When I started there were a lot more general support grants to think tanks, and the universe of think tanks was much, much smaller. I’ve seen a huge proliferation of research groups. We have a lot more niche players focused on specific issues.”

“Olin invested broadly in people and institutions where it saw potential. The foundation was never a micromanager of the groups or individuals it funded. It was trying to build a movement, and succeeded in doing so. It was a broad-brush effort to expand and strengthen conservative ideas across a wide range of cultural and economic issues.”

Now Dennis leads a foundation herself—the Searle Freedom Trust, endowed by the late Dan Searle with proceeds from the sale of the G. D. Searle pharmaceutical company. Like Olin, the Searle Freedom Trust focuses heavily on academic research. “Our grants are focused on certain people and projects, and we avoid academic bureaucracies. We deal directly with the faculty we want to work with. It’s rare for us to communicate with university presidents or deans unless the deans are the drivers of the project. A lot of donors think that you need to go through the university foundation, but that’s not true.”

“We have a policy that says we don’t pay university overhead. We will pay operating costs associated with the program we run, if that requires administrative assistance or office space, but we don’t pay the approximately 50 percent overhead that government grants do. Donors often think they have to cover that, but when we say we don’t according to our bylaws, universities understand.”

“Another problem of funding academe is that there can be pushback if it’s known that a conservative foundation or donor is giving to a university. The Kochs, for example, get a lot of grief. Their opponents portray it as an academic-freedom issue.”

When working directly with faculty it’s crucial to choose the professor wisely. “Academics have a trail of work and research, so it’s pretty easy to read the papers they’ve done and know what you’re dealing with. We also get a lot of information from talking to other academics we trust, or people in the policy world who are good judges of their work. A lot of our knowledge comes from that kind of networking.”

“Perhaps the hardest thing about working with academics is that you don’t find many who are entrepreneurial. These are people who have jobs for life. The big thing for them is getting an article in some academic journal; you know how many people read those. It’s very hard to find academics who want their work to be read by more than 100 specialists, who really want to make a difference in the world. When we find ones with motivation, we work with them.”

Agreeing on research agendas can be tricky. “There’s a bit of push and pull. We’re always looking for where we can make a difference right now. For example, at this current time there’s not much going on in tax policy—one of our big economic interests—just because of the political stalemate. But regulation is also an interest, so that’s an area we’re focused more on right now. These things shift as political opportunities come along.”

“Even when we don’t see a lot of potential for policy movement on certain issues, it’s not like we can drop the priority. If you stop supporting all the tax economists, where will we be when there’s an opportunity? So you tread water on some issues while you’re pushing others.”

“We also respond to what’s out there. We’ve done a lot of work on how people admitted to college under preferences don’t thrive because they’ve been mismatched to a level where they can’t compete. That’s not an issue we had any special interest in, but we found some academics really keen to pursue it, so it’s become a front burner issue because of that. Often we just seize opportunities. We see someone talented who is driven, who wants to work on a subject, and we say, ‘Let’s support it and see what comes of it.’”

“It’s often impossible to track progress in policy work. We support litigation efforts, and those are easy to track—how far does the case proceed through the courts? Do you win? Do you lose? Social-service grants can be problematic, but if you’re trying to get homeless people off the streets there’s at least something you can see and count. Policy is a lot more nebulous.”

“We do look at things like the number of citations of a study, and how many times it was downloaded off a website. But how does attention translate to enacted policy? That’s much harder. And even when policies that have been promoted in studies get enacted, who gets credit? When cap-and-trade legislation was defeated in Congress, every single group and researcher we funded on that topic claimed credit for it. And a lot of them played some role.”

“The policy process is very serendipitous. Often the best studies we fund don’t get much traction with their objective, high-quality assessments, while some lesser study catches a wave at the right time and makes a difference. A lot of it is timing that you can’t predict.”

“One frustration for lots of new donors, especially accomplished businesspeople, is how slow, indirect, and fuzzy policy change can be. They think they can apply their business talents to charitable giving and get quick results. It’s a much more complicated sector, though, so they get frustrated.”

“Dan Searle did this at the start. He just wanted to leave the country a freer place. When I began working for him, he would fund what he thought was a great study on, say, Social Security reform. It would be released, and he would say, “This makes such sense. Why don’t we have reform? Why hasn’t it happened?”

“For donors who go into this area, it helps a lot if they understand from the outset that it’s going to be a long, meandering process, that it’s very hard to track what your investments produced. Never mind that major reforms rarely flow in direct linear fashion out of any particular intervention.”

“To balance the sometimes glacial pace of policy change, we added grants in other areas where we hoped to encourage social change: New media was an area we got into recently. To my surprise, we’re one of the few center-right foundations doing much in media and new media. It’s a fun area to work in.”

“Also litigation. We’ve put more and more resources into lawsuits in recent years because we can see progress. Our biggest victories lately have come in the legal arena.”

“There have been numerous Supreme Court decisions that we helped to fund. These produced decisions in policy arenas as diverse as voting rights, environmental regulation, education, and health care.”

“Of course these things can all be changed by one heart attack on the Supreme Court. But there are also state courts. There’s a lot you can do in litigation.”

“In terms of other policy outcomes, there have been precious few recently. The fact that cap-and-trade didn’t happen was a good thing. We’ve been very pleased with the work that we’ve supported on the college-mismatch issue, which has changed the debate over the use of preferences in admissions.”

“We’re focusing on the same kind of talent development in academe that Olin was doing a couple of decades ago. We know it’s an arena dominated by the Left, and will continue to be unless we support talented thinkers willing to step outside the prevailing orthodoxies. It’s a very long process. We’re investing in someone who is 20-something years old, and it could be 30 more years before they hit their stride in their profession. They also might go nowhere.”

“Another thing center-right donors could invest in is online higher education. It’s not at all clear where online learning is going to go, but I think online education is one way we could gain more market share at the college level. We are way outgunned in the old-line academy, though thanks to Olin and the Institute for Humane Studies and so forth we do have a solid core of market-thinking people on campuses. Perhaps we can make up for our smaller numbers by reaching more people through online vehicles. I don’t think anyone knows how to do it. But we’re trying to fund in the area. It’s hit and miss, but we ignore it at our peril.”

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