Philanthropy in Democratic Societies: History, Institutions, Values 9780226335780

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Philanthropy in Democratic Societies

Philanthropy in Democratic Societies History, Institutions, Values

E d i t e d by R o b R ei c h , Chi a r a C o r d e l l i , a n d L u c y Ber n h o l z

The University of Chicago Press Chicago and London

The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London

© 2016 by The University of Chicago All rights reserved. Published 2016. Printed in the United States of America 25 24 23 22 21 20 19 18 17 16   1 2 3 4 5 ISBN-­13: 978-­0-­226-­33550-­6 (cloth) ISBN-­13: 978-­0-­226-­33564-­3 (paper) ISBN-­13: 978-­0-­226-­33578-­0 (e-­book) DOI: 10.7208/chicago/9780226335780.001.0001 The University of Chicago Press gratefully acknowledges the support of the Stanford Center on Philanthropy and Civil Society toward the publication of this book. Library of Congress Cataloging-in-Publication Data Names: Reich, Rob, editor. | Cordelli, Chiara, editor. | Bernholz, Lucy, editor. Title: Philanthropy in democratic societies : history, institutions, values / edited by Rob Reich, Chiara Cordelli, and Lucy Bernholz. Description: Chicago ; London : University of Chicago Press, 2016. | ©2016 | Includes bibliographical references and index. Identifiers: LCCN 2016009806 | ISBN 9780226335506 (cloth : alkaline paper) | ISBN 9780226335643 (paperback : alkaline paper) | ISBN 9780226335780 (e-book) Subjects: LCSH: Humanitarianism. | Democracy. Classification: LCC BJ1475.3 .P45 2016 | DDC 361.7/4—dc23 LC record available at http:// lccn.loc.gov/2016009806 ♾ This paper meets the requirements of ANSI/NISO Z39.48-­1992

(Permanence of Paper).

Contents

Acknowledgments / vii Introduction

Introduction

/ Philanthropy in Democratic Societies / 1

l uc y ber nh ol z , c h iar a cor d el l i, a n d ro b reic h Part I: Origins

One

/ Altruism and the Origins of Nonprofit Philanthropy / 19 jonath an l ev y

/ Why Is the History of Philanthropy Not a Part of American History? / 44

T wo

ol iv ie r z u nz

/ On the Role of Foundations in Democracies / 64

Three

rob r eic h Part II: Institutional Forms

Four

/ Contributory or Disruptive: Do New Forms of Philanthropy Erode Democracy? / 87

a aron h or vath an d wal ter w. p owell

vi / viContents F ive

/ Reconciling Corporate Social Responsibility and Profitability: Guidelines for the Conscientious Manager / 123 pau l br est

S i x / When Is Philanthropy? How the Tax Code’s Answer to This Question Has Given Rise to the Growth of Donor-­Advised Funds and Why It’s a Problem / 158

r ay d . m ad of f S eve n

/ Creating Digital Civil Society: The Digital Public Library of America / 178 l u c y be r n h ol z

P a r t I I I : M o r a l G r o u n d s a n d Li m i t s

E igh t

/ The Free-­Provider Problem: Private Provision of Public Responsibilities / 207 er ic be e r boh m

Ni n e

/ Philanthropy and Democratic Ideals / 226 ryan pev n ic k

Te n

/ Reparative Justice and the Moral Limits of Discretionary Philanthropy / 244 c h iar a cor d el l i Notes / 267 Bibliography / 295 List of Contributors / 315 Index / 317

A c k n o w l e d gme n t s

The animating idea for this book was that philanthropy deserves far more attention than it has received in academic discourse. Our aspiration was that interdisciplinary dialogue was the route forward. We created a process of mutual learning in a group of scholars committed to explicating questions of philanthropic practice, value, and institutional structure from within their own disciplinary expertise. If things worked well, we hoped to create a book that would illuminate the connections between historical, legal, organizational, and ethical dimensions of philanthropy. Whether we succeeded is not for us to determine. Whatever our measure of success, our thanks are due to the scholars who participated in our workshops and whose chapters make up this volume. A book like this owes much to individual experimentation, collective dialogue, and background institutional support. For the latter, we are grateful for the support from three foundations that made possible our workshops: the Bill and Melinda Gates Foundation, the Charles Stewart Mott Foundation, and the William and Flora Hewlett Foundation. We would also like to thank the exceptional people at the Stanford Center on Philanthropy and Civil Society, specifically Kim Meredith and Sam Spiewak, who contributed to each of the workshops in ways too numerous to count. We were supported by a sparkling team of undergraduate researchers, Katie Keller, Alec Hogan, and Solveij Praxis, who assisted in our workshop planning and who took detailed notes of the workshop conversations that laid the groundwork for the collectively authored section introductions. Finally, we couldn’t ask for a better editor, Elizabeth Branch Dyson, at the University of Chicago Press. Her team provided fantastic support and frequent encouragement, and two anonymous reviewers gave us terrific suggestions.

viii / viiiAcknowledgments

Life continued during the course of the workshops, even as we squirreled ourselves away to think, debate, and write. Health crises, job changes, and the ups and downs that make life worth living were with us every step of the way. For their support from afar the editors would like to thank the families and friends of each of the authors who took precious time away from them to be with us. Finally, some personal acknowledgments: To Paula and Harry. Good begins with you. Lucy Bernholz, Stanford, CA To my parents, Anna and Franco, for their unconditional support, love, and patience, and to Jon for sharing with me the pleasures and pains of daily life. Chiara Cordelli, Princeton, NJ To Heather: you are the one. And to Gus and Greta, who brought joy and laughter, and a constant reminder about where the center of a good life rests. Rob Reich, Stanford, CA

I n t r o du c t i o n

Philanthropy in Democratic Societies L u c y B er n h o l z , C h iara C o rdelli , a n d R o b R ei c h

Philanthropy is everywhere. In the United States and most other countries, we see philanthropy in all areas of modern life. Individuals use private resources to support public benefits of myriad kinds, including poverty relief, education, health care, cultural and artistic expression, international aid, and associational organi­ zations of a thousand different stripes. Sometimes we use philanthropic re­­ sources to complement and sometimes to counteract public choices about the allocation of public or taxpayer funds. Philanthropic activity comes in many forms, from large gifts from a few individuals to small donations of money and time from almost everyone, from charitable organizations to private foundations to informal giving circles. Although rates and structures of philanthropy vary by culture and place, people on every continent, from countries rich and poor, democratic and otherwise, give of themselves to benefit others. In the United States, philanthropic activity supports a kalei­ doscopic nonprofit sector of well more than one million organizations that accounts for approximately 10 percent of the labor force and that touches the daily lives of most citizens. In 2013, total giving in the United States was estimated to be $330 billion, an amount larger than the size of the gross do­­ mestic product of many countries. Philanthropy is not just a beneficent activity or a funding mechanism. It can also be a form of power. When Diane Ravitch, former assistant secretary of education, describes Bill Gates as the “unelected superintendent of Amer­ ican schools”1; or when Stephen Edwards, a policy analyst at the American Association for the Advancement of Science, reports to the New York Times that “the practice of science in the 21st century is becoming shaped less by national priorities or by peer-­review groups and more by the particular pref­ erences of individuals with huge amounts of money,”2 they are referring

2 / Introduction

to philanthropy as an exercise of private, and yet politically salient, power. When scholars document the shift in American associational life from mass membership organizations to groups managed by professionals who collect donations, rather than volunteer hours, from members, they are describing a significant change in the power wielded by average citizens in civic life.3 As with all forms of power, the practice of philanthropy triggers impor­ tant questions concerning its typology, emergence, legitimacy, discretion, and distribution. What kind of power—­private or political—­is philanthropy? How does this power interact with the economic power of market actors and the political power of states? Is the exercise of philanthropic power justi­ fiable and compatible with the fundamental values of a liberal democratic state? What kind of discretion should powerful philanthropic actors pos­­ sess? What kinds of philanthropic activity should be encouraged, merely per­­ mitted, strictly limited, or banned? How is the distribution of philanthropic power affected by and, in turn, how does it affect the distribution of eco­ nomic resources and political influence across society? These are questions worthy of the attention of scholars across many disciplines. Yet philanthropy has not received much attention from scholars. Those few who have examined philanthropy have ignored the particular challenges that philanthropy raises in democratic societies. When is philanthropy good or bad for democracy? How does, and should, philanthropic power, which tends naturally to be exercised by the wealthy, interact with expectations of equal citizenship and political voice in a democracy? What makes the ex­ ercise of philanthropic power legitimate? What forms of private activity in the public interest should democracy promote and celebrate? What forms should it resist or restrain? This book arose out of a conviction that philanthropy plays a significant and growing role in democratic societies—­in the provision of social services, in cultural activity, basic research, policy advocacy, political engagement, religion, and, of course, in associational life. And yet philanthropic activity resides at the margins of scholarship, a bit player in the overall ordering of human affairs, especially when compared to markets and governments. Our aim in this volume is to make philanthropy the visible object of scholarly scrutiny, to move philanthropy from the margins to the center. Why, despite its ubiquity and immense practical impact, is philanthropy under-­analyzed? We identify three possible reasons. First, many religions extol anonymous giving, and modern legal codes that define philanthropy carry the tradition of anonymity forward. Philanthropy often happens un­ der the radar, unnoticed or unidentifiable by design.

Introduction / 3

Second, contemporary developments in areas immediately adjacent to traditional philanthropic structures, such as corporate social responsibility, social enterprises, and (in the United States) politically active social welfare organizations, are blurring the lines that once defined the landscape of the philanthropic sector. In seeking earned revenue and in defining measurable outcomes, nonprofit public charities resemble for-­profit businesses; and in seeking social as well as financial returns—­the so-­called double bottom line—­for-­profit businesses are adopting nonprofit strategies. As a result, the arena of philanthropic activity is expanding while its nature in practice is becoming diluted and fragmented. Third, when compared to public treasuries or private assets, total philan­ thropic giving is still very small. In 2013, philanthropic giving in the United States amounted to an estimated $330 billion, but this is trivial compared to the U.S. federal budget of $3.5 trillion and total private assets of $85 tril­­ lion. Yet, these data include only forms of monetary philanthropy that can be easily quantified; they exclude other forms of philanthropy such as dona­ tions of time (or body parts, such as blood or organs) as well as the endow­ ments of philanthropic corporate entities such as foundations or universi­ ties. Further, even if, in aggregate, the quantity of philanthropic giving is small compared to taxes and the market, there are important areas, from education, medical research, religion, and the arts, where the influence of philanthropy matters a great deal. In these areas philanthropists wield con­ siderable power, especially when markets or the state cannot or will not act. Although one can find articles and, more rarely, books written on phi­ lanthropy within almost all academic disciplines, the way philanthropy is studied and even defined in each is so different that it is sometimes not easy to recognize that scholars are talking about the same thing. Economists call it prosocial behavior, whereas political philosophers refer to it as beneficence or charity. Organizational theorists study philanthropic institutions, includ­ ing nonprofit organizations and foundations, as distinctive forms of organi­ zations, whereas legal scholars study philanthropy as a behavior embedded in tax codes. Sociologists have been interested in the gift as a distinctive form of human exchange, philanthropy being a species of it. As we will see in the next section, even from a purely conceptual point of view, it is not easy to define what philanthropy is and is about. For all these reasons, providing a systematic analysis of the nature, forms, and limits of philanthropy is no easy task. The obvious place to begin is by determining how best to define philan­ thropy and situate it within democratic societies.

4 / Introduction

Philanthropy and Democracy From its Greek roots, philanthropy means “love for humankind.” And we generally think of philanthropy as the practice of voluntary donations—­ donations of money, property, time, and body parts, such as blood—­aimed at producing some other-­regarding or prosocial benefit. In this respect, phi­ lanthropy is generally associated with altruism, charity, and benevolence. But this general and vague definition is far from settling the question of what counts as philanthropy. Philanthropy can refer both to actions and to institutions. We can think of philanthropy both as a form of individual giving and as a complex economic and policy structure—­as the institutionalized practice of privately funding the production of public benefits. If regarded from the first, agential perspec­ tive, philanthropy stands apart from other forms of giving, such as gift-­giving to friends and family, and from spending for private consumption. If looked at from the second, structural perspective, it stands apart from alternative, in­ stitutionalized mechanisms of finance, such as taxation or market exchange. Let us start by looking at philanthropy as a special kind of act. What makes an act “philanthropic”? What makes philanthropic acts distinctive and different from other kind of acts, say, gift-­giving or spending? One way to answer these questions is to define the philanthropic act by reference to the subjective motives and intentions of the donor. There are, however, problems with defining the philanthropic act in this way. First of all, we would need a definition of what motives or intentions count as truly philanthropic. Does an act motivated by love toward one’s own children—­ say, the act of donating money to their current, well-­off school so as to in­­ crease their educational advantages—­count as philanthropic? Certainly chil­­ dren, including one’s own children, are a part of mankind, but many would reject the idea that acts motivated by the particularistic love for those near and dear to us qualify as philanthropic. Second, the presence of philan­ thropic motives, even when concerned with benefiting strangers or the pub­ lic at large, seems insufficient and perhaps not even necessary to qualify an act as philanthropic. What if one acts out of “love for mankind” but that act turns out to produce harmful consequences for third parties instead? Would the act still count as philanthropic? And what if, by contrast, one’s act pro­ duces very good consequences for mankind—­helps to save many lives or send many poor children to school—­but it is mainly motivated by what econ­ omists call a “warm glow”—­a desire to consume the emotional benefit of feeling that one is doing something good? What if the motive for giving is entirely self-­serving: by a wish to be praised by others or by the desire for

Introduction / 5

prestige or social status? Should that act count as philanthropic, in spite of the nonphilanthropic motives? Perhaps motive is not all that matters. Another option is to define the philanthropic act not only by reference to motives but also by reference to the form of the act, as well to the particular means or institutional forms through which the act occurs. According to this view, even if an act is motivated by “love for mankind,” it cannot be a philanthropic act unless it comes under the form of a voluntary donation and channeled via specific kinds of institutional arrangements or particular organizations. By this standard, a decision, for example, to buy fair trade products so as to benefit the economy of developing countries and thus to help those living in conditions of need in those countries would not count as a philanthropic act. Similarly, paying taxes out of a strong commitment to support a social safety net does not count as a philanthropic act. Limiting philanthropy to voluntary donations helps us to understand it as a distinc­ tive form of exchange, different from both spending and taxation. Unlike spending, philanthropy is nonreciprocal, at least insofar as there are no im­ mediate returns from or consumable goods purchased with the act of giving. Unlike taxation, philanthropy is voluntary, rather than coercively enforced. But at this point a further difficulty arises. Does a donation to a pauper in the street count as an act of philanthropy? Certainly this is a voluntary donation and an act of almsgiving, and yet some would object that it is not a philanthropic act. They argue that philanthropy is a legal term, picking out voluntary donations to certain kinds of organizations, such as not-­for-­profit or nongovernmental organizations, not to specific individuals, however needy. Donations to formal organizations, but not to specific individuals, are frequently offered advantageous tax treatment. According to this legalist definition, a donation qualifies as an act of philanthropy only when it is rec­­ ognized as such by the law, specifically by the tax code. Finally, one may consider an act of philanthropy to be unconsummated until some public benefit actually results from that act. Here the focus is not on the motive for or the form of the act but rather on its ends or outcomes. A focus on outcomes avoids the “everything goes” problem. Mere wishes or good intentions are not enough to qualify an act as philanthropic. Results matter as well. And yet, there is a problem with an outcomes-­based ap­ proach: how should outcomes be defined and by whom? Who should be in charge of defining what counts as the “public benefit” toward which phil­ anthropic acts need to be directed in order to count as fully philanthropic? Should donors themselves decide what counts as public benefit? Should public benefit be limited to whatever is recognized as such by the law or by the tax code? Should an objective, moral theory of   value provide the ultimate

6 / Introduction

criteria that define the appropriate ends of philanthropy? Or should the demos—­citizens standing as equals in a democratic community—­decide what counts as public benefit and thus as philanthropy? If we look at philanthropy from a structural perspective, as a part of a so­­ ciety’s economic and policy structure—­an institutionalized mechanism for privately funding the production and provision of important goods—­we face similarly complex questions. First, we need to identify the constituents of this structure—­what forms of organization and what kinds of institutions frame and define this funding mechanism, as opposed to other funding mechanisms, such as the market and the state? What is the “space” that phi­ lanthropy occupies in the economic structure of a society? Of course, these questions can be answered both descriptively and normatively. From a descriptive perspective, we can refer to history, organizational the­ ory, and political science to find out how philanthropic organizations and institutions, as well as their social role and power, emerged, developed, and changed over time. Has the role of philanthropy changed throughout history or only its or­­ganizational forms, or both? Historically, how have the bound­ aries between the philanthropic sector, the market sector, and the public sector been drawn? Several contributors to this volume explore how multiple insti­ tutional forms shape the very conception of philanthropy, from the for-­profit and not-­for-­profit corporation to the private foundation to mass giving. From a normative perspective we should ask, what is the appropriate role or distinctive function of philanthropy as an institutional structure within democratic societies? And what is the moral ground of, and what moral lim­ its should be placed on, the exercise of philanthropic power? In order to answer these questions, we need some independent standards. For the pur­ pose of this book, the benchmark will be provided by fundamental political values, including the values of liberty, equality, and social justice. How to spec­ ify these values is itself contested terrain. Several contributors to this vol­ ume ask whether philanthropy is supportive of, or at least compatible with, these fundamental values or whether, instead, it threatens them. When does philanthropy become an illegitimate exercise of power? Are there things phi­ lanthropy should not be expected to accomplish in a democracy? When is philanthropy beneficial to or disruptive of democracy? Here, by “democracy” we do not mean only a particular system of gov­ ernment characterized by free and fair elections or some appropriate form of representation. We mean, much more generally, a society committed to a fundamental principle of equal concern and respect for its citizens. This principle manifests itself when citizens stand in equal relation to one an­ other, formally equal under the law and possessing equal opportunity for

Introduction / 7

political influence and participation. This democratic principle implies a society where socioeconomic inequalities are sufficiently limited so as not to threaten the ability of individuals to relate as equals within the public do­ main, and a society characterized by respect for, protection of, and fulfillment of fundamental basic liberties (such as freedom of conscience, speech, and association). So defined, democracy reflects a concern with both outcomes (e.g., limits on material inequality) and procedures (e.g., equality under the law and equal opportunity for political participation). Given the complexities involved in defining philanthropy, we did not provide a fixed definition of its role and distinctive features to which all con­ tributors had to conform. Instead we delegated to our contributors the task of providing their own definitions. We emphasized to them only our generic view that philanthropy represents a voluntary donation aimed at providing some other-­regarding or prosocial benefit. The individual chapters in this book illustrate how this definition can be operationalized and interpreted in different ways, analyzing for example charitable donations, private foun­ dations, corporate social responsibility, and donor-­advised funds. In addition, rather than offering the definition of philanthropy and its distinctive role within a democratic political system as a premise of the book as a whole, we treat it as an expected outcome of the individual chapters. We think that the plural understandings of philanthropy that emerge from the different disciplinary perspectives represented in this volume are, in and of themselves, valuable contributions to our collective efforts. Some readers may come to this volume and look for a chapter by a par­ ticular author or turn immediately to a topic relevant to their current inter­ ests. Each chapter stands alone, so reading the volume in this way, piece­ meal, is certainly possible. Still, we believe the volume as a whole provides a genuinely fresh look at philanthropy as a hybrid and ever-­changing form of public and private power. It also underscores the enduring importance of philanthropy in democratic life generally, and in American democracy spe­ cifically. Moving philanthropy from the margins to the center of scholarly in­­ quiry permits a task at the heart of any inquiry about democracy: understand­ ing the complex division between what is public and what is private, tracing the evolution of that division over time, identifying the public dimensions of private wealth and power, and recognizing when private action supports or, alternatively, threatens the public interest. This volume provides an inte­ grated, multidisciplinary exploration of philanthropy’s role and legitimacy in a democratic society, revealing how such a focus can open up powerful ana­ lytical vistas or conceptual possibilities for understanding shifts in the pur­ suit of the public interest and under what circumstances private action and

8 / Introduction

the public interest are aligned. We are at once appreciative and critical in out­ look, motivated by the idea that the broadest understanding of democratic life requires an engagement with the historical development, institutional em­­ bodiments, and moral grounds and limits of philanthropy.

Part Introductions The volume is divided into three parts: “Origins,” “Institutional Forms,” and “Moral Grounds and Limits.” Each part includes a short introduction writ­ ten collaboratively by its contributors. The following sections are introduc­ tory remarks of our own for each part. Origins Acts of human kindness are as old as humankind. The modern practice of organized philanthropy, on the other hand, has a much more recent prov­ enance. The social technologies that primarily constitute present-­day philan­ thropy include particular corporate forms, tax affordances, a variety of finan­ cial products, governance requirements, and reporting standards. The core set of these—­today’s nonprofit and nongovernmental organizations and var­ ious practices of corporate, foundation, and individual philanthropy—­are well accepted yet remarkably young. Many of the central structures of mod­ ern philanthropy are less than a century old. When considering the evolution of philanthropy, it is useful to recall that in colonial America, philanthropy was tied very closely to religion and was understood as a religious activity. Few questions arose, therefore, about whether philanthropy was private or public, or whether it had an essentially voluntary, associational character or was connected in some way to the state. And of course colonial America was not yet a democracy. Questions about the relationship between philanthropy and democracy do not emerge until the nineteenth century, where part 1 begins, and they become especially fraught following the extraordinary increase in philanthropic resources brought about in the Gilded Age of the late nineteenth century and the emergence of the general-­purpose private foundation and the rise of organized mass philanthropy. The shifting dynamic between public funding and private phi­ lanthropy reflects some of the larger tensions of twentieth-­century economic and political history, including a gradual corporatization of philanthropic institutions, concerns about the political influence of philanthropy, espe­ cially large foundations, and punctuated efforts to draw clearer boundaries around philanthropic activities.

Introduction / 9

Put simply, there is no straight line to be drawn from the practices of an earlier era to those of today. The institutions and practices we possess now are the result of an accumulation of negotiations by states, courts, the U.S. Congress, contracting agents, and the tax authorities with both individual philanthropists and the associations that rely on them. From the Dartmouth College U.S. Supreme Court case (1819) to the fight to charter the Rockefeller Foundation (1913), from Lyndon Johnson’s determination to keep philan­ thropy from supporting his political opponents to the Citizens United case (2010), and from Andrew Carnegie’s Gospel of   Wealth (1889) to the Giving Pledge led by Bill Gates and Warren Buffett today, we continue to redraw the lines between public and private action for the public good. In part 1, Jonathan Levy traces the concept of altruism through nineteenth-­century American social thought and reveals the evolution of the not-­for-­profit corporate form as one manifestation of a broader debate about ownership and responsibility. Levy roots the creation of the nonprofit corpo­ rate form in the states, not the federal government, and reveals a robust story of philanthropic activity well before the creation of twentieth-­century tax incentives. Olivier Zunz asks, “Where is philanthropy in American history?” viewing the topic as an overlooked opportunity to examine questions about the relationships between government, the market, and national character. His chapter displays his own curiosity about the oft-­untold story of philan­ thropy in American social and political history and moves us to ask where else in the academy is philanthropy overlooked. Finally, Rob Reich’s chap­ ter concludes the section by examining what is perhaps the classic form of American philanthropy, the private foundation. Beginning with a frequently forgotten story about the deep resistance to the creation of the Rockefeller Foundation, he asks what role, if any, private foundations should play in a democratic society. Though he ultimately offers a defense of foundations, he raises a set of probing normative questions about what confers legiti­ macy and provides accountability to the exercise of private power inherent in foundation activity, questions that recur throughout the other chapters in this book. Institutional Forms Philanthropy is embodied in different institutional forms. These forms emerge and develop over time to serve different social purposes, in response to changing economic and political circumstances. Where Levy’s chapter provides the background for the invention of the now-­standard not-­for-­ profit corporate structure and Reich’s chapter for the invention of the private

10 / Introduction

foundation, the chapters in part 2 examine several institutional forms that diverge from these classic forms, such as the growth of professionalized non­­ profit firms, the massive growth in donor-­advised funds, the moral limits of corporate social responsibility, and the contemporary development of new tools and rules for a digital age of philanthropy. Consideration of particular institutional forms is important for any gen­ eral inquiry about the nature of philanthropy and its relationship with de­ mocracy. When we consider the different institutional forms of philanthropy, questions arise about which parts of the philanthropic act—­for example, the donor’s intent, the mechanism for enacting that intent, or the achievement of particular outcomes—­we want to recognize or reward. Our current cornu­ copia of institutional forms may reflect our support for each possibility. Or it might reflect our collective ambiguity about what the philanthropic act is or should be. Today we see nonprofits becoming more like businesses, with an emphasis on earned revenue and a strategic, outcome-­orientation. We also see traditional businesses becoming social mission organizations, con­ sciously adopting double or triple bottom lines. We see philanthropists try­ ing to measure the return on their philanthropic investments, and we see in­­vestors asking for the social impact of their marketplace activity. Philan­ thropists are blending business with philanthropy, government and politics with giving. All of this contributes to philanthropy’s ubiquity. The regula­ tory structures built for an earlier time are struggling to keep up with these changes. And the theories that provide support for specific institutional lines are out of sync with these fluid times. Further, changes in institutional forms may reflect changes in the role that philanthropy plays or is expected to play within a given society. In this re­ spect, in the first chapter in part 2, Aaron Horvath and Walter Powell high­ light how the evolution of philanthropy from an informal, face-­to-­face ac­ tivity in associational life to a formal, professional activity in incorpora­ted nonprofit organizations and the rise of new modes of philanthropic acti­­v­ ity by the extremely wealthy reflect a shift in the role of philanthropic power, from primarily supportive of to primarily disruptive of the public sector. Philanthropy increasingly becomes a rival form of power, private in owner­ ship but public in purpose. Horvath and Powell ask how this shift affects, and is affected by, public expectations about government and different defi­­ nitions of what public responsibilities attach to what sectors and organi­ zational forms. They worry that current forms of philanthropy, because of their disruptive nature, threaten both the integrity of philanthropy and the health of democracy.

Introduction / 11

In his chapter on corporate social responsibility, Paul Brest looks at phi­ lanthropy as practiced from within commercial enterprises. Focusing on corporate social responsibility provides a helpful lens for investigating the tension between philanthropy and market values. What are the outer lim­ its, he asks, of managerial discretion in pursuing, from within a for-­profit organization, social goals that may come at the expense of financial goals? To what extent does shareholder interest in maximizing profit set a limit to corporate philanthropic action? On what basis may corporate managers take a financial haircut in order to pursue socially responsible purposes? Where the first two chapters in part 2 focus on the complex relationship between philanthropic institutions, government, and market actors, the next two chapters ask how particular institutional forms for giving money away reflect or betray our understanding of   what a philanthropic institution should look like and what the role of philanthropy in a democratic society ought to be. In her chapter on donor-­advised funds, Ray Madoff raises a series of chal­ lenges regarding the incentive structures built into these financial products. If there is a continuum inherent in the philanthropic act from donor intent to social outcomes, Madoff argues, donor-­advised funds are skewed too far to the beginning of that chain in order to qualify as acceptable philanthropic institutions. Whereas Horvath and Powell worry that philanthropy is having too large a public impact on the state, Madoff worries that donor-­advised funds deliver immediate tax benefits to donors without any public impact or benefit until some undefined later date. Lucy Bernholz’s chapter connects the origin stories of part 1 to the con­ temporary development of new organizational models and the need for new legal rules to address digital philanthropy. Using as a case study the Digital Public Library of America, she seeks to understand whether the digital envi­ ronment offers a chance to reinvent philanthropy or simply move it to a new sphere. Moral Grounds and Limits Scholars have long debated the moral limits of political authority and coer­ cive power, including the question of which forms of taxation are legitimate and which are not. Similarly, in recent years, an increasing number of schol­ ars have focused on the moral limits of the market.4 They have questioned whether there are things that ought not to be for sale and functions that mar­­ kets ought not to perform in a democratic society. They have assessed whether

12 / Introduction

commercializing certain activities threatens to displace valuable norms. And they have asked whether market actors should have full discretion in their exchanges, or whether, by contrast, these exchanges ought to happen accord­ ing to certain rules (concerning, for example, informational symmetry) or in accordance with certain ethical norms (concerning, for example, individ­ ual autonomy). The question of the moral limits of philanthropy has, however, been largely neglected. Perhaps this is because, one may think, as a form of altru­ ism, philanthropy should not be limited. If philanthropy is a good thing, a morally valuable behavior or character virtue, then the more philanthropy the better. Philanthropy should be everywhere. And yet, this way of reason­ ing is clearly flawed. First, it is flawed because not everything can be donated. If it is wrong to sell one’s right to vote in exchange for money, it may be equally problematic philanthropically to donate one’s right to vote to an­ other out of altruism. Sometimes donating certain goods seem to be even worse, morally speaking, than selling them. For example, selling one’s own child’s labor to a corporation is morally wrong (even if the corporation, by assumption, produces some social good), but donating one’s own child’s la­­ bor to the same corporation seems to be even worse, a fully perverse action. These examples show that there are moral limits to what can be donated through philanthropic giving. Second, if philanthropy, at least in some cases, is a form of private power that disrupts the exercise of public power, or an alternative way of pursuing and fulfilling the public interest, then philanthropy immediately triggers questions of legitimacy. And questions of legitimacy are questions of moral limits—­limits on the exercise of a given form of power. These limits may in­ clude limits on the object of philanthropy—­what roles philanthropy should or should not perform in a democratic society. They may also include limits on the subjects of philanthropy—­how should philanthropists exercise their power, according to which reasons, principles, or values. In light of these considerations, contributors ask whether there are func­ tions that philanthropy ought not to perform in a democracy, They also ask what are the ethical norms (if any) that philanthropists, whether individual donors or foundations, ought to uphold when making their donations. Brest and Reich, in earlier chapters, explore certain limits on philan­ thropic activity. In this final part, Eric Beerbohm, Ryan Pevnick, and Chiara Cordelli push the question of limits to the fore and provide different an­ swers, respectively. Beerbohm’s contribution shows how there are certain so­­ cial functions and public responsibilities that can only be discharged publicly. Delegating these functions and responsibilities to philanthropists is morally

Introduction / 13

objectionable, even if doing so could in principle produce better outcomes. The production of certain goods is for Beerbohm necessarily a public respon­ sibility. Ryan Pevnick, in a similar vein, argues that the functions that philan­ thropy should be encouraged to perform within a democratic and reason­ ably just society are limited in important ways. Only certain goods—­cultural goods—­ought to be funded via philanthropy. Failure to respect these limits constitutes a threat to fundamental democratic values. Finally, Chiara Cordelli focuses on the ethical norms that should limit the reasoning and discre­tion of donors when deciding how to give—­how much and to whom. It turns out, she argues, that the liberty or discretion we typically assign to donors to choose causes as they wish should be significantly curtailed. In current societies, she argues, a good portion of philanthropy must be construed as reparative jus­ tice—­as a duty to return to others what they have been unfairly deprived of. When deciding how much to give and to whom, philanthropists should en­ joy the same discretion debtors enjoy, which is to say almost none.

Process The process that led to this edited collection is an unusual one. Rather than collecting essays from contributors and ordering them in an edited vol­ ume, the essays in this volume emerged from an interdisciplinary, eighteen-­ month conversation about philanthropy. We brought together sociologists, political scientists, and historians with political philosophers and legal schol­­ ars. At the workshops, all held at Stanford University, each contributor read, discussed, and commented on each chapter. Revisions to the essays were made in light of our ongoing conversation and the collective feedback gen­ erated by the group. Our aspiration was to probe the relationship between philanthropy and democracy both from an empirical or descriptive approach—­what role has philanthropy actually played in particular democratic societies—­and from a normative one—­what role should philanthropy play. The framing ques­ tion for our dialogue concerned the origins, institutional forms, and moral grounds and limits of philanthropy in democratic societies. Our efforts as conveners were driven by the hope that an interdisciplinary conversation would break new ground by opening up novel lines of inquiry and by exposing crosscutting concerns and themes. Such conversations are especially important for the topic of philanthropy, we believe, given its pe­ culiar, multifaceted nature. As our discussions revealed, philanthropy can be regarded as both an institutional arrangement and a moral value, as an eco­ nomic sector, a tax event, and a personal virtue. Philanthropy is embedded

14 / Introduction

within societies through the law, organizational forms, and moral codes. The activity of giving money away for a public purpose is as old as human­ ity, but because the modern practice of philanthropy is shaped by laws as well as norms, we regard philanthropy not as an invention but as an artifact of the laws and norms of particular societies. The evolution of philanthropy over time and the roles it has assumed across countries cannot be disconnected from the evolution of other sectors, particularly the state and the market. A modern history of philanthropy is thus linked to the history of the welfare state, capitalism, and globalization. As a result, questions about the nature of philanthropy and its relationship to democracy involve normative (value-­oriented) scholarship and positive (em­ pirically oriented) social science. Both normative and positive scholars have studied philanthropy, but they too rarely engage one another. Reflecting our commitment to interdisciplinary engagement, we aimed to avoid discipli­ nary groupings and to dislodge a conventional approach that focuses on in­­ tradisciplinary discussions. As a result, the reader will find here interdiscipli­ nary discussion and dialogue across the three major themes that emerged from the workshop participants’ discussions: origins, institutional forms, and mo­­ral grounds and limits. During our initial meetings, we worked toward two ends. First, we dis­ cussed and refined one another’s research questions in directions that would better permit the group to address the framing question about the origin, institutional forms, and moral grounds and limits of philanthropy in demo­ cratic societies. Second, we pressed each other to bring core ideas or assump­ tions about philanthropy and democracy to the surface in our work in order that we might collectively clarify their meanings and relationships. Reflecting our collaborative undertaking, at our final workshop, we grouped contribu­ tors together by volume part—­origins, institutions, values—­and asked each small group to draft a short part introduction. These stand as prefaces for each section and represent, at the same time, the fruit of our integrated, interdisci­ plinary conversations. Each individual chapter was also produced through this process, and consequently, their authors do not pretend to address all the questions rel­ evant to philanthropy and democracy. We chose particular scholars, not topics, for our project. Some undeniably important topics go unaddressed here; for example, the growing phenomenon of global giving, the incidence and significance of volunteering, and the recent trend toward strategic or outcome-­oriented philanthropy. The chapters do, however, attempt to de­ liver on the expectation that fruitful interdisciplinary dialogue, as opposed to sustained intradisciplinary focus, can yield greater clarity about the practice

Introduction / 15

of philanthropy in democracies and the policy choices we collectively face regarding what we ask of its practice. One final note. Philanthropy is by no means an exclusively American phenomenon. Neither, of course, is democracy. But it is distinctive just how much activity in the United States is organized via nonprofit organizations and philanthropy. Conventional opinion in the United States views this as a positive, and other countries are quite consciously seeking to adapt Ameri­ can philanthropic habits and laws. This led some of our contributors to fo­ cus on the United States, but to the extent that the U.S. model is held up to be imitated or envied—­as we believe it often is—­our exploration about its efficacy and legitimacy may give pause to those who hold the American model in too strong an embrace.

O ne

Altruism and the Origins of Nonprofit Philanthropy J onat h an L evy

From left to right in figure 1.1, Joseph Keppler’s Puck Magazine political car­­ toon “  The Two Philanthropists,” are Jay Gould, the great New York City fi­­ nancier, and William Vanderbilt, the son of recently deceased railroad mag­ nate Cornelius Vanderbilt. At the time, Gould was competing with Vanderbilt for financial command over the corporation that controlled 90 percent of U.S. telegraphic service, the Western Union Telegraph Company. The Tele­­ graph Act of 1866 had granted the U.S. government authority to purchase Western Union, to transform a private telecommunications network into ef­ fectively a public utility. Gould and Vanderbilt were bidding up the stock price, in competition with one another but with the consequence, intended or not, of forestalling an ever more expensive government purchase. But what does any of that have to do with philanthropy? The question is not so easy to answer because at that time the meaning and institutional location associated with philanthropy across the twentieth century was not yet fixed. In the twentieth century, “philanthropy” would come to mean the private redistribution of wealth—­usually first earned through private capitalist profit-­making—­through a “nonprofit sector.” But that was not yet the case when Keppler drew “The Two Philanthropists” in 1881. Philanthropy, perhaps by definition, is a form of private action. Yet, histor­ ically philanthropy has always been clothed with a public character, even if, over time, the clothes have changed. Ever since the permanent introduction of a federal income tax in 1913, tax exemption has made American philanthropy inescapably public. But before that, what originally made philanthropy pub­ lic was its institutional organization by and through state-­chartered corpora­ tions. If there is one continuity to the history of American philanthropy, it is that, from the first, it has been a corporate enterprise.

1.1.  Joseph Keppler, “The Two Philanthropists,” Puck, February 23, 1881.

Altruism and the Origins of Nonprofit Philanthropy  /  21

Gould and Vanderbilt claimed that their corporation, the Western Union Telegraph Company, benefited the public. They insisted that they were not engaging in financial buccaneering but instead laying the nation’s first tele­ graphic network. The public would benefit most if that communications infrastructure remained under private charge rather than being ceded to the U.S. federal government. Keppler’s caption mocked them: “Don’t fret, Uncle Sam, We only want to make a bigger man of you!” In this, Keppler satirized one kind of philanthropic pretension. That is, the pretension that the out­ come of private corporate profit-­making was of great, even “philanthropic” benefit to the public—­a familiar sentiment in the age not only of Gould, but also of Google. In nineteenth-­century America, however, that sentiment had a specific va­ lence. The first generation of Americans, experimenting with republican gov­ ernment, had created one, mixed public/private corporate form, what might be called the republican corporation. While the propertied basis of the repub­ lican corporation was private, state legislatures chartered corporations on a discretionary basis, by up or down vote, to perform “public purposes.” For a corporation was a “grant” or “concession” of popular sovereignty. Various public purposes were almost always construed as “benevolent” in character, benevolence being a concept that mixed, rather than distinguished, between private action and public purpose. To ensure these purposes, the private ac­ tions of corporations were constrained by the language of their state-­granted charters, including the 1851 corporate charter New York State granted to what would become the Western Union Telegraph Company. It was this legacy—­ that all corporations, ranging from charities to universities to joint-­stock com­­ panies—­were mixed public/private entities, chartered for benevolent public purposes, that Gould sought to draw from to stave off a government take­ over of   Western Union. Keppler believed Gould’s appropriation of the republican legacy was cyni­ cal, and it was. “  The Two Philanthropists” depicts the death throes of the old republican corporate order. And yet the cartoon, in subtle ways, says more. The American republic was by then a liberal capitalist democracy. Corporations, agents of that change, transformed themselves accordingly. “  The Two Phi­ lanthropists” depicts not only the collapse of the old order. By another read­ ing, it also uncannily deciphers the coming of a new corporate universe, the universe in which the modern relationship between philanthropy and de­ mocracy—­at stake in every chapter to come in this book—­would unfold. Rather than consisting of one, republican corporate form, this was a pri­ vate corporate universe of liberal corporations, for profit and nonprofit, a

22 / Chapter One

corporate universe, aspirationally, of moral and institutional binaries. In it, only private nonprofit corporations—­not states or for-­profit corporations like the Western Union—­became appropriate vehicles of “philanthropy.” In­­deed, not until the 1870s was the very language and classification of “nonprofit” present. Only then did philanthropy begin to acquire one specific meaning—­ the private redistribution of wealth, often first earned through profit-­making, through “nonprofit” institutional forms. By the new criterion, Gould could not even pretend to be a philanthro­ pist. (The Vanderbilts at least had founded Vanderbilt University in 1873. There is no such thing as Gould University.) Gould gave little of his wealth away, although his daughter, after inheriting his fortune, would. His greatest contribution to the history of philanthropy, in this new key, was probably the inclusion of his friend Russell Sage in many of his deals. Gould finally did take control of   Western Union in 1881 and proceeded to place Sage on the board. Sage made a lot of money this way, but he too gave little of it away. Through his widow, however, his wealth would ultimately come to rest in the Russell Sage Foundation (1907), the first “general-­purpose foundation.” This and later general-­purpose foundations afforded wide donor discretion, and the structure became modern philanthropy’s most dominant nonprofit institutional form. A lot had to change in the final decades of the nineteenth century, as this chapter demonstrates, for this dominance to occur. The passing of state-­ level general incorporation laws in the middle decades of that century first liberated access to incorporation. No longer a discretionary grant of sover­ eignty, a corporate charter became a free entitlement of citizenship. Rather than public purpose, state legislatures placed new stress on the private mo­ tivation to incorporate. It was the new accent on private motive that led to the creation of the for-­profit/nonprofit binary. Critical was a new moral vo­ cabulary, the gift of the English evolutionary thinker Herbert Spencer, of “ego­­ ism” and “altruism.” The liberal keyword altruism, displacing the old re­­pub­ lican keyword of benevolence, was as new to the latter half of the nineteenth century as the nonprofit corporation. The “discovery” of altruism, a private, purely other-­regarding value, helped lend much-­needed credit to philan­ thropy’s new corporate home. This chapter thus explores the late nineteenth-­century historical connec­ tion between a moral idea, altruism, and the origins of a critical philanthro­pic institution, the nonprofit corporation. At stake, amidst competing efforts to mend the social cleavages and economic inequalities of industrial capital­ ism, was the relationship between public and private action, a new corporate ordering of the production and redistribution of wealth, and arguments that

Altruism and the Origins of Nonprofit Philanthropy  /  23

continue today—­and in this volume—­about the legitimacy of corporate phi­ lanthropy in a democracy. On the question of democratic legitimacy, Keppler’s “The Two Philan­ thropists” had its say as well. The cartoon was an early, soon-­to-­be familiar polemic against the private philanthropic redistribution of wealth—­a cri­ tique of Gilded Age America’s financial excess. In the first decades of the twen­­ tieth century, they would become Progressive political critiques of the great accumulations of philanthropic wealth in general-­purpose foundations like the Russell Sage Foundation, the Carnegie Corporation (1911), or the Rocke­ feller Foundation (1913). But on closer examination, “  The Two Philanthro­ pists” also depicts a binary. The cartoon is divided in half, cut down the mid­­ dle by the largest telegraph pole, with two railroad tracks flowing into one. Gould and Vanderbilt contest one another but pull on the same wires, stran­ gling an emaciated body politic—­a private stranglehold, so to speak, on the public good. Keppler not only mocked philanthropic pretensions. He criti­ cized, prophetically, one conception of private morality, with its related insti­ tutional forms, that obfuscates the realities of corporate power. That concep­ tion is a moral universe of binaries, a contest between the private motives of egoism and altruism, institutionally residing in for-­profit corporations and non­­profit corporations sharply distinguished from one another, but in the end two sides of the same corporate coin. This corporate universe, Keppler warned, might well leave but little room for the public good.

The Republican Corporation In 1832 Joseph Angell and Samuel Ames published the first American legal treatise on corporations, Treatise on the Law of Private Corporations Aggregate.1 In it, there is no mention of a nonprofit corporation. Having evolved in the decades after the American Revolution, the “private corporation aggregate” was a specifically American corporate form, of mixed public/private character. Only later, in the decades after the Civil War, would the private corporation aggregate—­the republican corporation—­split into two liberal corporations, for-­profit and nonprofit. Without first grasping the nature of the republican corporation, including its historical roots and working logic, it is impossible to understand the subsequent novelty and significance of nonprofit corporate philanthropy. This history of corporate form also provides a window onto shifting definitions of public and private action, including their disentangle­ ment across the nineteenth century. Angell and Ames cited the prior English classificatory scheme. For centu­ ries in England, there were corporations “sole” and corporations “aggregate.”

24 / Chapter One

Corporations sole consisted of one person, namely the sovereign (the king is dead, long live the king!) or individuals holding religious offices, like bish­ ops.2 Corporations aggregate, associations of two or more persons, consisted of two types: “lay” and “ecclesiastical.” In America, after the Revolution, both corporations sole and corporations aggregate ecclesiastical were no more. All that remained were corporations aggregate lay. Within lay, Angell and Ames explained, once more there were two forms, “civil” and “eleemosynary.” Cor­ porations aggregate lay civil consisted of both municipalities (future cities) and joint-­stock trading companies (future for-­profit corporations). Corpora­ tions aggregate lay eleemosynary performed, broadly speaking, charitable tasks, including purposes proscribed in the preamble to the Elizabethan Cha­­r­ itable Uses Act of 1601, such as the “maintenance of sicke” and “education.” The corporation aggregate lay eleemosynary would appear to be the most obvious candidate for the direct forebear of the American nonprofit corpo­ ration. But that was not the case. Instead, Americans combined civil and eleemosynary corporations into one single form, the “private corporation aggregate” or, as it soon became known, given that corporations sole had ceased to exist, the “private corpora­ tion.” Further, the United States created a new distinction, between “public” and “private” corporations. The action began in the courtrooms rather than the legislatures. The U.S. Supreme Court first began to articulate a public/ private corporate distinction in Terret v. Taylor (1815).3 The case concerned Virginia’s post-­Revolutionary dissolution of a colonial corporation sole, the office of a bishop, or “persona ecclesiae,” which had existed to convey property through a corporation aggregate ecclesiastical, the Episcopal Church. After the dissolution, Virginia expropriated the church’s property. Justice Joseph Story, writing for the majority, ruled that the state could not do so. By judicial fiat, Story distinguished “public corporations,” namely, those “which exist only for public purposes, such as counties, towns, cities, & c.” from “private corporations.” Justice Story declared that in 1776 the Episcopal Church had unwittingly transformed from a corporation aggregate ecclesiastical into a “private corporation.” And as it was a “fundamental principle” of a repub­ lican government to protect “the right of the citizens to the free enjoyment of their property,” Virginia therefore could not take the Episcopal Church’s property. The public/private distinction Story articulated in Terret ultimately would stick. What is potentially misleading is that Story was not saying that “pri­ vate corporations” were not public too. That is, a “public corporation” was one that existed “only” for “public purposes.” “Only” was a critical qualifier. All private corporations, Story knew well, then existed for private and public

Altruism and the Origins of Nonprofit Philanthropy  /  25

purposes. The difference was that the propertied basis of private corpora­ tions was private (which afforded the constitutional protections Story cre­ ated in Terret v. Taylor). But, as the North Carolina Supreme Court put it in 1805 in Trustees of the University of North Carolina v. Foy (in a statement Story would have surely agreed with), “Indeed, it seems difficult to even conceive of a corporation established for merely private purposes. In every institu­ tion of this kind, the ground of the establishment is some public good or purpose intended to be promoted; but in many the members thereof have a private interest, coupled with the public object.”4 It was this mixed language of public and private that combined the En­ glish civil and eleemosynary corporations into a singular form, the American private corporation. The “private interest” might be to pay a dividend to a stockowner in a joint-­stock company, or the Christian provision of alms to the poor. But to gain a corporate charter, each had to fulfill some “public purpose”—­the construction of a turnpike open to the public, or the public maintenance of the sick. Thus, although Terret began to disentangle pub­­ lic and private, the two aspects were still fundamentally conflated in the “pri­ vate corporation.” Decades later, Angell and Ames echoed the same senti­ ment. States granted charters to corporations, they explained, whose “object tends to public advantage,” whether it might be for purposes of “commerce,” “literature,” or “religion” (among other purposes). The “public benefit” was “deemed a sufficient consideration of a grant of corporate privilege” to pri­ vate property holders.5 The republican corporation expressed a long-­enduring theory of corpo­ rate personality—­that a corporation is a “grant” or “concession” of sover­ eignty. In England, corporations were grants of the monarch’s sovereignty—­ “corporation” coming from the Latin word corpus, or “body,” where the king’s sovereignty resided. In the post-­Revolutionary United States, as the “body politic” became “the people,” corporations became grants of “popu­ lar sovereignty.” Rather than Crown writ, U.S. corporate charters bore the imprimatur of popularly elected state assemblies. Citizens requested a char­ ter from a state legislature. One by one, their elected representatives voted on them, scrutinizing the existence of a “public purpose.” Not accidentally, the origins of the grant or concession theory of corporate personhood were Ro­ man, and were appropriated by Americans during the broader revival of clas­ sical republicanism during and after the American Revolution. Eighteenth-­ century republicanism asserted that men of property must consent to the rule of their chosen representatives. That is why early nineteenth-­century U.S. states placed property restrictions on the electoral franchise. Accord­ ingly, in a quid pro quo, state legislators might grant corporate privileges,

26 / Chapter One

to carry out public tasks, to propertied citizens of the republic. (Without property, citizens could not vote or receive corporate privileges from their chosen representatives.) Meanwhile, if corporations subsequently failed to carry out their mandated public tasks, or exceeded limits set by the language of their charters, state attorneys general might bring them to heel, initiating quo warranto or ultra vires proceedings. Much like republican governments were bound by their own written constitutions, corporations, little “body politics,” were to be governed by the language of their charters, their little constitutions.6 The public/private distinction first announced by Terret has too much obscured the republican, mixed public/private character of the “private cor­ poration aggregate.” For instance, four years after Terret, Chief Justice John Marshall confirmed Story’s public/private distinction in Dartmouth College v. Woodward (1819).7 Dartmouth concerned the state of New Hampshire’s at­ tempted modification of the colonial corporate charter of Dartmouth Col­ lege, what Marshall called, nodding to colonial times, a “private eleemosy­ nary institution.” Applying the contract clause of the Constitution, Marshall ruled that states could not alter the charters of “private corporations.” Mar­ shall spoke only of “private corporations.” The for-­profit/nonprofit distinc­ tion absent, the ruling was equally applicable to both colleges and joint-­ stock companies. While Dartmouth College was deemed “purely private” because its property was private, Marshall acknowledged that the college was created by “public-­spirited individuals” performing the work of “benev­ olence.” It was property, not motive, that made private corporations private. Further, Marshall acknowledged the quid pro quo nature of incorporation. “The benefit to the public,” he wrote, was “ample compensation” for the char­­ ter. As Story underscored in his concurrence, Marshall’s application of the contract clause in Dartmouth did not undermine the quid pro quo. Story in­ vited states, in issuing new corporate charters, to reserve the right to subse­ quently modify their terms. Regardless, why did the republican translation of grant theory—­that pri­­vate corporations must fulfill a “public purpose”—­matter? With respect to philanthropy, the American private corporation was different from the English eleemosynary corporation. The latter existed to convey private prop­ erty on behalf of trusts. The trust was an invention of English property and probate law, not corporate law. Its guiding principle was the “dead hand of the donor”—­realized through the “visitation rights” of donors and their ap­ pointed trustees, as well as the legal doctrine of cy-­pres, which underscored the continued maintenance of the donor’s original intent. In many U.S. states, the internal governance structure of private corporations (whose property

Altruism and the Origins of Nonprofit Philanthropy  /  27

was not held in joint stock) incorporated English trust principles of fiduciary responsibly. But the U.S. Supreme Court would not recognize English trust principles in federal law until 1833. And when it came to private bequests to corporations, trust principles struggled to establish themselves in state equity courts. Much more so than English eleemosynary corporations, U.S. private corporations existed at the pleasure of legislatures, which dictated terms to private corporations through their charters, not only by mandating public purposes but often (unlike with trust law) by denying perpetuity and placing limits on the accumulation of property. Many commentators at the time observed that incorporators, directors, and donors held less sway over American private corporations than trustees did over trusts. In short, checked by republican political principles, as contradictory as it sounds, the U.S. pri­ vate corporation was at first a relatively public institution.8 Furthermore, in early national America, it was not clear that “public pur­ poses” would so often devolve to private corporate actors rather than to republican state legislatures themselves. In classical republican political the­ ory, there were grounds for many “public purposes,” including, perhaps es­ pecially, charitable ones, to remain under the charge of state authorities. The Massachusetts state constitution of 1780 declared, “It shall be the duty of legislatures and magistrates, in all future periods of this Commonwealth . . . to countenance and inculcate the principles of humanity and general be­ nevolence, public and private charity . . . and all social affections, and gen­ erous sentiments among the people.” Massachusetts did not disestablish its tax-­supported Congregationalist churches until 1833. Many revolution­ ary leaders expected republican state governments to carry out the work of “benevolence.” Therefore, the proliferation of corporate charters in early national America is striking. Wracked by farmers’ tax revolts, early national state governments struggled to establish adequate powers of taxation so that states might carry out acknowledged “public purposes.” As the Federalists failed to install themselves as a benevolent ruling class, states began, in ef­ fect, to contract out public tasks, by charter, to private corporations. Such con­­ tracting out of public tasks by states (with diminished tax bases and crippled capacities) was to be an enduring American governing tradition. More precedents were quickly established. Regulatory problems with private corporations emerged. After the moment of incorporation, both leg­ islative and executive regulatory powers were weak and often unexercised. Incorporators might charter to fulfill a “public purpose” only to turn around and do something different with their privileges. For instance, in the ante­ bellum period, political advocacy was never an admissible corporate pur­ pose. When the Jeffersonian Republicans organized against the Federalists

28 / Chapter One

during the 1790s, President George Washington wondered if anything could be more “absurd” or “pernicious” than for “self-­created bodies” to censure republican legislatures? Washington did not deny “the right of the people” to meet “occasionally” to remonstrate against “any act of the legislature.” But a “self-­created permanent body,” likely to be “actuated by selfish motives” rather than benevolent motives, was pernicious. Yet, under the guise of “char­ ity” and “benevolence,” many Jeffersonian political clubs had received cor­­ porate charters. The Federalists turned around and created Washington Be­ nevolent Clubs, ostensibly for charity but in reality also to engage in nascent democratic politics. For the stated purpose of “charity,” the Tammany So­ ciety of New York incorporated in 1805.9 The line from the democratic politicking of Tammany Hall to contemporary manipulations of Section 501(c)(3) and 501(c)(4) status in the federal tax code, in which explicit po­ litical advocacy is sometimes carried out under the banner of “education” and “so­­cial welfare,” is rather straight.

Liberal Incorporation Published in 1832, Angel and Ames’s Treatise on the Law of Private Corporations Aggregate arrived at the end of an era. The rise of American democracy was already undoing the republican corporation. By the 1830s, most every state had eliminated property restrictions on the franchise, achieving uni­ versal suffrage for white men. In the following decades, nearly every state legislature passed general incorporation laws, removing legislative discre­ tion at the moment of incorporation and freeing access to private incorpora­ tion.10 In time, private corporations—­for-­profit and nonprofit—­would shed their public purposes. From the beginning, in addition to regulatory monitoring, there were practical problems with the republican corporate regime. Might admissible public purposes ever evolve, or must they remain set in stone in the lan­ guage of the written charter? More pressingly, state legislatures were abso­ lutely flooded with citizen requests for corporate charters. There were early national state assemblies that for stretches of time did very little else but debate and approve corporate charters. After disestablishment, hundreds of religious groups requested corporate charters. While states initially reserved the right to scrutinize the most controversial of “public purposes” (bank char­­ters were always the most controversial), for less controversial purposes (such as religious association, education, and charity), states began to in­ clude standardized incorporation procedures in their constitutions, or to pass general incorporation laws. These acts established the terms of incorporation

Altruism and the Origins of Nonprofit Philanthropy  /  29

and allowed citizens, so long as their proposed corporation met specified cri­­ teria, to incorporate without a legislative vote, usually by filing a petition with an attorney general or a state supreme court. South Carolina’s consti­ tution of 1778 offered incorporation rights to all Protestant religious deno­­mi­ nations. New York passed the first general incorporation law, for all “re­­ligious societies,” in 1784. New Jersey offered general incorporation to “societies for the promotion of learning” a decade later.11 These general incorporation acts became important precedents. In the long commercial boom that lasted from the mid-­1820s until the panic of 1837, states were overwhelmed with demands for corporate charters for com­­ mercial purposes—­banking corporations, insurance corporations, turnpike corporations, manufacturing corporations, and, by the end, railroad corpo­ rations. These institutions all had acknowledged “public purposes”—­banks provided a commercial medium, manufacturers readied the United States for wartime. But the incorporation process in the states soon began to resemble base democratic politics. Log rolling was prevalent. In New York, vying po­ litical factions, when in office, reserved precious bank charters only for them­­ selves and their friends.12 Ironically, the Jacksonian political backlash of the 1830s that followed, under the banner of antimonopoly, expanded rather than restricted access to the private corporate form. Instead of lauding the discretionary incor­ poration process as the virtuous republican promotion of the public good, Jacksonian Democrats decried it as “special legislation” that undermined “equal rights” and promoted “aristocracy” and “corruption.” As one dele­ gate to the Illinois Constitutional Convention put it in 1847, “I am partic­ ularly hostile to special legislation, that is, special incorporations. I am op­ posed to the objects to be effected, viz.: the right of forming partnerships to be granted to the few, and wholly denied to the many. I am, in short, opposed to unequal legislation, whatever form it may assume, or whatever object it may ostensibly seek to accomplish.”13 The popular democratic solution that emerged was to open access to the private corporate form, on equal terms, to all.14 As most dramatically demonstrated by President Jackson’s 1832 veto of the charter renewal of the Second Bank of the United States (the most pow­ erful corporation ever to exist in the United States), Jacksonians abhorred federal incorporation, which occurred only rarely anyway. They kept incor­ poration in the states. The first state general incorporation acts continued to be general laws for specific public purposes. New York was the bellwether. It passed the first general incorporation act for banks in 1837. Then, in 1848, the state offered general incorporation to all “benevolent, charitable,

30 / Chapter One

scientific, and missionary societies,” which became a model statute for many other states during the 1850s. By 1860, twenty-­four of the thirty-­eight states offered some form of general incorporation.15 The activity was dizzy­ ing and is difficult to characterize in general. In a few states, the term nonpecuniary sometimes began to attach itself to the standard list of benevolent purposes, but not always. Meanwhile, some of the general incorporation acts for “benevolent societies” came with state property tax exemptions. But others did not.16 The same was true for joint-­stock companies. Insurance corporations, for instance, were joint-­stock companies, critical commercial cogs in U.S. capital markets, but usually enjoyed state property tax exemp­ tion. Nonetheless, over time, in a process that lasted until the 1870s, general incorporation acts became more general—­so general that in the end most states would only need two laws, or even just one, to cover all corporations. Still, it was not until the 1870s that general incorporation finally began to supersede special incorporation.17 Pennsylvania passed a new kind of gen­ eral incorporation act in 1874. It listed many different possible corporate purposes, including the establishment of “yacht clubs.” But this act, the first of its kind, divided all corporations in the state into three categories. First, there were religious corporations, in a category by themselves, and enjoying tax exemption. Then there were “for-­profit” corporations, subject to taxa­ tion, and “not-­for-­profit” corporations, which were not. Further, rather than “public purpose,” the determination of a corporation as “not-­for-­profit” was based on, as one scholar has put it, the “noncommercial intent” of its pri­ vate incorporators.18 A look at the 1874 Pennsylvania general incorporation act is revealing. When it was passed, the elephant in the room was the Pennsylvania Rail­ road—­a national institution, then the largest corporation in the world. It carried a specially granted 1846 state charter that explicitly restricted the corporation from engaging in business activities that were not “necessary” or “convenient” to the running of a railroad. To construct and maintain a railroad, open to the public, was its purpose. In 1871 the railroad scandal­ ously exceeded its charter by colluding with John D. Rockefeller’s Standard Oil Company. In response, Pennsylvania passed a constitutional amend­ ment in 1874 making it unconstitutional for railroads to do anything but railroad, as well as making it unconstitutional for the legislature to pass any “special act conferring corporate powers”—­effectively compelling the state assembly to pass a general incorporation act.19 The corporation lost that battle but quickly won the war. Immediately its lawyers and lobbyists advo­ cated for the Pennsylvania state assembly to pass a new general incorpora­ tion act. The Pennsylvania Railroad was no longer a “railroad corporation.”

Altruism and the Origins of Nonprofit Philanthropy  /  31

It was a “for-­profit” corporation. The corporation had been liberated, as it were, to pursue profit anywhere. As for those corporations in Pennsylvania that did not have such intentions, they would now exist in a new category—­ the “not-­for-­profit.”20 With general incorporation, the language of public purpose was slowly lost.21 Charters themselves were becoming standardized boilerplate rather than written constitutions for little body politics. If not specifying “profit,” during the 1870s general incorporation acts merely restricted private corpo­ rate activity to “lawful purpose.” Private corporations were generally being extended privileges, like limited liability, while restrictions, like caps on the accumulation of property, were being lifted. Incorporation itself, now open to all, on general terms, was no longer much of a regulatory tool. Regula­ tion, such as it would exist, would have to come from elsewhere. Regardless, in bringing corporations into existence, what now mattered much more was the private motive to incorporate to begin with, rather than the specified public end of corporate activity. In parallel, equally critical developments in trust law, most conspicuously New York’s Tilden Act of 1893, legalized open-­ended philanthropic bequests.22 Two years later, New York’s Member­ ship Corporation Law of 1895, consolidating two decades of general incor­ poration acts in the states, created a specific classification for corporations “not organized for pecuniary profit.”23 Rather than private property or pub­ lic purpose, in other words, what was coming to define a corporation’s sta­ tus was the private motive behind its existence—­to make profits, or not.

Egoism and Altruism Despite the shift from the republican corporation to liberal general incorpo­ ration, and from an emphasis on public purpose to private motive, incorpo­ ration nevertheless remained at the level of the states. During the Civil War, the U.S. federal government expanded its power and capacities, but only to retreat afterward, while state-­chartered corporations, the Western Union Telegraph a shining example, became ever more national and powerful in scope. Meanwhile, Victorian public culture was distinguished for its moral­ izing tone, and in the final third of the nineteenth century the underlying private motives of corporate organization and action were carefully consid­ ered. Affording legitimacy to the new institutional distinction between for-­ profit and nonprofit corporations was the new moral vocabulary of egoism and altruism. Few words have so precise a birthdate as altruism.24 In 1882 Herbert Spencer embarked from England on a grand tour of the United States, to

32 / Chapter One

be feted by one American capitalist after another. Already at his side on the Liverpool–­New York voyage was the Pittsburgh steelmaker Andrew Car­ negie, one of Spencer’s most passionate American followers. Carnegie, in 1881, had just begun to enter the field of philanthropy, donating money for the construction of a number public libraries (in the end, Carnegie and his philanthropies would fund 1,679 of them). It was Spencer, not Charles Darwin, who had recently coined the social Darwinist phrase “the survival of the fittest,” although, on visiting Carnegie’s Edgar Thomson Steelworks, Spencer remarked, “six months’ stay here would justify suicide.” In the end, Spencer did not like America very much. Nonetheless his visit was a tri­ umph, concluding with a legendary banquet in his honor at New York City’s Delmonico’s restaurant. To a stunned audience of businessmen, Spencer warned about the risk of “nervous collapse due to stress of business.” Still, over steaks and cigars, Edward Youmans, editor of Popular Science Monthly, boldly declared Spencer the greatest thinker “of modern times, if not, in­ deed, of all time.”25 Spencer had recently published The Data of Ethics (1879), which was easily the most important English-­language exposition of altruism, the foil of egoism, yet written. (Despite the significance of altruism in evolutionary biology and its contemporary academic offshoots, Charles Darwin himself never used the word.) The Data of Ethics established altruism in Spencer’s grand scheme of biological/social “evolution,” once again a Spencerian, rather than Darwinian, term. Spencer freely admitted that he had lifted the word altruism from the work of Auguste Comte. Comte, after publishing his six-­volume Cours de philosophie positive (1830– ­42)—­a grand system that introduced the new scientific object of study “so­­ ciety”—­had unveiled the term altruisme in his Système de politique positive (1851–­54), which carried the subtitle “A Treatise of Sociology, Instituting the Religion of Humanity.” Comte, under the spell of romanticism, argued that the “great problem of human life” is to subordinate “egoism” to “altruism.” He had derived altruisme from the Italian word altrui, meaning “of or to oth­ ers, what is another’s, somebody else.” (The Latin root is alteri huic, or “to this other.”) Altruisme, Comte insisted, is a biological fact. Egoism and altruism are technical, scientific translations of more common notions of “selfish in­ stincts” and “social feelings.” Altruism is the “inherent tendency to universal love.” Believing in altruism, Comte proposed a scientific utopia. “Order and Progress” and “Live for Others” were its two mantras. There would be a po­ litical dictatorship, without the “chaos” of democracy, led by a ruling class of atheistic priests and unelected bankers. Women, with absolute authority in the home, would be worshipped.26

Altruism and the Origins of Nonprofit Philanthropy  /  33

Rooted in biology, altruisme was nevertheless a political concept, launched in the shifting currents of French utopian socialism. But it was not Comte’s politics so much as his attempt at “scientific ethics” that drew interest from across the English Channel, as well as from across the Atlantic Ocean. Comte believed that the discovery of altruisme, his discovery, was a momentous scientific achievement. Based on his own observations of ani­ mal behavior and speculations on the nervous structure of the human brain, Comte held that biology proved altruisme to be “innate” to human conduct. Ruling Christian theology (especially in Catholic France) long taught that man was naturally sinful and depraved, guilty of “self-­love.” “Benevolence” resulted from God’s grace, not human nature. Eighteenth-­century republi­ canism had further distinguished “benevolence” from “beneficence” (both opposed to “self-­interest”). Benevolence invoked intent; beneficence, action. Comte’s altruisme smashed benevolence and beneficence, intent and action, together, in a totalizing and teleological vision of biological/social progress. Altruism also pried “self-­interest” and “benevolence”—­which many im­ portant thinkers from Adam Smith to Alexis de Tocqueville had proposed might, if rightly understood, exist in harmony—­completely apart. There was “pure egoism” and “pure altruism,” set in inexorable conflict. Egoism and al­­ truism could not overlap, or even exist in an enduring tension. Altruism, in the end, would triumph. Comte believed that “altruists,” living for one another, would willingly submit to a benign political dictatorship. The popular English philosopher G. H. Lewes translated altruisme into “altruism” in an 1852 article in the Westminster Review.27 He explained that Comte had scientifically proven how “the selfish instincts of man lead in their satisfaction to the development of unselfish instincts, how egotism is the impulse to altruism.” This sense of progressive historical direction, from primordial egoism to a final civilizational altruism, was to endure. Comte attracted many Anglo-­American followers. By 1879, England’s Fraser’s Magazine noted the “Italian sweet sounds of altruism” everywhere.28 Further, even Comte’s critics adopted his moral vocabulary. John Stuart Mill attacked Comte’s illiberalism ceaselessly but conceded that there was a “standard of altruism to which all should be required to come up, and a degree beyond it which is not obligatory, but meritorious.”29 Henry Sidgwick reacted against Comte’s “error of subordinating the individual entirely to the species: swal­ lowing up Egotism totally in Altruism.” But Sidgwick’s own utilitarian mas­ terpiece, The Method of Ethics (1874), invoked altruism as well.30 By 1882 the popular philosopher Leslie Stephen (father of a great post-­Victorian critic of altruism, the novelist Virginia Woolf ) could refer in his Science of Ethics to altruism as the “social-­regarding” branch of Anglo-­American liberalism.31

34 / Chapter One

The ground was thus prepared for Spencer. Nearly a third of The Data of Ethics discusses the relationship between egoism and altruism. For Spencer, as for Comte, the two were complete foils, biological/moral translations of selfish and other-­regarding motives. Spencer first defended his choice of altruism in the second edition of his The Principles of Psychology: I gladly adopt this word, for which we are indebted to M. Comte. Not long since, some critic, condemning it as new-­fangled, asked why we should not be content with such good old-­fashioned words as benevolent and beneficent. There is a quite-­sufficient reason. Altruism and altruistic, suggesting by their forms as well as their meanings the antitheses of egoism and egoistic, bring fully and clearly into thought the opposition in a way that benevolence or beneficence and its derivatives do not, because the antithesis are not directly implied by them. This superior suggestiveness greatly facilitates the commu­ nication of ethical ideas.32

Spencer was correct. The antithesis between self-­interest and benevolence/ beneficence was not as sharp as the line he drew between egoism and altru­ ism. And for Spencer, as for Comte, benevolence and beneficence, intent and action, were not distinguishable within altruism.33 The essence of ethical conduct was the same evolutionary telos, even if, in Spencer’s hands, ultimately accomplished by much different (voluntaris­ tic, nonpolitical) means. In The Principles of Psychology, Spencer presented three groups of ethical “sentiments”: the “egoistic” sentiment, or individual selfishness rooted in the evolutionary struggle for existence; the “egoistic-­ altruistic” sentiment, actions that appear to be altruistic but are in fact egois­ tic; and finally the altruistic sentiment itself. For Spencer, the altruistic senti­ ment was evident in “the philanthropy of modern times.” It was not “sharply marked off” from the “egoistic-­altruistic.” Rather, it was in the midst of evolv­ ing from it. Spencer identified the continuance of this evolution as the task of philanthropy (which he did not care to define). Philanthropy should trans­ late, willfully evolve, primordial egoism into civilizational altruism. Altru­ ism will then prevail in the “social state” of an ill-­defined future. The Data of Ethics further fleshes out these ideas. The chapter “Egoism versus Altruism” confirms egoism as the base individual motive. But the next chapter, “Al­ truism versus Egoism,” argues that altruism, however faint, has always been present from the dawn of evolutionary time. Spencer believed that altruism would win in the end, but only if evolution were left to run its natural course in industrial society. There could be no state interference in the voluntaristic evolutionary machinery. Spencer’s thought utterly cordoned off the private

Altruism and the Origins of Nonprofit Philanthropy  /  35

from the public. He underscored private action, biological expressions of mind and psyche—­while sharply circumscribing public values and action. Spencer’s liberalism is most plain in his The Man versus the State (1884). There he explained that “altruism” would only result from “spontaneous co­­ operation” arising “independently of State-­action.”34 The real impetus of this evolution, Spencer mystically stated decades ago, is “some Cause which tran­ scends our knowledge or conception.”35

Altruistic Nonprofit Philanthropy It would be difficult to convey the regard for Spencer’s ideas in America. In one estimate, by the turn of the twentieth century he had sold 300,000 books in the United States.36 John Fiske, the noted lecturer and author, was Spen­ cer’s most important American intellectual acolyte and faithfully translated Spencerian altruism in his Outlines of Cosmic Philosophy, Based on the Doctrine of Evolution (1875), declaring that the “fundamental characteristic of social progress . . . is a gradual supplanting of egoism by altruism.” Spencer’s views on egoism and altruism, and the evolutionary inevitability of “progress,” held great attraction for at least one budding American philanthropist.37 Andrew Carnegie called Spencer “My Dear Master,” even titling a chapter of his autobiography “Herbert Spencer and His Disciple.” Spencer, Carnegie would write, had rid intellectual life of the “absurd Christian scheme of sal­ vation through grace.” (Note that many of the telegraph poles in “The Two Philanthropists” appear to be worn-­out crosses.) God’s grace did not result in earthly benevolence. Rather, altruism was the inevitable product of the “eter­ nal” and scientific “laws” of evolution. Carnegie described the experience of reading Spencer the first time: “In a stage of doubt about theology, including the supernatural element. . . . I came fortunately upon Darwin’s and Spencer’s works, The Data of Ethics, First Principles, Social Statics . . . . I remember that light came in as a flood and all was clear. Not only had I got rid of theology and the supernatural, but I had found the truth of evolution. ‘All is well since all grows better ’ became my motto, my true source of comfort.”38 The evolu­ tionary logic of egoism and altruism figure throughout Carnegie’s collected essays, The Gospel of Wealth (1888). On the side of egoism, the evolutionary “law of competition,” Carnegie maintained, explained (and justified) the business practices of the Carnegie Steel Company. In pursuit of profit, Carne­ gie could not budge in bargains over wages and hours with his employees, the great majority of whom worked twelve-­hour shifts seven days a week in his steelworks. In business it was the “survival of the fittest,” a “struggle for existence.” Moving to altruism, Carnegie stated that the “concentration of

36 / Chapter One

business,” and therefore wealth, in “the hands of a few” was “essential to the future progress of the race.” Yet the same evolutionary laws explained the immorality of almsgiving, the dispensing of charity to those who could not “help themselves.”39 Spencer’s own Principles of Ethics (1892) would under­ score the perils of charity, worrying that “indiscriminate philanthropy” might breed a “body of relatively worthless people.”40 That kind of charity fore­ stalled evolutionary progress. Altruistic philanthropy was to be different. The Spencerian evolutionary scheme of egoism and altruism helps ex­ plain many puzzling features of Carnegie’s worldview and practice. State cor­ porate laws now normally held corporate executives to the minimal standard of “lawful purpose.” These laws did not mean (and still do not mean; see chapter 5 by Paul Brest in this volume) that executives had to commit pri­ vate corporate activity exclusively to profit-­making. Yet, like Carnegie, many Gilded Age entrepreneurs—­take Gould, for example—­chose to do just that.41 On behalf of that effort, they refined accounting standards, clarifying the very meaning of “profit” as the increment earned on the private investment of capital. To make such profits, they newly measured, and monitored, business costs. In this era of industrial capitalism, that meant, above all, reducing wage bills. Both Gould and Carnegie ruthlessly drove wages down, busted strikes, and broke up unions. In the 1870s and 1880s their generation sought, with great success, to newly create a for-­profit corporate universe single-­mindedly dedicated to making profits—­motivated, as Carnegie put it, by “egoism.” The for-­profit corporation was born an egoist. Gould simply wanted to leave it at that. During the 1880s, he transformed the Western Union Telegraph Com­ pany into a profit-­making institution and nothing more.42 Carnegie was different. He did not believe in state action per se. But he did believe in private altruism—­universal regard for his fellow man. Yet the competitive logic of evolution meant that in the new egoistic, for-­profit cor­ porate world he could not simply raise his workers’ wages. But he could, as he explained in The Gospel of Wealth, build libraries, museums, and swimming pools for his workers to enjoy after their twelve-­hour shifts at smelting steel. The logic is circuitous, to be sure, but coherent. Carnegie could only be a phi­ lanthropist by creating separate normative and institutional spheres, trans­ forming his profit-­seeking capital into philanthropic wealth. The motives in each sphere were utterly different, but when combined, the end, altruism, was the same. Therefore, the means—­whether it was capital transformed into phil­ anthropic wealth, or “scientific” and “efficient” business methods applied to his nonprofit philanthropies—­might cross the boundary from egoism/for-­ profit to altruism/nonprofit. If the spheres were separate, at first Carnegie

Altruism and the Origins of Nonprofit Philanthropy  /  37

personally dominated both. It is a strange, seemingly contradictory picture: Carnegie at his desk, writing one letter to his lieutenants at the Carnegie Steel Company, imploring them to slash wages, then writing another to one of his philanthropic lieutenants, giving his wealth (the profits earned by slashing those wages) away at his own discretion. But Carnegie earnestly be­­ lieved that, through his private action, primordial egoism was evolving into civilizational altruism. Carnegie was not alone. By the 1890s, the concept and evolutionary logic of “altruism” coursed through American philanthropic discussions. Amos G. Warner’s landmark text American Charities: A Study in Philanthropy and Economy (1894), for instance, recognized “altruism” as the “fundamental motive of progress.”43 The nonprofit corporation was born an altruist. In this phil­ anthropic discourse, two features deserve mention. First, the concepts of egoism and altruism helped clarify the emerging distinction between charity and philanthropy. A telling and typical example is an 1888 Popular Science Monthly article entitled “Altruism Economically Considered.” The author is Charles W. Smiley, a biologist at the United States Fish Commission (and an amateur social scientist). The “primary motive of human action,” Smiley wrote, is egoism, or the “care of self.” But from the “savage state” there had evolved altruism. Not only are benevolence/charity and altruism/philanthropy not the same thing, benevolence itself is a spe­ cies of egoism. “Giving alms” to “indulge our benevolent impulses,” Smiley insisted, is the “most deceitful form of selfishness,” not true “altruism.”44 “Philanthropy,” echoed John D. Rockefeller Sr. in his autobiographical Random Reminiscences of Men and Events (1908), is not “what is usually called charity,” or “mere money-­giving” to street beggars. Rockefeller too reached for a biological metaphor. Unlike charity, philanthropy “nourishes civiliza­ tion at its very root.” Rockefeller’s autobiographical self-­presentation is a simple narrative, tracking the evolutionary telos of egoism to altruism. As a youthful clerk, he recalls, he gazed “longingly” at money. After making a lot of it at the Standard Oil Company, business became a subsidiary concern. Eventually he focused on the field of philanthropy (not charity).45 Second, the private motives of egoism and altruism, so abstract, harmo­ nized with the open-­ended character of the new for-­profit and nonprofit cor­ porate forms. Under the republican regime, a chartered textile corporation, say, could not turn around and build a railroad simply because doing so was more “profitable.” Under the liberal regime of “lawful purpose,” corpo­ rate capital was freed up to pursue the abstract goal of profit-­making. Like­ wise, with the republican corporation, a chartered corporation to feed the

38 / Chapter One

hungry could not turn around and shelter the homeless simply because do­ ing so might maximize “benevolence.” In the late nineteenth century, with the new emphasis on private motive, philanthropic wealth, like corporate capital, was increasingly freed up. Institutionally, one culmination was the legal creation of the “general purpose foundation” (see chapter 3 by Rob Reich in this volume). The limit set by “lawful purpose” on the emerging for­profit side would be set, on the nonprofit side, by the standard of “general purpose.” By 1915 there were twenty-­seven general-­purpose foundations. There would be more than two hundred in 1930.46 Both Carnegie and Rocke­ feller traveled this road, first targeting specific purposes and institutions with their philanthropic wealth—­libraries, swimming pools, the University of Chicago. But when the Rockefeller Foundation was chartered in New York in 1913, its charter announced an abstract purpose: “to promote the well-­ being of mankind throughout the world.” The vagueness of the evolutionary altruistic end point, in other words, mirrored the capacious end point of “gen­ eral purpose.”

Other Altruisms Unlike Carnegie in the 1870s and 1880s, Rockefeller in the 1890s and 1900s did not use the word altruism. A “Department of Benevolence” was the ex­ ecutive committee that first guided the Rockefeller philanthropies. That was perhaps due to Rockefeller’s religious sensibility, although there was likely another reason as well. Despite altruism’s late nineteenth-­century invoca­ tion in philanthropic circles, by the turn of the twentieth century, socialists on both sides of the Atlantic had successfully appropriated it for their own ideological use. Exasperated, by the end of his life Spencer (who died in 1907) had abandoned altruism to the socialists, resorting back to the lan­ guage of benevolence and beneficence. Alexander Longley was born in 1832 and grew up in an American uto­ pian socialist community, a “phalanx” founded on the principles not of Comte but of a different French utopian socialist, Charles Fourier.47 The community collapsed, and Longley learned the trade of printer. In 1868, in St. Louis, he printed the first run of the newspaper the Communist. Longley proceeded to found one cooperative colony after another—­the Friendship Community, the Mutual Aid Community—­as well as a number of Missouri farm cooperatives and St. Louis communal houses, all in the hope of com­ bining “the motive of self-­interest” and “the generous impulses.” Then, in 1885, Longley announced the following to his (of course small) readership: “Wishing to extend the circulation of our paper more widely and also to assist

Altruism and the Origins of Nonprofit Philanthropy  /  39

other reforms as much as we can, we have adopted the name of ALTRUIST . . . as being not only more general in its application to all progressive and re­­ formatory movements, but also as more explicitly expressing the funda­ men­tal principle of the common interest which we advocate.” Longley be­ lieved that “nothing short of common property is genuine altruism.” He also shunned democratic electoral politics and state action as the means to achieve it. Longley was an illustrative example of nineteenth-­century utopian social­ ism.48 The Altruist ceased publication with his death in 1918. Longley hardly had sparked a significant social movement. He was no match for men as rich and as powerful as Carnegie and Rockefeller. Altruism had other socialist proponents and followers. Many were fol­ lowers of the popular American novelist William Dean Howells. More Amer­ icans probably read Howells on altruism than Spencer. Howells first used the term in 1890, in a short story in Harper’s on a fantastical place called “the Synthesized Sympathies of Altruria.” The utopian novel A Traveler from Altruria appeared in 1895.49 The massive industrial labor unrest of 1886, sparked by the violent strike of 200,000 railroad workers (and a few Western Union telegraph workers) against none other than Jay Gould was a pivotal moment in Howells’s career. His novels became more realistic, more skep­ tical about the moral direction of industrial capitalism. The novel Annie Kilburn (1889) included a scathing denunciation of private philanthropy. A leading character in Howells’s best novel, A Hazard of New Fortunes (1890), was a violent, although ultimately unsympathetic, socialist. The protagonist of A Traveler from Altruria was Aristides Homos. Homos visits the northeast­ ern United States from the mythic land of Altruria, where all citizens had agreed to cede private property and economic functions to the state. Homos alludes to the examples of Australia and New Zealand, where voters had approved altruism by ballot. But in the end the reader finds that the social order of Altruria had resulted not from politics but from Altrurians’ “divine rapture of self-­sacrifice.” Once again the telos of Comte and Spencer’s altru­ ism was present. Inevitably, after a phase of egoism, each citizen in Altruria had decided to dedicate “himself, in some special way, to the general good.” In 1896, Longley noted attempts to found real-­life Altrurias in Grand Blanc, Michigan, and Madison, Wisconsin. Howells himself cut a check to the settlers of Altruria near Santa Rosa, California, a small farming commu­ nity fifty miles north of San Francisco. This Altruria was to be a haven from the competitive struggle for existence, a refuge from evolution, “for those strained and tired by competition or defeated in the struggle.” “Fifty dollars and a moral character” were all that was necessary for entry, and each mem­ ber signed his private property away to the collective ownership of “The

40 / Chapter One

Association.” By the success of “joint friendly association in production” the community hoped to “wean all society from egoism and individualism to a broad and practical altruism.” These Altrurians published a weekly news­ paper, the Altrurian.50 Soon followed the Altruria Co-­Operative Union of Oakland, the Altrurian League of New York City, the Association of Altruists of Moorestown, New Jersey, and the Altrui Club of Chicago (with an Italian immigrant membership).51 Only the Altrui Club survived to see the twentieth century before it, too, quickly perished. The practical foibles of utopian socialism apart, the point is to note—­despite the growing for profit/nonprofit divide—­the continued presence at the turn of the twentieth century of a vast organizational mid­ dle ground between the poles of profit and nonprofit. Altruistic or not, this was the world—­as contemporaries at the time referred to it—­of voluntary private “cooperation” and “association,” independent of the state. The Co­ lumbia economist John Bates Clark, in his The Philosophy of Wealth (1892), speculated that what he called “economic altruism,” institutional blends of egoism and altruism, had a “future of which no limits can be assigned.”52 The exclusive association of nonprofit philanthropy with altruism and the enclosure of   business enterprise in the corporate domain of for-­profit slowly suffocated this middle ground. But only slowly at first. In addition to uto­ pian socialists and philanthropists, altruism at the turn of the twentieth cen­­ tury was variously invoked by American fraternal and mutual-­aid societies, industrial labor unions, farm cooperatives, corporate profit-­sharing schemes, Christian reformers preaching the “social gospel,” and proponents of urban settlement house movement.53 However, in each and every case, whether ego­­ ism and altruism were held up as mutually exclusive opposites or biological facts crying out for better institutional resolution, altruism was posed as a problem of private individual morality. Strikingly, it had no public valence.

Altruism after the War In the interconnected histories of philanthropy, altruism, and nonprofit, World War I marked a watershed. After a constitutional amendment, Con­­ gress passed a federal income tax in 1913, expanded during the war. This legislation included a corporate income tax. The profits of for-­profit corpo­ rations became federally taxable income, a critical pathway for revenue for the new fiscal state. After World War I, with the growth of a federal warfare and welfare state, both for-­profit and nonprofit corporations were perma­ nently fiscalized. The federal tax code, granting exemptions to state-­char­tered nonprofits, thus cemented the late nineteenth century’s for-­profit/nonprofit

Altruism and the Origins of Nonprofit Philanthropy  /  41

split.54 Yet, at the same time, it also appropriated many of the old nineteenth-­ century state-­mandated public purposes into the federal tax code’s burgeon­ ing 501(c) classifications (where they eventually became today’s 501(c)(3) list of “religious,” “educational,” and “charitable” tax-­exempt organizations). All of this held out the possibility that U.S. nonprofit philanthropy might shift in emphasis from private motive back to public purpose. Corporations’ new fiscal identities ensured what Olivier Zunz refers to in chapter 2 in this volume as the “mixed” political economy of the twentieth-­century United States.55 By the outbreak of World War I, talk of altruism had waned, if not suf­ fered from backlash, in public discussion and intellectual discourse. Kein Altruisms! No Altruism! declared Friedrich Nietzsche, the great prophet of egoism, after reading Spencer.56 Nietzsche’s rejection would become the dom­­ inant mood among a generation of post-­Victorian intellectuals.57 In ethics, shunning biological metaphors, G. E. Moore and his students departed from Spencer’s “naturalistic fallacies.” In politics, intellectuals recoiled from pri­ vate questions of moralism and motive, refocusing debate to public ques­ tions of “social life,” institutions, and the state. As the socialist politician Eu­­ gene Debs remarked in 1908, “Socialists don’t propose to substitute altruism for self-­interest.”58 State power, not moral sentiment, was considered the proper vehicle of socialism—­a view confirmed, seemingly, by the successful Bolshevik Revolution in Russia. On the left, the Bolsheviks put many uto­ pian socialists in their graves, ideologically if not literally. At the same time, liberalism too became more state focused. If Spencer’s The Man versus the State (1884) encapsulated one moment in the history of political liberalism, John Dewey’s celebration of “the public” in The Public and Its Problems (1927) captured the next. Dewey’s book mentioned neither egoism nor altruism once.59 Yet, as the discursive field cleared, one space where altruism, as well as preoccupation with private motive, persisted was within corporate philan­ thropic circles. In the final report of the Congressional Walsh Commission on Industrial Relations (1916), which famously scrutinized the activities of philanthropic foundations, the committee contrasted “governmental” with “altruistic” solutions to social problems. During his 1915 testimony before the committee, John Rockefeller Jr. explained that the Rockefeller Founda­ tion existed to organize the family’s many “altruistic” endeavors. In 1918 the Rockefeller Foundation itself, in one of its first public grant announcements, explained that it was free to distribute wealth to anyone acting from “altruis­ tic” motives (it could not be involved in any way with “private profit,” which was the business, and the only business, of the Standard Oil Companies).60

42 / Chapter One

The conservative Harvard ethicist George Herbert Palmer’s Altruism: Its Nature and Varieties (1919) announced the new tone of an institutionalized al­ truistic philanthropy. Egoism, Palmer lamented, would never permanently give way to altruism. (True altruism, another commentator put it, was an “impossible perfection.”61) Therefore, the philanthropist had to constantly scrutinize his motives. And the best “gifts,” Palmer explained, were insti­ tutional projects of “vast scale”—­permanent bulwarks, like museums and research universities, against egoism.62 The for-­profit corporate world and the nonprofit corporate world would exist permanently—­one taxed by the fiscal state, the other tax-­exempt. When Palmer wrote in 1919, nonprofit philanthropy was already em­ barking on a more public twentieth-­century career. Rockefeller himself had shifted tone, pursuing in 1910 a federal charter for the Rockefeller Foun­ dation, never granted, that would have invited the state to “impose such limitations upon the objects of the corporation as the public interest may demand.” Regardless, across the twentieth century, connected by the same fiscal pathways, a fiscal triangle—­the state, a largely corporate economy, and a largely corporate “nonprofit sector”—­took shape. Fiscalization at first made nonprofit corporations more public, and philanthropy, in the language of Horvath and Powell (see chapter 4 in this volume), more “contributory.” As a result, by the time the Filer Commission, led by John D. Rockefeller III, pub­ lished its landmark Giving in America (1975), which implored “private giv­­ ing for public purpose,” altruism was associated not with private motive but with the performance of public “citizenship.”63 On one score, the historical record is clear. Through the corporate form, whether the republican corporation of the early nineteenth century or the fiscal corporation of the mid-­twentieth, it is possible for private philanthropy to promote the public interest. Today, the meaning and institutional loca­ tion of philanthropy, let alone its democratic legitimacy, are once again up for grabs. Many for-­profit corporations, recalling Gould’s Western Union—­ take Google, in its competition with the Digital Public Library of America, which Lucy Bernholz addresses in chapter 7 in this volume—­assert their pub­­ lic, if not philanthropic benefit to the world. Meanwhile, new corporate forms, like “benefit” and “low-­profit” corporations, point toward more radical in­­ stitutional possibilities. And yet, at the same time, the contemporary non­­ profit corporation bears the mark of its nineteenth-­century birth. In an age when many corporations commit to “profit maximization,” when evolution­ ary biological explanations of human nature are back in vogue, and when democratic states, fiscally strapped and unwilling to redress soaring eco­ nomic inequalities not seen since the Gilded Age, are faced with the question

Altruism and the Origins of Nonprofit Philanthropy  /  43

of whether private philanthropy should compensate for their diminished capacities, Keppler’s “The Two Philanthropists” stands as a stark reminder of one possible, though by no means necessary, configuration of corporate power—­a zero-­sum game in which private action undermines, if not stran­ gles, the public good.

Two

Why Is the History of Philanthropy Not a Part of American History? O l i v i e r Z unz

Benjamin Franklin revealed a firm grasp of fund-­raising and a keen understanding of the power of American philanthropy when advising a clergyman, on the eve of the American Revolution, on how to launch “a subscription for erecting a new meeting house.” As Franklin described the episode in his autobiography, he told his friend “to apply to all those whom you know will give something; then, to those whom you are uncertain whether they will give anything or not, and show them the list of those who have given; and, lastly, do not neglect those who you are sure will give nothing, for in some of them you may be mistaken.”1 Franklin was rightly betting that, if approached correctly, there would be no shortage of givers. Franklin also knew from personal experience how to use monies similarly raised to leverage additional resources from government. This he had done several times himself, when creating the University of Pennsylvania, Pennsylvania hospital, and other important local institutions. Partnerships between government and civil society such as those Franklin encouraged grew throughout the nineteenth century as local and state governments reinforced the efforts of charitable organizations. These collaborations expanded dramatically in the twentieth century when the federal government added its own resources to the mix and utilized its tax code to boost private giving. The outcome is a mixed political economy of giving dependent on private partnership with, and subsidy from, different levels of governments. At the heart of this arrangement lies a major ambiguity. In the course of subsidizing this tax exemption, the government has specified time and again that there must be strict boundaries between philanthropic and political activities. At the same time, it is hard to think of innovation in the public domain, in the name of the common weal, that has no political ramifications. Philanthropic organizations have often resorted to construing educational

Why Is the History of Philanthropy Not a Part of American History?  /  45

campaigns very broadly as a pretext for entering political battles. Meanwhile Congress and the courts have altered rules, in effect shifting the boundaries between philanthropy and politics. Revenue acts have granted public charities representing multiple donors more leeway to lobby politicians than private foundations. In recent years, the Supreme Court has expanded First Amendment rights and with them the private funding of affairs of state. Within shifting rules, not only do philanthropic organizations impact pub­­ lic affairs, but Americans at nearly all levels of wealth fund them. If philan­­ thropy were only an activity of the very wealthy, then the historical debate could center on its legitimacy. But the debate takes on a larger dimension when one realizes that not only the few but the many contribute to philanthropy. A bewildering array of organizations conduct multifarious activities funded not only by large head-­turning gifts but also by the billions of aggregate dollars from millions of small givers. In our days, this nonprofit sector is not only influential but huge, with an annual budget comparable to that of the Pentagon.2 Americans of nearly all walks of life participate in it, motivated by causes they deem important at home and abroad, supporting economic development, humanitarian campaigns, culture and the arts, social services, human rights, and more. Historians of the United States neglect philanthropy, and this is a puzzling omission. It is not totally ignored. We find informed treatments of big-­money philanthropy in biographies of some major American figures.3 Hundreds of worthwhile monographs draw on archives kept in specialized repositories (like the Rockefeller Archive Center that houses collections from an increasing number of important philanthropies). However, philanthropy, writ large, does not rise to the status of a major topic. College teachers can search in vain for any significant trace of the topic in the many textbooks available for an entry-­level U.S. history survey. In these books, Carnegie makes only a brief cameo appearance as a Gilded Age mogul trying to give his fortune away, mass philanthropy is completely ignored, and the larger impact of philanthropy on American history is hardly mentioned. Why aren’t more historians trying to understand how the capitalist system, based on generating profit, can simultaneously produce a diverse, vigorous, and powerful nonprofit sector? With money originating from society as a whole, the phrase nonprofit sector was invented to designate the cluster of philanthropic institutions relying on money derived from profit—­large and small—­with no possibility of generating individual profit.4 Why are his­­ torians ignoring an enormous economic and experimental power, one that has mediated and continues to mediate much of the interaction between state and civil society, albeit without ever achieving full legitimacy as a democratic

46 / Chapter Two

institution? How is it possible that important monographic work on the history of philanthropy does not significantly impact the larger narrative of American history? Why is it that historians, otherwise passionate about issues of social justice and expert in political economy, do not seem interested in the findings of specialists in philanthropy? I am not writing this with Olympian detachment but with a sense of duty as perhaps befits a historian who has devoted over a decade to thinking about the history of philanthropy.5 In this discussion, I will no doubt fail to be comprehensive and neglect some important contributions. Nonetheless, I hope to shed some light on a perplexing omission and conceptual loss.

Progressive and Consensus Historians Have Highlighted the Important Role Philanthropy Plays in American History I will begin with the simple recognition that this lack of attention to the role of philanthropy has not always been the case. Historians of previous generations did not ignore its important place in American history. What is more, both “progressive” and “consensus” historians, despite their markedly different ideological viewpoints, had converging views on the influence of philanthropy. They understood philanthropy’s ubiquity, the broad spectrum of participation underwriting it, the mix of self-­interest and altruism characterizing it, and its consequences for social change. Representative of the progressive view is Charles and Mary Beard’s The Rise of American Civilization, first published in 1927. It is a magisterial synthesis of their economic interpretation of American history. The Beards stressed that economic interests were the engine of American history. But as Richard Hofstadter pointed out in his analysis of their work, the Beards did not stop at interest, they also explored ideas. They applied, he said, an “ideas-­interests formula” to the study of American “civilization.”6 When the Beards addressed philanthropy, they were openly suspicious of big philanthropists’ motivations. They exposed “educated possessors of seasoned estates” touchily responding with “benevolent feudalism” to muckrakers’ justified denunciations of their corrupt machinations. The Beards showed us the wealthy as they “writhed and twisted, casting about for more respectable mantles of security and atonement.”7 Their view of a “raw plutocracy” of philanthropists would not surprise any reader aware of Charles Beard’s own career choices. He seems to have regarded Columbia University, where he taught, as yet another philanthropic expression of the plutocratic class. Re­­signing from Columbia, Beard, who could make a living from his writings, announced he was freeing himself from the pressure the university’s

Why Is the History of Philanthropy Not a Part of American History?  /  47

conservative trustees had placed on the faculty by not respecting the basic rules of academic governance. At the same time, the Beards’ analysis did not stop with their negative opinion of philanthropists’ interests. Their assessment of the philanthropists’ ideas was far more positive. They credited this class of donors, reactive though they were, with renovating philanthropy. These rich donors insisted on “civic improvement.” The Beards explained that the wealthy transformed “noblesse oblige,” heretofore only an unreliable status-­induced commitment to the common good, into a generalized system of “prevention,” which in turn led to a systematic “attack on the roots of poverty and distress.”8 One should recall that the Beards were committed reformers deeply involved in policy research. From 1909 onward, Charles Beard worked three afternoons a week at the New York Bureau of Municipal Research, one of the Rockefeller-­funded philanthropic institutions dedicated to the search for root causes of urban issues and for the development of long-­term solutions. In 1912 he helped establish the bureau’s Training School for Public Service and became its director in 1915. Although Beard eventually resigned from the bureau in protest when donors found his proposals too socialis­ tic, he remained a committed reformer at home and also abroad (helping the Japanese redesign Tokyo after the 1923 earthquake).9 Beard was appreciative of the huge resources philanthropy put at the disposal of reformers like himself. Only, he insisted, those reformers should not lose sight of their mission. The context in which the Beards assessed philanthropy as part of American civilization is important. The Beards witnessed the growth of mass philanthropy stimulated by humanitarian efforts during the First World War, the launching of public health campaigns, and the coming of community funds, and they acknowledged this trend toward broad participation in philanthropy. They recognized that not just the rich but “all classes of American society were stirred to action” to foresee the needs of the next generations.10 That was the most significant assertion on the part of authors who intended their book to be not only a “history of civilization,” but also “an instrument of civilization.”11 The Beards reached a broad public, but not content with addressing the already educated, they followed up with a secondary-­school textbook that stated these points so that American children could absorb them as part of their civic instruction. They taught American high-­school students that philanthropy at the turn of the last century “had a profound influence on the making of civilization in America.”12 In the Beards’ rendition, then, we can recognize some ambiguity: a suspicion of improper motives on the part

48 / Chapter Two

of philanthropists but also a sense that positive outcomes and increasing popular participation legitimated their benevolent projects. The Progressives’ influence on the writing of American history continued unabated during the post–­World War II years even though historians writing in the 1950s (and most of the 1960s) reflected a renewed appreciation for moneymaking and resulting abundance, that great deflector of conflict in history.13 The best-­known representative of the Progressive tradition was historian Merle Curti. Before joining the University of Wisconsin’s history department, one of the best in the nation, Curti had been the last student of that other great Progressive historian, Frederick Jackson Turner, at Harvard. Curti established himself as a Pulitzer Prize–­winning intellectual historian with the publication of The Growth of American Thought in 1943 and also a decade later as an influential innovator in the emerging field of social history. Curti had personal links to the Beards. Mary Beard considered Curti a “trusted friend” when her husband came under severe criticism for his out-­ of-­tune isolationism during World War II and younger historians were no longer acknowledging his influence.14 Curti took the progressive analysis of philanthropy a step further. He actively promoted the history of philanthropy because he saw its real potential for reading American history in a new way. In 1957 he published in The American Historical Review “The History of American Philanthropy as a Field of Research,” and also secured significant support from the Ford and Russell Sage Foundations to launch a program of work.15 The Twentieth Century Fund and the Rockefeller Foundation provided funding that enlarged other philanthropic studies. Curti, for his part, produced an important but still ne­­ glected book, American Philanthropy Abroad (to which I return below), as well as a study, Philanthropy in the Shaping of American Higher Education (with Roderick Nash).16 I should add that Curti developed this appreciative interest in philanthropy’s support of higher education while on the faculty of a university that had, albeit briefly, looked unfavorably on precisely this sort of moneyed interference in its academic programs. Thus he noted in his coauthored history of the University of   Wisconsin that its regents had ruled in 1925 that they would not accept possibly tainted money from foundations— ­a rule quickly rescinded!17 Curti wanted to adapt Beard’s views of civilization to his own generation’s search for a theory of national character. Philanthropy struck him as a practice representative of a mix of American traits. Historian Paul Conkin has given us a good assessment of Curti’s work in those years and the role philanthropy played in it. Curti, Conkin said, “focused on our cultural arbiters,

Why Is the History of Philanthropy Not a Part of American History?  /  49

those who have had the skills, the influence, or the opportunities to make American civilization what it is—­the educators, philanthropists, reformers, critics, journalists, and novelists. Or, in brief, those who have contributed to that vague entity ‘American thought,’ to the shaping of attitudes, beliefs, and values, particularly those shared widely if not nationally, those that have been part of our group life, and thus what Curti called social thought.”18 When it came to philanthropy, Curti clearly looked beyond the cultural arbiters. His book on education with Roderick Nash gives ample space to the diverse groups of alumni who collectively were among the universities’ most devoted supporters.19 In American Philanthropy Abroad, he similarly focused on the role of ordinary Americans in the humanitarian movement. As Conkin acknowledges, Curti “tried to understand, and evaluate, the cultural achievements of Americans—­all of them,” and to that end, he recognized the broad social spectrum of participation in philanthropy.20 While Curti remained loyal to the Progressive heritage, other historians of the post–­World War II years left it behind in favor of a new “cult of consensus,” to borrow John Higham’s phrase, that celebrated an American system capable of generating prosperity.21 Historian Richard Hofstadter in his well-­known appraisal of progressive historiography called the Beards’ book on American civilization “sententious” and considered its interpretation of economic conflict simplistic.22 So it is all the more remarkable that the more conservative historians associated with the consensus school, Daniel Boorstin first among them, shared the Beards’ and Curti’s view of philanthropy. When on the faculty at the University of Chicago, Boorstin found a place for American Philanthropy, a text written by Curti’s student Robert Bremner, in the Chicago History of American Civilization, a series he edited for that university’s press.23 Launched in 1957, the series included a mix of chronological and topical volumes; Bremner’s text is the only instance I know of where an individual volume on philanthropy was recognized as worthy of inclusion in such a series. Boorstin then gave ample space to philanthropy in his own widely read work on The Americans. He conveyed a genuine appre­ ciation for philanthropists, big and small, in the last book of this trilogy, The Democratic Experience (1973), for which he won a Pulitzer Prize. Like his pre­­ decessors, Boorstin’s vision of philanthropy was imbued with healthy skepticism yet fully cognizant of its significance as a great problem-­solving mechanism for the country at large. Although Boorstin may have approved of self-interest more than the Beards and Curti, he also depicted big philanthro­­ pists (particularly those giving to universities) as “men of great wealth who wanted admission to the democratic heaven, or at least hoped for an honorary

50 / Chapter Two

degree as absolution for their industrial sins,” by making “munificent gifts for educational cathedrals.”24 Most importantly, and again like the Beards and Curti, Boorstin emphasized giving not only by the well-­to-­do but also by the mass of Americans—­ not just the “millions of dollars” but the “millions of pennies.” In important passages about the Pax Americana, Boorstin talked about “Samaritan diplomacy” aimed at the whole world and fueled by modest givers.25 So at mid-­century, both progressive and consensus schools of historiography, otherwise so sharply distinguished and at odds politically, agreed on the pervasiveness and capaciousness of philanthropy while remaining realistic and critical. I certainly shared these premises regarding the role of philanthropy in civil society and its importance in history as I embarked on my own history of philanthropy: I was convinced of philanthropy’s significance but was dismayed by the fact that most historians of my generation had fallen silent.

Philanthropy Withers To suggest at least a partial explanation as to why philanthropy has disappeared from the narrative of American history, I’ll focus on key transformations in three distinct areas of history: business history, the history of foreign policy, and policy history. Rather than attributing its disappearance to broad trends—­the disinterest among historians, for instance, in positing formulae of national character or to enthusiasm among social historians for giving voice to groups heretofore forgotten—­I will look at specific debates in the three subfields as illustrative of the way philanthropy has been marginalized rather than understood within larger theories of social change. Philanthropy and Business History Among the subfields of history that treat the development of capitalism and the place of philanthropy within it, business history is, I think, the area that deserves most attention because it directly addresses the issues of wealth generation. Business historians should therefore have much to say about the unexpected ways in which capitalists fund parallel organizations devoted to reinvesting this wealth. The large foundation is as much a managerial creation as the investment fund. Important gifts, from those of Andrew Carnegie to those of Bill Gates, have generated much institutional innovation in the administration of large sums of money.26

Why Is the History of Philanthropy Not a Part of American History?  /  51

Managerial principles have been equally essential in overseeing the very large funds derived from the amalgamation of the many small-­and medium-­ sized donations. Although many of these organizations built from mass giving rely on volunteers for some activities, they depend as much as the single-­ gift foundation on financial and organizational management. But only through the lens of social entrepreneurship have scholars recently examined issues raised by using managerial methods in ways designed not to generate wealth but to dispose of it.27 How could business historians not study this large part of business history? This is an odd story of attention diverted during the Great Depression. As businesses collapsed and philanthropies, if still functioning, proved unequal to the task of helping the needy or reversing the tide (despite President Hoover’s calling on them to come to the rescue), a dark assessment of big-­money philanthropy found a real publicist in Matthew Josephson. In The Robber Barons: The Great American Capitalists, 1861–­1901 (1934), a book incidentally dedicated to the Beards, Josephson totally denied that at least some wealthy businessmen had taken their social responsibility quite seri­ ously as the Beards had acknowledged. Josephson embarked on an unequivocal attack on the wealthy, as one-­sided as the muckrakers’ exposés he largely copied. Thus Daniel Drew settled “accounts with his conscience by subscribing toward a new chapel or attending a prayer meeting.” Vanderbilt built his university only as “a monument to his own enduring glory.” Rockefeller, embarrassed by “his grotesque wealth,” indulged in “conspicuous” philanthropy presumably to win over the public and “scale Heaven’s walls.” The barons as a group “hastened to confer substantial parts of the booty taken in successful raids, as if fearing that God would be angry unless much money was paid.”28 And so on. Boorstin, Curti, and other historians of the 1950s who genuinely looked for a broader integration of philanthropy into the narrative of American history, each with his own political sensibilities, never took Josephson too seriously. His was a good read and certainly a needed exposé of illegal practices that regularly resurface on Wall Street. Business history, however, to the extent that it emerged as a visible sub­­ field at mid-­century, became in substantial part a rebuttal of Josephson. By the late 1950s the Business History Review could declare that “the idea of the robber barons seems destined to fall into increasing disuse, as historians seek to apply ever more precise thinking to the complex American past.”29 Allan Nevins began the rethinking with a two-­volume biography of Rocke­ feller in 1940. Nevins, as much an ideologue as Josephson, admitted in the

52 / Chapter Two

opening pages that he was a “convinced believer in a free competitive economy,” by which he probably meant he could tolerate vast levels of inequality.30 Rockefeller’s fortune, he thought, was “largely an accident” of the free competitive economy of post–­Civil War America, and he celebrated the philanthropy this happy coincidence made possible. He took Rockefeller at his word when the oil giant said he was not so much the “owner” of his wealth as its “trustee or manager.” Nevins may not have agreed with Rockefeller’s “semi-­mystic conviction” that God had made him rich for the benefit of hu­­ manity, but he thought Rockefeller and his administrators “deserved very warm thanks indeed” for the “devoted labor, forethought, and imagination” they had given to the work of philanthropy.31 Josephson characterized Rockefeller as a primitive warrior boasting of his business exploits with lavish gifts of money; Nevins saw him as a dedicated, liberal, and genuine friend of humanity who gave a huge boost to education and medicine (in addition to introducing vertical integration to the oil industry and not just horizontal integration in the form of illegal trusts). Thus the field of business history developed as a morality play, where neo-­ muckrakers like Josephson and writers of company history like Nevins assigned fixed roles to their characters and then exchanged gunshots on their behalf. They were not investigating philanthropy—­or studying it. Rather, they were using it to score points. Boorstin searched for a way to go beyond motives to consequences. He emphasized that, after all was said, Social Gospel minister Washington Gladden and the rest of the board of the Congregational Church in 1905 gratefully accepted Rockefeller’s gift of “tainted money” because they believed it would be put to good use. 32 What Boorstin suggested was that the gift and its consequences for Protestant missions were just as important as their origins in Rockefeller’s “tainted” wealth and his motives for giving it away. There may not have been any excuses for ruthless acquisitiveness and dubious legality, but the contributions of big-­money philanthropists could have truly beneficent consequences.33 Moreover, the size and diversity of the nonprofit sector—­the “millions of pennies” as well as the “millions of dollars”—­meant that big-­money philanthropists were not the only players in the game. But Boorstin’s positive outlook was ignored. His work became instead the foil against which much new social history was written to give agency to new actors on the history-­writing scene, the heretofore ordinary Americans and multiple minorities. When Alfred Chandler decisively reoriented business history with the publication of The Visible Hand: The Managerial Revolution in American Business (1977), the debate on philanthropy went underground with the robber

Why Is the History of Philanthropy Not a Part of American History?  /  53

barons. What Chandler did was generally salutary. The book followed several important and broadly conceived historical studies of management he had previously conducted.34 As Thomas McCraw put it very well shortly af­­ ter the publication of this landmark volume, philanthropy was not part of Chandler’s conception: Chandler’s own response to the timeworn [robber barons] debate was simple: he sidestepped it. To this day, one can read any of his books without knowing, except by an occasional passing reference, that such a debate ever took place, let alone that it dominated historical writing about business. In taking such a stance, Chandler was implicitly saying, in his unassuming way, that neither the pro-­nor the antibusiness polemicists knew what they were talking about. He was faulting both sides for failing to make the requisite effort to understand the managerial revolution in American business; for not doing even a fraction of the primary research necessary to support sweeping generalizations about business executives as either robber barons or industrial statesmen; and, more importantly, for accepting such terms of debate as legitimate in the first place. For Chandler the whole controversy seemed irrelevant. He himself insisted on asking a very different set of questions, and in so doing he transformed the nature of the field.35

From Chandler’s masterful revision emerged not a morality play but an “organizational synthesis,” as historians call it. Ever since The Visible Hand’s appearance, it has served as the touchstone for understanding the interplay between industrial and financial capitalism. In effect Chandler, by focusing inward, has made relevant a subfield formerly caught in the fruitless debate between those who condemned business practices and those who approved of them. In Chandler’s analysis, managerial techniques and technological innovations held far more explanatory power than financial speculation in explaining the growth of   big business in the American economy. In sidestep­ ping the debate, however, he dismissed its topic. Chandler left the Johns Hopkins University history department for the Harvard Business School in 1971, and this gave him a chance to take his approach to business history to apprentice managers. College textbooks available for U.S. history surveys all take due notice of the managerial revolution, albeit without philanthropy. Although I am a social historian of a different generation, I felt a sense of kinship with Chandler. In Making America Corporate (1990), I drew the implications of the organizational revolution for the American middle class through the creation of a vast managerial stratum in practically all sectors of

54 / Chapter Two

economic activity. But as I embarked on my history of philanthropy a decade later, I realized that the robber barons thesis that Chandler had dismissed still influenced the small group of historians writing on philanthropy. Could they say anything positive about big-­money philanthropists without first recalling their crimes?36 It is certainly essential to be balanced and fair in judging individuals. I believed, however, like Boorstin and Curti, that assessing the cumulative work of philanthropists was more important for American history than condemning or absolving any given individual. I became keenly aware that Chandler’s omission of philanthropy was unfortunate. Managerial history had been blind to that sense of large phil­ anthropic participation in society which the Beards, Curti, and Boorstin had heralded. The new and welcome emphasis on the organizational revolution had the unfortunate effect of causing business historians to neglect the ac­ tivities of businessmen in civil society. In moving business historians beyond the sterile debate about the motives of robber barons, Chandler moved them away from the discussion of philanthropy as well. A quick glance at their professional journals suffices to measure Chandler’s lasting effect. The Business History Review has published no more than seven articles since Chand­ ler’s 1977 book that take modern American philanthropy or philanthropists as a topic; Business History has published only three and only in the last three years; Enterprise and Society has produced none.37 Only in the short-­ lived renaissance of urban history in the 1970s and 1980s do we find a few historians taking an in-­depth look at businessmen’s philanthropic investments in their communities.38 But our current circumstances—­a declining managerial economy, the appearance of other forms of entrepreneurship, the resurgence of great wealth inequality reminiscent of the days of the robber barons, and the constantly growing influence of the nonprofit sector at home as well as in the global economy—­may suggest to historians that the time has come to follow the lead of a few economists and see philanthropy as an integral part of the entrepreneurial society they claim as their investigative territory.39 Diplomatic History and the America Abroad Debate Historians of foreign relations in the last forty years have also neglected phi­ lanthropy, perhaps because they see it as an expression of individuals rather than nation-­states and political actors, their usual subjects. Here once again, Merle Curti offered an alternative to this traditional approach. Curti turned his focus from the nation-­state to civil society and was sanguine, even op­­

Why Is the History of Philanthropy Not a Part of American History?  /  55

timistic, about philanthropy’s benign influence on American diplomacy. In his pioneering American Philanthropy Abroad (1963), a very important but ignored book, Curti offered a positive assessment of the philanthropic and humanitarian work many ordinary Americans had done abroad, often without official sanction. Most important was his emphasis on volunteer work and on modest donations. Take the case of the Quakers, whom Curti studied also in his two books on American pacifism, The American Peace Crusade (1929) and Peace or War (1959), as well as in his book on philanthropy abroad. In all three volumes, Curti took Quaker philanthropists at their word. He did not assign them the role of covert emissaries of American imperialism or liberal capitalism. He saw them as they saw themselves: acting “mainly out of sympathy and compassion,” with “faith in nonviolence and in the transcending power of the love of mankind.”40 When concerned with the encroachment of military and political interests on their humanitarian efforts, Quakers’ benevolent action abroad, Curti maintained, “bore evidence of the yet existing richness in the human spirit which was able to give not only means for sustaining life but the hope that makes life so sustained endurable.”41 Merle Curti was an influential historian actively engaged in the recruiting of graduate students during a period of unprecedented expansion of the American graduate school when he wrote these books. Considering his impeccable professional and progressive credentials, the significance of the story he told, and the fact he told it well, why didn’t other historians follow his lead and investigate American philanthropy abroad? Instead, historians of foreign relations nationwide would actually emulate another Wisconsin professor, William Appleman Williams, whose concept of foreign policy came to dominate the history of the field in the name of a “New Left.” Williams saw foreign policy as a tool businessmen used to export capitalism but left no room for the role of that offspring of capitalism, philanthropy. Curti can perhaps be labeled a progressive and Williams a Marxist, but there was no insurmountable ideological rift between them, only a different sense of what mattered most. Curti wanted to evaluate the cultural achievements of all Americans who made their voices heard abroad. In The Tragedy of American Diplomacy (1959, with expanded editions in 1962 and 1972), Williams maintained a single-­minded focus on businessmen looking for markets. For Williams, American foreign-­policy makers were imperialists in all but name despite their avowed opposition to “empire,” a system of political domination they equated with formal colonialism.42 From the 1890s onward, they let the drive for economic expansion overwhelm their

56 / Chapter Two

otherwise sincere belief in national self-­determination. American diplomats might intervene on the international scene to help other countries solve their own problems, but they also presumed that liberal capitalism was the best and only way to solve these problems. Establishing liberal capitalism abroad had the added benefit of allowing America to expand economically and thus ensure its own prosperity. In other words, ideological and structural imperialism went hand in hand with the drive for economic expansion. This practice was self-­defeating. In subverting self-­determination, Williams argued, American imperialists sowed the seeds of revolution and the disruption of foreign markets. They then invariably had to throw their weight behind the counterrevolutionaries. Williams found American idealism a façade covering the real force driving the country’s foreign policy—­capital’s hunger for foreign markets. His more “realistic” alternative was perfectly suited to the coming disillusionment of Vietnam and the rise of the New Left, while Curti’s more optimistic view would look hopelessly naive. Narrower than the Williams school in scope, a few studies of American foreign policy have relied on Antonio Gramsci’s theory of hegemony to argue collusion between big-­money philanthropy, corporate America, and Washington in their joint search for American domination.43 Taking as their subject the influence of three big foundations—­Ford, Carnegie, Rockefeller—­in the prosecution of the Cold War (a task made possible because of the availability of their archives), these studies explicitly expose philanthropy as a means to American power in the world. The hegemonic view of American elites has value within limits, but considered as the whole picture it is misleadingly reductionist. Historians have documented many instances when corporate, State Department, and foundation officials, both at home and abroad, had opposing convictions and strategies.44 At home, Ford Foundation personnel showed enough disregard for the capitalism that made their existence possible as to provoke a loud resignation from Henry Ford II in a famous incident adroitly exploited by conservatives.45 Williams and his students came to dominate the historical study of foreign relations in the 1970s. Despite a few exceptions, the spirit that animated Curti’s major effort dropped out of sight.46 But there are some hopeful signs that the pendulum might be swinging Curti’s way. The history of foreign relations has recently focused on nonstate actors that also operate outside the oversight of big business—­mass philanthropic organizations, nongovernmental organizations (NGOs), and of course foundations. While philanthropic institutions have often promoted or protected American governmental interests, especially in war zones, they have also shown great autonomy

Why Is the History of Philanthropy Not a Part of American History?  /  57

and in some cases changed the course of official foreign policy. American philanthropies have made their influence felt in their effort to support an emerging global civil society. They have insisted on combining economic development with humanitarian intervention and the promotion of human rights. To that end, they have helped secure channels for the direct delivery of services to populations in need around the world. Studies of international humanitarianism and human rights are coming out in great numbers, fast combining into a new international history.47 Not all of these studies connect their subjects to philanthropy, but the connection is unavoidable and the students of these movements are bound to make it more and more often and evaluate philanthropy’s participation in strategies of development and of state-­civil society partnerships and conflicts. The History of Public Policy A third cluster of historical studies I want to highlight examine issues of public policy, especially in connection with social movements. This is a still recent body of historical literature—­largely the outcome of collaborations between historians and social scientists. Pioneers here were historians Ellis Hawley and Barry Karl, who brought to light the importance of foundations and think tanks as policy incubators in the Hoover years.48 Other historians and political scientists have focused on Lyndon Johnson’s Great Society programs, which were so clearly dependent on efficiently linking resources from governments and nonprofits.49 Going over the history of federal cooperation with civil society (and local governments) in my own history of philanthropy, I saw not the uninterrupted growth of a Leviathan, as has often been described, but a dynamic succession of mixed funding experiments. This mixed political economy has survived the challenges of federal retrenchments. It has even resurfaced when most unexpected: it could be said that George W. Bush was inadvertently giving some new life to the Great Society when his faith-­based initiative invested federal dollars in the heart of American voluntarism on behalf of compassionate conservatism. What these studies suggest is that President Roosevelt’s (and his “relief czar,” Harry Hopkins’s) insistence on full autonomy for the federal government to distribute its own resources across the country, without interference from private donors and philanthropic institutions working closely with their own state governments, was an experiment that did not prevail over the long run. When students of public policy want to overturn the myth of a weak federal government in the United States, they naturally take the New

58 / Chapter Two

Deal order as their point of departure to study government’s growth. And they point to decline in civil society’s ability to self-­govern and generate pow­ erful associations.50 But this is the view from a distorted mirror. Fortunately, a substantial number of participants in the still young collaborative venture between policy history and political science are documenting the coming of what they label a “contract state” (what I am calling a mixed political economy), a modern extension of what James Madison referred to as the “Compound Republic.”51 Nonprofit institutions are parties to the contract, as are the mass movements supporting them. It is therefore critical that these new studies conceptualize how mass movements have been catalysts of philanthropy as well as beneficiaries. Here, the influence of class, gender, and race—­the three analytic categories of the (now old) “new social history”—­on philanthropic campaigns comes immediately to mind as a way to integrate philanthropy in a more synthetic narrative. I will focus first on class. The labor movement has been traditionally at odds with big-­money philanthropists who, in their primary role as industrial magnates, insisted on the open shop for as long as they could enforce it legally, and then some. In much labor history, philanthropy is therefore little more than a paternalistic assault on the agency of workers. To the extent that labor historians have also ignored the managerial business history Alfred Chandler promoted, they have left the Josephson pieties unquestioned. The robber barons remained useful foils against which to depict the labor movement as an agent of genuine progressivism, and class consciousness the energizing factor behind it. If the working class was fragmented along ethnic lines, then ethnic consciousness became an appropriate substitute for class consciousness.52 Labor conflicts were indeed deep, and few philanthropic programs ever emerged as direct partnerships with the labor movement. Among nonprofit scholars, it took the dedication of a Richard Magat in Unlikely Partners (1999) to document those few grants that foundations awarded labor organizations during the twentieth century, including some key moments at Russell Sage under the leadership of Mary Van Kleek. But these were the exceptions. As Magat himself noted, a retired vice president of the Charles Stewart Mott Foundation remarked that if the deceased C. S. Mott, formerly General Motors’ largest single stockholder, had even an inkling that labor might be one of his foundation’s grantees, he “would turn over in his grave.”53 But the big foundations’ lack of commitment to the labor movement is tangential to the larger story of industrial workers increasingly supporting the large campaigns of mass philanthropy. The outlook changes radically if we think of workers not just as recipients but also as givers, as their own in­­

Why Is the History of Philanthropy Not a Part of American History?  /  59

comes grew and they committed larger parts of it not only to labor but also to philanthropic organizations. Early twentieth-­century Bureau of Labor surveys document workers earmarking small amounts for the Red Cross in their family budgets. This trend among workers toward giving vastly expanded after World War II, when collective bargaining brought increasing revenues to workers that they could invest in nonprofit organizations committed to their own welfare. These were the years of expansion of mass philanthropy in working-­class neighborhoods where workers simultaneously led and contributed to various appeals, from the March of Dimes to the United Way. Philanthropic contributions also came increasingly in the form of payroll deduction from the paychecks of factory workers in corporate America. While management and labor not infrequently fought over the control of federated fund-­raising, American workers in the postwar years increasingly contributed to philanthropies of their own choice, dedicated to advancing their own programs and addressing their own issues.54 Labor historians, who confined philanthropy to paternalism, did not lead the New Left for long. Studies of gender and race became rapidly dominant in American history. Caught off guard, labor historians worked mightily hard not to be left behind by the changing times. They collected as much evidence as possible to document union leadership embracing the goals of the civil rights movement, if not those of the women’s movement. They failed to acknowledge that the rank and file did not relent in their racism and sexism.55 But no matter, class quickly yielded center stage in the new social history. Women’s history has probably been the field from which philanthropy has received the most recognition for its role in formulating important social policies and funding social movements.56 That is because the women’s movements have been very efficient at raising funds throughout their history. Women’s history provided the one social history exception that made room for philanthropy as an instrument of women’s liberation. There was a convincing argument to make: upper-­and middle-­class women learned how to use good works and the many philanthropic associations they controlled to make their voices heard in public policy and influence society at large. Even if wealthier women displayed coercive assimilationist tendencies toward working-­class women, philanthropy became a means to action they could access and a springboard to their influence. Also beginning to appear is a literature on philanthropy’s support of the civil rights movement (to which I have contributed). The connection between philanthropy and civil rights should be better documented. There are compelling reasons to underscore the profoundly political nature of much

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philanthropy, and it is hard to think of another instance where funding a social movement could be so dangerous. I was gripped when reading the first chapter of calypso singer Harry Belafonte’s recent memoir that describes so vividly how the funding of the civil rights movement was not some detached affair at a safe distance from the action, as is perhaps imagined. Belafonte is a salient example (not an exception) of how brave souls raised large sums of money and then risked their lives in delivering those funds to the people in the southern trenches of the movement who were fighting for their rights.57 The civil rights movement is the most striking testimony in the history of the twentieth century to the multiple alliances among sectors of society in the name of justice, and the place where funding and politics most openly met. Boundaries as Blinders Historians have shown great reluctance to conceive of giving as a broad historical subject ever since they abandoned the notion of national character that unified the work of Beard, Curti, Boorstin, Bremner, and a few more. In this chapter, I do not suggest reviving such a study of national character any more than I did in my history of American philanthropy. Rather, I underscore giving as a strategy of social change, made all the more important in a political economy that combines state and civil society resources. In my view, the greatest obstacle to integrating philanthropy into the larger narrative of American history is the tendency of scholars to fragment the field along the institutional lines of the sector, in effect following tax code subdivisions as if Treasury Department bureaucrats were the arbiters of historical relevance.58 Writing about one type of institution without making connections to others can amount to a sterile institutionalism that partitions the nonprofit sector into artificially distinct entities. Philanthropy plays a big role in capitalism’s substantial reshuffling of its own resources (the justification for tax exemption) precisely because it operates at the intersection of many institutions. But you would not know it reading the joint work of historian David Hammack and sociologist Helmut Anheier on the history of foundations, A Versatile American Institution (2013). Commissioned by the Aspen Institute’s Program on the Nonprofit Sector and Philanthropy, it treats not foundations in American history but the internal history of foundations, understood narrowly, despite the fact that the two authors have accumulated over many years a vast store of knowledge on the nonprofit sector. Much of their book is aimed at showing how little foundations can do considering the huge growth of government. They posit that

Why Is the History of Philanthropy Not a Part of American History?  /  61

foundations “can advance an agenda,” but “by themselves they cannot put any agenda into effect.” Hammack and Anheier are of course right to observe that philanthropic support is necessarily partial and therefore deserves only partial credit. But nobody has ever argued that Lorenzo de Medici created Michelangelo or the Rockefeller Foundation created modern medicine. The authors appear to have given up on figuring out the necessary connections between the parts and the whole that make history meaningful. Their final assessment is that foundations are “capable of interesting work.”59 This is timid history for timid billions. Similarly, one can object to the seemingly endless repetitions of philanthropic studies focusing on the funding of specific sectors. There have no doubt been essential essays that recap the achievements of discrete philanthropic endeavors in medicine, different fields of science, higher education, the environment, public health, and so on.60 Much of this work is indeed needed but still hard to integrate in a historical framework without the necessary connections to larger political debates and social change. There can be few rewards in studying philanthropy as a catalog of grants. Imagine a history of industrialization organized almost exclusively around narrowly defined sectorial studies. And yet this is what has happened to studies of the nonprofit sector. The field has been badly fragmented, yet history draws its strength from its ability to bring together the many particulars and find their common direction. Sectorial fragmentation may also be a consequence of the job market. Historians of philanthropy have themselves benefited from the institutional expansion of the nonprofit sector. A number have found teaching and research positions in programs on the nonprofit sector in expanding schools of public policy as the liberal arts schools have struggled to maintain their resources. For historians the chance to work among policy scholars could be a very significant incentive for broadening the scope and reach of the history of philanthropy, but this has not necessarily been the case. Some historians of philanthropy have actually complained of the lack of intellectual independence this alternative location in the academy brings about. I am joining here with concerns both Ellen Lagemann, well known for her studies of Carnegie philanthropies, and Barry Karl, influential for his pioneering work on foundations and public policy, have openly voiced. Lagemann argued in her introduction to the volume she edited in 1999, Philanthropic Foundations: New Scholarship; New Possibilities, that scholars writ­­ ing about foundations not infrequently felt they had to serve “two masters.”61 They directed their work to foundation professionals eager for arguments against congressional interference and simultaneously to historians inter­­ested

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in larger questions of governance. Caught between the two, they risked dis­ appointing both. In the same volume, Karl had an even more somber assessment. To him, historians of philanthropy could not really count on attention from either camp. He saw them as “going for broke,” that is, as he put it, “trapped between foundations that don’t want to fund them and history departments that, for very different reasons, don’t want to hire them.” He viewed their work as “stand[ing] alone as the history nobody wants.”62 No doubt Karl forced the point, but in the process of researching and writing Philanthropy in America, I was puzzled that the specialized historical research on philanthropy on which I have so profitably relied remains so loosely con­­ nected to larger historical questions, and equally frustrated that broader nar­ ratives of American history ignore philanthropy altogether. I should add that too many nonprofit institutions hinder the larger discourse I am calling for by blocking access to their records. They wrongly insist on their private origins for hiding from the public eye, for meeting only minimal disclosure re­­ quirements, and for leaving few traces of their work in publicly accessible ar­­ chives, some hopeful exceptions notwithstanding.63 A continuing reflection on philanthropy in American history is needed not only for the sake of allowing historians to encompass all dimensions of the past but also for better enabling them to play their civic role and help the country debate its goals. Signs of philanthropic activity abound around us. They appropriately fuel our controversies over democratic government. A major American city has recently filed for bankruptcy, a fate it had narrowly avoided during the Great Depression. In Detroit, we are witnessing a consortium of established foundations (with roots in large Michigan enterprises), a community foundation drawing funds from the entire metropolitan area covering seven counties, and countless nonprofits working in a rescue operation to create entrepreneurial jobs, to start a mass transit system revitalizing downtown, and to design a new master plan for the city. The same players have striven to save the city’s art treasures as well as the city employees’ pension plans threatened by the bankruptcy proceedings—­all in constant negotiation with every level of government and through intensive legislative work.64 How do we assess their overlapping efforts? Big givers have intervened massively in primary and secondary education in all parts of the nation, targeting poor (and some wealthy) school districts with contested reforms.65 Again, how can historians evaluate their performance? A new gen­­ eration of young philanthropists has emerged from Silicon Valley eager to make its mark creatively. Are their actions beneficial, or are they merely de­­ stabilizing more established means of wealth transmission? Big-­money philanthropy, however controversial, remains an effective means of lessening

Why Is the History of Philanthropy Not a Part of American History?  /  63

the inequality that threatens the health of capitalism. Conversely, a more equal society participating in civic improvement is the surest route to the broad-­based giving on which mass philanthropy rests. Philanthropy is a big part of this country’s life, and historians should guide Americans by debating its lasting impact.

Acknowledgments It is a pleasure to thank, in addition to the members of the Stanford workshops and an anonymous reader for the Press, my friends Charlie Feigenoff, Arthur Goldhammer, Stanley N. Katz, Melvyn Leffler, and James Allen Smith for comments on this chapter. Guy Aiken provided exemplary research assistance.

T hr e e

On the Role of Foundations in Democracies R o b R e ich

Shortly after the turn of the nineteenth century, John D. Rockefeller’s philanthropic adviser Frederick Gates wrote to him with alarm. “Your fortune is rolling up, rolling up like an avalanche! You must keep up with it! You must distribute it faster than it grows!”1 Acting on Gates’s advice, Rockefeller soon devised a plan for a general-­purpose philanthropic foundation whose mission would be to benefit mankind. Concerned that a state charter for such a foundation would impose limits on its size and purpose, Rockefeller and his advisers sought to obtain a federal charter from the U.S. Congress to autho­ rize the creation of the Rockefeller Foundation. Rockefeller immediately encountered fierce criticism in Washington, D.C. Some of the opposition stemmed from resistance to Rockefeller’s extraor­ dinary wealth, obtained from the monopolistic business practices of Stan­ dard Oil and stubborn resistance to labor unions. “No amount of charities in spending such fortunes,” observed former President Theodore Roosevelt, “can compensate in any way for the misconduct in acquiring them.” Sitting president William Taft called on Congress to oppose the creation of the foundation, describing the effort as “a bill to incorporate Mr. Rockefeller.” American Federation of Labor President Samuel Gompers growled, “The one thing that the world would gratefully accept from Mr. Rockefeller now would be the establishment of a great endowment of research and education to help other people see in time how they can keep from being like him.”2 Other critics resisted not Rockefeller the man and his business practices but the very idea of an enormous foundation. Testifying before the Commission on Industrial Relations in 1912, the Reverend John Haynes Holmes, a well-­known Unitarian minister who served for many years as the board

On the Role of Foundations in Democracies   /  65

chair of the American Civil Liberties Union, said, “I take it for granted that the men who are now directing these foundations—­for example, the men who are representing the Rockefeller foundation—­are men of wisdom, men of insight, of vision, and are also animated by the very best motives. . . . My standpoint is the whole thought of democracy. . . . From this standpoint it seems to me that this foundation, the very character, must be repugnant to the whole idea of a democratic society.”3 The chairman of the Industrial Relations Commission, Senator Frank Walsh from Missouri, opposed not merely Rockefeller’s foundation, but all large foundations. Writing in 1915, Walsh challenged “the wisdom of giving public sanction and approval to the spending of a huge fortune thru such philanthropies as that of the Rockefeller Foundation. My object here is to state, as clearly and briefly as possible, why the huge philanthropic trusts, known as foundations, appear to be a men­ ace to the welfare of society.”4 The concerns expressed by Holmes and Walsh were hardly eccentric. Foundations were not troubling because they represented the wealth, potentially ill-­gotten, of Gilded Age robber barons. They were troubling because they were considered a deeply antidemocratic institution, an entity that could exist in perpetuity and that was unaccountable except to a hand-­ picked assemblage of trustees. Despite efforts lasting several years and the offer of significant concessions to concerned lawmakers, Rockefeller failed to obtain a federal charter for his foundation. He turned instead in 1913 to New York state, which chartered the Rockefeller Foundation without controversy. In an important sense, foundations have a long history. Analogs of the contemporary philanthropic foundation can be found in antiquity, where endowments funded the creation and sustenance of public monuments and educational institutions, including Plato’s Academy. They are not limited to the Western world. Muslim societies as early as seventh century AD evolved waqfs, endowed institutions that funded mosques, schools, hospitals, and soup kitchens. Though rooted in historical traditions, the modern private foundation in the United States is a creation of the age of the Rockefeller controversy. Here were birthed novel features not found in historical antecedents. The idea behind the Rockefeller Foundation and the Carnegie Corporation was to establish an entity with broad and general purposes, intended to support other institutions and indeed to create and fund new organizations (e.g., research institutes), seeking to address root causes of social problems rather than deliver direct services (work “wholesale” rather than “retail”), and designed to

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be administered by private, self-­governing trustees, with paid professional staff, who would act on behalf of a public mission. One other aspect of these foundations was new: their vast resources enabled them to operate on a scale unlike other, more ordinary endowments. As the remarks by Reverend Holmes and Senator Walsh illustrate, the prospect that such foundations might be brought into existence was viewed as a threat to democracy. For most of the nineteenth century, simply creat­ ing a foundation at one’s private initiative with one’s private wealth was not possible; authorization and incorporation by a democratic body was necessary. When the U.S. Congress debated the charter for the Rockefeller Foundation, it proposed a governance structure for the foundation that would cap its size at $100 million, limit its life span to fifty years, and require a permanent board of overseers, including U.S. congressmen, cabinet members of the U.S. presidency, and university presidents. The Rockefeller Foundation would have a limit on assets, a term-­limited existence, and robust public oversight. Rockefeller’s advisers had themselves proposed some of these limitations on foundation autonomy in order to allay concerns in Congress. In the end, it was not Rockefeller’s objections but political opposition in Congress, even under such chartering terms, that denied Rockefeller a federal charter. Having failed at the federal level, Rockefeller instead sought a charter in New York state. A small lesson in counterfactual history: had Congress approved the Rockefeller charter, the legal template for foundations would almost certainly have been much different. We have come a long way in one hundred years. Philanthropists are today widely admired, and the creation of foundations by the wealthy meets not with public or political skepticism but with civic gratitude. The permission to create a foundation, moreover, is both freestanding and subsidized with tax advantages. It is no exaggeration to say that we live today in the second golden age of American philanthropy. Growth in inequality might be a foe to civic co­ mity, but it is a friend to private philanthropy. What Carnegie and Rockefeller were to the early twentieth century, Gates and Buffett (and their fellow Giving Pledge signatories) are to the twenty-­first century. The last decade of the twentieth century witnessed the creation of unprecedentedly large foundations like the Gates Foundation. The combined assets of the Gates Foundation and a separate Gates Trust, which holds donations from Bill and Melinda Gates and contributions from Warren Buffett, totals more than $65 billion, placing the foundation at roughly sixty-­fifth in the world on a list of total GDP, ahead of most countries in Africa. And it’s not just billionaires and their

On the Role of Foundations in Democracies   /  67

megafoundations that command attention. The last decade of the twentieth century also witnessed a boom in millionaires that fueled unprecedented growth in small foundations, both in number and in assets. Foundations are no longer controversial, they are mundane and commonplace. (See appendix A at the end of this chapter.) Is this a healthy development? In order to know, we need to ask what philanthropic foundations are for. What role ought foundations play in a democratic society? Are they repugnant to the idea of democracy, as thought Reverend Holmes, or a menace to the welfare of society, as thought Senator Walsh? One obvious reply is to view these as impertinent questions. Andrew Carnegie thought that the man who dies rich, dies disgraced, and the person who opts to distribute private wealth for public purposes should be thanked as an object of civic gratitude. Conspicuous consumption by the wealthy is hard to see as preferable to the establishment of a foundation. And yet asking about the purpose of a foundation in a democracy is an important question. For while foundations of some sort or another have existed for millennia, the modern grant-­making foundation in which private assets are set aside in a permanent, donor-­directed, tax-­advantaged endowment with a fraction of the assets annually to be distributed for a public purpose is, as I have just described, a relatively recent phenomenon, no older than the early twentieth century. Philanthropic foundations in this form are institutional oddities in a democracy, oddities that have considerable power by virtue of their assets. In this chapter, I examine the peculiar institutional form that is the modern American philanthropic foundation, and I explore its fit with democracy. I conclude that despite many antidemocratic features the modern foundation is not incompatible with democracy. In fact, when foundations function in support of what I will call pluralism and discovery, they can be important contributors to democratic societies.

Foundations as Institutional Oddities Why oddities? For starters, foundations represent, by definition, plu­tocratic voices in a democratic society committed, at least in principle, to the equality of citizens. But the strangeness of the foundation form goes far beyond this. The modern philanthropic foundation is perhaps the most un­accountable, nontransparent, peculiar institutional form we have in a dem­ ocratic society.

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Foundations Lack Accountability In the commercial marketplace, if a company fails to make a profit because consumers opt not to purchase the goods it sells, the company goes out of business. Don’t like or want what a company produces? Then don’t buy it. If most consumers think this way, the company disappears. This is the accountability logic internal to the marketplace—­meeting consumer demand. In the public institutions of a democratic state, officials responsible for allocating tax dollars must stand for election; if citizens do not approve of the spending decisions of their representatives, they can unelect them and replace them with others. Don’t like your representative’s preferences on public policy and spending? Then vote against him or her in the next election. This is the accountability logic internal to democracy—­responsiveness to citizens. But foundations have no market accountability; they neither have goods for sale where consumer behavior can put a foundation out of business, nor marketplace competitors whose superior performance can push them out of business. Instead of selling anything, foundations give money away to other organizations, organizations whose own livelihood frequently depends on continuing support from foundations. Don’t like the grant-­making decisions of a foundation? Tough, there’s nothing to buy, no investors to hold them accountable. And foundations have no electoral accountability; no one in a foundation stands for election, regardless of what the public thinks about the distribution of its grants. Don’t like what the Gates Foundation is doing? Tough, there’s no mechanism to unelect Bill and Melinda Gates. Thinking of the foundation’s education grant-­making, critic Diane Ravitch has called Bill Gates the nation’s unelected school superintendent. Foundations do have certain minimal obligations of procedural accountability. In the United States, a “payout” rule requires that foundations disburse at least 5 percent of their assets every year (though administrative costs of running a foundation count toward this payout). There is also a requirement to file an annual tax form with some basic data about foundation trust­ ees, employees and their salaries, and assets. But this is far from substantive accountability. Without constituents, consumers, or competitors, wealthy per­ sons are free to set up foundations for whatever purpose they please, with whatever money they wish, and to continue to hew to this purpose, regardless of the outcome of the foundation’s grant-­making. To be sure, foundations must direct their grants to public charities or, in tax parlance, 501(c)(3) nonprofit organizations. But in the United States, virtually any organization can be structured as a nonprofit so long as it promises

On the Role of Foundations in Democracies   /  69

not to distribute profits to its owners. Moreover, as Ray Madoff documents in chapter 6 in this volume, foundations can distribute grants and fulfill their payout rule by giving to “donor-­advised funds,” which create no immediate public benefit whatsoever and instead serve to warehouse wealth until the donor decides to distribute it to a public charity. So the public charity require­ ment is no limit at all. The lack of any internal accountability is compounded by the difficulty any foundation has in developing mechanisms to generate honest feedback from grantees. As a general matter, people who interact with foundations are supplicants, seeking a grant or seeking the next grant; there is little incentive for a potential grantee or actual grantee to offer critical feedback to a foundation. Exaggerating slightly, I’ve found that people who become foundation officers are often surprised to find themselves transformed into the smartest and best-­looking people in a room. Foundations Lack Transparency Apart from a legal requirement that foundations pay out 5 percent of their assets every year and file an annual tax form with some basic data, foundations can, and frequently do, act secretly. They need not have a website, an office, publish an annual or quarterly report, or articulate any grant-­making strategy. They need not identify all recipients of their grants, nor the amount of money given away to any particular organization. They need not evaluate their grant-­making; if they do, they need not make such evaluations public. They need not report on trustee decision-­making. Foundations sometimes do act transparently, providing all of the above information and more. But this is a function of the idiosyncratic preference of a particular foundation, not a legal framework or professional norm that emphasizes transparency. Thus foundations are often black boxes, stewarding and distributing private assets for public purposes, as identified and defined by the donor, about which the public knows very little and can find out very little. Donor-­Directed Purpose in Perpetuity Foundations are legally designed to enshrine donor intent and protect philanthropic assets in perpetuity. The dead hand of the donor extends from the grave across generations. Laws defining a foundation permit the donor to control the governance and purpose of a foundation, and this beyond the donor’s death. Foundations must be governed by a board of trustees, but the

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donor and his or her family or trusted associates can serve in this role; there is no requirement of community or public governance. The Gates Foundation’s board, for example, is Bill and Melinda Gates, Bill Gates Sr., and Warren Buffett. The governance arrangements of countless smaller family foundations look similar. Financial advisers routinely market their services in setting up a family foundation as vehicles for the intergenerational transmission and sustenance of family values. Of such arrangements the legal theorist and judge Richard Posner has observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.” He wondered, “The puzzle for economics is why these foundations are not total scandals.”5 Finally, Foundations Are Generously Tax-­Subsidized All of the foregoing might be understandable, if not necessarily justifiable, if foundations were simply one way for the wealthy to exercise their liberty: some choose to consume their wealth; some choose to provide gifts and bequests for heirs; others choose to give their money away for a philanthropic purpose. Why demand accountability for the philanthropists? Because foundations are not simply exercises of personal liberty. In his 2002 book American Foundations, Mark Dowie relates an amusing and instructive anecdote about the Open Society Institute, one of several foundations set up by financier George Soros. During a meeting to resolve a disagreement about grant-­making priorities, Soros is alleged to have announced, “This is my money. We will do it my way.” At which point a junior staff member interjected that roughly half of the money in the foundation was not his money, but the public’s money, explaining, “If you hadn’t placed that money in OSI . . . about half of it would be in the Treasury.”6 Dowie reports that the junior staffer did not last long in the Soros foundation’s employ. Philanthropy in the United States is not just the voluntary activity of a donor, the result of people exercising a freedom to do what they wish with their private property. Philanthropy in general, including the creation of foundations, is generously tax subsidized. The assets transferred to a foundation by a donor are left untaxed, and this in two respects: the donor makes the donation (more or less) tax free, diminishing the tax burden he or she would face in the absence of the donation; and the assets that constitute a foundation’s

On the Role of Foundations in Democracies   /  71

endowment, invested in the marketplace, are also (more or less) tax free.7 The precise details of the subsidy have varied over time, but philanthropy in the United States has long involved the subsidizing of individual liberty. It is worth remembering it was not always thus. Philanthropic activity dates back to antiquity, but tax incentives for philanthropic activity date back only to 1917 and the creation of a federal income tax. The Carnegies and Rockefellers, and their many philanthropic predecessors, practiced philanthropy without any federal tax incentive for the donation of assets to the foundation endowment. Why provide a subsidy for the exercise of a liberty that people already possess, namely to give their money away for a philanthropic purpose? One can imagine various possible justifications for a subsidy, most prominently the idea that a tax incentive will stimulate more philanthropy, more and larger foundations, and therefore more public benefits, than would occur without the subsidy. Whether this is so is an empirical question; if it is so, whether this constitutes a good justification for providing a subsidy is a normative question. My intent is to answer neither question, but to observe that, today, the existence of foundations is not correctly seen as the product of the exercise of people’s liberty to establish a foundation. Foundations are created voluntarily and yet they are also the product of public subsidies, the loss of funds that would otherwise be tax revenue, to subsidize their creation. (In 2011, tax subsidies for charitable giving cost the U.S. Treasury an estimated $53 billion.) So foundations do not simply express the individual liberty of wealthy people. Citizens pay, in lost tax revenue, for foundations, and, by extension, for giving public expression to the preferences of rich people. In short, with little or no formal accountability mechanisms, practically no transparency obligations, a legal framework designed to honor donor in­­tent in perpetuity, and generous tax breaks to subsidize the creation of a foundation, what gives foundations their legitimacy in a democratic society? Why have this institutional form in a democratic society? What is a foundation for? We can quickly dismiss one common and intuitive thought: that foundations exist because they are remedial or redistributive, responsive to the needs of the poor or disadvantaged. Foundation giving for basic needs represents a surprisingly small percentage of foundation activity, on the order of 10 percent. And the greater the size of assets in a foundation, the smaller the percentage of grants that go to meet basic needs.8 In any case, conceiving of foundations as mechanisms for almsgiving implies that a more just world—­a world in which, say, desperate poverty did not

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exist or in which the basic needs of individuals were met and did not depend on philanthropic giving—­would not need philanthropic foundations. This raises the question whether the justification of and need for philanthropy would disappear if desperate poverty were to be eliminated. I believe the answer is no. Philanthropy in general and foundations in particular are not just remedial, second-­best efforts in democratic societies. The question I wish to pose is, would we create foundations if we were starting a democratic society from scratch? Would we want, as a matter of first-­best institutional design, foundations in something like the legal form in which they exist today: more or less unaccountable, nontransparent, donor directed, and permitted to exist in perpetuity or at least to operate for many years beyond the donor’s death? The catalog of the oddities of the foundation form suggests a strong case against. Foundations are not compatible with democracy, for they represent, by definition and by law, the expression of plutocratic voices directed toward the public good. But why, in a democracy, should the size of one’s wallet give a person a greater say in the public good; why should this plutocratic say be subsidized by the public; and why should democracy allow this say to extend across generations in the form of tax-­protected assets? It would seem that foundations are a misplaced plutocratic, and powerful, element in a democratic society. Moreover, several contributors in this volume provide arguments that lay bare the tensions between philanthropy and democracy and call into doubt several of the institutional arrangements, and ultimately the very legitimacy, of philanthropic foundations. Chiara Cordelli, in chapter 10 in this volume, attacks donor discretion and argues that philanthropy is better conceived as reparative justice. Eric Beerbohm, in chapter 8, argues that certain kinds of public good production should not be outsourced to private parties. Aaron Horvath and Walter Powell (chapter 4) see in the evolution of philanthropy the emergence of high-­profile philanthropists, such as Gates, Zuckerberg, and Bloomberg, whose activity supplants the state, subverts public policy processes, and diminishes democracy. And Ryan Pevnick (chapter 9) argues that charity can play a cultural role in democratic societies but should otherwise be treated with suspicion. I find many points of agreement, especially when considering the actual behavior of foundations today. Yet I think the role of foundations in democracy can be defended. Against the critics in this volume, and against the notion that foundations are repugnant to democracy, I argue that foundations have important roles to play in democratic societies.

On the Role of Foundations in Democracies   /  73

The Case for Foundations Foundations can be not merely consistent with democracy but supportive of it. The argument that foundations can enhance democracy is twofold. First, foundations can help to overcome problems in public good production by diminishing government orthodoxy and decentralizing the definition and distribution of public goods. Call this the pluralism argument. Second, foundations can operate on a different and longer time horizon than can businesses in the marketplace and elected officials in public institutions, taking risks in social policy experimentation and innovation that we should not routinely expect to see in the commercial or state sector. Call this the discovery argument. On this basis, we can build the outline of a first-­best argument for the existence of foundations that is not at odds with, but rather supportive of, democracy. The argument I offer is not intended to justify the full range of legal permissions currently afforded to foundations. (I am in particular skeptical that it is possible to defend the legal permission for a foundation to exist in perpetuity.) What I wish to indicate is the general cast of an argument on behalf of foundations that deflects the criticism that they are misplaced in democratic societies and that confers on them a high degree of autonomy, a relative lack of accountability, and offers a case for subsidy of some kind. To understand what a foundation is for, we cannot and should not, as is commonplace, ask how foundations can be more effective, have greater impact, be more outcome oriented. To understand what foundations should be effective in doing, we first must understand foundations in relation to the market and the state. Only in this manner can we identify the pluralism and discovery arguments. Pluralism Argument It has long been understood that the commercial marketplace does not do well at providing public goods—­goods that economists define as nonrival and nonexcludable. These are goods that, like a well-­lit harbor, are available to everyone if they are available to anyone; and that, like clean air, do not cost more when they are consumed by more people. The standard examples of public goods include national defense, education, arts, parks, and science. The essential point about public goods is that it is difficult or undesirable to block anyone from consuming them, even if they do not pay. Because private

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businesses prefer paying customers, public goods are underproduced in the commercial marketplace. In practice, there are few if any goods that are purely public in the economist’s nonrival, nonexcludable sense. But we needn’t rely on a strict definition to see the core idea: goods with a public character will be underproduced by the marketplace, for businesses will not be able to get consumers to pay for goods they cannot be excluded from accessing. Instead, the state can provide public goods, and this is commonly thought to be one of the basic functions of a state and its use of tax dollars. In a democratic state, one simple way to predict what public goods will be produced is to recognize that elected representatives will vote for the funding of public goods that are favored by a majority of citizens. If a majority of citizens prefer police protection and a minority prefer arts funding, then politicians will vote to fund the police and not the arts. Further, standard models of political behavior in a democracy predict that politicians will fund the public goods preferred by majorities at a level that satisfies the median voter. Public good production by the state is subject to a so-­called majoritarian constraint and limited by the preference of the median voter, who sits in the middle of the political spectrum. Public goods preferred only by a minority, or levels of public good production above the level preferred by the median voter, democratically elected politicians will not support. For example, public funding of the arts may generate plenty of Norman Rockwell, but probably not avant-­ garde or radical art. (Hence the controversy over Piss Christ, for which the photographer, Andres Serrano, received a cash award partially funded by the National Endowment for the Arts.) Here enters the pluralism argument on behalf of foundations. A foundation is set up to deploy private assets for public benefit, where what is funded is subject to donor intent. They can deliver idiosyncratic results. Foundations are thus uniquely placed to fund public goods that are underproduced, or not produced at all, by the marketplace or the state. Because donors will have diverse preferences about what goods they wish to fund philanthropically, foundations can be a source of funding for what we can call minority public goods or controversial public goods, things a democratic state will not or can­ not fund, whether because majorities have not expressed a preference for the good or any other reason. Expressing the idea less as a corrective to market and state failures, we can say that one core argument for foundations sees them as an important vehicle for partially decentralizing the process of producing public goods and diminishing government orthodoxy in the definition of public goods. In a diverse democracy, there will be heterogeneous preferences about what

On the Role of Foundations in Democracies   /  75

kinds of goods to supply through the direct expenditure of tax dollars. Foundations, powered by the idiosyncratic preferences of their donors and free from the accountability logic of the market and democratic state, can help to provide, in the aggregate, a welcome pluralism that helps to create an ever evolving, contestatory, and diverse arena of civil society. Such decentralization tempers government orthodoxy in a democracy. This idea is not novel. It can been seen, for example, in an opinion from Justice Lewis Powell rejecting the idea that the primary function of a tax-­ exempt organization is to enact only government-­approved policies. For Powell, the provision of tax subsidies for nonprofits, including presumably foundations, “is one indispensable means of limiting the influence of government orthodoxy on important areas of community life.”9 The argument from pluralism turns foundations’ autonomy and lack of marketplace and electoral accountability from a defect into an important virtue. Foundations are free, unlike commercial entities, to fund public goods because they need not compete with other firms or exclude people from consuming the goods they fund. And they are free, unlike politicians who face future elections, to fund minority, experimental, or controversial public goods that are not favored by majorities or at levels above the median voter. Do we need the specific institutional form of the foundation in order to accomplish the desirable decentralization and curtailing of government orthodoxy? Perhaps not. Perhaps the charitable behavior of individuals in the simpler form of making donations to favored nonprofit organizations would supply a good portion of the decentralization. Setting up a foundation to carry out this function, especially one that can exist in perpetuity and with minimal payout requirements, may be unnecessary. I find little to celebrate, for instance, in the massive boom in small founda­ tions over the past generation. The number of foundations with less than $1 mil­lion in assets nearly doubled from 1993 to 2010, from 32,000 to 60,000, and these foundations rarely have a paid staff, almost never give away more than $50,000 in a year, and function more or less as the charitable checkbook of wealthy families. These families could accomplish the same outcome, the same public benefit, by simply writing a check or using a donor-­advised fund rather than setting up a foundation as the vehicle for their philanthropy, avoiding in the process the overhead expenses that foundations require and that cannot be counted as public benefits. And taxpayers would no longer be subsidizing enormous sums of money that have been committed to a foundation but have not yet been granted to charitable organizations. In 2012, total assets reached $715 billion, stretched across nearly 80,000 independent private foundations. More than 25 percent of these assets are held by just the

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fifty largest foundations. What loss to the public benefit would occur were there to be a minimum asset threshold for creating a foundation, say $10 mil­ lion or $50 million? I think very little, and quite possibly there would be some gain, for wealthy individuals under the minimum asset threshold might be inclined to donate more of their money to public charities rather than to create their own family foundations. Donor-­advised funds have also experienced a boom over the past generation. Sometimes called private foundations for regular people, they (as Ray Madoff agues in chapter 6 in this volume) are problematic as well. Even supposing that foundations of all asset sizes do partially decentralize the definition and provision of public goods, the resulting pluralism of philanthropic voices will have a plutocratic, not fully democratic cast. The minority, experimental, or controversial public goods funded by foundations will represent the diverse preferences of the wealthy, not of the citizenry. There is no good reason to believe that the diversity of preferences among the wealthy mirrors the diversity of preferences among all citizens. Indeed, there is empirical evidence to suggest that, at least in the United States, the very wealthy (both the top quarter and the top one percent of wealth holders, the latter of which account for a large share of private foundations) have significantly more conservative preferences than average citizens.10 Thus, the activity of foundations, even when it decentralizes the production of public goods, retains a plutocratic character. I see no way to avoid this conclusion, for while wealthy and poor people tend to give the same percentage of their incomes to charity, in absolute terms, the wealthy have much more to give. Does this mean that we should eliminate foundations? I do not think so. What follows, I believe, tells not against foundations as such but against the tax-­subsidized aspect of foundation activity. If foundations create a plutocratic pluralism, public subsidies that stimulate more such activity are harder to justify. But a plutocratic tempering of government orthodoxy is better than no tempering at all. And if this is true, then perhaps some tax subsidy for foundations could still be justified if it turned out that subsidies were essential in the creation of foundations. I conclude that the decentralization argument provides a plausible if not definitive case for foundations, a case that foundations are a democracy-­ supporting institutional feature of a democratic society. Discovery Argument As with the pluralism argument on behalf of foundations, an understanding of foundations in relation to the market and the state is also core to the

On the Role of Foundations in Democracies   /  77

discovery argument. Here the idea is that foundations serve as “a democratic society’s risk capital,” a potent discovery mechanism for innovation and experimentation in social policy. Begin with an uncontroversial supposition: a democratic state wishes to advance general welfare or to pursue the aims of justice, however understood. But democratic representatives do not know the best means for achieving such aims, either at any given moment or, especially, with the uncertainties that obtain as social conditions change over time. What kinds of policies and programs, for instance, will best promote educational opportunity and achievement? Some believe universal preschool is the answer, others a better school finance system, others better and more pervasive opportunities for online learning. Examples easily multiply. What kinds of policies will best reduce recidivism rates in prisons or in substance abuse programs? Or consider environmental policy: what kinds of changes will reduce carbon emissions with the lowest cost to economic growth? A democratic society, recognizing that its leaders are not all-­knowing, that reasonable disagreement on the best means to pursue just ends is likely, and that social conditions are always evolving, might wish to stimulate and decentralize innovation and experimentation in social policy so that better and more effective policies for realizing democratically agreed upon aims can be identified and adopted. Moreover, this need for experimentation is never ending. In light of constant change in economic, cultural, technological, and generational conditions, the discovery process is, in ideal circumstances, cumulative in contributing to society a storehouse of best, or simply very effective, practices for different contexts and shifting priorities. To be sure, the government can stimulate some measure of experimentation and risk-­taking innovation on its own. It can, for example, invest in basic research with uncertain outcomes. It can develop federal structures of government that treat jurisdictional subunits as laboratories of policy experimentation. Hence Justice Louis Brandeis’s famous description of American states as laboratories of democracy. Democratic governance has good reason to be experimentalist, to approach policy and institutional design as a form of problem-­solving. Such approaches notwithstanding, political leaders would also be right to harbor some skepticism that government would be ideally suited to carry out such experimentation itself. For one thing, citizens in a democratic system tend to expect and prize tested and reliable outcomes in public policy. Elected representatives who allocate public funds to highly risky strategies to social problems, in the sense that the selected policy may fail in delivering any benefits at all, also run the risk of  being punished at the ballot box. For another, wasteful government spending tends to be deplored,

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and yet experimentation requires that some experiments fail if the approach is to deserve the label experimentation in the first place. What extragovernmental mechanisms, then, could be designed to carry out decentralized innovation and experimentation? My claim is that foundations can be one mechanism among others, such as federalism, for this discovery procedure. And foundations have a structural advantage over market and state institutions in this discovery effort: a longer time horizon. An essential feature of the discovery argument focuses on the time horizons involved with innovation and risk-­taking in the marketplace and public institutions of the democratic state. Unlike profit-­driven businesses, foundations are not subject to quarterly or annual earnings reports, the bottom-­line balance sheet, or impatient investors or stockholders. Commercial entities in the marketplace do not have an incentive structure that systematically rewards high-­risk, long time-­ horizon experimentation; they need to show results in order to stay in business. Similarly, public officials in a democracy do not have an incentive structure that rewards high-­risk, long time-­horizon experimentation; they need to show results quickly from the expenditure of public dollars in order to get reelected. Dennis Thompson casts the issue a bit differently by identifying the problems of democratic societies in representing the interests of future generations.11 He calls this the problem of “presentism,” democracy’s systematic and pervasive bias in favor of the present. He identifies several sources of this bias. These include the fact that people tend to favor the present and short term over the distant and long term. And democratic governments are meant to be responsive to citizens’ preferences, so we can expect government policies in democratic societies to favor the present and short term. In the face of undeniable problems, such as climate change, that will confront future generations, democracy’s presentism is a major liability. Thompson’s preferred solution to combat democracy’s presentism is democratic trusteeship, the idea that present generations can represent the interests of future generations by acting to protect the democratic process itself over time. I agree with Thompson’s diagnosis of presentism but propose that foundations are also a worthy institutional design for the protection of the democratic process over time. Foundations, precisely because of their governance structure, can fund experiments and innovation where the payoff, if it comes, is over the long haul, benefiting future rather than present generations. In sum, foundations, free of both marketplace and electoral accountability regimes, answerable to the diverse preferences and ideas of their donors, and with a protected endowment designed to exist across generations, are

On the Role of Foundations in Democracies   /  79

perhaps uniquely situated to engage in the sort of high-­risk, long-­run policy innovation and experimentation that is healthy in a democratic society and that addresses the interests of future generations. When they operate in this mode of discovery, foundations are not merely compatible with democracy but can support and even enhance democratic purposes. And what comes of a foundation-­funded innovation after it has been evaluated? Failed innovations and experiments die, though society has presumably learned something from the failure. Others may take up and modify the failures and generate positive results. Other foundation projects succeed in showing positive effects. From the perspective of a foundation, success in its philanthropic giving consists not in funding innovative and risky social policy experiments and then sustaining the most successful of them forever. Because the assets of even the largest foundations are dwarfed by the assets of the marketplace and the state, success consists in seeing the successful or pro­ven policy innovations “scaled up” by the commercial marketplace or by the state. The greatest accomplishments of American foundations fit this model. The creation of public libraries by Andrew Carnegie, the funding behind the Green Revolution, the development of Pell Grants in higher education, the coordination of a national 911 emergency response system, the emergence of microlending—­ all are the result of foundation-­ funded innovations brought up to scale by either the marketplace or the state. And the current efforts of some foundations to fund research on green technologies so as to mitigate climate change fit the model of representing the interests of future generations. The institutional design of foundations permits them to operate on a different time horizon than the marketplace and the government. Because their endowments are designed to be permanent, and the foundation is permitted to exist in perpetuity, foundations can fund higher-­risk social policy experiments. Foundations can use their resources to identify and address potential social problems decades away or innovations whose success might be apparent only over a longer time horizon. In short, unlike business and the state, foundations can “go long.” They can be the seed capital behind one important discovery procedure for innovations in effective social policy in a democratic society. This, I believe, is the stronger argument on behalf of foundations. Notice, however, that the foundations capable of providing sufficient risk capital for discovery have significant assets, and likely have a professional staff able to manage and disseminate its learning. The small family foundation that gives away less than $50,000 a year is not in a strong position to

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carry out such a task. Here is another reason for concern about the growth in small foundations and another reason for considering a high floor of assets before being permitted to set up a foundation. In contrast to the views of others in this volume, mine is an argument in favor not of mass philanthropy (see Zunz, chapter 2) but of professionalized and elite philanthropy. Mine is an argument not that philanthropy supplants or supplements what government does (Horvath and Powell, chap­­ ter 4) but that identifies a distinct role for foundations. Mine is an argument not that philanthropy should undertake particular causes, say those of reparative justice (see Cordelli, chapter 10), but is cause-­neutral and supportive of donor discretion. And mine is an argument not that plutocratic voices stand in ineliminable tension with democracy (see Pevnick, chapter 9) but can be rendered supportive of democracy. How well do foundations, in the United States or elsewhere, perform when measured against the vision articulated and defended here? Are foundations fulfilling the first-­best, ideal theory role in a democratic society I have outlined here? Are they good at fostering pluralism and discovery? A rigorous assessment is beyond the scope of my argument, but there is no shortage of doubters. Many prominent foundation observers, including many who are friends of foundations, believe that foundations are underperforming. Gara LaMar­ che, who spent more than fifteen years at two of the world’s largest foundations, thinks that foundations tend to be risk averse rather than risk-­taking. “Courageous risk-­taking is not what most people associate with foundations,” he writes, “whose boards and senior leadership are often dominated by establishment types. If tax preference is meant primarily to encourage boldness, it doesn’t seem to be working.”12 Joel Fleishman, the former director of Atlantic Philanthropies, and author of The Foundation: A Great American Secret, thinks that foundations would do their work better if they were more transparent and risk-­taking. Others, such as Waldemar Nielsen, a prominent author on the subject of philanthropy, have challenged foundations’ support for innovation, arguing that foundations are more frequently on the “trailing edge, not the cutting edge, of change.” Peter Frumkin, Paul Brest, and Hal Harvey have argued that foundations operate too often without a strategy or theory of social change, and are instead vehicles to express the preferences and fancies of their endowers. Perhaps these critics are correct. If so, then so much the worse for foundations, and so much the worse for the distinctive institutional privileges that currently attach to them. My aim here is not to defend the actual behavior and performance of foundations but to identify the right standard.

On the Role of Foundations in Democracies   /  81

I have sought to provide an argument about what foundations are for in a democratic society, about why a democracy would opt to create something as odd as the institutional form of a foundation. I have sought to counter the idea that foundations are essentially repugnant to democracy. My point is that the peculiar institutional form of the foundation can have an important role in a democracy in spite of their plutocratic power. Are foundations democratically required? I am not prepared to answer this question affirmatively, for a democracy has multiple mechanisms to cultivate pluralism and foster discovery. But I do hope to have shown that foundations are certainly democratically permissible, and that it is possible to defend a role for foundations, in something like the form they exist today, that makes them supportive of rather than injurious to democracy.

Appendix A

3.1.  Growth in number of private foundations, 1993–­2010

3.2.  Growth in number of private foundations, by asset size, 1993–­2010

F o ur

Contributory or Disruptive: Do New Forms of Philanthropy Erode Democracy? A ar o n H o rvath and Walter W. P o well The overlapping relationships between civil society, government, and philanthropy have a storied history in the United States. The associative origins of civil society, which played such a pronounced role in the founding of the young democracy, have come to be complemented, extended, and possibly supplanted by the introduction of accountability demands and managerial shibboleths, which have transformed the nature of the present-­day public sphere. During much of the twentieth century, nonprofit organizations were laboratories for experimentation with new ways of  providing public services (Hall 2006). When these efforts proved effective, they were typically taken on by government, most notably during the New Deal and Great Society eras. We suspect that many people today would be astonished to learn how active the federal government was in assuming a public role, even during the Republican administrations of Eisenhower and Nixon. The federal government today has both considerably less legitimacy in the eyes of its citizens and much less engagement with them. As the relations between citizens and government have dissipated, the involvement of a new generation of super wealthy in the world of philanthropy has catalyzed sharp changes in the nature of funding, missions, operations, and management of private charities, further altering the relationship between civil society and democratic governance. Jon Levy begins chapter 1 in this volume with a cartoon from Puck magazine that castigates William Vanderbilt, son of railroad magnate Cornelius Vanderbilt and a philanthropist in his own right, and financier Jay Gould for their efforts to run up the price the government would have to pay for the telegraph service Western Union in order to make it a public service. We offer, in sharp contrast, the cover of Time magazine from December 24, 2005, acclaiming Bill and Melinda Gates and the musician Bono as “the

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4.1.  Time magazine cover, December 26, 2005–­January 2, 2006

good Samaritans” (figure 4.1)1 Private efforts to define the public good are certainly viewed in a different light today. Many have commented on the growth and professionalization of the public sphere (Frumkin 2002; Skocpol 2003; Hwang and Powell 2009). Some have argued that democracy is harmed in the process (Putnam 2007). Few,

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however, have drawn links between the rise of a new era of philanthropic activity and the decline of democracy. Here we aim to forge this link by considering the changing relationships between philanthropy, the state, and civil society. How did philanthropy come to be regarded as a legitimate provider of the public good? What implications does this have for the practice of democracy? We argue that the institutional environment surrounding philanthropy has changed markedly and in its current form both legitimizes and enables a particular form of philanthropy—­what we refer to as disruptive philanthropy—­which runs the risk of eroding democracy. The meaning of disruptive philanthropy is cast in sharp relief when viewed in the context of the evolving relations between philanthropy and the state. In previous decades, nonprofit organizations and government, at both the local and the federal levels, operated as partners in public service (Salamon 1987). This pattern, in which governments funded but nonprofits delivered a host of social and cultural services, has been labeled third-­party government. These relationships are being altered by the recent era of disruptive philanthropy, with gifts on a scale unprecedented since the Gilded Age and even surpassing that celebrated period of philanthropy in both number of participants and public acceptance. We provide select examples—­such as Zuckerberg’s $100 million gift to the Newark public schools, the emergence of private investment bearing the risk of social programs such as the Pay for Success initiative, and the remarkable degree to which private philanthropic money was involved in the recent Bloomberg mayorship in New York—­to spark a discussion as to whether nonprofits and government no longer operate as complements but, rather, as rivals or substitutes. Disruptive philanthropy replaces the public sphere with all manner of private initiatives for special public purposes, dubbed by some enthusiasts as philanthro-­capitalism (Bishop and Green 2008). Such initiatives, we contend, crowd out the public sector, further reducing both its legitimacy and its efficacy, and replace civic goals with narrower concerns about efficiency and markets.

Disruptive Philanthropy As traditionally conceived, philanthropy is guided by either unmet public needs or minority interests not catered to by government, which tends to focus on the so-­called median voter. Philanthropists have championed new causes and new forms of public goods and ultimately sought state support for them. We call this contributory philanthropy in that it contributes to and enlarges the public goods provided by the state, and attends to interests not readily provided for by the state. Philanthropists realize these contributions

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by experimenting with social programs that are later taken up by the state, providing funding for public missions, and building initiatives and institutions that serve a wide public. Though a striking feature of philanthropy is the extent to which it seeks to build alternatives to government—­at times even competing with the state—­contributory forms of philanthropy aim to increase the size of the pie of public goods provided. Disruptive forms of philanthropy, on the other hand, seek to claim con­ trol over a slice of the pie by offering an alternative. To us, disruptive philanthropy is any activity that through the magnitude of donations either explic­ itly or by consequence alters the public conversation about which social issues matter, sets an agenda for how they matter, and specifies who is the preferred provider of services to address these issues without any engagement with the deliberative processes of civil society. Disruptive philanthropy seeks to shape civic values in the image of funders’ interests and, in lieu of soliciting public input, seeks to influence or change public opinion and demand. For example, the state provides public schools, but forms of disruptive philanthropy aim to provide alternative schools and generate competition that challenge and undermine public schools. Moreover, the goal is that these new alternatives will grow (or “scale” in philanthro-­speak) and possibly supplant publicly provided goods. Which features of disruptive philanthropy underscore its distinctiveness and sharpen the contrast with contributory forms? Disruptive philanthropy, we contend, has three distinctive features. First, it seeks to “change the conversation.” Given that philanthropists alone do not have resources on a scale with the state, conversation change is their best opportunity to exercise influence with more limited expenditures. Through media, publicity, and influencing political discourse, philanthropists serve as an outsize megaphone, both actively shaping how people view social problems and championing specific methods through which these problems can be addressed. They are avid proselytizers for their new goals. Second, disruptive philanthropy is typically built on a belief in the redemptive virtues of competition. This feature has several elements that may appear individually or in combination: a belief in the moral superiority of choice; a view that competition with the state forces government to be leaner; and a preference for new organizations—­startups—­stripped of the fetters of the past and free to pursue different strategies. Third, disruptive philanthropy looks at new models of funding public goods. This feature of disruptive philanthropy may also be a cause: cash-­strapped states are struggling to provide social services on diminishing budgets. They increasingly turn not only to public-­private partnerships but also to philanthropic partners that will

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take on the provision of public services. In this respect, impoverished governments further undermine their own legitimacy. Delineating core features, of course, elides the fact that people and organizations have multiple or mixed motives and that philanthropic portfolios seldom comprise only disruptive efforts. Our intention is to highlight the features of a highly visible and growing form of philanthropic activity. Though at first glance these features may appear somewhat distant from concerns about democratic governance, we believe the legitimacy and growing veneration for disruptive efforts are evidence of their powerful effects. Quite rapidly, the programs and ideas of disruptive philanthropy have become accepted as commonplace and are rarely met with pushback. Consider that the Gates Foundation was founded only in 2000; today it commands the philanthropic spotlight as if it were a time-­honored player in the public sphere. The Time magazine cover is but one indicator of the acclaim today’s philanthropists receive. For the most part, the forms of contributory and disruptive philanthropy can be demarcated along the lines of old and new (see table 4.1). Disruption, however, despite its modern-­sounding moniker, is not solely a modern phenomenon. For many reasons, older acts of philanthropy that we may now think of as contributory may have initially been perceived as disruptive. John D. Rockefeller’s funding of graduate education at the University of Chicago was disruptive of theological education. Andrew Carnegie’s creation of thousands of libraries may well have been disruptive to established forms of community. A strict comparison of old and new forms of philanthropy is not apt. Older philanthropists may also appear more contributory because they picked the low-­hanging fruit of unprovided public goods and saw many of their programs ultimately adopted by a largely undeveloped state. So whereas the Rockefeller Foundation’s experiment that later became the federally funded Head Start was contributory, a philanthropist developing such a program today might well be creating a rival model. Additionally, whereas we have decades, if not more than a century, to consider the contribution of older acts of philanthropy, much of the disruption we consider here has occurred recently. Their eventual implications might prove different. Indeed, the positive aim of this chapter is to call attention to and consider how the disruption driven by contemporary philanthropists can be rechanneled to encourage a more participatory democracy. The methodological challenges of historical comparison aside, two key points benefit our argument: one, philanthropists of the Gilded Age were often derided as plutocrats in their time and lauded only in retrospect; two

92 / Chapter Four Table 4.1  Comparison of Different Eras of Philanthropy Gilded

Contemporary

Philanthropists

Carnegie, Rockefeller, Mellon et al.

Gates, Walton, Zuckerberg et al.

Public goods

Museums, libraries, universities, churches, gardens, foundations

K–­12 education and public health

Relation to state provision

Contributory: complements to public provision

Disruptive: Interventions, substitutes for government provision

Legitimacy of philanthropists

Philanthropists castigated on magazine covers; avoid spotlight; few self-­naming examples

Philanthropists venerated on magazine covers, names are prominently featured, donors not seeking publicity are thought unusual and become the subjects of news coverage

contemporary philanthropists are widely celebrated as society’s benefactors even as their acts may undermine public choice. Older philanthropy may have been disruptive, but such disruption was ultimately constrained by public debate and government action. Contemporary philanthropy is unrestrained and thus capable of greater influence with much less scrutiny. Not only do today’s philanthropists enjoy considerable prestige in the current neoliberal era, but also state governments have been turning to disruptive philanthropists to help with projects that they lack the funds to pursue. A notable difference between the contemporary and gilded eras is the legitimacy of philanthropic largesse. In discussing the contemporary era of philanthropy we do not mean to suggest all philanthropy is corrosive to democracy. We know that a mix of organizational forms and a diversity of organizational practices create a healthy environment for innovation (Nelson 1981; Stark 2009; Powell et al. 2012). The public sector has long been an anchor for the innovation ecosystem, pro­ viding most of the seed funding of basic science, and selecting the most prom­ ising prospects via peer review. Disruption can and does play a role in this process, through the support of more quirky projects or the bankrolling of particular initiatives. We contend however that disruptive support, if unchecked, carries a particular set of risks for democracy. In this new regime, disruptive philanthropists are eager to scale up their alternatives in the hope that they might replace forms of public provision. In so doing, a commitment to diversity becomes a celebration of special interests, as these new practices and policies are championed only by those with the abundant means. It is, of course, possible that Gilded Age philanthropists may have looked

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more like today’s disruptors and may have had similar effects had they not been constrained by the institutions—­laws, public opinion, norms—­of their era. Andrew Carnegie turned to academic leaders as impartial stewards of institutions that he funded not because he sought out their neutrality but because public opinion demanded it (Johnson and Powell 2015). Imagine, instead, if Carnegie’s pursuit of philanthropy had been permitted to take Spencer’s social Darwinist philosophy into practice (Levy, chapter 1 in this volume). Disruptive philanthropy is not necessarily distinctive to the modern era, but the modern era is distinctive to disruptive philanthropy. The core of our argument, then, is that philanthropy, especially big-­ money philanthropy, exists in tension—­sometimes contributory, sometimes disruptive—­with state provision. It alters public conversation, sets agendas, and provides public goods in the absence of public deliberation. Though we believe the intentional disruptiveness of philanthropic efforts has increased over time, we argue that the increased legitimacy of private action in relation to public action has magnified the disruptive effect philanthropy has on democracy. We now consider the trajectory of the relationship between state and civil society in order to place in context the shifting ground of legitimacy to which philanthropy is subject.

The Trajectory of State and Society Voluntary associations played a central role in the American Revolution and in subsequent efforts to organize republican government. By the early nineteenth century, a rich associational life proliferated across New En­ gland and the Midwest, its character shaped by the influence of various religious denominations (Hall 2006). By the latter half of the nineteenth century, the previously religious notion of private responsibility for the public good became firmly embedded in American political and social life (Wiebe 1967; Warner Jr. 1968). The young “nation of joiners,” famously described by Alexis de Tocqueville, burgeoned into a society of fraternal organizations, volunteer fire companies, building and loan companies, dairy and grain cooperatives, and labor unions (Clemens 2006; Schneiberg, King, and Smith 2008). Mutual benefit societies permeated middle-­and lower-­ class American life, and charitable relief activities of every sort sprang from these associations (Skocpol 2003). This dense social sector enabled expression of personal interests, promoted strong solidarity within communities, and achieved many charitable goals. Some commentators argue that these associational origins continue to drive and influence much contemporary philanthropy (Frumkin 2002). To be sure, many contemporary discussions

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of charitable work are still associated with ideals of compassion, values, and trust. The more well-­to-­do of the Gilded Age utilized a similar associational model, but in the context of the fine arts rather than mutual charity. The late nineteenth and early twentieth centuries saw the transformation of urban life throughout the United States with the founding of museums, libraries, symphony orchestras, and botanical gardens in many large cities (Fox 1963; DiMaggio 1991; Johnson and Powell 2015). In the spirit of “noblesse oblige,” the rich created organized philanthropies to provide refinement and access to the arts. J. P. Morgan, for example, was the driving force behind the creation of New York’s Metropolitan Museum of Art. Even though many of these museums were initially closed on weekends, restricting access to working families, over time they assumed a central role in urban cultural life. These cultural organizations became some of the largest nonprofit institutions in the United States, and the patron model for the high arts became an established feature in every American metropolis. The Gilded Age also saw wealthy industrialists take on the task of building an advanced industrial society with an educated population. Andrew Carnegie funded the building of 1,679 public libraries in the United States (Van Slyck 1995, 217), and created a pension plan for college professors, known today as TIAA-­CREF. Many of today’s leading universities—­the University of Chicago, Carnegie Mellon, MIT, Stanford, and the University of Pennsylvania—­were either started with or received major catalytic gifts from the likes of John D. Rockefeller, Andrew Carnegie, George Eastman, Leland Stanford, and Joseph Wharton. To be sure, some of this philanthropy was clearly conspicuous, as Thorstein Veblen famously opined (1912), although Eastman gave more than $20 million to MIT under the name Mr. Smith and Rockefeller gave more than $70 million to Chicago without any academic building bearing his name. Debates over the motives of these industrialists are legend, and many biographers have stressed how complex their interests were. For our purposes, we want to draw attention to the uses of their immense gifts. Their philanthropy was in large measure contributory, that is, adding resources, often in the form of land, bricks and mortar, to build museums, libraries, and universities. These formal organizations became a cornerstone of the American cultural and educational landscape, and set the stage for subsequent government funding of higher education, public health, the arts, and scientific research. Over time, formal organizational structures spread from the arts and civic institutions to organize and implement the burgeoning array of visions held by civil society. Eleemosynary corporations, charitable trusts, and mutual ben­

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efit associations were granted nonprofit status within the broad purview of the federal tax code. Combining tax subsidies with claims to advance the social good, nonprofit organizations captured the interest, as well as the critique, of politicians and the public. This heightened attention led to calls for greater accountability and transparency about how these organizations were spending their tax-­subsidized dollars, as well as growing demands to ensure that their programming was effective. We briefly trace the rising importance of ideas about impact and performance to influences from two sources—­the movement of social science and professional expertise into charity, and the influence of private sector practices on nonprofit behavior. The Progressive Era as a Professional Project The first pronounced shift in the character of the U.S. public sphere took place during the late nineteenth and early twentieth centuries. In tandem with a rise in social activism was a move away from volunteerism. This new perspective embraced professional training and scientific evaluation. The origins of this sea change can be traced back to the privately funded U.S. Sanitary Commission, which utilized a dispassionate analytical approach to its public health and relief efforts during the Civil War (Fredrickson 1986). Those who led the work of the Sanitary Commission during the Civil War applied similar scientific methods to the reform and reorganization of the newly formed public welfare system in the post-­Civil War era (Giesberg 2000). Such efforts further blossomed during the Progressive era, driven by attempts to remedy public problems through scientific, medical, and engineering solutions. This approach sought to rectify the deficiencies of economic, social, and political institutions through the application of scientific principles and professional expertise (Abbott 1995; Mohr 1994). This move away from almshouses and churches reflected a desire for a scientific basis for charity. The new era of social engineering also saw research universities, either newly formed or transformed from established liberal arts colleges, become incubators for the development of modern approaches to social ailments. Charles Elliot, president of Harvard University, reconceptualized the role of elite authority from one based on character formation and social traditions to one of public-­serving scientific expertise. Newer educational institutions—­Chicago, Carnegie Tech, Johns Hopkins, and MIT—­gained prominence by focusing on the importance of a scientific basis of knowledge in fueling progress. The grant-­making foundations endowed by Gilded Age philanthropists pursued targeted philanthropy, aimed at fostering progress through a rational, systematic approach to the distribution of funds.

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Although the Progressive era’s luster faded in the 1920s with the onset of the Great Depression and Herbert Hoover’s inability to tackle the Depression’s challenges with associational efforts, the legacy of science and professionalism grew in strength over the twentieth century. The Progressive movement not only transformed the field of social work (Lubove 1965; Mohr 1994) but also set in motion an analytical turn that is reflected today in activities as diverse as various nonprofit rating services and MIT ’s Poverty Lab. Paramount in these endeavors is the belief that charitable activity should be methodically designed by experts, produce measurable outcomes, and be subject to scientific scrutiny as a means to identify the most effective approach. The current ubiquity of social science and public health terms—­data, statistical significance, randomized control trials—­is a testament to the entry of the sci­ entific community into the nonprofit sphere. The Managerial Turn In the latter part of the twentieth century, the scientific approach to civic activity was joined by inputs from both governments and business. Spurring this managerial turn in the United States were several pieces of government policy. First, the Medicare Reform Act and its attendant changes in the 1980s set a reimbursement rate for medical service (Scott et al. 2000). This monetization of health care enabled for-­profits to move into the field, where they began to compete with nonprofit providers on the basis of reimbursement prices. Although many for-­profits subsequently retreated from general-­purpose health care, remaining only in profitable specialized niches, competition in health care on the basis of price became firmly established (Schlesinger and Gray 2006). Second, President Clinton fundamentally altered the structure of the U.S. welfare system in 1996 with the requirement that welfare recipients undergo job training. This legislation transformed the old program that had been in effect since the 1930s, changing both the method and the goal of  federal cash assistance to the poor. This policy initiative opened up another arena in which competition for service delivery arose between nonprofits and for-­profits, with an accompanying convergence in terms of evaluative criteria (Weisbrod 1998; S. R. Smith 2002; Eikenberry 2009). For the social sector, with its history of more qualitative assessment, this specificity of price as a measurable output was alluring and soon expanded to an interest in other metrics. Government contracting to nonprofit organizations for the delivery of social services also took on a new level of oversight, reporting, documentation, and assessment. Globally, the reform movement dubbed “new public

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management” embraced strategies such as performance management and contracting with both nonprofit and for-­profit providers. This movement was not unique to the United States; indeed, its adoption in northern Europe, the United Kingdom, Australia, and New Zealand has been met with a good deal of enthusiasm by conservative parties. These changes in public provision entail a shift toward greater quantification of service provision, incentives for managers, and a purported voice for citizens in a new role as consumers of public services (Hood 1991; Hood and Peters 2004; Pollitt and Bouckaert 2011). This embrace of contracting led to even further outsourcing of government services, moving well beyond the partners in public service and third-­ party government models, common earlier in the twentieth century. These reforms also prompted questions in citizens’ minds about who was actually providing and funding social services, and more generally heightened doubts about the efficacy of public provision. The interest in performance and measurable outputs was capitalized on and further encouraged by another set of newcomers to the social-­ associational sphere. In the late 1990s, a new generation of high net-­worth individuals, many flush with money made working in the technology and finance sectors, moved into the world of philanthropy. They brought with them a desire to be “hands-­on” in their giving and an intense drive to see immediate results. This younger, more engaged group of donors drew heavily on metrics, practices, and ideologies from the world of business. The ensuing changes in the world of philanthropy, dubbed either strategic or venture philanthropy, have constituted a seismic shift. These donors pressed nonprofits to generate earned income and fees for service in order to stay fiscally healthy. A series of high-­profile articles in the Harvard Business Review championed the need for managerial expertise in the nonprofit sector (Letts, Ryan, and Grossman 1997), and corporate executives and consultants pressed established foundations and donors to adopt business metrics to guide their giving (Rojas 2000; Kaplan 2001). Current Era By the end of the twentieth century, just as the first information technology bubble was about to burst, there was a global embrace of entrepreneurship as an all-­purpose cure for society ’s ills. The mantras of innovation and “out with the old, in with anything new” became pervasive. Interestingly, the writings of the Austrian economist Joseph Schumpeter were selectively appropriated to provide analytical heft for such claims. And in the ensuing years, Schumpeter joined Smith, Marx, and Hayek on the mantelpiece as an

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4.2.  Decline in faith in government 1958–­2014. Based on data from the Pew Research Center

economic theorist whose ideas fuel debates in the larger society. Schumpeter ([1942] 1975, 77–­84) famously characterized capitalism as “first and foremost a process of change.” He coined the phrase “a perennial gale of creative destruction” to characterize how the capitalist enterprise was transformed from within. In his writings over five decades, he wavered as to whether large established enterprises or nimble new firms would be most adept at innovation. But the late twentieth-­century entrepreneurs did not absorb Schumpeter’s voluminous writings; instead they adopted the creative destruction line, arguing that the key tenet of their success was building startups that disrupted established industries. In recent years we have seen startups challenge many incumbent firms, for example, Uber versus taxi companies and Airbnb versus hotels. And we are witnessing the ensuing regulatory battles as established orders are forced to contend with these disruptions. As various disruptive entities met with astonishing financial success, it was just a short step for their founders to extend this philosophy to their philanthropy. Big, swift change somehow became a civic goal. The philosophy of disruption also comes at a time when faith in government is on the decline (see figure 4.2) and faith in private enterprise on the rise. The differing views of these institutions can be seen in public opinion polls. In 2013, 19 percent of the public had trust in the federal government, while 53 percent had a favorable view of business corporations (Dimock et al. 2013). Clearly, faith in private enterprise far exceeds faith in government, even despite the banker-­driven global financial collapse of 2008–­09. Further evidence of the favorable opinion of  business is found in the many polls and rankings that consider businesspeople among the most admired

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and powerful people in the world. For example, a Forbes (2013) list of the 72 most powerful people in the world listed 40 businesspeople, 31 govern­ ment and International Non-­Governmental Organization (INGO) represen­ tatives, and 3 others. The U.S. contingent on that list comprised 20 businesspeople and only 4 government representatives. Gallup and YouGov show similar results in their polls, with YouGov finding that Bill Gates is the most admired man in the world.2 Setting aside how such lists are created, few would dispute the current preeminence of  business leaders over politicians. This difference in how government and business are viewed may be a product of a growing economic liberalism that began under Reagan and ex­­ panded through the Clinton era. The image of the state as facilitator of the free market has simultaneously served to justify the retrenchment of the wel­­ fare state and the expansion of private provision for public goods. Compare, for example, President Nixon’s and President Obama’s health care proposals. Nixon, a pro-market Republican president, proposed a plan that was far more extensive than anything Obama proposed, and yet Obama’s plan was the one that provoked cries of socialism and accusations that the state was overstepping its bounds. Such contrasts capture the changing attitudes about the roles of the private and public sectors. Thus the social environment in which philanthropy operates has changed markedly. What, then, do the super wealthy—­those driving big-­money phi­ lanthropy—­make of this environment? How does the current era shape their philanthropy? One interesting source through which to explore this question is the Giving Pledge. Announced in 2010, the Giving Pledge is an effort led by Warren Buffett and Bill Gates—­two of the richest, most powerful, and highly esteemed men in the world—­to encourage other billionaires to give half or more of their wealth to philanthropy in their lifetimes. As of July 2014, 127 bil­lionaires had signed the pledge and 103 made statements about their philanthropic philosophies and motivations. The statements vary in length from a few sentences to several pages, offering insight into the logics the super-­rich apply to philanthropy. The public nature of these statements (they are available at givingpledge.org) suggests that these are sentiments about philanthropy that the donors wish to share with others. That the statements have received widespread positive press further underscores the legitimacy of these proclamations. For our purposes, these statements reflect the enhanced and seemingly taken-­for-­granted nature of  big-­money philanthropy. Beyond the strong sense of noblesse oblige found both in the creation of the pledge and the statements themselves, the statements often directly suggest philanthropy is not only a rightful provider of public goods but the preferred provider relative to

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the government. It is notable that these statements are novel. At other points in U.S. history, the view that philanthropists are either equal to or superior to the state would have been widely derided. In these Giving Pledge statements such ideas are offered as if a matter of fact. Some sentiments suggest that government has reduced resources and capability and thus it is the time for philanthropy to step up and provide for society. Others criticize government action as ineffective because it is constrained by risk aversion and constant conflict. Government is slow and deliberative, and stands in the way of progress. Philanthropy, on the other hand, is depicted as nimble, entrepreneurial, and innovative. In the statements, philanthropists view themselves as the investors in and entrepreneurs of public good—­across the 103 statements we analyzed, the word “invest” is used 88 times, “entrepreneurship” is used 27 times, and “innovate” is used 24 times. According to these statements, philanthropists know a good idea when they see it, and they take risks the government will not. Such implicit criticism of the government at times is rendered explicit. Jorge Perez writes, “It’s obvious to me that the government cannot solve all our problems.” Mark and Mary Stevens list options of what they could do with their wealth, stating that “donating it to virtually all the causes and organizations that we feel could make a difference in the world” is far superior to “let[ting] the government take it from you and redistribute it.” Ted Taube assails government policies for serving to “diminish the work ethic and personal responsibility.” To be sure, some references to government in the Giving Pledge view the government as an equal partner, an entity that must be dealt with as a means of “scaling” (a word used twelve times) the social innovations of the philan­ thropists. Our interest in pointing out these particular attitudes is to highlight how a mindset that previously was questionable at best—­that of philan­thropists publicly and proudly considering themselves as a or the rightful pro­vider of public goods—­now features prominently in philanthropists’ publicly held attitudes toward, and reasons for, giving. This is not to say that philanthropists of previous eras might not have held these views. That philanthropists of the modern era can so openly proclaim them is a sign of the sea change. This legitimacy, we suggest, builds off the contemporary era’s wide lack of faith in government and the relatively favorable views of private business. So whereas Ronald Reagan opined in the 1980s that the nine most terrifying words in the English language are “I’m from the government and I’m here to help,” a slightly more comforting set of words today might be “I’m a philanthropist and I’m here to help.”

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The prevalence of these sentiments, alongside many other recent examples, suggests that a shift in ideology and power is occurring in relations be­ tween philanthropy and the state. In short, whereas there has been a long history in the United States of extensive public reliance on private nonprofit groups to conduct publicly agreed-­on purposes, this new era is typified by private philanthropy setting the agenda and providing alternatives, determining both the purposes and who carries them out to an unprecedented ex­ tent. The statements echo themes of responsibility and autonomy, with little patience for democracy and the political process.

Acts of Disruptive Philanthropy Building on this attitudinal shift in philanthropy and the wider environment in which it operates, we look at the actions of particular philanthropists in the modern era to gauge their disruptive features. We examine recent examples much in the news to flesh out our definition of disruptive. These select examples illustrate and expand on the ramifications of disruptive philanthropy. We first consider the conversation-­changing aspects by looking at the role philanthropic funding has played in shifting the scientific agenda. Next we look at the preference for competition and markets through the lens of philanthropists’ attempts to drive school reform in the United States. We then examine new models of funding the state, largely focusing on recent activities in New York City, where some social services have been financial­ ized and the role of mayor has come to include large-­scale philanthropic giving. Changing the Conversation The amount of money contributed by philanthropists to public goods—­ scientific research, K–­12 education, or social services, for example—­is small in comparison to the money provided by the state. And yet, popular discourse about scientific research, public education, and state services has focused heavily on the work done by philanthropists. We consider this effect—­ the use of philanthropy to command outsize attention to particular issues, to set the agenda for which social issues matter and to determine how they should be addressed—­as the disruptive feature of conversation change. In one sense, conversation change may be viewed similarly as the goals of contributory philanthropy in that it channels resources and attention to some unmet societal need. But we suggest that conversation change is different

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and worrisome when it shapes public conversation in the image of philanthropic, not public, interests and weakens or delegitimizes democratic or deliberative processes in setting public agendas. To understand disruptive conversation change, we must first consider civil discourse. On the one hand, civil discourse allows the public to express diverse interests. On the other hand, civil discourse allows the public to have its interests constituted. In this sphere, the influence of the super-­rich, philanthropists, and foundations has historically been met with unease. At the same time, awareness-­raising stemming from such entities has long been a part of the civic sphere and is not necessarily designed to disrupt public institutions. Such awareness-­raising can influence ideas and interests that are beneficial to the public. For example, philanthropists can spark conversations about health, education, or broadly held values. Not all awareness-­ raising or conversation-­changing efforts, however, have public interests in mind. The ability of philanthropists to shift civic discourse toward particu­ laristic interests—­especially when those interests are presented with the sheen of public benefit—­is a notable feature of conversation change. Further, when this conversation-­sparking goes unchallenged or is accepted at face value, which we view as increasingly likely as philanthropy gains legitimacy over the state, such efforts increasingly shape which ideas matter, how they are to be addressed, and how the public should respond. One underresearched arena in which to observe disruptive conversation change is the shift toward the private funding of science. Over recent decades, we have seen a notable decline in public support for research universities. Between 1992 and 2010, state appropriations for public research universities dropped from 38 percent to 23 percent of universities’ total revenues. The steepest decline occurred between 2002 and 2010, a period when enrollment was rising (National Science Foundation 2012). Research funding has stagnated and even declined in real dollars. As the Bush and Obama administrations rolled back the healthy budget increases of the Clinton years, universities and nonprofit research interests turned to donors, licensed research results to private companies, and pursued a host of other strategies to offset the loss in federal revenue. Since 2010, federal science agencies have seen a drop of $30 billion, adjusted for inflation, in their budgets (Basken 2014, A4). In most U.S. states, students now pay a larger share of the costs of higher education than do the states (Hebel 2014, A34). And state spending per student is at its lowest level since 1980. Such trends do not bode well for a purported knowledge-­based economy. Clearly, private funding is playing an increased role in support of academic research. Surprisingly, little discussion has accompanied this very strik-

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ing shift. Perhaps the assumption is that these new funds come from diverse sources rather than a small minority and that the pluralism of funders’ interests would keep potentially particularistic interests in check. A 2014 New York Times front-­page story underscored the new reality. In it, Steven Edwards of the American Association for the Advancement of Science, commented that “for better or worse . . . the practice of science in the 21st century is becoming shaped less by national priorities or by peer-­review groups and more by the particular preferences of individuals with huge amounts of money” (Broad 2014). Some examples of these preferences of philanthropists involve gifts such as the Gordon & Betty Moore Foundation’s $200 million gift in 2007 for the construction of a thirty-­meter telescope at the California Institute of Technology. There is also considerable philanthropic interest in research on particular diseases, such as those that affect philanthropists’ families. For example, businessman and billionaire Dan Gilbert has founded several neurofibromatosis institutes following his son’s diagnosis with the rare disease; the Broad Family Foundation has been a funder of research on irritable bowel disease, with their foundation granting $40 million toward research since 2002. Some commentators are wary that philanthropy-­backed health research serves to perpetuate inequalities because commonly funded research involves disorders, such as cystic fibrosis, that tend to affect people along class and racial lines. There has also been a slew of philanthropists focused on funding science they find personally interesting. Paul Allen of the Microsoft fortune has founded a brain research institute in Seattle with $500 million, and Fred Kavli has done the same at several research universities. Larry Ellison has taken a particular interest in developing artificial intelligence after hearing a Nobel laureate speak on the subject. Eric and Wendy Schmidt of Google fortune took an interest in oceanic research after Wendy Schmidt’s first scuba dive, founding the Schmidt Ocean Institute with over $100 million and generously supporting marine research in general. In and of themselves, these projects seek to make important scientific contributions in their chosen fields. But treated together, the increasing reliance on philanthropic funding of projects may have unintended consequences. Scientific discovery plays a major role in the setting of a public agenda. In lieu of panels of peers and acknowledged experts reviewing and deliberating over scientific project proposals to determine which ones get funded based on criteria of intellectual merit and social contribution, philanthropists are taking a more direct route to fund projects of specific interest to them. Proj­ ects funded by philanthropists may have intellectual merit and serve some public purposes, but it is questionable whether such research serves public

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purposes equitably or even represents the most cutting-­edge work. An editorial in Nature Neuroscience expresses concerns that large gifts to particular research areas might crowd out research in other areas: “It is essential that funding for specific topics does not skew research to the detriment of important areas that might be temporarily less fashionable. . . . As they are targeted only towards particular projects, they have the potential to skew the distribution of research projects being proposed and executed, by pulling resources from other, less “popular” areas. . . . Areas deemed important by private do­ nors are thus increasingly important for determining research priorities” (Nature Neuroscience 2008). Even more broadly, there are concerns that private funding is viewed as a replacement for government funding. Marcia McNutt, the editor-­in-­chief of Science, spells out this concern and the implications it would have for the scientific agenda: One of the biggest concerns is that private funding for science could be viewed as a replacement for federal funding. However, unlike the federal portfolio, private support is not coordinated. Without adequate federal support, gaps of all kinds can develop—­in the balance of exploratory, basic, applied, and translational research; in the support of scientific talent at different levels of training; and in the support of different types of institutions. For example, there are very different long-­term impacts on science between a private investment in an institution devoted to basic research and a private investment targeted to globally eradicating a disease, although both are worthy endeavors. Even with new foundations entering the funding scene, the private share remains a small fraction overall and cannot compensate for substantial losses in federal dollars. For these reasons, it is important that scientists and philanthropists make the case to political leadership that private funding does not replace public support for research. (McNutt 2014)

McNutt is concerned that the specific impact-­oriented approach that many philanthropists take with their funding endeavors may undercut the funding of basic science. The recent track record of philanthropic contributions to science suggests that private contributions to science have scant interest in a wide-­ranging distribution of scientific attention. These contributions of­ ten look to fund short-­term, problem-­based projects at the expense of more fundamental research that does not have readily accessible outcomes. Given current heated debates in government about the proper role of taxpayer dollars in funding scientific research, one might be tempted to see philanthropic funding as a bargaining chip for those looking to diminish

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government involvement. On two grounds, however, it may nonetheless be a problematic bargaining chip. First, the relative size of philanthropy’s contribution to science pales in comparison to the historic levels of government funding. But some may be tempted to argue that private funds can replace, rather than complement, government funds. Second, the tendency for private funding to go toward projects of personal interest—­such as ocean exploration, paleontological work on dinosaurs, and cures for diseases that tend to distribute along class lines—­has the possibility of shifting the scientific conversation in the direction of philanthropists’ interests. If science is important to setting national priorities, then the increased role of philanthropy in the funding of science at the expense of a collectively informed scientific community serves as a form of disruption. To be clear, we are not suggesting that philanthropy has no role in funding basic or applied research—­indeed, philanthropic funding has led to much of value—­but we emphasize its sometimes parochial, special-­purpose character and urge the development of a peer review process for ensuring that such funding sufficiently reflects public and scientific interests. Belief in the Redemptive Virtues of Competition The second major feature of disruptive philanthropy is a belief that inducing competition produces the best social outcomes. Without a profit motive, so the argument goes, there is little impetus for efficiently providing services. Sure enough, this attitude can be found in the Giving Pledge statements we reviewed as well as in more commonplace critiques of government bureaucracy. Here we consider three implicit tenets of this belief: (1) the market is the most efficient allocator of goods, and obstacles to the market should be re­ duced; (2) whenever a system of provision is inefficient, competition will force adaptation to the newer models; and (3) efforts to produce alternative models should follow the contemporary business zeitgeist of startups and take lean approaches to making systemic changes. At base, there is a conviction that social services can and should operate like businesses, regardless of specific focus (e.g., children services, eldercare, homelessness, domestic violence, addiction). To explore each of these features of disruption, we consider the extensive philanthropic involvement in public education reform in recent years. Philanthropic interests in education are not new. Rockefeller and Carne­ gie had a huge impact on American graduate education at the turn of the last century. Much of this early philanthropic work on education was done in

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tandem with or in support of public education efforts. For example, Pierre du Pont was involved in building public education in Delaware through the improvement and development of schools and payment of teachers. Indeed, many groups had long thought of public schooling as an anchor of American society. In contrast, the current era of philanthropic involvement in education is decidedly different and has proven to be extremely polarizing. Recent research examining the grant-­making activities of major philanthropists has found that some offer increasing support for a select few school reform advocacy organizations, and others serve as “jurisdictional challengers” by directly competing with established public sector institutions (Reckhow and Snyder 2014). This shift reflects a preference for promoting competition, creating alternatives parallel to the state-­run system in an effort to challenge the public system, and operating in the startup mode of “moving fast and breaking things.” The idea of school choice is based on a clear preference for the market. If students are able to choose which schools they attend, they will necessarily gravitate to the better-­performing schools, regardless of distance or the choices of their peers. Hence, lower-­performing schools will either be forced to improve or be closed. The core of this idea was developed by Milton Friedman in 1955 when he famously proposed that state funds for education be allocated in the form of vouchers, which parents could apply to whichever school they preferred. The schools could be public or private, religious or nonreligious. Though the Friedman Foundation for Education Choice continues this mission, perhaps the biggest proponent of the school choice and voucher approach has been the Walton Family Foundation. According to Marc Sternberg, the director of the foundation’s K–­12 Education Reform Focus Area: “The Walton Family Foundation has been deeply committed to a theory of change, which is that we have a moral obligation to provide families with high quality choices. . . . We believe that in providing choices we are also compelling the other schools in an ecosystem to raise their game” (Rich 2014). Notably, the foundation’s support for school choice has been framed as a “moral obligation” for choice. This fits squarely within our conception that disruptive philanthropy views markets as virtuous allocators of social goods. The Walton Foundation’s devotion is to a theory of choice. In the abstract, the theory appears plausible. Many, however, criticize the approach as ineffective for achieving its stated goals. One problem is that many disadvantaged students and families may want to choose a better school but cannot because of various constraints, including the time and resources it takes to S ch o o l C h o ice .

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transport children to distant schools or a lack of information about which schools are superior. Another is that widespread choice of a particular school might diminish its quality of education due to excess demand. The approach also raises concerns for democracy. Critics contend that school choice might reproduce inequalities because those most able to overcome the obstacles involved in switching schools are likely to be those least in need. Second, vouchers encourage the application of public money to private organizations that are not accountable to taxpayers. Despite the opposition and concerns about public funds going to nonpublicly accountable organizations, the choice-­based reform strategy has proliferated. In the push for choice in education reform, many philanthropic foundations have been keen on supporting the charter school movement. Charter schools first appeared in Minnesota in 1991 and grew to 5,274 across the nation by 2011, constituting more than 5 percent of the public schools in the country (National Center for Education Statistics 2012). This trend has been one of the most hotly debated issues in education. Part of the expansion of charter schools has occurred through the philanthropic efforts of the Bill and Melinda Gates Foundation, the Eli and Edyth Broad Foundation, as well as the aforementioned Walton Family Foundation. Each has supplied significant sums of money and advocacy to drive a model of responsive, market-­oriented education, where low-­ performing schools can be closed, underperforming teachers can be fired, and the measurable language of test results and seats filled is ever present. In fostering these efforts, they have disrupted the traditional public school model of education. For some philanthropists, the drive for charters comes from a viewpoint that state-­run schools are in disarray and that alternative schools with better, more efficient management will produce better outcomes. Charters are a way to compete with the state, effectively encouraging the state to be more responsive as a result of competition. For others, the answer to education woes is to start fresh—­with new, unencumbered and better-­run systems that might involve the expansion of charters. This is exemplified in remarks Bill Gates made in a 2005 speech at the National Education Summit on High Schools: “America’s high schools are obsolete. By obsolete, I don’t just mean that our high schools are broken, flawed, and under-­funded—­though a case could be made for every one of those points. By obsolete, I mean that our high schools—­even when they ’re working exactly as designed—­cannot teach our kids what they need to know today” (Gates 2005). In many ways this statement underscores the tenets of disruptive philanthropy. Struggling educational institutions are T he C harter S ch o o ls M o vement.

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not to be fixed; according to Gates, they cannot be. An entirely new system must be created that is unencumbered by the shortcomings of the previous system. The Gates Foundation has stayed true to this belief. One of its earliest forays into educational philanthropy was funding the breakup of poor-­ performing large public schools and replacing them with smaller schools. For example, the foundation awarded a $9.5 million grant to the Oakland (California) Unified School District to convert three high schools into multiple small schools and open five additional schools by 2007. Additionally, the foundation notes that through a nationwide effort between 2000 and 2008 it spent nearly $4 billion, $2 billion of which went to “directly reaching at least 781,000 students and opening or improving 2,602 schools in 45 states and the District of Columbia” (Bill and Melinda Gates Foundation 2008). Though the results of this small schools initiative have been roundly criticized, and Gates has admitted to the initiative’s inability to meet many of the desired results, the foundation has continued to invest in other charter operations. More generally, the Gates Foundation’s efforts to effect educational change are viewed as an attempt to work around the public school enterprise, even when educators were supportive of the stated goals of improving math or reading skills. In March 2014, the American Federation of  Teachers chose to no longer accept funds from the Gates Foundation, in large part because of a chasm of distrust that had developed. The Gates Foundation has also played a significant role in shaping policy that regulates the operations of public schools. In this way, its educational philanthropy has provided a perch from which to proselytize about school reform—­a feature we have dubbed conversation-­changing—­and, in conjunction with its resources and reach, has attempted to compel public education to reshape itself in the Gates Foundation’s image. On one level, this resembles the philanthropy as laboratory phenomenon that we regard as part of contributory philanthropy. But notably different is the foundation’s demand that the federal government support more charter schools that are largely free from governmental (and by extension, democratic) oversight. The foundation used $2 million to fund the “Turnaround Challenge,” a report-­ turned-­initiative that U.S. Secretary of Education Arne Duncan has called the “bible” of school restructuring.3 The report puts heavy emphasis on the use of charters. The Gates Foundation has been the largest supporter and funder of the Common Core Standards—­donating over $150 mil­lion as of 2013—­ that have been adopted in many states (Strauss 2013). This influence has led education scholar and former assistant secretary of education Diane Ravitch

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to criticize Gates as the “unelected superintendent of American schools.” Interestingly, and possibly indicative of the legitimacy of big-­money philanthropy’s role in providing public goods, the majority of popular criticism about the standards has been critical of a national-­level program being forced on states, with scant mention of the program’s private-­money origins. The Gates Foundation is certainly not the only major philanthropic supporter of charter schools, though it may be one of the most vocal. Other foundations, such as the Eli and Edythe Broad Foundation, have supported the movement in other ways. For example, the Broad Foundation runs training programs to teach education leaders—­principals, superintendents, and other school management officials—­how to further school reform within public school systems. The Broad Residency and the Broad Academy have trained education leaders around the country to pursue initiatives to change government oversight and limit the power of teachers’ unions, while supporting the growth of public charter schools. Their website features a list of “75 examples of how bureaucracy stands in the way of America’s students and teachers,” which ties the failures of the public education system to government inefficiency, limited resources, and regulation.4 In this sense, the Broad Foundation’s educational reform efforts underscore the competition-­oriented feature of disruptive philanthropy. The state must face competition—­disruption—­in order to produce “positive” social change. M o ving F ast and B reaking T hings : T he P reference f o r S tartups .

Other philanthropists, rather than presuming that the state is broken and seeking alternative modes of replacing it, are competing less explicitly with it. This approach was apparent in 2010, when the young Facebook founder and multibillionaire Mark Zuckerberg went on the Oprah Winfrey Show to announce a five-­year, $100 million grant to support Newark (New Jersey) Mayor Corey Booker and New Jersey Governor Chris Christie in their plan to alter Newark’s public schools. The city’s school system had long been underperforming. Their plan called for imposing reform from the top down, fearing that unions and local politics would derail a more participatory approach to reform. The initial reform plan stated, “Real change has casualties and those who prospered under the pre-­existing order will fight loudly and viciously” (Russakoff 2014). Further, the plan sought philanthropic support in what amounted to a change in teacher incentives through systems of accountability and the expansion of charter schools in the district. Philanthropic funding, because it brought with it little oversight, would not, they maintained, carry the risk of being captured by entrenched interests. The plan

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found a funder in Zuckerberg, who apparently shared the Booker-­Christie vision of reform and the goal of making Newark—­a city he had never visited—­a national symbol for education reform. When announcing the grant, Zuckerberg commented, I hope that this helps the 45,000 students who go to school there. But the long-­term goal would be to make Newark into a symbol that you can do this. So that way, a lot of the results can get replicated in other places. . . . But hopefully a lot of it will get put in motion in the first year or so, and a lot of stuff that they need to do is just close down certain schools, make sure that there’s room for good schools to come in and join, set up programs. And then, a lot of this is going to be operating it and just going to take a long time to change. (Arrington 2010)

With the announcement of his $100 million gift, Zuckerberg set up a foundation, Startup:Education, as a vehicle for the funds. The foundation’s mission is to take “a startup approach to improve education for all students.”5 The plan called for building a new organization free from the institutional fetters of the old one—­a startup of sorts—­that would “fix” the education system. As Zuckerberg viewed it, he was investing in the duo as a venture capitalist would invest in a startup. Given the five-­year period over which the funding was to be used, he wanted them to move fast and break things, the mantra championed at Facebook. Booker and Christie’s plan called for just that. Schools were closed, others were consolidated, a superintendent was ousted, and outside consultants were hired to manage the transformation. The $100 million was spent, although reportedly little progress has been made. In reaction to the top-­down and outsider-­driven moves taken in the schools, local Newark residents were vocal in their criticisms. They felt overlooked and ignored by the disruptive manner of school closings and layoffs. To them, an announcement on Oprah was a far cry from a public forum. Citizens wanted to know the criteria for closing schools and what arrangements were being made to uproot and transfer students to other schools in the district. They wanted to know who would be selected as leaders for the charter schools, and what, if anything, the reform efforts would accomplish for students left out of charter programs. Merely imposing the style of startup for the sake of disrupting the older system proved problematic when the process dismantled the school system that the public had relied upon. As much as Newark parents desired change, their lack of say in the process and the retrenchment that went on without their input may well have done grave

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damage to prospects for wider systemic reform based on compromise and deliberation. There is little question that Newark schools were not effectively providing for their students, but this experience demonstrates the considerable costs of ill-­conceived disruption. There is, of course, a major role for philanthropy in the provision of education and its reform, but the imposition of experiments without democratic engagement proved to be a recipe for failure. Mayor Booker moved on to the U.S. Senate, and Zuckerberg, to other projects, but the schools of Newark remain deeply troubled. Nonetheless, the mantra of disruption and startups remains strong. In May 2014, Zuckerberg’s Startup:Education foundation made a $120 million gift to San Francisco Bay Area schools. This time, however, Zuckerberg is proceeding with hard-­learned lessons from Newark in mind. Though Newark schools remain in disarray, plans to reform Bay Area schools seek to involve teachers and parents in a better way and provide more far-­reaching support to students (Russakoff 2015). These lessons learned suggest progress in our view. Such efforts to build startups that can be invested in and “scaled” resonates within Zuckerberg and the tech sector’s zeitgeist. If something can be shown to work, it can be invested in and “scaled.” Zuckerberg and his wife, Priscilla Chan, have recently provided large support to San Fran­cisco hospitals and made a major splash by promising 99 percent of their Facebook shares to “advancing human potential and promoting equality.”6 Their approach is akin to the model of philanthropist as “experimenter.” But unlike that model, the end game as seen by philanthropists like Zuckerberg is not necessarily widespread diffusion. The model of such experiments—­throwing money at a system to transform it—­cannot easily be adopted by most municipalities unless they find a benefactor like Zuckerberg. In the end, philanthropic experimentation only goes as far as the donor ’s enthusiasm. New Models of Funding the State A common theme running through philanthropic efforts to refashion education is that local governments are cash strapped and therefore unable to bear the financial risk of new social programs. As state programs muddle along without any new revenue generation, some local governments are turning to alternative, private sources to fund an array of services they themselves had previously delivered. One form of private social investment still in its infancy is the social impact bond (SIB), first pioneered in the United Kingdom

S o cial I mpact B o nds .

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as a way for government agencies to pay for programs associated with some level of risk. The state sets a desired goal—­necessarily measurable—­and pro­­m­ ises to compensate an external organization if they are able to accomplish that outcome. This external organization then solicits working capital from private investors, funds which enable the hiring and management of social service providers and a third-­party evaluator. If the social goal is achieved within the designated time period, the government compensates the exter­ nal organization, which in turn rewards investors with interest on their principal investment for taking on the up-­front risk. As of February 2014, three states—­New York, Massachusetts, and Utah—­ have implemented SIBs, and all of these SIBs have been funded by investments from Goldman Sachs. The first SIB, in New York City, targets the reduction of recidivism among young men at Rikers Island jail. In Salt Lake City, Utah, the SIB is focused on providing early childhood education to low­income preschoolers through local school districts. In Massachusetts, the SIB is directed to improving outcomes through decreased incarceration and increased employment for at-­risk youth. As part of the New York City SIB, the city contracted MDRC to establish a program delivering services to young men at Rikers Island with the aim of reducing recidivism by 10 percent. The Vera Institute of Justice, funded by the Mayor’s Fund to Advance New York City, is charged with conducting an evaluation to determine if the program is successful. Funding for the program involves a $9.6 million investment from Goldman Sachs, guaranteed by a $7.2 million grant from Bloomberg Philanthropies. Goldman Sachs stands to receive its investment with interest should the program meet its goals by 2016. Simply put, Goldman Sachs is betting on the effectiveness of an evidence-­based reentry program and assuming the up-­front cost burden of the New York Department of Corrections, which will reimburse Goldman Sachs if the goal is met. Initiatives such as SIBs are signs that local governments view external sources of funding as legitimate, and as increasingly necessary. Moreover, decisions by local governments to use SIBs clearly signal that private money can and should play a role in tackling social issues. Such endorsement of private funding is further evidenced by the Obama administration’s Pay for Success initiative, begun in 2011, which seeks to expand the role of social impact bonds. According to the Office of Management and Budget (OMB), “Now more than ever, federal programs must be measurably effective and designed to do more with fewer resources,” and there is a need to “leverage philanthropic and other private investors to provide services for a target pop­

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ulation that measurably improve the lives of individuals while also spend­ ing taxpayer dollars wisely” (OMB 2011). At first glance, these interactions between the state and private actors—­ such as those in the New York SIB or in the Pay for Success initiative—­seem akin to the contributory modes of philanthropy of earlier eras. The state cannot afford to do everything, and philanthropy bears some of the burden of risk in attempting new social programs. But what makes these recent activities disruptive is that they are not philanthropically funded demonstration projects that, pending success, will later be adopted by the state. Nor are they a public-­private partnership in which state funding is leveraged by private entities to carry out state functions. Here, philanthropic interests are both central and institutionalized. Instead of private entities supporting projects that they will subsequently turn over to the state, the state is bidding for the favor of private entities. Hence it is less a public-­private partnership than a private-­public partnership. As such, the state’s goal must appeal to philanthropic sensibilities—­such as concerns with measurable outcomes or earnings potential, or models that prize market logic and free choice over responsible oversight and legal protection. For services such as recidivism reduction, the SIB model may be appropriate. The outcomes are relatively clear and the time until their realization is relatively short. But many programs do not have such attributes. It will be challenging to fund public goods such as parks or eldercare without first constructing clear metrics by which the outcomes should be measured. This process can lead to distortions when unambiguous and value-­neutral metrics belie complex or uncertain realities. The seemingly straightforward outcome of recidivism illustrates why. Though common in the field of criminal justice research, some debate exists about what counts as recidivism (reincarceration? arrest? technical violations of parole or probation conditions?). Furthermore, the common metric of recidivism represents only one of many possible outcomes in the criminal justice system. Viewed broadly, justice can be conceived of as entailing civil rights, equal treatment, or equal opportunity. Unlike these alternative conceptions of justice, however, recidivism’s relative ease of measurement makes it conducive to understanding the effects of particular interventions and facilitates the comparison of programs in terms of costs and benefits. Further, the field of criminal justice has shifted in recent years, along with much of the policy research and implementation field, to commodify the outcomes of interventions through cost-­ benefit analysis. The process of focusing on a financializable outcome, recidivism, is notable because it demonstrates how an ambiguous but important

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arena of public interest can be reduced to a narrow outcome measure. In some ways, this has been a boon for the criminal justice field. It has enabled policy researchers to overcome the taint of being perceived as promoting liberal “hug-­a-­thug” interventions and makes their work appeal to a wider political audience on the basis that it offers better services at lower costs. The typically unconsidered cost, however, is what this shift in how social services are conceived means for justice. It runs the risk of reshaping government agendas for what does and does not get funded. The state, in search of private backing, must select social problems and frame them in the hope of procuring funding, possibly at the expense of less tractable concerns, with less readily measurable outcomes. And, in turn, efforts to construct flimsy metrics for public services will multiply, creating a new commodification cottage industry. In doing so, the presumed and expressed interests of private funders may crowd out attention to issues not so easily monetized. As the model of SIBs or Pay for Success spreads, choices about the provision of social goods become determined more by investors than the public. M ay o ranthr o pist B l o o mberg . Michael Bloomberg, through his foundation, was a major player in the creation of the New York City SIB. At the time the decisions were made, Bloomberg, a very generous philanthropist, was also New York’s mayor. Not only was he the democratically elected representative of the city, he was also one of the city’s chief funders. By 2013, Bloomberg had donated an estimated $650 million of his own money to fund city needs, according to an analysis by the New York Times (Barbaro 2013). Because Bloomberg occupied the dual roles of mayor and philanthropist, his charitable and municipal interests are difficult to disentangle. He founded Bloomberg Philanthropies in 2006 to donate money toward matters of public health, environment, education, government innovation, and the arts, all areas that a mayor might choose to emphasize. His foundation, a lean organization based on the startup model, with only thirty or so people overseeing programs in more than ninety-­five countries, has massive ambitions. In Bloomberg’s eyes, the interweaving of mayoral and philanthropic roles was a jump-­start for solving public problems and resolving public issues that the city might not otherwise be able to address. He summarizes his belief in an interview with Forbes: “Never before has it been more important for philanthropy and government to work together to advance the public’s interest. I’m a big believer in public-­private partnerships, which have been critical to the success we’ve had in New York City in addressing poverty, sustainability, education—­and many other challenges. Especially in

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this economic environment, where governments have to do more with less, philanthropic dollars can allow mayors to experiment with unproven ideas that lead to major advances in the way we serve the public” (Kanani 2012). The use of public-­private partnerships in the traditional sense is not, however, the legacy Bloomberg has left behind. Rather he has demonstrated that private wealth can supplement public spending. One might say that he generously funded his mayorship. Rather than running for a job, he subsidized his, supporting all manner of city programs out of his own pocket.7 Criticisms leveled at Bloomberg’s mayoral actions are absent from his philanthropic efforts, suggesting that he will be remembered as a philanthropist who donated his mayorship to the city. Moreover, private money used for municipal social ends increasingly enjoys a halo effect that public support for the same ends no longer does. As private philanthropy further expands, tax revenues decline, creating a cycle of dependency. Consequently, Bloomberg’s dual roles serve to create a new normal, a state of affairs in which wealthy individuals select the public goals that mesh with their private interests, and for which they receive public acclaim and appreciation. The result is that when groups are unable to pursue a particular interest through the democratic process, the new alternative is to fund it through private means. Bloomberg began the New York City Office of Strategic Partnerships that oversees the 501(c)(3) Mayor’s Fund to Advance New York City, which is backing the Vera Institute evaluation of the New York recidivism SIB. The current mayor, Bill DiBlasio, appointed his wife to chair the office and thus chair the Mayor’s Fund. The presence of the Mayor’s Fund, and further its incorporation into the city government through the Office of Strategic Partnerships, is the organizational embodiment of Bloomberg’s simultaneous mayor-­philanthropist role. The actions of Bloomberg and the use of SIBs are motivated by the coincidence of public needs with a lack of available public funding. In some respects this is not unlike the Newark schools where Booker and Christie responded to a public need by seeking private funding in order to skirt government and public opposition. The idea that philanthropic privilege can dictate the state’s agenda without democratic considerations is a common element of the two, as is the perception of civic governance as an obstacle to the provision of social goods. To be sure, politics and public bureaucracy frequently stand in the way of social change, and often governments do run inefficiently. But these workarounds erode existing levels of democratic participation. The creation of programs like the Mayor’s Fund in New York City in numerous other cities around the country suggests a growing embrace of the disruptive mindset. Most significantly, the Office of Social Innovation

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and Civic Participation emerged out of the White House in 2009. The new of­fice, begun by President Obama, firmly establishes philanthropic and foundation interests squarely within the federal government. The office is designed to work across “the social sector—­individuals, non-­profits, foundations—­as well as business and government—­to find new ways to solve old problems.”8 Indeed, the existence of such a powerful seat at the executive table suggests that the story is more complicated than a vision of philanthropists versus government. More accurately, philanthropy is reshaping government by inserting itself as a preferred provider of public goods. This expanded role is increasingly welcomed and legitimized by the government at the highest levels.9 To be sure, in a zeitgeist in which many wish to dismantle government services and celebrate private wealth that pursues no public purpose, some may find our critique misplaced. Let us be clear: we bear no animus toward Zuckerberg or Bloomberg. We ask, however, what are the ramifications for democracy when the means of providing public goods moves away from a public system to a new process with no democratic or political recourse and scant public oversight or inputs? Perhaps as long as disruptive philanthropists fund services such as schools that are heavily used by the public, this is not a grave problem. But we may be only a small step from private entities dictating how public services ought to be run. Moreover, current philanthro­pic support is variable, not constant; what happens if and when private fun­ ding disappears? And what happens when Goldman-­Sachs fails to make a sufficient return on a recidivism investment? Bloomberg often jokes that he wants to bounce a check to his undertaker, recognizing even his own fortune is not inelastic. A democratic system may be rife with inefficiencies and entail deliberations and compromises, but the disruption of democracy—­in which “choice” replaces consent—­appears to us a risky answer.

Can Disruptive Philanthropy Promote Democracy? If a major concern about disruptive philanthropy is that it can have negative consequences for the practice of democracy, what might philanthropy look like if it enhanced democracy? To answer this question, we consider philanthropic challenges to government policies that inhibit the right to vote or judicial decisions that elevate corporate influence. For example, recent high-­ profile Supreme Court decisions, such as Citizens United v. Federal Election Commission (2010),10 Crawford v. Marion County Election Board (2008), and Shelby County v. Holder (2013)11 have been widely decried as antidemocratic in that they lend more power to corporations at the expense of the popular

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vote, and limit citizens’ access to elections. In response, efforts like the MacArthur Foundation’s “Strengthening American Democracy” program seek to “strengthen democracy in the United States, given our perception that the political system has failed to adequately address major issues confronting the nation.”12 The MacArthur program’s work focuses on funding research about voting restrictions and supporting research that suggests democratic solutions to political polarization. They also fund work to reform judicial elections and access to polls. Similarly, the Rockefeller Brothers Foundation has a Democratic Practice program that seeks to combat the influence of private financing in electoral campaigns by supporting the adoption of public financing. They also look to increase the transparency and accountability of corporate political spending which, even as it grows, remains hidden from the media and inaccessible to the common voter. Such efforts at revealing the political fortunes that shape elections are clearly attempts to increase the transparency of the current political landscape. Do such programs by the MacArthur and the Rockefeller Brothers Foundations satisfy our criteria for disruptive philanthropy? They seek to change the conversation around the status quo of democracy. They propose alternatives and new knowledge that will raise doubts about the current political process, and they offer new ideas. They also place the foundations and their grantees in the role of watchdogs over democracy and government functions. Ultimately, these actions are disruptive because they are in competition with the current political process, which, the foundations argue, is more responsive to special interests than its citizens. One may challenge the assertion that philanthropists can democratically disrupt, on the grounds that an embrace of democracy is little more than window dressing for a field that is inherently in tension with democracy. We do not deny this possibility. We reiterate, however, that philanthropists and foundations often have mixed and even conflicted motives, just like most organizations. It is not impossible for disruptive work and contributory work to come from the same source. Moreover, it is not outside the realm of possibility that contributions may ensue in the long run following initial disruption. Our hope, however, is that, even if prodemocratic programs are modest efforts today, such programs might become institutionalized and more central to philanthropic missions. There are two other forms of philanthropy that suggest ways to strengthen democracy, although neither fits the disruptive model. The first example could be termed the audit function of philanthropy. In recent years, as support for investigative journalism has dissipated and as newspapers’ advertising-­based business model has collapsed, the news organization

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ProPublica has stepped into the void. Notably, ProPublica, funded largely by philanthropic and private money, serves an important role as the fourth pillar of democracy. A healthy democracy relies on an informed public to keep both state and corporate power in check. The second form of democratic philanthropy is an alternative funding model that does not displace government’s role. When the California Community College system anticipated a $50 million shortfall in 2008, Bernard Osher, a Californian businessman and philanthropist, stepped in and wrote a check for $25 million to ensure the system’s scholarship program would continue to exist. Additionally, he pledged to match any gift made to the scholarship fund through June 2011, ultimately providing a total of $50 million. His charity prompted state legislators to support the fund’s continuation. This act of philanthropy came with no strings attached, and with no expectation of a return on his gift.

Discussion and Implications: When Private Interests Set the Public Agenda In the fields of economics and political philosophy, there has long been a concern that public provision of a good or service has the potential to crowd out private involvement. This view holds that government funding becomes a crutch or entitlement that hampers individual initiative. There is also a less extensive literature on nonprofit funding that examines whether earned income efforts by 501(c)(3) organizations deter charitable contributions. In both cases, the conventional view is that resources become substitutes for one another. We pose the question in reverse: does extensive private philanthropy by the super-­rich undermine government and, indeed, democracy? Obviously, individual acts of generosity are not, in and of themselves, cause for grave concern. Our focus is on their collective and transformative impact. Before considering these broader implications, we need to speak to several limitations of our claims. First, as we noted earlier, our historical comparison is incomplete. We look at philanthropic efforts over the past decade and compare them to a period that unfolded over many decades and for which we have rich historical data. Moreover, we lack access to detailed philanthropic records in the current era, so we cannot say what percentage of contemporary philanthropists’ donations are disruptive versus contributory, although these individuals certainly make loud claims about their disruptive gifts. Finally, we are aware that the efforts of Gilded Age philanthropists could be construed as disruptive in their time and place. The model

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4.3.  Theoretical model of disruptive philanthropy’s effect on democracy

of university higher education was transformed by their gifts. And these industrialists were roundly castigated in public by the press and critics. But, in an important respect, that is precisely the point we want to emphasize. Late nineteenth-­and early twentieth-­century philanthropy was shaped by an engaged public, a suspicious government, and a muckraking press that cast a critical eye on its efforts and its goals. Though there are flashes of this scrutiny in the modern era—­top-­down efforts to dismantle Newark schools arguably provoked community engagement—­that environment no longer exists. Today’s philanthropists are celebrated by politicians; featured glowingly on the covers of Forbes, Time, Vanity Fair, and Town and Country; and have created a burgeoning fashion for social entrepreneurship. This uncritical reception has led to an unexamined belief that philanthropic efforts are more efficacious than government, and an acceptance that those with great wealth can and should determine public purposes. As sociologists contributing to a volume with political theorists, historians, and legal scholars, we are inclined to offer a schematic framework to guide the empirical examination of our ideas. Thus we formalize our historical contrast in propositional form (figure 4.3). We define philanthropic disruption as the tendency for philanthropy, either explicitly or by consequence, to alter the public conversation about which social issues matter, to set an agenda for how they matter, and to specify the preferred provider of services to address these issues without any engagement in the deliberative processes of civil society. Borrowing from political theorist Robert Dahl’s (1989) definition, democracy depends on adequate, equal, and consequential opportunities for citizens to discover and express preferences

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and shape public agendas. With these definitions in mind, we suggest the following: Proposition 1: Increases in philanthropic disruption erode the practice of democracy.

The relationship between disruptive philanthropy and democracy is moderated by the context in which it takes place. In particular, the relative legitimacy of state and private action shapes how philanthropy is received. Following from the sociologist Max Weber, we consider legitimacy to represent faith in a particular social order, most notably, the extent to which that order is collectively felt to be natural or proper. As a baseline, we consider the relationship between the state and private actors to be inversely related. To formalize the dynamics of public and private interests, we suggest Proposition 2: Increases in the legitimacy of private provision of public goods relative to state provision exacerbates the negative effects of disruptive philanthropy on democracy.

Additionally, the relinquishing of direct government provision to pri­ vate entities—­either for-­profit or nonprofit, will moderate the effect that philanthropic disruption has on democracy. Thus, Proposition 3: Increases in private provision of public services will magnify the negative effects of philanthropic disruption on democracy by reducing direct accountability to citizens.

We also expect that the outsourcing of public provision to private actors will affect the relative legitimacy of state and private actors. Private provision of many services—­such as the private administration of public funding through charter schools—­can obfuscate the underlying relationship between citizens, the public good, and government. Consequently, we contend Proposition 4: As the state relinquishes its public provision role to private entities, the legitimacy of the state is reduced.

This effort at formalization follows from our cursory overview of the contemporary world of philanthropy. The new forms of wealth created in the fields of technology and finance in recent years have been put to new uses by a younger generation of philanthropists, and their efforts differ from traditional forms of  benefaction by the degree to which they prefer a disruptive model.

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There has been a concerted effort to remake the organizational landscape, often by tackling problems that are a particular personal passion of the philanthropist or by pursuing concerns that the benefactor feels are not addressed in a way he or she deems efficacious. This rise in disruptive philanthropy has occurred at a time of weakening belief in the role of government and a growing preference for private solutions. In many cases, private actions contain an implicit critique of the state, either with a disdain for its bureaucracy or a larger sense that government has become too cumbersome or slow to come up with new solutions. The fashionable critique of public engagement is accompanied by a celebration of individual initiative. This entrepreneurial zeal leads some to create organizations and services that come to assume the former purview of the state, either in education, public health, or social services. Through these efforts, the efficacy of the state is further questioned, and as a consequence, both citizens and politicians are channeled to support the further delegation of the people’s business to private enterprises, be they nonprofit or for-­profit. As the government cedes more of its role to the private sector, it contributes to its own weakening. There is less willingness among the young to work in government because there is less faith in its impact. As the legitimacy of government recedes, we increasingly valorize the private efforts of philanthropists and nonprofits to develop new organizations to provide public goods. In doing so, we obscure the power of these new agenda setters, as their hand in transforming the landscape is less visible. The fundamental challenge of many of these private initiatives is that they do not increase in scale or size without taking on many, if not all, the characteristics of large organizations of any stripe, and without the oversight and involvement we see in government. This process threatens the practice of participatory democracy as obstacles and greater distances are placed between citizen influence and the provision of public goods. Even more, this shift has gone largely uncriticized, suggesting a broad public acquiescence to private interests. We close with a few thoughts regarding measures that could be taken to stem the tide of private control and preserve the role of democracy in the provision of public goods. The core problem with disruptive philanthropic actions is that they are imposed without public deliberation or consultation. We saw this issue most evidently in the backlash that Zuckerberg, Booker, and Christie faced with their efforts to reform Newark schools. Further­more, the reliance on a free-­market view of philanthropy—­that if all philanthropists pursue their own interests, then all relevant interests will be represented—­ fails to produce equitable outcomes. To mitigate these effects, some form of community oversight and public consideration must be built in. Thus far

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there has been very little discussion of what form these deliberations might take, and in our limited space, a full-­fledged articulation is not possible. But there are extant models that could be readily repurposed to address these concerns. The major absence in the private funding of science is the lack of peer review. Foundations and universities could work together to set up advisory panels, along the lines used by the National Science Foundation, the National Institutes of Health, and many older foundations. Across the United States there has been a remarkable downturn in crime in large cities. A multitude of factors are involved, ranging from demographic changes to new models of policing. One critical element of the latter has been community review boards and various other steps to engage community involvement in the safety of neighborhoods. Similar engagement and participation in philanthropic efforts to transform public education would be welcome. The disruptive efforts of philanthropists are, however, not the only cause for concern. A key contextual moderator in disruptive philanthropy’s effect on democracy is the degree to which such actions are viewed as legitimate. This, in some ways, is a more unsettling problem, and solutions to it are less obvious. Moreover, our lament is less about the decline of civil society (Putnam 2000) and more about its unchallenged co-­optation by super-­rich philanthropists. Discussion, debate, and deliberation are noisy, frustrating, and slow. But when they reveal consensus and acceptance, successful implementation readily follows. If philanthropists genuinely want their gifts to have lasting, contributory effects on society, they need to move beyond their embrace of disruption and think more systematically about the involvement of those whose lives are affected by their efforts. To neglect this discussion is a loss for the larger public good and, quite possibly, in the long run, for the good effected by philanthropic money.

Five

Reconciling Corporate Social Responsibility and Profitability: Guidelines for the Conscientious Manager P au l B rest [Apple CEO Tim] Cook also spent significant time discussing Apple’s work in being socially responsible, including the $100 million that the company was donating to ConnectEd to bring technology to disadvantaged U.S. school districts, and the $70 million Apple had donated to Project(RED). . . . Apple’s aim in environmental issues is to “leave the world better than we found it,” Cook said, detailing plans to achieve 100 percent renewable power across the company, including the construction of the largest solar installation built and owned by a private, non-­utility company. Cook said Apple’s environmental efforts also made economic sense, but when challenged by a conservative shareholder activism group to pledge that Apple wouldn’t do anything related to the environment that didn’t follow a clear profit motive, Cook bristled with a reply that “we do a lot of things for reasons besides profit motive,” and recommended that anyone who had a problem with that “should get out of the stock.” And while Cook stated that he didn’t support specific shareholder proposals or certain outside ideas about how to best address human rights issues, he took personal issue with the comments some parties were advancing at the meeting, stating that Apple has taken a leadership position in human rights, taking on tough problems and “shining a flashlight on them” in an effort to effect change and push other tech companies to follow its lead.1

1. Introduction Questions about the intersection of the financial and social spheres of human activity are perennial. As early as the eighteenth century, Adam Smith—­

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perhaps the first theorist of free enterprise—­both wrote about our duty to fellow members of society and justified a market system.2 In The Wealth of Nations, he drew a connection between the two: “As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.”3 Under this view, free enterprise ultimately promotes the general welfare. But one might justify a market system under the philosophical position that each individual owns the fruits of his own labor, regardless of the effects of his activities on others.4 Disputes about the relationship between free enterprise and the general welfare have reemerged today both in the form of fundamental challenges to the market system, such as the Occupy Wall Street movement and Pope Francis’s critique of the tyranny of unfettered capitalism, and in less radical efforts to reform business practices to promote social and environmental goals. This chapter focuses on one strain of the latter: corporate social responsibility (CSR), or as it is somewhat differently characterized, corporate integrity or corporate citizenship.5 (Although I will generally use CSR to refer to both, the concept of corporate integrity has a different center of gravity, as discussed below.) The chapter inquires whether and how a company’s managers can safeguard the firm’s financial value for its shareholders while, at the same time, operating ethically and purposively benefiting other stakeholders, including its employees and the communities in which the firm operates. Although the prevailing sentiment among CSR advocates is that ethical corporate practices are also profitable business practices,6 it would be Panglossian to deny that conflicts can arise. Most writings on the subject have two limitations. First, they are less than clear in defining the scope of these conflicts and often end their analyses with examples where adoption of ethical practices is justified by the firm’s long-­ term financial interests. Second, with the notable exception of a polemical ar­gument by the late Nobel Prize–­winning economist Milton Friedman, they provide little guidance for resolving conflicts between profits and social values. This chapter makes two contributions. First, it clarifies the scope of these conflicts by offering a taxonomy of the circumstances in which a firm can both engage in CSR and make profits for its shareholders. Second, the chapter proposes some systematic approaches to addressing those conflicts that inevitably occur. For reasons that will soon become apparent, I will not focus on legal re-

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strictions on management’s discretion in making trade-­offs between the interests of shareholders and other stakeholders. Rather, I am concerned with how conscientious managers should address these issues within the broad freedom from regulatory and judicial oversight they enjoy. It may well be that managers can disguise virtually any decision as ultimately good for the bottom line. The interesting question, however, is not what can they get away with, but rather how can a manager, acting in good faith, discern actual conflicts and make reasoned and justifiable decisions when they arise? For purposes of the chapter, managers are a company’s board of directors, CEO, and senior executives. Firm value, shareholder value, and profits all refer to long-­term profitability. Granted that a firm’s long-­term value is not inevitably (and often not immediately) reflected in the price of its stock, the relevant metric is a firm’s ability to generate profits over a long time period.7 The easy resolutions of the tension between the financial interests of shareholders and the diverse interests of other stakeholders fall under the rubric of “enlightened self-­interest.” No one would think of companies as being necessarily altruistic when they pay more than minimum wages—­often hundreds of times more—­or provide amenities such as gyms and day care to attract and retain the best employees. Nor are corporations necessarily altruistic when they ensure safe conditions in factories in their supply chains in order to satisfy important groups of socially conscious consumers and investors, fore­ stall regulation, or protect their reputations to achieve unquantifiable bene­ fits in the long run. But for proponents of corporate social responsibility, enlightened self-­ interest is not the sole measure of a firm’s proper behavior. As the phrase implies, firms have a responsibility to stakeholders besides their owners. The concept of CSR thus entails some notion of intention. Virtually every firm benefits various stakeholders as a matter of course—­for example, its customers get value from the products and services it sells,8 and its employees have jobs. CSR requires something more: it requires that corporate management treat the interests of stakeholders as ends in themselves rather than merely as means for making a profit for the shareholders. This does not entail that activities primarily motivated by a desire to maximize long-­term shareholder value do not count as CSR, but rather that management decisions must genuinely take other stakeholders’ interests into account. People’s motivations are often mixed and are not always transparent even to themselves, let alone to others. A corporate manager who is primarily concerned with profits may still seek win-­win solutions, or may even sacrifice some chance of profits when making decisions for which the predicted financial and social consequences are uncertain.

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After this introduction, the chapter has five main sections. Section 2 cen­ ters on an essay by Milton Friedman that highlights the tensions between corporate management’s moral duties to shareholders and its putative respon­ sibilities to other stakeholders. In that section I also briefly discuss, and dispose of, management’s legal obligations. After identifying three different conceptions of CSR, in section 3, I describe the various players who exert influence in its ecosystem. In section 4, I systematically characterize CSR activities that are consistent with maximizing firm value. In section 5, I begin to examine situations that require trade-­offs between profits and social values, leading to section 6—­the most novel and perhaps provocative aspect of this chapter—­a proposed approach to reconciling the conflicts between these goals. While the trade-­offs I address in section 6 are the hardest cases in terms of moral or political philosophy, I do not want to imply that the decisions faced by management described in sections 4 and 5 are necessarily easy ones. Far from it. Even when long-­term profitability is the only metric, managers often must make trade-­offs among different stakeholders and between competing values such as cost and safety. They must make decisions in conditions of uncertainty, where the long-­term perspective renders assessments of benefit and risk all the more difficult. Moreover, beyond any particular decisions, management must create and maintain an organizational structure and culture in which difficult issues are identified and responsibly addressed. Many high-­profile cases of corporate malfeasance, including General Motors’ contemptible behavior in dealing with dangerous ignition switches, are rooted in organizational dysfunction or pathology.9 How management can create a responsible organizational culture is an extremely important subject of considerable empirical study. But this chapter has a different focus. My goal here is to sharpen the distinction between decisions that can be made within the framework of maximizing long-­term firm profits and those that are likely to sacrifice some profits, and to propose an approach for making trade-­offs in the latter cases.

2. Milton Friedman Sets the Stage The iconic case against CSR is Milton Friedman’s 1970 essay “The Social Responsibility of Business Is to Increase Its Profits,”10 whose title succinctly captures his point. I use Friedman’s model as a starting place, first because even strong advocates of CSR and corporate integrity acknowledge that the primary purpose of most corporations is to make a profit for their shareholders and, second, because Friedman’s virtual prohibition of CSR provides a

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clear reference point compared to the many possible trade-­offs of financial and social value urged by CSR proponents.11 It is worth noting that, although Friedman’s premises would have struck the owners of Jonathan Levy’s early Republican corporations as very odd indeed, they might well be regarded as the natural, albeit not inevitable, outcome of the rise of liberal general incorporation that began in the late nineteenth century. Friedman writes: In a free-­enterprise, private-­property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. . . . What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. . . . For example, . . . that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty. In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employ­ ees, he is spending their money. The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so.

Friedman gives three reasons why CSR is a bad practice. First, it violates the duty that agents owe their principals. Second, it usurps legitimate political processes for regulating corporate behavior. Third, corporate managers are not competent to make policy decisions of this kind: [1] The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal. This jus­tification disappears when the corporate ex­ecutive

128 / Chapter Five imposes taxes and spends the pro­ceeds for “social” purposes. [2] He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise. On grounds of political principle, it is intolerable that such civil ser­vants—­insofar as their actions in the name of social responsibility are real and not just win­dow-­dressing—­should be selected as they are now [i.e., by corporate boards of directors]. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expendi­tures to foster “social” objectives, then politi­cal machinery must be set up to make the as­sessment of taxes and to determine through a political process the objectives to be served. [3] On the grounds of consequences, can the corporate executive in fact discharge his alleged “social responsibilities?” . . . Suppose he could get away with spending the stockholders’ or customers’ or employees’ money. How is he to know how to spend it? He is told that he must contribute to fighting inflation.[12] How is he to know what ac­tion of his will contribute to that end? He is presumably an expert in running his company—­in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his hold­ing down the price of his product reduce infla­tionary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could an­swer these questions, how much cost is he justi­fied in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropri­ate share of others?

Friedman’s first two arguments are based, respectively, on the corporate manager’s duty and exercise of legitimate power.13 A critic might counter the first by noting that in many other contexts, agents’ duties to principals are not absolute. Even physicians and lawyers may, and sometimes must, breach their clients’ confidentiality to protect other interests.14 Indeed, as I’ll discuss below, Friedman creates an opening for a similar argument when he says that corporate managers should conform “to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” There is no a priori reason to assume that shareholders do not wish their managers to adhere to these rules. A critic might counter Friedman’s second argument by noting that corpo­ rate managers inevitably must make some decisions that resemble policy-­ making—­for example, in determining their firms’ employment practices or lobbying for favorable regulatory schemes. Friedman’s third point is a pragmatic one about corporate managers’ lack of competence or reference points

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for making decisions not specific to maximizing profit. This is an empirical question that proponents of CSR must address. In chapter 4 in this volume, Walter Powell and Aaron Horvath echo Milton Friedman’s critique of corporate policy-­making when they argue that wealthy philanthropists’ influence on public policy can be undemocratic. While Friedman focuses on the harms to owners rather than to the citizens affected by corporate policy-­making, Powell and Horvath consider disruptive philanthropy’s damage to the polity. Whether or not these practices can be harmful, however, is a different question from whether they are unlawful. Although there are limits on lobbying by tax-­exempt organizations—­some might wish that corporations were subject to similar limitations!—­there are no laws against disruptive philanthropy. And, contrary to popularly held views, there are no significant legal restrictions on corporate managers’ ability to sacrifice profits for social purposes. Many states have “constituency statutes,” which expressly autho­ rize management to consider nonshareholder interests in making business decisions.15 More generally, the American Law Institute’s Principles of Corporate Governance, which reflect prevailing legal standards, provide: Even if corporate profit and shareholder gain are not thereby enhanced, the corporation, in the conduct of its business: (1) Is obliged, to the same extent as a natural person, to act within the boundaries set by law; (2) May take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of business; and (3) May devote a reasonable amount of resources to public welfare, humanitarian, educational, and philanthropic purposes.16

While the text of the provision speaks only of situations where profits are “not enhanced,” the American Law Institute’s comments state that the provision applies “even if the conduct either yields no economic return or entails a net economic loss,”17 and that “[acts that] voluntarily forgo economic benefit—­or accept economic detriment—­in furtherance of stipulated public policies, . . . ethical considerations, . . . or . . . public welfare, humanitarian, educational, or philanthropic purposes . . . even though they may be inconsistent with profit enhancement, should be considered in the best interests of the corporation and wholly consistent with [duty of care] obligations.”18 The Principles of Corporate Governance place two limits on social ex­penditures that sacrifice profits. The expenditures must be “reasonable” and must be “reasonably regarded as appropriate to the responsible conduct of business.”19

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In the most comprehensive article concerning legal constraints on sacri­ ficing profits for other interests, Einer Elhauge summarizes a century of statutory law and judicial doctrine to conclude that corporate managers have broad discretion to do so.20 Elhauge’s analysis is based largely on judges’ inability to review corporate managers’ exercise of discretion without imposing heavy and unproductive costs on the system, including the costs of litigation by dissatisfied shareholders. Rather than focus on the judicial review of corporate managers’ decision-­making, this chapter asks how conscientious corporate managers should exercise the discretion they enjoy.21

3. The Meanings of Corporate Social Responsibility and Its Ecosystems Before coming to the main issues of this chapter, it may be helpful to describe three different conceptions of CSR and sketch the forces that exert influence on corporate managers to attend to social values as well as profits. Three Concepts of CSR Under what I’ll call the traditional view, a business entity maximizes social value by maximizing shareholder value—­something it can do only if it efficiently provides goods or services that its customers desire. Corporate social responsibility is rooted in the idea that shareholder value is not the only mea­ sure of a firm’s social value and, indeed, that the exclusive pursuit of profits may produce social harms. There have been many definitions of CSR since the modern concept began to take shape in the mid-­twentieth century.22 In a landmark 1973 article, Keith Davis wrote that CSR refers to management’s “consideration of, and response to, issues beyond the narrow economic, technical, and legal re­­quirements of the firm.”23 Several years later, Archie Carroll wrote, “The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.”24 CSR has since been framed more specifically in at least three ways—­in terms of stakeholders, corporate integrity, and sustainability. Much of today’s discussion of CSR centers around a firm’s many “stakeholders” in addition to its owners. A stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives.”25 The concept is nicely captured by David Henderson, S takeho l ders .

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a vehement critic of the movement, who describes the underlying theory of CSR before attacking it: A business has many stakeholders—­shareholders, employees, customers, suppliers, local communities, NGOs, governments, society as a whole—­whose feelings, opinions, and reactions it must take into account, and whose interests and welfare it must consider on both moral and prudential grounds. The profits of businesses, however, accrue to shareholders only. If therefore a business focuses too loosely and narrowly on short-­term profitability, this means that it is giving virtually exclusive regard to the interests of shareholders, to the neglect of all the other stakeholders. Not only is this likely to go against the wider public interest, but in today’s world it also involves failing to meet society’s expectations. This failure in turn will lead to loss of reputation, which can bring with it an actual loss of profits and may even threaten the continued survival of a company. Hence focusing on the public good rather than immediate financial returns, and on stakeholders generally rather than shareholders alone, is ultimately in the interests of profitability as well as those of society as a whole. To embrace CSR is to create a “win-­win situation.” Corporate citizenship makes good sense.26

This rose-­colored description, in which CSR is inevitably good for the bottom line and thus in the firm’s enlightened self-­interest, is typical of the move­ ment’s rhetoric. C orporate Integr i t y. The stakeholder and sustainability frameworks focus on those affected by a corporation’s behavior. By contrast, corporate integrity focuses on the firm itself. In the same way that virtue ethics is concerned with the character of individuals27—­with qualities such as courage, honor, and prudence—­corporate integrity focuses on the character of the virtuous firm. Ben Heineman, former general counsel of General Electric, encapsulates these qualities in terms of integrity:

Robust adherence to the spirit and letter of formal financial and legal rules. Voluntary adoption of global ethical standards that bind the company and its employees to act in enlightened self-­interest. Employee commitment to core values of honesty, candor, fairness, reliability and trustworthiness. Voluntary commitment to sound public policy that fairly balances private benefits with public interest.28

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Heineman uses the term corporate citizenship as a synonym for corporate integrity. “Citizenship” is an attractive term, because it captures a corporation’s obligations to the public. Nonetheless, I prefer to use “integrity” for two reasons. First, citizens have responsibilities mainly to the state, while the issues here involve a corporation’s obligations to individual stakeholders such as commercial partners, employees, and customers. Second, citizens also have rights against the state that, notwithstanding the Supreme Court’s broad view in Citizens United v. Federal Election Commission, corporations do not enjoy.29 Alternative to, but not inconsistent with, the emphases on stakeholders and corporate integrity, CSR is often described in terms of “sustainable development” and the “triple bottom line.” In the words of the World Business Council for Sustainable Development (WBCSD): “Corporate social responsibility is the commitment of business to contribute to sustainable development, working with employees, their families, the local community and society at large to improve their quality of life. . . . Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future.” The triple bottom line encompasses a firm’s economic, environmental, and social effects. The WBCSD states that “companies . . . need to demonstrate, more quickly and with increasing levels of detail, that their operations enhance economic development, ensure environmental protection, and promote social equality.”30

S usta i nab i l i t y.

Engagement and Disclosure The practice of CSR, or at least the claim to engage in the practice, has become pervasive among multinational corporations and among quite a few smaller firms in the developed world as well.31 The movement has created new ranks of CSR professionals, who work within the firms or consult to or monitor them. It has also given rise to the practice of “shareholder engagement” and led to extensive communications strategies by corporations touting their CSR commitments and achievements. While these phenomena may be due partly to some corporate managers’ intrinsic motivation, they are in large measure the result of activism by various stakeholders and of investors’ and governments’ demands for disclosure of the social and environmental impacts of doing business. Demands for disclosure have centered around ESG (environmental, so­­cial, and governance) criteria.32 Environmental criteria focus on energy,

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pollution, and the use of natural resources throughout a firm’s supply chain. Social criteria look to the firm’s treatment of its own employees, the working conditions of employees in its supply chain, and the firm’s impact on the communities in which it operates. Governance criteria include issues of control, transparency, and conflicts of interest. The system promulgated by the Global Reporting Initiative (GRI) is perhaps the most prevalent vehicle by which corporations—­over four thousand worldwide—­voluntarily report on their ESG performance.33 The relatively new International Integrated Reporting Initiative provides another framework to report on “how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of val­ue in the short, medium and long term.”34 A new organization, the Sus­tainability Accounting Standards Board, develops standards for publicly listed corporations in the United States to disclose material sustainability issues for the benefit of investors and the public, in the belief that its standards “will result in the improved performance of 13,000+ corporations, representing over $16 trillion in funds, on the highest-­priority environmental, social and governance issues.”35 In addition, the impact investing field has developed standardized metrics for measuring some common indicators of an enterprise’s social or environmental performance: the Impact Reporting and Investment Standards and the Global Impact Investment Rating System.36 While all of these reporting frameworks are voluntary, a number of gov­ ernments—­mainly in Europe—­have mandated the disclosure of activities that could adversely affect various stakeholders.37 For example (in Cynthia Williams and John Conley’s words), the 2001 French Nouvelles Régulations Economiques “requires each French company traded on the Bourse to provide extremely detailed environmental, labor, community involvement, health, and safety information in its annual reports to shareholders. The required environmental information includes specifics on the use of resources such as water, energy and raw materials; on emissions that could cause air, water, noise, or olfactory pollution; a company’s environmental management sys­ tems and efforts to reduce environmental impacts; accounting reserves for en­vironmental risks; and the amounts of fines and monetary awards paid because of environmental damage.”38 The British government began developing, though then stepped back from, a requirement that companies with publicly traded stock produce an Operating and Financial Review, based on a theory of “enlightened shareholder value”—­the idea that “long-­term shareholder value is best achieved by reducing a company’s future social and environmental risk and enhancing

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its reputation by ‘bearing in mind the rights and needs of players other than shareholders.’”39 Disclosure requirements are often justified as a means for informing investors about risks to the firm’s long-­term financial well-­being. Indeed, investors increasingly seem to be taking account of a company’s ESG factors as indicators of its financial value40—­particularly to the extent that they reduce the firm’s risks of litigation, government regulation, and consumer and investor boycotts. However, the line between shareholder value and benefiting a firm’s various other stakeholders often gets blurred. For example, in introducing the British proposal, Patricia Hewitt, secretary of state for the Department of  Trade and Industry, said: What are companies for? The primary goal is to make a profit for their shareholders, certainly. But the days when that was the whole answer are long gone. We all have higher expectations of companies in the modern economy. We expect companies not simply to perform well in the short term, but to have an effective strategy for delivering long-­term profitability. . . . We save for the years ahead, not the months ahead, and we need the companies in which we invest to share our own horizons. We expect companies to generate the wealth that provides good public services and a decent standard of living for everyone. We need continuing recognition that wealth creation demands honest and fair dealings with employees, customers, suppliers and creditors. Good working conditions, good products and services and successful relationships with a wide range of other stakeholders are important assets, crucial to stable, long-­term performance and shareholder value.41 We expect companies to create wealth while respecting the environment and exercising responsibility towards the society and the local communities in which they operate. . . . For this reason, I believe that increased, high quality shareholder engagement is vital to creating the modern economy that we all want.

By the same token, the preamble to the United Nations’ Principles for Responsible Investment, which has gained the adherence of investors with $35 tril­lion in assets under management, states: “As institutional investors, we have a duty to act in the best long-­term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios. . . . We also recognise that applying these Principles may better align investors with broader objectives of society.”42

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The disclosure criteria described above are designed mainly for the benefit of investors. Consumers can also play an important role in the CSR ecosystems. The acronym LOHAS, for Lifestyles of Health and Sustainability, refers to consumers “focused on health and fitness, the environment, personal development, sustainable living, and social justice.”43 These are the consumers who often pay a premium for products based on their sustainability or on the treatment of employees, communities, and environments in their manufacture. The nature and size of the LOHAS market, the amount that its consumers are willing to pay for social value, and the stability of their preference are the subjects of ongoing research.44 But to give just two examples, LOHAS consumers have been instrumental in the movement for fair trade coffee and have been a major source of pressure on apparel manufacturers to monitor the conditions of factories in their supply chains. Corporate Codes of Conduct Many of the reporting initiatives mentioned in the preceding section include more or less explicit standards of corporate behavior to which their signatories are expected to adhere. In a comprehensive empirical study of codes of conduct, Lynn Paine and her colleagues formulated a Global Business Standards Codex, with these eight core principles for managers and employees: 1 Fiduciary Principle: Act as a fiduciary for the company and its investors. Carry out the company’s business in a diligent and loyal manner with the degree of candor expected of a trustee. 2 Property Principle: Respect property and the rights of those who own it. Refrain from theft and misappropriation, avoid waste, and safeguard the property entrusted to you. 3 Reliability Principle: Honor commitments. Be faithful to your word and follow through on promises, agreements, and other voluntary undertakings, whether or not embodied in legally enforceable contracts. 4 Transparency Principle: Conduct business in a truthful and open manner. Refrain from deceptive acts and practices, keep accurate records, and make timely disclosures of material information while respecting obligations of confidentiality and privacy. 5 Dignity Principle: Respect the dignity of all people. Protect the health, safety, privacy, and human rights of others; refrain from coercion; and adopt practices that enhance human development in the workplace, the marketplace, and the community.

136 / Chapter Five 6 Fairness Principle: Engage in free and fair competition, deal with all parties fairly and equitably, and practice nondiscrimination in employment and contracting. 7 Citizenship Principle: Act as responsible citizens of the community. Respect the law, protect public goods, cooperate with public authorities, avoid improper involvement in politics and government, and contribute to community betterment. 8 Responsiveness Principle: Engage with parties who may have legitimate claims and concerns relating to the company’s activities, and be responsive to public needs while recognizing the government’s role and jurisdiction in protecting the public interest.45

These principles are distilled from individual company codes; the Caux Round Table’s Principles for Business, agreed on by various business leaders; and multisector codes, including the GRI, mentioned above, the OECD Guidelines, UN Global Compact, and principles promulgated by the Interfaith Center on Corporate Responsibility.46 The authors of the Codex observe that the business-­generated and multisector codes have different emphases, with the latter more oriented toward employees and the general public. Codes of conduct reflect norms which, however general, can provide a starting place for the corporate manager seeking to reconcile stakeholders’ competing interests. These norms are central to the argument in section 6. The rest of this chapter considers a continuum of CSR practices, ranging from those that maximize the firm’s long-­term value while arguably creating additional social benefits, to activities that benefit stakeholders at some cost to shareholder value. Lynn Paine draws a helpful Venn diagram in which the spheres of financial value and CSR or corporate integrity overlap (fig­­ure 5.1).47

5.1.

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In the next section of this chapter, I consider the happy area of overlap. I then turn to situations in which CSR and corporate integrity may be in tension with maximizing the firm’s financial value.

4. CSR Activities Consistent with Maximizing Firm Value There are three rather different ways in which CSR can be consistent with maximizing firm value. The first, which I’ll call managing perceptions, involves influencing important stakeholders to hold favorable attitudes toward the firm. The second concerns the ways that corporate integrity can contribute to the long-­run value of the firm. The third, creating shared value, involves practices that may benefit certain nonowner stakeholders at the same time as they increase, or at least do not reduce, the firm’s value. Managing Perceptions of the Firm A firm is subject to the influence of many stakeholders, including employees whom the firm wishes to recruit or retain, potential customers, and government policy-­makers and regulators whom the firm wishes to engage or keep at bay. The firm’s ability to channel those stakeholders’ influence often depends on their having a positive image of the firm and its activities. And this in turn requires various forms of communication ranging from advertisements to annual reports and glossy brochures to engagement with various stakeholders. Some CSR proponents contend that corporations’ activities that are putatively designed to improve social and environmental outcomes are usually nothing but public relations.48 On the other side, opponents raise concerns about a company’s even pretending to negotiate in good faith with CSR advocacy groups. For example, David Henderson asserts that “appeasement” or “sleeping with the enemy” has long-­term costs for the firm and the business sector as a whole.49 He argues that the sector is facing a movement that seeks to compromise its fundamental purpose of maximizing shareholder value in the service of a variety of social interests; corporate managers will inevitably cede ground here and there, until they tumble down a slippery slope, at the bottom of which lies inefficiency and chaos. I do not think Henderson’s concern is spurious. An analogy from my per­sonal experience involves the behavior of college and university administrators in the face of student protests over U.S. military interventions and issues of identity politics, where students pressed the schools to adopt political positions and prohibit hateful speech. While the protesters often had

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grievances deserving of respectful dialogue, some institutions compromised principles of free speech and academic freedom in their efforts to placate the students. Similarly, stakeholder interest groups often represent genuine interests that would be unfortunate for corporate management to ignore but are possibly inappropriate to capitulate to. To my mind, the issue is not whether to engage stakeholders but how to engage them candidly and constructively. Corporate Integrity While not addressing these particular arguments, Lynn Paine’s concept of “authenticity” demands that a corporation’s management of perceptions match its genuine commitments and internal culture. In a nuanced examination of the empirical data, Paine argues that virtuous corporate behavior often—­ albeit not inevitably—­contributes to profits by reducing risk, improving the organization’s internal culture, and positioning it favorably with market participants, communities, and government regulators. She notes that, in general, “the financial case for values like fairness and honesty is more robust than the case for altruism or charity.” Paine’s examples of the rewards of virtue and the penalties for wickedness include cases involving disclosure of harms to consumers, avoiding corruption, honest dealings in business relationships, candor with regulators, and the fair treatment of employees.50 Creating Shared Value If a firm’s managers can benefit stakeholders with no loss to the shareholders, even conservative theorists will not object to seeking those external benefits. Along these lines, in an important 2011 article, Michael Porter and Mark Kramer outline the concept of creating shared value (CSV)—­the idea that firms can engage in “win-­win” activities that create value for the firm and beyond.51 Porter and Kramer write that CSV is not philanthropy but a strategy for improving the firm’s performance and competitiveness while benefiting customers, employees, partners, communities, and other external stakeholders.52 Whereas Paine focuses on ethical practices, Porter and Kramer consider particular business and marketing strategies. They propose three main ways to create shared value: redesigning products and markets, increasing productivity in the value chain, and building supporting industry clusters.53 In the first category, companies develop new products that address societal needs or reach new, often lower-­income or remote populations. By examining the value chain, companies can simultaneously reduce their own costs

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by optimizing their production cycles while doing social and environmental good. And through collaborations with academic institutions, trade associations, and standards organizations, firms can increase their productivity and competitive advantage. Consider these examples: ·· Novartis routinely sells its pharmaceuticals in major cities in India, where hospitals and clinics provide a ready distribution chain. Yet 70 percent of the Indian population lives in rural villages that lack trained health care workers and clinics. Novartis sought to overcome these constraints by training local village women as health care educators, educating health providers in modern techniques, and establishing a distribution system of tens of thousands of local clinics. By creating the necessary health care infrastructure, typically a government responsibility, Novartis is able to profitably sell its products to more than 100 million Indians it could not reach before. The company is now expanding this model in other countries such as Vietnam and Kenya, where it faces similar constraints. ·· Through an analysis of its value chain, Intel decreased its environmental foot­ print while also lowering its energy bill. Since 2008, it has reduced carbon dioxide emissions and gained $111 million in energy savings. Intel’s $1 bil­ lion plant in downtown Ho Chi Minh City includes a water-­reclamation system that decreases water consumption by as much as 68 percent, reducing external costs as well as the cost of operating the plant.54 ·· Yara, the world’s largest mineral fertilizer company, has worked with governments, farmers, and African companies to improve farmers’ access to fertilizers and other agricultural inputs.55 With a $60 million investment, Yara has collaborated with the African Union Commission, Grow Africa, and the New Alliance for Food Security and Nutrition to develop Africa-­specific strategies for fertilizer distribution. Working with the Norwegian and local governments, Yara is supporting the development of roads and ports to create an agricultural corridor that gives African farmers better access to materials, increasing Yara’s sales and inland farmers’ productivity.56

Commentators on Porter and Kramer’s article have noted—­correctly, in my view—­that CSV is not an alternative to CSR but rather a particular approach to corporate strategy that actively searches for solutions that provide social and environmental benefits at the same time as they increase profits.57 Management’s investments in opportunities to create shared value is not essentially different from any other decision to incur immediate costs to achieve less certain long-­term benefits—­for example, a decision to invest in

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research and development. The only difference is the focus on social and environmental opportunities that may be overlooked by conventional corporate strategies.

5. CSR That May Lessen the Firm’s Financial Value Many proponents of CSR talk as if good corporate practices inevitably redound to the bottom line under a theory of enlightened self-­interest. Not only does this seem implausible, but, as Lynn Paine argues, the assertion that “‘ethics pays’ . . . is a back-­handed compliment that takes away as much as it gives. Managers who base their appeal solely on the financial benefits of ethical commitment are only reinforcing the patterns of reasoning and justification that make it difficult for people to take moral considerations seriously.” She suggests that “ethics counts” is a better slogan.58 This seems right. CSR and corporate integrity sometimes require the firm’s management to compromise the firm’s economic value to a greater or lesser extent. There are four possible rationales for doing so: 1 it is required by law; 2 it is implicitly required by ESG criteria; 3 shareholders have signaled their willingness to sacrifice profits to benefit other stakeholders; and 4 moral principles require the firm’s management to take account of the interests of other stakeholders.

The last of these is sufficiently important that I will give it a section (6) all of its own. Obedience to Law I’ll begin with what Milton Friedman thought to be an easy case when he wrote that a CEO may, consistent with his or her obligation to shareholders, “conform to the basic rules of society . . . embodied in law.” In an article written in 1979, David Engel asserted that obeying the law is an act of altruism that may sacrifice profits and that therefore a firm should not obey the law—­whether criminal or civil—­when it is unlikely to be penalized.59 Using the example of pollution, Engel explained that there are two main reasons that a firm might not be penalized for violating a law against pollution: its act won’t be detected, or the transaction costs of enforcement may be

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too high. He makes several arguments against voluntary obedience in these circumstances. First, the legislature may have accounted for underenforcement in setting statutory penalties, and voluntary compliance may therefore thwart the legislature’s cost-­benefit analysis by resulting in a suboptimal level of pollution.60 Moreover, even when the legislature intends that there be zero violations, “it is not plausible to argue that every substantive crime represents a legislative judgment that every corporation should spend an infinite amount on an internal auditing system to ensure that none of its employees engages in the prohibited conduct. And yet as soon as the argument is diluted at all from this proposition, a moralistic approach to the meaning of substantive criminal law gives no guidance as to how much a corporation should spend to reduce lower-­echelon crime.”61 Engel asks rhetorically: “How is management to know when voluntary law-­obedience is called for or how much to spend beyond profit-­maximizing investment on internal audit systems?”62 His basic argument also encompasses civil liability, which he says poses the difficulty of a firm’s estimating the amount of damages it has caused. A starting (and perhaps ending) place for considering Engel’s argument is to ask how ordinary citizens and the sole proprietors of  businesses should view their obligation to obey the law.63 Very few of us feel obligated to obey the letter of every law. For example, along with most other Californians, I regularly drive somewhat over the speed limit on highways, partly in the belief that the Highway Patrol has a lenient view of the speed limit and partly because I’m unlikely to get caught.64 On the other hand, I don’t drive through stop signs even when no one is present, and I recycle and don’t litter—­the personal equivalents of a company’s not polluting. Different readers doubtless will draw different lines for when to disobey, based on their judgment of the value of the activity to them, the harm to others, and the social costs of disobedience to the law as such. But we would have a terrible society—­aptly described as “lawless”—­if citizens felt no obligation to obey laws that inconvenienced them whenever they thought they wouldn’t get caught. Engel views the very idea these decisions cannot be made formulaically but call for judgment as a dispositive point in favor of systematic disobedience. To be sure, even the managers of a firm deeply committed to compliance with laws must exercise judgment in determining what resources to devote to internal monitoring or other forms of compliance. But no less than other leaders and managers, corporate managers are constantly required to

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make moral judgments within their spheres of activities.65 (Indeed, with respect to civil liability, a firm’s management is sometimes better situated than any others to estimate the amount of harm it causes by violating a law.) I will return to the criteria for making judgments of this sort in section 6. ESG Criteria The various ESG standards discussed above only demand disclosure, yet they also often imply substantive standards for a firm’s operations and impacts. Mandatory disclosure and standards are covered by the preceding analysis of obedience to law. If a corporate manager reasonably believes that voluntary disclosure or adherence to voluntary standards will enhance the firm’s value—­by reducing the risk of regulation, attracting customers and investors, or improving the firm’s public image—­then there is no conflict. This is what Michael Jensen calls “enlightened value maximization”: “We cannot maximize the long-­term market value of an organization if we ignore or mistreat any important constituency. We cannot create value without good relations with customers, employees, financial backers, suppliers, regulators, communities and so on.”66 I defer to section 6 discussion of the interesting case—­when voluntary disclosure or voluntary compliance with ESG stan­ dards sacrifices profits. Shareholders’ Willingness to Sacrifice Profits Friedman rightly asserts that corporate managers may not properly satisfy their personal moral views or altruistic tastes to the disadvantage of shareholders. But shareholders may want corporations to take account of other stakeholders’ interests even when this sacrifices profits to some extent. For example, they may enjoy psychological benefits when an investee corpora­ tion engages in socially valuable behavior and may incur psychological costs when the firm behaves in ways that violate the shareholders’ norms.67 Friedman acknowledges that altruism is not necessarily inconsistent with management’s duty to shareholders and may be economically advantageous to them in some circumstances.68 To my knowledge, Berkshire Hathaway was unique in allowing shareholders to designate corporate charitable contributions.69 But investors may purchase shares in (what they deem) socially valuable companies because of an alignment with their altruistic interests. A would-­be investor who has adequate advance notice of a firm’s intention to compromise shareholder value for the benefit of other stakeholders—­ that is, notice before purchasing the stock—­may wish that the firm focused

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exclusively on profits and may even invest and try to influence the firm in this direction. But he has no legitimate complaint that the firm’s management has violated its duties to him. This is the position of someone investing in Apple after Tim Cook’s comments quoted at the beginning of this chapter, in which he gave notice that the company may sacrifice some profits for social ends.70 Along this line, charters of benefit corporations explicitly commit those enterprises to take account of the nonfinancial interests of stakeholders. For example, to be certified as a B Corp, an enterprise must sign a “Declaration of Interdependence,” which provides: We envision a new sector of the economy which harnesses the power of private enterprise to create public benefit. This sector is comprised of a new type of corporation—­the B Corporation™ which is purpose-­driven and creates benefit for all stakeholders, not just shareholders. As members of this emerging sector and as entrepreneurs and investors in B Corporations™, we hold these truths to be self-­evident: That we must be the change we seek in the world; That all business ought to be conducted as if people and place mattered; That, through their products, practices, and profits, businesses should aspire to do no harm and benefit all. To do so requires that we act with the understanding that we are each dependent upon one another and thus responsible for each other and future generations.

To acquire B Corp status, a company must obtain board and shareholder approval to amend its governing documents and must get a certain rating with respect to the ESG benefits it provides specified stakeholders.71 Different B Corporations have different social and environmental goals. For example, the CSR “highlights” for the B Corp Method Products state: Workers: Workers paid >40% above living wage; Pays majority of health in­ surance premiums for workers and their families; >80% employee satisfaction reported Community: Pays suppliers to reduce their carbon emissions; Gives preference to fair trade suppliers; Offers >20 hours paid time off for community service Environment: Bottles are made from 100% recycled plastic; Most facilities are LEED Certified; >35% of shipments are made using biodiesel trucks;

144 / Chapter Five >50% of energy used comes from renewable resources; Cradle to Cradle endorsed company72

Incorporation as a benefit corporation by no means requires compromising the firm’s long-­term value. Indeed, many benefit corporations believe that their responsiveness to various stakeholders will increase their value. But investors in benefit corporations are effectively on notice that the firm may compromise firm value to serve specified social and environmental interests. The charter of a benefit corporation makes its CSR commitments explicit. But what of an investor who purchases shares in a traditional corporation that has expressed commitments through codes of conduct, statements by management, or simply by its actions? Any commitments that systematically diminish the firm’s profits are likely to be reflected in the price of its stock. Investors who have reasonable notice of the practices may be held to have tacitly agreed to them. But this does not answer the question of how corporate management determines what those commitments should be. I now turn to that interesting issue.

6. The Requirements of Moral Principles Ethics is knowing the difference between what you have a right to do and what is right to do. —­Justice Potter Stewart

Let us suppose that shareholders cannot be said to have authorized or acquiesced to any form of CSR. To sharpen the issue, suppose that a group of shareholders bought Apple stock at a time when management explicitly refused to sacrifice shareholder value for other goals. In comes Tim Cook, the new CEO, in effect announcing a policy change in his statement quoted above. Cook may hold the view, forcefully articulated by Einer Elhauge, that while legal regulations embody a baseline of norms, they are inevitably incomplete and cannot track the large variety of forms of corporate malfeasance. Moreover, legislation is a slow and inefficient process. In response to those who would argue that legal regulations embody all social norms that a shareholder could reasonably expect a firm to adhere to, Elhauge writes:

Legal sanctions can never be made sufficiently precise to deter or condemn all undesirable activity because we lack perfect information and cannot perfectly define or adjudicate undesirable activity. Trying to eliminate those

Reconciling Corporate Social Responsibility and Profitability  /  145 imperfections in information and adjudication would be not only unfeasible and costly but also undesirable in principle because of the harms that perfect surveillance would impose.73 . . . The optimal regulation of behavior has always required supplementing necessarily imperfect legal sanctions with social sanctions and internalized moral norms.74

More fundamentally, he notes, “the corporate structure largely insulates all shareholders from the ordinary social and moral sanctions that a sole proprietor would feel”: Shareholders are less likely to come into contact with those who might want to impose social sanctions for the business’s illegal activities and will be harder to identify as being connected to the corporation at all. Moral sanctions are not susceptible to those problems, but raise different concerns because moral sanctions require knowing just what the corporation is doing, and shareholders will ordinarily be blissfully unaware about the details of operational decisions and applicable legal regulations. Even if these obstacles could be overcome, shareholders are less likely to be deemed or to feel responsible because each is only one of many shareholders. This diffused responsibility . . . [will] further insulate shareholders from social or moral sanctions.

Elhauge concludes: An enforceable duty to profit-­maximize would override social or moral sanctions and make corporations behave in the same way as amoral individuals who ignore the social consequences of their conduct. This would worsen corporate conduct, assuming that our society’s social and moral norms do, as a group, improve behavior. In contrast, managerial discretion to respond to social and moral sanctions will move corporate behavior in the right direction, again assuming our society’s social and moral norms correctly identify which direction is right.75

Thus, even the most vehement opponents of CSR acknowledge that corporations have some obligations to others besides shareholders. Echoing Milton Friedman’s comments about the obligation to conform to ethical custom, the British CSR critic David Henderson writes that there are many situations in which managers, and indeed shareholders too, may need to consider what it would be right to do as well as what is both legal

146 / Chapter Five and profitable. . . . “The absence of effective legislation should not excuse a chemical company for polluting the air.” Both shareholders and boards of directors may be willing, and arguably should be willing, to risk or forgo profits at the margin for such cases as ensuring product safety, disclosing possible safety risks, reducing harmful pollution, eschewing bribery or dealing fairly with other parties, even where no legal obligations are in question. Such exceptions, and cases where there are good grounds for exercising independent judgment, are liable to arise even in countries that have well-­functioning legal systems and governments.76

Henderson writes of forgoing profits “at the margin.” But it might be that ensuring product safety, disclosing possible safety risks, reducing harmful pollution, and the like often call for more than a marginal sacrifice of profits. In the absence of legislation or instructions from shareholders or the firm’s corporate charter, how can a manager decide how much to compromise shareholder value for the benefit of other stakeholders? As a matter of logic, it is impossible to simultaneously maximize more than one variable. And as Michael Jensen observes, the potential trade-­offs are not simply between shareholders vs. other stakeholders as a homogeneous group, but among stakeholders with “multiple competing and inconsistent constituent interests”: Customers want low prices, high quality, inexpensive services, etc. Employees want high wages, high quality working conditions, and fringe benefits including vacations, medical benefits, pensions, and the rest. Suppliers of capital want low risk and high returns. Communities want high charitable contributions, social expenditures by firms to benefit the community at large, stable employment, increased investment, and so on.77

Jensen thus asserts that managers have no criterion for making trade-­offs among these interests other than maximizing the long-­term market value of the firm—­which he deems “enlightened stakeholder theory.” I think the matter is more complicated. Before coming to the question of whether management can make these trade-­offs, however, we must understand the sources of the moral obligations. I can think of three. The Sources of Corporate Moral Obligations S hareho l ders ’ M ora l O b l i gat i ons . Individuals have moral obligations as members of society, which they cannot avoid by delegating authority to

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an agent to act on their behalf. If the agent did not inherit them, those moral responsibilities would disappear in a vanishing act more tragic than magical. Many shareholders likely do not want their investees to pursue profit maximization at the expense of ethical behavior. But regardless of what the shareholders want, it would be a deep cause for concern if individuals could entirely avoid any personal moral responsibilities for the consequences of using their assets simply by placing their control in someone else’s hands. All things considered, management may reasonably act on a presumption that the shareholders would not want the firm to abandon moral obligations any more than they would themselves in their lives as citizens.78 Of course, a huge amount of stock, especially in large multinational corporations, is not in the hands of individuals but of institutional investors—­ pension funds, insurance companies, endowments, foundations, and sovereign wealth funds. But the ultimate beneficiaries of institutional investors are individuals. Thus, while this creates another level of agency relations, it does not extinguish them. This is true even where the institutional investor acts on behalf of a university or foundation. There are turtles all the way down, or at least at the bottom. Indeed—­though not essential to the basic argument—­ some writers have taken note of the phenomenon of “universal ownership,” where the beneficiaries of funds are stakeholders in the aggregate activities of firms, affected not only by their financial returns but by their external costs and benefits with respect to workplace safety, pollution, and the like.79 Just as delegation to corporate managers does not insulate shareholders from their moral obligations, managers are not relieved of their own obligations by virtue of accepting the delegation. While the codes of ethics of some professions—­law is perhaps most analogous here—­allow the professional to take some actions on behalf of clients that he or she may personally disapprove of, none requires the professional to engage in fraud or commit egregious harm on their behalf. In any event, the thrust of the corporate codes of conduct mentioned above is toward imposing greater responsibilities on corporate managers than codes of ethics place on lawyers. What a corporate manager should do in the face of a conflict between the requirements of moral norms and explicit contrary instructions of the shareholders is, so far as I know, a purely hypothetical question. If this occurred, the manager might resign from the job—­I think of Elliott Richardson and William Ruckelshaus tendering their resignations as attorney general and deputy attorney general, rather than obeying President Nixon’s (arguably legal) order to fire Special Prosecutor Archibald Cox.

M anagers ’ M ora l O b l i gat i ons .

148 / Chapter Five C orporate Integr i t y. Not only businesses but institutions, including uni­­versities, foundations, and nonprofit organizations, play major roles and wield enormous power over the lives of people—­employees, consumers, community members—­in our global society.80 It takes little imagination to see that a world in which these institutions myopically served their core benefi­­ ciaries without any moral regard for others would be an impoverished one. One might respond that it is not the institutions but only their managers that bear moral obligations. Milton Friedman implies as much when he asks, “What does it mean to say that ‘business’ has responsibilities?” and he replies, “Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities,” but any real responsibilities lie with its managers.81 But in virtually every area of social and economic life, we treat the institutions as entities with an existence independent of their managers, owners, trustees, and trustors. Without making too much of the analogy with the law, basic legal liabilities—­mala in se—­have their roots in conventional morality, and it would contradict most people’s intuitions to decouple an institution’s legal responsibilities from its moral ones. We think and talk of a company’s obligation attaching to the entity rather than to a succession of managers.82 Formalities aside, the main reason to treat the corporation as morally responsible is to give its managers a perspective from which to assess their actions. While managers should themselves be guided by ethical principles appropriate to their professional roles, their central question is, What should the firm do? Whatever the sources of moral responsibility, it is helpful for the managers to assume the perspective of the firm, a viewpoint reflected in the concept of corporate integrity.

Of Norms and Slack To assert that corporations have moral responsibilities is not to say what those responsibilities are or, if they are not absolute, how they should be balanced against the goal of profit maximization. Though there are some behaviors—­such as lying, cheating, and stealing—­that are intrinsically wrong under virtually every ethical theory, the line, say, between lying and (as courts have put it) “mere puffery” or the use of techniques of behavioral influence is hardly sharp. While recognizing that not all harms are wrongs, Lynn Paine asserts that corporations should adhere to a principle of “noninjury,” and that “the prospect of financial gain for the perpetrator has never been regarded as sufficient

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justification for inflicting harm on innocent others without their consent.”83 But this oversimplifies the matter. Not every harm inflicted by an individual or organization is a moral wrong, and no ethical principle requires actors to internalize all of the costs they impose.84 For example, in theory, there is an optimal level, where the social benefits of a firm’s polluting activities marginally exceed the external costs imposed on those harmed by the pollution. But as Milton Friedman rightly notes, correcting such market failures is essentially a matter for government regulators. Granted that managers have no general obligation to optimize the firm’s value to society, corporations nonetheless have the potential to inflict great harms. How should corporate managers address their responsibilities in these cases? Paine proposes that corporate managers undertake an alliterative four-­ part inquiry into purpose, principle, people, and power.85 ·· Purpose. Will the proposed action serve a worthwhile business purpose, and how effectively will the proposed course of action achieve that purpose (compared to less harmful alternatives)? ·· Principle. Is the course of action consistent with relevant principles, found in customary practices, industry codes, company guidelines, and the emerging body of generally accepted ethical principles for business? ·· People. Does the action respect the legitimate claims of the people likely to be affected? Is the firm mitigating or compensating for harms? ·· Power. Does the firm have the power to take this action? In addition to having legitimate authority and necessary approvals or consent, does it have the resources to carry out the action?

This set of questions is designed to help managers discern ethical issues and provide a general framework for addressing them. The inquiry into principle centers around social or business norms, and the other inquiries ultimately refer to norms as well. In the following pages I suggest that those norms are an essential source of guidance for resolving conflicts between financial and other values. First, however, I want to mention the role of organizational slack in resolving these conflicts. Slack exists when an organization is not fully utilizing its financial or human resources.86 Slack is, literally and figuratively, money in the bank that gives management leeway in a corporation’s operations. It can be used negatively for self-­inurement and to allow the organization to operate inefficiently, or it can be deployed productively for, say, research and development or for ethical behavior that sacrifices some profits. At the time that Tim Cook made

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the statement quoted at the beginning of this chapter, Apple had considerable slack in term of cash reserves and strong corporate earnings. In reality, most multinational corporations have sufficient slack to engage in good behavior—­and then some. However, a company operating on the margin against ruthless competition has no slack. Consistent adherence to good practices of CSR or corporate integrity may throw it into insolvency—­ especially if its competitors do not adhere to the same practices. Industry norms come into play here, not just as a guide to how to balance the competing values at stake, but in enabling good behavior. Ben Heineman makes essentially this point in High Performance with High Integrity when he writes: [Corporate] citizenship . . . involves voluntarily making ethical commitments beyond the formal requirements that bind a company. But such standards come with costs. . . . Clearly, in a competitive world, there are limits to . . . unilateral action. It’s very unlikely, for example, that any company would take on the enormous costs of remedying historic environmental problems . . . unless all similarly situated corporations did so as well. So in contemplating “ethical” actions, companies may decide that a particular “public” or “social good” is important to society (such as environmental protection), but conclude that the competitive impact is too great to go it alone. In such cases, the costs must be more broadly distributed, usually in one of two ways: Through voluntary, industrywide agreement on standards (promulgated, of course, in ways that don’t violate the competition laws) Through public policy where costs are spread either by means of the tax base or through imposition of costs or responsibilities on all the members of a particular industry.87

A common way of imposing costs or responsibilities on all the members of a particular industry is through government regulation. The Foreign Corrupt Practices Act of 1977, which prohibits bribing foreign officials, is an excellent example of a regulation that protects an ethically inclined corporation against unethical competitors.88 The exemption of agricultural waste from the Clean Water Act provides an example of the insidious consequences of little slack in a highly competitive industry. In the summer of 2014, algae bloom created by fertilizer runoff from farms surrounding Lake Erie poisoned the Toledo, Ohio, water supply. Although the nutrient levels in the runoffs could be somewhat reduced at little expense, large-­scale reductions would require costly planning and training.89 Absent the imposition of

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requirements on competitors, individual farmers would be hard-­pressed to address the problem themselves. The Role of Norms Business or public social norms can provide an important source of guidance for corporate managers considering trade-­offs among a firm’s stakeholders. Let me begin the discussion of norms as a source of guidance with an analogy from the Supreme Court’s approach to adjudication under open-­ ended clauses of the Constitution—­for example, the cruel and unusual punishment clause of the Eighth Amendment. The Court has looked to what it calls “evolving standards of decency that mark the progress of a maturing society,”90 taking into account legislation, public attitudes, judicial precedent, sentencing practices, and international practices to determine whether a punishment is cruel and unusual.91 For example, in 1989 the Court found that there was no consensus against executing mentally retarded defendants who had been convicted of murder.92 In reconsidering the issue thirteen years later, the Court, noting that in the interim eighteen states had passed legislation prohibiting their execution, held the practice unconstitutional.93 As the Supreme Court said in an earlier case, this approach to adjudication is designed to incorporate social norms or conventional morality rather than “draw on our merely personal and private notions.”94 The constitutional scholar Harry Wellington defines conventional morality as “standards of conduct which are widely shared in a particular society.” The Court is “[not] entitled or required to assert its moral point of view. Unlike the moral philosopher, the court is required to assert ours . . . . And that is why we must be concerned with conventional morality, for it is there that society’s set of moral principles and ideals are located.”95 Under this approach, the decision-­ making process looks less like making personal moral judgments or policy making, and more like a participant-­observer anthropologist’s understanding of social practices. Wellington writes that to discern a society’s conventional morality, one must live in the society, “become sensitive to it, experience widely, read extensively, and ruminate, reflect, and analyze situations that seem to call moral obligations into play.”96 While corporate managers generally are not chosen for their ruminative qualities, they are likely to be more actively engaged in and knowledgeable about real-­world affairs than Supreme Court justices. The “evolving standards” approach to constitutional decision making has been criticized on the ground that the justices’ personal and private notions

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inevitably play a role. For example, the late constitutional law scholar John Hart Ely doubted that American society shares a conventional morality and argued that, even if it did, the consensus is “not reliably discoverable, at least not by courts: by viewing society’s values through one’s own spectacles . . . one can convince oneself that some invocable consensus supports almost any position a civilized person might want to see supported.”97 But what is the alternative? In the realm of constitutional law, the choice is either originalism (which has even more intractable jurisprudential problems) or judicial deference to the legislative decision being challenged—­ that is, subjecting the putatively unconstitutional practice to little or no judicial review. For corporate managers, the alternative would be to treat profit maximization as the sole decision-­making criterion. Actually, the “evolving standards” doctrine in constitutional law incorporates a highly deferential view of legislative judgments, and an analogous approach for corporate management would give a strong prima facie value to maximizing profits. Norms of business practice are not always clear, and they may change over time. (Indeed, one objective of the CSR movement is to shift norms so that some acts that have been seen as supererogatory become morally obligatory.) But sometimes norms may have developed to a point where they provide reasonably good guidance. For example, voluntary codes in the apparel industry reflect an evolving consensus about acceptable standards for workplace safety and workers’ wages and hours in factories in developing countries.98 They provide a useful reference point for the managers of U.S. or multinational companies considering what requirements to impose on manufacturers in their supply chain. Yet there are complications. First, the apparel industry codes were developed mainly by companies concerned with their brand appeal to customers who care about worker conditions. For those companies, ensuring compliance with standards may not be in tension with the goal of maximizing shareholder value but may actually contribute to it. If so, how much guidance do they give a company whose customers care more about price than suppliers’ working conditions? If the standards are adopted in only a small, albeit highly visible, niche of this large industry, it would be implausible to treat them as norms. But if a large and increasing portion of the industry seeks to adhere to the stan­ dards, and especially if public opinion as manifested in the media supports the standards, they may develop a moral center of gravity independent of the motivations of their early adopters. To conceptualize the process by which a norm develops, consider a small circle with the potential to expand outward. The small circle encompasses

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a handful of firms which, through some combination of independent and concerted decision making, begin to establish a practice—­for example, monitoring the conditions in factories in their supply chain. Nascent norms may be strengthened and the firms influenced by pressure from various stakeholders, including ESG requirements of the sort mentioned earlier. At its largest, the circle would encompass all similar enterprises—­for example, all multinational apparel or computer hardware companies. The circle grows as the norm gains more adherents. At some point, the number of firms becomes large enough or public opinion becomes strong enough to permit a manager to sacrifice profits to adhere to a norm. And at some later point, it may become so large as to morally require adherence to the norm. This tracks the actual development of norms in the apparel industry. To greatly oversimplify the story: In response to protests by college students and unions and at the request of President Bill Clinton,99 the Fair Labor As­ sociation (FLA) was established in 1999 by a small group of name-­brand companies “committed to ensuring fair labor practices and safe and humane working conditions throughout their supply chains.”100 As of 2014, the FLA had about forty corporate members. The death of more than a hundred garment workers in the collapse of a factory building in Bangladesh in 2012 increased pressure on U.S. apparel manufacturers and retailers to impose safety standards on their suppliers, resulting in the Alliance for Bangladesh Worker Safety,101 whose members include discount retailers like Target and Walmart. If the Alliance for Bangladesh Worker Safety makes good on its commitments, it will have established a norm that may become morally mandatory.102 The analysis thus far has focused on quite specific norms defined by stated principles and practices in a particular industry. While the stated norms of corporations’ codes of conduct carry some weight, norms that can be discerned from actual practices provide much more robust reference points for the conscientious corporate manager.103 Beyond norms, however, the idea of corporate integrity implies that managers may be bound by some general ethical principles, whether or not they are instantiated through an identifiable pattern of applications. When dealing with one-­off cases, corporate managers might look to another line of constitutional cases in which the Supreme Court has occasionally—­albeit very rarely—­held that public officials’ conduct violates the Constitution when it offends “decencies of civilized conduct” and “shocks the conscience.”104 (This language comes from a 1952 case in which the police engaged in egregiously bad conduct in searching a suspect for drugs.) The standard is not essentially different from the one discussed above. But rather than looking to more or less objective indications of norms

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of practice, it assumes that (for the reasons that Harry Wellington described above) the judges have internalized general social or moral standards. This approach is particularly applicable to instances of conduct or cases where it is difficult to discern patterns of behavior. General Motors’ failure to disclose to customers that a faulty ignition switch could cause death by disabling the automobile and its airbag provides an example.105 If there is an industry norm requiring the disclosure of such hazards, then GM’s management should have disclosed under the preceding analysis.106 But even if there is no norm, or if the norm is one of nondisclosure, a conscientious manager would ask whether endangering lives through nondisclosure “shocks the conscience.” Public opinion plays a guiding role here as well, and GM’s managers could have looked to the public reactions to earlier examples of corporate failures to disclose harms107—­though with the caveat that, because of hindsight bias and other cognitive phenomena, what seems a reasonable ex ante risk in cost/benefit terms may be viewed with outrage if the risk eventuates and causes harm.108 Whose Norms? In the apparel industry example, the views of manufacturers, retailers, consumers, and the media evolved in the same direction in a fairly synchronous fashion. And if General Motors’ management had any doubts about the controlling norms before 2014, they were surely resolved by the widespread condemnation of its behavior. But when practices and opinions are less univocal, whose norms should the conscientious manager look to? Earlier in this chapter, I identified three sources of moral responsibility for a corporation’s conduct: its shareholders, its management, and the firm itself. The combination of the diversity of individual shareholders in large cap, publicly traded corporations and the vast number of shares held by institutional investors makes it virtually impossible to distinguish shareholders’ norms from those of the public at large. (Shareholder resolutions are better understood as a formal governance mechanism than as a means for eliciting norms.) Since corporations act through their managers, one can elide the two as the source of “industry” norms. Thus, the conscientious manager generally has two basic sources of norms: (1) public opinion and (2) the views and customs of other firms either in his particular industry or in the business sector as a whole—­as manifested, for example, in codes of conduct and in actual practice. Each source has its pluses and minuses. Public opinion may be more or less well informed; it may be enduring or transitory. For example, the reaction to a low-­probability but catastrophic

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event, such as the meltdown at the Fukushima nuclear plant, may take into account the costs, risks, and benefits involved or may result from ignorance and hindsight bias. Public concerns may quickly dissipate or may contribute to a movement that alters business practices for the long term, as in Germany’s commitment to phase out nuclear energy. Many putative public norms are too vague, protean, and ill-­informed to provide a reliable source of guidance for the conscientious corporate manager.109 Business norms tend to be informed by the realities of the economic, organizational, and technological contexts in which they operate. But they have their own limitations. At least one noteworthy difference between norms regarding, say, imposition of the death penalty and standards involving factory working conditions is that the former are the result of decisions by policy makers who are charged with serving the public interest—­however amorphous that concept may be—­while the latter typically result from self-­ interested decisions in a competitive environment. Granted that corporate self-­interest is entirely appropriate in making many decisions, business norms may be biased in favor of shareholder value at the expense of other stakeholders’ interests. Norms as a Stopping or Starting Point Despite these difficulties, one might end the analysis at this point and conclude that corporate managers must live up to widely accepted norms but not go beyond them. After all, managers are not judges, let alone professional ethicists, and their decision-­making processes are not subject to institutional constraints that conduce to impartiality. The criticism that judges’ reliance on norms is inevitably affected by their own views applies with at least equal force to decisions by corporate managers, and to encourage them to go further is to invite the influence of personal biases. Yet exclusive reliance on existing attitudes and practices may give too much weight to the status quo and, indeed, inhibit the evolution of norms.110 Let’s explore the alternatives through a few hypothetical cases. Consider the decision, in the fall of 2014, by the large pharmacy chain CVS Caremark to stop selling cigarettes.111 Many CVS stores have “MinuteClinics,” which contract with hospitals and insurance companies to provide health services. Although the decision was estimated to cost the company $2 billion a year in lost sales in the short run, management believed that it would lead to more profitable deals with these organizations and appeal to health-­conscious consumers.112 Suppose, however, that CVS’s management believed that the company would never recoup the losses. Would

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the decision have been justifiable on the ground that, by making it more difficult for smokers to buy cigarettes, CVS helped reduce the high individual and societal costs of smoking? Is there a difference between CVS’s decision under these circumstances and a similar decision by, say, the convenience store chain 7-­Eleven? And would it be justifiable for a publicly traded pharmacy chain to refuse to sell IUDs or morning-­after contraceptive pills based on its management’s views that they are abortifacients or simply that contraception is immoral?113 Referring only to norms, CVS’s decision not to sell cigarettes is possibly on the leading edge of a norm for firms in the health business. It would be a big stretch to say the same for a convenience store, which indeed may be subject to a competing libertarian norm. The pharmacy’s refusal to sell certain contraceptives reflects the views of only a small minority of the public. In both cases, the companies are likely to suffer a long-­term loss of profits as customers take their business to other retailers. As an alternative, the managers in these cases might accord business or public social norms a presumption of validity but then proceed with their own, independent analysis. They might refer to Lynn Paine’s four-­part frame­­ work, described above, and there are others as well,114 mostly of a secular nature, that embody a familiar mix of consequentialist and deontological ethics. Returning to the concept of slack, a consequentialist analysis would include a cost-­benefit analysis that weighs lost profits against health benefits and libertarian values. The managers of our hypothetical drugstore chain would likely refer to religious doctrine in considering whether or not to stock contraceptives. If they shared the views of the owners of Hobby Lobby,115 they would be less likely to make pragmatic compromises. According a presumption of validity to public or business norms is one way to constrain managerial decisions. Another is to engage in consultation and deliberation before making the decision, inviting the opinions of people with diverse views on the matter, including “devil’s advocates.”116 Nonetheless, a reader might question whether, given the potential for idiosyncratic judgments, a corporate manager should ever be permitted to deviate from public or industry norms. For several reasons I think the answer is yes. First, if norms play any role in the decision-­making process, their evolution typically requires a first mover who takes a step beyond the comfort zone of existing norms. Second, there is no reason to assume, a priori, that adherence to norms exhausts the moral responsibilities of corporations and their managers. Third, if only because most managers tend to hold conventional moral views and have self-­interested incentives not to stray too far from shareholders’ economic interests, situations like the hypothetical religiously motivated

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drugstore management are likely to be exceedingly rare in the real world. And fourth, if managers do stray too far, unhappy investors can countermand the decision through a shareholder resolution. All things considered, I think that asking managers to accord shared norms a defeasible presumption of validity and to seek others’ views and deliberate before making their own moral judgments will lead to a more just state of affairs than making the existence or nonexistence of norms determinative. As a final note, it is worth emphasizing that this section has focused on norms of moral behavior as distinguished from altruism. By definition, altruism is not morally obligatory but supererogatory.117 When other-­regarding acts stand to increase profits by gaining the favorable views of customers, employees, or communities on whose good will the firm depends, altruism readily falls within the domain of “easy cases.”118 For these reasons, many companies donate considerable sums to community and global charities. But it would reach beyond the analysis based on norms to argue that managers may engage in purely altruistic behavior that sacrifices the firm’s value for unconsenting shareholders.119

7. Conclusion There is a large domain in which corporate managers can benefit, or at least avoid harming, various stakeholders without sacrificing profits. The CSR, ESG, and corporate integrity movements have the potential either to increase or to decrease the need for trade-­offs between financial gain and social values. Attending to the social and environmental consequences of business activities can be costly. Virtue is not always its own reward, and not all conflicts among stakeholders are susceptible of integrative or “win-­win” solutions. On the other hand, to the extent that investors make investment decisions, consumers make purchasing decisions, and employees make job decisions based on corporations’ good behavior, what once might have been a sacrifice becomes a good business practice simply in terms of protecting shareholder value. Of course, corporate managers will always be able to pull the wool over one or another group of stakeholders’ eyes. But only a cynic would claim that managers never want to do the right thing if they won’t get caught. Whatever the future of these social movements may be, there inevitably will be some hard cases. The goal of this chapter has been to identify them and provide a framework for resolving them.

Six

When Is Philanthropy?: How the Tax Code’s Answer to This Question Has Given Rise to the Growth of Donor-­ Advised Funds and Why It’s a Problem R ay D . M ad o ff Philanthropy is often described as the act of “private dollars being put to public use.” In this way, philanthropy involves a transition or process of change from one form (private dollars) to another (public use). And like many transitions, it is subject to the theoretical—­and sometimes practical—­question of determining the moment when the transition has occurred. At what moment do we treat private dollars as having been committed to public use? The end points of this transition are easy enough to identify. When property is owned and subject to the unfettered control of a private individual, it is clearly in the realm of private wealth. At the same time, when the dollars are no longer subject to the control of the private individual and have been spent for food in a soup kitchen or art in a museum or the salary of an opera singer—­then the property has been committed to a public use and philanthropy has occurred. But what of the spaces in between? In particular, what happens when dollars have been set aside for charitable use, but not yet put to use? When do we call that philanthropy? When should we? The boundaries of philanthropy are discussed in many forms in this volume. In chapter 1 Jonathan Levy explores how the early practitioners of modern philanthropy were engaged in the questions of distinguishing charity from philanthropy. In chapter 5 Paul Brest explores the boundaries, and some time tensions, between pursuing profits and pursuing good. In this chapter I explore the boundaries of philanthropy in a temporal context. Namely, when private dollars are sent on their way to charitable ends, at what moment should we say that the philanthropic act occurs? My inquiry focuses on this question not as an academic point but rather as one

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of tax policy. At what moment should the government treat an act as being worthy of the charitable deduction, conferring both financial and symbolic benefits? Consider the following examples: If I collect money in a jar labeled “for food bank,” has philanthropy occurred? If I give money to my friend and say, “Hold my savings for me—­I want to eventually use it for a gift to a food bank,” has philanthropy occurred? If I give money to the local food bank, and they put it in their bank account before purchasing food, has philanthropy occurred? Complicating this question is the phenomenon of intermediary organizations: entities formed for the purpose of holding philanthropic dollars before they are put to philanthropic use. Private foundations are the most common form of intermediary organization. But community foundations can also operate as intermediary organizations, holding funds for their eventual distribution. Finally, donor-­advised funds are the fastest-­growing kind of charitable intermediary. Rather than being a separate organization, donor-­advised funds are simply accounts held by sponsoring organizations for their eventual distribution to operating charities. If I give my money to a special entity formed by my bank and say, “Hold my savings for me—­I want to eventually use it for a donation to a food bank,” has philanthropy occurred? Under what conditions should transfers to these entities be treated as a philanthropic act? What does the tax law say? In general, a donor is entitled to the full tax benefit of the charitable gift once property is unconditionally transferred to a charitable organization. As applied to the above examples, the tax system would give no financial benefit for putting the money in a jar or giving it to a friend but would confer full benefit once property is given to the food bank, regardless of when the organization puts the money to charitable use. The theory is that if the food bank is organized and operated for charitable purposes (as is required in order to be treated as a charitable entity), then we can trust the organization to spend the resources in pursuit of its charitable mission. What about intermediary organizations—­those formed for the purpose of holding charitable dollars? Here the tax law has failed to take a comprehensive approach. If the organization is a “private foundation,” then it is subject to additional payout rules designed to ensure the flow of money to charitable ends. However, the payout rules are fairly minimal and easy to avoid. Moreover, the definition of a private foundation is written in such a way that it only applies to a limited sector of intermediary organizations. Most notably, the rules fail to cover the fastest-­growing vehicle for charitable giving: the donor-­advised fund.

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In this chapter, I argue that the current tax system is misguided in its treatment of donor-­advised funds because it gives the full benefit of charitable giving without providing any assurances or incentives that the resources will be put to use serving charitable ends. The current tax treatment of donor-­advised funds is problematic for several reasons. Most importantly, operating charities depend on charitable donations as their lifeblood. By granting the full charitable deduction for transfers to intermediary organizations (including private foundations and donor-­advised funds), rather than withholding some or all of the deduction until property is transferred to operating charities, the government already undermines the strength of operating charities. This problem is exacerbated in the case of donor-­advised funds, where the full charitable deduction is given for transfers to a donor-­advised fund without any temporal requirement imposed on money to leave the donor-­advised fund. By granting the full charitable deduction to taxpayers for contributions to donor-­advised funds without requiring the funds to be committed to operating charitable organizations in a timely fashion, the government is creating a system whereby operating charitable organizations receive fewer benefits than they would if the government required timely distribution. Second, tax law has an educative effect on the public. To the extent the government rewards money being set aside, it sends a destructive message to taxpayers—­namely, that they have completed a charitable act simply by setting money aside. This too discourages dollars from reaching their charitable ends. Donors may be less inclined to focus on distributing the funds that they have set aside for charitable use if the government has already given the full tax benefit simply for setting the money aside. Finally, the mechanics of donor-­advised funds raise their own problems. In order for donor-­advised funds to provide the tax benefits they do, donors are required to enter into legal agreements with the sponsoring organizations. These agreements do not in fact represent the typical donor’s understanding of the relationship. When a donor transfers property to a donor-­advised fund, she does so under the belief that she has the ability to direct the dollars to the charities of her choice. However, in order to get the tax benefits of the charitable deduction at the time of transfer, the donor in fact must relinquish all legal control over the contributed property. By encouraging taxpayers to enter into legal agreements that do not reflect the true understanding of the parties, the government is leaving taxpayers open to fraud and abuse. Moreover, by adopting tax rules that accept this duplicity, the government undermines the legitimacy of the tax system.

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This chapter begins with a general discussion of how technical tax rules can have a profound effect in shaping our philanthropic world. I then turn to examine the case of donor-­advised funds, the fastest-­growing vehicle of charitable giving, to explore how the technical rules governing the charitable deduction laid the groundwork for their meteoric growth. I then explore whether the growth of donor-­advised funds is a problem, conclude that it is, and then consider various options for how Congress should address the problem. Finally, I conclude with a brief discussion of other forms of charitable giving that raise similar concerns and suggest ways of addressing them.

How Tax Rules Shape Our Philanthropic World Given their technical nature, it is tempting to relegate tax rules to the domain of accountants, responsible for tabulating our activities and generating a bill for the amount that we owe the government at year’s end. This image may be appropriate for some tax rules, which, like death, are inevitable in their application. However, since philanthropy is a planned activity, it is much more responsive to the applicable tax rules, making the relationship between the rules and the world of philanthropy far more complex. Rather than serving as a neutral recorder of activities, tax rules directly shape what charitable giving—­and therefore our charitable world—­looks like.1 First, insofar as the charitable preference acts as an incentive for charitable giving (as it is designed to do), then organizations that are deemed eligible to receive tax-­favored charitable donations will receive more donations—­ and be able to play a larger role in society—­than those that do not. Charitable rules, however, do not just provide and direct dollars to qual­ ified organizations. They also shape the behavior of organizations as the organizations seek to form themselves in such a way that they are eligible to receive the tax benefits of being deemed “charitable.” The tax treatment of racially discriminatory private schools provides a useful example of the powerful impact of particular charitable deduction rules. When the IRS decided that it would no longer grant charitable status to schools that discriminated on the basis of race, some schools—­such as Bob Jones University—­lost their charitable status (and presumably charitable donations as well), while other schools responded by changing their policies to no longer discriminate on the basis of race. Today all private schools must include a public statement that they admit students of any race, color, and national or ethnic origin if they want to be granted charitable status and enjoy the benefits that flow therefrom.

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The tax rules governing the charitable deduction can affect the form of giving as well as the object. For example, when Congress changed the rules in 1969 to limit certain types of split-­interest charitable trusts, American tax­­ payers—­usually through their estate planners—­responded by revising their split-­interest trusts to conform to the requirements necessary to secure the deduction. When Congress limited the deduction for transfers of tangible personal property to those organizations likely to use the property in their charitable mission (such as artwork to a museum, as opposed to artwork to a soup kitchen), donors responded by shifting donations of tangible personal property to those organizations that would generate maximum tax benefits to the donor. If Congress were to change the rules tomorrow to limit the char­ itable deduction to outright gifts to organizations engaged directly in charitable work, charitable dollars would no doubt shift in that direction. Tax law need not prohibit certain transactions in order to be effective in directing dollars. Since sophisticated tax counsel often guides wealthy individuals, their form of giving is often highly responsive to small differences (nudges) in the tax code. For example, if one transfer provides a slightly better tax result than another, dollars will often flow in that form. In addition to shifting the direction of dollars, the rules governing the charitable deduction are also important in terms of providing social norms of what constitutes a charitable act. Law is a powerful tool for shaping how people think about their actions. As Sally Engle Merry, a scholar specializing in the anthropology of law, has described it, “Law provides a set of categories and frameworks through which the world is interpreted. Legal words and practices are cultural constructs which carry powerful meanings not just to those trained in the law or to those who routinely use it to manage their business transactions, but to the ordinary person as well.”2 The construct of the charitable deduction plays an important role in educating Americans about how to think of charitable giving. When the law says that a certain activity is worthy of special recognition, it is establishing a norm, which is arguably internalized by the general public. For example, while a gift of cash to a needy neighbor on the street might feel generous, the law teaches us that it is not officially “charity” unless it is given for the benefit of a larger—­usually depersonalized—­group in society. A gift of money to support “the arts” is charitable, but a gift to an individual artist to pay his rent is not. Donor-­advised funds provide a telling example of  how seemingly technical tax rules can have a profound effect on our world. In this chapter I show how the particular details of the rules governing the charitable deduction have served to act as an invisible vacuum sucking up charitable dollars and

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directing them into donor-­advised funds. This phenomenon might not be problematic if donor-­advised funds operated as a conduit, passing wealth in a timely manner on to organizations engaged in charitable work. However, since current law does not impose any payout requirement on donor-­ advised funds, charitable resources can get stuck in these “warehouses of wealth,” effectively keeping those resources from accomplishing charitable goals. Moreover, the growth of donor-­advised funds may be having a more subtle effect on the population as well—­that is, by giving the full benefit of the deduction at the time of contribution, without imposing any payout requirement, the law may be shifting people’s sense of what truly constitutes a charitable act.

The Case of Donor-­Advised Funds Donor-­advised funds (or DAFs) are a form of charitable giving that has grown like kudzu from relative obscurity to being a dominant player in the charitable landscape today. DAFs allow taxpayers to set aside cash or property and receive an immediate charitable deduction. The donated funds are invested in a separately designated account where they grow tax free. The donor is thereafter able to recommend charitable distributions to be made from the account and, in some cases, how the account is invested.3 In this way DAFs, in the words of one scholar, have the “look, feel and taste” of a private foundation.4 But unlike regular private foundations, which are subject to an annual 5 percent payout rule, there is no government payout rule imposed on DAFs. Money can stay in these accounts for years, decades, or even centuries. Moreover, these accounts provide additional opportunities for donor control at the expense of operating charities because private foundations are able to meet their 5 percent payout obligations by making contributions to DAFs. Although DAFs have been described as being similar to private foundations, technically speaking a DAF is not an entity but instead is a separate account maintained by a public charity (called a “sponsoring organization”). The sponsoring organization might be a community foundation or a traditional charity or most commonly a charity that is established by a bank or other commercial entity for the purpose of receiving charitable donations. The first donor-­advised funds date back to the 1930s when some community foundations began allowing high-­end donors to maintain ongoing advisory privileges for their donations, rather than requiring all gifts to go to the community foundation’s unrestricted funds. From the 1930s through the end of the 1980s, DAFs were only a small part of the charitable sector.

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6.1.  Fidelity Charitable’s growth in assets, 1999–­2014

However, in 1991 the charitable world changed in a significant way when Fidelity Investments created its own “charity”—­Fidelity Charitable—­for the purpose of offering donor-­advised funds. According to its application for tax-­exempt status, the organization was formed “to provide financial support to all types of tax-­exempt organizations” by “pooling contributions from donors for investment management and administrative purposes.”5 In other words, it was formed to hold charitable dollars for their eventual distribution to other charitable organizations. From a business perspective, the creation of Fidelity Charitable was a brilliant move. The business of Fidelity is money management. The more money that Fidelity has under management, the more revenue it generates for the company. By creating its own “charity” Fidelity was able to continue to manage funds even after they had been “given to charity” by—­and generated tax benefits for—­their account holders. In addition to benefiting their existing clients, Fidelity Charitable also attracted other donors who sought the tax benefits of charitable giving without needing to give up control, which is required in most charitable gifts. The growth of Fidelity Charitable has been nothing short of astronomical. In the last fifteen years alone Fidelity Charitable has grown from having assets of a little over $1 billion to having assets in excess of $13 billion. In 2013 Fidelity Charitable surpassed the Salvation Army to become the second-­largest charity in terms of donations. At this pace of growth, there is every reason to believe that it will soon surpass the United Way and become the largest “charity” in the country (see figure 6.1). It is no surprise that other financial institutions soon followed Fidelity’s

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lead, establishing—­and marketing—­their own sponsoring organizations, and the popularity of DAFs exploded. According to a recent report, there are more than two hundred thousand DAFs, and they now outnumber private foundations by a margin of greater than two to one.6 Contributions to donor-­advised funds are eclipsing other forms of charitable giving. In 2013 there were more DAFs than there were private foundations, charita­ ble remainder unitrusts, charitable remainder annuity trusts, charitable lead trusts, and pooled income funds combined.7 Moreover, donations to DAFs are growing at an exponentially faster rate than charitable giving as a whole. While donations to public charities remained largely flat in 2012, donations to donor-­advised funds grew by 46 percent.8 Of course, none of this would have been possible had the IRS not granted charitable status to an organization whose purpose was to hold charitable dollars and await instruction from the donor. If the government had taken the position that no charitable gift occurred until the funds made their way to real charitable organizations, the charitable world would look very different today.

Why Are Donor-­Advised Funds Enjoying Such Extraordinary Popularity? The popularity of DAFs is due in some part to (1) the administrative ease that they bring to donors of all sizes; and in large part to (2) the extraordinary tax benefits that they provide to high-­end taxpayers. Administrative Benefits. One clear value of DAFs is the administrative ease that they bring to donors. Current regulations impose significant record-­ keeping obligations for those seeking to claim the charitable deduction. Even simple gifts of cash to a public charity must conform to strict record-­ keeping requirements. For example, in order to be eligible for the charitable deduction, a donor is required to obtain a contemporaneous receipt from the charity stating the amount contributed and further stating that no goods or services were received in exchange for the contribution. Failure to meet these requirements can have drastic results. In one recent case, a donor was denied a deduction for a $22,000 cash contribution to a church because the church failed to provide an adequate receipt. (The church provided the donors with a letter acknowledging their contributions, but the letter did not include the required statement that no goods or services were received in exchange.) When the taxpayer attempted to remedy the situation by providing the IRS with a new letter, the IRS found

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that letter insufficient as well because it was not contemporaneous with the contribution.9 If a donor uses a DAF then there is no need to keep track of individual receipts because a donor only needs evidence of the initial contribution to the DAF in order to claim a charitable deduction. Moreover, since DAF sponsoring organizations specialize in providing donors with tax deductions, they make special efforts to ensure that all technical requirements are met. There is anecdotal evidence that some donors use DAFs purely for this record-­keeping function. These donors will contribute a set amount for their annual charitable giving at the beginning of each year and then distribute the account completely by year’s end.10 The administrative ease of a DAF is particularly great when compared to the many administrative hassles involved in setting up and administering a private foundation that requires an initial application for tax-­exempt status and annual federal and state tax returns. Tax Benefits. While the administrative benefits of DAFs are good, they pale in comparison to the tax benefits. DAFs provide the maximum tax benefits available for charitable transfers. These benefits enable donors to (1) time their charitable contributions to achieve maximum tax savings without needing to worry about allocating their donations to operating charities; (2) receive a deduction equal to the full fair market value of property contributed, regardless of whether the property is marketable securities; (3) be subject to more generous annual limitations on their charitable giving; (4) avoid annual excise taxes that are imposed on private foundations; and (5) deduct charitable donations that go to support foreign charities, even though there is usually no charitable deduction allowed for gifts to charities outside the United States. Timing. DAFs enable donors to time their deductions to achieve maximum tax benefits. Typically a gift to a DAF will coincide with a realization event, like the sale of a business or other transaction that would otherwise generate a significant tax liability. By contributing to a DAF, donors can claim an income tax charitable deduction in the year that the DAF is funded, even though the ultimate distribution to the operating charities may not be made until many years into the future. This flexibility allows donors to use DAFs to achieve maximum tax benefits by creating a deduction when it can be most advantageous to the donor. Full Fair Market Value Deduction for Complex Assets. The second important benefit of DAFs (and the reason behind their extraordinary growth) is the ability of donors to get a full fair market value deduction for the contribution of property other than cash (referred to in the field as “complex assets.”)

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When people think about the tax benefits of the charitable deduction, they typically think about the ability to avoid income taxes on earnings that are directed to charity. For example, if a taxpayer earns $100,000 and makes a charitable donation of $10,000, and is allowed a deduction for the full $10,000, the taxpayer is essentially treated as if he or she earned only $90,000. This makes sense since the taxpayer is essentially diverting $10,000 of her income and giving it to the charity. However, if a donor makes a charitable contribution of appreciated prop­ erty instead of cash, then that donor enjoys double tax benefits because she can (1) avoid the taxation of gain inherent in the property and (2) get a full fair market value deduction which can be used to offset other income. Consider the case of an individual who has invested $1,000 in a property interest (perhaps a closely held corporation or partnership) that has gone up in value to $10,000. By transferring that property interest, rather than cash, to the charity the donor receives a double benefit. First, the $9,000 of gain is not subject to tax either at the time of transfer (because the law does not treat that as a realization event) nor at the time that it is sold by the charity (because the charity is a tax-­exempt entity). Second, the donor gets a deduction for the full fair market value of the investment (in our example $10,000), and this deduction can be used to offset other income of the donor. In this situation, the charitable deduction acts as a form of tax shelter. Tax law generally limits the ability to take advantage of this double benefit for transfers to private foundations. When appreciated property is contributed to a private foundation, unless it is publicly traded stock, the donor’s charitable deduction is limited to his or her investment, in our case, $1,000. The remaining $9,0000 is not eligible for the deduction. If the deduction were limited to the donor’s adjusted basis, then the benefit from the charitable deduction would be more in keeping with the situation where the donor makes a cash contribution to a charity.11 Annual Limitation on Gifts to Charity. The law imposes limitations on the extent to which taxpayers can offset their income tax liability by making charitable donations. This limitation is based on the belief that Americans should not be able to opt out of participating in governmental expenditures by making large charitable donations. Gifts to private foundations are subject to greater restrictions than gifts to public charities. A donor to a private foundation can only claim a deduction in any one year of up to 30 percent of income for gifts of cash and 20 percent of income for gifts of stock.12 Gifts to public charities, like the Red Cross, are subject to more generous limitations: a donor can contribute up to 50 percent of income for gifts of cash and 30 percent of income for gifts

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of appreciated property. DAFs, as public charities, are eligible for these more generous limitations. Excise Taxes. Private foundations are subject to annual excise taxes of 2 percent of their net investment income. DAFs, as part of sponsoring organizations that meet the requirements for being public charities, are not subject to these annual taxes. Foreign Charities. Generally speaking, gifts to foreign charitable organizations, even publicly supported ones like the British Museum, are not eligible for the charitable deduction.13 However, if a donor wants to make a deductible gift to a foreign charity, he or she can do so by making a deductible gift to a DAF and then “advise” the DAF to make a grant to the foreign charity.

Is the Rise of DAFs a Problem? Understanding the Debate While there is widespread agreement about the growth of DAFs, there is some disagreement about what this change means for philanthropy. Sponsoring organizations and other proponents of the status quo argue that the growth of DAFs is good for the charitable sector because DAFs facilitate charitable giving and “democratize philanthropy” so that anyone with a small amount of money can create his or her own endowment account that can be available with a click of the mouse whenever the urge to give strikes. In support of their arguments they argue that DAFs (1) have increased overall charitable giving; and (2) have payout rates that are better than private foundations. Opponents of the current treatment of DAFs argue that (1) there is no evidence that DAFs have increased overall charitable giving; (2) the payout rates of DAFs are misleading because they are based on the sponsoring organization as a whole and not on each individual account; (3) given the extraordinary tax benefits of DAFs, they should be subject to more rigorous payout rates than those applicable to private foundations; and, (4) regardless of the efficacy of DAFs, it is bad tax policy to encourage agreements that are based on a “wink and a nod.” Have DAFs Increased Overall Philanthropy? Sponsoring organizations and supporters of DAFs like to suggest that donor-­advised funds have increased the total amount of dollars coming from donors to the charitable sector. This idea is expressed by Fidelity Charitable in its promotional literature: While charitable giving is not impervious to the economic climate, in the past twenty years U.S. giving has grown well above the rate of inflation, despite the frequently challenging economic circumstances. In 1991, total giving in

When Is Philanthropy?  /  169 the U.S. was $105 billion. By 2011, that figure had grown to more than $298 billion—­a 72% rise over two decades when adjusted for inflation. While there are many reasons for this growth, vehicles specifically designed to help individuals plan their giving have become increasingly popular and have likely played a part. The fastest-­growing of these vehicles is the donor-­advised fund, or DAF.

While this growth sounds impressive, the comparison is disingenuous as there is no reason to think that inflation is the appropriate yardstick to use. Statistics from Giving USA suggest that for the past forty years overall charitable giving has consistently tracked the broader economic factors of gross domestic product (GDP) and disposable personal income. During that time charitable giving has consistently hovered at or about 2 percent of GDP and individual giving has hovered at about 2 percent of disposable personal income. Moreover, given the anemic growth in donations to non-­DAF charities in 2013, particularly in relation to the record-­breaking year in the stock market, there is every reason to think that the rise of DAFs has in fact been detrimental to real, that is, non-­DAF, charities. DAFs and Payout. The most common argument made in favor of maintaining the status quo is that DAFs do not need a payout requirement because they already pay out at significantly higher rates than private foundations. The latest figures show that DAF sponsoring organizations distribute on average 16 percent each year. This is far higher than private foundations that often treat their 5 percent rule as a ceiling as well as a floor. While these numbers appear to address the payout issue, they are in fact extremely misleading because they are based on sponsoring organizations as a whole and not on each donor-­advised fund. This aggregate approach can hide a lot of ills. The Congressional Research Service pointed out in a report last year that an organization that sponsors a large number of donor-­advised funds can achieve a 16 percent payout rate if 20 percent of its accounts pay out an average of 80 percent, while the rest pay out nothing at all. If it is true that many smaller donors use DAFs to simplify their record-­keeping and pay out close to 100 percent each year, these high payout rates from some accounts could easily hide little or no payout rates from other accounts. What are payout rates from individual DAF accounts? Unfortunately, there is no way to know because sponsoring organizations were successful in convincing Congress that any reporting requirement should be imposed on the sponsoring organization as a whole, rather than on each individual account. However, one can glean some evidence about payout by looking at those sponsoring organizations that have only a single DAF account. According to

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a study by the Congressional Research Service, over 70 percent of the single DAF sponsoring organizations paid out less than 5 percent and more than half of the sponsoring organizations paid out nothing at all. In the words of the Congressional Research Service: “If individual DAF account payout rates mirror payout rates as reported by sponsoring organizations that maintain a single account, it is likely that a large share of individual DAF accounts do not pay out grants in any given year and that most of them pay less than 5%.”14 Even if DAFs were making distributions at or above the 5 percent level, arguably the rate applicable to private foundations would not be appropriate since donations to donor-­advised funds receive many more favorable tax benefits than donations to private foundations, most importantly the ability to get a full fair market value deduction for appreciated assets like real estate and nonmarketable partnership interests and closely held stock. Given these generous benefits, it would make good sense for DAFs to be subject to greater payout rules than those applicable to private foundations. DAFs and Deception. Current tax policy regarding DAFs encourages taxpayers and sponsoring organizations to engage in relationships governed by a “wink and a nod.” Even if DAFs produced great charitable results, this would still be a problem from a tax policy standpoint. First, by sanctioning a deduction that operates on a “wink and a nod” basis, the government undermines the legitimacy of the tax system. This is of particular concern when it involves a provision—­like the one applicable to DAFs—­that disproportionately applies to the wealthy, as it supports a notion that the wealthy play by different rules. Second, as illustrated by the cases involving the Friends of Fiji, this deception leaves donors vulnerable to unscrupulous and insolvent sponsoring organizations that choose to exert their legal rights over the funds rather than their “understanding” with the donor. These cases don’t just harm donors, but also harm the tax-­paying public that funded these transfers and the country as a whole that loses access to funds which had been intended for charitable use.

Looking under the Hood: How DAFs Are Able to Provide Such Great Tax Benefits How is it possible for DAFs to provide the ongoing control of private foundations, while providing donors with the tax benefits afforded outright donations to public charities? Understanding this question involves wading into the weeds of the tax rules governing charitable donations—­but it is

When Is Philanthropy?  /  171

worth the trip because understanding these details is essential to understanding why the rules applicable to DAFs are based on presumptions that are at odds with reality. Generally speaking, DAFs are able to provide the tax benefits that they do because (1) although donors are the de facto decision makers regarding distributions from DAFs, under the legal terms of the contract governing their relationship, donors cede all legal control over their funds to the sponsoring organization; and (2) under the current taxonomy provided in the tax code, DAFs meet the definition of a public charity as opposed to a private foundation. Control. If donors maintained legal control (instead of just de facto control) over their donated funds, then they would not be eligible for a tax deduction until such time as the property was distributed from the fund to the charitable recipient. However, DAFs are able to provide ongoing control to donors because there is a discrepancy between the way that DAFs work in practice and the contract governing the relationship between the donor and the sponsoring organization. While donors and sponsoring organizations all act as if the donor controls the funds in the donor’s DAF, in order to be eligible for these beneficial tax results, the donor must have no legal ability to control the funds and the sponsoring organization must legally own and control the property in the DAF just the same as it would own an outright contribution. Contractual agreements between donors and sponsoring organizations reflect these requirements. However, despite these legal niceties, everyone understands that any sponsoring organization that wants to stay in business will in fact follow the donor’s “advice.”15 In this way, the relationship between the donor and the sponsoring organization is best described as operating on a “wink and a nod” basis. Donors are told to sign away their rights to control at the same time that they are told that the DAF will give them ongoing control. This understanding is conveyed artfully in the marketing material regarding DAFs. Fidelity Charity describes DAFs as “a type of charitable giving program that allows you to combine the most favorable tax benefits with the flexibility to support your favorite charities at any time.”16 Many sponsoring organizations capture this idea of donor control more colloquially by referring to their DAFs as “charitable checking accounts.” In 2006 Congress enacted tax legislation regarding donor-­advised funds, and this too captured the disconnect between the legal rules and the understanding of the parties. The statute defines a donor-­advised fund as a fund or account that is owned and controlled by a sponsoring organization, separately identified by reference to contributions of a donor or donors, and

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with respect to which the donor has or reasonably expects to have advisory privileges regarding the distribution or investment of the assets in the fund.17 Donors rely on the economic incentives of sponsoring organizations to ensure that their understanding of the relationship is effectuated. Generally this works out fine since the sponsoring organization usually has no incentive to deviate from the understanding. This is particularly so for commercial DAFs where the organization lacks its own charitable mission beyond the accumulation of charitable funds and where the primary motivation is to generate revenue from the funds under management. However, even noncommercial supporting organizations that have their own charitable goals understand that it is not in their financial interest to impose their own wishes on the donated funds. (For this reason, you often see grants from community foundation DAFs going to organizations outside of the community targeted by the community foundation.)18 Despite this prevalence of sponsoring organizations following donors’ requests, there are also situations where unscrupulous sponsoring organizations are able to take advantage of this discrepancy. Consider the case of the lucky/unlucky gambler who had won $8 million at the slot machines in Las Vegas. A tax lawyer advised him to set up a donor-­advised fund so as to reduce his tax liability. The donor, thereafter, transferred over $2.5 million to a DAF sponsored by the Friends of Fiji with the intention of helping victims of the tsunami. However, rather than transferring the property as the donor requested, the trustees of the sponsoring organization used the money instead to pay themselves large salaries, sponsor celebrity golf tournaments, and pay more than $500,000 in legal fees defending themselves in a lawsuit brought by the disgruntled donor. The Nevada Supreme Court ruled that the donor could not recover funds transferred to the DAF because under the legal agreement entered into, the sponsoring organization had full, legal control over the donated funds.19 DAFs Qualify as Public Charities as Opposed to Private Foundations. DAFs are able to provide such advantageous tax treatment for their donors because they qualify as public charities as opposed to private foundations. For many years, all charitable organizations were treated the same. But beginning in the 1950s, Congress began taking a two-­tiered approach to charitable organizations. Private foundations were subject to less favorable tax rules and greater oversight than public charities. There were multiple reasons for Congress’s concern about private foundations, but one of the oft-­stated concerns was that since private foundations generally did not engage in charitable work themselves, there could be a significant delay between the time that the donation was made and the deduction taken (thereby reducing tax

When Is Philanthropy?  /  173

dollars that would otherwise be available to address social problems) and the time that the donation was put to work in charitable endeavors.20 Because of these concerns, Congress granted less generous tax benefits to private foundations and imposed mandatory minimum payout rules. The distinction between private foundations and public charities, and the way Congress chose to delineate the difference between these organizations, laid the groundwork for the growth of DAFs. Because of the way Congress defined the categories, sponsoring organizations were able to thread the needle to meet the technical requirements of a public charity, while providing donors with the ongoing control mechanisms of a private foundation. The rules distinguishing private foundations from public charities provide generally that all charitable organizations will be treated as private foundations unless they meet one of the recognized categories of public charities. One way to qualify as a public charity is by engaging in particular types of activities. Thus, churches, hospitals, and educational institutions are all treated as public charities. In addition, a charitable organization is treated as a public charity if it receives at least one-­third of its support from the general public (defined as individuals who have provided less than 2 percent of the organization’s support).21 The justification for the public support test was that broad public participation in the operations of the organization could serve as a substitute for regulatory oversight. After all, why would so many people give to an organization if it didn’t do good work? However, this justification does not hold up when it comes to donor-­ advised funds. When sixty thousand donors “give” to Fidelity Charitable, it is not because they are giving a vote of confidence to the charitable decisions being made by that organization. Rather, it is because donors know that the true mission of Fidelity Charitable is to fulfill donor intent, and not to pursue any particular charitable cause. Because of this, donors to DAFs can freely ignore the charitable activities of the sponsoring organization because each donor knows that disposition of the account will generally remain under the donor’s control. Why the Control Test and the Public Benefit Test Are Unreliable. The control test and the public benefit test are based on the unstated assumptions that (1) donors and decision-­makers of public charities are primarily interested in the organization’s output, putting their charitable dollars to use for their charitable mission, and (2) any interest in dollars coming in is simply for the power it can afford in putting dollars out. If this were the case, then the control rule and the public support rule might be meaningful. An organization could be trusted to exert its control

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over funds in ways that would pursue the organization’s larger charitable mission. If an organization had legal control over funds, it could be trusted to spend those funds in pursuit of its mission. However, this assumption is more likely misguided. Commercial DAFs are one example where the primary interest of the organization is not to pursue some broader charitable goal but rather is to bring charitable dollars under management. Spending the money is at best a secondary goal and, based on financial incentives, only a goal insofar as it is necessary to keep the organization from becoming the subject of unwanted attention. Moreover, this interest in retaining funds is not limited to commercial DAF sponsoring organizations. Community foundations also benefit by having more money under management since the sponsoring organization gets paid a management fee (typically 1 percent) for money under management. This ability to benefit from having money under management creates an incentive for sponsoring organizations to develop “endowment addiction” and a disincentive for them to encourage DAF payouts.22

Addressing the Problem of Donor-­Advised Funds If donor-­advised funds pose a problem for the charitable sector and the larger American society it supports, as I argue they do, then how should Congress address this problem? There are three possible solutions: (1) abolish donor advised funds; (2) impose the 5 percent payout rule applicable to private foundations to either supporting organizations or individual donor-­advised funds; or (3) create a new category called a “charitable checking account” that would be subject to rules requiring complete payout from the account within a certain number of years from contribution. Abolish DAFs. Given the policy concerns raised by donor-­advised funds, one might rightly ask whether Congress should repeal charitable status for these entities. While this solution may be tempting, it is hard to square it with the rest of the charitable regime. Our definition of what constitutes a charitable organization is extremely broad. Included in this definition are a variety of organizations—­from community foundations, to supporting organizations, to organizations like Givewell that seek to promote effective philanthropy—­ that operate for the purpose of collecting donations and passing them on to other charities. Donor-­advised funds and other intermediary organizations can serve a valuable public function by providing advice to donors and easing the

When Is Philanthropy?  /  175

administrative hassles of charitable giving. However, in order for them to accomplish charitable goals, there must be some certainty that the money will make its way out of the intermediary organization and into the hands of the operating charity. There must be an effective payout requirement. Adopt a 5 Percent Payout Rule. Supporters of DAFs are mindful that change is in the air. As the public gets educated about these entities, there is a growing discomfort with the idea of granting a current deduction for money that is not subject to any payout rule. Recognizing the inevitability of a payout rule, some supporters of DAFs have suggested as a backup that they might be comfortable with a 5 percent payout rule applicable to the sponsoring organization as a whole, rather than each individual account. However, this “solution” is illogical and would be worse than maintaining the status quo. First, it would be inherently illogical to impose a payout requirement on the basis of the sponsoring organization rather than on the individual donor’s account. The donor is the one who is benefiting from the tax deduction and everyone understands that, legal niceties aside, it is the donor who calls the shots regarding whether a distribution will be made. Given this combination of benefit and control, the only thing that makes sense from a policy point of view is to impose payout requirements on the basis of each account. Second, even as applied to each DAF account, the 5 percent rule would have no logical coherence. The 5 percent rule applicable to private foundations was chosen based on a belief that private foundations should be allowed to pursue their purpose in perpetuity. However, this reasoning does not apply to DAFs. DAFs are charitable checking accounts but have not committed themselves to any particular charitable purpose and certainly none that needs to exist in perpetuity. Moreover, the 5 percent payout rule would also undermine the flexibility of the DAF regime. One of the values of the DAF that is worth retaining is enabling donors to accumulate wealth for a reasonable period of time so that they can engage in more thoughtful philanthropy. A forced payout of 5 percent each year would undermine this flexibility. A Category of Their Own. DAFs should be recognized as their own separate category: the charitable checking account. In order for a donor to a charitable checking account to be eligible for a charitable deduction, the account must name a charity to receive any funds that have not been spent in seven years from the time of initial transfer. This would be a more workable and appropriate payout system for DAFs than a percentage payout and would preserve the best aspects of DAFs while still ensuring that funds for which the charitable deduction has been granted get put to work addressing charitable issues.

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A fixed term payout would maintain flexibility for donors because a donor would be free to make distributions to other charitable organizations during that time period. In order to manage annual contributions, the sponsoring organization would only need to maintain separate subaccounts that referenced the year of the donated funds. Donors’ distributions would be presumed to come out of the accounts in chronological order, unless the donor specifically notes otherwise. A fixed period payout requirement would directly acknowledge the valuable benefits being given to charitable donations to DAFs while preserving many of the features of DAFs that make them so popular and desirable, in­ cluding low administration costs, allowing adequate time to liquidate property, and allowing for the accumulation of funds for a reasonable period of time. There are additional advantages to this approach as well. Most importantly, treating DAFs the way people use them increases transparency and improves the legitimacy of the tax system. Requiring a real payout sends the right message to donors that they have not done enough simply by funding their DAF. In addition, by recognizing DAFs as a distinct vehicle, rules can be enacted that protect donors, and the American public, from unscrupulous or insolvent sponsoring organizations. Finally, by recognizing DAFs as something other than a true public charity, Congress can enact rules that make clear that private foundations cannot satisfy their 5 percent payout requirement by making contributions to a DAF. Congress has already taken an important first step by adopting a statutory definition of DAFs. Now, Congress and the Treasury should finish the job by adopting operating rules that protect the integrity of the tax system and the future of the charitable sector.

In Conclusion and Commencement: The Big Question Raised by Donor-­Advised Funds and How Tackling This Problem Can Lead to Better Policies for the Whole Charitable Sector What should government seek to accomplish when it incentivizes charitable giving? Should the purpose simply be to get donors to designate their funds to a specific charitable purpose, or should the purpose be to ensure that the designated dollars are put to use within some reasonable period (leaving aside for now what that “reasonable period” might be)? If it is the former, and if it is enough that individuals irrevocably designate that their money be used for charitable purposes with no concern

When Is Philanthropy?  /  177

about when it is actually put to work, then current policy is fine. However, if that feels off, then perhaps it is time that we consider more closely the question of what the government is seeking to accomplish when it encourages charitable giving. If it is trying to encourage charitable ends (the proverbial lifeline), then the current structures are failing us—­not just with respect to DAFs but also for all of those other forms of charitable giving that allow accumulation of funds with no payout rules. Endowment addiction is not limited to DAF sponsoring organizations. Two areas worthy of inquiry are community foundations and endowment funds, each of which allow unlimited accumulation of funds with no payout requirement. In addition, private foundations are also worth revisiting. Although private foundations are purportedly subject to a payout rule, because this payout rule can be satisfied with administrative expenses, the rule is easily met without ensuring that a single dollar will go to charitable ends. Moreover, the fact that so many private foundations limit their payout to 5 percent suggests that endowment addiction can apply in that context as well. One thing we have learned from our study of DAFs is that under our current system, charitable organizations are called upon to serve two masters: donors and beneficiaries, and these interests do not always align. When they conflict, too often the incentives are such that the so-­called intended bene­ ficiaries of the organization suffer. It is time for Congress to take these realities into account in creating a system that truly serves the public interest.

S e v en

Creating Digital Civil Society: The Digital Public Library of America L uc y B ernhol z

The only thing that you absolutely have to know, is the location of the library. —­Albert Einstein

When Jonathan Levy, Princeton historian, went looking for a political cartoon to represent nineteenth-­century attitudes toward philanthropy, business, and technology, he had several options available. As a scholar, he had access to vast repositories of archived materials through the university’s Firestone Library, an imposing Gothic structure that serves as the campus focal point. He also might have used his academic privileges to access materials from JSTOR, a subscription service providing online access to archives of scholarly journals. No doubt Levy’s laptop settings recognize his university credentials by default, and so the myriad firewalls and permissions systems that stop public access to these resources are invisible to him, regardless of whether he logs in on campus or from afar. Reference librarians might have pointed him to Dickinson State University, home of the Theodore Roosevelt Center. Roosevelt’s decades of public service were a frequent target of Puck magazine’s satire and cartoonists, and his archives are thick with copies and commentary. Or Levy might have traveled south two hours to the Library of Congress and requested access to the nation’s treasure trove of political cartoons, donning white gloves to handle the fragile originals. Or Levy might have searched Google. The ease of this act would have been met with the challenge of sorting through thousands of thumbnail images, hoping that his keywords would match some of the ones used behind the scenes, by professionals and amateurs, some with rights to the materials they were uploading, others without. Chances are, Levy used a combination of the methods above—­online searching, scholarly references from other

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sources, guidance from librarians and archivists, and sorting through original copies—­to find the cartoon that opens this volume. If the Digital Public Library of America (DPLA) is successful, Levy (and everyone else, with or without scholarly credentials or authorized laptops) will have yet another resource—­and one that will also connect him to troves of materials from regional archives and local communities. The Digital Pub­ lic Library of America, launched in 2010, is a nonprofit organization dedicated to digitizing and connecting the holdings of libraries, museums, and ar­ chives across the country. It offers access to these materials directly through its website (dp.la), by populating searches on Wikipedia with images drawn from its collections, and by helping communities across the nation make digital copies of their materials that can be preserved, connected, and found locally and globally. DPLA augments the collections of existing institutions, helping to make digital copies and then making those copies findable online. It does this through volunteers and community partnerships involving hundreds of people, who bring community-­organizing, software-­coding, and cultural skills and the love of knowledge in many forms to the work. If it succeeds, the DPLA will require an update to Einstein’s epigram—­we’ll still need libraries, but we won’t need to know where they are. If you go looking for the DPLA itself, you will find about ten staff people working in basement offices at the Boston Public Library. They might direct you to the dozens of community representatives spread across the country helping local libraries digitize their collections or to the state archives or international libraries with whom they work. They might also point you to one of many hackathons happening where developers and software coders are improving the DPLA code, using it to create new ways of displaying information, or building third-­party uses of the software outside the bounds of the DPLA itself. What they won’t show you are any books, photos, or archive boxes—­the DPLA doesn’t have them. What it does have—­software code, data policies, and computer servers—­you can access from afar. The software code that volunteers have spent years building is openly available for developers to use and change; minutes from its board meetings are available for download, as are financial records and committee agendas. The books, photos, recordings, videos, maps, and ephemera that you find when you search on dp.la are all owned by the partner institutions. DPLA has dig­ ital copies stored on its servers so that your online search can be completed more quickly. Looked at in this way, the DPLA resembles a software repository more than it does any library you’ve ever visited. And this is accurate. But it is also an independent organization managed by community members dedicated

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to making knowledge available to anyone without profit. In this regard, the DPLA is a classic library. As such, it is an ideal case study of how philanthropy and civil society, governance, participation, and the lines between public and private are being recast in the digital age.

Creating Digital Civil Society The evolution of libraries in the last twenty-­five years, from buildings with books to brick-­and-­mortar embodiments of a global information society, provides a powerful case study by which to consider the implications of digital networks on other civil society institutions. In the space of a few de­ cades libraries have redefined themselves, reengineered their physical spaces, restructured their staffs, and restated their missions. In doing so, they are finding that the digital age demands more than simply providing Internet access and virtual copies of  books and major newspapers. It requires rethinking the basic ideas of ownership and sharing, redrawing the boundaries of community, and experimenting as much with governance models and accountability mechanisms as with collection guidelines. The digital environment, in which copies are cheap, easy, fast, and perfect and infrastructure is provided by a mix of corporate wires and servers routed via public throughways, requires us to revisit the corporate boundaries we drew to distinguish public from private introduced to us in Levy’s opening chapter (this volume). These are the deep changes wrought by digitization—­the need to reconsider the organizational and governance structures upon which civil society rests. Libraries embody the combinatorial nature of civil society in a digital age. They are physical and virtual, community-­centered and remote, geographically identified and global. The twenty-­first-­century public library is inventing ways to manage digital assets for the public benefit. Some libraries, such as San Antonio’s “BiblioTech” branch in Bexar County, Texas, eschew books altogether, model themselves after high-­end electronics resellers, and primarily provide their communities with high-­speed Internet access.1 In doing so they meet their dual mission of serving their community with information by being a physical place to access virtual resources. Even those public libraries that still proudly occupy their Carnegie-­funded buildings and make a point of stocking popular paperbacks and local ephemera are often valued locally for their function as Internet on-­ramps. Susan Crawford, legal scholar and expert on the telecommunications industry, documents the rural American phenomenon of late-­night library parking lots, where parents drive their children to access the Wi-­Fi signals coming through the buildings. Making this happen requires rogue librarians to leave the wireless routers on after

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they’ve turned off the lights and locked the doors. Leaking library signals is the only Internet access available to the families in the parking lot.2 Our digital age requires libraries to think of themselves as nodes on a network. Digitization puts the physical points of access and the resources—­ the books and buildings—­somewhat in the background. This is a remarkable shift for libraries and their philanthropic patrons. From Thomas Jefferson’s creation of the Library of Congress to Andrew Carnegie’s buildings and Bill Gates’s computer terminals, the philanthropic legacy of libraries has been physical and local. Networks—­of people and technology—­are at the forefront of digital libraries. This is exemplified by the Digital Public Library of America, which is not building collections or repositories or archives of materials. It is building new mechanisms for people to save, store, find, and contribute information. The DPLA story illustrates two defining differences between analog and digital philanthropy: what gets donated and how it gets managed. First, the DPLA is creating and managing digital resources, including software code, application program interfaces (APIs), search taxonomies, and user interfaces, not material resources such as books or maps. These digital resources operate as different economic entities than their analog predecessors. For example, software code can be built once and used by many people at once, not all of whom will pay for it (in economic parlance, it is a classic public good, both nonrival and nonexcludable). Digital software and the data it relies on (and generates) is infinitely replicable, networked by default, abundant, and may be stored forever (though how it will be accessed in the future is constantly shifting). At this fundamental level, digital assets couldn’t be more different than the physical books, shelves, and newspaper archives that they complement. The DPLA exists to build, value, distribute, and manage digital assets. These first-­order changes inspire second-­order organizational and governance shifts. Digital assets make networked action easier. The DPLA offers insight about the extent to which working with digital resources challenges our existing institutional and governance structures. In addition to libraries, the DPLA partners with museums, galleries, archives, community groups, and cultural associations to build its “collection.” Its digitization process and software code can make a digital image of a Civil War sword as easily as it can digitize Ken Burns’s PBS documentary on the Civil War and all of the biographies of Abraham Lincoln. Once digitized, all of these artifacts become “ones and zeros.” They can be stored, connected, searched, and found from anywhere. The institutional walls that defined the holders of the originals (a museum, film center, and library all in different parts of the country) aren’t

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needed in the same way to manage the digital copies and the linking software. Like the software it builds, which is designed to live on other organizations’ websites, it is not always clear where the DPLA ends and its partner organizations begin. Similarly, the DPLA and other digital civil society organizations are trying to create governance mechanisms that mirror some of the capabilities of the technologies they deem to govern. DPLA’s antecedents in this regard include such familiar organizations as the Mozilla Foundation (makers of the Firefox browser) and the Wikimedia Foundation, organizational home to Wikipedia. For the Digital Public Library, the attempts to align gover­ nance practices with technological capabilities include holding publicly open board meetings, participatory priority setting, and including data ownership practices as part of the organization’s core policy set.3 These efforts at distributed governance are meant to catalyze open use and experimentation, putting the DPLA into the work of other networks, rather than positioning the library at the center. These are worthy aspirations but not ones for which our existing nonprofit governance or financing practices and regulations were designed. What is it about the digital nature of the assets that matters to institutional governance and operation? As authors and readers, musicians and music lovers, car sellers and buyers, and journalists and news junkies have learned, the economics of digital publishing, recording, retail, and news are different than their analog predecessors. “It is the physicality of the information medium that made possible the rationing, gate keeping . . . that are the key characteristics of the paper-­based information age.”4 There are different costs involved, different scales of magnitude to be considered, and new forms and meaning attached to the ideas of originals, copies, and what can be owned. How we share things changes. Libraries offer a good place to examine these shifts. The implications of digital economics are quite familiar to libraries. In an edited volume on the future of libraries compiled in 2013, every one of the twenty-­three essays makes reference to the challenges of “lending” digital assets.5 Perhaps because text is so easily digitized, or because they have always trafficked in information, libraries and librarians have been on the lead­ ing edge of digitizing assets. The DPLA builds on an intense twenty-­year sprint of digital librarianship that includes online repositories of public domain works and the virtual version of the Deadwood, South Dakota, pub­ lic library built in Second Life.6 This sprint, of course, comes on the heels of the marathon of publishing technology that could be said to run from scroll to codex, from moveable type to mimeographs and copying machines.7

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In parallel with the history of technological copying are traditions and norms of libraries sharing their organizing systems (the Dewey Decimal system), their physical collections through interlibrary loan, and their archiv­ ing and microfiching efforts.8 Through the eyes of librarians, every era may be seen as revolutionary. Lawrence Towner, longtime head of Chicago’s ex­ traor­dinary Newberry Library, wrote, “In the quarter century that I was a librarian, from 1962 through 1986, vast changes occurred in the library world. The period was really a series of revolutions. . . . Think of it, computers and preservation technology, drastic changes in funding sources, dollar value and material costs . . . and copyright issues.”9 Although invisible prospectively, each invention of networked computers, shared taxonomies, resource lending, and shared preservation efforts might now be seen as technological steps toward a digitally connected and networked set of library resources. What can’t be seen in this technological timeline, however, is the narrative of necessitated organizational and governance changes. These implications are what matter to civil society broadly. It is not the first-­order changes that digital technologies induce that are of interest; rather, it is their second-­order implications for organizational structure and gover­ nance, as well as how these practices will redefine public/private spheres, that matter. In other words, the effects of the digital age on libraries is not just that all the books will be electronic,10 it’s that the meaning, reach, organizational structure, and governance of libraries will also change. To the extent that the DPLA is emblematic of changes afoot in civil society, the same shifts will occur elsewhere, leading to a digital civil society. Internet theorists are years into a debate about the nature of the Internet and the World Wide Web as public or privatized spaces. Kieron O’Hara and Nigel Shadbolt argue that the privatized spaces of eighteenth-­century Europe described by Jürgen Habermas and those of the twentieth century theorized by Hannah Arendt are the best equivalent metaphors for today’s Internet. These spaces—­partway between the private home and full-­on public life—­ are critical supports to the generation of new ideas, activism, and group formation that ultimately shape political and social changes.11 Almost since the first e-­mail was sent between university campuses, networked digital space has invited experimentation with extant borders of public and private. Software projects lend themselves to distributed work, with individuals contributing what they can, when they can, from wherever they are. Code was made available as a freely shared resource and improved upon by volunteers well before the now-­familiar proprietary model took hold. The transition from one model to the other—­from software that was “free as in freedom, not as in beer” to software that was shrink-­wrapped, paid for, and licensed for limited

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use—­was neither obvious nor inevitable.12 Given the options for using the code that powers the network, it is not surprising that the digital world also begat experiments in how to create this basic resource. Software coding and digital infrastructure management have given rise to coordinated volunteer efforts (now known as open source) at unprecedented scale and distributed networks of individuals working together in public and in secret, for good and for bad.13 Ownership and reuse of digital assets, not just software itself but the digitized versions of analog books, music, art, or photography, also inspired a revolution in intellectual property rights and the creation of the Creative Commons licensing scheme. This part of the digital era involves renegotiating notions of public use and private ownership, requiring us to revisit some of the questions that were answered with corporate structure in the nineteenth century. As the boundaries of private and public space are redrawn, it follows that the spanning edges of civic space are also up for grabs. These spaces cannot be taken for granted. John Palfrey, part of the original team behind the DPLA, cautions that today’s Internet is a set of private spaces masquerading as public spheres, and that we need to re-­delineate public and private.14 Our future philanthropic actions—­in which we use our private resources for public benefit—­surely depend on how these spheres are defined in digital space. Historian Jonathan Levy shows how our changing definitions of public and private influenced our nineteenth-­century corporate code (see chapter 1, this volume); it is easy to imagine a repeat of this dynamic going forward. In four short years the DPLA has morphed from academic concept to a national resource connecting hundreds of libraries, thousands of people, and millions of artifacts. It is still very much in its infancy, and like any new organism the imprints of its antecedents—­such as ICANN (the Internet Corporation for Assigned Names and Numbers), Creative Commons, the Mozilla Foundation, and the Internet Archive—­are quite visible.15 This small (and growing) universe of nonprofit organizations that exclusively manage digital assets and resources provides a glimpse at the challenges of doing so, and offers ideas about what future peers will face as well as what other non­ profits, with mixes of analog and digital assets, might consider.16

Libraries and Philanthropy in American History Libraries hold a privileged place in American philanthropic history. Thomas Jefferson famously launched the U.S. Library of Congress when he sold the nation his personal book collection, but others had already taken more philanthropic approaches. A local Boston merchant named Robert Keayne,

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once found guilty of overcharging customers, left money to the city to build a library in 1656. Thus did Keayne set the young nation on a course of using private financial fortunes to finance libraries.17 Private libraries, of course, date back almost as far as the written word. Libraries as public resources have deep roots, extending back at least as far as fourth-­century Rome.18 The Medici family’s decision to open their San Marco library to the fifteenth-­ century “public” of scholars, clergy, and noblemen might mark the first major privately funded public library.19 More than 150 years would pass following Keayne’s gift before any community in the United States would establish a library underwritten entirely by tax revenue and open to all comers. Peterborough, New Hampshire, did so in 1906, laying claim to the nation’s first truly public library. As a whole, libraries in the United States have relied on some mixture of philanthropic and public financing ever since. As embodiments of the extraordinary accom­ plishments that private philanthropy can provide, as well as the tensions with public goals that private money can bring, there may be no greater example than libraries. Working at either end of the twentieth century, Andrew Carnegie funded buildings and Bill Gates connected those buildings to the Internet. Both men acted on visions of libraries as public places, accessible to all, offering wide-­ open entryways to knowledge. And both men designed their philanthropic programs to rely on significant public support. After a few initial unencumbered gifts, Carnegie began requiring local towns to commit funds for some of the building costs and to cover the ongoing operating costs for each library. Gates’s billions, which eventually reached 99 percent of all U.S. libraries, were also contingent on locally raised matching funds. These strategies for mixing public and private resources are important not only to the history of libraries, but as Horvath and Powell show (see chapter 4, this volume), they are critical characteristics of American philanthropy. Both of these philanthropic legacies provide great numbers of Americans with access to printed and electronic knowledge. A 2010 survey found that public libraries reached more than 96 percent of the American population.20 Three years later another poll found that 72 percent of Americans over the age of sixteen had used a public library in the preceding twelve months.21 While websites and e-­mail services allow library patrons to interact with the library from afar, the physical plant remains important. Library visits per capita grew between 1992 and 2009 and have held steady since then.22 Even as libraries provide users with online materials, remote access, and digital books that can be downloaded instantly and at home, they remain vital as community places.

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Creating the Digital Public Library of America The DPLA must be understood in the context of the separate but intertwined histories of libraries, intellectual property law, Internet commerce, and academic publishing. Many of the details of the DPLA’s evolution are artifacts of a specific moment in time and the efforts of key individuals. But it is not the first or only, and won’t be the last, attempt to provide universal free access to human knowledge. It is both a result of battles that preceded it and a harbinger of changes yet to come. The threads that connect the DPLA to the history of intellectual property rights, the contours of the academic publishing business, the reach of commercial broadband access, and even the public’s awareness and sensitivity to government surveillance or corporate business models makes the DPLA’s story unique while also pointing to its utility as a case study of the many variables at play in the creation of digital civil society. Officially created in 2010 through a series of meetings, research, and community engagement efforts coordinated out of Harvard’s Berkman Center on Internet and Society, the DPLA is, in part, a deliberate effort to wrench control of digitized books out of the hands of corporations and place it in the public realm. That the country’s academic elite would be so committed to such a populist move is due to the nature of the library community itself, half a decade of tendentious negotiations between publishers, librarians, authors, and Internet companies, and the personalities of the project’s intel­ lectual leaders. Librarians are professionally trained and committed to make in­formation findable, useful, and available. They have a long history as advo­ cates for uncensored access and freedom of thought. Efforts by Google Inc. to digitize the book collections of the world’s great libraries was a powerful motivator to create an alternative that wouldn’t be rooted in the values and preconditions of the marketplace. Legal tangles between authors, publishers, and libraries date back to the nineteenth-­century concept of owning ideas—­ intellectual property.23 Digital challenges to intellectual property concepts and laws are a big part of the DPLA’s story. The DPLA reflects not only a moment in time but also the characteristics of its creators. Robert Darnton, Carl H. Pforzheimer University Professor and university librarian at Harvard University, is archetypal in his presentation as a scholar. Tall and white-­haired, his blue blazer and regiment tie fit him like a second skin. His curriculum vitae begins with scholarly treatises on the publishing of the first encyclopedia and includes articles written in French, German, and English. His publications page rushes into the present with blogs and general interest magazine articles on the role of search engines

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and the future of digital libraries. Where Darnton diverges from the archetypal academic is in his activism. Not content to understand and articulate the history of books and publishing from the Enlightenment to the present, Darnton has devoted the last several years of his career to imagining, and building, the future of public access to knowledge in all of its media forms. Darnton has a long lens on trends in information use, storage, and dissemination and the types of technological forces that matter. Joining him in the original planning for the DPLA was John Palfrey, a lawyer by training. In 2010 Palfrey was a leading scholar of the Internet at the Berkman Center and the author of a book on “digital natives,” in which he posited the many ways digital networks and access were shaping the worldviews of those born into a world with such tools. A third key member of the original planning group was Maura Marx, who was then leading the Open Knowledge Commons based at the Boston Public Library. Darnton, Palfrey, and Marx brought with them a long-­term professional commitment to the independent sector. While they sought public partners for the DPLA, including the Library of Congress, failure to get the government to lead was not going to stop the effort. From the beginning, the DPLA was conceived as a public resource but not one necessarily rooted in government. A half-­decade of commercial innovation and legal reaction predates the DPLA launch. In 2004 Google Inc.’s two founders, Larry Page and Sergey Brin, took to the stage of the Frankfurt Book Fair to announce the launch of “Google Print.” The symbolism was hard to miss. In a city known for book publishing since Gutenberg introduced moveable type, two upstart technologists from Silicon Valley were letting the world in on their vision of the next information revolution. Two months later Google Print announced the Google Print Library Project, a joint effort with five major university libraries, including Harvard. At the time, Darnton was in his fourth decade on the faculty at Princeton University, teaching European history and directing the Center for the Study of Books and Media.24 Darnton initially expressed enthusiasm for the Google project, even as some academic and library colleagues feared the corporate entrant. “Information has never been stable,” Darnton wrote, and “Google Book Search, the largest undertaking of them all, will [not] make research libraries obsolete. On the contrary, Google will make them more important than ever.”25 Up in Cambridge, the then head of Harvard libraries, political science professor Sidney Verba, oversaw Harvard’s negotiations with Google. Verba developed the agreements to connect the university’s library catalogs to

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Google’s search engine and to provide the company access to the millions of items in its expansive library collection. Verba drew from his own scholarship to emphasize the project’s contribution to promoting equality: Not all colleges are equal. They vary in prestige, which is an overrated value. But they also vary in the resources they can make available for a student’s education. This makes higher education also an engine of inequality. . . . When we digitize our public domain books and, even more so, if we go on to digitize our copyrighted books, we will have contributed to the equalization of scholarly resources. The educational divide will be reduced.26

Verba, like Darnton, saw the arrival of mass digitization not as a threat to university libraries but as an advantage. Professor Verba further hoped that the Google project would close a different divide: “There is one more divide that will be diminished—­that between the library and the Internet.”27 Verba’s comments point to one of the most contentious elements of the digitization efforts—­copyright law and ownership rights. In the next few years several other efforts emerged to attempt mass book digitization. In 2005 a nonprofit coalition, led by the Internet Archive and dubbed the Open Content Alliance, began scanning books as part of an effort to make archival copies for the Internet. In 2008 a consortium of research libraries launched the HathiTrust, named for Rudyard Kipling’s Jungle Book elephant (renowned for “never forgetting”) to digitize, preserve, and share their collections. Moving even faster than book digitization efforts was the pace of change in Internet use. In 2006, with Darnton at the helm of the Harvard libraries and with HathiTrust, OpenContent Alliance, and Google Books all in full swing, a Harvard sophomore named Mark Zuckerberg launched the social networking site Facebook. By 2010, Zuckerberg’s dorm room creation would pose a major competitive threat to Google as the two behemoths fought each other for ways to dominate digital attention spans (and thus attract the advertising revenue that serves as their corporate lifeblood). Facebook also changed the landscape of vested interests in Google’s book program. Facebook’s rapid growth and edge-­pushing privacy and usage practices increased the rate at which people became aware of the twin concerns of corporate reach and corporate ownership. No company has done more to bring the issues of personal data ownership to the forefront of general public attention than Facebook (at least until Edward Snowden in 2013). In its relatively short life span, Facebook has become the poster child company—­and

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Zuckerberg the poster child himself—­for sharing one’s private life freely and publicly.28 Ironically, Facebook’s success in doing so inadvertently expanded copyright law and digital ownership from being niche issues to ones with much broader resonance. Information technology pundits and legal scholars have long debated the pluses and minuses of the social networked world, where individuals exchange their content for free access to the technology tools. These legal, economic, and policy arguments would likely have remained the arcane obsessions of scholars and a few professions if hundreds of millions of peo­ ple weren’t finding themselves drawn into these digital economic exchanges via their participation on Facebook. Professor Verba’s wish that global technology connections and geographically bound collections of printed materials would interweave in powerful ways did come to pass. However, the journey required a decade of lawsuits and court decisions. It also came only after Verba retired and was succeeded by Darnton, who shifted from Google Books advocate to adversary over the course of his tenure in the role of Harvard’s university librarian. Darnton’s role in negotiations with the company and his observations of the legal challenges to corporate digitization efforts all informed his efforts to craft the DPLA as a nonprofit alternative to Google Books.

Google Books Lawsuit 2005–­2013 For decades, libraries have made digital copies of their collections as a means of preserving materials and reducing the need for (expensive) physical storage space. Much of this work has happened one institution at a time, collection by collection. With the advent of deep-­pocketed Internet companies with distributed storage mechanisms and a business model built on rapid and vast access, libraries were faced with both new opportunities and challenges. Google Inc.’s foray into book digitization in 2004 energized both allies and legal challenges, catalyzed new partnerships, and accelerated commitments to nonprofit alternatives to the company’s commercial offering. Poet laureates, presidential biographers, and retired sports stars may not be the first people to come to mind when you picture avid defenders of pri­­ vate property rights. Just the same, the poet Daniel Hoffman, Lincoln biog­ rapher Herbert Mitgang, and baseball pitcher-­turned-­author Jim Bouton signed on as plaintiffs in a lawsuit against Google filed in New York District Court in September 2005.29 The suit, called Authors Guild Inc. et al vs. Google Inc., pitted the nonprofit association and its eight thousand members

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against the search company, claiming that Google’s Book Search violated the copyrights of every published author. Shortly after the authors filed their lawsuit, the Association of American Publishers also filed a case against Google. The two cases would eventually be merged into one. Google argued that their efforts to make digital copies of every book in print and provide “snippets” of those books on demand when an individual searched for a title or author was the equivalent of making available the world’s largest, most comprehensive card catalog. Such a resource would allow searchers to find what they were looking for faster and easier than ever before. The technical realities underlying these search claims are important. In order to offer up “snippets” of a book you first have to make a copy of the entire work. In order to present search results quickly, Google (or any provider) needs to make and store a copy of the original work on its servers. Behind every Internet search that finds only a sentence or two of a published book is a complete digital copy of the work stored on Internet servers. These copies—­and the company’s possession and control of them—­are the subject of the legal battles. These court cases have precedent, brought on by library uses of previous technologies such as the photocopier. For decades, a “gentleman’s agreement” between librarians and publishers guided the “fair use” of copies made from library books.30 This nonbinding handshake between publishers and libraries effectively guided reproduction of copyrighted materials well into the 1960s. But even as it was being drafted one of its chief negotiators knew that the gentleman’s agreement would “protect what libraries have done in the past, but not what they might do in the future.”31 Sure enough, by the late 1960s libraries and publishers were fighting for legislative guidance on the issue of fair use. In 1968 a lawsuit was filed that eventually made its way to the U.S. Supreme Court. While the legislative and judicial processes wound through the decade, technological capacities sprinted ahead. By the time the court ruled in favor of fair use in the 1973 Williams & Wilkins case32 and the Copyright Act of 1976 was passed, the focus of copyright law had shifted media altogether, from print to television.33 By the time of the Google Books lawsuit, digital presentations of published work had already been through the courts. Efforts to maintain digital access to cultural materials and to protect an online public domain are also part of the story. Larry Lessig’s Creative Commons, a digitally designed legal mechanism for granting access to creative products, was inspired in part from failed legal challenges against legislated copyright extensions. Perhaps most poignantly, the 2003 decision in Eldred vs. Ashcroft, in which Lessig argued on behalf of public domain activists (and lost) before the U.S.

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Supreme Court, reminded public access activists of the importance of tight intellectual property controls to commercial interests. In defending itself against the Authors Guild, Google argued that Book Search was simply expanding the scope of fair use in line with new technological abilities.34 Aligning themselves with libraries gave Google both jurisprudential precedent and beloved nonprofit allies in their fight against authors and publishers. The right to make copies to use for searching and delivering access to the public is legally important, not just for Google but for individual libraries and the DPLA. For eight years, the fight between Google, the Authors Guild, the Publishers Association, and other organizations wound through the courts, into negotiated settlements, and back into the courts. Amicus curiae briefs were filed by civil rights organizations, libraries formed new alliances specifically to focus on their copyright issues in the digital age, and multimillion-­dollar payment plans were negotiated, agreed to, challenged, and thrown out.35 In November 2013 the U.S. District Court in New York dismissed the case, ruling in favor of Google and substantively agreeing with the company’s argument that creating and storing cached copies of books falls within the fair use protections of existing copyright law.36 In his decision, Judge Denny Chin cited the numerous benefits of Google Books, including the program’s contributions to new forms of scholarship, expanded access to materials for “traditionally underserved populations,” support of preservation efforts, and expanded sales for authors and publishers.37 The early proponents and partners of Google Books, including many university libraries and librarians, cheered the decision. The American Library Association, the Electronic Frontier Foundation, the Library Copyright Alliance, organizations serving the blind and disabled, and many others issued press releases on the day of Judge Chin’s decision “applauding” the ruling and celebrating a “tremendous victory for fair use and the public in­ terest.”38 Major news outlets covered the decision, even as the Authors Guild insisted this was only “round one” in the battle and noted its intention to ap­ peal the decision.39 Yet even as they cheered the decision, several partners in the early Google Books project had moved on to form their own national trust of digital materials. They had left to create the DPLA.

Public Governance as the Deciding Factor Even as libraries fought alongside Google for its right to make and share dig­ ital copies, they were growing more concerned about how the public would

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be able to use Google’s digitized information. The Authors Guild case focused on ownership; the founders of the DPLA were beginning to focus on questions of access, control, and privacy. Governance issues were now driving the founders of the DPLA. In his 2010 New York Review of Books article, “A Library without Walls,” Robert Darnton noted that other countries, big and small, were taking on the challenge of building national digital libraries: Think of the HathiTrust, the Internet Archive, the Knowledge Commons Initiative, the California Digital Library, the Digital Library Federation, the National Digital Information Infrastructure and Preservation Program, and other nonprofit enterprises. . . . We can learn from the experience of other countries. Virtually every developed country has launched some kind of national digital library, and many developing countries are doing the same. . . . At Harvard, we have conducted a preliminary survey of the projects underway in other nations. We have even located an incipient NDL in Mongolia. The Dutch are now digitizing every Dutch book, pamphlet, and newspaper produced from 1470 to the present. President Sarkozy of France announced

last November that he would make €750 million available to digitize the nation’s cultural “patrimony.” And the Japanese Diet voted for a two-­year, 12.6 billion yen crash program to digitize their entire national library. If the Netherlands, France, and Japan can do it, why can’t the United States?40

In addition to playing to national pride, Darnton’s list of examples highlights the opportunities for public sector leadership and the natural tendency of libraries to share and connect. The nineteenth-­century invention of interlibrary lending is yet another important antecedent to the idea of a digital library. Where once libraries turned to delivery trucks and the postal service to build a network to connect disbursed libraries and share materials, the DPLA’s founders and their global counterparts recognized that dig­ ital realities start with the sharing network and then turn to the roles of the individual libraries. On October 1, 2010, using a $36,000 grant from the Alfred P. Sloan Foundation, Darnton, Palfrey, and two dozen others gathered in a seminar room at the Radcliffe Institute for Advanced Study to discuss the possibility of building a “national digital library.”41 Darnton simultaneously posted both his opening remarks from that conference and an article about the library for the public—­or at least that slice of the public that reads the New York

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Review of Books—­to read and review.42 While the New York Review of Books is rarely considered populist reading, Darnton’s article on the meeting and the library generated dozens of online comments and exchanges of  letters in the printed Review and its online blog for the next two months.43 Between 2008 and 2013 Darnton’s writings about the power of a digital library make it clear that building the technology is important, but what really matters is building the right governance structure. A 2011 Circuit Court ruling rejecting a proposed settlement between Google and the Authors Guild noted specific concerns about protecting users’ privacy. While libraries have a long history of protecting readers’ rights, digital companies bring conflicting motivations. As the judge noted, “The digitization of books would enable Google to amass a huge collection of information, including private information about identifiable users, without providing adequate protections regarding the use of such information.”44 All of these factors—­ Google’s scale, the legal battles over ownership and licensing, and concerns over privacy—­seemed to convince Darnton of two things: the task of digitizing libraries was doable and the governance mechanism for maintaining the resulting resource needed more public oversight than offered by a commercial enterprise.45 The intersection of private and public is where we situate civil society. Libraries act in the best interest of the public when it comes to information access and use. They have open and public processes for organizing information so that no material is privileged over any other. They are staunch opponents of censorship. And to ensure that a member of the public feels comfortable requesting whatever information he or she wants they protect the privacy of users’ access records. These are norms and practices embedded in centuries of librarianship, premised on their sense of themselves as organizations that exist to benefit the public, and encoded in their gover­ nance systems. Companies such as Google, by comparison, are required by corporate law to benefit their shareholders first. They have no norms of public protection or privacy rights, nor are they required to offer fair and equal access to all information. On the contrary, companies have many incentives to do the opposite, privileging either by placement or speed information in which they have some financial stake.46 In chapter 5 in this volume, Paul Brest discusses the options many corporations are taking to act beyond the limits of fiduciary responsibility, and it is possible that Google has such public-­ minded interests. Still, putting the nation’s cultural and literary history into the hands of a single commercial enterprise struck the DPLA’s founders as

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a bad deal. The DPLA founders were convinced there was a way to get the benefits of commercial scale with the protections of public governance, and that doing so was in the best interest of the country. Darnton wrote: Jefferson and Franklin—­the champion of the Library of Congress and the printer turned philosopher-­statesmen—­shared a profound belief that the health of the Republic depended on the free flow of ideas. . . . Thanks to the In­ ternet and a pervasive if imperfect system of education, we now can realize the dream of Jefferson and Franklin. We have the technological and economic resources to make all the collections of all our libraries accessible to all our fellow citizens—­and to everyone everywhere with access to the World Wide Web.47

The way to do this was to set up a nonprofit organization, chartered for the specific purpose of collecting, connecting, and managing the digital versions of Americana and cultural and literary artifacts for the nation. Over the course of the twentieth century, nonprofit organizations have become the de facto structural option for designating private resources for public benefit. There are legal reasons for this, grounded in both the gover­ nance and accountability requirements attached to the nonprofit corporate designation. These requirements are set at both the state and national levels. State incorporation laws identify what types of activities can be undertaken and the governance requirements for these enterprises. The national interest is expressed in section 501(c) of the Internal Revenue Code, where twenty-­nine subsections differentiate between activities to be designated as charitable, mutual, for the pursuit of social welfare, or to the benefit of certain groups such as veterans. The combination of state corporate law and federal tax law dictates how these organizations apply and account for their financial resources, how the enterprises report on their activities, and what kinds of activities qualify.48 Together, the state corporate designation and the federal tax designation of charitable nonprofit have become synonymous with using private resources for public benefit. Such organizations also enjoy an attendant cultural “trust” that has built up over time. While scandal and abuse exist within the nonprofit sector, in general, public opinion of these organizations remains high (even as it slips regarding other spheres such as the media, government, or corporations).49 One sign of how important the notion of trust is to nonprofits writ large is the collective hand-­wringing that ensues when an individual or institution is discovered to have abused the corporate form for personal benefit.50 Thus a nonprofit organization—­a 501(c)(3) charitable nonprofit to be precise—­was the logical form for Darnton and his colleagues as they set

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themselves to the task of digitizing the nation’s knowledge and making it freely available to all. They began their work under the auspices of an existing nonprofit institution, the Berkman Center for Internet and Society at Harvard University (itself one of the nation’s oldest institutions of any sort), in order to focus on the technical and governance plans that would make such a digital library possible.51

Adapting Civil Society Governance to the Digital Age From the very beginning, however, the planners and steering committee members of the DPLA project were interested in governing the project in ways that mimicked its digital origins, not simply meeting preexisting legal requirements. This choice was influenced by the possibilities engendered by digital assets, the culture of open source software, and the norms of libraries. The hope was to build a governance structure that shared some of the characteristics of the technology it was designed to manage. Since the technologies that would undergird a digital public library were going to be open, global, and distributed, the DPLA’s founders hoped to create a governing structure that could mimic those characteristics. The planning process itself was documented and shared as publicly as it could be while still allowing work to be done.52 The organizing team used web pages, wikis, community and developer web portals, and electronic discussion lists from the very beginning for both outreach and record keeping. Almost as soon as the first planning meeting was over, interested members of the public were invited to “sign on” to the nascent concept of an “open, distributed network of comprehensive online resources that would draw on the nation’s living heritage from libraries, universities, archives, and museums in order to educate, inform and empower everyone in the current and future generations.”53 One of the early research tasks undertaken by the team at Berkman was to find organizational models from like-­minded initiatives for the steering committee to consider. Models from other nations, governance mechanisms drawn from research on the commons, and even “no governance at all” and “this wiki as the organization” were considered.54 During the planning phase, which was time-­bound by available grant dollars, the planners of the DPLA were clearly looking for organizational models that would fit with their goals—­distributed digital governance of distributed digital resources for a distributed public. These aspirations were tempered by several realities—­ including the need to make decisions relatively quickly and to meet the reporting requirements of its host organization and funding partners.

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The working teams that operated through 2011–­2012 represented the degree to which the DPLA planners were deliberately considering the characteristics of a “digital nonprofit” as well as the technological challenges of connecting library resources. Working teams focused on community participation, governance, legal issues, financial and business models, and technological considerations. All work was done in public—­online, in person, and around the country. There were dedicated streams of work for software developers to write code, address interoperability issues with existing digitization projects, and experiment with a variety of user interfaces. Lawyers and librarians, software coders and professors, open source and copyright activists, linked data experts, historians, book lovers, bookstore owners, and museum curators participated in planning and designing the DPLA.55 By October 2012, two years after the first planning meeting in Cambridge, the DPLA’s steering committee and workstream partners had gathered enough input, led enough “beta sprints” and public plenaries, and con­ sidered enough governance options, financial models, and technical issues to turn the enterprise over to an independent nonprofit organization with a formal board of directors.56 A long debate about the use of the word public in the DPLA name had been resolved, with much consideration given to how it might affect the “brand” of public libraries, as well as what it might say about the digital library’s expectations for financial support, institutional governance, and intended beneficiaries. For the DPLA the word public has the digital era’s connotation of materials that are open, accessible, and useful to anyone. It also takes the nonprofit meaning of serving a public benefit, not a profit motive. Winding these two strands together—­as open as the software would allow while meeting the legal requirements of nonprofit institutions—­would become a key focus of the DPLA’s first managers. Additional philanthropic support was flowing to the effort. The Alfred P. Sloan Foundation made several additional grants to the effort after 2010, and other foundation support began to arrive in 2011. In 2012 the DPLA received its first public funding from the National Endowment for the Humanities57 and then from the Institute of Museum and Library Services.58 These funds enabled the work to happen, and they also required that the DPLA put in place recognizable accountability mechanisms, such as professional staff, a board of directors, and legally recognized reporting mechanisms. In March 2013 the DPLA announced that Dan Cohen would take on the role as the organization’s first executive director. Cohen was a historian on the faculty of George Mason University who had won several national awards for his work in the digital humanities, include projects like Zotero (a citation system) and the September 11 Digital Archive. Cohen’s first day

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as executive director was scheduled for April 18, 2013, to coincide with the official launch of an independent and functioning DPLA. Even before the key personnel were in place, the DPLA had begun working on its coming-­out party. The two years of community meetings and open, online organizing were redirected to focus on an official launch party—­the DPLAFest. Hundreds of people from across the country planned to travel to Boston and submit their ideas for session topics, hackathon ideas, and speakers. The McKim Building of the Boston Public Library, once pro­claimed “a palace for the people,” was readied for a starring role in the launch of the DPLA. But on April 15, 2013, tragedy struck. In the early afternoon on that sunny Monday, bombers struck the finish line of the Boston Marathon, practically in front of the main library building. The city went into lockdown and the nation went into mourning. The next day Dan Cohen announced that the DPLA website would go live as scheduled but the party would have to wait.59 Between April and October 2013 the DPLA grew its collection and expanded its partnerships. It more than doubled the number of items connected via its software code, and developers built a number of new ways to search and sort through the collection. Volunteers and staff members continued to work on technologies that linked DPLA resources to sites like Wikipedia and to recruit community representatives and train local librarians across the country.60 All of these efforts are attempts to keep the organization’s structure and activities true to the distributed nature of the technology and the mission.61 Like many nonprofits, the DPLA’s work is sustained by volunteers, including lawyers, technologists, and librarians. Managing the distributed net­­work of volunteer expertise is a key staff task. The working teams from the planning phase have morphed into a few standing committees of volunteers, which continue to hold their meetings via open conference call. One of DPLA’s standing committees continues to focus exclusively on legal matters. Chaired by Pamela Samuelson, law professor at the University of California, Berkeley, the committee exists to keep the DPLA board and staff apprised of legal developments regarding copyright, fair use, metadata use, and other legally dynamic areas.62 The committee also has its mandate to “facilitate engagement with the broader legal community around legal issues relevant to the DPLA, digital libraries, and digital access in general.”63 Influencing the same legal landscape for sharing digital resources remains part of the DPLA’s core work. As of January 2014, the DPLA had 7.1 million records, having more than doubled the size of its collection since its launch nine months earlier.64 Less

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than two years since its founding, the DPLA is among the twenty largest library collections in the United States—­clearly demonstrating a different pace of growth than its counterparts with physical collections.65 Each record is essentially a metadata-­rich link to a book, painting, dataset, audio recording, photograph, video or other digital item at one of DPLA’s partner organizations. The DPLA also offers a web widget that integrates into Wikipedia, allowing searchers of the online encyclopedia to pull up related DPLA artifacts. The DPLA is designed to be global and local at the same time. It manages two different kinds of partnerships, distinguishing between large, existing collections, such as the HathiTrust or ArtStor and smaller community partners.66 The two types of partners help the DPLA integrate into the existing global network of digital collections while also helping local communities digitize their materials and add them to the network.67

What Is Different about Digital Civil Society? Simply put, digital assets—­which can be simultaneously shared, perfectly copied, and easily edited and repurposed—­challenge the analog assumptions we have built into our institutions. Structurally, the DPLA has more in common with a virtual repository of open software supported by a disbursed community than it does with a branch library with bookshelves. For libraries in particular our new digital capacities require rethinking where materials come from, who owns them, who uses the library’s materials, and what forms of materials are included. As such, it, and potentially all digital nonprofits, need ·· new models of ownership for digital resources that can be used by many, held in common, and stored in multiple places; ·· network models that assume multiple institutional partners from across sectors as well as cohorts of individual actors; and ·· new forms of governance that allow for geographically distributed decision making and new forms of accountability.

New Boundaries of Ownership Darnton’s awareness of the governance challenges linked to digital resources seems to have driven both his bounded enthusiasm for Google Books and his growing commitment to a public alternative. In 2009, reflecting on the choices for the court charged with reviewing the settlement reached between

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Google and the Authors Guild, Darnton identified two options. The first, which Darnton called the “maximalist” approach—­would involve an act of Congress turning Google’s “digital database into a truly public library.” This would be a legislative act with few precedents and would take the issue out of the courts. Darnton hedged his bet on an act so out of character with historical treatment of corporate interests by noting that “it is not clear how Google would react.”68 He described his second option as “minimalist” and argued that it was necessary to consider because the possibility of congressional action cut so “far against the American grain.” Option two would deploy philanthropic funds to a nonprofit to create a database of works in the public domain. Such a database would not be as comprehensive as Google’s, but it would be extensive. It would grow over time as copyrights expired and could be begun quickly and at least the rate of a million books per year.69 Librarians and computer engineers could manage this option, in service not to a commercial enterprise but to the public. With these words Darnton first put forward the option that would become the DPLA. Woven into even this early description of the DPLA is its necessary attention to ownership issues (copyrights being the primary concern, especially where copyright is unclear, known as orphan works). But it is not just copyright that raises ownership issues for the DPLA. From the earliest meetings of the DPLA Legal Workstream the group wrestled with questions of data and metadata ownership, licensing structures, and even wondered aloud whether “the DPLA [should] even bother with adhering to copyright law?”70 Even before it truly came into being the DPLA grappled with ownership ques­ tions and struggled to find legal solutions, and governance structures, that could best manage digital assets in service to the public. The governance questions that arise in a digital context are fostering experimentation with accountability practices, new boundaries of ownership, and networked approaches to change. The current state of nonprofit governance is a long way from what digital assets make possible. How will we balance digital reach with legal limitations? How can we be most inclusive? How do we lend things we don’t necessarily own? Less pressing, but not by much, are questions of perpetuity and preservation in the digital sphere—­ both of the digitized assets and the organizations that will manage them.

Working in Networks Because film, books, art, sculpture, and video can all be digitized into identical bits and bytes, the types of specialized institutions that house their

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analog originals don’t transfer as easily into the digital sphere. The collections of museums, historical societies, libraries, and galleries can all mix together in the digital space—­and be searched, clustered, curated, and researched according to the unique interests of users as well. So what will the institutions that manage our literary, historical, cultural, scientific, and artistic heritages need to look like in the digital age? What types of expertise, facilities, and collections will differentiate museums from libraries, science institutes from galleries? It’s simply not clear what needs to be held by whom and how those resources will be managed. In a recent article describing the world’s largest biogenome institute, a reporter asked the enterprise’s chief executive, “Are you a nonprofit, are you a government entity, or are you a private company? The answer was yes.”71 For the DPLA itself, the institutional boundaries are set by a combination of analog governance structures (board of directors, staff, and financial resources) creating and managing a deliberately distributed set of software code that links digitized versions of materials together, wherever they may be held. The actual linked resources may be in small-­town America or on the virtual shelves of another nation’s national library. In June 2014 the DPLA announced a new initiative to harmonize a system for use-­rights that will allow digital libraries around the globe to “get the rights right.”72 Making the network work for digital libraries and their partners—­around the globe, around the corner, and from each sector of society—­is key to making the DPLA succeed. This is not as simple as it may sound. Existing institutions are hard to change. New definitions of ownership or new licensing rights still need to be negotiated one organization at a time. Existing analog collections need to be digitized—­something which can still only be done with active participation of the host institution. There is no guarantee that a single system that connects once disbursed and varied collections will be more robust, sustainable, or representative than its predecessors. In short, the possibilities that universal, linked resources offer are tantalizing, but they don’t come easily or without costs.

Distributed Governance Governance includes the mechanisms by which organizations make and implement decisions. It includes various policies, reporting structures, and liability relationships. For American nonprofit organizations the governing structure is a board of directors, which holds the legal and fiduciary

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responsibility for the organization, hires and oversees managers, and abides by a set of agreements chartered into the organization’s incorporated status. Digital assets have, by default, a global constituency. The opportunity for the DPLA, for example, was to build a set of code that could work with (interoperate, in technical terms) software from other nations’ digital libraries and work for the tens of thousands of potential American institutional partners. Decisions about the digital software, and how it works, where it is stored, and how it is shared represent new realms of governance for nonprofits such as the DPLA. These are not mere “management issues”—­ they have implications for the very purpose and nature of the organization. Many of the governance norms that DPLA has built into its organizational structure—­regarding sharing, access, partnerships, and its definitions of community—­are practical and legal codifications influenced by the ideas of software code and applied to the practice of nonprofit governance. These practices extend beyond the formal nonprofit governance mech­­ anisms—­board meetings, minute taking, annual reporting—­to ways of  build­ ing community and creating accountable relationships across constituents. They don’t always “port” over easily—­for example, open source software sharing doesn’t offer easy solutions to questions of nonprofit fiduciary responsibility. Today’s digital nonprofits are, at best, hybrids. The legal and fiduciary responsibilities for U.S. nonprofits have not changed, and so the DPLA must make sure that its board bylaws, fund-­raising, and reporting activities fit the hierarchical timelines of the federal tax authorities and state corporations code even as they deploy broad public participation and online note sharing. The DPLA was fortunate to have more than a year of planning time to think through its governance structure and how to blend the open and virtual world of software sharing with the formal requirements of American tax law and corporate codes. At the moment, the DPLA—­like its predecessors—­is still mostly experimenting on its own margins and not influencing governance changes at a broader level. As the DPLA and its digital organization peers find ways to meld traditional management requirements with distributed digital participation, we may see new norms of nonprofit and civil society governance emerge. We may well find that we need to redesign our organizational structures to better serve and support our societal needs when the resources are digital. It’s also possible that we will develop new understandings of what we think of as public as we gain access to digital versions of materials once available only for private use. In other cases we will find that our existing norms need to be applied differently to digital resources. We will continue to confront

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new challenges wrought by managing digital assets—­ranging from questions of donor consent (and intent) to perpetuity and destruction of donated data. We should expect new practices and, eventually, new governance procedures and regulations to emerge. Beyond this, we cannot predict what roles individual leaders will play in the rise and fall of these organizations or how nonprofits as a sector or civil society as a whole may change. The DPLA’s case is only one story—­ museums, parks, schools, civic organizations are all experimenting with digitized resources and structures to match. But the private application of digital resources for public benefit is here to stay. The nature of these resources and their influence on new forms of organizational management, governance practices, and public participation are upsetting the status quo. They are early signs of an emerging digital civil society.

Eight

The Free-­Provider Problem: Private Provision of Public Responsibilities E ri c B eerb o h m

Is voluntary provision superior to taxed redistribution? Work on philanthropy typically valorizes noncoerced, private action and presumes that coercion is something to avoid. So, if a voluntary organization can effectively deliver a good, we should favor that scheme. This conclusion is hard to resist. If free individual choices promote redistributive ends, surely this should be preferred over state taxation. The less coercive the means, the better.1 If this is right, we have strong reasons to encourage nongovernmental organizations to take over the redistributive work that the state is currently performing. In this chapter I will challenge this assumption. But I won’t rely on the stock objection that the state should not hand off redistributive efforts to nonstate actors. The basis of this stock objection is the free-­rider problem: if others (nonstate actors) can provide a collective good without my help, why should I bother? Enter political institutions. They are ready-­made to ensure that no one avoids contributing their share. So it’s natural to lean on this argument. Insisting that the state provide a good because of its enduring safeguards against free riding is perfectly respectable. But avoiding the free-­rider problem doesn’t supply a complete solution. It fails to address our reservations about private action displacing public responsibilities. And, I will argue, it obscures a moral reason that is agent relative—­one capable of naming democratic citizens as the only satisfactory providers of a good. This points to a neglected aspect of the free-­rider problem as it is normally understood. Free riders want redistribution to happen, but this wish makes no reference to them as agents. It makes no difference to free riders whether they play any role in the effort. They think in exclusively agent-­neutral terms. Their alarming mantra—­“Why does it need to be me?”—­signals an indifference toward

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the identity of the provider of a good. They are content to have other agents bring about their preferred end. The free-­provider problem inverts the structure of the free-­rider problem. Suppose you aim to contribute to a project that you take to be a public responsibility, one that should only be discharged by you and your fellow citizens. Your description of this responsibility makes essential reference to your identity. It is an agent-­relative obligation. But suppose this effort is preempted by a private effort. The free-­provider problem, then, arises when nonpublic actors put democratic citizens out of a job that we take to be ours. The concern that private philanthropy has the potential to undermine the public character of distributive justice isn’t new.2 But the moral reason that I uncover here is novel. To be sure, when public institutions systematically fail to discharge their distributive obligations, we may have reason to welcome free providers. Unjust conditions make the free provider into a nonproblem. But even when the voluntary sector permissibly takes up the slack from noncompliant political institutions, the free-­provider problem can explain our sense that there is a moral remainder. It can even point to conditions that we may place on private provisions that are auditioning as public responsibilities. I argue that this explanation is far less clumsy than the usual appeals to the “warm glow” associated with philanthropic giving.3 Those appeals fail to notice that principles of justice aren’t indifferent to who is doing the redistributive work. In a society where major projects of justice are offloaded to the voluntary sector, the relationships among citizens will remain impaired. Material inequalities may be mitigated, but third-­party redistributive work can’t repair how any one citizen relates to another in need. State provision isn’t, then, second-­best. My argument plays out in five parts. In each of the first three sections of this chapter, I present an objection to the private provision of select public goods. I argue that these three objections—­the free rider, domination, and communal objections—­share a common liability. While they may seem to be agent-­relative objections, this appearance is misleading. Once formalized, none of them makes essential reference to the identity of the goods provider. Each is only able to name the state as a contingent provider of certain public or directed goods. This casts light on a structural feature of principles of distributive justice that has been overlooked. What has been called the “central question of ethical theory” has found little notice among theorists of justice.4 In the fourth section I argue for the collective, democratic provision of certain goods. Such provision resolves our intuitive dissatisfaction with private efforts to satisfy distributive responsibilities. My analysis reveals a ne-

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glected property of distributive justice: if it is to be egalitarian, it is ineliminably agent relative. We must satisfy the requirements of distributive justice together, through our shared political institutions. The moral root of my argument has a democratic character. Only public actions, I argue, are capable of speaking in the name of all citizens. No third party, however reliable or sincere, can serve as a genuine surrogate. In the final section I turn to institutional debates about the relationship between the voluntary and public sectors. The extensive work on how pub­ lic provision may “crowd out” private giving has directed attention away from the opposite concern.5 When a voluntary association auditions as an agent of distributive justice, it isn’t capable of addressing the impaired relations among citizens that result from inequality. Private actions can alter the distribution of our resources or welfare. A billionaire may fund a public school district. A foundation may reduce homelessness. A charity funded in small dollars may provide health care to millions. But, if my conclusion follows, private efforts to satisfy distributive responsibilities are always incomplete. Philanthropic giving—­large or small—­doesn’t put citizens into egalitarian relationships with their fellow citizens in need. Justice creates a jobs program for democratic citizens that can’t be outsourced.

1. The Free-­Rider Objection What’s special about satisfying obligations through shared coercive structures? The most obvious answer turns on the state’s special capacities. We structure our political institutions to overcome collective action problems. With their coercive powers and authoritative commands, only states can provide the kind of assurance distributive principles demand. Coordinated, collective beneficence is structurally vulnerable. First, individuals will be tempted to hitch a free ride on the collective effort of others. This becomes acute when they notice that their small contribution will not be decisive. They will have reason to channel it to other discrete acts that are not dependent on the coordinated actions of others. Second, the commitment of individuals who wish to be beneficent may turn upon their assurance that an adequate number of other persons will join them to bring about their large-­scale project. Even the purest altruists have reason not to invest their beneficence budget on a project without publicly checkable assurance. They themselves may not desire to ride free, but they may commit only conditionally if they perceive that others are riding free.6 To see the underlying structure of the free-­rider objection, we can lay out the argument in its barest form:

210 / Chapter Eight The Free-­Rider Objection Premise 1: Principles of justice require that good X be provided. Premise 2: Absent state action, some citizens will ride free, and the good will be underprovided. Conclusion: So, the state must provide X.

This formulation leaves open the kind of good at stake. The free-­rider objection doesn’t require that good X be one that meets the official dual criteria of public goods: nonexcludability and nonrivalry. It suffices that access to the good is a requirement of distributive justice. We can start with the first premise. It makes clear the agent-­neutral character of the argument. Principles of justice require that certain distributional patterns be met. But they don’t point fingers at any particular agent. What makes the arms of the state the default actor is the second, empirical premise. This premise picks out a type of agent. It tells us that distributive principles can be reliably satisfied only by an institutional agent with a stipulated set of powers that can dissolve free-­riding problems. It rules out agents who fail to pass this functionalist test—­you and I and the associations that we voluntarily join and leave will chronically underprovide.7 After this process of elimination, the argument concludes that there is a single agent capable of providing the good: the state. So, when Michael Walzer argues for the unique sustainability of communal provision, he is invoking an argument of this form. Only providing goods collectively, he argues, can “build the kind of community that can sustain the provision.”8 This premise drives the chronic worry that nonstate actors will underserve justice. John Stuart Mill thought that philanthropists were in the grip of an error theory: they thought that their private efforts could, if coordinated effectively, produce a more just society. The mistake of “reformers and philanthropists [is] to nibble at the consequences of unjust power, instead of redressing the injustice itself.”9 His argument is heavily indebted to a series of empirical premises about the durability of coercive, collective guarantees. This same argument has led contemporary political philosophers to take it for granted that, whatever the correct theory of distributive justice (among the many variants of sufficiency, equality, or priority), the satisfaction of distributive principles is something that the democratic state must itself do. G. A. Cohen, for example, takes this for granted, holding that “of course it is better for the state to satisfy principles of justice.”10 He appeals by shorthand to the “awesome information/coordination problems” that would make private action in the service of distributive principles unreliable or even

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impossible. He cannot imagine a successful outcome if the government were to abandon “its service to the difference principle in favor of replacement of that service by private-­citizen action.”11 Cohen is confident enough in the force of free-­rider problems to cut off his argument against private provision here. But this leaves open the possibility that his empirics are wrong. Suppose the private provision of certain goods and services was capable of bringing about distributions consistent with a theory of justice. In that case, we would have to be officially committed to the view that, following private provision, there would be no outstanding debts—­nothing that would still be owed by democratic citizens through their state.

2. The Domination Objection There will always be free riders among us. My point isn’t that this objection normally fails. If anything, the free-­rider objection has been too successful. Its attractiveness has concealed the more morally fundamental reasons we have for thinking of distributive principles as naming us in some fundamental way. We have seen how the free-­rider argument turns on empirical claims about state capacity. But suppose our intuitive worries about nonstate provision survive the falsification of these empirical claims about the state. This would be evidence of another objection hidden in plain sight. To identify it, we can imagine cases constructed to diagnose the limits of private attempts to satisfy distributive principles. Imagine a state without any redistributive laws. Let X be the justifiable distributive pattern for this society. Now imagine that X is satisfied by one of several possible nonstate agents. First consider a hypothetical person, the Benefactor, a single, fantastically wealthy individual who successfully achieves distributive justice (pattern X) for a particular good. There are a number of reasons that an intuitive dissatisfaction might persist in absence of free-­rider problems, but this case makes vivid the difficulty of  being at the whim of another. Without citizen protections, the imposed terms of this interaction put individuals in need in the position of supplicants. These terms also allow one individual to wield enormous power over recipients of basic material goods. As Philip Pettit puts it, “Why not just provide incentives—­for example, tax concessions—­ that will motivate the wealthy and powerful to help the needy? Or why not just rely on people’s natural philanthropy to cater for the needs of others? Perhaps those in physical need will be better off if they can have recourse to privately funded kitchens and shelters, and perhaps those in medical and legal need will be better off if they can enjoy the pro bono services of philanthropic professionals.”12

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The civic republic tradition supplies a reason for public provision that goes beyond the free-­rider objection. Even if we found an agent who was as empirically reliable as the state—­say, a private foundation or an individual like the Benefactor—­our worries would persist. Those in need of the most basic goods would have to rely on the good will of private actors. We can put republican principles to work in this argument: The Domination Objection Premise 1: Principles of justice demand that good X be provided without domination. Premise 2: The state is the only agent that can provide the good without domination. Conclusion: So, the state must provide X.

This argument registers the point of view of the recipient of a privately provided good. It takes seriously the vulnerability of those in need to those offering largesse. Democratic citizens cannot allow individuals to be subject to the whims of individuals or private entities. Like the free-­rider objection, the domination objection is agent neutral. It places a distinctive constraint on how a provider may act, and it claims that the state is uniquely placed to avoid this constraint. But it’s not obvious how the argument can vindicate the moral claim in premise 2. We can undermine the plausibility of that premise by altering the case. The amendment is simple: eliminate the flesh-­and-­blood, living benefactor then test our reactions. Imagine a massive, legally unalterable entity, Endowed Trust, that successfully achieves distributive justice (profile X) for a particular good. Say that when we look at the state’s books, we see a legal system that is compatible with the libertarian system of natural liberties, but its distributional profile contains no individuals in abject conditions. The trust, however, is successfully serving those in need. In addition, its endowment is invested in the safest available funds and administered in an impeccably professional way. If we worry that this endowment represents a single point of organizational failure, we can alter the case again by breaking the trust up into a thousand points of distribution. Imagine a society peppered with separately invested endowments. So the domination objection may turn upon an overly strong premise. It attempts to pick out the state as the appropriate agent of  justice through a process of elimination. But, as the Endowed Trust case shows, it isn’t obvious that all other candidate agents can in fact be eliminated.

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3. The Communal Objection A third objection directs our attention to the social meaning of goods. It chal­ lenges the private provision of certain goods on the grounds that it corrupts how we value those goods. From this perspective, whether education or health care should be just another market good or a publicly provided good is a momentous choice. The objection holds that a good should be provided by the private or voluntary sector if and only if such provision will not undermine the communal meaning of the good. Making this determination requires an inspection of the role that a good plays in the life of a community. We start by asking what makes a good something that promotes our interests, or something that we have reason to want.13 Then we can determine if that good—­whether college diplomas or votes—­is being distributed in a way consistent with its social meaning. In cases where the meaning of a good would be corrupted if left to the market or the voluntary sector, the state has a reason to provide it directly.14 Let’s place this argument into a now familiar form: The Communal Objection Premise 1: Principles of justice require that good X be provided in a way consistent with its communal meaning Y. Premise 2: If good X is provided by a nonstate actor, it won’t mean Y, and therefore public support for X won’t be sustainable. Conclusion: So, the state must provide good X.

The communitarian nerve behind this argument is simple. Our collective actions are both informed and checked by their impact on the way we value goods. Neither the reliability of political institutions nor their ability to avoid dominating the citizenry is enough to warrant turning to them for the provision of a good if doing so alters the communal meaning of that good. The appeal of this argument lies, I think, in its more direct argument for collective provision than our previous candidates offered. The state doesn’t just happen to be well placed to thwart free riders or preempt dominators. There’s nothing accidental about its principal role in our story of collective provision. Instead of citing negative properties of the state, the argument takes a constructive turn. If we look closely, we can see an internal connection between communal provision and principles of distributive justice. This points to a morally more fundamental reason why certain goods—­public police protection, food stamps, and health care, for example—­are nonaccidentally projects of the

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citizenry. For instance, we strongly resist allowing wealthier communities to “top up” their police protection through private payments. Here the communal objection seems to have considerable force, since this kind of private provision turns our idea of the meaning and point of law enforcement into that of a protection racket. The difficulty with this argument should come as no surprise. We may not find the empirical assumption in its second premise convincing. For one thing, it challenges private provision for undercutting social solidarity. Michael Walzer argues that distributive justice is conceptually linked with collective provision in a tight-­knit way: “Mutual provision breeds mutuality. So the common life is simultaneously the prerequisite of provision and one of its products.”15 To see how this argument works, consider public education. Once the meaning of education becomes assimilated into our omnibus category of “consumer goods,” we are less likely to see it as being our responsibility as citizens to provide. The communal objection is most effective in cases where buying and selling a particular good runs against our ideal of equality. It is plausible that a voucher system of educational provision could weaken the shared meaning of education. When communal provision becomes indirect, we may worry that it won’t be sufficient to sustain an educational system. The communal objection has more difficulty explaining what’s trou­ bling about philanthropic giving in support of publicly provided services. So, when a billionaire philanthropist covers 81 percent of Newark, New Jersey ’s $998 million annual school budget, those raising the communal objection worry that this will undercut the meaning of education as a public good. But it isn’t clear that larger-­scale private giving to public schools has this effect—­ especially when the childless benefactor doesn’t directly benefit.16 There’s another side of this kind of fantastical gift-­giving that we have to bracket for now. Free providers typically give gifts with strings attached. They don’t write a blank check to the Internal Revenue Service but rather direct funds in a way normally performed by city councils, school boards, and legislatures. So our worries about the free provider may turn upon his or her discretion for directing resources. At a large enough scale, the act of giving can itself be a form of policymaking. Here worries about “how gives?” are, at bottom, about “who governs?” Putting aside this one-­part conceptual and another-­part empirical question of communal meaning, it isn’t clear that the objection makes contact at all in the Newark case. Is this philanthropist corrupting the good of education by buying and selling it for money?17 It’s possible that big-­ticket infusions of private funds into publicly provided goods will have the opposite effect on the meaning of the public good, strengthening the public’s view

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that this should be publicly provided—­if privately funded. There is one way the communal objection continues to have force. If acts of largesse like this one undermine the public view of education as an entitlement of justice, rather than a choice of priorities of citizens, then the communal argument could explain what is troubling about private gifts serving in the place of funds from the public treasury. What is attractive about the communal argument, I think, isn’t its reliance on a preserving the shared meanings a community attributes to goods. The argument stands out for its attempt to identify the essential providers of a good: the community. But notice that, by this metric, the argument falls short. There is nothing built into its first premise that points at the state as the necessary provider of certain goods. If a community holds that the proper value adheres to good A when distributed through the Benefactor and to good B when distributed through the Trust, the argument has nothing more to say. We can further pressure its second premise by imagining a distributive mechanism that lacks any democratic pedigree. Suppose that this mechanism possesses the relevant epistemic powers to determine the correct social meaning of any good. What if there were an expert panel, the Meaning Board, made up of rich interpretivists able to determine the appropriate agent for successfully distributing resources to achieve distribution pattern X in conformity with social meaning Y ? Whether democratic citizens are identified by the argument turns on whether our provision of the good preserves its shared meaning. But this gets the direction of the argument precisely wrong. We began with the intuition that certain goods are agent relative. But the communal objection can make that claim seriously only insofar as any given community accepts it. It relativizes a judgment that doesn’t seem to turn on the subjective preferences of any community. Most of us don’t want to allow the communal argument’s second premise to be hostage to what any given community thinks is meaningful about a good. If a political community didn’t change its shared meaning of law enforcement after its richest communities obtained extra-­strong protection, we wouldn’t find this practice any less objectionable. Let’s review our argument so far. My weaker claim has been that each of these three objections has concealed an argument that has considerable force. Along the way, I’ve also claimed that these objections have problems explaining what is troubling about the private displacement of public responsibilities. To make good on this charge, I’ve argued that these typical challenges to the private provision of public goods are, when pressed, agent neutral. Of course, each argument concludes that the state is the rightful provider of

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justice-­implicated goods. But the shared structure of each argument makes them vulnerable to the charge that they fail to authenticate the state as the prime mover of distributive justice. This stands in contrast to my proposed objection, the free-­provider objection, which attempts to introduce agent relativity more directly.

4. Free-­Provider Objection The free provider offers something for nothing. We get some relief from shouldering the obligations of distributive justice, and the provider experiences a warm glow. Once we switch off the force of the three objections above, is there any remaining problem? I argue there is. The relief that we experience from free provision can be illusory. If distributive obligations are agent relative, then it’s far from clear that another agent can satisfy them. Philanthropists cannot serve as justice surrogates. If they suppose that their giving can make some part of their society just, they face a paradox not unlike that of  Zeno’s runner, who can never reach the finish line. If principles of justice name democratic citizens, they can seem excessively “hands on.” After all, most of the actual work of the welfare state isn’t performed by any of us in our role as citizens. We authorize others to carry out these tasks. Why then can’t we authorize the philanthropist to provide a good on our behalf? Consider an analogy with reparative justice. If I have wronged you and owe you material compensation, I am not relieved of this obligation when an anonymous benefactor writes you a check for the exact amount that I owe. Suppose our benefactor has included a card with the check. It reads: “I send this check in the name of Eric Beerbohm in compensation for his past wrong.” There is an obvious way that this gesture backfires. The benefactor has no relationship to me. I haven’t authorized him to do or say anything on my behalf. The victim of my wrong may have greater material resources now, but the moral complaint against me persists. Even if I had asked the benefactor to make an anonymous donation in my name, I think it’s clear that this proxy provision doesn’t balance the moral books. There is a directed character to liability claims that doesn’t allow them to be satisfied by a willing or able third party. Why think that principles of justice are agent relative in this same way? For one thing, agent relativity can explain the intuitive remainder mentioned earlier. If it isn’t enough to prevent private provision from enabling free riding, domination, and the corrosion of social meaning—­if we continue to be troubled by the private provision of goods that are entitlements of justice—­ then we owe an explanation. Perhaps the problem with free provision is that

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it denies us the experience of solidarity—­of engaging in projects of meaning that are larger than ourselves. Robert Nozick offers an argument from solidarity: “There are some things we choose to do together through government in solemn marking of our human solidarity, served by the fact that we do them together in this official fashion and often also by the content of the action itself.”18 We express something—­we place our “solemn mark” upon it—­through collective provisions that guarantee that individuals are not immiserated under our shared coercive terms. When we refuse to prevent severe deprivation by acting together as democratic citizens, we downgrade the meaning of this guarantee. This account of what is distinctive about joint state action runs against the economic view of the welfare state, which holds that both market and public provision are performing the same function: they enable mutually beneficial forms of cooperation.19 The state, in this view, is nothing more than a nonprofit with an army. But this picture of public action misses the distinctive mark of co-­citizens acting jointly. It’s easy to dismiss this argument as placing too much weight on the expressive value of collective actions.20 But I don’t think the argument needs to be understood this way. The value of official joint action needn’t consist in what it says; it can consist in what we do as citizens. We can accept the distinctive moral properties of official joint action without accepting the solidarity argument. For Nozick, it is an end that citizens desire—­a kind of democratic good that we crave to experience. In my argument, official joint action serves as a necessary means for satisfying our obligations. This is because the state is typically the only agent capable of serving as an agent for every citizen.21 We can now put the free-­provider objection in this way: Free-­Provider Objection Premise 1: Principles of justice require that good X be provided in the name of democratic citizens. Premise 2: To act in the name of democratic citizens, an institution must have universal membership and democratic credentials. Conclusion: So, absent a nonstate agent with naming powers, the state must provide X.

This argument treats principles of justice as agent relative through and through. Premise 1 identifies the individual citizen as the obligation bearer. But notice that the argument doesn’t assume that the state is the only joint

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mechanism by which we can satisfy principles of justice.22 In theory, we could form noncoercive institutions that meet the conditions of premise 2. So if there’s an obligation that only you and I can satisfy, we should look for an organization capable of carrying out this obligation by proxy. This argument explains the concern that free providers aren’t able to perform this function. But it doesn’t follow that the state is, at least in theory, the only institution capable of serving as our proxy agent. So it’s worth describing a nonstate entity that meets these criteria without coercion. Imagine an organization, the Co-­op, that every member of society voluntarily joins and through which donates to a democratically run, private association that achieves distribution pattern X. The Co-­op’s members are convinced that the principles of justice apply to them not just as lone individuals but as participants in a shared activity. They join together, absent coercion, and set up a reliable system for ensuring that their favored distri­bution holds. They view this collective project as an entitlement. They even pride themselves on the fact that they provide this entitlement through noncoercive structures: “We don’t need to threaten our co-­citizens at gunpoint to achieve distribution pattern X.” What could be better than to satisfy distributive principles without the state’s arsenal? The Co-­op challenges Thomas Nagel’s assumption that “securing justice through legal shaping of the mechanisms by which private property is transmitted should be our ideal.”23 Under realistic conditions, you may see a tax-­and-­redistribute policy as a working ideal. But if we relax the empirical conditions, it is hard to resist the thought that the Co-­op embodies the dual values of democracy and equality.24 The Co-­op, after all, is well placed to avoid the free-­provider objection. It serves to challenge the overly simple idea that obligations of justice aren’t the kind of thing that individuals can satisfy as private actors. We shouldn’t downplay the fact that membership in this organization is purely voluntary. I suggest that the Co-­op, with its universal membership and democratic character, is capable of acting in the name of its members. Ordinary associations cannot perform this role. Membership in an ordinary association is not universal, therefore the association lacks the standing to claim that it is an agent of all citizens. Nor can an association claim to be an agent of its members on all matters. I can politely ask you not to write your conspiracy theories when we cosign a birthday card.25 Our association is limited to the expression of the birthday sentiment and does not authorize you to ascribe your pet theories to me. Earlier I invoked a picture of the state as a nonprofit with a standing army. The Co-­op plays with this image. It shows how a private association

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could satisfy all the necessary conditions of public action—­full membership combined with democratic organization. It doesn’t need coercive features to protect against advantage takers. The Co-­op challenges a conviction of egalitarians: that principles of justice apply to the lone, virtuous individual or to the institution as a whole. Debates about public or private attempts to bring about justice have taken on a strictly first-­person character: What should I do, on my own, to promote justice in the particular wage choice that I face? Should I bargain for a higher salary ? The first-­person plural is no less political. We should accept that principles of justice ought not bear exclusively on official political choices.26 But we have tended to assume that private action would badly fail to make the distribution of goods less unjust. The role of the individual ethos of justice has been portrayed as comparatively modest. It would fill in gaps that the official elements of the basic structure would not be able to penetrate. G. A. Cohen held that “private action supplements . . . and enhances the effects of public action.”27 Working from the assumption that many of our individual choices as market participants and family members are noncoercible, an egalitarian ethos was meant to make up for the limits of state power. The problem of public versus private giving hinged on the discrete attitudes of any given individual, generating a research program in “substantive virtue theory.”28 The debate framed the choice as being between acting as uncoordinated individuals who incorporate principles of justice in our labor decisions and acting in concert under the shared terms of a political institution. The political became intensely personal. If, however, you and I individually can violate principles of justice in our everyday lives, this opens the possibility of the converse: that individuals can jointly and without coercion produce distributions that satisfy—­partially or wholly—­the profile set by a theory of justice. When nonstate actors succeed in bringing about the correct distribution, should we care whether the agent of justice is the state or a nonstate actor? Posing the problem this way complicates the long-­standing debate over the appropriate site of distributive justice. When you and I come to internalize an egalitarian ethos and begin to organize our shared practices around this ethos, we may gradually move the distribution closer to the correct pattern. But for our purposes, the Co­op only needs to be conceivable, not empirically likely. For a case of homegrown reform without coercive structures, consider an action, the Movement, as described by A. J. Julius: “Suppose that men and women could erase those differences [in power between men and women] by acting, against habit, to reshuffle their usual roles in household and wage labor. . . . Suppose that many other men and women are making the switch,

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so that by following their lead I could combine with them to refashion sex roles at large.”29 Julius concludes that you should make the switch and that the obligation is a kind of compound requirement. What is unclear is why the presence of “many others” ready to make the switch bears on your decision. The most compelling explanation would stress the relative effectiveness of a joint intention to reform an unequal practice. A joint action provides a reasonable shot at participating in a reform, whereas a solitary act is likely to be one of expression only. When, as part of the Movement, you change the terms of your marriage and your wage negotiations to stand as equals, you see yourself not merely as acting within your own sphere but as changing a large-­scale practice of gender subordination. You are entitled to see your action in that way because it can be credibly characterized as a shared action—­by “following the lead” of others you already have some modicum of assurance that this joint action has a nontrivial probability of success. If you succeed in this elaborate joint enterprise, how does this nonstate act compare to a state-­enacted version of this reform? Like the proud member of the Co-­op, you might stress that your refashioning of sex roles happened in an intentional but “organic” way. Its driving agents were individuals combining together to satisfy a distributive principle—­that the respective power of men and women in marriages should be equal. Even if democratic institutions could satisfy this same distributive principle without coercion, the threat of coercion would always reside in the background. Let’s take inventory of the claims in this section. We can now explain the general neglect of agent-­relative considerations in distributive justice in two ways. First, the empirical claims of the democratic state can seem like a default agent, the natural vehicle for discharging distributive obligations. To see whether there was another value in the background, we put aside the empirical claim that only the state is capable of producing the patterns specified by distributive principles. This brought into focus independent moral intuitions for thinking that certain principles of justice are directed at you and me. We were left with the sense that it falls on us, as democratic citizens, to fulfill these obligations through our shared coercive institutions. If this is right, agent-­relative considerations may be most at home in relational accounts of justice. (See, in chapter 10 of this volume, Cordelli’s discussion of relational egalitarianism.) Second, we noted an overly strong dichotomy that has framed debates about distributive justice. The long-­standing attempt to locate the coordinates of the “site” of justice put the problem in a way that directed our attention away from organized reforms carried out by individuals through nonstate mechanisms. Instead, it encourages us to view ourselves in the first

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person—­as one among millions. From this perch you aren’t able to imagine satisfying distributive principles on your own. Maybe you’ll attempt to “do your bit,” perhaps by demanding a salary lower than you can command in the market, but all-­too-­familiar free-­rider problems will make it unlikely that your honoring an egalitarian ethos will lead to significant change. In this section I have suggested that it is the first-­person plural perspective that made possible our imagined cases. It can be important for us to discharge the obligations issued by distributive principles, and our imagined Co-­op and Movement each seem capable of speaking and acting on our behalf. They offer the representation of the state without the coercion. The Co-­op and the Movement are mere thought vehicles. They are designed to show how one can simultaneously solve the free-­rider and the free-­provider problems. In actual life, however, we are left with one organization, the state, that has this capacity to “name” each member. When a private association improves the distributive profile of our society, there is no doubt that they improve the welfare of individuals. But it doesn’t follow that your and my relationship to these individuals is repaired. We can still fail to relate to them as equals, since their particular claims on you and me haven’t been answered. A third party has done them some good, but that doesn’t rewire the inegalitarian relationships among citizens. We can only see this if we redirect our attention away from the bare pattern of goods distribution. The force of the free-­provider problem depends on attending to the social relationships among citizens. Purely distributive accounts of justice aren’t capable of registering this remainder. They look past distributing agents and focus on end-­states. Let me conclude this section by looking at the retreat objection. If phi­ lanthropists want to avoid the free-­provider objection, why wouldn’t they heed caution and spend their wealth on traditional forms of conspicuous consumption? Doesn’t the free-­provider objection give the well off an incentive to avoid free provision, like Tom and Daisy in The Great Gatsby, who “retreat back into their money and their vast carelessness.”30 But this response to the free-­provider objection rests on a misunderstanding of our underlying assumption, which is that individuals recognize themselves as individually responsible for fulfilling to the demands of principles of justice. The free-­provider argument is only addressed to individuals who see themselves in this way—­that is, as subject to justice. For them, retreating from giving isn’t an option. But guidance is needed in how to direct goods in a way that avoids the other objections we’ve canvassed here. In an unjust society, there’s a sense in which the free-­provider problem is insoluble for the philanthropist. She is obligated to direct funds in a way that fulfills the demands of the

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principles of justice yet she is continuously aware that, because of the free-­ rider problem, her actions will always fall short. This posture can conjure up Zeno-­like frustrations. But it would be far more troubling if philanthropists saw their actions as capable of fully satisfying justice, without the hands of their co-­citizens.

5. Political Injustice and Principles for Philanthropy Philanthropic giving cannot pick up our collective tab. When private providers respond to principles of justice, filling in for official provision, their actions will fall short because of free riders. And according to the econo­ mistic view of large-­scale philanthropy, the free provider denies us the warm glow of giving.31 The self-­satisfaction of thinking of ourselves as benefactors isn’t available to us; it is being hoarded by a small number of individuals. But in cases where an individual has a claim on you or me, it is a stretch to attribute our providing what we owe to a warm-­glow preference, to say that we derive positive utility simply from the bare acting of contributing.32 I think identifying this primitive preference as our sole motivation for satis­ fying principles of justice is uncharitable. We don’t need to peg individuals as self-­indulgent credit seekers when we have an equally parsimonious explanation that avoids this characterization. I think the remainder isn’t psychological but rather moral. Principles of justice are agent identifying. Even if private providers are wildly successful in achieving a just distributive profile within a society, they lack the capacity to restore relationships of equality among its citizens. But it hardly follows that philanthropy should avoid responding to principles of justice. The upshot of my argument isn’t a call for philanthropic retreat. But the free-­ provider problem does suggest institutional and norm-­based principles that can guide the private fulfillment of public responsibilities. In this section I consider the implications of the free-­provider problem for both prospective givers and democratic citizens. What does the problem imply for philanthropic giving that responds to chronic institutional injustices? Auditioning for Public Provision. Suppose free providers see themselves as responding to an injustice that political institutions are failing to correct. They recognize that they are picking up the slack of a collective failure, so they have reason to structure their giving in a particular way. They might see their foundation as auditioning a good as an essentially public responsibility, as one that can and should be successfully provided and delivered by the community at large. This goal may inform the mission statement of their organization. It may favor a spend-­down model over a perpetual trust, since

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the latter is insufficiently self-­effacing. Philanthropic giving that responds to a public responsibility without temporal limits invites citizens to leave the effort to private hands permanently. The success condition of this kind of giving is the state’s eventual assumption of the responsibility. A dilemma of auditioning is whether to cut off needed funds in the hope of encouraging uptake by the state. Philanthropy, given in this spirit, genuinely honors the audition principle when it attempts to put itself out of business. This mode of giving falls under what Rob Reich calls the discovery argument. It’s one thing for an organization to demonstrate creative modes of provision. It’s another to do it in a way that convinces the public that it is their responsibility to provide that particular good. Here the aim is for a democratic polity to “discover” its reasons for taking ownership of the provision of a good—­to see itself as the vehicle for the delivery of a good or service. Elite vs. Mass Philanthropy. The free-­provider problem can shed light on the moral difference between (1) philanthropic organizations that are supported by small-­dollar funds and (2) a small number of wealthy individuals. Stan­ dard models of charitable giving assume, without argument, that recipients are agnostic regarding the identity of the provider. They predict that recipients will be indifferent toward small or large philanthropy. But this relies on an overly narrow conception of the preferences of recipients of largesse. We saw earlier how the Co-­op served as a kind of ideal type of mass-­giving institution. The larger the organization, and the more democratic its internal rules, the more individuals it can credibly “name.” While in reality mass philanthropy will almost certainly fall short of broad representation, it has the potential to send a fundamentally different message to recipients than what a billionaire could send with the same amount of provided goods. It can convey that there is a growing awareness that the good or service is a requirement of justice that all of us owe individuals. Under deeply imperfect conditions, privately providing this good is the best we can do. But notice how different the message sent from the single wealthy provider will be. Crowding Out. A standard worry is that public funds may crowd out pri­ vate contributions. When the United States gives out $100 million to Teach for America, a nonprofit, this invites the concern that public dollars will discourage private giving. Here we have inverted this concern.33 The free-­ provider problem explains the logic of private giving crowding out public provision. Once a public responsibility is being provided by a private actor, how can democratic citizens reclaim their responsibility to collectively provide this good (short of prohibiting private provision)? Public-­private partnerships have the potential to gradually shift provision into the public’s hands. Of course, part of the explanation will also lie with the original

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collective action problem. In the public goods game, participants choose how much of their private funds to provide for the public treasury. Famously, participants are much more generous than rational models predict them to be. But more recently, the public goods game has been designed to start with significant asymmetries of wealth among participants.34 In transparent versions of this game, individuals with little wealth responded to deep inequality by giving far less than they would under conditions of greater equality. Philanthropy for Nonjustice Goods. I have argued that philanthropy that aims to satisfy principles of justice faces a paradox similar to that faced by Zeno’s runner. In the absence of official joint action, there will always be a significant shortfall. But notice that the free-­provider problem doesn’t directly apply to the provision of goods that are discretionary or supererogatory. There are many social decisions that we make that are seriously underdetermined by justice. Consider our national monuments. These serve as public goods in the stringent sense of the term. If a private foundation or billionaire offers to defray the costs of maintaining them, is there a free-­ provider problem? No. So-­called patriotic philanthropy of this kind doesn’t attempt to discharge principles of justice.35 I think this verdict will be surprising to some readers. If democratic solidarity has any force, surely it demands that democratic citizens band together and cover the costs of the very monuments that honor our democratic principles. The communal objection may well target patriotic philanthropy as undermining the meaning of our monuments. But the free-­provider objection doesn’t turn upon a strong form of solidarity. This supports my claim that the free-­rider objection doesn’t smuggle in the independent value of acting together through the state. This points to a road map for philanthropy under more just conditions. There, the division of labor among the public and voluntary sector would sort out in this way: public channels would focus on “distributive justice and fair equality of opportunity and individual charity would be able to concentrate on special, optional goods.”36 Political Philanthropy. The free-­provider problem shares some of the premises of a related problem for democracy. Wealthy individuals can bring about sweeping policy change by bypassing traditional legislative channels. The Gates Foundation spent $200 million to enact the Common Core. The effort produced reforms “instituted in many states without a single vote cast by an elected lawmaker.”37 Suppose, for the sake of argument, that the legislative outcome made our public school system less unjust. The worry is that political philanthropy bypasses the electoral system, generating policies at the whim of a single individual. This use of private money deprives citizens and their representatives the opportunity to “own” legislation. The

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resulting changes in law and policy can’t be said to be coauthored by the people or their representatives. This problem of elite, unelected lawmaking isn’t fully captured by the free-­provider problem, but it shares the worry that there isn’t proper “naming” of democratic citizens. Private money is being used to satisfy citizens’ obligations or to pass legislation that is citizens’ coresponsibility to authorize.

Conclusion We began with a less familiar problem of collective action. The free-­provider problem arises most saliently in cases of philanthropic giving. We aren’t like the free rider, who sees the world solely in agent-­neutral terms. We aren’t agnostic about the identity of agents of justice. There are some obligations that can only be satisfied through our shared political institutions. Most of us hold this conviction intuitively. Our principles of distributive justice don’t merely insist that universal health care, education, and food stamps, for example, should be assured by someone—­anyone. The provider must be all of the citizens, acting together. Our distributive principles, then, seem to name you and me. They aren’t agnostic about the provider’s identity. They assign democratic citizens—­ through their political institutions—­a starring causal role. Theorists of distributive justice have assumed that we can recruit the state into this role for free. On this view, once we “accept a modern conception of social justice,” we have signed up for the thought that our “first obligation must be to en­sure that social institutions fulfill principles of justice.”38 I have argued that this conclusion doesn’t follow from the usual arguments for collective provision. It doesn’t follow that philanthropic efforts should turn away from responding to institutional injustice. But awareness of the problem can inform how giving is structured and how democratic societies respond to offers of largesse. Robert Nozick once suggested that if manna began raining down from heaven on the poor, continuously satisfying all of their needs, we would have to search for other ways to express our solidarity with them.39 Nothing in this chapter suggests that we should prevent this largesse from reaching its recipients. But we are now in the position to see that, as a democratic people, our work would not be done. The free-­provider problem reveals that, like lunch, private fulfillment of public responsibilities doesn’t come free.

N in e

Philanthropy and Democratic Ideals R yan P e v nic k

There are obvious reasons for democrats to admire, appreciate, and respect the work of philanthropists. They commit their private resources, which they could use for personal consumption, to projects that have a broader purpose and are devoted to a larger good. To name just a few important examples: ·· The modern independent university owes much of its position to private givers. Indeed, important institutions—­including the University of Chicago, Carnegie Mellon, and thousands of public libraries—­are part of the lasting endowments of Carnegie and Rockefeller. ·· Philanthropy played an important role in the civil rights movement. Julius Rosenwald, for example, built over five thousand school buildings in the American South, such that in the early 1930s, as many as 40 percent of the African Americans enrolled in school were in a building constructed from his funds (Zunz 2012, 39). ·· In 2011 the Gates Foundation spent nearly $500 million on education proj­ ects in the United States. Among other things, this money funds thousands of college scholarships for low-­income students, improvements to early learning programs for at-­risk children, research on effective education, and additional teaching positions.

However, despite the tremendous good that these philanthropists have done for their fellow citizens, their contributions sometimes sit uneasily with a commitment to democratic government. This is so because (1) such dona­ tions depend on a background distribution of income and wealth that is arguably incompatible with the democratic ideal, (2) reliance on such dona­ tions renders some citizens deeply dependent on the contingent good­will of others, (3) such donations are not constrained by democratic mechanisms

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of accountability, and (4) donors often seek and obtain an outsize influence on public policy (see, for example, Barkan 2011). So, notwithstanding the tremendous good that many philanthropists have done, there is a tension between philanthropy and the ideal of equality on which democ­racy rests. By noting the tension between philanthropic activity and the democratic commitment to equality, I do not intend to imply that individuals should not be free to make such gifts or that we should prefer private consumption. My point is only to note that philanthropy often seems to fit uncomfortably in democratic regimes. In at least some sense, philanthropy carries the aristo­ cratic idea of noblesse oblige into a democratic society. My goal in this chapter is conceptual. I seek to move beyond the initial tension between philanthropy and democracy by providing a careful account of the role philanthropy might properly claim in a well-­functioning democracy. A clear account of the relationship between philanthropy and democracy is useful because the type of civil society that we have is largely a product of public policy decisions made about that sector’s governance. Those deci­ sions ought to be guided by a principled account of the appropriate place for philanthropy in a democratic society. I seek to contribute to the attainment of that goal by exploring the place of philanthropy in two influential ideals of democracy: market democracy and democratic equality. To be clear, I do not intend—­in this chapter—­to advocate for either of these ideals. Instead, I wish to show that disagreements about the appropriate role of philanthropy are parasitic on deeper disputes within democratic theory by describing the roles these competing conceptions of democracy assign to philanthropy.

Market Democracy and Philanthropy I begin with market democracy, which hinges on three connected ideas. The first is a conception of citizens as responsible agents who should be allowed to make their own decisions about what to pursue, particularly in regard to economic life. The second is a minimal conception of government that provides the basic framework for coordinating human activity (including the public goods that allow the market to operate). Such a government pro­ vides a basic framework that facilitates individual projects while otherwise standing out of the way of individual citizens. The third is a conception of justice—­often labeled classical liberalism—­that holds that there are reasons of desert and efficiency to, by and large, respect market outcomes. The three aspects of market democracy—­its conception of the citizen, government, and justice—­are mutually supportive: the conception of the citizen emphasizes the importance of economic freedom, the ideal government facilitates market

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interaction, and classical liberalism respects market outcomes. Because of their skepticism about government programs and enthusiasm for civil soci­ ety, market democrats are the traditional champions of philanthropy.

Market democracy

Individual citizen

Governance

Justice

Responsible self-­author

Minimal government

Classical liberalism

Such democrats have three important reasons to celebrate philanthropy. First, they view aid for the needy from the private sector as more legitimate than aid delivered via government programs. This follows from the classi­ cal liberal conception of justice, which stresses the importance of respecting the property rights of individual citizens. Government programs that seek to redistribute resources from some citizens to others as a way to care for the needy fail to respect the economic freedom of citizens and violate their prop­ erty rights. By contrast, the efforts of private citizens to help one another are celebrated as the kinds of projects made possible by a society that facilitates economic growth and creativity. Second, market democrats typically view aid for the needy from the pri­ vate sector as more likely to be effective and efficient than government pro­ grams with similar goals. For example, one advocate argues that “private phi­ lanthropy, even through smaller expenditures, can adapt to local conditions and be led by local champions who must show donors results. That diversity of approaches is something which one-­size-­fits-­all federal programs inhibit” (Husock 2012). So philanthropy is preferred to government programs be­ cause it is allegedly more entrepreneurial, is privy to local problems, and re­ inforces the kinds of civic relationships that lie behind good government. In­ deed, in discussing the problem of poverty, Milton Friedman says that “one recourse, and in many ways the most desirable, is private charity” (Friedman 1962, 190). Third, market democracy embraces a listener-­oriented conception of po­ litical speech, casting citizens in the role of a Schumpeterian audience. On this view, the purpose of political speech is to facilitate the expression of a wide variety of positions, empowering citizens to protect themselves from abuses of  power. For example, in Citizens United, Justice Kennedy argues that corporate speech must be protected because “government may not . . . de­ prive the public of the right and privilege to determine for itself what speech and speakers are worthy of consideration” (Citizens, 24). On this view, any attempt by government to restrict political argument is suspicious on two counts. First, public officials cannot be trusted to do so in a way that ad­ vances the public good (as opposed to doing so in ways that are to their

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private advantage). Second, restricting speech betrays a distrust of ordinary citizens to competently assess evidence and arguments. Because of its em­ phasis on encouraging a large quantity of political information, market de­ mocracy welcomes private money into public political debate. Rather than worrying about the unequal speaking roles that are thereby created, market democrats hope that an influx of private money can facilitate effective criti­ cism and help prevent public authorities from abusing their power. Market democracy celebrates individual responsibility and economic freedom, seeks government dedicated to facilitating market interaction, and endorses a classical liberal conception of justice (e.g., Friedman 1962; To­ masi 2012). The advocate of market democracy need not worry about the tension between philanthropy and democratic equality because, on their view, philanthropic projects have an important place in a well-­functioning democracy. This is because philanthropy (1) promises a noncoercive, market-­ oriented strategy for aiding the poor and (2) helps lay the groundwork for self-­governance by facilitating criticism of public figures. On this conception of democracy, philanthropy should be welcomed very broadly into public life, and there should be no hesitation to encourage private actors to take up roles that have traditionally been claimed by the state. Thus, understand­ ing the role that philanthropy (and civil society more generally) are expected to play helps guide market democrats in designing public policy (such as nonrestrictive rules of campaign finance and a robust conception of freedom of association) that can help bring forth such a nonprofit sector.

Democratic Equality and Philanthropy The appropriate place for philanthropy is a more complicated question for advocates of democratic equality because they are constrained by their own commitments from celebrating philanthropy on the traditional grounds market democrats cite. For that reason, I devote the bulk of this chapter to clar­ifying the appropriate role of philanthropy within the ideal of demo­ cratic equality. The Components of Democratic Equality Like market democracy, we can understand democratic equality as revolv­ ing around three constituent ideals. First, democratic equality hinges on a conception of the citizen as an equal participant in a cooperative scheme for mutual advantage. Second, it aims to afford all citizens an equal oppor­ tunity to participate in the deliberative and legislative processes that will

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generate rules to govern their interactions (e.g., J. Cohen 2009, 270–­79; Knight and Johnson 1997; Rawls 1993, 358). Third, the ideal of democratic equality includes an egalitarian conception of distributive justice, one that ensures that the benefits of social cooperation are widely shared. This allows citizens to stand as equals in public life. As in the case of market democ­ racy, these constituent elements are mutually reinforcing: the conception of justice aims to facilitate the favored conception of governance by ensuring that citizens are capable of, and equipped to, play the role that democratic equality sets for them.

Democratic equality

Individual citizen

Governance

Justice

Equal participant in a cooperative scheme

Deliberative democracy

Liberal egalitarianism

As noted, there is a natural fit between philanthropy and market de­ mocracy because the latter is suspicious of both the justice and efficacy of government-­run aid programs, at the same time that it celebrates a market-­ oriented conception of deliberation. However, advocates of democratic equal­ ity must be skeptical of all three types of reasons underlying market demo­ crats’ enthusiasm for philanthropy. First, market democrats view aid for the needy from the private sector as more legitimate than government programs because it is more deferential toward the desert claims and preinstitutional property rights of individual citizens. By contrast, advocates of democratic equality see market outcomes as the product of political decisions that ought to be subject to the distribu­ tive norms laid out by egalitarian conceptions of justice (Rawls 1971; Mur­ phy and Nagel 2002). For this reason, they deny that there is any a priori ob­ jection to government interference with market outcomes aimed at helping the needy. Instead, such interventions are required in order to ensure that the benefits of social cooperation are fairly shared. Second, whereas market democrats view philanthropic programs as more likely to be efficacious than government programs, advocates of democratic equality worry that leaving aid for the needy to private citizens undermines the relational component of the democratic ideal in the sense that it makes clear the unequal status of citizens. Although that ideal does not require that citizens control equal resources, it does insist that the material precondi­ tions of a decent life must be guaranteed, such that citizens are not reliant on the contingent goodwill of others. Such inequality threatens to under­ mine the ability of citizens to relate to one another as equals in the public sphere.

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William Schambra suggests that this part of democratic equality’s aspira­ tion reveals the “unremitting hostility of the progressive elites” toward civil society by suggesting that the state is “able to perform civil society ’s critical community building function better than civil society itself, and so feels en­ titled to absorb the authority and functions of its institutions. It promises to deliver a vastly superior version of community—­no longer confined to contemptible ethnic and religious backwaters, but rather now spread over a grand, national stage, coherently coordinated by credentialed, social scientific professionals” (Schambra 2000, 336). Schambra’s claim—­that the state-­run programs required by democratic equality displace and undermine civil so­ ciety—­is a common charge. And indeed, Schambra has a point: democratic equality’s claim about the special role of the state in discharging responsibili­ ties to the poor is hard to square with market democratic views about the very broad role appropriate for philanthropy. My suggestion, again, is that this disagreement about the appropriate role of civil society is anchored within a deeper disagreement about the meaning of a commitment to democratic governance. Third, whereas market democracy views unlimited private political speech as important insofar as it prevents government from privileging certain types of speech and provides citizens with access to a wide range of information, advocates of democratic equality view this listener-­oriented conception of political speech as threatening. This is because it fails to protect citizens in their roles as equal participants in deliberation. It lacks a commitment to equal opportunity for political influence. Beyond undermining the partici­ patory element of the ideal, advocates of democratic equality also see the listener-­oriented conception of democracy as threatening because (1) it is relatively unconcerned about how inequalities affect the political agenda, and (2) it makes political movements dependent not just on the attractive­ ness of their position but on their ability to recruit wealthy sponsors. For example, in advance of a referendum on same-­sex marriage in the state of  Washington, Jeff Bezos, the billionaire founder of Amazon.com, do­ nated $2.5 million to the campaign in favor of liberalizing marriage rules. This donation reportedly came as a response to a plea for help from a for­ mer employee now working as an activist in the movement. In a request for financial support, the former employee wrote: “We need help from straight people. To be very frank, we need help from wealthy straight people who care about us and who want to help us win” (Shear 2012). The opportunity to request such support from a variety of wealthy sources is celebrated by market democrats. For instance, Milton Friedman writes that “[radical proj­ ects] have typically been supported by a few wealthy individuals who have

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become persuaded—­by a Frederick Vanderbilt Field, or an Anita McCormick Blaine, or a Corliss Lamont. . . . This is a role of inequality of wealth in preserving political freedom that is seldom noted—­the role of the patron. In a capitalist society, it is only necessary to convince a few wealthy people to get funds to launch any idea, however strange, and there are many such persons, many independent foci of support” (Friedman 2009, 17). So, the market democratic insists that, by enriching a wide variety of individuals, the market facilitates political freedom. By contrast, advocates of democratic equality argue that the need to ap­ peal to a patron undermines the idea of a political community governed by equals. For instance, Ronald Dworkin argues that “democracy is diminished when some groups of citizens have no or only a sharply diminished oppor­ tunity to appeal for their convictions because they lack the funds to compete with rich and powerful donors. No one can plausibly regard himself as a partner in an enterprise of self-­government when he is effectively shut out from the political debate because he cannot afford a grotesquely high ad­ mission price” (Dworkin 2000, 364; also see J. Cohen 2009, chap. 8). The need to appeal to wealthy donors undermines the idea that citizens should be, as Dworkin says, equal partners in an enterprise of self-­governance. In sum, proponents of democratic equality must express skepticism about each of the traditional reasons for celebrating philanthropy: the illegitimacy of publicly provided aid, the superior efficaciousness of private sector aid, and the market conception of political speech. Therefore, those who endorse democratic equality cannot accept any of the familiar, market democratic reasons for supporting philanthropy. This gives rise to disagreement between advocates of the two positions about the appropriate role of philanthropy in democratic societies. Democratic Equality and Cultural Goods Nevertheless, I will argue that there is an important place for philanthropic pursuits within the ideal of democratic equality—­one that ought not be dis­ placed by collective decision making or ordinary market provision. In par­ ticular, advocates of democratic equality should support a substantial role for the philanthropic support of cultural projects.1 The argument for this claim is that although there is reason to invest in building and maintaining a rich cultural framework, direct government attempts to do so—­insofar as they must select particular cultural projects—­risk disrespecting citizens committed to other traditions or ways of life. The important public interest in supporting the cultural framework, along with the dangers associated

Philanthropy and Democratic Ideals  /  233

with direct government efforts to do so, generates an important role for philanthropic efforts.2 To appreciate this argument, it is important to begin by understanding why advocates of democratic equality often oppose using public funds to help provide cultural goods. John Rawls, for instance, argues that “human perfections are to be pursued within the limits of the principle of free as­ sociation. Persons join together to further their cultural and artistic interests in the same way that they form religious communities. They do not use the coercive apparatus of the state to win for themselves a greater liberty or larger distributive shares on the grounds that their activities are of more intrinsic value” (Rawls 1971, 328–­29). On Rawls’s view, it is inappropriate for citizens to use the power of the state to pursue their artistic, cultural, or religious preferences. Doing so would disrespect citizens with other types of cultural preferences or commitments. There are two reasons for thinking it is especially important for the state to avoid making judgments about the relative value of different traditions with regard to questions of religion, art, and culture. First, such issues connect to important interests that individuals have in shaping their own lives. These are decisions, unlike whether or not to wear a seat belt or drink a very large soda, about which it is important not just to settle on the right outcome, but to make the decision for oneself. This is because such decisions help constitute our identities. Second, judgment about these issues is complex in ways that render it unreasonable to assume, especially given their importance, that the state’s judgment will necessarily be more accurate or appropriate than that of individual citizens. So a government risks failing to respect the judgment, capacity, and freedom of citizens when it tells them what kinds of cultural projects to enjoy or uses public funds to support its preferred projects. Many, however, have thought that even if it is inappropriate for govern­ ment to take a stand on the value of competing cultural projects, abandon­ ing public support for such enterprises does not take seriously enough their value. Along these lines, Ronald Dworkin argues that “we should try to define a rich cultural structure, one that multiplies distinct possibilities or opportu­ nities of value, and count ourselves trustees for protecting the richness of our culture for those who will live their lives in it after us” (Dworkin 1985, 229). Dworkin distinguishes between discrete works of art and the broader cultural structure that allows us to appreciate art, literature, and other cultural institu­ tions. Just as we would be worse off if our shared language was rudimentary in ways that failed to allow for story, narrative, and irony, so too, Dworkin argues, would we be worse off if our cultural framework did not facilitate ap­ preciation of art, theater, and the like. Similarly, Amy Gutmann argues that

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there is an important public interest in the type of television programming that is offered since television pervasively conveys messages about “what kind of life is worth living” and thereby helps craft the interests and prefer­ ences of citizens (Gutmann 1999, 245). In both cases, the claim is that there is an important public interest in the existence of a rich and diverse set of cultural opportunities. Such an environment is valuable to citizens because, by laying out a broad array of options, it renders the control that individuals have over their own lives more authentic. The public interest in the cultural materials that are available to us is par­ ticularly important from a democratic perspective. By facilitating a greater awareness of the positions, concerns, and perspectives of others, artistic and cultural goods can help overcome the limited possibilities for face-­to-­face de­ liberation in today’s mass democracies (Goodin 2000). By making us more aware of others’ viewpoints and concerns, theater, literature, and film can spark the kind of deliberative perspective that is crucial to egalitarian ac­ counts of the democratic ideal. The cultural framework is, therefore, a kind of public good that provides an important supplement to democratic de­ bate and dialogue. Thus, even if there is an important reason for the state to avoid picking out and endorsing controversial ways of life, there is neverthe­ less an important public interest in providing citizens with a robust set of cultural opportunities. Dworkin’s suggestion is that when public support for the arts aims to enrich this cultural framework, as opposed to supporting particular cultural projects, it avoids being disrespectful to citizens committed to other ways of life. Although it could be objectionable to use the power of the state to give advantages to certain state-­favored ways of life, support for the general cultural framework is aimed at (1) enhancing people’s autonomous control over their lives by allowing them to appreciate, and choose from, a richer ar­ ray of options, and (2) enriching democratic debate. Because it does not seek to advance particular preferences or ideals, it is not disrespectful of citizens or their decisions. However, even if the aim of government support for culture is to enrich the broad structure through which we all understand and appreciate culture, such support must travel through particular projects. As a result, there will still be those who disproportionately benefit from public subsidy. For those who lose out, it will be difficult to resist the conclusion that government is inappropriately supporting particular kinds of cultural projects in an effort to advance favored groups, views, projects, or preferences (Brighouse 1995, 56). In other words, it is difficult for the government to support the cultural

Philanthropy and Democratic Ideals  /  235

framework without disrespecting, or appearing to disrespect, some citizens. These dual facts—­the importance of investment in the cultural structure and the reasonable concerns of disrespect that promise to accompany govern­ ment support for it—­point to the importance of a mechanism of provision that does not involve the government directly selecting favored groups or projects. Ordinarily, the alternative to direct government provision is market pro­ vision and, indeed, a wide range of cultural goods are well provided in this way. For example, superhero movies, detective novels, and diverse yoga expe­ riences are amply provided through ordinary market interaction. There are, however, many cultural goods that have value in terms of providing citizens with a more valuable framework for choice but are not well provided by the market. This might include educational forms of television, experimental ar­ tistic projects, or cultural services targeted specifically at low-­income citizens. More generally, one might reasonably worry that when the only alternative to government provision is market provision, there is—­perhaps because of the need to cater to corporate sponsors—­a gravitation toward a kind of “con­ sumerist monoculture” that tends to homogenize the alternatives offered to citizens (Brewer 2014). Finally, if the existence of a rich cultural structure has valuable externalities because of its ability to enrich the democratic process, there is reason to think that it may be underprovided by the market. Thus, there are reasons to worry that direct government support of cultural goods will fail to appropriately respect citizens, and that market provision of such goods will be suboptimal. Public Support for Philanthropy in a Regime of Democratic Equality The concern discussed above is that although there are important reasons to publicly support the cultural framework that a society makes available to its citizens, direct state support for cultural enterprises is likely to be seen as disrespectful to some citizens insofar as it identifies the activities or proj­ ects of some groups as more worthwhile than others. The problem, as Cass Sunstein describes it, is that while “aesthetic or qualitative judgments are generally permitted,” they “often depend, at root, on ideas having a politi­ cal or ideological component” (Sunstein 1995, 229). In other words, it will be very difficult for the state to support the cultural structure without rais­ ing reasonable concerns that it is making decisions about which projects to fund partially based on commitments to particular views about the good life, thereby violating its commitment to viewpoint neutrality.

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Sunstein suggests that there is no way for the state to avoid this bind, writing that “the only sensible solution is to . . . permit aesthetic or qualita­ tive judgments so long as they are not conspicuously or explicitly based on partisan aims. Of course anyone who accepts this approach must recognize that it rests on some conceptually shaky ground” (Sunstein 1995, 230). The approach rests on “conceptually shaky ground” because it depends on ignor­ ing the fact that judgments about the value of particular cultural pursuits will often depend on background moral commitments that, if allowed to directly enter into decisions about funding, would amount to clear violations of viewpoint neutrality. Sunstein may be right that some decisions about direct state funding of cultural goods need to be made and that this is the appro­ priate approach to such decisions. However, as he points out, it is an imper­ fect resolution: those on the losing end of funding decisions will reasonably suspect that the aesthetic judgment of the state is influenced by background commitments whose explicit use would violate the state’s commitment to viewpoint neutrality. It is in response to this dilemma that the use of tax deductions or credits is particularly useful, for they allow the state to provide support for a society’s cultural structure while outsourcing judgments about the relative quality or value of different pursuits. Outsourcing such decisions to individual citizens has the advantage of ensuring that the state’s decision rule for conferring support on cultural projects is not designed to favor groups with particular views. Thus, publicly supporting cultural philanthropic efforts allows the state to indirectly subsidize the society’s cultural structure while minimizing concerns about violating viewpoint neutrality.3 Public subsidization of cultural philanthropy allows the state to take se­ riously the reasons it has to support and protect a rich and diverse cultural structure while evading the concerns about perfectionism that stood in the way of direct public support for cultural pursuits. Meanwhile, because phi­ lanthropists have no responsibility to remain neutral between competing conceptions of the good life, their contributions to the cultural framework of society do not raise concerns related to perfectionism. Thus, in a well-­ ordered regime of democratic equality, an important role for philanthro­ pists involves helping to provide a broad range of cultural opportunities to citizens—­particularly ones that are unlikely to be adequately provided via market mechanisms. There is, however, a risk associated with this strategy. Government confers nonprofit status without substantially screening the activities of the organi­ zations that benefit. Rob Reich reports that in 2008 nearly 98 percent of the

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over 56,000 organizations that applied for this status in the United States received it, and that this near uniform acceptance of applications is the norm (Reich, Dorn, and Sutton 2009). So, one might think that delivering public support indirectly generates a new problem for state support of cultural or­ ganizations; namely, once public support is delivered through tax deductions accompanying individual donations, government support for the nonprofit sector appears to lack any effective mechanism of accountability. In order to assess the complaint that government does not tightly enough circumscribe nonprofit status, it is important to distinguish between two dimensions on which it might be thought that government is too lenient. The first dimension is government’s identification of permissible and im­ permissible goals for groups with nonprofit status. Often, groups that claim nonprofit status do not seem to differ appreciably from for-­profit organiza­ tions pursuing similar goals. The most common example involves the com­ parison between for-­profit and nonprofit hospitals. If nonprofit hospitals are not behaving any differently than their for-­profit alternatives, then there is no justification for their receiving preferential treatment. It is appropriate and, indeed, important for the state to try to effectively distinguish between groups that are pursuing goals that cannot be effectively provided through ordinary market mechanisms and those that are not. After all, if the goods at stake can be effectively provided through ordinary market interaction, there is no reason for public subsidy. To think about whether or not a group is pursuing goals that entitle them to nonprofit status, we can apply the following schema. Only if the answer to all four of the questions is “yes” should we think that there is a strong case for granting nonprofit status. 1 Is the group providing a good that has a plausible public benefit? 2 Is the group providing a good that is inadequately provided by the market? 3 Is the group providing a good that is consistent with the broader commit­ ments of a democratic society? 4 Are there reasons to worry about direct government provision of the good?

Of course, these are only rough guidelines. Their application will be con­ troversial in part because there will be reasonable disagreement about the answers to the questions, all of which raise difficult interpretive issues (such as what constitutes a “public benefit” and whether a good is “adequately” provided by the market). The goal here is not to construct an effective legal regime but simply to point out that the state is justified in trying to develop

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a set of rules that will help ensure that groups obtain preferential treatment only insofar as they are providing goods that are actually connected to the reasons for granting favorable status to nonprofit groups. The extremely high rate of granting such status to applicants suggests that the existing system is overly lenient on this dimension. There is a second dimension related to the granting of nonprofit status on which states ought to be quite lenient. In particular, in granting such status, the state should not attempt to discriminate between different types of groups that meet the fourfold test laid out above. For instance, the state should not grant nonprofit status to groups seeking to cultivate appreciation of ancient art, while denying it to ones that promote appreciation of con­ temporary art. Likewise, if Protestant food banks are given nonprofit status, so too should Jewish ones. To discriminate on this dimension would involve the state in just the kinds of judgments about the nature of the good life whose avoidance served as a crucial part of the initial justification for giving the nonprofit sector an important role in the provision of cultural goods. While these illustrative cases are relatively simple and more difficult ones will obviously arise, the point is merely to illustrate the type of leniency that is appropriate for the state to embrace. Although nothing in our discussion supports leniency in granting non­ profit status to groups whose roles are effectively replicated by for-­profit com­ panies, leniency across different ways of providing goods for which it makes sense to have nonprofit delivery is sensible and, indeed, important. Such le­ niency is not tantamount to abandoning accountability; after all, such groups can only gather public support by effectively persuading individual citizens to give. This is important since the justification for publicly supporting cultural enterprises through tax credits or deductions hinges on the value of outsourc­ ing decisions about which projects are worth funding to the disaggregated decisions of individual citizens. Although this is obviously an imperfect ac­ countability mechanism, so too is the legislative process that provides the main alternative.

Democratic Equality and Nonideal Circumstances Even if it is true that the ideal of democratic equality provides reason to en­ courage cultural philanthropy, it could nevertheless be inappropriate to do so in a society marked by injustice. Indeed, there has been substantial contro­ versy over whether or not it is appropriate for government to support the work of charitable organizations that do not primarily serve the poor (e.g., “Char­ ity and Taxation” 2012; Reich 2006). Some advocates of democratic equality

Philanthropy and Democratic Ideals  /  239

hold the view that it is inappropriate for philanthropy to be directed toward cultural goods until resources are fairly distributed according to a liberal egali­ tarian conception of social justice. While I cannot conclusively address the difficult and important issues of political theory raised by this objection, I will say a little bit about why I am skeptical that the kinds of nonideal conditions that exist in countries such as the United States provide reason to criticize all philanthropic support for cultural enterprises (as well as the public support of such efforts). Philanthropy and Social Justice Democratic equality is a social ideal to which we might aspire. Our own socie­ ties—­awash in prejudice and stained by a history of injustice—­inevitably fall short of that ideal. Access to resources and political power are stratified along morally arbitrary lines (such as race and gender), many citizens are effectively silenced in the political process, and that process is dominated by those with extensive financial resources. Such shortcomings provide an important rea­ son for action, particularly among those who have benefited most from the existing scheme of social cooperation. Therefore, in such circumstances, it is appropriate for philanthropy to be directed toward serving the poor or other­ wise helping the society better comply with an ideal of social justice. Philan­ thropy can help do so in either of two main ways. First, philanthropists can respond to such shortfalls with an explicitly political strategy. When government fails to live up to the ideals of dem­ ocratic equality, citizens can work to pressure government to take up the associated responsibilities. All of the traditional mechanisms of political involvement—­voting, working for candidates, lobbying officials, changing the minds of fellow citizens, and so on—­are mechanisms by which citizens can urge government to take more seriously the ideals to which democratic equality commits it. Philanthropy is often an important component of such strategies. For example, private foundations played a role in overcoming racial segregation in the American south. Olivier Zunz explains that phi­ lanthropists promoted voter education “aimed at teaching citizens how to pass the literacy tests segregationalists had set up to prevent them from cast­ ing their votes” (Zunz 2012, 208). Both the Taconic Foundation and the Ford Foundation dedicated significant resources to help groups such as the Congress on Racial Equality and the NAACP Legal Defense Fund register black voters in the south (Zunz 2012, 223). Such philanthropy aims to use the political process to render the society more consistent with the ideal of democratic equality.4

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Citizens frustrated with government’s failure to live up to the substantive ideals of democratic equality need not, however, be restricted to a political strategy. The more familiar tactic of philanthropists involves intervention aimed at directly achieving goals of social justice. For example, philanthropic work dedicated to funding food banks, establishing university scholarships for children from lower-­income families, or providing job training for the unem­ ployed are all ways of directly intervening to render the society more consistent with the ideal of democratic equality.5 Such direct intervention is sometimes thought of as the traditional role for philanthropists insofar as it is concerned with charitable works that attend to the needy and aim to rectify injustice. When the state fails to ensure that the demands of justice are met, pro­ ponents of democratic equality should see serving the poor and facilitating social justice as important and appropriate goals for philanthropists. Fur­ thermore, it may be the case—­as Chiara Cordelli argues in chapter 10—­that some wealthy individuals have duties of reparative justice that undermine any discretion that they may otherwise have to contribute to causes of their choice. For advocates of democratic equality, then, there are important rea­ sons for philanthropists to attend to questions of social justice in societies mired in injustice; indeed, when injustices are sufficiently dire, it probably is impermissible for citizens to pursue other goals. Cultural Philanthropy in Nonideal Circumstances Although advocates of democratic equality should therefore accept that non­ ideal conditions render serving the poor and facilitating social justice an important and appropriate goal for philanthropists, I want to discuss four reasons for thinking that the importance of this goal does not necessarily render cultural philanthropy or its public support impermissible in wealthy democracies. First, it is worth noting that a misleading aspect of the argument for pri­ oritizing questions of social justice over the provision of cultural goods is the implicit suggestion that the latter involves the pursuit of mere luxuries. To see that the provision of cultural goods responds to the needs of citizens, just reflect on the inadequacy of the opportunities provided by a society that is solely devoted to meeting the economic needs of citizens. A society that looks after such bare needs (such as food and shelter) but fails to pro­ vide a wide range of avenues for artistic expression, spiritual association, athletic competition, culinary appreciation, and so forth does not succeed in providing its members with what they need for a decent human life (e.g.,

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Mill 1985, 138–­39; Munoz-­Darde 2013). Although each particular cultural good or activity might look trivial, the availability of a wide range of such possibilities is part of what makes human life distinct and human associa­ tion valuable. Second, the reasons donors have for supporting cultural organizations are often rooted in obligations that have a strength of their own; that is, the power of such obligations may not derive solely from the importance of the goods at stake. For instance, if I am an avid rock climber and regularly make use of land that is available for climbing only because other climbers have joined together to purchase and protect it, I would be a free rider if I did not contribute to that effort. Therefore, I have obligations of fair play toward the members of the group. The point is just that the reasons for giving cultural gifts may not simply be rooted in the importance of the goods at stake; instead, the reasons underlying them may be of a more binding nature be­ cause of the obligations that the giver has incurred.6 Although obligations of fair play are ordinarily stringent, they may certainly be outweighed by the humanitarian duties one has to those in dire need.7 For this reason, the permissibility of cultural philanthropy depends on the extent of the unmet bare needs that one is in a position to effectively address. Third, there are important limits in regard to the ability of private indi­ viduals to stand in for the state in ensuring social justice (for further dis­ cussion of this issue, see Eric Beerbohm, chapter 8 in this volume). Most importantly, because social justice requires that the equal status of citizens be guaranteed, it cannot depend on the contingent goodwill of wealthy citizens. If one’s access to resources depends on the goodwill of a benefactor, one’s standing as an equal is thereby undermined. Additionally, although liberal egalitarianism requires that “the basic structure is regulated over time” to en­ sure that the accumulated results of private interactions do not “undermine the background conditions required for free and fair agreements” (Rawls 2001, 53), private actors have neither the knowledge nor the power to make the required adjustments. Thus, there are significant limits in regard to what philanthropists can accomplish in terms of  social justice (regardless of their generosity). Once again, however, the more a society falls short of the ideal of social justice, the less significant these considerations become; after all, one needs no special epistemic insight to respond to the dire needs of fellow citizens, and to have such needs fulfilled through the contingent goodwill of one’s compatriots is better than not at all. Fourth, as discussed above, the importance of  respecting the diverse com­ mitments and ideals of citizens suggests that there are important limits to

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what the state can directly accomplish in regard to cultural goals without disrespecting them. In sum, then, 1 cultural goods can be extremely important; 2 donors can have important reasons for supporting organizations supplying cultural goods; 3 there are limits to what individual donors can accomplish in regard to social justice; and 4 although it is important to ensure a rich array of cultural opportunities, direct state provision of cultural goods risks disrespecting citizens.

Together, these considerations provide at least some reason for advocates of democratic equality to think that cultural philanthropy and its public support are not inappropriate in a society that fails to fully instantiate the liberal egalitarian ideal. They also suggest, however, that the more a society falls short of ensuring social justice, the more pressing the bare needs of citi­ zens will be and, accordingly, the weaker the case for cultural philanthropy and its public support. Indeed, the reasons discussed here are strongest for a society in which all citizens have a level of resources that can be reasonably regarded as sufficient, even while the distribution falls short of the further requirements of an egalitarian conception of distributive justice.

Conclusion In this chapter I have explored the appropriate relationship between phi­ lanthropy and two ideals of democracy: market democracy and democratic equality. Market democrats are the standard champions of philanthropy, which they value because they see private giving as more likely to be effec­ tive than state programs, more consistent with classical liberal conceptions of justice than such programs, and important in facilitating effective criti­ cism of public officials. However, I have tried to show that even if market democrats are the traditional champions of philanthropy and provide a set of reasons for celebrating it that cannot be endorsed by egalitarian demo­ crats, the latter position nevertheless can give philanthropy important roles. First, as long as the society falls short of realizing the goals set forth by lib­ eral egalitarian conceptions of justice, philanthropy is one important device for helping to approach them. Second, philanthropists can help realize the ideal of democratic equality by supporting cultural goods. Thus, despite the tensions noted at the beginning, there is an important and distinctive place

Philanthropy and Democratic Ideals  /  243

for philanthropy within egalitarian conceptions of the democratic ideal. Finally, the fact that this place is much different than the one described by market democrats suggests that disputes about the appropriate place of philanthropy are rooted in deeper disagreements of democratic theory and are unlikely to be effectively adjudicated on narrower grounds.

Ten

Reparative Justice and the Moral Limits of Discretionary Philanthropy C hiara C ord e lli

In recent years, many affluent democracies have faced increasing cuts to the public funding of important goods and services, such as primary education, health care, and even policing.1 The reduction in direct public funding for these goods is often accompanied by an attempt, on the part of governments, to encourage private giving as an alternative way of financing their production. To illustrate, in the United States, public officials plead to philanthropic foundations: “now more than ever, we need to build cross-­sector partnerships to transform our schools, improve the health of Americans, and employ more people” (White House 2009). This happens in a country where the annual amount of private giving is already striking: $330 billion (Giving Institute 2012). Likewise, in the United Kingdom, government is repeatedly calling for “a stronger culture of giving time and money” (HM Government 2011) and has expressed a clear intention to “take a range of measures to en­ courage charitable giving and philanthropy” (Cabinet Office 2010). There as well the importance of private giving proportionately increases as state fund­ ing declines (National Council for Voluntary Organisations 2012). Despite the critical role that governments expect private giving to play in current democracies, little attention has been paid to the normative questions that surround this practice at the domestic level.2 Whereas some of the contributions in this volume fill this gap by questioning both the compatibility of philanthropy and democratic values (Beerbohm [chapter 8], Pev­ nick [chapter 9], Powell and Horvath [chapter 4], and Reich [chapter 3]), as well as the social responsibility and accountability of corporate philanthropic actors (Brest [chapter 5] and Reich [chapter 3]), my aim is to address two further ethical questions that, I believe, have great practical and political relevance. The first question concerns the nature of the moral requirement to give. What kind of duty, if any, do the citizens of affluent democracies have to

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make donations domestically? Call it the question of kind. A second question concerns how individuals (or foundations) should make these donations. Should donors be morally permitted to exercise personal discretion in deciding how much to give and to whom, given the sociopolitical context within which their giving takes place? Call it the question of discretion. By “personal discretion” here I mean the moral prerogative to appeal to agent-­relative reasons when making a decision. Agent-­relative reasons are reasons that are nonshared, for they make essential reference to a particular agent’s identity, life history, or personal projects. The question of discretion, thus, is the question of whether donors should be permitted to make their do­ native choices about how much to give and to whom, by appealing to these nonpublic reasons. It is a widespread assumption, both in commonsense morality and in political discourse, that citizens should enjoy wide discretion in deciding how to direct charitable donations. For example, the British government (HM Government 2011), while advocating for the institutionalization of a system of philanthropy able to support the critical role of voluntary organizations in an era of government withdrawal, has argued that this system must be designed so as “to fit with people’s lifestyles and interests” and that giving should happen “on the back of free decisions by individuals to give to causes around them” that “they care about.” I call this the discretionary view. Besides politicians, philosophers tend to support the discretionary view, at least to some extent. For instance, Richard Miller (2004) holds the view that it is in part up to the individual to decide how to discharge her duty to give, according to her “personal policies.” He argues that one is permitted to donate resources to, say, help the blind rather than to fight infectious dis­ eases—­despite the fact that the second choice more effectively helps those in direst peril—­if “one’s vision or life history” makes the first plight especially important to her (374). Even philosophers who, by contrast, oppose the discretionary view do so on the basis of arguments that, while arguably sound at the international level, lose their traction when applied to domestic affluent societies. For ex­ ample, to the question of how should donors give, Peter Singer (2004, 11) answers that only two considerations should count: “the degree of certainty that our assistance will get to the right person, and will really help that person,” and the relative extent of the person in question’s need. No personal discretion is permitted in deciding the cause or destination of our giving. However, Singer’s (1972) famous argument rests on a highly controver­ sial analogy between the duty to give money away and a duty of easy res­cue. Even if we assume that this analogy is sound at the international level, it

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is not clear that it has the same intuitive force in the domestic context of affluent societies. For in these societies cases of dire poverty are limited and citizens’ minimal level of subsistence—­the level below which we could appropriately speak of duties of  rescue—­is usually taken care of by the government. Therefore, even those who agree with Singer that individuals should enjoy no discretion when discharging their duties of rescue abroad, through international private aid, may still believe that individuals should be permitted to exercise discretion when giving money away at home, through domestic philanthropy.3 In this chapter, my ultimate aim is to prove that the prevailing answer to the question of discretion is wrong. But let me first explain why we should care about this question. In societies where the practice of giving is usual and the aggregate amount of total giving is significant, the discretionary view has important distributive consequences. It can make a significant difference for society at large whether donors feel entitled to direct their donations to causes they “care about,” causes that often include churches or private uni­ versities, or whether they take themselves to be under a duty to support causes that are less close to their personal identity but that can have positive redistributive effects—­for example, supporting primary education or aging health care infrastructures. This question becomes all the more relevant in circumstances where basic goods are underfunded by government. Further, the discretionary view has the power to affect the shaping of ex­­ pensive public policies. For example, in the United States, incentives to charitable giving—­that is, charitable tax deductions—­are designed so as to leave donors with wide personal discretion in selecting the addressee of their tax-­ exempted charitable gifts. Deductions do not match specific causes and are not structured according to redistributive principles (Reich 2006). It is no surprise that American religious charities receive the most tax-­exempted char­ itable donations, capturing $95.88 billion—­32 percent of total donations (Giving Institute 2012). Therefore, an assessment of the moral justifiability of the discretionary view can help us assess the legitimacy of these tax policies, which have significant costs—­for example, the U.S. Treasury loses more than $50 billion per year to charitable deductions (Reich 2006). In order to assess the moral justifiability of the discretionary view, I will first argue that we cannot establish donors’ legitimate discretion without first establishing what kind of duty, if any, individuals have to make philanthropic donations at all. I will then show that citizens’ duty to give should be understood neither as a discretional duty of beneficence nor as a duty of distributive justice directed at securing and maintaining distributive equity over time. I will, instead, argue that, given relevant political facts character­

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izing nonideal, contemporary societies, philanthropy should be understood foremost as a duty of reparative justice—­donations are the most effective means available to the well-­off to repair a particular kind of absolute (noncomparative) harm to the worst-­off, for which the former can be held liable.4 This account starkly contrasts with common understandings of philanthropy as a form of altruistic gift-­giving. It also contrasts with the kind of compensatory, enlightened self-­interest that is at the core of Carnegie’s Gospel of Wealth argument for philanthropy.5 If my account of philanthropic giving as a duty of reparative justice succeeds, important moral and political implications follow. First, at least up to a significant threshold, affluent donors should, as a matter of moral duty, exercise no personal discretion when deciding how to give and to whom. Indeed, they should regard their donations as a way of returning to others what is rightfully their own. Second, public officials should refrain from encouraging personal discretion through public discourse and should design tax incentives to private giving in a way that minimizes this discretion.

Justice versus Beneficence How much discretion an agent can legitimately exercise when discharging a certain duty depends on the kind of duty. This view finds support in our intuitions about how individuals should behave in their daily life. To illustrate, imagine I borrowed your bike. Most of us would agree that I should have no discretion in deciding whether to give you back your bike or, say, a microwave oven instead. Even if I personally consider microwaves as being more worthy than bikes, this should count as an irrelevant reason in my giving decision. This is true even if we assume that the two objects in question have equal market value. I owe you exactly what I borrowed, unless you say otherwise. Things are arguably different in those cases where I do not owe you anything that is rightfully yours, even if I might still have a moral duty to give you something. Imagine, for example, that you helped me prepare an exam. Your helping me was unsolicited and supererogatory. The exam goes well—­I should give you something to express my gratitude. I decide to buy you a microwave. I could have bought a bike for the same value, but it just happens that I value microwaves more. In this case, unlike in the previous one, it seems perfectly fine for me to pick the microwave just because I value it more. What can explain our different intuitions about the agent’s legitimate discretion in the two cases? The relevant difference relates to the kind of duty the agent bears. In the first case, I have a duty of justice to give: I owe you

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something that is rightfully yours. Because of this I do not get to decide how to discharge my duty, for I do not get to decide how to use your property. In the second case, I may well have a moral duty of gratitude toward you. But this duty does not point at any specific entitlement of yours, it rather points toward a general end—­expressing my gratitude. Yet I can pursue that very same end, and thus discharge my duty, in many different ways. This leaves me with a certain space for discretion. The view that a duty to give resources away can be of different kinds and thus allow for different scopes of discretion finds theoretical support in the Kantian tradition. Within this tradition, a duty to give can be born, broadly speaking, on grounds of either justice or beneficence. Principles of justice establish what resources, property, or goods people are rightfully entitled to (Barry 1989; see also Valentini 2011). Duties of justice are therefore duties to give or to return to others what is rightfully their own, as established by those principles—­they are entitlements-­centered duties. Principles of beneficence, by contrast, direct the spending of resources to which people are rightfully entitled (on grounds of justice) toward morally valuable ends. Duties of be­ nefi­cence are therefore duties to adopt and thereby promote a moral end, whether this is other people’s happiness or the alleviation of their distress, through the use of resources that are rightfully one’s own—­they are ends-­ oriented duties. Because of its different normative structure, a duty of beneficence entitles the duty-­bearer to a kind of discretion in deciding how and when to discharge the duty that is not allowed when a duty of justice is at stake.6 In Kant’s own terms, we would say that duties of beneficence are wide. This means that the duty-­bearer (the donor) is entitled to appeal to his own “sensibilities” when deciding by which means to discharge the duty in question (Kant 1797, 6:393). The reason that justifies this wideness, note, is not the fact that duties of  beneficence are less important than duties of  justice or that they are generally left unenforced. It is rather the fact that duties of beneficence have an ends-­oriented nature. Since there is a variety of means through which an end can be promoted, the agent retains discretion in selecting the appropriate means to realize the end at stake. Wide duties also allow for discretion in deciding the particular direction and circumstances of action—­these duties are not owed to particular individuals and need not be acted on at all times. By contrast, since duties of justice are correlative to specific entitlements, they are narrow duties—­the duty-­bearer has no or very little discretion in deciding by which means to discharge them and toward whom. Much more could be said about the distinction between justice and beneficence. However, for the purpose of this chapter, all that matters is to

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agree that donors in contemporary societies can be entitled to the personal discretion they currently enjoy in deciding how to give and to whom—­dis­ cretion that their governments encourage—­if and only if we assume that their duty to give is not a duty of justice.7 If it turns out that a citizen’s duty to give is a duty to return to others what is rightfully their own, then that discretion would be unwarranted.

The Question of Kind How do we know whether the citizens of contemporary democracies have a duty to give money away on grounds of justice or out of beneficence? We must first know whether the money these citizens have at their disposal is rightfully theirs or, rather, owed to someone else. We cannot know this without first knowing whether these citizens have already and completely discharged the obligations of justice they owe to each other. From the perspective of a liberal-­egalitarian theory of justice—­the perspective assumed in this chapter—­it is quite uncontroversial to say that cit­ izens bear duties of distributive justice toward their fellow citizens. These duties often take the form of obligations to both politically and financially support, by paying one’s fair share of taxes, those just political and economic institutions that establish entitlements to scarce resources—­the benefits of social cooperation—­and distribute resources according to those entitlements (Rawls 1971). Justice-­based entitlements are not reducible to cash resources. They also include access to some in-­kind goods (D. Miller 2004). It is quite easy to see why liberal-­egalitarian justice mandates the public provision of goods such as police protection, basic education, and even health care, at least up to a certain threshold. These goods are necessary for the protection of individuals’ equal liberties, for equality of op­portunities, and for preserving the social bases of self-­respect. Even libertar­ians who deny individuals’ entitlements to most “public” goods would in­clude goods such as policing, and perhaps even basic education, among goods that should be collectively provided on grounds of justice.8 It is thus common to identify the institutions of distributive justice with two branches of government: the redistributive branch and the public provision branch (Rawls 1971, 245–­46). The first branch re­distrib­ utes cash resources from the rich to the poor through institutions such as income taxation. The second branch is responsible for collecting rev­ e­nue to then secure an adequate provision of justice-­required goods, wheth­er health care, basic education, or other goods. Duties of distributive

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justice are thus duties to contribute one’s fair share of resources to both these institutions, so as to enable them to provide others with what they are entitled to. Importantly, just institutions, including a just tax system, should not be understood as subtracting from people a part of  what they already (preinstitutionally) own. They rather determine what people own. Property rights are not natural rights. They are the product of a set of institutions, of which the tax system is a central component (Murphy and Nagel 2002). Therefore, people rightfully own what remains in their pockets after they have discharged their distributive duties by paying their fair share of taxes to the redistributive branch and the public provision branch. Once citizens have appropriately discharged their distributive duties in this way, they can use the resources that are rightfully their own to discharge their residual duties of beneficence, for example, by donating money to nongovernmental charitable associations (or they may decide to support the production of discretionary public goods, including culture goods—­see Pevnick, chapter 9 in this volume). This is, broadly speaking, how the institutional division of labor between justice and beneficence is often understood, within the context of ideal theory. However, once we move to the real world things become much more complicated. Most current societies are not organized around a radical division of institutional labor between (distributive) governmental and (nondistributive) nongovernmental institutions of the kinds just described. To illustrate, consider the case of affluent liberal democracies such as the United States and the United Kingdom. Here government is clearly not the only funder of justice-­required goods and, in some cases, it is not even a sufficient funder. In the United States, for example, many justice-­required goods are financed and produced through a hybrid system of public and private funding. Primary and secondary public schools often must create (tax-­exempt) private foundations in order to function properly (Merz and Frankel 1997; Reich 2005). These foundations provide critical resources, including instructional materials and services, that the districts’ operational and capital budgets can­ not accommodate. Sometimes they even supplement teachers’ salaries. Similar considerations apply to health care. Philanthropic giving is emerging as a significant means by which health systems fund the renovation of aging infrastructure and cope with staffing shortages (McGinly 2008). Similar considerations also apply to policing. Britain’s Metropolitan Police Service is increasingly relying on private donations—­£23 million in 2012—­as well as replacing members of police staff with volunteers (Rawlinson 2012). In brief, private giving and volunteering play an ever more necessary, rather than supplementary, role in the financing of justice-­required goods (see also

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Powell and Horvath, chapter 4 in this volume). The question of kind therefore must be situated in a context where the division of labor between systems of taxation and systems of voluntary donation is blurred. Within a social system where the government does not fully fund justice-­required goods, what kind of duty do donors have to voluntarily give their money away? In such a system, it becomes unclear whether the money philanthropists give away can be regarded as fully their own. In what follows I analyze, and show the limits of, what I take to be a common, and seemingly intuitive, answer to the question of kind.

The Distributive Account of the Duty to Give It is tempting to argue that, unlike in the ideal case, in the real-­world case, wealthy individuals have a duty of distributive justice to make voluntary donations, so as to support the distribution of justice-­required goods. Indeed, the fact that in this society individual donors and foundations, rather than government alone, are expected to fund certain goods does not change the fact that these goods should be provided as a matter of justice. If in the ideal society citizens had a duty of distributive justice to support a fully just distribution of these goods through taxation, in the real-­world society they must have a duty of the same kind to support a just distribution of these same goods through donation. To see how this argument has normative support, consider the following example, introduced by Robert Goodin (1988, 680) in a different context but helpful for our purposes.9 On a beach there are many people watching a drowning man. None is strong enough to save the man. There is one person who is “socially picked out” as the person who should perform the rescue: the appointed lifeguard. “In such case,” Goodin argues, “it is clearly that person upon whom the general duty of rescue devolves as a special duty.” Goodin further clarifies that “it is not a matter of indifference whom we choose to vest with special responsibility for discharging our general moral duties” but “their special responsibility in the matter derives wholly from the fact that they are appointed” (ibid.) and not from their natural capacity. By analogy, it could be argued that the fact that a society “socially picks” individual donors and foundations, rather than government alone, as “life­­ guards”—­as the agents responsible for discharging the society’s general duty to provide all citizens with certain justice-­required goods—­makes it clear that those are the agents to whom the general duty of securing the conditions of justice devolves as a special duty. It might not be “a matter of indifference” whether, say, philanthropic foundations are more or less capable

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than governments to discharge that duty, but their special responsibility in the matter wholly derives from the fact that they have been “socially picked” to perform that task. Note that here I am assuming that official authorization is not the only means through which institutions can delegate social responsibility to nongovernmental agents. By giving special incentives to individual donors and foundations, by conferring on them special public recognition, and by repeatedly appealing to their help through public discourse, a society can be said to “socially pick” these agents as legitimate “lifeguards.” If this argument is correct, then we would have a sound reason to argue that individual donors’ and foundations’ duty to give is first and foremost a duty of distributive justice in kind—­a duty to secure a fair provision of basic goods as government substitutes. If that were the case, we would have found an easy way to argue that the “discretionary view” is mistaken. In this scenario, what philanthropists would be doing is exercising political power qua partners in government. As such, they could be reasonably expected to act according to the very same public principles and reasons that guide governmental action. In the same way in which governments cannot appeal to private, nonshared reasons when deciding how to spend public money, in a similar way philanthropists should not be allowed to exercise that discretion, if and when they act in the place of government. Indeed, they would be required to direct their money so as to secure and maintain the same distributive pattern that government should secure. However, in what follows I present some reasons to resist a distributive account of the duty to give.

The Limits of the Distributive Account Recall that in the lifeguard example the claim was that the responsibility of appointed lifeguards derives wholly from the fact that they are appointed and not from their capacity. Even if we accept the claim that an agent’s capacity cannot be the ultimate source of her special responsibility, we must nevertheless consider that the capacity of an agent A to do X directly bears on whether a duty to do X can be attributed or transferred to A. For if  we pick a dysfunctional A who lacks the capacity to do X, the simple fact that we socially picked A is not sufficient to transfer to A a duty to do X. As Onora O’Neill (2004) notes, “lack of capability always counts against an ascription of obligations, except where the lack is chosen.” Therefore, in order to assess whether individuals and foundations can have a duty of distributive justice to “take up the slack” when they are socially picked to act as necessary complements to government, we must first

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assess whether these agents have the capacity to realize the conditions of distributive justice. The notion of “capacity” is a contested one. If we assume what John Rawls (1993, 281) calls “the limits of altruism”—­the fact that “individuals and groups put forward competing claims, and while they are willing to act justly, they are not prepared to abandon their interest”—­as a fundamental limit of human nature, we easily arrive at the conclusion that a social system based on voluntary contributions would lack the relevant “capacity” to secure and maintain background conditions of justice over time. However, it may be argued that the limits of altruism should be regarded as a form of chosen incapacity and thus should not be understood as a form of incapacity that counts against an ascription of obligations. Are there other forms of unchosen incapacity that would make individuals and foundations unsuitable agents of distributive justice? It seems that there are. Distributive justice, as understood by most liberal-­egalitarians, is essentially about equity in relative shares, as established according to some kind of pattern—­to each according to X. So understood, distributive justice thus demands continuous adjustment of relative shares, according to a relevant patterned principle (Rawls 1971). In order to perform this adjustment, just arrangements must have certain distinctive capacities. Now it is generally (although not universally) agreed that individuals and associations, however powerful and well intentioned, lack, unlike government, the capacity for adjustment (Rawls 1993). This is because, as Rawls (1993, 242) puts it, they “cannot comprehend the ramifications of their particular actions viewed collectively, nor can they be expected to foresee future circumstances.” Note that this does not imply that there is nothing individuals or associations can and should do to make the worst-­off better off. For example, it seems plausible to argue that private actors may have the capacity to fulfill other people’s needs or to bring them above a threshold of sufficiency. What this implies is simply that even a system of independent and voluntary organizations supported by completely committed and altruistic philanthropists cannot, at least in the world as we know it, be a suitable means of egalitarian distributive justice, since this kind of justice requires continuous adjustment of relative shares over time. If this empirical premise holds, and if we endorse an egalitarian conception of distributive justice, it follows that it would be self-­defeating to ascribe to individuals a duty of distributive justice to support (financially contribute to) a “privatized” system of distribution, for this system is likely to be distributively unjust. However, assume that private actors could be as capable as, or even more capable than, government in securing and maintaining an egalitarian

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distributive pattern of resources and material goods. We may still have reasons to regard as distributively unjust a system that relies on private donations to fund justice-­required goods. One reason has to do with the fact that such a system is likely to threaten democratic equality among citizens—­the ability of citizens to stand with respect to each other as equals. Note that democratic equality can be easily understood as a requirement of distributive (not only relational) justice itself. This is because, even from the perspective of distributive justice, distribution of material resources is not all that matters. People must also have adequate access to “the social bases of self-­respect” (Rawls 1971, 386), that is, those social conditions necessary for them to maintain confidence in their equal social standing with respect to others. Therefore, a threat to democratic equality is a threat to the social bases of self-­respect, which arguably figure among the relevant objects of social distribution. How does a system that heavily relies on private donations threaten democratic equality? First, it does so by allowing people who control more economic resources to convert their economic power into political power (Pev­ nick 2013). Only individuals who can afford to make donations, or larger donations than their fellow citizens, have the power to shape the quantity and way in which justice-­required goods are produced and delivered in society. This means, in turn, that those with more economic resources acquire a privileged vehicle for imposing their conceptions of the good on others. This fact, in and of itself, compromises the ability of citizens to relate as equals. Further, such a system is likely to lead to relations of domination among citizens—­relations that are, by definition, incompatible with maintaining the social bases of self-­respect. Note that for relations of domination to arise, the actual presence of relations of servility is not necessary. It is suf­ ficient that the social conditions that make servility possible are in place, or that the conditions that protect people from the threat of servility are absent. The degree to which a person is subject to relations of domination depends, in part, on the possibility with which he or she will be subjected to arbitrary power (Pettit 1997). This means that in order for relations of dom­ ination to be absent, and thus for democratic equality to hold, a guarantee against servility must be in place—­a guarantee that only a coercive public system of taxation can provide. In a society where private donations are necessary to support an adequate provision of justice-­required goods, this guarantee is missing (for further reasons against the privatization of public responsibilities, see Beerbohm, chapter 8 in this volume). If the argument developed so far is sound, private agents cannot have a duty of distributive justice to make independent voluntary donations so as

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to complement government in securing the conditions of distributive justice. Because these agents lack the relevant capacity to secure these conditions, this duty would amount to an oxymoronic duty of distributive justice to contribute to a distributively unjust system. What distributive justice requires is that citizens do whatever is in their power to bring about more just political institutions. This may demand, for example, that they donate money to political advocacy organizations, if this is the most effective available means of discharging that duty. However, beyond that, citizens would seem to have, at most, an imperfect duty of beneficence to give their money away. Yet, in the next section I argue that this view is incomplete.

The Grounds of Reparation: Benefits, Contribution, and Relations When government fails, even if only partially, to fully fund the provision of justice-­required goods (to whatever threshold required to fulfill the conditions necessary for individuals to live autonomous lives), wealthy citi­ zens may (and often do) benefit from this failure, while the poor are harmed. The wealthy benefit at least when they (1) pay less in taxes than they would have to pay to support a government-­run system of public provision and, at the same time, (2) they are not themselves damaged by the cuts for they can afford access to, say, education and health care through the market—­some­ thing they would often do regardless of whether public alternatives are available. When wealthy citizens benefit from a system that harms the worst-­off and deprives them of what they can claim as an entitlement against the state, there is a prima facie case for arguing that these citizens have a duty of  reparative justice toward the worst-­off. They ought to compensate for the damage this system unfairly inflicts upon the worst-­off, so as to return the victims as close as possible to the preharm baseline.10 Before continuing, a clarification is in order. By a duty of reparative justice I mean a person P’s duty to fairly compensate P1 for harm for which P can be held liable (although not necessarily blameworthy)—­“harm” meaning a setback to P1’s interests. Importantly, unlike duties of distributive justice, duties of reparative justice are not necessarily concerned with equitable shares. What matters, from the perspective of reparative justice, is that a harm is compensated for rather than how people comparatively fare with respect to their bundle of particular resources (Thompson 2002, xi). Of course, this harm can be defined as a “deficit” in access to goods one ought to have access to on grounds of egalitarian justice, in which case a duty of reparative justice

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would collapse into a duty of distributive justice (as defined in the previous section). But this need not necessarily be the case. When the state deprives some of my fellow citizens of access to health care or education, the state can be regarded as harming them in more than one way. On the one hand, it is depriving them of their fair share of goods, as calculated relative to the share to which other citizens are entitled. This is a distributive harm in kind. On the other hand, it is also harming them in absolute terms. It is bringing them below a threshold of need satisfaction or depriving them of the conditions necessary to live an autonomous life, to which they are individually entitled. The latter harm qualifies as such independently of considerations of relative inequality. This is what I shall call an absolute kind of harm. Whereas distributive harms can only be repaired by restoring a pattern of relative equality, however exactly defined, absolute harms can be repaired by simply bringing the harmed person closer to the relevant threshold (the preharm baseline). Reparative justice in the second case does not require the kind of continuous adjustment that would be instead necessary to repair dis­ tributive harms. I can now return to the question of whether wealthy citizens have a duty of reparative justice to compensate for harm inflicted by their state on their fellow citizens, when and because they benefit from this system. I will start by clarifying that the mere fact that a person benefits from a system that harms others is not always sufficient to impose upon him or her a duty of compensation, even if the benefit is voluntarily sought (Fullinwider 1980). For example, many academics benefit from writing books on harmful social injustices, yet it would be odd to say that it is wrong for them to do so or that they owe compensation to the victims of  those injustices for the simple fact of  benefiting from them (Anwander 2005). What grounds a duty of  rep­ aration, it seems, cannot be the simple fact that we benefit from a harmful injustice but only the fact that we causally contribute to it in some relevant sense, either by causing or by perpetrating it. However, it should be noted that certain forms of benefiting are themselves actual contributions to injustice (Anwander 2005). Following this ob­servation, one may argue that benefiting from injustice is sufficient (although perhaps not necessary) to ground a duty of reparation, at least when this benefiting amounts to a form of contribution to that injustice. For example, even if young white men did not originally contribute to a social system that treats women as inferior in the labor market, they perpetrate the injustice by continuing to benefit from what they should instead return to the victims. Benefiting constitutes a more serious form of contribution to injustice when it happens at the cost of making the victim even worse off

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than she is. When wealthy individuals send their children to private schools while paying less in taxes than what is required to support an adequate sys­ tem of public schooling, not only might they benefit from the injustice but also further enlarge the competitive gap between their children and the poor. Following this line of thought, I would argue that within societies where the wealthy benefit from public cuts to public services, the wealthy can be reasonably said to have a duty to repair the injustice, at least to the extent that their benefiting from it can be regarded as a form of contribution to or perpetration of that injustice. However, the conditions under which we can reasonably affirm that wealthy citizens benefit from an unjust system may not always apply (or may not apply to all wealthy citizens). This is because the fact that basic services are underprovided by government does not necessarily mean that the wealthy are paying less in taxes than they would have to pay to support a government-­run provision system. Indeed, their taxes might simply have been diverted to other, futile expenditures. Further, the wealthy themselves might be damaged by the cuts (although not as damaged as the already worst-­off ). Many of the relatively wealthy may well be better off if they lived in a just society that fully funds a broad range of justice-­required goods. Therefore, we should not assume that the wealthy always benefit from public cuts to these goods. Yet, this does not let the wealthy off the hook. Individuals may acquire reparative duties even without benefiting at all from injustice. Benefiting from an injustice (at least when benefiting amounts to contributing) might be sufficient to ground reparative duties, but it is not necessary. For example, I can certainly have a duty to compensate others for an injury that I neg­ ligently inflicted on them, regardless of whether I benefit from it or not. In those circumstances where the wealthy do not benefit from a system that underprovides basic goods and services, the wealthy may still acquire duties of reparative justice if they can be held causally responsible or liable, in a relevant sense, for the policies that harm the poor. To answer the question of liability thoroughly, we would need a theory of individual responsibility for collective wrongs. I cannot develop a full theory here. I will, however, rely on a long tradition of democratic theory that argues that citizens of legitimate, democratic states are complicit in their states’ injustice. Kantians, for example, would argue that as long as a state acts as a legitimately authorized body, according to a constitution of essentials, in respect of the rule of law, and in line with basic principles of equal­ity, it can plausibly be regarded as acting in the name and on behalf of its citizens (Stilz 2011; see also Nagel 2005). Note that this is regardless of

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whether or not citizens actually support each and every state policy. Individuals have stringent moral reasons to transfer to a set of state institutions the right and discretion to “manage” their own rights according to public rules. This transfer implies that a state that fulfills basic conditions of legitimacy acquires the authority to act in the name of its citizens even if they do not agree with each and every one of its policies. “Because they ‘own’ the rights their state interprets and enforces, citizens must also take responsibility for what their state does” (Stilz 2011, 203). If we accept this idea of democratic complicity, as a significant number of democratic theorists do, we must also accept that citizens retain liability for the policies of their states, even if they did not directly vote for those policies, for as long as the state acts legitimately, its actions can be regarded as authorized by its citizens.11 An exception can arguably be made for those citizens who have actively campaigned against those policies—­it may be argued that these citizens’ injus­ tice-­offsetting actions cancel their liability (Beerbohm 2012). Leaving these cases aside, what matters for our purpose is that, as long as a state’s actions can be regarded as collectively authorized by its citizens, citizens can be regarded as liable for those actions. If  we agree that citizens of democratic, legitimate states are complicit with their state’s unjust policies, we must also agree that a citizen of a legitimate state may acquire a duty of reparative justice when her cocitizens are harmed by their state’s policies.12 Now, it could be argued that this liability for compensation should fall on rich and poor alike, as both count as authorizing citizens, and that reparative duties cannot only be assigned to the wealthy. However, as Eric Beerbohm (2012, 11) points out: “Inequalities in political power alter our liability for democratically sponsored unjust policies. In a seriously imperfect democracy, where power is distributed in a way that tracks income or wealth, the moral liability of citizenship can track these inequalities.” That poverty constrains citizens’ opportunities for political influence and that the poor are more harmed by the enacted policies than the wealthy provide good reasons to attribute the higher burden of reparation to the wealthy. So far I have argued that both those individuals who benefit (in a qualified sense) from injustice and those who can be reasonably regarded as complicit with it (even if they do not benefit from it) have, for different reasons, a duty of reparative justice to compensate the victims of that injustice. Now I turn to argue that, even in cases in which wealthy individuals do not benefit from injustice and cannot be regarded, in any meaningful sense, as being complicit with their unjust domestic system, they may still owe a duty of reparation to the victims of that system. This is because one can have a remedial

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responsibility for X (assuming one has the capacity to discharge it), without being morally responsible, in the complicity sense, for X, and regardless of benefiting from X or not. Suppose that I find out that your violin is actually mine.13 My cousin stole it from my mother and then gave it to you as a present. You did not know that the violin was stolen when you accepted it, so you violated no moral duty and cannot be blamed for it. Also, since you detest the sound of a violin, you have not benefited from it. Also suppose you cannot even sell or rent the violin so as to profit from it. Yet it seems that you have a remedial responsibility to return the violin to me as soon as you find out, and perhaps even to apologize on behalf of your relative. The reason why the agent would have a remedial responsibility in this case, even in the absence of direct contribution to and benefit from the harm caused, is that only by discharging this responsibility would the agent be able to restore a moral relationship with the victim (Satz 2007; see also Minow 1998). Similarly, the fact that a citizen did not vote for a reduced form of public provision that deprives the worst-­off of what is rightfully their own, as well as the fact that he may not even benefit from that policy, may be sufficient reasons not to blame him. However, as a member of a collective that de facto deprives the poor of access to what is rightfully their own, he may still have a remedial responsibility for compensating the victim of that injustice. Only in this way can the moral relationship of political equality among citizens be, at least partially, restored. Therefore, even those wealthy members of society (W) who do not benefit from or contribute to policies that underprovide justice-­required goods may still bear toward the poor (P) at least some of the costs of compensation for those policies. The central question then becomes, how should W pay those costs to P? In the next section I argue that forms of organized private giving provide the (morally) best means.

The Reparative Account of the Duty to Give Compensation for harm can be paid in cash or by returning to the victim the specific object she has been deprived of. How do we know which modality of compensation is more appropriate? As Debra Satz (2007, 183) argues, in order to be fair a compensation needs to satisfy at least two conditions: (1) it must be “targeted (where possible) to the wrong it is meant to redress” and (2) it must be aimed at restoring (as far as possible) the victim to the preharm baseline, while doing so in a way sensitive to the specific kind of harm suffered by the victim.

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If we follow this principle, when imposing upon W a duty to pay to P the cost of an unjust system of public provision, we have reasons to choose the object-­specific option. This is because the system in question harms P, with respect to P’s access to certain in-­kind goods and services to which P has a rightful claim against the state. Therefore, W can be reasonably required to secure that P has access to these specific goods. Yet, she might not be reasonably re­ quired to pay cash to P, in that P could then spend this money for items other than these specific goods, if he wished (Satz 2010, chap. 3; Scanlon 1975). I will call this the principle of object-­specific compensation. Now, until a more just system of public provision is brought about, W cannot pay those costs by supporting, through taxes, a government-­run system, for this system is temporarily unavailable and may take time before it is brought about. Until that moment, the best way for W to pay these costs is by supporting, through direct donations, those service-­providing agencies (often nonprofit organizations) that are most suited to compensate for government failure, when the provision of justice-­required goods is at stake.14 The principle of object-­specific compensation provides a first reason to regard charitable donations as the best available means through which W can discharge duties of reparation. In addition, the morally best way to make reparation for an unjust system is by preventing that system from having its most devastating effects on its victims. Lack of access to some goods today may have effects that cannot be repaired by securing access to that same good tomorrow. A child needs access to good public schools in her early childhood. A mother needs access to childcare right after pregnancy if she wants to keep her job. Spending time and money in political advocacy so as to support the provision of more and better services in five years’ time cannot compensate damages caused by cuts to these services here and now. Compensation must happen before more just institutions can be brought about. I will call this the principle of damage limitation. This principle provides a second moral reason for regarding voluntary donations as an appropriate means of reparative justice. While doing whatever is in their power to bring about just institutions, by donating to charitable associations, the wealthy compensate for the damage, here understood in absolute rather than relative terms, that an unjust system of public provision inflicts on the worst-­off. At this point it could be objected that, if individuals cannot discharge duties of distributive justice through donations to particular associations be­ cause these associations are not capable of securing and preserving overall just patterns, then for the same reason they cannot discharge duties of

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reparative justice in this way. This objection, however, misses the difference between reparative and distributive justice that I have previously drawn. Whereas I here understand distributive justice as being concerned with equity and thus with maintaining a specific scheme of relative shares, I understand reparative justice as being concerned with compensation for harm done. Although claims of reparation might also involve claims of distributive justice, the damage to be repaired in the case of a government withdrawing from providing certain basic services is not exclusively a violation of equity. It is also about absolute deprivation. Some citizens, when government withdraws, are deprived of the opportunity to access an adequate threshold of in-­kind goods that are necessary (although not sufficient) for living an autonomous life. Therefore, even if we agree that private giving cannot be a suitable means of distributive justice, contributing to an organized system of philanthropy might still be the morally best means of discharging more modest duties of reparative justice, so understood.

The Question of Discretion Assuming that wealthy donors’ duty to give, at least up to a threshold, is a duty of reparative justice, what discretion should donors enjoy in determining the means and ends of their giving? I added “at least up to a threshold” because, once donors have satisfied their duty of reparative justice, they may still have a supplementary, imperfect duty of beneficence to give extra or an obligation of good citizenship to contribute to those “civilizational” proj­ ects that aim to create new collective capacities or public benefits, which go beyond the requirements of justice.15 To the extent that it can be regarded as an instrument of reparation, the duty to give no longer flows from the adoption of an end that each individual has a duty to promote according to her sensibilities. It is rather a duty to return to others what they have been deprived of and what they have a rightful claim to. It is a duty to pay a debt. As such, it is a narrow duty. This means that agent-­relative reasons appealing to what donors “care about” or their “life history” should not matter at all in the process of deciding how to give. All that should guide wealthy donors’ reasoning is a concern about the level of deprivation the worst-­off are subject to as a consequence of an unjust system. Victims who have suffered or are at risk of suffering the greatest harm—­defined as deprivation from time-sensitive, justice-­required goods—­should be served first. Donors should therefore give priority to associations that (1) operate in deprived areas to provide (2) time-sensitive, justice-­required goods that are

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(3) underprovided by government over associations that operate in wealthier areas or that provide other kinds of goods (recreational activities, religious endeavors, art galleries, private universities, etc.). An obvious problem with this view is that donors cannot know how much each owes to each victim of injustice, unless and before a system of philanthropic giving becomes fully perfected and institutionalized. How can they then discharge their duties? The objection points at an important epistemic limit. However, from a moral perspective, we can still say that individuals are, as a matter of general principle, required to contribute to the philanthropic system at least what they would have to pay in taxes, were gov­­ernment itself to secure (directly finance) the level of in-­kind goods necessary to bring individuals above a threshold of sufficiency. I say “govern­­ ment itself ” because it may turn out that the best way for individual citizens to provide their fraction of a good G that they failed to provide collectively is dramatically more costly to them than if their government had provided G in an efficient way and simply charged them for their share of the costs. In my view, citizens would not necessarily be required to pay the exorbi­tant fee. What they should give on ground of justice corresponds (at a mini­ mum) to what their fair share would have been in the case where the government discharged its sufficientarian obligations correctly and proportioned the costs justly. In practice, even if donors cannot know exactly what their due is without having an institutionalized system of philanthropy in place, they still have a duty to approximate this principle as best as they can in their daily life. Note that the fact that this duty necessarily remains indeterminate doesn’t make it any less a duty of justice. Indeed, justice remains the grounds for that duty. Further, that the duty is indeterminate does not entail that it is not action-­guiding. Indeed, if donors started to take seriously the idea that they have a duty to give domestically on grounds of reparative justice, this would certainly change the way they give. Donations to already wealthy religious congregations or elite universities that contributed to their personal success could no longer have priority in their giving decisions. Neither would we have a situation, as is currently the case, in which poor households give, pro­ portionally to their income and wealth, more than rich households. However, someone could insist that, as long as a system of donation is not fully perfected and publicly enforced, citizens cannot be under a duty of justice to give. Citizens must be sure that other people will also comply with the same duties in order to be bound by those duties in the first place. In the absence of enforcement mechanisms, this assurance will be missing.

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My response to this objection is threefold. First, we must reject the claim that only duties that are already enforced are duties of justice. Otherwise, we would be committed to the absurd claim that in a state where the coercive apparatus was temporarily disabled by, say, a terroristic attack, the duty not to kill would cease to be a duty of justice. Citizens may have a duty of justice to give even if this duty is not fully enforced here and now. Second, although the problem of free riding is a serious one and pro­ vides us with reasons to perfect and collectively enforce the duty to give, we must also acknowledge, following Rawls (1971, 192), that we are not rel­eased from our duties of justice “whenever others are disposed to act unjustly. A more stringent condition is required: there must be some considerable risks to our own legitimate interests.” The noncompliance of others legitimizes our noncompliance only when complying would significantly imperil our own safety or fundamental projects. My duty to comply with the rule of driving on the right collapses at the moment people regularly start to drive on the left. Yet asking wealthy donors to give to voluntary associations what should otherwise return to the state would not seem to have any comparable risk or compromise any of their fundamental interests even in the case of other people’s noncompliance. But what if no one else is paying the fee and the good we need to collectively produce is of a kind that, if nobody else contributes, my contribution will be not only costly but also completely futile? Before suggesting an answer to the problem of futility, let me clarify that this problem does not seem to apply to many of the situations that arise in our societies and that are the direct concern of this chapter. When a government cuts public spending to education or policing, we, as citizens, do not face a situation in which we must produce a public good from scratch. Public schools and police stations are still in place. Yet they are underfunded. In this kind of situations, any contribution, quite independently from the contributions of others, has the potential to improve the provision of those services. Having said this, in cases where our contributions would be completely futile, we have strong moral reasons to divert those contributions to public advocacy so as to persuade others to contribute to the point at which our contributions would cease to be futile. Third, let us assume, just for the sake of the argument, that it is morally indefensible, according to ideal principles, to require wealthy donors to compensate the victims of current injustice, unless we can coerce each of them to give exactly their due (in which case private giving would collapse de facto into taxation). We can still agree that the status quo—­the worst-­off

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being badly harmed by public cuts—­is even less morally defensible. In which case, we must conclude that uncoerced giving should be regarded as, at least, a rough (second-­best) form of reparative justice (Vermeule 2012). As long as this is the case, my argument that donors should not be entitled, let alone encouraged, to appeal to their personal projects or other agent-­ relative reasons when deciding how to give still stands.

Concluding Remarks I want to conclude by spelling out the practical implications of my view for both donor-­citizens (individuals and foundations) and political institutions. With regard to the former, far from having only duties of beneficence to donate money or time, wealthy citizens also have (1) a duty of distributive justice to give to effective advocacy organizations, to the extent that this is the most effective way to bring about institutions that are able to secure and maintain egalitarian patterns of distribution over time. They also have (2) a duty of reparative justice to give to private organizations that provide under­ funded time-sensitive, justice-­required goods, to the extent that this is the most effective way to bring the disadvantaged above the threshold of suf­ fi­ciency and to limit the damage inflicted to them. Duty 2 applies to all wealthy donors unless (2a) they have actively campaigned against government underfunding those goods, or (2b) their contribution would be completely futile. When 2b applies, however, individuals still have a duty of reparative justice to di­vert their money to advocacy instead, so as to persuade other people or in­sti­tutions to support the collective provision of those goods. Regardless of whether they should donate to advocacy groups or to service-­providing organizations, as long as they have a duty of justice to give, donors should enjoy no personal discretion in determining the causes of their giving. Donors should arrive at their giving decisions by appealing to public rather than agent-­relative reasons, for what they are giving is not rightfully their own. Of course, some level of discretion will inevitably remain. Indeed, the same exact results (e.g., bring about just institutions or limit the damage inflicted on the worst-­off ) could be achieved by donating to more than one type of organizations or through more than one form of giving. Within this range, what particular organization or form of giving the donor picks is morally indifferent. My point, however, is that donors should give as if what they donate is not their own. This, in turn, means that the kind of reasons donors should appeal to when deciding how to direct their money away cannot make essential reference to their own personal sensibilities and life history. They should rather spring from considerations of justice.

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With regard to institutional action, my argument provides political insti­ tutions with a justice-­based justification for limiting donors’ personal dis­ cretion. This not only means that government should refrain from encouraging personal discretion through political discourse. It also means that it should restructure incentives to giving so as to reduce this discretion. More precisely, assuming that tax deductions for charitable contributions are at least sometimes justifiable (Reich 2006), when designing or reforming the system of tax deductions for charitable donations, policy makers have reasons to match those deductions to specific causes. This matching exercise should follow the very same moral principles that should guide individual donations. To illustrate, consider the case of the $96 billion annually directed to religious associations in the United States. If my analysis is correct, among these donations, only donations directed to religious associations (1) operating in deprived areas that (2) provide time-sensitive, justice-­ required goods that (3) are underprovided by government should be (and arguably so) entitled to charitable deductions. By contrast, donations directed to religious associations that fail to meet these requirements should not. Before concluding, I should clarify that the argument developed in this chapter says nothing about what the role and limits of philanthropic giving should be in a society where government fully succeeds in providing the range and amount of public goods and services necessary to fulfill individuals’ needs, as well as to secure and maintain the conditions of egalitarian justice. Even in this “ideal” society, it might be the case that the discretion of donors, as well as the amount of money that donors should be allowed to give away, ought to be limited by considerations appealing to public values (see Pevnick, chapter 9 in this volume). For example, even in this ideal society there would be a need to restrict donations directed to political campaigns in order to prevent the colonization of politics by private money, or a need to prevent people from altruistically giving away certain goods—­for example, their child’s labor or their votes. However, in this ideal society there would be larger scope for what might be called “expressive philanthropy”—­ phi­lanthropy aimed at expressing one’s own idiosyncratic sensibilities. By this I mean that, in an ideal society, people would be legitimately entitled to a wider discretional space. They would enjoy wider liberty to make donations according to what they care about, in the knowledge that justice and other public values are taken care of by their common institutions. State withdrawal should thus be regarded as more a curse than a blessing for  phi­lanthropy.

N o t es

Introduction

1. 2.

As quoted in chapter 4, by Aaron Horvath and Walter Powell. William J. Broad, “Billionaires with Big Ideas Are Privatizing American Science,” New York Times, March 15, 2014, http://www.nytimes.com/2014/03/16/science/billionaires -­with-­big-­ideas-­are-­privatizing-­american-­science.html. 3. Theda Skocpol, Diminished Democracy: From Membership to Management (Norman: University of Oklahoma Press, 2003); Robert Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon & Schuster, 2000). 4. See Elizabeth Anderson’s Value in Ethics and Economics (Cambridge, MA: Harvard Uni­­ versity Press, 1993); Debra Satz’s Why Some Things Should Not Be for Sale (Oxford: Oxford University Press, 2010); and Michael Sandel’s What Money Can’t Buy: The Moral Limits of Markets (London: Allen Lane, 2012). Chap t e r O n e

1.

Joseph Angell and Samuel Ames, Treatise on the Law of Private Corporations Aggregate (New York, 1832). See also Hendrik Hartog, Public Property and Private Power: The Corporation of the City of New York in American Law, 1730–­1870 (Ithaca, NY: Cornell Uni­ versity Press, 1989). 2. Ernst H. Kantorowicz, The King’s Two Bodies (1957; Princeton, NJ: Princeton Uni­ versity Press, 1997). 3. Terret v. Taylor, 13 U.S. 43 (1815). 4. University of North Carolina v. Foy, 5 N.C. 58 (1805). 5. Angell and Ames, Treatise, 7. 6. Pauline Maier, “The Revolutionary Origins of the American Corporation,” William and Mary Quarterly 50, no. 1 (January 1993): 51–­84; Herbert J. Hovenkamp, “The Clas­sical Corporation in American Legal Thought,” Georgetown Law Journal 76, no. 4 (1988): 1593–­1689; Lucian Arye Bebchuck, “Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law,” Harvard Law Review 7, no. 123 (May 2010): 1549–­95. 7. Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819). 8. Olivier Zunz, Philanthropy in America: A History (Princeton, NJ: Princeton University Press, 2012), 14–­18; James J. Fishman, “The Development of Nonprofit Corporation Law and an Agenda for Reform,” Emory Law Journal 34 (Summer 1985): 61–­83; Stanley N.

268  / Notes to Pages 27–31 Katz, Barry Sullivan, and C. Paul Beach, “Legal Change and Legal Autonomy: Char­ itable Trusts in New York, 1777–­1893,” Law and History Review 3 (Spring 1985): 51–­89. 9. Ruth H. Bloch and Naomi R. Lamoreaux, “Voluntary Associations, Corporate Rights, and the State: Legal Constraints on the Development of American Civil Society, 1750–­1900” (NBER Working Paper No. 21153). 10. James Willard Hurst, The Legitimacy of the Business Corporation in the Law of the United States, 1780–­1970 (Charlottesville: University of Virginia Press, 1970); Susan Pace Hamill, “From Special Privilege to General Utility: A Continuation of Willard Hurst’s Study of Corporations,” American University Law Review 49, no. 1 (1999): 79–­181. 11. Liam Séamus O’Melinn, “Neither Contract nor Concession: The Public Personality of the Corporation,” George Washington Law Review 74 (February 2006): 225; Kellen Funk, “This Stone Which I Erect Shall Be a House of God: Disestablishment and Re­­ ligious Corporations in New York, 1784–­1854,” unpublished mss. 12. Eric Hilt, “Early American Corporations and the State” (forthcoming); Howard Bo­­ denhorn, “Bank Chartering and Political Corruption in Antebellum New York: Free Banking as Reform,” in Corruption and Reform: Lessons from America’s Economic History, ed. Edward L. Glaeser and Claudia Goldin (Chicago: University of Chicago Press, 2006), 231–­57. 13. Arthur Charles Cole, Collections of the Illinois State Historical Society Library, Volume XIV. Constitutional Series Volume II: The Constitutional Debates of 1847 (Springfield: Illi­ nois State Historical Library, 1919), 651. 14. Jessica Hennessey and John Joseph Wallis, “Corporations and Organizations in the United States after 1840” (forthcoming); John Joseph Wallis, “Constitutions, Corpo­ rations, and Corruption: American States and Constitutional Change, 1842 to 1852,” Journal of Economic History 65 (March 2005): 211–­56. 15. Hamill, “Special Privilege,” 102. 16. John Witte Jr., “Tax Exemption of Church Property: Historical Anomaly or Valid Con­­ stitutional Practice?” Southern California Law Review 64 (January 1991): 363–­415. 17. Hurst, Legitimacy, 132. 18. Peter Dobkin Hall, “A Historical Overview of Philanthropy, Voluntary Association, and Nonprofit Organizations in the United States, 1600–­2000,” in The Nonprofit Sec­­ tor: A Research Handbook, ed. W. W. Powell and R. Steinberg (New Haven, CT: Yale University Press, 2006), 37. 19. Pennsylvania Const. of 1874, article III, section 1. 20. Albert J. Churella, The Pennsylvania Railroad, Volume 1: Building an Empire, 1846–­1917 (Philadelphia: University of Pennsylvania Press, 2012), chap. 11. 21. After the 1870s, many state constitutions prohibited special incorporation. But in other states the practice persisted into the early twentieth century. See Hamill, “Spe­ cial Privilege.” 22. Zunz, Philanthropy in America, chap. 3. 23. On the 1895 New York law, see Norman I. Silber, A Corporate Form of Freedom: The Emergence of the Modern NonProfit Sector (Boulder, CO: Westview, 2001), 22–­23. 24. Stefan Collini, “The Culture of Altruism: Selfishness and the Decay of Motive,” in Public Thought and Intellectual Life in Britain, 1850–­1930 (Oxford: Clarendon, 1991), 60–­90, which underscores the role of altruism in Victorian moral discourse; Heath Pearson, “Economics and Altruism at the Fin de Siècle,” in Worlds of Political Economy: Knowledge and Power in the Nineteenth and Twentieth Centuries, ed. Martin Daunton and Frank Trentmann (London: Palgrave, 2005), 24–­43, which makes a similar point

Notes to Pages 31–36  /  269 about neoclassical economics; Thomas Dixon, The Invention of Altruism: Making Mo­­ral Meanings in Victorian Britain (Oxford University Press, 2008), a rich cultural and intellectual study of altruism in late nineteenth-­century and early twentieth-­century Britain; and Louis J. Budd, “Altruism Arrives in America,” American Quarterly 8, no. 1 (Spring 1956): 40–­52. 25. See E. L. Youmans, ed., Herbert Spencer on the Americans and the Americans on Herbert Spencer (New York, 1883). In his autobiography, Spencer remarked, “My address was mainly devoted to a criticism of American life as characterized by over-­devotion to work.” Herbert Spencer, An Autobiography (New York, 1904), 2:406. On Spencer in America, see John White, “Andrew Carnegie and Herbert Spencer: A Special Rela­ tionship,” Journal of American Studies 13, no. 1 (April 1979): 57–­71. On social Darwin­ ism in America, see Richard Hofstadter, Social Darwinism and American Life (1944; Boston: Beacon, 1992). 26. Auguste Comte, System of Positive Polity (1851; London, 1875), 1:12. 27. G. H. Lewes, “Contemporary Literature of France,” Westminster Review 58 (1852): 618. 28. Quoted in Dixon, The Invention of Altruism, 49. 29. J. S. Mill, “The Positive Philosophy of  Auguste Comte,” Westminister Review 83 (1865): 339–­405. See also J. S. Mill, “Later Speculations of Auguste Comte,” Westminster Re­ view 84 (1865): 1–­42. Stefan Collini, ed., J.S. Mill on Liberty and Other Writings (New York: Cambridge University Press, 1989/1859), 15. Mill himself located the origin of morality not in biology but in associationist psychology. 30. Quoted in Dixon, The Invention of Altruism, 78. Henry Sidgwick, The Method of Ethics (London, 1874). Sidgwick scribbled in his journal in 1861, “The strongest conviction I have is a belief in what Comte calls ‘altruisme’ [but] it may be that my philanthropy has its root in selfishness?” Collini, “The Culture of Altruism,” 86. 31. Leslie Stephen, Science of Ethics (London, 1882), 219–­63. 32. Herbert Spencer, The Principles of Psychology (London, 1870–­72), 2:607. 33. Further, in the early nineteenth century, “benevolence” had been increasingly asso­ ciated with femininity. Lori D. Ginzburg, Women and the Work of Benevolence: Morality, Politics, and Class in the Nineteenth-­Century United States (New Haven, CT: Yale Uni­ versity Press, 1992). If not exactly masculine, altruism did not at first carry a feminine connotation. 34. Picking up from his Social Statics (London, 1850), a particularly prominent work in the United States. 35. Herbert Spencer, First Principles of a New System of Philosophy (London, 1870), 176. 36. Thomas Cochran and William Miller, The Age of Enterprise: A Social History of Industrial America (New York, 1942), 125. 37. John Fiske, Outlines of Cosmic Philosophy, Based on the Doctrine of Evolution (New York, 1875), 2:201. See also Cora M. Williams, The System of Ethics Founded on the Theory of Evolution (New York, 1893). Not all U.S. intellectuals fell under Spencer’s spell. See William James, “Herbert Spencer’s Data of Ethics,” Nation, September 11, 1879; John Dewey, Psychology (New York, 1886), 326–­27. 38. Andrew Carnegie, Autobiography of Andrew Carnegie (Boston, 1920), 339. 39. Andrew Carnegie, “Wealth,” North American Review, June 1889. 40. Herbert Spencer, Principles of Ethics (London, 1892), 1:vi. 41. During the 1870s and 1880s Carnegie had no real competitors in steelmaking. He conformed his business to a “law of competition,” but that competition existed only in his head.

270  / Notes to Pages 36–44 42. Joshua D. Wolff, Western Union and the Creation of the American Corporate Order (New York: Cambridge University Press, 2013). 43. Amos G. Warner, American Charities: A Study in Philanthropy and Economy (1894; New York, 1908), 19. See also Budd, “Altruism Arrives in America,” 45. 44. Charles W. Smiley, “Altruism Economically Considered,” Popular Science Monthly, No­ vember 1888. 45. John D. Rockefeller Sr., Random Reminiscences of Men and Events (New York, 1907), 142, 141, 159. 46. David Hammack, “American Debates on the Legitimacy of Foundations,” in The Legitimacy of Philanthropic Foundations Untied States and European Perspectives, ed. Kenneth Prewitt, Mattei Dogan, Steven Heydemann, and Stefan Topeler (New York: Russell Sage, 2006), 55. 47. On Longley, see Budd, “Altruism Arrives in America”; Robert Jeffrey David Wells, “The Communist and the Altruist: Alexander Longley’s Newspapers and Communities” (PhD diss., Missouri State University, 2008). 48. Alexander Longley, What Is Communism (St. Louis, 1890); Altruist, February 1897. See also William A. Hinds, American Communities and Co-­operative Colonies (Chicago, 1908), 500–­504. 49. “Editor’s Study,” Harper’s Monthly, December, 1890. William Dean Howells, A Traveler from Altruria (New York, 1895). The same year also saw Margaret Sherwood’s novel An Experiment in Altruism (New York, 1895). 50. Morrison Swift, “Altruria in California,” Overland Monthly, June 1897. See also Robert Harton, “The Discovery of Altruria,” Cosmopolitan, November 1895; Edward B. Payne, “Altruria,” American Magazine of Civics, February 1895. 51. Budd, “Altruism Arrives in America.” 52. John Bates Clark, The Philosophy of Wealth (Boston, 1892), 39–­41. 53. See, for instance, “The Philosophy of Mutualism,” Arena, May 1894; Altruistic Review, June 1894; Washington Gladden, Applied Christianity (Boston, 1886), 34–­35; Jane Addams, “A Modern Lear,” Survey 29, no. 2 (1912): 131–­37. 54. Kenneth Lies and Cynthia Blum, “Development of the Federal Tax Treatment of Char­ ities: A Prelude to the Tax Reform Act of 1969,” Law and Contemporary Problems 39 (Autumn 1975): 6–­56. 55. Zunz, Philanthropy in America. 56. Friedrich Nietzsche, The Gay Science, trans. Walter Kaufmann (1882; New York: Vin­­ tage, 1974), 1976. 57. Collini, “Culture of Altruism.” 58. Lincoln Steffens, “Eugene V. Debs on What the Matter Is in America and What to Do About It,” Everybody’s Magazine, October 1908. 59. John Dewey, The Public and Its Problems (New York, 1927). 60. “Appeals Which the Rockefeller Foundation Must Decline,” Rockefeller Foundation 1, no. 6 (March 1919): 1. 61. M. Brier Kidder, “Altruism,” Overland Monthly, February 1913. 62. George Herbert Palmer, Altruism: Its Nature and Varieties (New York, 1919), 39. 63. John H. Filer, Giving in America: Toward a Stronger Voluntary Sector, Report of the Com­ mission on Private Philanthropy and Public Needs (n.p., 1975). Chap t e r Tw o

1.

Benjamin Franklin, The Autobiography, in Franklin’s Writings (New York: Library of America, 1987), 1424.

Notes to Pages 45–48  /  271 2.

According to the Bureau of Economic Analysis, in 2009 the nonprofit sector accounted for 5.5 percent of GDP, or $779.1 billion. In 2009 the United States spent approximately $667 billion on defense, including $146 billion for overseas operations. The Office of Management and Budget estimates 2009 defense spending at about 4.6 percent of GDP. Using the 2009 dollar figures, then, the nonprofit sector was nearly 17 percent larger than the Department of Defense budget (including the wars). According to The Nonprofit Almanac, 2012, the nonprofit sector’s share of GDP held steady at 5.5 percent in 2012, while according to the World Bank, U.S. defense spending fell to 4.2 percent of GDP in 2012 and 3.8 percent in 2013. 3. See, for instance, Allan Nevins, John D. Rockefeller: The Heroic Age of American Enterprise (New York: Charles Scribner’s Sons, 1940); Joseph Frazier Wall, Andrew Carnegie (New York: Oxford University Press, 1970); Ron Chernow, Titan: The Life of John D. Rockefeller, Sr. (New York: Random House, 1998); David Nasaw, Andrew Carnegie (New York: Penguin, 2006); Ruth Crocker, Mrs. Russell Sage: Women’s Activism and Philan­ thropy in Gilded Age and Progressive Era America (Bloomington: Indiana University Press, 2006); Peter M. Ascoli, Julius Rosenwald: The Man Who Built Sears, Roebuck and Advanced the Cause of Black Education in the American South (Bloomington: Indiana University Press, 2006) 4. On altruism in the nonprofit sector, see Jonathan Levy, chapter 1 in this volume. 5. Olivier Zunz, Philanthropy in America: A History (Princeton, NJ: Princeton University Press, 2012). 6. Richard Hofstadter, The Progressive Historians: Turner, Beard, Parrington (New York: Knopf, 1968), 245. 7. Charles A. Beard and Mary R. Beard, The Rise of American Civilization, rev. ed. (1927; New York: MacMillan, 1954), 748, 768. 8. Ibid., 769–­70. 9. See Thomas Bender, “The Historian and Public Life: Charles A. Beard and the City,” in Intellect and Public Life (Baltimore: Johns Hopkins University Press, 1993), 91–­105. 10. Beard and Beard, Rise of American Civilization, 768. 11. Ibid., vii. 12. Charles A. Beard and Mary R. Beard, The Making of American Civilization (New York: Macmillan, 1937), 580. 13. See Arthur M. Schlesinger Jr., “Liberalism in America: A Note for Europeans” (1956), in “The Politics of Hope” and “The Bitter Heritage” (Princeton, NJ: Princeton University Press, 2008), 89. 14. Nancy Cott, in Mary Ritter Beard, A Woman Making History: Mary Ritter Beard through Her Letters, ed. Nancy Cott (New Haven, CT: Yale University Press, 1991), 206. See especially Mary Beard’s letter to Curti of May 10, 1940, p. 207. 15. F. Emerson Andrews of the Russell Sage Foundation organized a research planning conference at Princeton in early 1956. Participants included Thomas Cochran, Curti, several other historians, and two representatives of the Ford Foundation. The Russell Sage Foundation issued Report of the Princeton Conference on the History of Philanthropy in the United States (New York: Russell Sage Foundation, 1956). See Merle Curti, “The History of American Philanthropy as a Field of Research,” American Historical Review 62 (January 1957): 352. 16. Merle Curti and Roderick Nash, Philanthropy in the Shaping of American Higher Edu­ cation (New Brunswick, NJ: Rutgers University Press, 1965). 17. Merle Curti and Vernon Carstensen, The University of Wisconsin: A History, 1848–­1925 (Madison: University of Wisconsin Press, 1949), 2:223–­32.

272  / Notes to Pages 49–54 18. Paul K. Conkin, “Merle Curti,” in Clio’s Favorites: Leading Historians of the United States, 1945–­2000, ed. Robert Allen Rutland (Columbia: University of Missouri Press, 2000), 30. 19. Curti and Nash, Philanthropy in the Shaping of American Higher Education, 201–­11. 20. Conkin, “Merle Curti,” 30. 21. John Higham, “The Cult of the ‘American Consensus’: Homogenizing our History,” Commentary (January 1959): 93–­100. 22. Hofstadter, Progressive Historians, 300. 23. Robert H. Bremner, American Philanthropy (Chicago: University of Chicago Press, 1960). 24. Daniel J. Boorstin, The Americans: The Democratic Experience (New York: Random House, 1973), 490. 25. Ibid., 563, 575–­79. 26. See Rob Reich, chapter 3 in this volume. 27. See, for instance, Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can Save the World (New York: Bloomsbury, 2008); David Bornstein and Susan Davis, Social Entrepreneurship: What Everyone Needs to Know (New York: Oxford Uni­ versity Press, 2010); and Chao Guo and Wolfgang Bielefeld, Social Entrepreneurship: An Evidence-­Based Approach to Creating Social Value, Bryson Series in Public and Nonprofit Management (San Francisco: Jossey-­Bass, 2014). 28. Matthew Josephson, The Robber Barons: The Great American Capitalists, 1861–­1901 (1934; New York: Harcourt, Brace & World, 1962 ), 19, 182, 321–­322, 319. 29. Hal Bridges, “The Robber Baron Concept in American History,” Business History Re­ view 32, no. 1 (1958): 13. 30. Nevins, John D. Rockefeller, 1:viii. 31. Ibid., 2:295. 32. Boorstin, Democratic Experience, 567. 33. Ibid., 563. 34. See also the work of Thomas C. Cochran, especially The Age of Enterprise: A Social History of Industrial America (New York: Macmillan, 1942) (with William Miller), and Railroad Leaders, 1845–­1890: The Business Mind in Action (Cambridge, MA: Harvard University Press, 1953). 35. Alfred Chandler, The Essential Alfred Chandler: Essays toward a Historical Theory of Big Business, ed. Thomas McCraw (Boston: Harvard Business School Press, 1988), 10. 36. Judith Sealander, Private Wealth & Public Life: Foundation Philanthropy and the Reshap­ ing of American Social Policy from the Progressive Era to the New Deal (Baltimore: Johns Hopkins University Press, 1997), 4–­5. 37. Articles in the Business History Review include one on Nelson Rockefeller’s economic proposals in Brazil, another on his grandfather’s philanthropic adviser Frederick T. Gates; the three essays in Business History are on Carnegie and “entrepreneurial philanthropy,” nonprofits and personal finance, globalization and “family philanthropy.” 38. For emphasis on the early nineteenth century, see William H. Pease and Jane H. Pease, The Web of Progress: Private Values and Public Styles in Boston and Charleston, 1828–­ 1843 (New York: Oxford University Press, 1985); and Robert F. Dalzell Jr., En­terprising Elite: The Boston Associates and the World They Made (Cambridge, MA: Har­­vard Uni­ versity Press, 1987). On the late nineteenth and early twentieth century, see Jeffrey A. Charles, Service Clubs in American Society: Rotary, Kiwanis, and Lions (Urbana: Uni­ versity of Illinois Press, 1993); and John S. Gikelson Jr., Middle-­Class Providence, 1820–­ 1940 (Princeton, NJ: Princeton University Press, 1986).

Notes to Pages 54–58  /  273 39. For this claim from an economist, see Zoltan J. Acs, Why Philanthropy Matters: How the Wealthy Give, and What It Means for Our Economic Well-­Being (Princeton, NJ: Prince­ton University Press, 2013). 40. Merle Curti, American Philanthropy Abroad: A History (New Brunswick, NJ: Rutgers Uni­ versity Press, 1963), 276, 401. 41. Ibid., 409. 42. For a helpful summary of Williams’s argument, see Andrew Bacevich, “Tragedy Re­ newed: William Appleman Williams,” World Affairs 171 (Winter 2009): 62–­72. 43. See Edward H. Berman, The Influence of the Carnegie, Ford, and Rockefeller Foundations on American Foreign Policy: The Ideology of Philanthropy (Albany: State University of New York Press, 1983); and Inderjeet Parmar, Foundations of the American Century: The Ford, Carnegie, & Rockefeller Foundations in the Rise of American Power (New York: Columbia University Press, 2012). 44. For disagreements between the Ford Foundation and the U.S. government abroad, see Douglas Ensminger, Rural India in Transition (New Delhi: All India Panchayat Parishad, 1972); and Victor V. Nemchenok, “The Ford Foundation and Rural Devel­ opment in Iran,” Middle East Journal 63 (Spring 2009): 261–­84. For an admirable study of Cold War foundation philanthropy, see Volker R. Berghahn, America and the Intellectual Cold Wars in Europe: Shepard Stone between Philanthropy, Academy, and Di­plomacy (Princeton, NJ: Princeton University Press, 2001). 45. Zunz, Philanthropy in America, 249. 46. Yet one finds significant traces of it in Emily S. Rosenberg’s book, Spreading the Amer­ ican Dream: American Economic and Cultural Expansion, 1890–­1945 (New York: Hill & Wang, 1982). 47. See especially Akira Iriye, Petra Goedde, and William I. Hitchcock, The Human Rights Revolution: An International History (New York: Oxford University Press, 2012). 48. Ellis W. Hawley, The Great War and the Search for a Modern Order: A History of the American People and Their Institutions, 1917–­1933 (New York: St. Martin’s, 1979); and Barry D. Karl, “Foundations and Public Policy,” in Encyclopedia of the United States in the Twentieth Century, ed. Stanley I. Kutler (New York: Charles Scribner’s Sons, 1996), 2:491–­512. 49. Signaling this emerging interdisciplinary dialogue, Steve Fraser and Gary Gerstle edited The Rise and Fall of the New Deal Order, 1930–­1980 (Princeton, NJ: Princeton Uni­ versity Press, 1989). 50. See especially Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon & Schuster, 2000); and Theda Skocpol, “United States: From Membership to Advocacy,” in Democracies in Flux: The Evolution of Social Capital in Contemporary Society, ed. Robert D. Putnam (New York: Oxford University Press, 2002), 103–­36, 444–­50. 51. On the “contract state” see Aaron L. Freidberg, In the Shadow of the Garrison State: America’s Anti-­Statism and Its Cold War Grand Strategy (Princeton, NJ: Princeton Uni­ versity Press, 2000); see also Brian Balogh, A Government Out of Sight: The Mystery of National Authority in Nineteenth-­Century America (Cambridge, UK: Cambridge Uni­ versity Press, 2009), 394. 52. See Herbert Gutman’s work in particular, especially Work, Culture, and Society in In­­ dustrializing America: Essays in American Working-­Class and Social History (New York: Alfred A. Knopf, 1976). For an alternate view see Olivier Zunz, The Changing Face of Inequality: Urbanization, Industrial Development, and Immigrants in Detroit, 1880–­ 1920 (Chicago: University of Chicago Press, 1982).

274  / Notes to Pages 58–70 53. Richard Magat, Unlikely Partners: Philanthropic Foundations and the Labor Movement (Ithaca, NY: ILR Press, an imprint of Cornell University Press, 1999), 39. 54. See Eleanor L. Brilliant, The United Way: Dilemmas of Organized Charity (New York: Columbia University Press, 1990); and also Emily Barman, Contesting Communities: The Transformation of Workplace Charity (Stanford, CA: Stanford University Press, 2006); and Elizabeth A. Fones-­Wolf, Selling Free Enterprise: The Business Assault on Labor and Liberalism, 1945–­60 (Urbana: University of Illinois Press, 1994). 55. See, for example, Nelson Lichtenstein’s The Most Dangerous Man in Detroit: Walter Reuther and the Fate of American Labor (New York: Basic Books, 1995). 56. See especially Kathleen McCarthy, ed., Women, Philanthropy, and Civil Society (Bloom­ ington: Indiana University Press, 2001); and Ruth Crocker, Mrs. Russell Sage: Women’s Activism and Philanthropy in Gilded Age and Progressive Era America (Bloomington: In­ diana University Press, 2006). 57. Harry Belafonte, My Song: A Memoir (New York: Alfred A. Knopf, 2011). 58. Some of the intensity of this turf war can be seen in Peter Hall’s response to Stanley Katz’s informative article on the origins of his joint project with Barry Karl: Peter Dobkin Hall, “The Work of Many Hands: A Response to Stanley N. Katz on the Origins of the ‘Serious Study’ of Philanthropy,” Nonprofit & Voluntary Sector Quarterly 28 (December 1999): 522–­34. 59. David C. Hammack and Helmut K. Anheier, A Versatile American Institution: The Chang­ ing Ideals and Realities of Philanthropic Foundations (Washington, DC: Brookings Institution, 2013), x, 117. 60. See especially Lester M. Salamon, ed., The State of Nonprofit America (Washington, DC: Brookings Institution, 2002); and the essays in Lawrence J. Friedmann and Mark. D. McGarvie, eds., Charity, Philanthropy, and Civility in American History (Cambridge, UK: Cambridge University Press, 2003). 61. Ellen Lagemann, Philanthropic Foundations: New Scholarship; New Possibilities (Bloom­ ington: Indiana University Press, 1999), xiv. 62. Ibid., 292. 63. A notable exception is the Rockefeller Archive Center. 64. See Olivier Zunz, “Community Foundations and the Compound Republic,” Nonprofit Quarterly 21 (Summer 2014): 28–­30. 65. See Woody Powell and Aaron Horwath, chapter 4 in this volume. Chap t e r Th r ee

This chapter is an expanded and significantly revised version of an earlier essay, “What Are Foundations For?” that appeared in the Boston Review in 2013. 1. Quoted in Ron Chernow, Titan: The Life of John D. Rockefeller, Sr. (Vintage, 2004), 563. 2. Quoted in Peter Dobkin Hall, “Philanthropy, the Nonprofit Sector, and the Dem­ ocratic Dilemma,” Daedalus, vol. 2 (2013): 8. 3. Report of the Commission on Industrial Relations: Final Report and Testimony Sub­ mitted to Congress by the Commission on Industrial Relations created by the Act of August 23, 1912: 7916–­17. 4. Frank P. Walsh, “Perilous Philanthropy,” Independent 83 (1915): 262–­64. 5. Richard Posner, “Charitable Foundations,” Becker-­Posner blog, January 1, 2007, http:// www.becker-­posner-­blog.com/2007/01/charitable-­foun.html. 6. Mark Dowie, American Foundations (MIT Press, 2002), 247.

Notes to Pages 71–116  /  275 7.

I say “more or less” in each case because there are sometimes modest limits on tax-­ free donations to foundations and modest limits on tax-­free investment returns on a foundation’s endowment. 8. Rob Reich, “Philanthropy and Caring for the Needs of Strangers,” Social Research 80, no. 2 (2013). 9. Bob Jones University v. United States 461 US 574 (1983). 10. See Benjamin Page, Larry Bartels, and Jason Seawright, “Democracy and the Policy Preferences of Wealthy Americans,” Perspectives on Politics 11, no. 1 (2013): 51–­73; Mar­­ tin Gilens, Affluence and Influence: Economic Inequality and Political Power in America (Princeton University Press, 2014). 11. Dennis Thompson, “Representing Future Generations: Political Presentism and Dem­­ ocratic Trusteeship,” Critical Review of International and Political Philosophy 13, no. 1 (2010): 17–­37. 12. Gara LaMarche, “Democracy and the Donor Class,” Democracy: A Journal of Ideas 34 (Fall 2014): 55. Chap t e r F o u r

1. To view full-­ color image, see @U2blog, http://www.atu2blog.com/wp-­ content /uploads/2013/04/HeislerBonoGateses.jpg. 2. Gallup.com, “Most Admired Man and Woman,” http://www.gallup.com/poll/1678 /most-­admired-­man-­woman.aspx. YouGov, “Bill Gates Is Most Admired Person in the World,” https://today.yougov.com/news/2014/01/10/infographic-­bill-­gates-­most -­admired-­person-­world/. 3. Mass Insight Education School Turnaround Group website, “Research Overview,” http://www.massinsight.org/stg/research/. 4. Eli and Edythe Broad Foundation website, “75 Examples of How Bureaucracy Stands in the Way of America’s Students & Teachers,” http://www.broadeducation.org/about /bureaucracy.html. 5. Startup:Education website, http://www.startupeducation.org/. 6. Mark Zuckerberg, “A Letter to Our Daughter,” December 1, 2015, https://www .facebook.com/notes/mark-­zuckerberg/a-­letter-­to-­our-­daughter/10153375081581634 ?pnref=story.” 7. According to the New York Times, this money funded a wide range of things: perks and bonuses for his staff, support for political campaigns, promotion of charity and social causes, and upgrading the standard travel and lodging of mayoral aides. 8. Office of Social Innovation and Civic Participation website, “About the SICP—­The Community Solutions Agenda,” http://www.whitehouse.gov/administration/eop/sicp /about. 9. One interesting case of this is the use of “political CSR” in which companies and foreign governments give money to philanthropic foundations headed by political figures—­such as the Clinton Foundation—­ostensibly in exchange for policy decisions favorable to their interests (Carroll 2015). 10. The 2010 ruling held that the First Amendment prohibits the government from restricting independent political expenditures by corporations, associations, and labor unions. The ruling has sparked a massive flow of private money into elections. 11. The 2008 ruling upheld that voters could be asked to provide IDs to vote, and the 2013 ruling gutted key provisions in the Voting Rights Act that required certain states to obtain federal preclearance before making any changes to voting laws or practices.

276  / Notes to Pages 117–126 12. MacArthur Foundation Strengthening American Democracy website, http://www .macfound.org/programs/democracy/. Chap t e r F ive

I am grateful for comments on the manuscript from Jeremy Brest, William Damon, Einer Elhauge, David Engel, Lawrence Friedman, Joseph Grundfest, Mark Kramer, Howard Gardner, Ronald Gilson, Ben Heineman, Margaret Levi, Susan Liautaud, Avishai Margalit, Lynn Sharp Paine, Andrew Woods, members of the Stanford Law School faculty workshop and the PACS Scholars Workshop, and, as always, for Iris Brest’s editing of many versions of the manuscript. 1. Daniel Eran Dilger, “Tim Cook to Shareholders: iPhone 5s & 5c Outpace Predecessors, Apple Bought 23 Companies in 16 Months,” Apple Insider, February 28, 2014, http:// appleinsider.com/articles/14/02/28/tim-­cook-­at-­shareholder-­meeting-­iphone-­5s-­5c -­outpace-­predecessors-­apple-­bought-­23-­companies-­in-­16-­months. See also ProgLegs, “Apple Tells Limbaugh and His Ilk to Stick Their Money Where the Sun Don’t Shine,” Daily Kos blog, March 4, 2014, http://m.dailykos.com/story/2014/03/04/1281848 /-­Apple-­Tells-­Limbaugh-­and-­His-­Ilk-­to-­Stick-­Their-­Money-­Where-­the-­Sun-­Don-­t-­Shine ?detail=email. 2. Kyle Westwick, “Adam Smith Was Not Schizophrenic,” Harvard Business Review, De­ cember 1, 2011, http://blogs.hbr.org/2011/12/adam-­smith-­was-­not-­a-­schizophr/; Jerry Evensky, “Adam Smith’s ‘ Theory of Moral Sentiments’: On Morals and Why They Matter to a Liberal Society of Free People and Free Markets,” Journal of Economic Perspectives 19 (2005): 109–­30; Amartya Sen, “Adam Smith and the Contemporary World,” Eras­­ mus Journal for Philosophy and Economics 3 (2010): 50–­67. 3. Adam Smith, Wealth of Nations, ed. C. J. Bullock, Harvard Classics, vol. 10 (New York: P. F. Collier & Son, 1909–­14; Bartleby.com, 2001), www.bartleby.com/10/402 .html#9. 4. See, for example, Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974). 5. Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Impe­r­ atives to Achieve Superior Performance (McGraw-­Hill, 2002); Ben W. Heineman Jr., High Performance with High Integrity (Boston: Harvard Business School, 2008). 6. See, for example, Cynthia Williams and John Conley, “An Emerging Third Way: The Erosion of the Anglo-­American Shareholder Value Construct,” Cornell International Law Journal 493 (2005): 516–­19. Of course, CSR advocates have an interest in showing that ethical practices are good business practices. Lynn Paine and Ben Heineman, cited in the preceding note, are exceptions. 7. The relevancy of this metric is reflected in asset pricing models that estimate the value of a share of stock based on the present discounted value of all future cash flows. See, for example, “Discounted Cash Flow,” Wikipedia, http://en.wikipedia.org/wiki /Discounted_cash_flow. 8. This is true for “sin products,” such as alcohol, tobacco, and gambling, as well as more benign products. 9. Ben Heineman Jr., “GC and CEO Responsibility for GM’s Dysfunctional Culture,” Corporate Counsel, June 6, 2014, www.corpcounsel.com/id=1202658366128?slreturn =20140613190929. 10. Milton Friedman, “The Social Responsibility of Business to Increase Its Profits,” New York Times Magazine, September 13, 1970.

Notes to Pages 127–130  /  277 11. One might think of Friedman’s view as in effect being the null hypothesis, with our inquiry being whether and when it can be defeated by alternative hypotheses. 12. Friedman wrote at a time when there were suggestions that companies should adopt voluntarily wage and price limits to reduce inflation. 13. In his 1962 book, Capitalism and Freedom, Friedman pointedly asks, “Can self-­ selected private individuals decide what the social interest is? Can they decide how great a burden they are justified in placing on themselves or their stockholders to serve that social interest? Is it tolerable that these public functions of taxation, expenditure, and control be exercised by the people who happen at the moment to be in charge of particular enterprises, chosen for those posts by strictly private groups? If  businessmen are civil servants rather than the employees of their stockholders then in a democracy they will, sooner or later, be chosen by the public techniques of election and appointment.” Milton Friedman, Capitalism and Freedom (University of Chicago Press, 2002), 133–­34. 14. See, for example, “ABA Rule 1.6: Confidentiality of Information,” American Bar Asso­­ ciation, http://www.americanbar.org/groups/professional_responsibility/publications /model_rules_of_professional_conduct/rule_1_6_confidentiality_of_information.html. Most states give physicians discretion to disclose the fact that a patient is HIV-­ positive to at-­risk partners and have discretionary disclosure with respect to adolescents getting certain types of care. 15. See, for example, Stephen Bainbridge, “Interpreting Nonshareholder Constituency Statutes,” Pepperdine Law Review 19 (1992): 971–­1025; Anthony Bisconti, “The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land?” Loyola of Los Angeles Law Review 42 (2009): 765–­805. 16. PRINCIPLES, § 2.01(b)(2)–­(3) & comment D. This is actually consistent with the Michigan Supreme Court’s decision in Dodge v. Ford Motor Company, 170 N.W. 668 (Mich. 1919), which has sometimes been said to hold otherwise. See Einer Elhauge, “Sacrificing Corporate Profits in the Public Interest,” New York University Law Review 80 (2005): 733–­869; William H. Simon, “What Difference Does It Make Whether Corporate Managers Have Public Responsibilities?,” Washington & Lee Law Review 50 (1993): 1697; Lynn A. Stout, “Why We Should Stop Teaching Dodge v. Ford,” Virginia Law and Business School Review 3 (2008): 1. For an interesting history of the case, see M. Todd Henderson, “Everything Old Is New Again: Lessons from Dodge v. Ford Mo­ tor Company,” J. M. Olin Law and Economics Working Paper No. 373 (2d Series). 17. PRINCIPLES, § 2.01, comment f. 18. PRINCIPLES, § 4.01, comment d to § 4.01(a). See also Burwell v. Hobby Lobby Stores, Inc., 573 U.S. (2014). 19. PRINCIPLES, § 2.01(b)(2)–­(3) and comments h–­i. 20. Elhauge, “Sacrificing Corporate Profits in the Public Interest,” 733–­869. 21. An analogous issue arises in the context of constitutional law, where courts may lack capacity to inquire into legislators’ motivations, but legislators know whether their own motivations are or are not constitutionally permissible. See Paul Brest, “The Con­ scientious Legislator’s Guide to Constitutional Interpretation,” Stanford Law Review 27 (1975): 585–­601. 22. See generally, Archie B. Carroll, “A History of Corporate Social Responsibility: Con­­ cepts and Practices,” in The Oxford Handbook of Corporate Social Responsibility (Ox­­ ford: Oxford University Press, 2008), 19–­46. https://www.academia.edu/860777/A _history_of_corporate_social_responsibility_concepts_and_practices.

278  / Notes to Pages 130–134 23. Keith Davis, “The Case for and against Business Assumption of  Social Responsibilities,” Academy of Management Journal 16 (1973): 312–­22. 24. Archie Carroll, “A Three-­Dimensional Conceptual Model of Corporate Social Perfor­ mance,” Academy of Management Review 4 (1979): 497–­505. 25. R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Cambridge University Press, 2010), 46. 26. David Henderson, Misguided Virtue: False Notions of Corporate Social Responsibility (Lon­ don: Institute of Economic Affairs, 2001), 156. 27. “Virtue Ethics,” Stanford Encyclopedia of Philosophy, last modified March 8, 2012, http://stanford.library.usyd.edu.au/entries/ethics-­virtue/. 28. Heineman, High Performance with High Integrity, 27–­128; PowerPoint slides, Harvard Law School, Spring 2012. 29. Citizens United v. Federal Election Commission, 558 U.S. 310 2010. 30. As quoted in Henderson, Misguided Virtue, 42. 31. RepTrack publishes an annual ranking of companies by their reputation for CSR, covered here: Jacquelyn Smith, “The Companies with the Best CSR Reputations,” Forbes, October 2, 2013, http://www.forbes.com/sites/jacquelynsmith/2013/10/02/the -­companies-­with-­the-­best-­csr-­reputations-­2/. Many well-­known multinationals publish their CSR policies online (e.g., Google, at http://www.google.cn/intl/en/about /company/responsibility/). 32. “Environmental, Social, and Governance (ESG) Criteria,” Investopedia, http://www .investopedia.com/terms/e/environmental-­social-­and-­governance-­esg-­criteria.asp. 33. Global Reporting Initiative, https://www.globalreporting.org. 34. Integrated Reporting, http://www.theiirc.org. 35. Sustainability Accounting Standards Board, http://www.sasb.org. 36. “Linking GRI and IRIS,” IRIS, http://iris.thegiin.org; “GIIRS Ratings,” B Analytics, http://giirs.org. 37. Williams and Conley suggest that the European and U.S. disclosure requirements can also be interpreted as an ongoing experiment in what has been called “new gover­ nance” or “the new governing paradigm”—­“the progressive diffusion of regulatory power among networks of state and non-­state actors”—­just what Milton Friedman feared. Cynthia Williams and John Conley, “An Emerging Third Way: The Erosion of the Anglo-­American Shareholder Value Construct,” Cornell International Law Journal 493 (2005). Much of this section of the chapter relies on their excellent article. See also “SustainAbility and UN Global Compact,” in Gearing Up: From Corporate Re­ sponsibility to Good Governance and Scalable Solutions (2004). In this respect the dis­ closure requirements may fit within the paradigm that Charles Sabel, William Si­mon, and others have termed “experimentalism.” Charles Sabel and William Simon, “Minimalism and Experimentalism in the Administrative State,” Georgetown Law  Jour­nal 100 (2011). 38. Williams and Conley, “Emerging Third Way.” 39. Williams and Conley, “Emerging Third Way.” The authors describe the tortuous history of the government’s consideration of formally adopting this approach. For the subsequent history, see Rachel Sanderson, “OFR Reinstated,” Financial Times, May 24, 2010, http://www.ft.com/intl/cms/s/0/013915e8–­66cb-­11df-­aeb1–­00144feab49a.html #axzz2r4rXLhGO. 40. See, for example, “Are American Investors Warming Up to ESG?” Callan, October 2013, http://www.callan.com/research/download/?file=charticle%2Ffree%2F745.pdf. For a recent examination of the relationship, see Gordon L. Clark and Michael Viehs,

Notes to Pages 134–139  /  279 “The Implications of Corporate Social Responsibility for Investors: An Overview and Evaluation of the Existing CSR Literature,” August 17, 2014, available at SSRN: http:// ssrn.com/abstract=2481877. 41. As quoted in Williams and Conley, “Emerging Third Way.” 42. “The Six Principles,” Principles for Responsible Investment, http://www.unpri.org /about-­pri/the-­six-­principles/. The PRI has over a thousand signatories, including some large endowments and asset managers. In April 2014 Harvard University, with an endowment of $33 billion, signed the PRI (http://news.harvard.edu/gazette/story /2014/04/harvard-­to-­sign-­on-­to-­united-­nations-­supported-­principles-­for-­responsible -­investment/). The extent to which institutional investors take ESG factors into ac­­ count is a matter of some uncertainty and may be in flux. See, for example, “Despite Hype, International ESG Demand Falters,” Fundfire, http://www.fundfire.com/c/839374 /74944?referrer_module=SearchSubFromFF&highlight=Callan. 43. Lifestyles of Health and Sustainability, http://www.lohas.com/. 44. See reports by the Natural Marketing Institute (NMI); S. French and G. Rogers, “LOHAS Market Research Review: Marketplace Opportunities Abound,” LOHAS Jour­ nal (2005), online: http://www.lohas.com/lohas-­journal. 45. Lynn Paine, Rohit Deshpandé, Joshua D. Margolis, and Kim Eric Bettcher, “Up to Code: Does Your Company’s Conduct Meet World-­Class Standards?” Harvard Busi­ness Review 83 (2005): 122–­33. 46. “Principles for Business,” Caux Round Table, http://www.cauxroundtable.org/index .cfm?menuid=8; “Guidelines for Multinational Corporations,” OECD, http://www .oecd.org/corporate/mne/; United Nations Global Compact, http://www.unglobal compact.org/; “Statement of Principles and Recommended Corporate Practices to Promote Global Health,” Interfaith Center on Corporate Responsibility, http://www .iccr.org/iccrs-­statement-­principles-­and-­recommended-­corporate-­practices-­promote -­global-­health-­0. 47. Paine, Value Shift, 61. She labels the spheres “economic advantage” and “ethical com­mitment.” 48. “Corporate enthusiasm for CSR is not driven primarily by a desire to improve the lot of the communities in which companies work. Rather, companies are concerned with their own reputations, with the potential damage of public campaigns directed against them, and overwhelmingly, with the desire—­and the imperative—­to secure ever greater profits.” “Behind the Mask: The Real Face of Corporate Social Responsi­ bility,” Christian Aid, August 2000, http://www.st-­andrews.ac.uk/media/csear/app2 practice-­docs/CSEAR_behind-­the-­mask.pdf. 49. Henderson, Misguided Virtue, 66, 124. 50. Paine, Value Shift, 12, 20, 41, 53, 67, 116, 142. 51. Michael Porter and Mark Kramer, “Creating Shared Value,” Harvard Business Review, January 2011. 52. Rick Cadman and Derek Bildfell, “Putting Shared Value into Practice,” Stanford So­­cial Innovation Review, December 4, 2012, http://www.ssireview.org/blog/entry/putting _shared_value_into_practice. 53. Ibid. 54. Ibid. 55. “Concrete Actions for a Real Transformation of Africa’s Agriculture,” YARA, May 21, 2013, http://www.yara.com/media/news_archive/grow_africa_investment_forum_2013 .asp. 56. Ibid.

280  / Notes to Pages 139–142 57. John Elkington, “Don’t Abandon CSR for Creating Shared Value Just Yet,” Guardian, May 25, 2011, http://www.theguardian.com/sustainable-­business/sustainability-­with -­john-­elkington/corporate-­social-­resposibility-­creating-­shared-­value; Michael Sadow­­ ski, “What’s ‘New’ about Creating Shared Value?” SustainAbility blog, April 5, 2011, http://www.sustainability.com/blog/what-­s -­n ew-­a bout-­c reating-­s hared-­value #.VOtffaP TmAY; “Oh, Mr. Porter,” Economist, May 10, 2011, http://www.economist.com /node/18330445; Thomas Beschorner, “Creating Shared Value: The One Trick Pony Approach,” Business Ethics Journal Review 17 (2013): 106–­12. 58. Paine, Value Shift, 135, 141. 59. David Engel, “An Approach to Corporate Social Responsibility,” Stanford Law Review 32 (1979): 1. He also argued that a firm should not voluntarily disclose its violations. Engel is not alone in holding this position. See Frank H. Easterbrook and Daniel R. Fischel, “Antitrust Suits by Targets of  Tender Offers,” Michigan Law Review 80 (1982): 1155–­77. (“The idea of optimal sanctions is based on the supposition that managers not only may but also should violate the rules when it is profitable to do so”); id. at 1168n36 (arguing same but putting aside malum in se cases); Daniel R. Fischel, “The Corporate Governance Movement,” Vanderbilt Law Review 35 (1982): 1259–­71—­all discussed in Elhauge, “Sacrificing Corporate Profits in the Public Interest,” at 756ff. Although some contemporary readers may be inclined to dismiss these views as muscular manifestations of the adolescence of the law and economics movement, they are works of thoughtful authors and deserve to be considered on their merits. 60. For example, the legislature may believe that reducing pollution below a certain threshold would impose too heavy a burden on valuable industries. 61. Engel, “An Approach to Corporate Social Responsibility,” 45. 62. Ibid., 44. 63. That shareholders have limited liability—­mainly for the purpose of facilitating investment markets—­does not imply that corporations, which indeed are deemed fictitious persons for many purposes, do not have similar obligations—­a matter that I will discuss at more length below. Whatever one’s views of Citizens United, the Su­­ preme Court’s generous granting of First Amendment rights to corporations only strengthens the argument in the text. 64. “Many motorists routinely drive fast because of the longstanding social norm that speeding does not represent a real crime.” Tom Vanderbilt, “A Psychological Speed Limit: How the Power of Suggestion Can Slow Speeding Drivers,” New York Times, August 14, 2014, http://www.nytimes.com/2014/08/15/opinion/how-­the-­power-­of -­suggestion-­can-­slow-­speeding-­drivers.html?hpw&action=click&pgtype=Homepage &version=HpHedThumbWell&module=well-­region®ion=bottom-­well&WT.nav =bottom-­well&_r=1. 65. David Henderson, Misguided Virtue, 22. Ironically, Engel’s argument might be taken to imply that it is permissible for corporate managers to violate their duties to shareholders if they can get away with it. 66. Ibid., 309. 67. See Elhauge, “Sacrificing Corporate Profits in the Public Interest,” 783ff. M. Todd Hen­ derson and Anup Malani, “Corporate Philanthropy and the Market for Altruism,” Columbia Law Review 109 (2009): 571–­628. 68. He writes: “Given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to chari­ties they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.” Milton

Notes to Pages 142–149  /  281 Friedman, Capitalism and Freedom (University of Chicago Press, 2002). Whether and when this actually provides a tax advantage depends on various circumstances not relevant here. 69. “Shareholder-­Designated Contributions Program Commonly Asked Questions,” Berkshire-­Hathaway, Inc., http://www.berkshirehathaway.com/sholdqa.html. The company eliminated the program in 2003 because of protests that some of the donations went to Planned Parenthood and other groups supporting abortion rights. “Berkshire Hathaway Drops Charitable Giving Program,” Philanthropy News Digest, July 8, 2003, http://www.philanthropynewsdigest.org/news/berkshire-­hathaway-­drops -­charitable-­giving-­program. 70. But Cook’s statement that anyone who had a problem with that “should get out of the stock” is not responsive to the interests of existing shareholders who did not have such notice. 71. See “B Corporation,” http://www.bcorporation.net. 72. “Method Products, PBC,” B Corporation, http://www.bcorporation.net/community /method-­products-­pbc. 73. Elhauge, “Sacrificing Corporate Profits in the Public Interest,” 748. 74. Ibid., 740. 75. Ibid., 758–­59. 76. David Henderson, Misguided Virtue, 22. 77. Michael Jensen, “Value Maximization, Stakeholder Theory, and the Corporate Ob­­ jective Function,” Journal of Applied Corporate Finance 14 (2005): 304. See Megan McArdle, “Why Wal-­Mart Will Never Pay Like Costco,” Bloomberg View, August 27, 2013, http://www.bloombergview.com/articles/2013–­08–­27/why-­walmart-­will-­never-­pay-­like -­costco, for an analysis of the trade-­offs between wages for employees and prices for customers at these two large discount retailers. 78. I am not sure one gains anything by asserting that the privilege of a corporate charter or the limited liability of shareholders entails moral obligations. The arguments in the text would hold even if shareholders were not insulated from liability. 79. See James P. Hawley and Andrew T. Williams, The Rise of Fiduciary Capitalism: How Institutional Investors Can Make Corporate America More Democratic (Philadelphia: Uni­­ versity of Pennsylvania Press, 2000); John Rodgers, “A New Era of Fiduciary Cap­­ ital? Let’s Hope So, ”Enterprising Investor, April 28, 2014, http://blogs.cfainstitute.org /investor/2014/04/28/a-­new-­era-­of-­fiduciary-­capitalism-­lets-­hope-­so/. 80. See Paine, Value Shift, 91, 130. 81. Friedman, “The Social Responsibility of Business Is to Increase Its Profits.” 82. Paine, Value Shift, 145. See also Peter French, “The Corporation as a Moral Person,” American Philosophical Quarterly 16 (1979): 207–­15. 83. Paine, Value Shift, 155 84. Notwithstanding the general point in the text, a corporate manager might appropriately engage in a cost-­benefit analysis to avoid the company’s being civilly liable for negligence under the so-­called Learned Hand test, in which a defendant fails in its duty of care if the cost of taking precautions is less than the costs of the plaintiff’s injury multiplied by the probability of the injury. United States v. Carroll Towing Co. 159 F.2d 169 (2d. Cir. 1947). 85. Paine, Value Shift, 203ff. 86. See Richard Cyert and James G. March, A Behavioral Theory of the Firm (Oxford: Black­ well, 1992), 41–­44. I am grateful to Joe Grundfest for linking the concept of slack to the issues in this chapter.

282  / Notes to Pages 150–154 87. Heineman Jr., High Performance with High Integrity, 136–­37. 88. Unfortunately, of course, corporations often lobby to protect their industries from regulations involving health, safety, working conditions, and environment that would reduce their profits. 89. See Adam Krantz, “Increased Investment & Collaboration Offer Solution to Water Quality Calamities,” NACWA, August 4, 2014, http://www.nacwa.org/index.php?option =com_content&view=article&id=2011&Itemid=49; “Nutrient Management,” Water­­ shed Agricultural Council, http://www.nycwatershed.org/ag_nutrient-­management .html. 90. Trop v. Dulles, 356 U.S. 86, 101 (1958). 91. Coker v. Georgia, 433 U.S. 584 (1977). 92. Penry v. Lynaugh, 492 U.S. 302 (1989). 93. Atkins v. Virginia, 536 U.S. 304 (2002). 94. Rochin v. California, 342 U.S. 165 (1952). 95. Harry H. Wellington, “Common Law Rules and Constitutional Double Standards: Some Notes on Adjudication,” Yale Law Journal 221 (1973). 96. Ibid., 35. 97. John Hart Ely, Democracy and Distrust: A Theory of Judicial Review (Cambridge, MA: Harvard University Press, 1981), 64. 98. Laura D’Andrea Tyson, “The Challenges of Running Responsible Supply Chains,” New York Times, February 7, 2014, http://economix.blogs.nytimes.com/2014/02/07 /the-­challenges-­of-­running-­responsible-­supply-­chains/?_php=true&_type=blogs&_r=1. 99. “History,” Fair Labor Association, http://www.webcitation.org/5eyxjUuNX. The more activist Worker Rights Consortium, http://www.workersrights.org/, was established around the same time, and new organizations, such as United Students against Sweat­­ shops, http://usas.org/, have emerged to hold the FLA’s feet to the fire. 100. “Participating Companies,” Fair Labor Association, http://www.fairlabor.org/affiliates /participating-­companies?page=3. 101. “About the Alliance for Bangladesh Worker Safety,” Alliance for Bangladesh Worker Safety, http://www.bangladeshworkersafety.org/about/about-­the-­alliance. 102. For an excellent and comprehensive analysis of supply chain issues, see Margaret Levi, Christopher Adolph, Daniel Berliner, Aaron Erlich, et al., “Aligning Rights and Interests: Why, When and How to Uphold Labor Standards,” in World Development Report 2013 (World Bank, 2013). 103. For a discussion of the difference, see Lynn S. Paine, Rohit Deshpandé, and Joshua D. Margolis, “A Global Leader’s Guide to Managing Business Conduct,” Harvard Business Review 89 (2011). 104. Rochin v. California. 105. Bill Vlasic, “GM Ignitions Switch Internal Recall Investigation Report,” New York Times, June 5, 2014, http://www.nytimes.com/2014/06/06/business/gm-­ignition-­switch-­in ternal-­recall-­investigation-­report.html. 106. As the story has unfolded, GM’s failure to disclose seems not to have been the result of an intentional decision by top management but of a series of decisions, inactions, and poor communications at lower levels. See Jerry Hirsch, “GM Fires 15 at Top Levels; Report on Ignition Switches ‘Brutally Tough,’” Los Angeles Times, June 5, 2014, http://www.latimes.com/business/autos/la-­fi-­gm-­firings-­20140605-­story.html; Ben Klayman, “GM Top Executives Spared in Internal Report on Safety Failure,” Reu­­ters, June 5, 2014, http://www.reuters.com/article/2014/06/05/us-­gm-­recall-­id

Notes to Pages 154–157  /  283 USKBN0EG1KI20140605. In Ben Heineman’s terms, GM failed to maintain a culture of integrity. 107. Paine, Value Shift, 225, 233. 108. See W. Kip Viscusi, “Corporate Risk Analysis: A Reckless Act?” Stanford Law Review 547 (2000). 109. The analysis in the text focuses on large multinational corporations, whose owners and other stakeholders are varied and diffuse. It is worth noting that the managers of companies with mainly regional owners and other stakeholders might appropriately refer to regional norms. Consider, for example, the manager of a company owned by Chinese investors and doing business mainly in China. Although the manager would look to different reference groups than would the manager of a multinational corporation, I don’t believe the basic nature of his inquiry would differ from that presented above. 110. Paradoxically, if a manager only considers trade-­offs when required by public norms, the very strength of those norms may produce a situation that doesn’t require trade-­ offs, since adherence to the norms may be necessary to maintain the positive perceptions of influential stakeholders and thus maximize firm value. 111. Bruce Japsen, “CVS Stops Tobacco Sales Today, Changes Name to Reflect New Era,” Forbes, September 3, 2014, http://www.forbes.com/sites/brucejapsen/2014/09/03/cvs -­stops-­tobacco-­sales-­today-­changes-­name-­to-­reflect-­new-­era/. 112. Sarah Kliff, “CVS to Stop Selling Cigarettes by Oct. 1,” Washington Post, Febru­­ary  5,  2014, http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/05/why-­c vs -­thinks-­it-­can-­win-­big-­by-­ending-­cigarette-­sales/. 113. Although no pharmacy chain has adopted this policy, individual pharmacists have refused to sell emergency contraception. See Tara Culp-­Ressler, “Walgreens Will Update Its Contraception Policy after Pharmacists Refused to Sell Plan B to Men,” Think Progress, January 24, 2013, http://thinkprogress.org/health/2013/01/24/1489081 /walgreens-­contraception-­policy/. For an analogy, consider the Supreme Court decision in Burwell v. Hobby Lobby Stores, Inc. that, based on its owners’ beliefs, a closely held corporation was exempt from the Affordable Care Act’s requirement that companies pay for their employees’ coverage of  IUDs and other contraceptives deemed to be abortifacients. Although the Supreme Court found no difficulty in determining the shareholders’ norms in a case involving a corporation closely held by family members for whom the use of contraceptives violated their religious beliefs, the majority doubted that “unrelated shareholders—­including institutional investors with their own set of stakeholders—­would agree to run a corporation under the same religious beliefs.” 114. See Andrew C. Wicks, R. Edward Freeman, Patricia H. Werhane, and Kirsten E. Martin, Business Ethics: A Managerial Approach (Pearson, 2010), part 1; Sara Louise Muhr, Bent Meier Sorensen, and Steen Vallentin, Ethics and Organizational Practice: Questioning the Moral Foundations of Management (Edward Elgar, 2010). 115. Burwell v. Hobby Lobby Stores, Inc. 116. See generally Paul Brest and Linda Krieger, Problem Solving, Decision Making, and Pro­ fessional Judgment: A Guide for Lawyers and Policymakers (Oxford: Oxford University Press, 2010), chap. 19. 117. For an example of the distinction, I fail in my civic or moral responsibility as a member of society if I use my barbecue on a “save the air” day. But if I don’t join a run for a charitable cause or (to use the classic example) help an old lady across the street, I can be criticized for want of empathy but not for a failure of duty.

284  / Notes to Pages 157–171 118. This is perhaps why most corporate codes explicitly permit charitable donations. See Elhauge, “Sacrificing Corporate Profits in the Public Interest.” 119. Possibly a manager’s compensation package may include some discretion to pursue their personal altruistic interests through corporate philanthropy. But that is a different question. Chap t e r S ix

1. This section refers to the effect of the tax rules governing charity on our charitable world, but due to the central role of charities in American society, the effect of these rules is much broader. Unlike many other countries that finance education, health care, scientific research, arts, and social safety nets primarily through direct government expenditures, the United States supports these important activities largely through private donations subsidized indirectly by the government through tax ben­ efits—­most notably the tax exemption for charitable organizations and the tax deduction for charitable contributions. This reliance on the charitable sector makes the contours of these rules much more important for the United States than for other countries. 2. Sally Engle Merry, Getting Justice and Getting Even (Chicago: University of Chicago Press, 1990). 3. When donors maintain advisory privileges, their personal financial planners are often granted a portion of the management fees. This has encouraged financial planners to join the DAF bandwagon. 4. Charlotte Cloutier, “Donor-­Advised Funds in the U.S.: Controversy and Debate,” Phi­­ lanthropist 19, no. 2 (2004): 85–­108. 5. Form 1023 Application for Recognition of Exemption for Fidelity Investments Char­ itable Gift Trust (on file with author). 6. According to a 2014 report there were approximately 84,000 private foundations and 217,000 DAFs. “2014 Donor-­Advised Fund Report,” National Philanthropic Trust, http://www.nptrust.org/daf-­report/. 7. 2014 Donor-­Advised Fund Report, National Philanthropic Trust, http://www.np trust.org/daf-­report/. 8. Sarah Frostenson “Donor Advised Funds Keep Up Rapid Growth,” Chronicle of Phi­ lanthropy, May 19, 2013. 9. Durden v. Commissioner, T.C. Memo. 2012–­140 (2012). 10. This use of DAFs by some donors has the effect of boosting statistics for overall giving by the supporting organization even if a significant amount of donors do not pay anything out at all. 11. Roger Colinvaux has questioned whether any charitable donations should be granted this double benefit. See Roger Colinvaux , “Charitable Contributions of Property: A Broken System Reimagined,” Harvard Journal on Legislation 50, no. 293 (2013): 263–­329. 12. IRC Section 170. Gifts in excess of this amount can be carried forward for up to five years. After that the deduction cannot be claimed. 13. IRC Section 170(c)(2)(A). 14. Congressional Research Services report at 17. 15. A recent report from the Congressional Research Service on DAFs reported: “With respect to recommending grants there is fairly compelling evidence that although donors legally only recommend grants, in practice they determine when and how

Notes to Pages 171–182  /  285 the funds are distributed because sponsoring organizations typically follow their advice.” Congressional Research Services report at 6. 16. Fidelity Charitable Gift Fund fact sheet, http://personal.fidelity.com/myfidelity /InsideFidelity/NewsCenter/mediadocs/charitable_gift_fund.pdf. Note that it gives the “flexibility,” not the “right,” to support favorite charities. 17. I.R.C. § 4966(d)(2). The term donor advised fund does not include a fund or account (1) that makes distributions only to a single identified organization or governmental entity, or (2) with respect to which a donor advises a sponsoring organization regarding grants for travel, study, or similar purposes, provided that certain requirements are met. 18. A reporter told me that a $1 billion gift was made to the Silicon Valley Community Foundation but most of the grants from that account were going to foreign recipients. 19. Richard L. Fox, Recent DAF Cases Raise Issues of Charities Facing Financial Difficulties, 37 Estate Planning 32, 2010 WL 7817 (2010). On appeal, the Supreme Court of Nevada affirmed the district court’s decision, stating that the district court correctly found that “Styles gave up any interest in the money when he made the un-­restricted gift to FOF, allowing FOF the discretion to reject any of his recommendations for the donation’s use.” Friends of Fiji, 2011 WL at 1. Furthermore, the court held that “since Styles relinquished all power and control over the contribution by the terms of the donor-­advised-­fund agreement, the district court also acted within its discretion by declining to rescind the contract.” 20. See Thomas A. Troyer, “The 1969 Private Foundation Law: Historical Perspectives on Its Origins and Underpinnings,” Exempt Organization Tax Review 27, no. 1 (January 2000): 52–­65; and also Filer Commission Report. 21. See R. Madoff, C. Tenney, M. Hall, and L. Mingolla, Practical Guide to Estate Planning− 2014 Edition, at §10.03 (Wolters Kluwer CCH 2013). 22. In my research I learned that this disincentive is sometimes passed on throughout the organization, as some community foundations require their people to replenish any DAF accounts that get distributed to a charity. Chap t e r S eve n

1. 2.

3. 4. 5. 6.

“Bookless Library Offers Glimpse of the Future,” San Francisco Chronicle, January 5, 2014. See Susan Crawford, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (New Haven, CT: Yale University Press, 2013); Susan Crawford, “Failing to Close the Digital Divide,” New York Times, December 27, 2012, http://www.nytimes .com/roomfordebate/2012/12/27/do-­we-­s till-­n eed-­l ibraries/libraries-­s truggle -­to-­close-­the-­digital-­divide; and Erhardt Graeff, live blog coverage of Susan Crawford (speech at MIT Media Lab, March 28, 2013), MIT Center for Civic Media, http://civic .mit.edu/blog/erhardt/susan-­crawfords-­captive-­audience-­talk-­at-­the-­mit-­media-­lab. See “Policies” on the Digital Public Library of America (DPLA) website, which includes operational, data, and end-­user policies. http://dp.la/info/about/policies/. Peter Hernon and Joseph R. Mathews, eds., Reflecting on the Future of Academic and Public Libraries (Chicago: American Library Association, 2013), 3. Joseph Janes, ed., Library 2020: Today’s Leading Visionaries Describe Tomorrow’s Libraries (Lanham: Scarecrow, 2013). Marilyn Johnson, This Book Is Overdue! How Librarians and Cybrarians Can Save Us All (New York: Harper Collins, 2010), 3.

286  / Notes to Pages 182–187 7. There are countless histories of books and technologies, though not all of them address the role of libraries within this history. I have found Henry Petroski, The Book on the Book Shelf (New York: Alfred A. Knopf, 1999); Matthew Battles, The Library: An Unquiet History, (New York: W. W. Norton, 2004); and Nicholas A. Basbanes, Pa­­ tience and Fortitude: Wherein a Colorful Cast of Determined Book Collectors, Dealers, and Librarians Go About the Quixotic Task of Preserving a Legacy (New York: Perennial, 2001) most useful. 8. For a dispositive account of the history of libraries and technology, see Nicholson Baker, Double Fold: Libraries and the Assault on Paper (New York: Random House, 2001). 9. Lawrence W. Towner, “An End to Innocence,” in Past Imperfect: Essays on History, Li­ braries, and the Humanities (Chicago: University of Chicago Press, 1993), 202–­7. 10. Elisabeth A. Jones, chapter 3, in Library 2020, ed. Joseph Janes, 14−24. 11. Kieron O’Hara and Nigel Shadbolt, The Spy in the Coffee Machine: The End of Privacy as We Know It (Oxford: OneWorld, 2013), 138–­39. 12. See Sam Williams, Free as in Freedom (2.0): Richard Stallman and the Free Software Rev­ olution, 2nd ed. (Boston: Free Software Foundation, 2010). 13. For insights on distributed networks at work, see Gabriella Coleman, Coding Free­­ dom: The Ethics and Aesthetics of Hacking (Princeton, NJ: Princeton University Press, 2010); and Coleman, Hacker, Hoaxer, Whistleblower, Spy: The Many Faces of Anonymous (Lon­­don: Verso, 2014); and Parmy Olsen, We Are Anonymous: Inside the Hacker World of LulzSec, Anonymous, and the Global Cyber Insurgency (New York: Little Brown, 2012). 14. John Palfrey, “Solutions beyond the Law,” New York Times online, October 1, 2010, http://www.nytimes.com/roomfordebate/2010/09/30/cyberbullying-­and-­a-­students -­suicide/palfrey. 15. In August 2012 the Berkman Center Cyberlaw Clinic at Harvard and the DPLA Research Team published a memo titled “Analogous Governance Models for the DPLA,” which was prepared for the Governance Workstream, http://blogs.law.harvard.edu /dplaalpha/2012/08/29/new-­dpla-­research-­on-­possible-­governance-­models/. 16. John Padgett and Woody Powell’s work on the emergence of new institutional forms is key here. See John F. Padgett and Walter W. Powell, The Emergence of Organizations and Markets (Princeton, NJ: Princeton University Press, 2012). 17. H. M. Harris, History of Libraries in the Western World, 4th ed. (Lanham, MD: Scarecrow, 1999). 18. Basbanes, Patience and Fortitude, 89. 19. Battles, The Library, 67–­68. 20. Public Libraries in the United States Survey: Fiscal Year 2010, Institute for Museum and Library Services, 2013, http://www.imls.gov/research/public_libraries_in_the_us _fy_2010_report.aspx. 21. Maeve Duggan, Kristen Purcell, Lee Rainie, and Kathryn Zucker, “How Americans Value Public Libraries in Their Communities,” December 2013, Pew Internet and American Life Project, http://libraries.pewinternet.org/2013/12/11/libraries-­in-­communities/. 22. Data from National Center for Education Statistics, 1992–­2009, http://nces.ed.gov /programs/digest/d95/dtab412.asp. 23. See Carla Hesse, “The Rise of Intellectual Property, 700 b.c.−a.d. 2000: An Idea in the Balance,” Daedalus (Spring 2002): 26–­45. 24. “Gutenberg Society,” 2010, Internationale Gutenberg-­Gellschaft in Mainz e.V., http:// www.gutenberg-­gesellschaft.de/gutenberg_society.html.

Notes to Pages 187–193  /  287 25. Robert Darnton, “The Library in the New Age,” New York Review of Books, June 12, 2008. 26. Sidney Verba, “Libraries, Books, Equality—­and Google,” press release, Harvard Uni­­ versity Libraries, November 17, 2006, http://hul.harvard.edu/hgproject/verba.html. 27. Ibid. 28. Ryan Singel, “Facebook’s Zuckerberg Becomes Poster Child for New Privacy Set­­ tings,” Wired, December 11, 2009, http://www.wired.com/business/2009/12/zuckerberg -­facebook-­privacy/. 29. Authors Guild Inc. et al vs. Google Inc. 770 F.Supp.2d 666 (S.D.N.Y. 2011). 30. Mary Rosenberger and Chris Weston, “Overview of the Libraries and Archives Ex­­ ception in the Copyright Act: Background, History and Meaning.” Unpublished paper prepared for the Section 108 Study Group, April 5, 2005. http://www.section108 .gov/papers.html. 31. Cited in Hirtle, unpublished manuscript filed with copyright office, cited in Rosen­ berger and Weston, “Overview of the Libraries and Archives Exception,” 10. 32. Williams & Wilkins Co. v. United States, 487 F.2d 1345 (Ct. Cl. 1973). 33. Rosenberger and Weston, “Overview of the Libraries and Archives Exception.” 34. See Siva Vaidhyanathan, “ The Googlization of Everything and the Future of Copy­ right,” UC Davis Law Review 40, no. 3 (2006): 1222–­23. 35. The Librarians Copyright Alliance, the Electronic Frontier Foundation, the American Library Association, the Association of College and Research Libraries, and the As­­ sociation of Research Libraries filed friends of the court briefs in support of Google. 36. Authors Guild Inc. et al. v. Google Inc., 770 F.Supp.2d 666 (S.D.N.Y. 2011) p. 13. 37. Ibid., 9–­12. 38. See, for example, “Libraries Applaud Dismissal of Google Book Search Case,” Library Copyright Alliance, press release, November 14, 2013, http://www.library copyrightalliance.org/bm~doc/lca_googledismissalrelease_11142013_final.pdf; and “Court Upholds Legality of Google Books: Tremendous Victory for Fair Use and the Public Interest,” Electronic Frontier Foundation, November 14, 2013, https://www .eff.org/deeplinks/2013/11/court-­upholds-­legality-­google-­books-­tremendous-­victory -­fair-­use-­and-­public. 39. See statement from Paul Aiken, president of the Authors Guild, November 14, 2013, http://www.authorsguild.org/general/round-­one-­to-­google-­judge-­chin-­finds-­mass -­book-­digitization-­a-­fair-­use-­guild-­plans-­appeal/. 40. Robert Darnton, “A Library without Walls,” New York Review of Books, October 4, 2010, http://www.nybooks.com/blogs/nyrblog/2010/oct/04/library-­without-­walls/. 41. Historical notes from DPLA’s formation, archived online at http://dp.la/wiki/Sign _On; Grant information from the 2010 990-­PF of the Alfred P. Sloan Foundation. 42. Darnton’s opening comments were published as Darnton, “A Library without Walls.” On October 28, 2010, New York Review of Books ran Darnton’s full article on the same theme, “Can We Create a National Digital Library?” 43. See Darnton, “A Library without Walls,” and online comments at http://www .nybooks.com/blogs/nyrblog/2010/oct/04/library-­without-­walls/; Robert Darnton and Tony Simpson, “Toward the Digital Public Library of America: An Exchange,” New York Review of Books, November 25, 2010, http://www.nybooks.com/articles /archives/2010/nov/25/toward-­digital-­public-­library-­america-­exchange/; Robert Darn­­ ton and Joseph Raben, “Digital Democratic Vistas,” New York Review of Books, De­­ cember 23, 2010, http://www.nybooks.com/articles/archives/2010/dec/23/digital -­democratic-­vistas/.

288  / Notes to Pages 193–197 44. Authors Guild, Inc. v. Google Inc. 45. Darnton, “The Library in the New Age,” New York Review of Books, June 12, 2008. 46. See Vaidhyanathan, “The Googlization of Everything, 1207–­31, for a full discussion of the differences between library practice and corporate practice. 47. Jonathan Judaken and Justin Willingham, interview with Robert Darnton, Octo­ ber 3, 2013, http://wknofm.org/post/robert-­darnton-­digitization-­books-­and-­future -­libraries-­and-­publishing. 48. Internal Revenue Code, Chapter 501 Section C, IRS Publication 557, http://www.irs .gov/pub/irs-­pdf/p557.pdf. 49. See Edelman Trust Barometers for annual surveys of trust in different institutions. For twelve years in a row the Edelman survey of twenty-­five countries has found that NGOs are the most trusted institutions when compared to government, business, and the media, http://trust.edelman.com/trusts/trust-­in-­institutions-­2/ngos -­remain-­most-­trusted/. 50. Ibid. 51. “Policies,” February 15, 2014, Digital Public Library of America, http://dp.la/info /about/policies/. 52. DPLA, “Sign On,” April 18, 2013, http://dp.la/wiki/Sign_On. Wikis make for interesting historical analysis. They make it possible to track who wrote what when, and who posted things. It is not clear that meeting notes from every meeting were posted on the wiki, but it is not clear if this is because they were not taken or were not posted. 53. Ibid. 54. See various pages from the wiki archive, including http://dp.la/wiki/Governance #Important_insights_from_Commons_Research and http://dp.la/wiki/What_models _already_exist_in_other_national_initiatives. There were discussions of whether or not the wiki itself was a sufficient governing mechanism. 55. DPLA West was held on April 12, 2012, at the Internet Archive in San Francisco. The full speakers list is online at http://dp.la/info/get-­involved/events/dplawest /speakers/. 56. DPLA, “Steering Committee,” October 26, 2012, http://dp.la/wiki/Steering _Committee. 57. Paula Wasley, “National Endowment for the Humanities Announces Award to Build ‘Library of the Future,’” July 26, 2012, National Endowment for the Humanities, http://www.neh.gov/news/press-­release/2012–­07–­26–­0. 58. Mamie Bittner and Kenny Whitebloom, “IMLS Awards $250,000 to the Digital Public Library of America for Digital Hubs Pilot Program,” September 13, 2012, Institute of Museum and Library Services, http://www.imls.gov/imls_awards_250000_to_the _digital_public_library_of_america_for_digital_hubs_pilot_program.aspx. 59. Dan Cohen, letter to the public, April 18, 2013, http://cyber.law.harvard.edu/events /2013/04/dpla. 60. DPLA, Notes from the January 14, 2014 Board Call, DPLA Board of Directors, http:// dp.la/info/2014/01/10/january-­14–­2014-­board-­of-­directors-­call/. 61. Author interview with John Palfrey, June 19, 2014. 62. DPLA, “DPLA Committees,” http://dp.la/info/about/who/committees/. 63. Ibid. 64. DPLA, Notes from the January 14, 2014 Board Call, DPLA Board of Directors, http:// dp.la/info/2014/01/10/january-­14–­2014-­board-­of-­directors-­call/.

Notes to Pages 198–211  /  289 65. “The Nation’s Largest Libraries: A Listing by Volumes Held,” October 2012, American Library Association, http://www.ala.org/tools/libfactsheets/alalibraryfactsheet22. 66. DPLA, “Hubs,” http://dp.la/info/about/hubs/. 67. See DPLA, “Become a Hub,” http://dp.la/info/get-­involved/partnerships/. 68. Robert Darnton, “Google and the New Digital Future,” New York Review of Books, De­ cember 17, 2009. 69. Ibid. 70. DPLA, 2011, “Legal Issues,” http://dp.la/wiki/Legal_Issues. 71. Michael Specter, “The Gene Factory,” New Yorker, January 6, 2014. 72. Dan Cohen, “Getting It Right on Rights: Simplifying, Harmonizing, and Maximizing the Openness of Rights in Digital Libraries around the World,” March 18, 2014, Knight News Challenge, https://www.newschallenge.org/challenge/2014/submissions/getting -­it-­right-­on-­rights-­simplifying-­harmonizing-­and-­maximizing-­the-­openness-­of-­rights -­in-­digital-­libraries-­around-­the-­world. Chap t e r E igh t

1. Robert D. Cooter, “The Donation Registry,” Fordham Law Review 72, no. 5 (2004): 1981–­89. 2. Michael Walzer, “Communal Provision,” in Spheres of Justice (New York: Basic Books, 1983). 3. James Andreoni, “Impure Altruism and Donations to Public Goods: A Theory of Warm-­Glow Giving,” Economic Journal 100, no. 401 (1990): 464–­77. 4. Thomas Nagel makes this claim in The View from Nowhere (New York: Oxford Uni­­ versity Press), 159. For the original formulation, see Derek Parfit, Reasons and Persons (Oxford: Clarendon, 1984). The most seminal work on the distinction includes James Dreier, “Structures of Normative Theories,” Monist 76 (1993): 22–­40; James Dreier, “Accepting Agent Centered Norms,” Australasian Journal of Philosophy, 74: 409–­22; and P. Hurley, “Agent-­Centered Restrictions: Clearing the Air of Paradox,” Ethics 108, no. 1 (1997): 120–­46. 5. James Andreoni, “An Experimental Test of the Public-­Goods Crowding-­Out Hy­ pothesis,” American Economic Review 83, no. 5 (1993): 1317–­27. 6. Jean Hampton, “Free-­Rider Problems in the Production of Collective Goods,” Economics and Philosophy 3 (1987): 245–­47. 7. Notice that it doesn’t provide any special reason for your state to satisfy distributive principles. So there’s a nested third premise that makes another empirical claim: namely, that absent action of your state, other states will not reliably work to satisfy these principles. 8. Walzer, Spheres of Justice, 68–­70. 9. John Stuart Mill, The Collected Works of John Stuart Mill, ed. J. M. Robson, vol. 3, The Principles of Political Economy, Part II [1848] (Toronto: University of Toronto Press; London: Routledge and Kegan Paul, 1963–­1991), chap. 11, §9, http://oll.liberty fund.org/titles/mill-­the-­collected-­works-­of-­john-­stuart-­mill-­volume-­iii-­principles -­of-­political-­economy-­part-­ii. 10. “G. A. Cohen on the Inequality of Wealth,” G. A. Cohen interview, by Nigel War­­ burton and David Edmonds, Philosophy Bites, December 23, 2007, http://philosophy bites.com/2007/12/ga-­cohen-­on-­ine.html. 11. G. A. Cohen, Rescuing Justice and Equality (Cambridge, MA: Harvard University Press, 2008), 375.

290  / Notes to Pages 211–222 12. Philip Pettit, On the People’s Terms: A Republican Theory and Model of Democracy (Cambridge, UK: Cambridge University Press, 2012), 112. 13. T. M. Scanlon, “Plural Equality,” in Reading Walzer, ed. Yitzhak Benbaji and Naomi Sussmann (New York: Routledge, 2014), 183. 14. Michael Sandel, Liberalism and the Limits of Justice (Cambridge, UK: Cambridge University Press, 1998), 94. 15. Walzer, Spheres of Justice, 65. 16. I am putting aside the prudential gains that well-­publicized public giving has for the philanthropist. For further discussion, see Horvath and Powell, chapter 4 in this volume. 17. Sandel, Liberalism and the Limits of Justice, 94. 18. Robert Nozick, Philosophical Meditations (New York: Touchstone Books, 1989), 287. John Rawls expresses this worry in the welfare context: “The economic position of women and children forced to fend for themselves is often precarious. A society that permits [such vulnerability] does not care about women, much less about their equality, or even about its children who are its future. Indeed, is it a political society at all?” John Rawls, Justice as Fairness: A Briefer Restatement (Boston: Harvard Uni­ versity Press, 1990), 167. 19. Joseph Stiglitz, “Markets, Market Failures and Development,” American Economic Re­ view 79, no. 2 (May 1989): 197–­203. 20. I doubt that expressive arguments will be strong enough to do this kind of work, but I will leave that open here. 21. Kant’s “agency of the people as a whole.” 22. This challenges Robert Goodin’s view that there’s no stand-­alone link between the concept of basic need and that of state provision. See Goodin’s Reasons for Welfare (Princeton, NJ: Princeton University Press, 1988), 27–­50. 23. Thomas Nagel, “Individual and Collective Responsibility,” Fordham Law Review 72, no. 5 (2004): 2018. 24. Contrast this with Immanuel Kant’s authorization argument; see The Metaphysical Elements of Justice, W326 (Ladd trans., p. 93): By “the General Will of the people . . . government is authorized to require the wealthy to provide the means of sustenance to those who are unable to provide the most necessary needs of nature for themselves.” 25. A. J. Julius, “Nagel’s Atlas,” Philosophy and Public Affairs 34, no. 2 (March 2006): 176–­92. 26. See Susan Moller Okin, Justice, Gender, and the Family (New York: Basic Books, 1991); G. A. Cohen, Rescuing Justice and Equality (Cambridge, MA: Harvard University Press, 2009); David Estlund, “Debate: Liberalism, Equality, and Fraternity in Cohen’s Cri­ tique of Rawls,” Journal of Political Philosophy 6, no. 1 (1998). 27. Cohen, Rescuing Justice and Equality, 375. 28. Seana Valentine Shiffrin, “Incentives, Motives, and Talents,” Philosophy & Public Affairs 38, no. 2 (2010): 112. 29. A. J. Julius, “Basic Structure and the Value of Equality,” Philosophy & Public Affairs 31, no. 4 (October 2003): 348. 30. F. Scott Fitzgerald, The Great Gatsby (London: Cambridge University Press, 1991), 239. 31. D. Kahneman and J. L. Knetsch, “Valuing Public Goods: The Purchase of Moral Satisfaction,” Journal of Environmental Economics and Management 22 (1992): 57–­70.

Notes to Pages 222–244  /  291 32. James Andreoni, “Impure Altruism and Donations to Public Goods: A Theory of Warm-­Glow Giving,” Economic Journal 100, no. 401 (June 1990): 464–­77. 33. James Andreoni “An Experimental Test of the Crowding-­Out Hypothesis,” The American Economic Review 83, no. 5 (December 1993), 1317–­27. 34. Problem: Van Dijk and Wilke consider the provision of public goods as an indirect opportunity to reallocate wealth and argue that the “lack of attention to this opportunity may be ascribed to the fact that until now, most experimental studies . . . have focused on the situations in which group members possess an equal number of endowments to contribute to the public good.” E. Van Dijk and H. Wilke, “Asymmetry of Wealth and Public Good Provision,” Social Psychology Quarterly 57 (1994): 352–­59. 35. Jennifer Steinhauer, “A Billionaire Philanthropist in Washington Who’s Big on ‘Pa­ triotic Giving,’” New York Times, February 20, 2014. 36. Nagel, “Individual and Collective Responsibility,” 2018. 37. Lyndsey Layton, “How Bill Gates Pulled Off the Swift Common Core Revolution,” Washington Post, June 7, 2014. 38. Will Kymlicka, “Altruism in Philosophical and Ethical Traditions: Two Views,” in Be­ tween State and Market: Essays on Charities Law and Policy in Canada, ed. Bruce Chap­ man, Jim Phillips, and David Stevens (Montreal: McGill-­Queen’s University Press, 2001), 115. 39. Nozick, Philosophical Meditations, 288. Chap t e r Ni n e

1.

I use the term cultural projects very loosely to include, among other things, artistic and intellectual pursuits, religious goods, amateur athletic endeavors, and so forth. 2. The structure of this argument bears certain similarities to Rob Reich’s argument, earlier in this volume, for foundations. 3. One problem with relying on philanthropic support for the cultural structure is that it will generate a range of options that is particularly responsive to the needs and interests of those with the resources to donate large sums of money. Elsewhere, I have suggested a way of partially ameliorating such concerns (Pevnick, “Democratizing the Nonprofit Sector,” Journal of Political Philosophy 21, no. 3 [2013]: 260–­82). 4. For discussion of disruptive philanthropy aimed at rendering the political process more consistent with democratic norms, see Horvath and Powell, chapter 4 in this volume. 5. For a discussion of the relationship between the nonprofit sector and the pursuit of social justice, see Chiara Cordelli, “The Institutional Division of Labor and the Egalitarian Obligations of Nonprofits,” Journal of Political Philosophy 20, no. 2 (2012): 131–­55. 6. This may help explain why donors have reasons to pursue cultural gifts, even if it does not provide reason for their public support. 7. For further discussion of how considerations related to outsiders may bear on obli­ gations of fair play, see Ryan Pevnick, “Obligations of Fair Play and Foreigners,” Jour­ nal of Political Philosophy 14, no. 2 (2006). Chap t e r Te n

1.

For an estimate of cuts in education spending in the United Kingdom, see Haroon Chowdry and Luke Sibieta, “Trends in Education and Schools Spending,” Institute

292  / Notes to Pages 244–258 for Fiscal Studies, October 2011, www.ifs.org.uk/bns/bn121.pdf. For a summary of recent cuts to the American federal budget, see The Washington Post Editors, “What’s Getting Cut in the FY 2011 Budget?” Washington Post, April 13, 2011, http:// www.washingtonpost.com/blogs/federal-­e ye/post/whats-­g etting-­c ut-­i n-­t he-­f y -­2011-­budget/2011/04/11/AFMIynLD_blog.html. On cuts to police forces in the United Kingdom, see Alan Travis, “Police Forces Set to Cut 5,800 Frontline Officers by 2015,” Guardian, July 2, 2012, http://www.guardian.co.uk/uk/2012/jul/02/police -­forces-­cut-­5800-­officers. 2. Rob Reich’s work on philanthropy (“A Failure of Philanthropy,” Stanford Social Inno­ vation Review 3, no. 4 [2005]; “Philanthropy and Its Uneasy Relation to Equality,” in Taking Philanthropy Seriously: Beyond Noble Intentions to Responsible Giving, ed. William Damon and Susan Verducci [Bloomington: Indiana University Press, 2006], 33–­49) constitutes a notable exception. However, Reich focuses mainly on the moral and political justifiability of charitable deductions rather than on the duties of private donors. 3. Of course, Singer might argue that one ought to, on moral grounds, always prioritize international causes to domestic ones, since the former tend to be more urgent than the latter. It is unclear, however, what Singer would recommend in those cases where a donor must choose between (1) giving to a very urgent international cause while knowing that the chances that the donation will be effected are limited, say 50 percent, or (2) giving to a less urgent domestic cause to which, because of proximity, higher chances of success, say 80 percent, are attached. 4. I will leave aside the question of what the role of philanthropy in an ideal society should be (for an answer to this question, see Pevnick’s chapter in this volume). By ideal society, I mean a society where political institutions successfully discharge all their responsibilities and all citizens comply with the rules these institutions impose on them. My view is in principle compatible with Pevnick’s claim that in an ideal society the role of philanthropy should be to promote cultural goods. However, I believe that the promotion of culture cannot be philanthropy’s primary role in nonideal, contemporary societies. 5. Andrew Carnegie, “The Gospel of  Wealth,” North American Review 183, no. 599 (1906): 526–­37, http://www.jstor.org/stable/25105641. 6. For a discussion of these features in Kant’s work, see Thomas E. Hill, Dignity and Practical Reason in Kant’s Moral Theory (Ithaca, NY: Cornell University Press, 1995); and Barbara Herman, “The Scope of Moral Requirement,” Philosophy and Public Af­ fairs 30 (2002): 227–­56. 7. Even in this case donors must respect some moral constraints when giving. For example, they should make sure not to produce more harm than good. 8. Libertarians (Morris Lipson and Peter Vallentyne, “Libertarianism, Autonomy and Children,” Public Affairs Quarterly 5, no. 4 [1991]: 333–­52) justify the provision of  ba­ sic education on grounds of justice as a means to develop children’s autonomy. 9. Goodin uses this example to argue that all special duties are derivative of general duties. 10. Judith Jarvis Thomson (“Preferential Hiring,” Philosophy and Public Affairs 4 [1973]: 364–­84) and Daniel Butt (“On Benefiting from Injustice,” Canadian Journal of Phi­ losophy 37 [2007]: 129–­52) endorse the Benefiting Thesis. 11. This does not entail that all citizens bear an identical share of responsibility. Those who voted for unjust policies and those who design those policies may bear a higher burden (Eric Beerbohm, In Our Name: The Ethics of Democracy [Princeton, NJ: Princeton University Press, 2012]).

Notes to Pages 258–261  /  293 12. Note that this argument avoids the controversies of Thomas Pogge’s (World Poverty and Human Rights: Cosmopolitan Responsibilities and Reforms [Cambridge, UK: Polity, 2002]) resembling argument that the citizens of affluent countries owe duties of justice to the global poor because they contribute to global poverty by supporting an unjust global order. First, at the domestic level, unlike at the international level, contribution is more direct and responsibility can be more easily determined. Second, unlike Pogge, I do not claim that wealthy citizens violate the human rights of poor citizens, which entails individual blame. I more modestly claim that, blameworthy or not, they can be liable for the injustices committed by their institutions. 13. I adapt this example from Satz (“Countering the Wrongs of the Past: The Role of Compensation,” in Reparations: Interdisciplinary Inquiries, ed. Jon Miller and Rahul Kumar [Oxford: Oxford University Press, 2007], 176–­92). 14. For the role of nonprofits as responses to government failure, see Weisbrod (1978). 15. Elsewhere I argue that individuals may also have a duty of intergenerational justice to make philanthropic donations in a targeted way. It is outside of the scope of this chapter to argue whether duties of reparative justice toward existing conationals should enjoy priority over duties toward future generations or not. See Chiara Cordelli and Rob Reich, “Philanthropy and Intergenerational Justice,” in Institutions for Future Generations, ed. Axel Gosseries and Inigo Gonzales-­Ricoy (Oxford: Oxford University Press, forthcoming).

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C o n t r i bu t o rs

eric beerbohm is professor of government at Harvard University. He is the director of graduate fellowships at the Edmond J. Safra Center for Ethics and the author of In Our Name: The Ethics of Democracy (2012). lucy bernholz is a senior researcher at Stanford University and codirector of the Digital Civil Society Lab at Stanford. She is the author of an annual philanthropy forecast published by the Foundation Center. paul brest is professor of law, emeritus, at Stanford University. He is the former dean of the Stanford Law School and former president of the William and Flora Hewlett Foundation. chiara cordelli is assistant professor of political science at the University of Chicago. She is the author of multiple articles on distributive justice and nongovernmental organizations. aaron horvath is a doctoral student in sociology at Stanford University and a fellow at the Stanford Center on Philanthropy and Civil Society. jonathan levy is professor of history at the University of Chicago. He is the author of Freaks of Fortune: The Emerging World of Capitalism and Risk in America (2012). ray madoff is a professor at the Boston College Law School. She is the author of Immortal­ ity and the Law: The Rising Power of the American Dead (2010). ryan pevnick is associate professor of politics at New York University. He is the author of Immigration and the Constraints of   Justice (2011). walter w. powell is professor of education and (by courtesy) sociology, organizational behavior, management science and engineering, communication, and public policy at Stanford University. He is the faculty codirector of the Center on Philanthropy and Civil Society and the author, with John Padgett, of The Emergence of Organizations and Markets (2012) and editor, with Richard Steinberg, of The Nonprofit Sector: A Research Handbook (2006).

316 / Contributors rob reich is professor of political science and (by courtesy) philosophy and at the Grad­­ uate School of Education at Stanford University. He directs the Center for Ethics in Society and codirects the Center on Philanthropy and Civil Society. He is the author of Bridging Liberalism and Multiculturalism in American Education (2002) and coeditor, with Danielle Allen, of Education, Justice, and Democracy (2013). olivier zunz is Commonwealth Professor of History at the University of Virginia. He is the author of The Changing Face of Inequality (1982), Making America Corporate (1990), Why the American Century? (1998), and Philanthropy in America: A History (2012).

I n de x

501(c)(3). See under tax law accountability, 9, 67–­69, 71, 75, 78–­79, 95, 109–­17, 120, 226–­27; in digital civil society, 180, 194, 196, 198, 201. See also democracy; governance; legitimacy agent neutrality and agent relativity, 204, 207–­9, 210, 212, 215–­22, 225. See also justice agent relative reasons, 245, 261 Allen, Paul, 103 altruism, 9, 22–­23, 31–­42; contrasted with corporate social responsibility, 125, 140–­44, 157; limits of, 253; philanthropy as, 12, 46, 247 American Association for the Advancement of Science, 1, 103 American Law Institute, 129 Ames, Samuel, 23–­25, 28; Treatise on the Law of Private Corporations Aggregate, 23–­25, 28 Angell, Joseph, 23–­25, 28; Treatise on the Law of Private Corporations Aggregate, 23–­25, 28 Anheier, Helmut, 60–­61 anonymous giving, 2. See also transparency Apple (corporation), 123, 143, 144, 149–­50 Arendt, Hannah, 183 Association of American Publishers, 190–­91 associations. See under civil society Atlantic Philanthropies, 80 Authors Guild, 189–­93 Authors Guild Inc. et al. vs. Google Inc., 189–­94

basic goods. See public goods Beard, Charles and Mary, 46–­51 Beerbohm, Eric, 12–­13, 72, 204, 241, 258, 315; “The Free-­Provider Problem,” 207–­25 Belafonte, Harry, 60 beneficence, 3, 33–­34, 247–­49; and free-­ riding 209; philanthropy as, 83. See also altruism; benevolence benefit corporation (B-­Corp), 143–­44 benevolence, 21–­22, 26–­30, 33–­35; as egoism, 37–­38; philanthropy as, 4, 205. See also altruism; beneficence Berkman Center at Harvard University, 186, 195 Bernholz, Lucy, 11, 42, 85, 315; “Creating Digital Civil Society,” 178–­202 Bezos, Jeff, 231 Bill and Melinda Gates Foundation. See Gates Foundation Blaine, Anita McCormick, 232 Bloomberg, Michael, 72, 89, 114–­16; Bloomberg Philanthropies, 112 Bono (musician), 87–­88 Booker, Cory, 109–­11, 115, 121 Boorstin, Daniel, 49–­52, 54, 60 Boston Public Library, 179, 187, 197 Bouton, Jim, 189–­90 Brandeis, Louis, 77 Bremner, Robert, 49, 60 Brest, Paul, 11, 12, 36, 80, 84, 158, 193, 315; “Reconciling Corporate Social Responsibility and Profitability,” 123–­57 Brin, Sergey, 187. See also Google Broad Family Foundation, 103

318 / Index Broad Foundation, 107, 109 Buffet, Warren, 9, 66, 70 Burns, Ken, 181 Bush, George W., 57, 102 California Institute of  Technology, 103 Carnegie, Andrew, 32, 35–­39, 45, 50, 56, 66–­67, 79, 91–­94, 105, 180–­81, 185, 226; Carnegie Corporation, 23, 65; Carnegie Steel Company, 35–­37; enlightened self-­interest, 247; Gospel of Wealth, 9, 247 Carnegie Corporation, 23, 65 Carnegie Mellon (Carnegie Tech), 94, 95, 226 Carnegie Steel Company, 35–­37 Carrol, Archie, 130 Chan, Priscilla, 111 Chan Zuckerberg Initiative, 17 Chandler, Alfred, 52–­54, 58; The Visible Hand, 52–­53 charitable deduction. See tax law: incentives charity: contrasted with philanthropy, 36–­ 37, 158. See also philanthropy; public charities Charles Stewart Mott Foundation, 58 charter (corporate), 21–­31 Chin, Denny, 191 Christie, Chris, 109–­11, 115, 121 Citizens United v. Federal Election Commission, 9, 116–­17, 132, 228 civil rights movement, 59–­60 civil society, 17, 50, 75, 84, 85; co-­optation by philanthropy, 101–­22; corporate social responsibility, 123–­57; democratic ideals for, 227–­35; in the digital age, 180–­202; professionalization of, 2, 88, 95–­97; public deliberation and engagement, 2, 87, 90, 93, 101–­2, 110–­11, 116, 119, 121–­22, 132, 156–­57, 229–­32, 234; relationship to government, 44–­45, 57–­ 60, 87, 89; setting the public agenda, 1–­2, 61, 83, 90, 93, 101–­4, 114–­15, 118–­ 22, 231; as voluntary associations, 84, 87, 93–­95. See also democracy; digital civil society; governance Clark, John Bates, 40 classical liberalism, 227–­29, 230–­32, 242. See also justice Clinton, Bill, 96, 153; administration of, 102

Cohen, Dan, 196–­97 communitarianism, 213–­15. See also justice Comte, Auguste, 32–­34, 38 Congress: Congressional Research Service, 169–­70; regulation of philanthropy by, 9, 40, 41, 45, 61–­62, 162, 169, 171–­77, 199; Rockefeller Foundation authorization, 64–­66; Walsh Commission on Industrial Relations, 41, 64–­65 Conkin, Paul, 48–­49 Conley, John, 133 contributory philanthropy, 84, 89–­93; for cultural goods, 73–­76, 232–­36; by foun­ dations, 73–­81; as reparative justice 255–­61. See also democracy; disruptive philanthropy Cook, Tim, 123, 143, 144, 149–­50 Copyright Act of 1976, 190 Cordelli, Chiara, 12–­13, 72, 205, 240, 315; “Reparative Justice and the Moral Limits of Discretionary Philanthropy,” 244–­65 corporate charter, 21–­31 corporate integrity, 131–­32, 148. See also corporate social responsibility corporate social responsibility (CSR), 3, 11, 84, 124–­57; and altruism, 140–­44, 157; codes of conduct, 135–­36; creating shared value (CSV), 138–­40; disclosure, 132–­35; discretion, 11, 12, 85, 125, 127–­ 130, 144–­46; ESG (environmental, social, and governance criteria), 132–­35, 142; financial tradeoffs, 136–­44; legal obedience, 141–­42; moral prin­ciples, 144–­57; norms of, 151–­57; obligations to shareholders and society, 144–­47, 193–­94; perception management, 137–­ 38; slack, 149–­50, 157; theories of, 130–­32 corporation, 17–­18; aggregate lay civil, 24; aggregate lay eleemosynary, 24–­27; benefit (B Corp), 143–­44; for-­profit norms (see corporate social responsibility); legal history, 19–­31; liberal, 21–­22, 28–­31; nonprofit (see donor-­advised funds; foundations; public charities); religious, 30; republican, 21–­31 Cox, Archibald, 147 Crawford, Susan, 180 Crawford v. Marion County Election Board, 116–­17 creating shared value (CSV), 138–­140

Index / 319 Creative Commons, 184, 190. See also Lessig, Larry criminal justice, 112–­14 CSR. See corporate social responsibility cultural goods, 73–­76, 232–­35 Curti, Merle, 48–­50, 51, 54–­56, 60; American Philanthropy Abroad, 48–­49, 55 CVS Caremark, 155–­56 DAFs. See donor-­advised funds Dahl, Robert, 119 Darnton, Robert, 186–­89, 192–­94, 198–­99 Dartmouth College (trustees of ) v. Woodward, 9, 26 Davis, Keith, 130, dead hand of the donor. See perpetuity Deadwood, South Dakota, public library, 182 Debs, Eugene, 41 democracy, 6–­7, 17, 119–­20, 83–­84, 204–­ 5, 227–­32; accountability, 9, 67–­69, 71, 75, 78–­79, 95, 109–­17, 120, 226–­27; democratic equality, 229–­43, 254; ideals of, 227–­232; market democracy, 227–­ 32; philanthropic benefits for, 73–­81, 116–­18; philanthropic threats to, 1–­2, 6–­7, 65–­72, 88–­93, 97–­116, 118–­22, 214, 223–­25, 226–­27; philanthropy and legitimacy, 6, 12, 23, 45–­46, 71–­72, 87–­ 88, 90–­93, 97–­100, 118–­22, 170; pluralism and cultural goods, 73–­76, 232–­35; policy innovation and experimentation, 45, 57, 76–­80, 87, 91, 92, 100, 111, 114–­ 15; public deliberation, 2, 87, 90, 93, 101–­2, 110–­11, 116, 119, 121–­22, 132, 156–­57, 229–­32, 234; setting the public agenda, 1–­2, 61, 83, 90, 93, 101–­4, 114–­ 15, 118–­22, 231; time-­horizons of, 78–­ 79. See also civil society; disruptive phi­ lanthropy; equality; justice democratic equality, 229–­43, 254. See also justice Detroit, 62 Dewey, John, 41 DiBlasio, Bill, 115 digital civil society, 85, 176–­202; creation of, 180–­84; digital asset governance, 180–­84, 186, 198–­202; and equality, 188; global, 201; intellectual property, 182–­84, 186, 189–­92; privacy, 188,

192–­93; See also civil society; Digital Public Library of America; governance Digital Public Library of America (DPLA), 11, 42, 85, 178–­202; creation of, 186–­ 89, 198–­99; philanthropic support for, 196, 199; purpose of, 179–­80 disclosure: nonprofit, 62, 69; for-­profit, 132–­35 discovery argument, 76–­80, 87, 109–­11 discretion: donor and philanthropic, 2, 12, 13, 22, 72, 80, 84, 203, 205, 214, 240, 245–­47, 261–­65; for-­profit, 11, 12, 85, 125, 127–­30, 144–­46; in legislative chartering, 21–­22, 28–­29 disruptive philanthropy, 84, 87–­122; as competition, 105–­9; and contributory philanthropy, 89–­93; defined, 119; democratic potential of, 116–­8; examples of, 101–­16; setting the public agenda, 61, 83, 90, 93, 101–­5, 109–­10, 114–­15, 118–­ 22. See also legitimacy distributive justice, 204, 208–­11, 213–­14, 216, 219–­20, 224, 225, 230, 242, 246, 249–­56, 260–­61, 264. See also justice domination, 211–­12, 254–­55. See also justice donor-­advised funds (DAFs), 69, 75–­76, 84, 159–­77; administrative ease of, 165–­66; defined, 163; Fidelity Charity, 164–­65, 168–­69, 171, 173; fraud and abuse in, 160, 168, 171–­72; origins of, 163–­65; payouts by, 159–­60, 163, 169– ­70; popularity of, 164–­68; possible im­ provements to, 174–­76; tax law for, 159–­60, 166–­68, 170–­74 donor discretion, 2, 12, 13, 22, 72, 80, 84, 203, 205, 214, 240, 245–­47, 261–­65 double (triple) bottom line, 3, 10, 132. See also corporate social responsibility Dowie, Mark, 70 DPLA. See Digital Public Library of America Drew, Daniel, 51 du Pont, Pierre, 106 duty: of beneficence, 248, 264; to give, 251–­ 52, 259–­64; of justice, 248–­51, 264. See also justice Dworkin, Ronald, 232–­24 Eastman, George, 94 education, 1, 3, 28, 48–­50, 101–­11, 194, 214–­15, 226

320 / Index Edwards, Steven, 1, 103 egoism, 31–­37. See also altruism Einstein, Alfred, 178–­79 Eldred vs. Ashcroft, 190 Elhauge, Einer, 130, 144–­46 Eli and Edythe Broad Foundation, 107, 109 Elliot, Charles, 95 Ellison, Larry, 103 Ely, Hart, 152 Engel, David, 140–­41 enlightened self-­interest, 125, 131, 140, 247 entrepreneurship, 36, 51, 54, 97–­100, 119–­ 21, 228. See also experimentation Episcopal Church, 24 equality, 7, 54, 60, 66, 188, 204, 209, 214, 222, 224, 227, 256–­59; democratic, 229–­36, 238–­43, 254. See also democracy; justice ESG. See under corporate social responsibility experimentation (and innovation), 45, 57, 76–­80, 87, 91, 92, 100, 111, 114–­15, 180–­84. See also entrepreneurship Facebook, 110, 188–­89. See also Zuckerberg, Mark federal tax code. See tax law Fidelity Charity (Fidelity Investments), 164–­ 65, 168–­69, 171, 173 Field, Frederick Vanderbilt, 232 Fiske, John, 35 Fleishman, Joel, 80 Ford, Henry, II, 56 Ford Foundation, 48, 56, 239 Foreign Corrupt Practices Act of 1977, 150 for-­profit norms. See corporate social responsibility foundations, 9–­10, 18, 64–­81; accountability of, 65, 67–­73; democratic argument for, 73–­81; Gates Foundation (see Gates Foundation); innovation and experimentation by, 76–­80; law, 66, 68–­72, 166, 168, (see also tax law); minimum asset threshold, 75–­76; origins of, 22–­ 23, 38, 50–­51; payouts by, 68–­69, 70, 159, 163, 169, 175; perpetuity, 26–­27, 69–­70, 78–­79, 175; and pluralism, 73–­ 76; and plutocracy, 72, 76; proliferation of, 75–­76, 81; public charity distinction, 173; and public goods, 73–­76, 250;

Rockefeller Foundation (see Rockefeller Foundation); time horizons of, 78–­79; transparency, 62, 69. See also names of individual foundations Franklin, Benjamin, 44 Free-­Provider Objection, 216–­25. See also justice free-­rider problem, 207–­11, 221 Friedman, Milton, 106, 124, 126–­29, 140, 142, 148, 149, 228, 231–­32 Friedman Foundation for Education Choice, 106 Friends of Fiji, 170, 172 Frumkin, Peter, 80 Gates, Bill, 1, 9, 50, 66, 70, 87–­88, 92, 99, 107–­9, 181, 185 Gates, Bill, Sr., 70 Gates, Frederick, 64 Gates, Melinda, 68, 70, 87–­88 Gates Foundation, 66, 68, 70, 91, 107–­9, 224, 226 Gates Trust, 66 General Motors, 58, 126, 154 Gilbert, Dan, 103 Gilded Age. See under history of philanthropy GiveWell, 174 Giving Pledge, 9, 99–­100, 105 Giving USA, 169, Gladden, Washington, 52 Goldman Sachs, 112 Gompers, Samuel, 64 Goodin, Robert, 251 Google, 21, 42, 178, 186–­94; Books Lawsuit, 189–­93, 198–­99; Google Books 187–­94, 198–­99; Google Print, 187 Gordon and Betty Moore Foundation, 103 Gould, Jay, 19–­23, 36–­39, 43, 87. See also Western Union Telegraph Company governance, 83–­85; accountability, 65, 68–­ 69, 75, 87, 180, 194, 198; in the digital age (see governance in the digital age); disclosure and transparency, 62, 69, 132–­35; discretion (see discretion); of donor-­advised funds (see donor-­advised funds); for-­profit (see corporate social responsibility); nonprofit, 62, 69–­71, 75–­76, 95, 227. See also accountability; civil society; democracy; disruptive philanthropy

Index / 321 governance in the digital age: accountability, 194, 198; adaptation of, 195–­98; digital assets, 180–­84, 186, 198–­202, 181–­84, 191–­202; ownership, 189–­92, 198–­99; privacy, 188, 192–­93; working in networks, 199–­200. See also digital civil society Gramsci, Antonio, 56 Great Depression, 51, 62, 96 Great Society, 57, 87 GRI (Global Reporting Initiative), 133, 136 Gutenberg, Johannes, 187 Gutmann, Amy, 233–­34 Habermas, Jürgen, 183 Hammack, David, 60–­61 Harvard University, 187–­89, 192; Berkman Center at, 186, 195 Harvey, Hal, 80 HathiTrust, 188, 192, 198 Hawley, Ellis, 57 Hayek, Friedrich, 97 Head Start, 91 Heineman, Ben, 131–­32, 150 Henderson, David, 130–­31, 137–­38, 145–­46 Hewitt, Patricia, 134 Higham, John, 49 history of philanthropy, 8–­10, 17–­18, 19–­ 43, 46–­63, 93–­101; business history, 50–­ 54; consensus historians, 49–­50; foreign policy history, 54–­57; Gilded Age 8, 23, 30–­32, 35–­40; inadequacies of historical study, 50–­63; incorporation law, 19–­32, 35–­43; intellectual his­tory, 31–­42; librar­ ies, 184–­85; professional­ization of philanthropy, 95–­97; progres­sive historians, 46–­49; public pol­icy history, 57–­60. See also names of individ­ual philanthropists and foundations Hoffman, Daniel, 189–­90 Hofstadter, Richard, 49 Holmes, John Haynes, 64–­66 Hoover, Herbert, 51, 55, 57, 96 Hopkins, Henry, 57 Horvath, Aaron, 10, 11, 42, 72, 84, 129, 185, 315; “Contributory or Disruptive,” 87–­122 Howells, William Dean, 39; A Traveler from Altruria, 39–­40

incorporation law, 21–­31, 143–­44 innovation (and experimentation), 45, 57, 76–­80, 87, 91, 92, 100, 111, 114–­15, 180–­84. See also entrepreneurship institutional arrangements. See corporation; donor-­advised funds; foundations; governance; tax law intellectual property, 182–­84, 186; Google Books Lawsuit, 189–­92 intermediary organizations. See donor-­ advised funds; foundations Internet Archive, 184, 192 Jackson, Andrew, 29 Jefferson, Thomas, 184, 194 Jensen, Michael, 142, 146 John D. and Catherine T. MacArthur Foundation, 117 Johns Hopkins University, 53, 95 Johnson, Lyndon, 9, 57 joint-­stock company, 26–­27, 30. See also corporation Josephson, Matthew, 51–­52, 58 jurisprudence of the Supreme Court, 9, 24, 27, 45, 116, 132, 151–­54, 190–­ 91 justice, 113–­14, 203–­5, 207–­25, 226–­32; agent neutral, 207–­8, 210, 212, 215, 225; agent relative, 207–­9, 215–­22, 225; clas­ sical liberal, 227–­29, 230–­32, 242; com­ munitarian, 213–­15; and cultural goods, 232–­43; distributive, 204, 208–­11, 213–­ 14, 216, 219–­20, 224, 225, 230, 242, 246, 249–­56, 260–­61, 264; duties of, 248–­52, 259–­64; liberal-­egalitarian, 229–­32, 239, 241–­42; principles of, 248; reparative, 13, 72, 80, 216, 240, 247, 255–­61; republican, 211–­12, 254–­55; social, 225, 239–­40, 241–­42 Karl, Barry, 57, 61–­62 Kavli, Fred, 103 Keayne, Robert, 184–­85 Kennedy, Anthony, 228 Keppler, Joseph, 19–­21, 23, 43 Kipling, Rudyard, 188 Kramer, Mark, 138–­39 Lagemann, Ellen, 61–­62 LaMarche, Gara, 80 Lamont, Corliss, 232

322 / Index legitimacy (democratic), 6, 12, 23, 45–­46, 71–­72, 83, 87–­88, 90–­93, 97–­100, 118–­ 22, 170. See also justice Lessig, Larry, 190–­91; Creative Commons, 184, 190 Levy, Jonathan, 9, 17, 87, 127, 158, 178–­ 79, 180, 184, 315; “Altruism and the Origins of Nonprofit Philanthropy,” 19–­43 Lewis, George Henry, 33 liberal corporation, 21–­22, 28–­31. See also corporation liberal-­egalitarianism, 229–­32, 239, 241–­ 42, 249. See also justice libraries: in the digital age, 179–­84, 186–­ 202; and philanthropy in history, 79, 91, 94, 184–­85 Library of Congress, 178, 181, 184, 187, 194 Lincoln, Abraham, 181, 189 lobbying, 45, 129 Longley, Alexander, 38–­39 MacArthur Foundation, 117 Madoff, Ray, 11, 69, 76, 84, 315; “When Is Philanthropy,” 159–­77 Magat, Richard, 58 market democracy, 227–­32. See also justice Marshall, John, 26 Marx, Karl, 97 Marx, Maura, 187 mass philanthropy, 6, 47, 58–­59, 80, 223 Mayor’s Fund to Advance New York City, 112, 115 McCraw, Thomas, 53 McNutt, Marcia, 104 Medicare Reform Act, 96 Medici, Lorenzo de, 61, 185 Mellon, Andrew, 92 Membership Corporation Law of 1895, 31 Merry, Sally Engle, 162 Method Products, 143–­44 Mill, John Stuart, 33, 210 Miller, Richard, 245 MI T, 94, 95; Poverty Lab, 96 Mitgang, Herbert, 189–­90 mixed political economy, 41, 44, 57–­58. See also public-­private partnership; tax law

Moore, George Edward, 41 Moore Foundation, 103 moral limits of philanthropy, 6–­7, 11–­13, 203–­5. See also justice; legitimacy Morgan, John Pierpont, 94 Mott, Charles Stewart, 58 Mott Foundation, 58 Mozilla Foundation, 182, 184 Nevada Supreme Court, 172 Nevins, Allan, 51–­52 New Deal, 57, 87 New Left, 55–­56, 59 Newark Public Schools, 89, 109–­11, 115, 119, 121, 214 Nielsen, Waldemar, 80 Nietzsche, Friedrich, 41 Nixon, Richard, 87, 99, 147 nonprofit organizations: donor-­advised funds (see donor-­advised funds); foun­ dations (see foundations); history of (see history of philanthropy); public char­ ities (see public charities); tax law for (see tax law for nonprofits). See also philanthropy Obama, Barack, 99, 116; administration of, 102, 112 Office of Management and Budget, 112 Office of Social Innovation and Civic Participation, 115–­16 O’Hara, Kieron, 183 O’Neill, Onora, 252 Open Content Alliance, 188 Open Society Institute, 70 origins of philanthropy. See history of philanthropy Osher, Bernard, 118 Page, Larry, 187. See also Google Paine, Lynn, 135–­36, 138, 140, 148–­49, 156 Palfrey, John, 184, 187, 192 Palmer, George Herbert, 42 Pay for Success Initiative, 112 payout rules: for donor-­advised funds, 159–­60, 166; for foundations, 68–­69, 70, 159, 163. See also tax law Pennsylvania Railroad, 30 Perez, Jorge, 100

Index / 323 perpetuity, 26–­27, 69–­70, 78–­79, 175, 222–­23 Pevnick, Ryan, 12–­13, 72, 204–­5, 315; “Philanthropy and Democratic Ideals,” 226–­43 philanthropy, 4–­7, 17–­18, 83–­85, 203–­5; accountability of, 9, 67–­69, 71, 75, 78–­ 79, 95, 109–­17, 120, 226–­27; and cap­ italism, 55–­56, 62–­63; contingent do­ nor goodwill, 211–­12, 226, 230, 241; democratic concerns about, 1–­2, 6–­7, 42–­43, 89–­93, 99–­109, 112–­6, 129, 214, 224–­5, 226–­7; and education, 101–­11; effectiveness of, 95–­97, 105–­6; entre­ preneurship, 36, 51, 54, 97–­100, 119–­ 21, 228; extent of, 1, 3, 45, 168–­69; foundations (see foundations); funding the state, 111–­16; and inequality, 52, 66–­ 67, 63, 188, 209, 222, 227, 229, 232; influence of, 3, 56–­57, 90, 92, 102–­3, 129, 227; innovation and experimentation, 45, 57, 76–­80, 87, 91, 92, 100, 111, 114–­15, 180–­84; interpretations of, 4– ­7, 12, 36–­37, 46, 83, 205, 247; mass giving, 6, 47, 58–­59, 80, 223; metrics for, 113–­4; moral limits of, 6–­7, 11–­13, 203–­5;  mo­tivations for, 46–­47, 49–­50; origins of, 19–­43; and plutocracy, 76, 92–­93, 99–­105, 114–­16, 120–­22, 170, 224–­25; and power, 1–­3, 6, 7, 9, 10, 12, 44, 45, 67, 72, 81, 99, 121, 148, 203, 211–­12, 232, 252; and public deliberation, 2, 87, 90, 93, 110–­11, 116, 119, 121–­22, 132, 156–­57, 229–­32, 234; public perceptions of, 98–­99, 119; setting the public agenda, 1–­2, 61, 83, 90, 93, 101–­4, 114–­15, 118–­22, 231; tax incentives for (see tax law for nonprofits); transparency of 62, 69. See also private provision of public goods pluralism, 73–­76, 232–­35 plutocracy, 76, 99–­105, 114–­16, 120–­22, 170. See also setting the public agenda; equality political advocacy: and justice, 255, 260, 263, 264; by nonprofits, 2, 27–­28, 44–­45 Pope Francis, 124 Porter, Michael, 138–­39 Posner, Richard, 70

Powell, Lewis, 75 Powell, Walter, 10, 11, 42, 72, 84, 129, 185, 315; “Contributory or Disruptive,” 87–­122 power: civil, 58, 116–­17, 195, 228–­29; corporate; 31, 43, 99, 116–­17, 118, 148; and justice, 211–­12, 228–­29, 232–­34, 239, 253–­55; and philanthropy, 1–­3, 6, 7, 9, 10, 12, 44, 45, 67, 72, 81, 99, 121, 148, 203, 211–­12, 232, 252; state, 11–­ 12, 27, 31, 41, 58, 84, 118, 203, 209–­10, 219, 228–­29, 233–­34, 252 principle of damage limitation, 260 principle of object-­specific compensation, 260 principles of beneficence, 248. See also beneficence principles of  justice, 248. See also justice private foundations. See foundations private provision of public goods; 6, 83, 87–­93, 99–­116, 119–­121, 204–­5, 223–­ 24; argument for, 73–­76, 232–­35; con­ tingent on donor goodwill, 211–­12, 226, 230, 241; crowding out the public sector, 90–­91, 99–­105, 223–­24; democratic concerns about, 89–­93, 99–­101, 105– ­6, 113–­16; donor discretion, 2, 12, 13, 22, 72, 80, 84, 203, 205, 214, 240, 245– ­47, 261–­65; examples of, 106–­116; mor­al objections to, 209–­22. See also public goods; philanthropy; public-­ private partnership property rights, 228, 230; intellectual property, 182–­84, 186, 189–­92 ProPublica, 117–­18 public agenda (setting the), 61, 83, 90, 93, 101–­4, 114–­15, 118–­22, 231 public charities: donor-­advised funds (see donor-­advised funds); legal definition of, 172–­73; lobbying leeway of, 45; as recipients of foundation grants, 68; tax benefit limits, 167–­68. See also names of individual public charities public deliberation and engagement, 2, 87, 90, 93, 101–­2, 110–­11, 116, 119, 121–­22, 132, 156–­57, 229–­32, 234. See also civil society public goods: cultural and plural, 73–­76, 204, 232–­35; description of, 73–­74, 210; digital, 181; metrics for, 97, 114–­13; private provision (see private provision

324 / Index public goods (cont.) of public goods); state provision, 42–­ 43, 73–­76, 101, 106, 120–­21, 223–­24; underfunded, 90–­91, 111, 246, 263–­64. public-­private partnership, 44, 89, 90, 96–­ 97, 100, 111–­16, 185, 187, 223–­24, 244 public sector. See democracy; civil society public services. See public goods public sphere. See democracy; civil society Puck Magazine, 19–­20, 178 Ravitch, Diane, 1, 68, 109 Rawls, John, 233, 241, 249, 253–­54, 263 Reagan, Ronald, 99, 100 Red Cross, 59, 167–­68 regulation. See tax law for nonprofits Reich, Rob, 9–­10, 12, 18, 223, 236–­37, 315; “On the Role of Foundations in Democracies,” 64–­81 reparative justice, 13, 72, 80, 205, 216–­17, 240, 247, 255–­61. republican corporation, 21, 23–­28; and liberal corporation, 21–­22, 28–­31; public purpose of, 25–­27; 200–­202; relation to philanthropy, 22–­23 Richardson, Elliot, 147 Rockefeller, John, III, 42 Rockefeller, John, Jr., 41 Rockefeller, John, Sr., 18, 30, 37–­39, 42, 51–­52, 64–­66, 91, 92, 94, 105, 226 Rockefeller Archive Center, 45 Rockefeller Brothers Foundation, 117 Rockefeller Foundation, 9, 23, 38, 41–­42, 48, 56, 61, 91; chartering of, 9, 42, 64–­66 Rockwell, Norman, 74 Roosevelt, Franklin, 57–­58 Roosevelt, Theodore, 64, 178 Ruckelshaus, William, 147 Russell Sage Foundation, 22–­23, 48, 58 Sage, Russell, 22 Samuelson, Pamela, 197 Sarkozy, Nicolas, 192 Satz, Debra, 259 Schambra, William, 231 Schmidt, Eric and Wendy, 103 Schmidt Ocean Institute, 103 Schumpeter, Joseph, 97–­98 Second Bank of the United States, 29 self-­interest: as egoism, 31–­37; enlightened, 125, 131, 140, 247

Serrano, Andres, 74 setting the public agenda, 61, 83, 90, 93, 101–­4, 114–­15, 118–­22, 231 Shadbolt, Nigel, 183 Shelby County v. Holder, 116–­17 SIBs (social impact bonds), 111–­14, 115 Sidgwick, Henry, 33 Singer, Peter, 245–­46 slack, 149–­50, 157 Sloan Foundation, 192, 196 Smith, Adam, 33, 97, 123–­24 Snowden, Edward, 188 social impact bonds (SIBs), 111–­14, 115 social services. See public goods Soros, George, 70 Spencer, Herbert, 22, 31–­36, 38–­39, 41, 93; The Principles of Psychology, 33–­34 Standard Oil Company, 30, 37, 41, 64, Stanford, Leland, 94 Stanford University, 13, 63, 94 Startup:Education, 110–­11 Stephen, Leslie, 33 Stevens, Mark and Mary, 100 Stewart, Potter, 144 Story, Joseph, 24–­26 Sunstein, Cass, 235–­36 Supreme Court jurisprudence, 9, 24, 27, 45, 116, 132, 151–­54, 190–­91 sustainability, 132–­33 Taconic Foundation, 239 Taft, William, 64 Tammany Hall, 28 Taube, Ted, 100 tax benefits. See tax law for nonprofits: incentives tax exemptions. See tax law for nonprofits: incentives tax incentives. See under tax law for nonprofits tax law for nonprofits: 501(c), 28, 41, 194; annual benefit limits, 167–­68; donor-­ advised funds, 11, 159–­63, 166–­68, 170–­74; federal income tax, 19, 40, 71; foundations, 66, 68–­72, 159–­60, 166, 168, 172–­73; history of, 19, 27–­28, 30, 40–­41, 42, 44, 94–­95; incentives, 9, 11, 66, 70–­72, 95, 159, 161, 166–­ 68, 246–­47; and institutional form, 161–­63; justification for incentives, 60, 71, 73–­76, 80, 234–­38, 265; payout

Index / 325 requirements, 68–­69, 70, 159–­60, 163; political abuse of, 28, 44–­45 tax subsidies. See tax law: incentives temporal limits for nonprofits, 84, 160, 222–­23. See also perpetuity Terret v. Taylor, 24–­26 Thompson, Dennis, 78 Tilden Act of 1893, 31 Tocqueville, Alexis, 33, 93 Towner, Lawrence, 183 transparency: of foundations 62, 69; as corporate disclosure, 132–­35 Traveler from Altruria, A (Howells), 39–­40 Treatise on the Law of Private Corporations Aggregate (Ames and Angell), 23–­25, 28 triple (double) bottom line, 3, 10, 132. See also corporate social responsibility Trustees of Dartmouth College v. Woodward, 9, 26 trusts, 26–­7; law of 31. See also foundations: perpetuity Turner, Frederick Jackson, 48 “Two Philanthropists, The” (Keppler), 19–­21, 23, 35, 43 United Way, 59, 164 University of Chicago, 38, 49, 91, 94, 226 University of Pennsylvania, 44, 94 U.S. Sanitary Commission, 95 Vanderbilt, Cornelius, 87 Vanderbilt, William, 19–­23, 51, 87

Vanderbilt University, 22, 51 Van Kleek, Mary, 58 Veblen, Thorstein, 94 Vera Institute of  Justice, 112 Verba, Sydney, 187–­89 voluntary associations. See under civil society Walsh, Frank, 65–­66 Walton Family Foundation, 106–­7 waqfs, 65 Warner, Amos G., 37 Washington, George, 28 Weber, Max, 120 welfare state, 95–­96, 99. See also public goods Wellington, Harry, 151, 154 Western Union Telegraph Company, 19–­22, 36, 42, 87. See also Gould, Jay Wharton, Joseph, 94 Wikimedia Foundation, 182 Williams, Cynthia, 133 Williams, William Appleman, 55–­56 Williams & Wilkins, 190 women’s movement, 59 Zeno’s runner, 216, 224 Zuckerberg, Mark, 72, 89, 92, 109–­11, 116, 121, 188–­89; Facebook, 110, 188–­89 Zunz, Oliver, 9, 17, 41, 239, 315; “Why Is the History of Philanthropy Not a Part of American History?” 44–­63