Policy Knowledge Foundations Research Paper

1. Definition History

The private foundation is an institution that privately manages private funds in pursuit of a public good. The source of these funds is normally a wealthy individual, almost always a person whose wealth was acquired in commercial activities. Foundation funds are privately managed by self-perpetuating trustees. The requirement that foundations advance a public good derives from the law under which they are chartered. That law stipulates that the funds made available for the endowment of a foundation, being ‘tax-free,’ must be used for charitable or philanthropic purposes. Foundations operate primarily by giving grants from earnings on their endowments, though in rare instances will also use their endowed wealth for grant making.

The wealthy donor inclined to the philanthropic act as a way to perpetuate his or her name and social influence is not a recent practice. Plato bequeathed property so that his Academy would continue after his death, and in fact the Academy lasted nearly a millennium, from 347 BC to 529 AD, until it was deemed unchristian and dissolved by the Emperor Justinian. Popes and princes became patrons of the arts to enhance their esteem in the public eye. The royal gift, especially to provide a health or educational service, is known across history and across royal regimes from China to India to Egypt to England. More than a millennium of Islamic philanthropy built libraries, universities, and mosques. Commercial wealth has generated philanthropic endeavors across the centuries, and not just since industrial capitalism. The famous Hotel Dieu in Burgundy was established in 1443 when the benefactor donated a highly valued vineyard. The University of Uppsala was similarly endowed with a gift of productive land. Philanthropy as reflected in the royal gift, the papal patronage, and even the private endowment is the backdrop to what emerged in the advanced industrial democracies, particularly the United States, toward the end of the nineteenth century.

2. Foundations And Industrial Wealth

Late nineteenth century industrial wealth became the basis for a new type of philanthropy—the private foundation. Modern foundations were a self-conscious break from Victorian era charity focused on the immediate relief of suffering and poverty. The distinction between foundation grant-making and charitable giving is often captured in the ‘root cause’ metaphor. Rather than relieve suffering, foundations see their purpose as doing something about the deeper causes that lead to suffering in the first place. The classic example is public health such as a vaccine regimen that is designed to prevent the suffering that accompanies epidemics.

Foundations also differed from the one-time gift to endow a hospital or center of learning. The private foundation, a legally immortal institution, extends the bequest and its purposes into the distant future. That is, rather than endow an institution, the philanthropic act endowed the foundation itself. There are a number of reasons for this institutional innovation, one being the sheer magnitude of the private fortunes gained by controlling a key industry (oil, steel, banking, transport) during the unregulated and largely untaxed decades of the late nineteenth and early twentieth centuries. The private foundation, then, is a place to put wealth too substantial to give away in one’s lifetime.

The twentieth century saw a vast growth in the number of private foundations, and in their aggregate asset base. There are more than 40,000 in the United States alone, and many fewer though still substantial numbers in Western Europe, Japan, Brazil, India, Mexico, and other of the wealthier nations of the world. Many foundations are comparatively small, with annual grant budgets of $1 million or less. At the other extreme are a few substantially endowed foundations—such as the Gates and Ford Foundations in the United States and the Welcome Trust in Great Britain, whose annual grant-making approaches $1 billion. There are also corporate foundations and community foundations, which together comprise about one-fifth of all foundations in the United States and a smaller percent in other countries. There was a surge in the number of independent private foundations in the latter decades of the twentieth century, for reasons similar to the first surge that occurred a century earlier. The late twentieth century wealth gained through such new industries as electronics, information, media, and entertainment was at a scale comparable to the nineteenth century fortunes in oil, steel, and railroads. Such growth occurs in a period when the rules of the liberal economy allow, and even encourage, the accumulation of inordinate wealth in private control and which tolerate wealth inequalities at a scale thought improper if not immoral only a few decades earlier. If wealth redistribution through public policy was not in favor in the early twentieth century, neither is it in favor in the early twenty-first. The private foundation becomes, then, a means to recycle some of this wealth, though on terms largely set by the individuals who control it.

3. Foundations And The Political Culture

Social Darwinian theories favored by late nineteenth century industrialists and their apologists was particularly favorable to the emergence of the private foundation. An influential statement was Andrew Carnegie’s widely circulated essay, The Gospel of Wealth (1889a). Carnegie acquired his vast wealth in the steel industry. He argued that industrial capitalism was providing more and more benefits to ever greater proportions of the population, but acknowledged that its workings inevitably generated substantial surplus wealth under control of the few. ‘We accept and welcome, therefore, as conditions to which we must accommodate ourselves, great inequality of environment; the concentration of business, industrial and commercial, in the hands of the few; and the law of competition between these, as being not only beneficial, but essential to the future progress of the race.’ ( p. 656). Having acquired this wealth under the benign influence of social Darwinianism, Carnegie then concluded that it was his Christian obligation to give it away.

It was Max Weber, in The Protestant Ethic and the Spirit of Capitalism, who gave sociological depth to the association between Protestant asceticism and responsibility—with its emphasis on discipline, secular engagement, and deferred gratification—and the thrifty, hardworking business ethic that shaped modern capitalism (see Weber, Max (1864–1920)). The Protestant ethic stressed the greatest possible productivity, but frowned on the luxurious enjoyment of the wealth so earned. If work is to manifest God’s glory, the profits of work are to be reinvested in that which is productive and socially beneficial. To do good works in this life is a sign of grace. Not that salvation could be earned by good works, but doing good as well as being good was to be expected of wealth. This was a convenient doctrine for men, Carnegie notably among them, who were both devoutly religious and wealthy beyond easy measure. It is comforting to know that one can dedicate oneself to acquisition and yet be virtuous.

Although explicitly religious motives are not often cited in today’s more secular culture, the Protestant ethic retains its hold. The notion that one is a ‘steward’ of surplus wealth still appears in explanations of the philanthropic act, as do echoes of the belief that good works in this life signal moral worth. Late twentieth century billionaires speak of an obligation to repay society for having been so good to them. They are in this respect reflecting the notion that the wealthy because they are wealthy are obliged to be philanthropic. Inherent in wealth is the responsibility to be responsible for the public good that one’s wealth can promote.

The social Darwinian environment within which foundations emerge was compatible with another feature of, especially, American political culture—the weak state tradition. Understood as private funds linked to public purpose, the private foundation is a social invention consistent with this tradition. If wealth is accumulated in an amount that is too substantial to be consumed or given away in one’s lifetime, and thought to be too great to bequeath to family members, there are a limited number of ways to dispose of it. Furthermore, if the political culture as well as law and taxation policy invite the wealthy to create private institutions that can function as an alternative to the state, there is much satisfaction to be gained by creating a foundation. In the twentieth century, then, the private foundation has become a major mechanism by which large-scale, privately held capital memorializes the donor, endows his or her philanthropic inclinations, and not incidentally substantially reduces tax obligations. In some instances it also serves to keep control of a business enterprise in the hands of a founder’s family and descendants.

There is a long tradition of inquiry that sees in the establishment of foundations the intent by the donor to exercise lasting political–economic–social control. The very wealthy do not earn their fortunes without exercising economic control—of an industry, a marketing strategy, a scientific innovation, a new product. Nor are these individuals indifferent to how policies, regulations, tariffs, and taxes can help or hinder the acquisition of wealth. It is not much of a leap from these facts to presume that transferring private wealth to a private foundation is a way to extend political–economic influence.

For example, a Commission of the United States Congress (1915–16), observed that industry and wealth in the United States had come under the control of a few very wealthy persons. The Commission alleged that this small group intended to continue and extend this control by establishing privately managed funds for indefinite purposes. Here, then, is coupled the late nineteenth century anxiety about the concentration of economic power with the fear that private foundations would perpetuate the dominance of business interests in American political and social life.

Careful historical analysis needed to test this hypothesis is in short supply. There is, however, ample anecdotal evidence that donors who establish foundations have a strong inclination to see that their funds enhance particular political and economic doctrines, especially private enterprise and market capitalism. Perhaps there is an irony in the fact that the foundation results from the accumulation of substantial private wealth and yet in instance after instance declares that its mission is to improve the lot of the poor and powerless. It goes about that mission by helping to lower the barriers to upward mobility, by working to insure basic civil and political rights or by contributing to education and health for the poor. It does not go about that mission by calling into question the political-economic arrangements that allow for unequal wealth acquisition in the first place. This despite the oft repeated claim that foundations will find and eliminate the ‘root causes’ of poverty, discrimination, and illness. These root causes, however, seem not to include the economic doctrine and public policies that govern wealth acquisition.

4. The Public Policy Agenda

Based on statistics it collects from thousands of private foundations, the US based Foundation Center uses a ten-part subject-matter classification to report grant making: arts and culture, education, environment, health, human services, international affairs and development, public society benefit, science and technology, social science, and religion. Although data collection is less systematic in other nations, these categories are generally serviceable across the private foundation world. Public policy is not its own discrete category, because policy analysis and policy advocacy can appear in each of the ten categories. Foundations have taken up arts policy, education policy, health policy, science policy, security policy, and much more.

Of course the policy interests of foundations alter with the times. To note obvious examples: the sizeable investment by American foundations in area and international studies, language training, and student exchanges is a product of post World War II conditions; the rise of environmental consciousness in the 1970s led to a marked increase in funding for environmental policy in Japan, Europe, and the US; the collapse of communism suddenly opened up opportunities in Eastern Europe and the former Soviet Union to which both European and American foundations were quickly responsive. Such examples could be multiplied over and over, indicating that the foundation mission and especially how it expresses itself in grant making is not frozen but rather adapts and evolves as the policy conditions change.

The foundation has a number of strategic choices available as it considers whether and how to confront the public policy agenda. Considered from the broadest possible perspective, foundations adopt strategies based on their notions about how social change can best be brought about. Does the foundation operate on the assumption that ideas drive history; or that technologies do; or social movements, market incentives, government interventions, moral exhortation? If ideas drive history, invest in intellectual efforts; if government interventions drive history, invest in specific policy analysis and advocacy; if exhortation drives history, invest in public education. Or, to use a metaphor much favored by foundations, grant making should seek out the point of ‘leverage’ judged to be most productive of desired social change. The point of intervention is sometimes indirectly and at other times directly linked to public policy knowledge or policy advocacy.

4.1 New Knowledge

Foundations have made major investments in universities and in research institutions, equipment, and personnel, as part of a broad strategy to advance basic human understanding in nearly every field of study imaginable: anthropology, astronomy, biology, chemistry, economics, history, medicine, music, physics, political science, and psychology, to name only the most obvious. These investments have, at times, been sustained over long periods, illustrated by the Rockefeller Foundation’s century-long involvement with medical science. And for some foundations for certain periods of their history, the search for new, fundamental knowledge defined what they were about, what they took to be their vocation. Seldom, however, was new knowledge sought for its own sake. The foundation is focused on public benefits and thus even an investment in basic science will always be linked to how the new knowledge is to be applied.

4.2 New Knowledge Applied

Foundations have always been focused on how new knowledge can be applied in socially beneficial ways. An example is the investment in the public health profession, viewed as a means to ensure that discoveries from biomedical science will reach the broadest population possible, and especially those population groups that might otherwise be ignored. There are many other examples: basic knowledge in learning theory being coupled with school reform efforts, basic knowledge in plant physiology leading to higher yielding food crops and their dissemination in poorer countries. In this application effort, the foundations make heavy use of the social sciences more generally and policy studies more specifically.

4.3 Direct Policy Analysis

Foundations have had a long, close relation with studies and publications that would inform public policy. This can be seen in the heavy investment in policy research institutions in the United States, and in policy reports and white papers in European countries. In the United States the independent policy institute and the independent foundation are linked because they are responsive to the same deep strand in the political culture that prefers the private to the public sector (Prewitt 1995). Foundation funding of the social sciences, which starts before the turn of the century, has generally been motivated by the quest for improved public policy. The close relationship between foundation funds and public policy analysis underscores how privately held philanthropic resources attempt to advance public purposes. This relationship has been a complicated one, attracting its share of sharp criticism from both the political left and political right. Notwithstanding this criticism, foundations have forthrightly declared their intent to fund analysis that will lead to what they view as public policy improvements. For example, the German-based Bertelsmann Foundation articulates as one of its primary goals to provide new concepts and models for the social market economy and for public administration.

4.4 Policy Advocacy

Often in combination with policy analysis, foundations have funded a seemingly endless number of organizations dedicated to fighting for or against particular public policies: in human rights, equal opportunity, school reform, nuclear disarmament, environmental protection, free speech, children’s welfare, and on and on. Although a dimension of American philanthropy early in the century (Sealander 1997), such funding gained momentum in the post World War II period as the federal government became increasingly active in areas long of interest to the philanthropic sector. If foundation funds could stimulate the government to adopt the ‘right’ policy in civil rights or social welfare, the impact would be far greater than what could be accomplished with foundation funds alone. From this emerged the notion that philanthropic dollars could be taken to scale by leveraging government funds. That is, if government through its regulatory and taxation powers influences private expenditure patterns, philanthropy reverses the direction of influence by spending private funds on policy analysis and advocacy that will change government spending priorities. In earlier years, the policy advocacy groups supported by foundations largely focused on domestic policy. In recent years, however, attention has broadened to include the international arena and international actors; policies of the World Bank or the World Health Organization or multinational corporations are targets for internationally organized advocacy groups, especially in the fields of environment and human rights. The post-1989 preoccupation with what is often if not very precisely described as civil society funding is a combination of policy advocacy and social movement philanthropy.

Though overlapping with policy advocacy, social movement philanthropy is sufficiently different to merit independent mention. In recent decades, the major beneficiaries have been social movements organized around equality for women, environmental protection, and civil rights for racial and ethnic minorities Although each of these social movements originated outside philanthropy, foundation dollars rather quickly led to their stabilization and professionalization. Support for social movements is largely a post World War II phenomena, getting its start with the activism that characterized the 1960s. This type of funding has also been internationalized, as worldwide organizations have formed to advance environmental protection or women’s rights or children’s welfare. What foundations refer to as support for grass-roots organizations, or community groups, is often an element of social movement philanthropy.

Closely associated with such funding is an emphasis on social empowerment. This term refers to the direct empowerment of individuals, especially the traditionally powerless or disenfranchised social groups. An example is micro-credit lending, which is designed to put resources directly in the hands of the powerless poor. Social movement and social empowerment philanthropy are linked in that the former has the dual purpose of empowering its adherents and changing the social landscape. But direct empowerment need not be part of an effort to create a social movement. The beneficiaries of a micro-credit lending program or a female education strategy are not viewed as members of a movement in the same way that feminists or ecological activist are. Social empowerment, of course, is a close cousin to charity—the direct relief of suffering. But philanthropy has defined itself as not about charity so much as by its intent to remove the‘root causes’ that lead in the first place to the suffering for which relief is sought. In its effort to permanently change the condition of the disenfranchised, empowerment is distinct from direct charity.

4.5 Public Education

Foundations have often tried to influence the policy knowledge of the general public. There are numerous examples where foundation funds have been used to improve public understanding as a way to correct for what are considered ‘misguided’ public practices. A public inclined to permit inefficient and corrupt partisan politics, for example, might be taught to appreciate the virtues of independent expertise in government and a professional civil service—and turn of the century philanthropy took up this progressive cause. Or, a public too given to racial prejudice should be enlightened to the moral worth of racial tolerance—a major philanthropic project across the twentieth century. The examples multiply endlessly— the public is inefficient in its use of energy, unclear about the dangers of population growth, illiterate about its national history, prone to unhealthy eating habits, smokes too much, and, repeatedly, is insensitive to the plight of, depending on the times, women, workers, children, the poor, immigrants, minorities, the handicapped or others from a long list that changes its emphasis from decade to decade, but is never absent from the philanthropic portfolio.

These deficiencies in public knowledge, understanding or attitude can be corrected by the selective use of foundation resources, such as introducing new elements into the school curriculum or through targeted media campaigns. More than public education is at stake, for these efforts often have a change in public policy as the goal. The anti-smoking campaign illustrates this. Foundation supported public education intends not just to discourage smoking, but also to modify public policies on, for example, where tobacco can be sold or how it can be advertised.

What are generally described as ‘liberal foundations’ have been especially adept at using public education campaigns to shape public opinion, though in recent decades foundations with a more conservative inclination have supported the writings of public intellectuals on what they see as failures in public education, social welfare, criminal justice, and other projects long associated with liberal foundations.

5. Entrepreneurial Philanthropy

Through the twentieth century the attention of foundations to policy knowledge and analysis focused almost exclusively on government policies. Insofar as the behaviors of business sector firms were of interest, the strategy of choice was to affect regulation, taxation and other public policies to influence market behavior. In the latter decades of the twentieth century this exclusionary focus on government policy began to alter. Some foundations directly addressed the policies and practices of market actors. For example, in the field of public health, foundation funds were used as an incentive to induce pharmaceutical firms to invest in AIDS vaccine research and with respect to energy efficiency, foundation funds attempted to influence utility companies to give more attention to renewable energy sources such as wind and solar power. Microcredit lending (below market loans in impoverished areas for small-scale entrepreneurs) also became a favored target of foundation funds.

With the arrival on the foundation scene of young, recently wealthy entrepreneurs from the high technology industries this form of philanthropy is likely to increase. The degree to which it will supplant rather than simply add to traditional patterns of public policy funding is unknown, but it is not likely that foundations will soon if ever exit the long-established field of public policy analysis and advocacy.

6. Conclusions

Foundations are well established in advanced market economies, especially in those countries with a comparatively weak state tradition. Over the decades a receptive network of regulatory and tax policies have emerged to make it easy to establish foundations, and thus to withdraw funds from the tax stream on the assumption that these funds will serve the public good. Foundations have used these tax-free funds to support studies of alternative public policies in areas of interest such as health, environment, education, the arts and so forth. They have contributed significantly to the growth of policy knowledge. As more and more nations of the world adopt liberal market economies, it is likely that foundations will emerge in ever greater numbers. It is also likely that public policy analysis and advocacy will remain a foundation funding priority.

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