A Critique of Non-Profits

by Joan Roelofs

Those who wish to promote change should look closely at what sustains the present system. One reason capitalism doesn’t collapse despite its many weaknesses and valiant opposition movements is because of the “nonprofit sector.” Yet philanthropic capital, its investment and its distribution, are generally neglected by the critics of capitalism. Most studies of the subject are generously funded by the nonprofit sector itself; few researchers have followed up on the observation of Marx and Engels in The Communist Manifesto:

“A part of the bourgeoisie is desirous of redressing social grievances, in order to secure the continued existence of bourgeois society…. To this section belong the economists, philanthropists, humanitarians, improvers of the condition of the working class, organizers of charity, members of societies for the prevention of cruelty to animals, temperance fanatics, hole-and-corner reformers of every imaginable kind.

The United States is unique in the size and scope of this sector which spends over $400 billion annually. Its tax-free wealth is largely unaccountable: just imagine the land, the buildings, their contents, and the investments of churches, private universities and schools, museums, zoos, teaching hospitals, conservation trusts, opera houses, etc.

This model has been exported to everywhere for over a century. Currently the United States philanthropy network is attempting to create entire “nonprofit” sectors in Eastern European countries. “Bible imperialism” was an early version; another was a large Rockefeller infusion into the London School of Economics during the 1920s and 1930s.

Some may see a galaxy of organizations doing good works — a million points of light — but the nonprofit world is also a system of power which is exercised in the interest of the corporate world.

What is the nonprofit sector? In the United States, it includes churches, private schools and universities, cultural institutions, advocacy groups, political movements, research institutes, charities, and foundations. One subset is particularly noteworthy: those organizations covered by section 501(c)(3) of the Internal Revenue Code. These are the benevolent organizations whose receipts are tax-exempt, and whose contributions are tax-deductible for the donors. They are generally the only organizations that receive foundation grants. In turn, they must restrict political advocacy and may not engage in election campaigns. They also may not distribute profits to shareholders.

Not all in this sector are corralled into innocuous system-protecting activities; there are a few independent, usually poor and obscure organizations. However, most organizations are linked to each other and to the major corporations by their funding, their invested assets, technical assistance, interlocking directorates, and peak organizations such as the Independent Sector and Council on Foundations.1

Independent Sector, the trade association of the nonprofit sector, was founded in 1980. It has a budget of $5 million and 800 members, including (as of November 1988): the AT&T Foundation, the Aga Kahn Foundation, the American Association of Community and Junior Colleges, the American Association of University Women, B’nai B’rith International, Boy Scouts of America, Coors Foundation, Environmental Law Institute, Mexican-American Legal Defense and Educational Fund, Mothers Against Drunk Driving, NAACP Legal Defense and Education Fund, National Audubon Society, Sierra Club, and World Wildlife Foundation. There are over 1500 foundations in the United States that are affiliates of profit-making corporations, and they work along with the traditional charities and foundations to keep the ship afloat.

In what way does this sector serve as a protective layer?

First of all, non-profits play an important role in the concentration and distribution of capital for the profit-making sector. For example, prominent on nonprofit hospital boards of trustees are businesspeople, bankers, real estate developers, insurance executives, etc. Expansion decisions provide a major stimulus to the economy of a region, as well as plums for individual corporations. In addition, foundations and other charitable institutions invest assets in stocks and bonds and can exert power along with other institutional investors.

Second, nonprofits provide goods and services that the market cannot, from homeless shelters to opera and BBC TV drama. The latter are quite important, as the defection of intellectuals tends to be more dangerous than dire poverty.

Unprofitable but necessary activities could be carried out by government, as they are in many countries. However, privatization of charity, culture, education, and reform has many advantages. If philanthropic capital were taxed, its disposition would be subject to political debate. Nonprofit organizations, on the other hand, are directed by self-perpetuating boards, and there is no democratic control over their private policy-making. Staff members have no civil service status or security; they are dependent on philanthropy and its visible, hugging arms. Almost all organizations look to corporations and foundations for funding. Small donations or dues are rarely adequate for any major undertaking, and require much energy to collect. Even the NAACP Legal Defense and Education Fund was crucially dependent on foundation money for the litigation leading to Brown v. Board of Education in 1954.

Some of these unprofitable functions could be performed by political parties, unions, or social movements. Elsewhere in the world, political parties sponsor youth groups, daycare centers, children’s camps, and other charitable and educational activities. One might think it particularly appropriate in a democracy for political parties to be the primary locus for social reform and public policy research and advocacy. Nevertheless, in the United States advocacy and reform are largely monopolized by foundation-supported nonprofits.

Yet another protective function is employment for sons and daughters of the rich who might otherwise be unemployed and disaffected, along with those of any class who are dissident and troublesome. Mix a “soup” of potential and actual troublemakers with lots of gold floating around, and it will go down very smoothly, soothing sore throats and sore heads.

The nongovernmental and nonpartisan status of these organizations generates a halo of altruism and independence, and this is all the more useful in their international activities. Their geographical and functional range is exhaustive, and there is scant recorded evidence of resistance to the penetration of philanthropy. Recent activities include support for Christian Democratic parties, unions, and grassroots organizations throughout Latin America; the creation of a nonprofit sector in Eastern Europe and the former Soviet Union; the fostering of a non-racial, non-socialist solution in South Africa; and the “sustainable” development response to critics of third world exploitation. The United Nations itself, by origin and development, owes much to multinational philanthropy.

The contours of the nonprofit system become clearer when we look at its great planning and funding arms: the large foundations. They contribute to amusement, to placation of artists, to biochemical research, and to routine charity, but perhaps their most interesting endeavors are in directing social reform. They and their creations supply the ideas for political change. The great multipurpose foundations first arose in the early 20th century, closely connected in spirit and practice with Progressivism and the rise of the social sciences. The new millionaires of robber baron infamy saw foundations as devices to serve several purposes. First, they would provide a systematic way to dispose of vast fortunes. Second, they would permit considerable social control through philanthropy. John D. Rockefeller decided “to establish one great foundation. This foundation would be a single central holding company which would finance any and all of the other benevolent organizations, and thus necessarily subject them to its general supervision.”2 Third, foundations could improve public relations; many believed that the Rockefeller Foundation was created to erase the scandal of the Ludlow Massacre.

In the period prior to the First World War, foundations could ameliorate the lot of the masses and at the same time co-opt intellectuals who often had socialist sympathies. They promoted an ideology that regarded social ills as problems to be solved by social scientists. Class struggle, or even conflicts of interest, was of no moment.

After the Second World War, foundation intervention in the policy process increased dramatically. For example, fear of political disorder brought forth an amelioration strategy from the Ford Foundation. Its Report for 1949 argued that we had to strengthen our system in order to meet the challenge of communism. Problems included the unfinished business of the Civil War, the lack of political participation, and the care of maladjusted individuals. Ford’s initial strategy was to fund litigation for Supreme Court decisions, which successfully obtained increased legal equality for blacks, reform of the criminal justice system, and reapportionment of legislatures.

During the 1960s, as one response to burgeoning protest movements, the Ford Foundation took the lead in developing public interest law, which included law firms, clinical programs in law schools, specialized law reviews, and an appropriate ideology. Among the litigation organizations created were the Women’s Law Fund, Environmental Defense Fund, Natural Resources Defense Council, and a number of Legal Defense and Education Funds (LDEFs) including the Puerto Rican LDEF, Mexican-American LDEF, and Native-American LDEF. Older organizations, such as National Association for the Advancement of Colored People Legal Defense and Education Fund and the American Civil Liberties Union, also became dependent on foundation funding.

Foundation ideology, disseminated through conferences, reports, and sponsored research and books, holds that radical protests are signs of inadequacies in pluralism. Disadvantaged groups such as blacks, Chicanos, women, children, and the poor need help in getting their rights. Grant money enables them to participate in the interest-group process on an equal basis with the more advantaged groups. Note that the poor are seen as just another minority group. Any idea that poverty, militarism, racism, and environmental degradation are related by-products of the capitalist system is ruled out.

Foundations have also poured money into existing organizations to steer them to reasonable, pragmatic goals. There were no rewards for those who wanted blacks in the United States to see themselves as part of the world anticolonial uprisings. Moderate black organizations, including the National Urban League, NAACP, NAACP/LDEF, and Southern Regional Council have been funded; radical groups have been ignored or repressed.

Foundations promote coalitions that are weighted towards the status quo. Thus, the National Urban Coalition (NUC) was formed in 1967 as an alliance between civil rights organizations, foundations, and major corporations. Previously, corporate philanthropy was usually devoted to public relations, product promotion, employee training, and similar purposes. Beginning in the 1960s, most major corporations developed foundations that participated, along with Ford, Carnegie, Rockefeller, etc., in supporting capitalism in general. They also became members of Independent Sector. The legality of philanthropic use of corporate funds is often questioned by stockholders, but the significance of this new wing of the “nonprofit sector” is generally ignored by leftists.

One program of the NUC, under Ford Foundation leadership, was the creation of Community Development Corporations, in an attempt to transform the “Black Power” slogan into the more acceptable “Black Capitalism.” These entities, which combine financing from government, corporations, and foundations, develop small businesses and industries in impoverished areas — white and black, urban and rural. Although their return on investment is trivial, their payoff can be measured in terms of pacification, the development of moderate leadership, and social mobility for individuals.

Another project of the foundation-corporation alliance was the establishment of the Martin Luther King Jr. Center for Non-Violent Social Change in Atlanta. It was financed by the large foundations, as well as the corporate foundations of Ford Motor Company, Atlantic Richfield, Levi Strauss, Amoco, General Motors, Heublein, Corning, Mobil, Western Electric, Proctor and Gamble, US Steel, Monsanto, Morgan Guaranty Trust, etc. Along with innocuous programs like daycare centers, housing rehabilitation, and information on how to celebrate Dr. King’s birthday, are two striking projects. One is work with military chaplains to provide King Birthday observances at military bases. The other is cosponsorship of an annual lecture series entitled: “The Free Enterprise System: An Agent for Nonviolent Social Change.”

Other minority movements have been transformed into standard Washington lobby format. The Southwest Council of La Raza and National Council of La Raza were created by the Ford Foundation from what were once militant movements of Chicanos in the Southwest.

Leadership training and technical assistance programs for protest and advocacy organizations also stress pragmatic goals. The foundations claim that their programs enhance “pluralism.” What they mainly do is increase the clout of the foundation-corporation network. For all the emphasis on participation, ordinary people have become alienated from politics in any form, and foundation-supported policy experts nearly monopolize the political debate.

The major foundations have always had overseas interests. Before the Second World War they had a more active foreign policy than the U.S. government, working through organizations such as the Council on Foreign Relations, the pre-eminent foreign policy think tank created by the Rockefeller Foundation and the Carnegie Endowment. The idea and funds for the United Nations owe much to foundation and Rockefeller family philanthropy.

Instability in Latin America has been greeted by the “hard cops,” the CIA and the military, but also by innumerable foundation-supported projects, carried out directly or by funded nonprofits. These include aid to noncommunist grassroots organizations (especially “Christian Democratic” ones), training for potential leaders in the United States, and funding of university programs and scholars.

Foundations also created Americas Watch, and similar organizations for other parts of the world, all of which are premised on the notion that rebellions occur in part because many governments do not respect human rights, perhaps because of sloppiness, or ignorance, or corruption. Americas Watch then brings individual violations to the attention of the media and international organizations. It does not acknowledge that repression, torture, and extermination may be government policy, or that technical assistance programs may be transmitting the technology of torture.

In Eastern Europe and the former USSR, foundations long supported dissidents, for example, through the Eastern European Cultural Foundation, and ran exchange programs to influence scholars and government officials. With the eclipse of the communist governments, the U.S. nonprofit sector has not only funded individual nonprofits of all kinds, but has attempted to create an entire world in its own image. It does this by sending specialists to write constitutions, to revise civil law and university curricula, and to establish a nonprofit sector in each nation to perform charitable, cultural, social, and educational functions that were formerly government responsibilities. The traditional funders have been joined by an array of foundations created by George Soros for these purposes. Also, the U.S. government, modeling itself on the foundations, has gotten into the act through the National Endowment for Democracy, created by Congress in 1983 to channel funds to overseas political organizations and do overtly what the CIA does covertly. This new addition to the nonprofit sector has been attempting to mitigate the shock of marketization, which has brought about not only unemployment and destitution, but also the collapse of many important cultural and social institutions.

The environmental movement has also been a threat to “business as usual,” especially when degradation is linked to corporate activity. The response from the foundation world has been the creation and funding of many organizations, think tanks, university institutes, and conferences on “sustainable development,” as well as the ideology itself of sustainable development.

Foundation influence was substantial in every aspect of the United Nations Conference on the Environment and Development in Rio de Janeiro in June 1992. Many of the nongovernmental organizations at the Global Forum, the “grassroots arena,” were funded by foundations, if not their creations. Even official governmental delegates were tutored by the foundation network, which “provided technical assistance to developing-country governments that lacked the resources to participate fully in the debate, and provided texts to governments that didn’t know the issues well enough to draft the subtle language needed for compromise.”3

The foundation world’s concern with “citizen participation” is now global. Of course, as in previous leadership-training programs, people will be taught to be effective, that is, to have pragmatic, reasonable goals. A new organization has been created: “CIVICUS: World Alliance for Citizen Participation … members consist of both donors and grantees — to accelerate citizen participation and influence throughout the world…. Its administrative office is currently housed at the Independent Sector in Washington, D.C.”4

This is only a small sample of the protective activities of the “third sector.” Much helpful and good work has been supported. Whether this is enough to stave off planetary disaster in economic, environmental, social, and political dimensions is another question. It often looks as though the energy to devise, promote, and initiate radical alternatives to the present system has been dissipated by the third sector’s protective layer.

1. Council on Foundations is an association of 1300 foundations operating in the United States and abroad. Established in 1949, the Council assists grantmakers through leadership and research programs. It recently contributed nearly $6 billion to education, human services, science research, arts, and urban development projects. Council on Foundations Factsheet, 1995.

2. B. Howe, “The Emergence of Scientific Philanthropy,” in Arnove, R, ed., Philanthropy and Cultural Imperialism (Boston: G.K. Hall, 1980), p. 29.

3. J. Maughan, “The Road from Rio,” The Ford Foundation Report, Summer 1992, p. 16.

4. “World Alliance,” Foundation News, September/October 1993, p. 10.

*Joan Roelofs is a Professor of Political Science at Keene State College, New Hampshire. She is the author of Foundations and Public Policy: The Mask of Pluralism (forthcoming, January 2003, SUNY Press). This article originally appeared in Monthly Review, September 1995.

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