Democratic Foundations: The future's best way to transfer wealth? By Mark Dowie
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Source: Whole Earth
Democratic Foundations: The future's best way to transfer wealth?
By Mark Dowie
The moral challenge facing organized philanthropy, now a growth
industry in America, is how best to use surplus wealth in service to our
civilization. Should the rich keep and invest it? Should we encourage
them (through tax laws) to create new charities and foundations? Can
we promote a religious revival that enjoins them to give it away? Or
should we have our government confiscate and redistribute all
inheritance? A timely economic expression of the last question might
read something like this:
What if all the personal wealth that is expected to transfer from
one generation to another over the next twenty-five years or so, now
estimated to be around $10 trillion, rather than being passed from rich
to rich, as will almost certainly occur, was instead given directly and
immediately to the neediest?
"Great idea, get on with it," whispers the soul of my paternal
grandmother, who sowed leftish seeds in the minds of her three
grandchildren while their father was at work, and years later, on the
coast of Scotland, introduced this child to Antonio Gramsci, the Italian
anarcho-syndicalist imprisoned by Mussolini for economic heresy. I
would have agreed with her then, and for many years hence. Now I'm
not so sure. There may be a third and better way. How about
democratic foundations?
But before exploring this new hybrid, arguing along the way with
Gramsci and Gramma, let's examine the real economic consequences of
suddenly transferring ten trillion dollars from the richest to the poorest
sectors of society. It's an outrageous proposition, of course, but so is
transferring the largest corpus of private wealth ever accumulated in
human history to a relative handful of privileged children.
Stretch it out, it looks like $10,000,000,000,000. Laid end to
end in one-dollar bills it will reach to the sun and back five times. And it
will buy a lot. It's almost 1.5 times the GDP, twice the national debt,
and about half the value of all land and financial assets in the country.
You could run the federal government for seven years with that much
money. If it were distributed evenly among the thirty-eight million people
in the United States now existing below the poverty line, at a rate of
about $400 billion a year, each would receive about $10,500 per year
for the next twenty-five years. Then what?
Once the poor had new refrigerators, dental work, and a
rec-room over the garage, would they be more secure than they had
been before the windfall? Would their work be more fulfilling, their souls
enriched? Would the social conditions that made them poor in the first
place have disappeared? Would their children be better educated?
Redistributing surplus is not a new idea, incidentally, nor has it
been proffered only by Marxists and radical grannies. Midway through
World War II, Yankee Republican James Conant, former President of
Harvard and overseer of the US nuclear weapons program, called for
just such a confiscatory inheritance capture. Democratic meritocracy, he
averred, demanded nothing less. Inherited wealth made ruling class
children lazy and indolent. A threat of poverty would drive them to
excellence, Conant believed, and democracy would thrive. Conant
bolstered his argument with the works of a mathematical economist
named Irving Fisher, who, as President of the American Economic
Association in December of 1918, called upon all economists to
support a gradual transfer of economic ownership from the top few
percent to the rest of us.
Liquidating $10 trillion worth of real estate, securities or any
other kind of capital would liquidate capitalists as a class. So it's
meaningless to talk about the economic effects of such a transfer
because it would mean turning society "upside down." My Gramma
would say "right side up." But were she alive I'd have to ask her how far
up it would lift the poor and for how long? And would it really create
new and improved stewards of industry? Or would the poor, being
numerically a so much larger class than the super rich, quickly spend
their windfall on needed goods, and starve the economy of finance
capital? Or, if instead they decided to invest, rather than spend, and
became the new class of capitalists, would they be any more democratic
or sensitive to workers, consumers, or their community than today's
capitalist class? So why bother to exchange one class of capitalists with
another, particularly when the experiment seems doomed to fail? Why
not do something truly imaginative with surplus capital? Like use it to
strengthen civil society.
Democratic Foundations
All this leads to the third way, a path between outright wealth
confiscation and the re-enrichment of the already rich. As fate would
have it, American ingenuity has already invented a pretty good engine
for the third way, although as it exists today it is woefully inadequate to
the task of solving the ever-widening problem of incomes and poverty. I
refer, of course, to the philanthropic foundation.
A foundation endowment is a receptacle of wealth, intentionally
withheld from the United States Treasury and the profligate mittens of
the indolent rich. There are today over 50,000 private, community,
operating, and corporate foundations in existence. Their total assets
exceed $180 billion and they are growing faster than almost any other
financial sector in the country. But it's only a beginning. They are still
minuscule—they hold just over 1.8 percent of that $10 trillion sitting in
the portfolios of soon-to-expire post-war boomers. Foundations are
required by law to spend down only five percent of their assets every
year, and a portion of that requirement can be charged to operating
expenses and trustee remuneration. But if only ten percent of the
proposed massive wealth transfer finds its way into foundation
endowments, and financial markets remain strong for another decade or
two, foundation assets will expand by a factor of nine before 2020 AD.
Now that's real money.
The foundation is a financial institution with some interests
beyond, though not neglectful of, prudent financial management. It is
neither government nor industry, though it lives off one's tax breaks and
the other's largesse. The right overseers of this captured wealth can
actually do remarkable things with it, as they already demonstrated.
Hookworm was eliminated from the South by foundation-funded
scientists. Other foundations built public libraries, minority colleges,
great museums; the civil rights movement was heavily financed with
foundation philanthropy. This country has the most remarkable
independent sector in the world, as de Tocqueville discovered more
than 150 years ago. Much of it was seeded, and continues to be
supported, by foundation philanthropy. Those, of course, are only the
good deeds.
Some damage has been done by foundations—the enhancement
of prison labor, the creation of the Heritage Foundation, and the social
dislocation caused by the well-meaning Green Revolution, to name
three. And billions have been squandered on over-endowed Ivy League
alma maters, profit-motivated science, hospitals where the rich and
famous go to die, overpriced art collections and architectural
ego-spasms like the Getty. An overall assessment of twentieth century
foundation philanthropy would probably give it C- at best.
But things could improve, helping to resolve income disparities
and resulting social injustice. The money wasted has only been
investment earnings. To the endowment, no harm has been done. Assets
are intact and growing, and new foundations are being created at the
rate of about 3,000 a year. At the same time foundation professionals
are getting better and better at leveraging money. All that remains is for
them to spend it right. Of course what "right" means is the subject of
fierce debate among philanthropoids, which is good. "Right
philanthropy," like "right living," needs to be re-evaluated, and not only
by folks with lots of surplus wealth.
The End of Plutocracy?
It seems the only way to be certain that foundations become true
and effective servants of civilization, and cease being stewards of
plutocracy, is to democratize them. Add provisions to the tax laws that
force private foundations to expand their universe of trustees beyond the
family, friends, lawyers, and fiduciaries of millionaires. Bring community
activists into the management of community foundations and invite some
of the folks who might benefit from corporate philanthropy into the
board room—for more than a catered lunch.
A handful of bold, though admittedly small foundations—Ashoka,
New World, Tides, Flow Fund Circle, Threshold, Vanguard,
Haymarket, to name a few—have found that boards made up of
ordinary folk tend to be more street-wise and responsive to social or
economic crises than traditional foundation boards, populated as they
still are by comfortable elites, willing to wait twenty years or so for
demonstrable results. Multi-racial and bi-gender as many mainstream
boards may now be, they are still dominated by academic, political,
scientific, social, and, God help us, economic elites. And it still adds up
to plutocracy.
Democratic foundations would also be more likely to vote to
increase giving above the five percent requirement during dire times or
when markets were producing double-digit returns. And more of them
might even vote to spend out the entire endowment of their foundation
in, say, twenty-five years or so, as only a handful of private foundations
have done over the past century (e.g., the Rosenwald Foundation).
The bottom line (back to realoekonomics) is that the
contemporary structure of organized philanthropy makes a certain
amount of sense. And here I mean moral as well as economic sense. In
foundations the wealth accumulated by the capitalist class remains
invested, albeit in land and securities, not necessarily in productive
capacity. Still, rather than liquidate all that wealth, and along with it the
potential for progressive philanthropy, would it not seem more sensible
to encourage the formation of more foundations (with tax incentives),
democratize them, and tax more income of the uncharitable rich, and
transfer that, not stocks, bonds, and real estate, directly to the neediest?
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