Plutocrats or Pluralists?

A critique of philanthropic influence in public life starts with the wrong assumptions

Stanford Professor Rob Reich’s new book Just Giving sets out to develop a political theory of philanthropy. He succeeds in that mission, but it’s not clear that he’s developed a theory that notably advances or defines how people can or should think of philanthropic giving in general or private foundations in particular.

The book starts off strong, at least for those who enjoy history, with a description of the efforts of John D. Rockefeller to secure a Congressional charter for his foundation in the early 1900s. That attempt ultimately failed, of course, and some of the concerns and criticisms voiced at that time have modern-day echoes, including the ideas that Rockefeller’s wealth was ill-gotten and that the proposed foundation was, as one contemporary put it, “repugnant to the whole idea of democratic society.”

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Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better by Rob Reich

The book then offers fascinating accounts of the ancient Athenian practice of liturgy (a way of getting the wealthy to pay for public needs), and the Islamic waqf (a precursor to modern-day foundations). Once the book moves from history to its critique of modern philanthropy, however, it suffers from a cascade of asserted but unsupported characterizations, undefined key terms, casual dismissals of contrary or competing ideas, and policy prescriptions that lack detail or that would seriously damage philanthropic giving and civil society.

In brief, the central premise of Just Giving is that wealthy givers have too much influence and power in both the world of philanthropy and public life, and private foundations are a key element of the wealthy’s ability to exercise this power. It often uses the term “plutocratic” to describe this supposed phenomenon and argues that it undermines the ideal of equality that is meant to be a core American value. Reich’s view of equality encompasses not only things like equal treatment under the law, but an “equal opportunity for political influence.” Yet while he is critical of how private foundations promote this alleged plutocracy, Reich does manage to find a way for them to continue to exist in ways that he believes support rather than undermine democracy and equality.

In arriving at this position, the book makes the case for the benefits to society of philanthropy in general and private foundations in particular. For example, it observes (rightly) that charitable giving promotes “the pluralism of associational life by diminishing state orthodoxy in defining its contours”—in short, it’s good to have some institutions capable of dissenting from societal norms and the state.

The book also makes the general case for long-lasting (if not perpetual) private foundations as being able to serve a “discovery” purpose in finding solutions to seemingly intractable problems that short-sighted politicians and voters are often unable to deal with. Reich argues compellingly that because private foundations have neither profit-seeking nor vote-seeking concerns, they can take a long-term view and make investments that business and government cannot.

This “discovery” purpose is where Reich ultimately rests his defense of the existence of private foundations. But this defense still seems somewhat incoherent when considered with the rest of the book, such as how it approvingly quotes Diane Ravitch’s characterization of Bill Gates as “the nation’s unelected school superintendent.” Isn’t the education work of the Gates Foundation a prime example of such public-spirited experimentation and “discovery”?

The qualified defense of private foundations only extends to large foundations, however. Those with assets of less than $10 million or $50 million or some other arbitrary figure would no longer be permitted, as they are apparently too small to effectively pursue the mission Reich would assign them. The more modest family foundations that support local organizations and serve as a way for many well-off but not super wealthy families to give to their communities would be a thing of the past, which should trouble anyone who cares about ensuring a healthy philanthropic community outside of major cities with lots of extremely wealthy citizens.

The silver lining in Reich’s proposal to reshape private foundations is that, aside from setting a minimum asset size, the book isn’t able to provide much guidance on how this could or should be done, other than to suggest a “long-term or generational impact statement” be included in annual filings and the introduction of a “voluntary peer-review” process of some sort. There is no obvious road map for like-minded persons to pursue in terms of a public-policy agenda.

Reich also rightly objects to the fact that only a small percentage of taxpayers—those who itemize—are now able to deduct their charitable gifts. But instead of suggesting that all Americans should be able to deduct their giving, he offers a radical proposal that would devastate charitable giving and the institutions it supports—elimination of the current deduction in favor of a charitable tax credit worth no more than $1,000.

This proposal is in pursuit of the “egalitarian” notions Reich believes philanthropy should serve and is supposedly justified by claims the charitable tax deduction subsidizes the giving preferences of the wealthy, who get much greater tax benefits than others from the deduction. Among other problems, replacing the tax deduction with a very limited tax credit would eliminate a crucial guardrail separating the state from an independent civil society, a protection that sends a signal that the funds given to charitable organizations are not subject to government interference. A credit would also be subject to endless meddling, changes, preferences, and restrictions based on the whims of politicians.

It would also dramatically cut the amount of money going to charity. Givers don’t give because of the tax deduction, of course, but there’s no question that it affects how much is given and when it is given, as mountains of research have shown. A weaker, diminished civil society is the obvious outcome.

The rationale Reich offers for this policy depends heavily on the assumption that the tax deduction for charitable donations constitutes a “subsidy” for the preferences of wealthy givers. A wealth of arguments against this highly debatable contention are lightly dismissed or largely ignored. (For an alternate view, see “It’s About Freedom, Not Finances” in the Summer 2013 issue.)

The underlying question Just Giving seeks to answer is this: “What role, if any, ought foundations play in a democratic society?” In a nation that prizes liberty and has a legal system grounded in the idea that “Everything which is not forbidden is allowed,” this is the wrong place to start. A better, more appropriate question might be: “What role ought the state play in the decisions of private philanthropists regarding what to fund in civil society?”

You won’t find a useful answer in this book. The independence of civil society is a key element of the freedoms Americans enjoy, and that alone should be enough to warn readers away from following the path proposed by Just Giving.

Sean Parnell is vice president of public policy at The Philanthropy Roundtable.