BIG GOVERNMENT AND THE PRIVATE FOUNDATIONSJames Douglas, Yale UniversityAaron Wildavsky, University of California, Berkeley

In a classical statement of the liberal view of what Benthamhad called the agenda of government, John Stuart Mill wrote.

There is scarcely anything really important to the generalinterest, which it may not be desirable or even necessarythat the government should take on itself, not becauseprivate individuals cannot effectively perform ft, but be-cause they will not . . . In these cases, the mode inwhich the government can surely demonstrate the sinceritywith which it intends the greatest good of its subjects isby doing the things which are made incumbent on it by thehelplessness of the public, in such a manner as shall tendnot to increase and perpetuate, but to correct that help-lessness. ^

In the past, private foundations reversed the process. Theysought to do things important to the general interest which govern-ment would not do and in such a manner not to perpetuate theirown activity but to encourage government to take over the respon-sibility. Foundations cannot continue in this manner when govern-ment has shown its willingness to embark upon almost any field ofphilanthropic activity, and has thereby pre-empted the traditionalfields of foundation activity. But foundations may yet find theirrole in doing those things that government "cannot effectively per-form," or at least those things that can be undertaken more effec-tively by an independent body.

THE SPECIAL STATUS OF PRIVATE FOUNDATIONS. Private foun-dations can be traced back to Ancient Egypt and ChaIdea. ̂ Todaymany institutions exist which were originally founded by privatefoundations centuries ago in medicine, social work and highereducation. Those early foundations, like the modern, were privateinstitutions which disposed of private funds for a public purpose.They were established by a free gift of their benefactors from theirown resources. Their direction was independent of the publicauthorities, although subject to some measure of public control.The public authorities might impose constraints under which theyoperated, but there was enough room for foundations to choose forthemselves what they did, and how they did it. If governmentconstraints became so tight that this freedom disappeared, it wouldbecome meaningless to speak of these institutions still as privatefoundations, and more accurate to say that they had been takenover by the state.

Modern foundations often seem chary of the adjective "pr i -vate." Yet it describes an essential characterisitc of the institu-tions. True foundations receive special privileges, such as taxrelief, from public authorities. They have done so from timeimmemorial. How far in return the public authorities may imp>ose

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restrictions or seek to control their activities has been the subjectof debate for centuries. As early as the time of the Magna Carta,feudal lords were objecting that lands granted to charitable foun-dations did not have to pay the feudal dues that would otherwisehave been owed in respect of their tenure. Given that land was,at the time, the principal form of asset with which a foundationcould be endowecJ, the exemption from feudal dues was not all thatdifferent from the tax exemption which the Income from the endow-ments of a modern foundation enjoys. It is also true that the taxexemption for foundation monies represents a loss in revenue andincreases the amount of taxation ttat would otherwise need to beraised from other taxpayers. However, this does not put taxexempt money into the same category as money raised by taxation.Money that is raised from taxation passes into the public domain,and every modern state places upon public officials the responsi-bility for deciding how public money should be allocated. In con-trast, money exempt from taxation has never passed into the publicdomain, and its allocation does not become the responsibility ofofficials. The distinction may seem a fine one but it is essentialto the independence of foundations and enables them to be analternative to, as opposed to part of, government administration.

More than most national institutions, foundations are "innerdirected."

They are not subject to the stimulus and discipline ofcustomers, stockholders, voters, or student bodies. Nordoes government regulation, although more intrusive thanin the past, do much more than mark off broad boundarieswithin which foundations are free to operate. What theyare, therefore, and what they do is essentially determinedby the controlling forces within them. ^

It is this ability to decide their own goals and allocate their ownresources, according to their own internal system of administra-tion, that distinguished foundations from an arm of government.If this distinction were to be lost and foundation money treated aspublic money by virtue of its tax-exempt status, it is difficult tosee on what constitutional principle foundations could resist theclaims of government to decide their priorities and determine theirprograms. Of course, public authorities, when they are grantingspecial privileges such as tax exemption, are entitled to imposesuch conditions as they see f i t . In the case of foundations, theessential condition is that exempted funds should be committed tothe service of the public good. This provision has usually beenreinforced by prohibitions against "self-dealing," "attempting toinfluence legislation," and "intervention in political campaigns forpublic office."

THE DEVELOPMENT OF CONTEMPORARY PRIVATE FOUNDATIONSIN AMERICA. The early American foundations which met theseconditions did not differ greatly from the charities established atthe same period in Europe. They consisted of schools and uni-versities (such as Harvard and Yale), hospitals and medicalschools, missionary societies, libraries, parks, almshouses, or-phanages, and organizations "to assist widows and orphans, immi-

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grants and Negroes, debtors and prisoners, aged females andyoung prostitutes; to supply the poor with food, fuel, medicine,and employment; to promote morality, thri f t , industrious habits;to educate the pcx}r children; to reform gamblers, drunkards, andjuvenile delinquents."** They all had a specific purpose, and theyconcentrated on remedying what their founders saw as a social i l l .

Towards the end of the nineteenth century, and in the earlyyears of the twentieth, two new developments became apparent.The first was a shift in emphasis to get to the root causes ofparticular social problems. "The foundation created by GeorgePeabody in 1867 is regarded as the prototype of the modern foun-dation in that its broad purp>oses are aimed at the discovery andprevention of social ills rather than at their amelioration."^ Thesecond development was a broadening in the stated purp)oses. Thepurpose of the Carnegie Corporation, created in 1911, was, accord-ing to its articles of incorporation, "The advancement and diffusionof knowledge and understanding" amongst the people of the UnitedStates and the British Dominions and Colonies. The charter of theRussell Sage Foundation (which was an act of the state legislatureof New York, passed in 1907) described the Foundation's purposeas "the improvement of social and living conditions in the UnitedStates of America," and it went on to specify that it may use "anymeans to that end, which from time to time shall seem expedient toits members or trustees, including research, publication, education,the establishment and maintenance of charitable or benevolent ac-tivities, agencies and institutions, and the aid of any such activi-ties, agencies or institutions already established." The purposesof the Rockefeller Foundation, established in 1913, were evenbroader: "to promote the well-being of mankind throughout theworld."

Foundations, of course, continued to be established for spe-cific purposes after the turn of the century, indeed, many ofCarnegie's smaller endowments were of the older, specific charac-ter; and as late as 1937, a large (if untypical) foundation, theLongwood Foundation, was established primarily to maintain thehorticultural gardens of that name. However, in general, theAmerican millionaires and their advisors were clearly worried thatif they specified too exactly the purposes for which their founda-tions were established, these purposes would become anachronisticwith the passage of time. In this they were obviously right.Social ills change with time. For example, tuberculosis was amajor social ill at the beginning of this century, and controllingit loomed large amongst the objectives of the Russell Sage Foun-dation in its early years. Today, since the discovery of anti-biotics, the disease does not have the same social importance.

One is rather struck by the absence of any burning zealfor particular reforms or a sharply focused sense of exactly whatit was the public good demandeci. The millionaires wanted theirmoney to do good, but that was about as far as they were pre-pared to mandate their trustees. One looks in vain for any equiv-alent to Dorothea Dlx's passionate concern for the way the insane

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were treated in American asylums in the middle of the nineteenthcentury, or even Benjamin Franklin's more conservative, but stillclearly stated view that "good apprentices are most likely to makegood citizens," and hence, should enjoy the use (and the privilegeof adding to the principal) of his bequests to Boston and Philadel-phia. "Philanthropy was less the handmaid of social reform than asubstitute for it. Wise administration of wealth was an antidote forradical proposals for redistributing property, and a method ofreconciling the poor and the r ich."^ The commercial corporationwas the model for this "wise administration of wealth." Rockefellerspoke of "laying aside retail giving almost wholly and entering intothe field of wholesale philanthropy." He drew the analogy withcommerce even more closely when he asked, "if a combination todo business is effective in saving waste and getting better results,why is not combination far more important in philanthropic work?"

However mixed the motives of the millionaire founders mayhave been, these individuals, together with their advisors, managedto invent the distinctively American general-purpose foundation.The concepts and forms of organization that had been applied toprivate profit (and been the source of the wealth with which thesefoundations were endowed) were in the general-purpose foundationsapplied to the public good, to philanthropic purposes generally.Therein lay the originality of the foundation. It was essentially abody of money committed to general charitable purposes, and theirpeople (trustees and staff) were little more than a necessary inci-dental to ensure that the money was properly managed and put toa good purpose. In general, corporate management in the serviceof good works, was a distinctive contribution of the new institution.But whereas the corporation could use the unifying power of theconcept of profit, the foundation could not. As long as the philan-tropic foundations had sp>ecified objectives, the difference wasunimportant as success could be assessed. But how could anyonedecide whether the course of action chosen by a foundation wasbest suited for promoting "the well-being of mankind throughoutthe world"?

At the turn of the century, this question did not bother thefoundations. Apparently, if any foundation board were unanimousin regarding as socially desirable the spread of a given opinion,there was no hesitation in taking action in supporting its spread.But after World War I, and after the difficulties created by popu-lar confusion about the relationship between Rockefeller's commer-cial and his philanthropic activities, foundations became more waryof taking up a position that might seem controversial or partisan.For the foundations, the 1920s and 1930s were a time for thinkingsmall and safe. Caution reinforced the belief of their foundersthat, if only the root causes of social ills could be discovered,then pxjverty, disease, and ignorance could be rooted out. Notonly was research the best strategy for doing good, it was alsothe one calculated to generate the fewest waves. In this era ofopportunity, the focus on knowledge became sharper.

Gradually during this period, the smaller foundations beganincreasingly to devote their efforts to the production of knowledge

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on which government could act. It must be recalled that beforeWorld War I I , government was limited in scope, poor in resources,and lacking in knowledge. The universities were small, poor in re-search facilities and lacking in ambition for social change. Re-search institutes were few and there were no think-tanks devotedto public policy. In sliort, there was no "knowledge industry."Governments did not do much and knowledge had little to do withit.

In to this new field came the knowledgeable foundations smallin size and sophistication but compared to everybody else, compara-tively large in the help they could offer. For them, America wastruly the land of opportunity. Into spaces only lightly filled bygovernment, Carnegie went with libraries and Russell Sage play-grounds and regional and city planning. The Flexner Report,commissioned by Carnegie, help restructure medical education.John D. Rockefeller's University of Chicago and Rockefeller Insti-tute promoted high-level education and research. Mary Richmondat Russell Sage reoriented social work education and practice. Byimproving education, knowledgeable foundations were also promot-ing the knowledgeable people who would work with them.

The self-confidence of the new knowledgeable foundationswas understandable. The idea that there were definable andseparable roles for the spheres of government and private philan-thropy was widely accepted, at least as a desirable aim. Nobodyreally questioned the need for private philanthropy. At a time ofinstitutional and theoretical underdevelopment, the potential "value-added" of strategic small sums was enormous. The chances ofmaking a fundamental discovery, of creating a new institution, ofremodeling an older one, of making new beginnings, were neces-sarily greater before they had formidable rivals.

THE SEEDS OF DISENCHANTMENT. If Andrew Carnegie reallythought that philanthropy would be a substitute for social reform,then the performance of foundations in the first decades of thecentury must have been disillusioning. In order to acquire "lever-age," foundations frequently made it a condition of their grantsthat they be matched by government support. Indeed, Carnegiehimself frequently made his gifts of library building conditional ona commitment from the local community for the library's upkeep.The Rockefeller Sanitary Commission, in its work on the control ofhookworm, committed itself to "working through governments."The General Education Board was even more unrestrained in itsapproach to government. Its initial aim was to encourage a moreadequate system of public schcx)]s throughout the South. But asa base of popular support was lacking, so the Board decided tosuppK)rt in every state, attached to the State University, a trainedspecialist in secondary education—a man who could inform, collabo-rate and guide professional, public, and legislative opinion. Thesemissionary professors lobbied for new legislation in the southernstates and went on numerous speaking tours in support of school-bond issues.' Further, "Russell Sage Foundation's investigations

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of money lending resulted in New York passing laws which pro-hibited several of the practices by which Mr. Sage has amassedhis fortune."®

The very trends towards which the knowledgeable founda-tions were contributing—an increasing understanding of socialproblems as manageable rather than merely inevitable, and theassumption by government of activities initiated by foundations—were the very trends that began to undermine their rationale. Intrying to get at the root causes, they were undermining their ownfoundations as it were, the monopx)ly on money for hiring expertise.In their early days, foundations were in the enviable position ofbeing too small to be troublesome and yet large enough to appearhelpful. They contributed ideas and knowledgeable staff to gov-ernment. But once government Tiad its own cadre of specialists,it would also have its own Ideas on public policy. Once the gov-ernment assumed an activity previously undertaken by foundations,the field for foundations would be narrowed. During the New Deal,as the federal government rapidly came to be the center of socialaction, the foundations were squeezed out by the sheer magnitudeof government programs. Today, it is not only in social actionthat the government occupies the center of the stage, but also ineducation, in health programs, in scientific, medical and scx:ial re-search, in other words, in almost all the traditional fields of phil-anthropy, save only religion, from which it is barred by a pecu-liarity of the American constitution.

To gain some idea of the rapid turnaround, we need onlycompare the resources allocated by government with the resourcesallocated by the foundations for social welfare excluding veteransprograms. In 1929, foundation income from endowments amountedto some $82 million or 59 percent of federal welfare expenditures. ^In 1930, the amount was $94 million, or 63 percent of federal wel-fare. Figures for earlier periods are not readily available, but itseems probable that the proportion was at least as high until theGreat Depression. Thereafter, foundation income slumped from$80-$90 million per annum to $60-$70 million per annum, and moreimportant, federal expenditures (still excluding veterans programs)more than quadrupled between 1933 and 1934, and increased by afactor of more than 12 between 1932 and 1934. As a result, foun-dation income which we may assume had been running at over 50percent of federal welfare expenditures, fell dramatically to 3 per-cent and remained around the 3-4 percent level until the end ofWorld War I I .

After World War I I , the knowledgeable foundations enjoyed abrief revival. There were more of them, and they were biggerand better than ever. The maturing of fortunes, coupled withthe taxation of estates, led to the emergence of giant foundations,symbolized best by the brass and brick Ford Foundation Building,evidently designed to last forever. The stock market was buoyantand so were the foundations, many of whom abandoned the safe-but-stodgy financial practices of the past to enjoy the boom thatseemingly would never end. The subjects supported by founda-

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tions evoked the perceived needs or the fashionable views of thetime. When America appeared to be resting on a firm foundationand other countries appeared to be shaky, foreign area centerssprung up all over. When America appeared to be in trouble, em-phasis shifted to problems of poverty and race. The happiestpartnership was struck with the producers of khowiedge who, ifthey did not exactly inherit the earth, found in foundations apromised land. For as foundations flourished they supported thescholars and the universities who could keep them supplied withprojects and programs and spending.

But as fast as foundations grew, government grew faster.In the expansionist mood of the times, this was no obstacle; rather,it was an opportunity. Foundations could no longer do all or mostof what was necessary, but if they were knowledgeable, theycould, in the fashionable phrase of the period, "prime the pump"so that rivers of tax dollars would flow. If this were to be con-sidered an accomplishment, where would one find sufficient praisefor the Albert and Mary Lasker Foundation (of advertising fame)that masterminded the National Institutes of Health, whose fundsexpanded from a few million at the end of World War I I , to over abillion in two decades. The operational embodiment of the knowl-egeable foundation was found in its major criterion for success:getting the government to take over, on a larger scale, an idea oractivity it sponsored.

THE DOLDRUMS. The worst thing that can happen is to get whatone thought one wanted and then finding that it is not good. Therewas a time in the 1950s when many thought the heavens wouldapplaud at the gcx)d works wrought by federal billions for educa-tion, medicine, transportation, and housing. The money came, butit did not conquer. Whenever government tried to change deeply-rooted human behavior (health habits, reading abilities, criminaltendencies) it risked a high rate of failure; the movement for theevaluation of governmental agencies, led by Russell Sage Founda-tion, showed that our ability to measure failure far outstripped ourcapacity to cause success. What government could (and did) dowas to reallocate its resources. Whereas in 1960 some 20 percentof the federal budget was devoted to social welfare programs andaround 45 percent to defense, today the proportions have essen-tially been reversed. Government could claim, at least, that it haddone what so many had urged it to do: namely, to reorder itspriorities. But foundations could not make the same claim.

To the degree that knowledgeable foundations were concernedwith expanding governmental social programs (which was consider-able), they shared the blame when these seemed to be failing.Those foundations that concentrated on the development of knowl-edge escaped these condemnations. But those that engaged indirect action—such as the decentralization disputes of Ocean Hill-Brownsville, pitting black residents against white teachers—becameincreasingly unpopular in some circles. What was worse, thesecircles were in government with positions of their own to protectand with powers to wield against foundations.

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Whether tl% complaint was that foundations did tcx) much (be-coming meddlesome social reformers without electoral sanction), ortcx> little (by supporting, or by actually being part of the estab-lishment that stifled reform), the result was the same: govern-mental sanctions designed to enforce better behavior. One point ofview was that since foundations were funded by money that other-wise would have been taxed, it was really public income and shouldhave been subject to the same discipline. \f taken to a logical ex-treme, this argument would make foundation activity identical withgovernment activity, which is the only authoritative expression ofpublic will. Another argument was that foundations should be maderesp)onsive to the public will by opening up their activities to pub-lic scrutiny and their boards to representative trustees. This ar-gument leads in the same direction as the previous one: to makefoundations "responsive" would be to make them, ipso facto, re-dundant.

The surface manifestations of foundation malaise should nowbe clear: superfluous, if they act like government, and damned,if they do not. If foundations adopt the position that they shoulddo whatever government does not, they bite the hand that feedsthem. If they adopt the position of doing the same as government,it becomes unnecessary for them to be fed. Besides, the observa-tion that the pcx>r will always be with us, that serious problemswill remain even after all those billions have been spent (whetherby foundation or government does not matter), lends an air ofdiscouragement to foundation activity. Why bother?

Before we try to answer this question, it is worthwhile totry to understand why foundations have come to this pass. Inthe beginning, they were favored because they were absolutelysmall, but relatively large, compared to government. It was goodto be both inconspicuous and influential. It is not so good now tobe absolutely larger and relatively smaller. For now, foundationsfind that they are more visible and less powerful vis-a-vis govern-ment. And however thin foundations stretch themselves, they cannever match the ever-expanding scope of government, so thattheir capacities relative to almost any area of government are stilldeceptive. Hence the law of diminishing foundation returns: themore foundations work in the same areas as government, the lessinfluential and the more vulnerable they become.

But what about these increasingly hard to find pieces of turfto which government has not yet staked a claim? In any reason-able democratic political system, we would expect government toappropriate those policies that combine popularity with feasibility.Then what is left for our favorite foundation? Evidently, the un-feasible and unpopular. If foundations are feeling stuck out onthe fringes these days, it is perhaps because they have beenfeeding on slim pickings for some time. The causes of foundationdifficulties are neither strange nor sinister; they are rooted intheir asymmetric development in relation to government. Whetherone believes that foundations have been too successful, or thatthey have not been successful enough, it is clear that, for the

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moment, life has passed them by. They cannot prosper either bybeing absorbed Into government, or by being anathema to it. Iffoundations are a moveable feast, the great question is: Whereshould we move them?

IN THE THIRD SECTOR. Foundations form part of what the FilerCommission described as the "third sector" of American society, incontrast to the "public" or "government" sector on the one hand,and to the "private" or "commercial" sector on the other. It is aslim third. The Filer Commission figures would make all forms ofprivate philanthropy account for something on the order of 2 per-cent of the GNP, and of this, 71 percent is accounted for byfoundations. This may be a vast sum in absolute terms but it isstill less than 0.2 percent of the GNP. We can call it a thirdsector, because, unlike the public sector, it is free of disciplineof the ballot box, and unlike the commercial sector, it is free ofthe discipline of the marketplace. Its ultimate justification forexistence lies in its ability to seek to remedy, or to compensatefor, the defects of those two great systems of societal control.

The need to take corrective action in circumstances in whichmarket mechanisms are defective—monopoly situations and the like—has long been appreciated, and economists have coined a technicalterm, "market failure," to identify those circumstances. In theirearly days, foundations were much concerned with correcting suchdistortions, particularly in the labor market. For example, beforeWorld War I, Russell Sage Foundation was conducting investigationsinto the working conditions of women. It gradually broadened thescope of its Committee on Women's Work to form, in 1916, the Divi-sion of Industrial Studies, which dealt with fundamental industrialproblems affecting both men and women. The same concern forgroups who lacked the "clout" to operate effectively in the market-place seems to have inspired Russell Sage to institute the Divisionof Remedial Leans, which was concerned with protecting (guardingagainst the activities of loan sharks) and promoting the interests ofsmall borrowers. This division not only carried out investigationsInto usurious practices, but actively gave financial backing to in-stitutions such as the Chattel Loan Society of New York, whichprovided loans for purchases such as household furniture, toborrowers who otherwise could not have had access to respectableinstitutions in the money market.

Apart from seeking to correct market defects, nonprofitfoundations undertook projects which were too long-range for thecommercial sector. For example, when the Russell Sage Founda-tion decided to finance the development of Forest Hills Gardens,it was not, at first sight, engaging in an activity appreciablydifferent from those normally undertaken by commercial propertydevelopers. However, the fact that similar developments in Eng-land at roughly the same period (such as the Hampstead GardenSuburb), also required a nonprofit-making organization to take theinitiative, coupled with the fact that when the Russell Sage Foun-dation finally sold out thirteen years later, it did so at a loss,suggest that the payoff for this development was too long-range

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for the commercial sector at the time. Had the Russell Sage Foun-dation hung on to the Forest Hills Garden's development—perhapsas long as another 20 years—the development might have beencommercially successful. It may well be that today, since commer-cial enterprises have greater resources, they are also capable ofundertaking investments of this range. But it is still true thatthe nonprofit foundation's freedom from the need to show results(a return on the Investment) relatively soon provides them with away in which they can serve the public interest that is not opento the commercial sector. The "green revolution" so closely iden-tified with the Rockefeller Foundation provides an example of adevelopment that was initiated by foundations, then taken up byboth the commercial and public sectors, and then returned tofoundations for fresh impetus and new directions. Similar exam-ples could be found in the field of medical research, particularlyin research on contraception.

Other more serious defects of the economic system—inflation,unemployment, trade cycles—have also provided and will endlesslycontinue to provide, scope for foundation research, if not for foun-dation action. And this is as it should be; foundations, after all,are created out of the surpluses produced by business enterprise.Whether remedying economic defects is regarded as consciencemoney, or as "selling the system" by mitigating its excesses, oreven as an attempt to express gratitude for past favors in the formof good works, the close connection between private foundationsand private enterprise is natural and inevitable. All three of thesejustifications are at least implicit, when they are not explicit, inCarnegie's "gospel of wealth."

FOUNDATIONS, THE ECONOMY AND GOVERNMENT. When theyfirst appeared on the American scene, foundations had one mainobjective: to act directly to meet public needs or ameliorate socialills. Whether, as with the earliest foundations, the objective wasspecific, or as with those at the turn of the century, the objectivewas flexible and generalized philanthropy, the rationale was thesame. There were "public goods," the demand for which could notbe satisfied by private enterprise. But private enterprise gener-ated surplus wealth which could be used to satisfy those needs, solong as those entrusted with that surplus were wise enough to useit in that way, either by personal philanthropy or, more efficiently,by establishing philanthropic foundations. At this time, govern-ment was expected to provide only a limited range of "publicgoods"—such as defense and the maintenance of law and order. Itis doubtful whether this concept could ever have been fully opera-tional, as it must have been clear very early that even the wealth-iest philanthropist of the best-endowed foundation could do littlemore than attack the fringes of the problem.

However, combined with this limitation was the optimisticbelief that the root causes of social Ills—poverty, ignorance, crimeand disease—could be discovered and prevented if only the factswere known. From this belief sprang that we have called theknowledgeable foundations. Unlike Carnegie and the adherents of

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his "gospel of wealth" the knowledgeable foundations and the pro-fessional managers who were tlien in charge of their policies werenot antagonistic to government action. They researched or com-missioned research on matters that needed to be put right. Some-times they would act themselves on their research findings, butquite often they would leave ttie action to others, usually govern-ment, or they tcx>k small steps which they anticipated governmentwould follow with big.

It is impossible to ascribe precise time periods to these twostages of foundation activity. Different foundations adopteddifferent strategies. For example, Russell Sage emphasized re-search from its very beginnings, but it was not until after WorldWar II that it virtually abandoned ttie attempt to act directly toremedy the social ills whicii its research uncovered. Nontheless,in very broad terms, we can see the direct action strategy—i.e.,doing what government would not—as dominant until World War I,and the strategy of acting as a catalyst of government activityas dominant after the New Deal. As government began to regulateindustry, sometimes with foundation inspiration, it took over thetask of domesticating (and also of legitimating) business.

In any case, the original comforting notion that foundationsshould do what neither government nor industry would do ceasedto be an adequate rationale for foundation activity by the time ofthe New Deal, if not earJier. The rationale that took its place waspluralism. Paul Ylvisaker has suggested that "foundations in theirrole of donors represent a private version of the legislative pro-cess—a deliberative process that selects goals, sets values andallcx:ates resources. The donee part of philanthropy is the coun-ter part of the administrative process in government, an alterna-tive vehicle for getting things done."^° He could have drawn anequally good analogy with commercial enterprise, which is also adeliberative process that selects goals, sets values, allocates re-sources, as well as a method of getting things done. But why,having two methods of getting things done, should we need athird? The classic pluralistic answer is that society, like anyother self-organizing system, needs redundancy: "If there is noduplication, if there is not overlay, if there is no ambiguity, anorganization will neither be able to suppress error nor generatealternative routes of action." •'̂•'̂ The related concepts of pluralismand redundancy are so crucial to the rationale of foundations, soseductive and at the same time so slippery, that they require moresearching scrutiny.

VARIETIES OF PLURALISM. At its simplest level, pluralism canreflect no more than the need for several approaches to a problem.Facts, their interpretation, and the strategies to be derived fromthem, are all subject to uncertainty. The more strings we have toour bow, the better our chances that if one breaks we will have aspare. Let us call this "procedural pluralism." By supporting awide variety of projects, foundations could hope that some wouldwork, even though each one has a low probability of success. Andsince foundations were not independent centers of expertise, anddepended instead on outside advice, they could try some of this

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and some of that (a plurality of approaches) without claiming toknow in advance which was best. Alas, this procedural pluralismrequires redundancy not only in approaches, but also in resources.Capital contraction has not been good for procedural pluralism.The failure of capital to appreciate In the last decade has meantthat fcxjndatlon portfolios have not even kept pace with inflation,which has reduced the real resources at foundations' disposal.Instead of px>inting to a plurality of apprcaches, foundations mustbet on a single one. Instead of protecting themselves and theirprojects on the grounds that a high error rate is appropriate to apluralist procedure, foundation officials must show their judgmentis right the first time.

The financial constraints of procedural pluralism are raisingquestions about the qualifications of foundation staff. That theyare neither at the front line of action in government nor at thesource of ideas in the academies and analytic institutes has longbeen a source of frustration for foundation officials. The mostinteresting conversations, they acknowledge, take place elsewhere.The opportunity to act as a broker between the world of ideas andthe world of action without having to make a commitment to acorrect course of action, has, however, eased the pain. Nonethe-less, there is an implicit contradiction between generality andpower: if diversity is desired, then generalists should serve, pre-sumably without prejudice or preparation. But if expertise is re-quired to reduce error because there are fewer finances, then whynot get experts? Carrying the argument a step further, why notspecialize entirely in a single area in order to gather inside thefoundation special sources of expertise? The Foundation for ChildDevelopment, which has a self-explanatory specialty, and theMarkle Foundation, which is concerned with the mass media, areboth examples of this tendency.

Several other avenues are open to the foundations. TheRussell Sage's use of distinguished scholars as program directorscapitalizes on the advantage of knowledgeable foundations in es-tablishing participatory or collegial relationships with the investi-gators whose research they fund. The foundations can argue forthe advantages of redundancy in policy formation, that it is de-sirable to have different approaches to the same sort of pKDlicy, asalready occurs in government simply because different periodsbring justifications for organizational ambitions. The foundationscan accept their subordinate role to big government and become,in effect, an adjunct of government, filling in the interstices inprograms, bringing people together who find official contact awk-ward, justifying what would, in any event, be done. Gradually,imperceptibly, foundations would filter into government, providinga quantum of flexibility, or an aura of respectability, or a place,perhaps, to begin or end a career in government. But foundationsare not really built for such an active political role. Finally,foundations could adopt a perverse approach: do whatever govern-ment would not like. A conservative form of such perverse plural-ism might spawn a call for abandonment of the welfare state, and aradical form might ignite a demand for complete equality of income

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and wealth. An intermediate form would be to mount a frontalattack on the size of government: government should get smaller,even i f it cannot get smarter; proposed governmental programsshould replace, rather than add-on, to existing ones that shouldnot be abolished entirely.

If the policy pluralism approach would leave one wonderingwhy foundations needed to do something government is going todo anyway (and perhaps better) , then the pxjiicy perversityapproach would leave one wondering how foundations could expectto get away with biting the hand that, i f it does not exactly"give," can surely "take away." Surely there must be a positionbetween " i t need not" and "i t cannot" be done. Indeed, thereare several. These represent a major effort to escape the dilemmaby focusing foundations on state and local levels of governmentwhich have far fewer resources, and are also under-supplied witha wide range of information. But a more systematic approach isneeded for foundations that are national in scope.

Fortunately, there is a conception of pluralism that is notbased on redundancy in means and apprcaches, but instead on aplurality of values and a concept of balance, which has long beenrecognized as integral to the question of governmental power insociety and is enshrined in the U.S. Constitution, that is checksand balances, which has in fact been upset by the growth of theadministrative state and executive administration. It is the specialprovince of foundations to restore, safeguard and promote a bal-ance of powers. Why should this th i rd sector take a special in -terest in the balance between the other two and citizens in societyat large? In one way, the question almost answers itself. Theself-interest of philanthropic foundations, if nothing else, suggeststhat their autonomy depends on not being overwhelmed, either bygovernment or by industry. When the main threat appeared tocome from industry, pluralistic balance might suggest building upgovernment as a counterweight. But now, as the private economydeclines in pxjwer, we can expect future fears to focus on govern-ment.

Foundations are far from the only ones whose interests areimplicated in the balance between big government and big industry.Citizens may well wonder what their participation means in an eraof institutional dominance. There are concerns about personal p r i -vacy and group opportunity. Whether from lack of governmentalprotection or from an excess of i t , human rights are at issue,abroad as well as at home. The very survival of independenteducation and commercial culture, beset by a lack of resources anda growing dependence on government, is at stake. Might therenot then be alternatives to corporate dominance and bureaucraticprocedures for providing collective responses to social issues? Andmight not foundations, cut adrift from industry and not yet sub-servient to government, play a key role in fostering these alterna-tives?

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NEEDED: A NEW INTELLECTUAL RATIONALE FOR FOUNDATIONS.What we are suggesting is a change in relative emphasis. In thepast (either from a desire to save capitalism or through an oedipalrelationship to business), the main weight of foundation researchwas directed towards socioeconomic problems. The time has cometo shift the emphasis more towards sociopolitical problems. We arenot suggesting that foundations have ignored the problems createdby political systems. There are many examples to the contrary,including the activities of Amnesty International or the Vera Insti-tute, both of which have received funds from foundations. Rather,we are suggesting that the problems created by our political sys-tem have not received the same systematic analysis as the problemscreated by our economic system. For example, the foundationsought to have a special interest in political parties, and in anyother institution or process that either promotes competition amonggovernments, or that otherwise provides an arena for criticism ofthe government in office including the media that conveys thiscriticism and the legal profession that is especially resp>onsib1e forprotecting proper procedures.

But what of the deepest defects of the political system? ToIgnore government is only to pretend to live in another time.Economists have coined the technical term, "market failure," toidentify the circumstances in which market mechanisms are incapableof performing satisfactorily their usual function of allocating re-sources in accordance with public demands. Political scientists,though well aware of the weaknesses of government, have noexactly analogous concept. What such a concept needs to expressis not merely particular failures but rather generic defects in-herent in the system. For example, when smoke pollution in onearea adversely affects people in another who remain uncompensated,we speak of a "market failure" meaning that no existing marketmechanism can fully capture the costs of pollution. When "marketfailure" occurs, the remedy always appears, explicitly or implicitly,to be government action. But if "market failure" is to be dealtwith by government, then who is to deal with "government failure"?

We cb not have the space in this essay to examine fully what"government failure" might mean. Instead, we must make do withillustrations. We begin with the well-known "near-sighted timehorizon"; government officials are most interested in the perioduntil the next election. This sort of short-sightedness is, ofcourse, complemented by the classic caution: "do nothing for thefirst time" unless it is guaranteed to be popular. By refusing tostray from popular will, governments lose opportunities to tryinnovative policies that might prove to be even more popular.Without claiming to counter government, it is possible for founda-tions to look into public mechanisms for error recognition and errorcorrection. Government officials are generally skilled at choosingamong alternative policies in terms of their first-order effects, butthey usually ignore the second-order effects—the effects on thestructure of society—in general defy current forms of policy analy-sis. Another example is the "size solution"—government tries tosolve its internal problems by allowing each internal element to

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expand. A third example is the "clumsy giant" syndrome: whengovernment takes over an activity, it tends to swamp the socialsupport mechanisms that made the activity desirable in the firstplace. Thus, parents see less need to support schools and neigh-bors to coalesce once government gets Into the act.

How might foundations cope with these alleged failures ofgovernment? Apparently, they should only fund proposals withlong time horizons and a high risk of turning out badly, elsegovernment would prdbably take them on. Presumably then, mostfoundation ventures should not succeed. Would this be, one won-ders, counter-action to government failure, or a cover-up for foun-dation failure? How could foundations pit themselves against the"size-solution" without diminishing their own powers, or cope with"the clumsy giant" without getting trampled? It is time to findout. Before they do, they ought to worry about their own"success syndrome." To gain credit for innovations without usingup their entire budgets, foundations are likely to call for narrowly-defined projects, whose costs are calculated on the marginal prin-ciple: just enough to do the job. The resources required byapplicants for generating ideas, sustaining staff, and for their owndevelopment, are left out of account. This "creaming" phenomenonmay turn out to be a fundamental failure.

CONCLUSION. The original rationale for American foundations wasthat they would directly ameliorate social miseries or improve socialfunctioning. Later, the rationale was modified, so that foundationsconducted research into matters which someone else ( i .e . , thegovernment) could directly ameliorate. Today, so many otherpeople are also conducting this sort of research—indeed, govern-ment is spending huge amounts to finance those who will suggestnew things for it to ameliorate—that it is time to move on to a thirdrationale. In their earliest days, foundations simply spent theirmoney doing whatever they thought should be done. In theirsecond phase, they adopted the "tail that wags the dog" approach.Today, it seems that they are themselves being wagged, and some-thing new is needed.

That something, in our view, is a deliberate attempt to con-centrate foundation resources on alternative ways of thinking aboutgovernment. This means thinking not only about existing programsand activities, but also about the inherent limits of governmentactivity, just as we have learned to think about the inherent limitsof economic activity. Foundations should, in short, make conscioususe of their independence. They are not directed by the govern-ment concerning what they shall do (although they are regulatedconcerning how they shall do i t ) . They need not be subjected tothe committee/consultative method of making decisions about whatshould be done that characterizes universities (tails which arethemselves increasingly wagged by the government, directlythrough its regulations, and indirectly through the money whichit can offer for doing the things it wants done). What foundationsare uniquely free to do, if they will only rise to the occasion, is tothink about alternative models for Tiandling whatever it is that

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should be done without determining In advance who should do It,and to push their analysis to a deeper level than government orbusiness has either the time or the incentive to do.

In short, foundations should become a site for the alterna-tive ways of thinking about problems, rather than the hand-maidensof existing government or corporate attachments. In such role,foundations would be building on the one relatively unique strengthwhich they do (or least could) have: their independence andtheir freedom from having to meet either political or market cri-teria. The price of such an approach would be a high degree of"irrelevance" to daily policymaking activity; foundations wouldproduce large amounts of currently "irrelevant" knowledge. To us,this seems a price worth paying.

NOTES

1. Principles of Political Economy, Chapter XI, para. 16.

2. Marion R. Fremont-Smith, Foundations and Government(Russell Sage Foundation, 1965).

3. Waldemar A. Nielson, The Big Foundations (ColumbiaUniversity Press, 1972), p . 309.

4. Walter Trattner, From Poor Law to Welfare State (NewYork: The Free Press, 197AT-

5. Edith Fish, Doris Free and Esther Schater, Charities andCharitable Foundations (New York, 1975).

6. Robert H. Brenner, "Private Philanthropy and PublicNeeds: Historical Perspective," Research Papers (sponsored bythe Commission on Private Philanthropy and Public Needs, Depart-ment of the Treasury, 1977), Vol. I, pp . 89-114.

7. Nielson, loc. cit.

8. Ben Whitaker, The Philanthropoids (New York, 1974),p . 170.

9. Source: Frank Dickinson, The Changing Place ofPhilanthropy in the American Economy (Columbia University Pressfor the National Bureau of Economic Research, 1970).

10. Keynote address, 27th Annual Conference Council onFoundations, May 1976.

11. Marin L. Landau, "Redundancy, Rationality and theProblem of Duplication Overlap," Public Administration Review29: (July-August, 1969).

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