American Foundations: An Investigative History

Published by EH.NET (July 2003)

Mark Dowie, American Foundations: An Investigative History. Cambridge, MA: MIT Press, 2001. xl + 320 pp. $35 (cloth), ISBN: 0-262-04189-8; $18.95 (paperback), ISBN: 0-262-54141-6.

Reviewed for EH.NET by Donald E. Frey, Department of Economics, Wake Forest University.

Mark Dowie takes an opinionated look at philanthropic foundations over the last century. He rates foundations and their grant-making behavior against various norms of his own selection, often finding the foundations wanting. Most chapters are devoted to a single area of grant-making, but a few chapters deal with internal foundation operations. Material of particular interest to Dowie, or the case he is making, is covered in some detail, while other material, which might constitute the larger fraction of foundation activity, is merely sketched.

Typical is chapter 2 (on education grants). Little of the chapter deals with higher education although this sector has received the most foundation educational grants; Dowie merely confirms that higher education is the main beneficiary, and that a few institutions have been disproportionately favored. While Dowie mentions potentially significant issues, such as foundation efforts to lure denominational colleges from their churches in the early twentieth century, he chooses not to develop these issues.

The bulk of the chapter examines elementary and secondary education, reflecting the author’s conviction that education grants should be rated against the “Jeffersonian imperative” — i.e., the broad education of average citizens matters most. By this norm, Dowie is critical of foundations. Though foundations recently have paid more attention to public education, the efforts are inconsistent: some foundations fund experiments to improve public schools, but others seek to privatize education. Dowie notes wryly that either approach gives grant applicants and recipients every incentive to give a one-sided focus on the deficiencies of public education (p. 36).

If foundations fail by the Jeffersonian ideal, they also fail what might be called the evaluation norm: they fund all kinds of projects but rarely evaluate the results or try to replicate them. Foundations fail, too, by the norm of patience: they are fickle, funding first one idea, then abandoning it and moving on to another. The exceptions are conservative foundations whose privatization agenda has been patiently promoted.

A variety of other standards are applied in other chapters. Do foundations meet what might be called the grassroots test, or do they favor larger, establishment non-profits? Dowie suggests (chapter 5), for example, that the environmental movement has been pushed toward excessively timid strategies by foundation grants to the biggest, establishment environmental organizations. Do foundation grants meet what I’ll dub the benign-side-effects test? Or, when they are successful in producing an outcome, are there substantial negative side effects? Dowie argues (chapter 6) that the Green Revolution, which was a signal achievement of foundation-funded science, imposed social harm on some within less developed countries. Are foundation grants large enough to be effective? Dowie lauds one foundation whose significant impact in AIDS research occurred because it spent itself out of existence in one decade; yet, he suggests that most foundation grants more resemble pebbles dropped into the Mississippi River. Others of Dowie’s norms seem highly tendentious. In faulting science-based medicine and foundation grants to medicine, he claims “medical science needs to reach beyond the well-being of individual humans, beyond human diseases and their cures, and treat the planet as if it were a living organism” (p. 87).

Not all chapters deal with foundation grants. In the last chapters, Dowie turns to the internal operations of the foundations themselves. In a chapter called “imagination” he states that most American foundations “are mindless, lawyer-ridden tax dodges that accomplish little beyond the transfer of riches to already-wealthy institutions” (p. 221). Yet, he finds exceptions, extolling the imagination of George Roberts (of the leveraged-buyout firm KKR) and others who are involved personally in making grants, and who are not bound by the conventional ways of foundation bureaucrats.

In chapter 11, Dowie explicitly asks the fundamental question that seems to have been lying in the background throughout the book: “What is the proper function of these vast reservoirs of treasure in a liberal democracy” (p. 263)? Given the populist tone of the volume, I was surprised that Dowie shies from advocating abolition of very large foundations, say, by a requirement that they spend themselves out of existence over a given period. Instead, he favors a little democratization of foundation boards of trustees and a cap on the size of foundations. More democracy in foundation governance, he suggests, might cure the ills that afflict foundations.

One of these ills is the very low payout rate of foundations, whose trustees are typically obsessed with giving out so little that they ensure that the foundation’s wealth will grow and grow to perpetuity. Dowie suggests that more democratic governance would automatically raise the payout rates. Otherwise, however, he skimps on coverage of this important issue, giving it less than two pages (p. 261-62), and boxing it as a side issue. He shrugs off the issue, saying “the whole payout debate is a digression” from his preferred emphasis on the nature of grants. And in a clear error, Dowie asserts that the payout debate ignores “both the time value of money … and the urgent social problems that demand immediate attention” (p. 262). This is an egregious mistake: the payout debate is about these very issues. Higher payouts are required precisely because resolving current problems has a higher return to society than the financial returns to foundations’ hoards. The payout rate is also about equity: trends of economic growth strongly suggest that our present society is poorer than future society will be; thus, the poorer present has a stronger claim in equity on foundation resources than does the richer future.

The recent decline in foundation endowments, due to falling equity markets, highlights the importance of raising payout rates. By paying out far less than the returns they were earning in the late 1990s, foundations (and universities) reinvested funds at inflated prices only to see them evaporate in the prolonged bear market. In short, foundations chose to speculate with their gains rather than doing some good for humanity. A higher payout rate in the late 1990s would have provided benefits to mankind — an opportunity potentially lost forever. Dowie apparently does not see the relevance of such failures in foundation behavior.

In conclusion, Dowie’s book is an interesting, though highly opinionated, introduction to foundations and their history. His populist stance toward foundations does not overly detract from the book or render him incapable of good insights. For example, although he disagrees with the causes of conservative foundations, he gives them high marks for their coherence of goals and persistence. One can argue with Dowie’s opinions: for example, is the incremental approach to the environment really so bad, or is it the only realistic approach? And, does it really make sense to expect medicine to abandon the successful scientific model to follow a speculative environmental medical model? However, if one discounts sections that are overly opinionated, the book can serve as a decent primer to this major subject.

Donald Frey is author of “University Endowment Returns Are Underspent,” Challenge, Vol. 45, No.4 (July-Aug, 2002), pp.109-121.