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New Wealth Changing the Guise of Philanthropy

MICHAEL SCHRAGE is a consultant and a research associate at the Massachusetts Institute of Technology. He is the author of "No More Teams! Mastering the Dynamics of Creative Collaboration."

Perhaps Bill Gates will indeed become the Andrew Carnegie of the Information Age and use his great fortune to endow a new era of access to multimedia libraries worldwide. Maybe billionaire financier George Soros will see his foundations’ efforts to enhance democracy in Central Europe and drug policy in America profoundly transform their civic politics. And maybe Ted Turner really will make a difference in the direction of the planet with his recent U.N. contribution.

But those plutocratic possibilities blur more than sharpen the focus on what promises to be fundamental shifts in tomorrow’s funding of science, medicine, education, the arts and community. The economics, ecology and culture of American philanthropy are changing. Traditional roles of not-for-profits and the public sector will increasingly be usurped by old institutions in new guises. Literally and figuratively, the foundations are now being built to support a philanthropic future clearly inspired by both the best and worst parts of America’s past.

When steel magnate Andrew Carnegie funded the nation’s free-library infrastructure at this century’s start, and when John D. Rockefeller--then the world’s wealthiest man--launched the Rockefeller Foundation in 1913, they created the institutional prototypes for high-impact philanthropy. Their goals went far beyond charity, a noblesse-oblige-driven desire to do good works and a need to recycle their awesome wealth. They explicitly embraced the idea and ideals of investing in people--albeit on their terms.

Carnegie made libraries his chosen philanthropic instrument because they insisted that people invest in themselves. Rockefeller’s foundation swiftly grasped that curing disease and building better hospitals demanded new genres of scientific research and medical training. Indeed, the Rockefeller Foundation’s Warren Weaver in effect funded and forged the fledgling field of molecular biology in the 1930s by importing physicists into the life sciences and demanding interdisciplinary initiatives between the disparate branches of biology and chemistry.

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Right up until World War II and the ascension of big government, the richest foundations and private benefactors utterly dominated the agendas for science, medicine, public health, the arts and higher education.

Today, we’ve lived through more than a generation’s worth of doubts and questions about the appropriate role of government in the marketplace of ideas and opportunity and in technological innovation and welfare reform. At the same time, we’ve been living through the biggest bull market and era of wealth creation in this country’s history. Whether wealth is fairly--or unfairly--distributed in America, the new reality is that our market economy, our tax laws and our entrepreneurs are combining to reinvent the foundations of philanthropy.

Yes, it’s true and obvious that a Bill Gates and a Ted Turner and a George Soros and a Larry Ellison and a Warren Buffet and even a Michael Milken can afford to throw money at a philanthropic opportunity that catches their fancy. But that obscures the depth and breadth of change.

According to the Council on Foundations, the number of foundations with assets exceeding $1 million or that gave more than $100,000 in grants a year grew from 7,277 in 1990 to 8,403 in 1993--with grants growing in the same period from $6 billion to $ 7.9 billion. Although the figures are not yet final, it’s clear the last four years have seen comparable growth. More wealthy people are becoming more involved in philanthropy.

What we’re witnessing is the dramatic diffusion of the foundation as a philanthropic mechanism. Lawyers and tax accountants report sharp rises in the numbers of wealthier families setting up family foundations. Much of this, to be sure, is tax-driven--but at the same time there are rules that demand that moneys be disbursed to qualify for tax benefits, and, far more important, many of these families want to do more than just “give away” their money. They are looking to get more bang for their philanthropic buck. New coalitions and alliances between philanthropies seem inevitable.

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Indeed, the talk of the community of Microsoft Millionaires--the band of 7,000 to 10,000 employees whose options in their company’s stock has made them that wealthy--is what kind of investments in philanthropy they should make. An enterprising tax attorney and not-for-profit advisor could probably make a killing helping Microsoft Millionaires and their comparably wealthy software siblings in Silicon Valley set up charitable foundations.

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But the vital point here is that today’s breed of the New Wealthy is more of an activist breed. The ideal seems to be shifting from providing grants to the most persuasive supplicants and toward designing philanthropic strategies and tactics that best serve the interests of the benefactor. Certainly this is true of Soros, Milken and Annenberg.

Indeed, there are foundations--the Markle Foundation--that actually fund the development of new-media technology just like venture capitalists, and another gives “fellowships” to MBAs who want to be apprenticed to venture capitalists.

Is this “charity”? Hardly. But it unambiguously reflects a growing desire to use a foundation as a vehicle to set an agenda. Certainly the Arthur Moss Foundation’s beautifully shot television advertisements championing chastity and showing the faces of beautiful, smiling children as an argument against abortion highlight what will inevitably be a growing participation by foundations in this nation’s continuing cultural debates about values.

It requires no stretch of the imagination to picture a Hollywood-funded foundation for artists rejected by the National Endowment for the Arts as too risque. After all, there are foundations prepared to fund lawsuits against museums and schools that exhibit works that a relevant portion of the community finds objectionable.

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Consequently, the idea that traditional not-for-profits stand to benefit from the billions of dollars these emerging foundations will disburse is laughable. More likely, we will see new organizations emerge and existing ones evolve to take advantage of the new moneys. What’s more, we will increasingly see public institutions--notably schools--being put in the position of having to respond to foundation entreaties. To wit, what should a public school do if private foundations offer to buy computers for a junior high contingent upon the teachers’ taking special training at the local community college? Entrepreneurs tend to launch entrepreneurial philanthropies.

Could economic downturns undermine this flowering of foundations? Could changes in tax laws crush political and cultural foundation initiatives? Of course. But just as entrepreneurs have transformed established industries, the rise of New Wealth and its apparent desire to define philanthropy in its own terms guarantees that more people are going to be more affected by tomorrow’s foundations than by today’s. In key domains of science, medicine, the arts and education, private foundations will be a qualitative--if not quantitative--rival to public institutions.

For better and for worse, we are going to witness a renaissance in institutional philanthropy that could well overshadow its powerful pedigree of near a century ago.

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