Beware Big Donors

By Stanley N. Katz. In a January speech at the University of Michigan at Ann Arbor, laying out his policy for higher education, President Obama opened by noting his agenda: "How can we make sure that everybody is getting the kind of education they need to personally succeed but also to build up this nation—because in this economy, there is no greater predictor of individual success than a good education." Although the United States still has "the best network of colleges and universities in the world," he said, "the challenge is it's getting tougher and tougher to afford it." Thus his primary policy concerns were high tuition and student debt.
At Ann Arbor, President Obama captured the spirit of the megafoundation program for higher education. Should we be worried about that confluence?
First, consider how the foundation world has changed. Also in January, at the World Economic Forum in Davos, Switzerland, Bill Gates announced that the Bill & Melinda Gates Foundation was contributing $750-million to the Global Fund to Fight AIDS, Tuberculosis and Malaria. That's a big number. For purposes of comparison, on the same day Japan announced that it would contribute $340-million to the Global Fund, less than half the Gates gift. As of the end of 2010 (the last year for which figures are publicly available), the total assets of the Gates foundation were $37.4-billion, and that does not include the approximately $30-billion Warren Buffett pledged in 2006 to give the foundation. The next largest American philanthropic foundation in terms of net assets is the Ford Foundation (for decades our largest), which at the end of September 2011, had net assets of $10.3-billion.
While, at least for the moment, unique in size, Gates is also representative of an explosion in the net worth and annual-giving potential of the private-philanthropic sector in the United States. According to the Foundation Center, as of March 8, 2012, there were 65 private and community foundations in the United States with net assets of more than $1-billion, 11 private foundations with assets of more than $5-billion, and 30 with assets of more than $2-billion. Total foundation giving in the United States (circa 2010) was about $20.5-billion.
According to a recent Chronicle study, America's top 50 donors gave a total of $10.4-billion in 2011, rebounding from the $3.3-billion of the previous year, with its recession worries. Those numbers reflect the continued growth in the number of private philanthropic foundations in this country—10,093 were created in the 1990s, and more than 8,500 appeared between 2000 and 2009 (as opposed, for instance, to the 1,264 created in the 1970s). There are now more than 33,000 foundations in the United States.
But what grabs my attention is the number with megaresources, almost all of which have emerged over the past two decades. This is truly the era of the megafoundation.
That, of course, is a function of America's reinvention of the One Percent. Look at the most recent Forbes 400 (the magazine's annual list of the richest Americans), headed by Bill Gates (net worth $59-billion), Warren Buffett ($39-billion), Larry Ellison ($33-billion), the Koch brothers ($25-billion each), one of the Waltons (Christy, $24.5-billion), and so on. As of August 2011, more than 40 families had pledged themselves to the effort by Buffett and Bill and Melinda Gates to galvanize other billionaires to give away, inter vivos, the majority of their wealth to philanthropy. Many of them have already set up family foundations (and more will do so), and many of those new foundations have bounded to the upper reaches of the Foundation Center's list of the top 100 private philanthropies.
They are new foundations, and they are behaving in novel ways, departing from the more reflective, more patient, and generally less aggressive behaviors of the classic 20th-century foundations.
In the past, our large philanthropic foundations, Rockefeller and Carnegie particularly, were what I have earlier characterized as "learned"—much of their grant-making was devoted to trying to understand the underlying causes of the problems that concerned their boards, and the means they used toward that end was investment in research. They had a long-term strategy, hoping to find deep solutions to big problems, and they tended to support investigators who had strong research programs of their own design. Think of the Rockefeller investments in public health, both abroad and in the American South, and the large and long-term Carnegie financing of Gunnar Myrdal's study An American Dilemma: The Negro Problem and American Democracy. More...