Legitimacy of Philanthropic Foundations: United States and European Perspectives

Chapter 5 Redistributional Effects of America’s Private Foundations

Chapter 5 Redistributional Effects of America’s Private Foundations Julian Wolpert Grants by America’s 62,000 private foundations, with assets of $477 billion , totaled $30.3 billion in the year 2002 (Foundation Center 2003). Those are substantial numbers, but of themselves do not indicate whether the grants are redistributive and how their distributive targeting compares to government transfers and assistance programs. These questions are the focus of analysis in this chapter. However, the issues are complex and some preliminary discussion is needed about the concept of redistribution when applied to foundations. Little would be learned, for example, from merely calculating short-term changes in the income or the wealth distribution of Americans that can be traced to foundation activities, even if that were technically feasible. The related issue is whether foundations have legitimate longer-run functions , other than redistribution, that yield even greater social benefit. Some of the major conceptual issues can be identified. Redistribution of “what, to whom, over what period, how much, to what end, and at what rate of progressivity” remain central questions for a comprehensive assessment. Does redistribution properly apply to the macro body of the foundation sector or the micro activities of individual foundations; to the deployment of foundation assets or just revenues; to immediate or long-term effects; to local, national, or global benefits; or to future generations? Alternatively, can an assessment of redistribution effects apply to the before and after well-being of the most disadvantaged beneficiaries even if relative disparities increase as a result of foundation grants? Does redistribution refer just to outcomes of foundation activities or to the process for distributing funds as well? How are distributive outcomes assessed when foundations broaden the narrow monetary notions of charity and redistribution to more general social benefit objectives that may have long-term consequences on welfare, such as improving levels of home ownership, safety and security of neighborhoods, environmental sustainability , good mental health, freedom from malaria and other disabling diseases, access to good public schools and higher education, or even appreciation of classical music, and the like? Are Foundations Redistributive? Policy makers would be gratified by a progressive pattern of foundation grants achieved without stringent government regulations. Sophisticated observers of American politics never seriously believed that the great fortunes that created foundations could have been taxed at a highly progressive rate or that foundation philanthropy would fundamentally alter the distribution of wealth (Colwell 1993: Dowie 2001; Edie 1987). Officials would be happy to learn that at least some social benefit and amelioration of disparities still do result from those “taxing opportunities that have been forgone.” Thus, the counterfactual is not the unrealistic assumption “what would government have accomplished if the wealth that created foundations had been taxed?” The more pragmatic distributive perspective for policy makers is “which modest legislative or regulatory changes can be made at the margin that supplement self-regulation to induce somewhat better outcomes from foundation activities for the nation’s neediest residents?” Analysts decry the shortage of data for rigorous analysis of “who benefits,” but their assessments (albeit partial) do confirm a modestly progressive flow of transfers (Clotfelter 1996.) We cannot reliably determine, for example, the share of direct or indirect benefits received by the less well-off. Foundation grants are awarded to nonprofit organizations and rarely to individuals. In 2001, 51,000 organizations received 125,000 grants. However, few if any nonprofits collect information about the income or wealth of clients who benefit from the services funded solely by foundation grants. The Foundation Niche in Social Welfare Spending A number of earlier studies have probed data on the distribution of grants by service sector as potential gross indicators of distributive 124 The Legitimacy of Philanthropic Foundations impacts (Clotfelter 1992). The prevailing assumption is that grants targeted to social services are more distributive than those dedicated to the arts, health, or higher education. The data are derived for the 80 percent of private foundation grant dollars tracked by the Foundation Center, as well as some information from the large number of community, corporate, and smaller private foundations. These analyses have generally concluded that foundation impacts are mildly redistributive and are becoming somewhat more so, though little or no funding is transferred directly to households in need (Margo 1992). The private foundation share of annual total U.S. contributions (about 8 percent) is dwarfed by...