Big Foundations II

One of the joys of writing a blog is that every day you write what you hope is a coherent passage about your point of view and then submit it to the whole world for their review and feedback. Given the nature of blogging, these passages are first draft material, but that doesn’t stop anyone from calling you a communist.

Albert Ruesga recently wrote up a critique of my argument that we are witnessing “the emergence of small, widely disbursed donors who co-create the social sector.” He makes the very valid point that innovation is important, but sheer scale can’t be ignored. He’s absolutely right. As someone trained in the workings of financial markets, I tend to think in terms of what is happening on the margins. I don’t think that big foundations will be supplanted in terms of assets controlled by a collective of small pools of assets. I do think that the current wave of philanthropy will be characterized by an explosion of activity among smaller donors. When we look back at the First Great Wave, we tell the story of Rockefeller and Carnegie. When we look back on the Second Great Wave, Gates and Buffett will be chapters, but the real story will be about the smaller donor.

In the chapter I wrote in the book Mapping the New World of American Philanthropy, I point to statistics showing that private foundations with less than $1 million in assets make up 64% of all foundations, but control only 2% of total foundation assets. Yet much of the recent growth in private foundations has occurred at this smaller asset size. The changes in the private foundation administration market place will only further drive this trend. Donor advised funds add fuel to the fire.

Will small donors collectively control more philanthropic wealth than big foundations? No. Will the Second Great Wave of Philanthropy be characterized by the explosive involvement in philanthropy by small donors, newly empowered by technological innovations and a massive cultural shift? Yes.


  1. Nick says:

    Will small donors collectively control more philanthropic wealth than big foundations? No.

    No? Individuals are already responsible for 3/4 of charitable giving–and sheer scale can’t be ignored. 🙂

    True, individual giving isn’t very organized yet. But neither, five years ago, was individual blogging–just a bunch of passionate nobodies posting away on the internets. Then along came technorati and Digg to make sense of the chaos (and adsense to monetize it…) and boom–next thing you know, Atlantic Monthly is hiring Matt Yglesias.

    Old media is to new media as old giving is to new giving. Yes, foundations still have a big role to play. But those that don’t adapt to the times may find themselves becoming irrelevant.

  2. Actually, I meant to respond to the tail end of the sentence you cite: “… big foundations are going nowhere.” And for me the issue of scale is not one of distributed scale, but of the concentration of enormous philanthropic fire-power in one foundation (e.g., Gates).

    I was amazed at how much of a kerfluffle Gates was able to produce locally when it parachuted into town and plopped down $110 million for college access programs for low-income students. All of the ongoing activity of smaller, local donors didn’t quite seem to measure up to that particular tsunami.

  3. Mystery Shopper says:

    Tell me, please, Albert, that comment was made with tongue planted firmly against cheek! In fact, you probably pressed so hard you pushed all the way through!!!!

  4. Beth Kanter says:

    I don’t have an opinion yet, I’m trying to learn.

    So, can you unpack this statement a bit more ..
    “Will the Second Great Wave of Philanthropy be characterized by the explosive involvement in philanthropy by small donors, newly empowered by technological innovations and a massive cultural shift? Yes.”

    Also, to Nick’s comment
    “Old media is to new media as old giving is to new giving.” — I’ve been trying to think about that metaphor and if it really plays out. Maybe you can tease that out a bit more?

    This is a very thoughtful blog post. I’m in the process of retooling my social media workshop for people who do fundraising. And,what you’re discussing here is very informative. Thank you.

  5. Albert,
    I’m confused. Aren’t you arguing that big foundations, by way of their concentrated wealth, will remain the dominate force in philanthropy and small donors, no matter how innovative, won’t have an equal impact?

  6. Nick, you make a good point that individual giving already dwarfs foundation giving. I should have more explicitly talked about the power of concentrated wealth. In my view, the Gates Foundations giving $1.5 billion a year is more powerful than the millions of individuals who write small checks. Unless, of course, these donors coordinate their efforts via the new social media tools.

  7. Beth,
    Web 1.0 and 2.0 applications are only beginning to be deployed in the world of philanthropy. Note that this year is the first time the Council on Foundations has ever invited bloggers, but as you rightly point out, why hasn’t anyone been blogging the conference anyway?

    Private foundations are still the gold standard of private philanthropy. Web based tools are still in the early stage of serving this market. See the recent Financial Times article on this topic.

    I think that Nick’s comment on new media/new philanthropy is spot on. There are currently very few social tools that help donors to give. As these are developed, I think you’ll see a much more engaged donor emerge, who gives much more effectively.

    Pre-1995 or so, it was almost impossible for individual investors to get any good information about publicly traded stocks. Now of course financial related info and tools are everywhere. This trend is beginning to emerge in philanthropy.

  8. Sean: One of my schticks has been what you might call the “coordination problem” — a lot of philanthropic activity that does a lot of good for a lot of people, but that doesn’t change the basic conditions or systems that lead people into poverty, or that prevent us from having true democracy in the United States, or that abet our slide into state-sponsored torture, etc.

    Donors large and small tend to act independently of one another. And there are many reasons for this — among them, the fact that coordinating a lot of philanthropic activity is difficult. What this uncoordinated activity creates is essentially a kind of philanthropic random walk.

    Because in some domains the Gates Foundation has, because of its unprecedented size, less of a need to coordinate with other funders, it faces fewer barriers to changing the basic equations on a number of issues. Some conservatives, as I noted in my post, are not happy about this possbility. If the Gates Foundation were a largely conservative funder, it’s the liberal camp that would be looking to curtail its power.

    I don’t believe the conservatives have much to fear from the Gates. Why would he challenge the systems that made him the richest man on earth to begin with?

    That aside, I can’t say that big foundations will be the dominant force in philanthropy. Neither do I think it makes sense to say they’re “going nowhere.” The slightest tipping of the Queen Mary tends to create a lot of waves.

  9. I think my use of the phrase “going nowhere” was a poor choice of words. I meant they are not going away. I’ve updated the original post so it now reads “But big foundations will continue to be a major force in philanthropy.”

    Sorry for the confusion.

  10. One can only hope that increased attention on what foundations are doing — and more conversation about what’s not getting done and still needs doing — might encourage the kind of coordination that Albert so rightly points out is missing.

    I’ve always been amused by the fact that in our “sector,” where there are few — if any barriers to “controlling markets” by pooling resources — the kind of things that would land you in jail if you tried the same in the private sector (and yet they still try) — we abhor monopolistic behavior, even if it could produce positive benefits.

  11. Maybe we all spoke too soon about lack of coordination among philanthropists — here’s an item from today’s New York Times:

    “Eli Broad and Bill Gates, two of the most important philanthropists in American public education, have pumped more than $2 billion into improving schools. But now, dissatisfied with the pace of change, they are joining forces for a $60 million foray into politics in an effort to vault education high onto the agenda of the 2008 presidential race.”