Damaging Solutions in Search of a Problem

An anecdotal call for crimping America's distinctive private philanthropy

There has been an explosion of great fortunes in the United States in the last four decades, thanks largely to the digital revolution and the growth of Wall Street. In 1982 it took $82 million—roughly $200 million in today’s money—to make the first Forbes 400 list, and there were only a handful of billionaires on it. Today they are all billionaires. Indeed, to make the 2016 list it took no less than $1.7 billion. There are more than a hundred billionaires in this country not rich enough to make the Forbes list. Thousands more Americans are worth tens and hundreds of millions. When Twitter went public in November 2013, 1,600 people became millionaires overnight.

This extraordinary efflorescence of new wealth has produced a concomitant increase in philanthropy. And, as David Callahan, founder of Inside Philanthropy and author of The Givers and several other books, points out, we have seen nothing yet.

2017_Summer_Books_1

Since Bill Gates and Warren Buffett created the Giving Pledge in 2010, 150 signatories have promised to leave the majority of their wealth to charitable purposes. “The U.S. billionaires who’ve signed the Giving Pledge have almost as much money as the combined assets of all U.S. foundations that now exist, over ninety thousand of them,” Callahan points out. Expect a charitable surge, dead ahead.

Today’s giving continues the long American tradition of people who have accumulated large fortunes dedicating major funds to public benefit. It’s important we not take that tradition for granted. The idea of making broad, deep, repeated donations is alien among the wealthy people of most other countries. It has been resisted by some Americans. John Jacob Astor, the richest man in the country when he died in 1848, had been notably disinclined to give money away. Yet in his will even he left a large sum to found what grew into the New York Public Library, the largest such resource not owned by a government.

It was the next generation, especially George Peabody, a very successful banker, and Peter Cooper, an industrialist, who really fired up the philanthropic tradition in this country. Peabody generously endowed museums and educational facilities, and provided housing for the poor. Cooper, born poor and largely self-taught, established the idea of night school so that laborers could also educate themselves, after working during the day, and thereby improve their station. The Cooper Union, an engineering and design school located in New York City, was so well-endowed by its founding angel that it was ­tuition-free for many decades.

With the explosion of wealth after the Civil War, vast new fortunes arose. And men like Rockefeller, Carnegie, Frick, and Morgan became legendary for their generosity. For many of them, though, their heaviest philanthropy had to wait for retirement, or bequests. As Callahan notes, today’s new crop of billionaires are not waiting for old age or death to start giving away money.

And while the philanthropy of the Gilded Age was concentrated in a few major cities and great universities or cultural institutions, that is not the case today. Philanthropy has been democratized and scattered. Bentonville, Arkansas, population 40,000, is now home to one of the greatest collections of paintings in the country, the Crystal Bridges Museum of American Art, funded with $450 million from Walmart heiress Alice Walton. Los Angeles was a cultural desert 50 years ago but now boasts superb visual and performance art thanks to donors like John Paul Getty and Eli Broad.

Wealthy men and women tend to give money to causes that inspire them, and they typically like to do it in their own communities. Is that a problem? Callahan thinks so. He notes that Diane von Furstenberg, who with her husband Barry Diller was one of the biggest donors to the creation of the High Line in Manhattan—once an abandoned elevated railroad, now one of the most beloved parks in the world—has seen her net worth increase thanks to the park’s revival of New York’s old Meatpacking District, where Furstenberg’s corporate headquarters is located. Of course that resurgence has also increased the net worth, and net happiness, of thousands of her neighbors, many of whom are not rich.

The same is true of many of the donors to the Central Park Conservancy, the private organization donors established in the 1980s to rescue New York’s crucial park from scandalous decay. In 2012, John Paulson donated $100 million to keep the Conservancy thriving and expanding to additional improvements. Is it reasonable to criticize him for being “self-interested” because he lives half a block from the park? While the park’s revival has certainly benefited nearby property owners, the millions of annual visits from ordinary New Yorkers and tourists, who no longer have to endure serious crime dangers and rundown, graffiti-ridden, half-closed facilities thanks to the park donors, have benefited much more, as ­Callahan admits.

And there’s an absurdity to comparing small personal advantages to the size of these donations. John Paulson could have added a lot more value to his personal property, and a lot more leisure to his own life, by spending that $100 million on himself instead of giving it away. Diane von Furstenberg offered up $35 million to help create the High Line. Any uptick in the value of her headquarters building is a small fraction of that. Two-for-one mixing of private gain with public benefaction is, of course, nothing new, and nothing terrible. Henry Frick amassed a superb collection of old master paintings for his own joy. (He suffered from insomnia in his old age and, unable to sleep, would often come down from his bedroom and just sit and quietly admire, sometimes for hours, a Frans Hals or a Vermeer, or an El Greco.) But it’s the rest of us who are getting the long-term pleasure; when he died in 1919 Frick left the collection, his Fifth Avenue mansion, and $15 million to the people of New York.

Callahan finds far more troubling donations to think tanks that advocate policy positions. Think tanks like the Brookings Institution and the ­American Enterprise Institute are 501c3 organizations fueled by donations, like all other 501c3s that people choose to support. Callahan finds it nefarious that a wealthy donor to a research group like AEI might benefit from its advocacy of policies like lower taxes for capital gains than for ordinary income. For Callahan, a man of the left, any policy that benefits the rich must be bad policy. 

Callahan suggests that think tanks that “stand up for lower-income Americans” such as the ­Center on Budget and Policy Priorities have a harder time raising money from the rich than do those like AEI. Simplistic argument like this mangles all kinds of crucial detail. Callahan doesn’t mention that the CBPP is funded by such benefactors as the Ford and MacArthur foundations, George Soros, and many labor unions. He neglects to say that ­public-policy funding on the left—from the Sierra Club to ­Harvard University to Brookings—has long been better funded than most of the think tanks on the right. His good-think-tank/bad-think-tank cartoon also leaves no room for the reality that conservative groups like AEI actually expend enormous effort “standing up for lower-income ­Americans”—through family policy, tax policy, regulatory moderation, protection of religious liberties, immigration and defense research, and so forth, and are a vital part of American democracy, along with their counterparts on the left. They just don’t adhere to Callahan’s own policy opinions on what’s good for working people.

Strikingly, the author himself has reported that he gives most of his own philanthropic resources to left-wing think tanks, saying that that is how you get the most bang for your philanthropic buck. But he recommends that the charitable tax deduction be revoked for policy and advocacy outfits both on the left and the right, “end[ing] the charade that such gifts are ‘charity.’ ”

This book doesn’t break any new ground; certainly not when it points out that philanthropic ideas sometimes don’t work out in the real world. If Bill Gates’s inability to succeed with small high schools is an argument for favoring government programs over private giving, Callahan has just opened a Pandora’s box that contains far more gremlins of government failure than hobgoblins of philanthropic disappointment. Government programs fail every day; they just never get honestly examined and closed down, the way Gates learned from and then shuttered his effort. Government flops are almost never failed innovations, because innovation is something government is terrible at—governments fail simply by reopening the same incompetent school every year, by letting the city park decay and decay and decay, never improving, never trying something new. And anyone who thinks that donors are more selfish and biased and stubbornly self-interested than people who work for government should tell that to one of the thousands of people who got mugged in Central Park during the 1980s.

Private philanthropy has one great advantage that government cannot hope to match. When millions of individuals with resources pursue their own idiosyncratic visions of success—whether in social reform, nature, medical care, education, or dog ­spaying—they end up testing thousands of different routes to success, more than any bureaucracy could ever imagine. Some paths will be dead ends, but others will turn out to be a High Line to heaven.

Callahan argues that American philanthropy has grown so powerful that reforms are needed to ensure that it does good things, not bad things. (Guess who defines the difference?) He would force much more reporting of donations, end privacy and anonymity, obstruct innovations like Mark Zuckerberg’s and Laurene Jobs’s use of limited liability corporations to carry out their benefactions, and otherwise control and intimidate private givers into acting more as he and other activists want.

In our country and others, governments have often tried to block charitable organizations from actions they dislike. Callahan’s suggested reforms and pressures would make this far worse. He would discourage giving to 501c3s that do economic and policy research. He wants to give state officials power over what can be advocated, subsidized, resisted, and done with private funds. Never mind little details like our constitutional guarantees of free expression (the ultimate bulwarks of what you choose to give your own money to).

Callahan notes that the charitable deduction results in about $74 billion a year less in federal revenue. “Serious money in an age of fiscal austerity when we’re kicking people off food stamps, cutting scientific funding, yanking housing vouchers from the poor,” he says. Strange rhetoric at a time when the federal spending trendlines show no fiscal austerity, but instead fiscal profligacy. We doubled our national debt in the last eight years. And, pssst, $74 billion is less than 2 percent of federal revenues.

The Givers is an endless string of anecdotes, thin in facts, weak on logic, and bereft of balance. Almost inadvertently, it gives glimpses of the many large and creative ways that wealthy Americans are returning resources to the society in which they have flourished. Every other country in the world would love to have our striking and multifarious tradition of giving.

If Callahan had his way, America would lose much of this distinctive effervescence. We would be like the many nations that shackle individual action, and as a result suffer serious problems with lack of social innovation, cramped personal liberties, and an absence of cultural dynamism. His proposed reforms are damaging solutions in search of a problem.

Historian John Steele Gordon is a Philanthropy contributing editor.