Philanthropy is not a top-ten threat to democracy

By Christine Baldwin

On December 5, 2019, Dr. Rob Reich led a conversation about the role of philanthropy in a democracy.  Dr. Reich is a professor of political science and philosophy at Stanford University. He recently authored the book, Just Giving: Why Philanthropy is Failing Democracy and How it Can Do Better.

Dr. Reich provided a provocative examination of the role philanthropy plays in the US democracy, with a focus on elite philanthropy and the policies and norms that have come to shape and structure philanthropic behavior. He asserted that elite philanthropy has an outsized influence that serves to undermine democratic ideals and suggested a framework for policy reform.

Ultimately, Dr. Reich believes that elite philanthropy can serve democracy and interact productively with democracy if we acknowledge the threat it currently poses and forge policies that limit its power/influence/reach in some ways. Two primary reforms Dr. Reich advocated:

1. Replace charitable tax deductions (which advantage wealthier taxpayers over less-wealthy taxpayers) with a universal tax credit. For example, instead of someone in a 35% tax bracket receiving a $350 deduction for their $1,000 gift compared to someone in the 24% tax bracket receiving a $240 deduction for their $1,000 gift, an equivalent credit would be available to everyone making a $1,000 gift.
2. The “discovery” argument. Remove the perpetual nature of big private philanthropic foundations and create boundaries for their work. Dr. Reich suggests that big philanthropy should be limited to long-horizon (although not perpetual), experimental problem-solving where there are little to no consequences for failure. Unlike government or the private sector, Dr. Reich believes that big philanthropy is distinctly positioned to effectively work in this space.

Dr. Les Lenkowsky, professor emeritus of public affairs and philanthropic studies at Indiana University, provided a rebuttal to Dr. Reich’s presentation. Dr. Lenkowsky asserted that Dr. Reich’s concerns about big philanthropy are not new and have been raised throughout history. He also pointed out that the scale of big philanthropy, as well as the entire philanthropic sector, is significantly smaller than the size of market and government sectors, and therefore the potential for threat is relatively small.

Dr. Lenkowsky addressed the equality of participation that philanthropy affords citizens and suggested that public policy can reinforce bias rather that off-set it. There was also a reminder of the many ways that philanthropy contributes to democracy and that there have been countless and long-lasting contributions to the public’s welfare made by large private foundations.

My reflections:

• I appreciated Dr. Reich calling out the “self-interest” that exists within philanthropic behavior and that the exercise of power needs to be scrutinized. We sometimes elevate the donor and presume all-good, when in fact philanthropy can be a powerful anti-public-good actor.
• Reich didn’t define the democratic ideals that he believes philanthropy should serve. At times, it sounded like an equitable distribution of resources was an ideal. One democratic ideal that I would defend is the exercise of freedom to use one’s resources charitably, as I believe this elevates civil society and broad citizen participation.
• Dr. Reich suggested that over $60 billion is forgone annually by the U.S. Treasury as a result of the charitable tax deduction, and that the government would be better positioned than donors to activate those resources to meet public need. This perspective assumes that government is truly representational and is not self-interested, does not have an agenda, does not exercise executive privilege, or is not influenced by super wealthy corporations or individual voices. I find our U.S. democracy to be most “alive and well” during election cycles and quietly self-interested otherwise.
• Regarding Dr. Reich’s critique of elite private foundations, and as a local citizen who has benefited from the progressive philanthropy of Lilly Endowment, Inc., I would challenge his assertion about perpetuity. Lilly Endowment, Inc. (LEI) started with a gift of Lilly stock valued at $267,500 in 1937. In 2018, LEI’s assets were $15.1B, making it the 2nd largest private foundation in the U.S. They are required by law to grant at least $750M/year. The impact of this perpetual foundation is astounding! What a shame if the original $267,500 gift had been granted out to meet the needs of Indiana’s citizens in 1937. I would argue that, based on LEI’s giving guidelines and scale, their enduring, progressive philosophy has served democracy well.

Dr. Reich’s call to examine policies and incentives may help us redefine the canon of philanthropic behavior and norms. His presentation was effective at questioning the integrity of the status quo of philanthropy’s short history in the US. In most cases I found myself initially intrigued with his assertions, but upon deeper reflection, I was not convinced that the current state of philanthropy poses an impending threat to democracy.  I did appreciate the opportunity for a nuanced discussion and the chance to “test” the philanthropic landscape to be true to my hopes for it!

Watch the full presentation and conversation

My name is Christine Baldwin. I earned an M.A. degree from Indiana University’s Lilly School of Philanthropy and serve as the director of philanthropy and planned giving at the Indianapolis Museum of Art at Newfields.