Generosity Unbound: How American Philanthropy Can Strengthen the Economy and Expand the Middle Class, by Claire Gaudiani (Broadway, 280 pp., $15)

The past decade has been a disquieting one for private philanthropic foundations in the United States. Not in a pecuniary sense: while foundation endowments were hit hard in 2008 and 2009, the last ten years have brought plenty of new wealth and energy into philanthropy. On the regulatory front, though, foundations have faced years of uncertainty about heightened government intrusion.

In 2004, the Senate Finance Committee raised the prospect of new regulations as part of its examination of accountability at philanthropic organizations. And in 2008, most significantly, a bill introduced into the California legislature would have required large foundations in the state to provide information on the racial composition of their boards, staff, and grantees. This episode, known as “Greenlining” after the organization whose work inspired the pending legislation, resulted in an extortive deal, whereby the largest foundations in the state set aside $30 million for minority-led nonprofits; the legislation then died.

The next year, the influential National Committee for Responsive Philanthropy (NCRP), which receives funding from private foundations, issued a report claiming to outline “philanthropy at its best.” The substance of such grant-making, according to NCRP, requires that foundations dedicate 50 percent of their spending to organizations that help “marginalized” populations, and another 25 percent to social-justice “advocacy.” Many foundations expressed dismay, albeit quietly, that their grant-making in areas such as the arts and health care would not meet such arbitrary standards.

Several state legislators around the country have expressed interest in pursuing their own “Greenlining” strategy. One California congressman articulated the worldview behind these episodes: foundation dollars, he asserted, are really just “earmarks.” Because foundations enjoy favorable tax status and are devoted to public benefit, their philanthropic funds are “public money.”

This is quite the rhetorical trick. As Claire Gaudiani writes in her new book, Generosity Unbound:

There are great dangers in treating foundation assets as a piggybank. Foundation endowments are private property held for the public benefit according to the donor’s intent. Tax deductions for charitable donations were established to provide an incentive to sustain our tradition of citizen generosity. . . . Deductible contributions do not, however, make foundation endowments any more public than are the homes of citizens who have elected to deduct their mortgage-interest payments from their taxes.

Gaudiani’s book is a patient explanation of the enduring vitality of American philanthropy and an all-too-necessary reminder to policymakers and critics across the political spectrum that government is not, and never can be, a substitute for private philanthropy. Prompted to write the book by the Greenlining episode and the NCRP report, she seeks to ground philanthropy in the values of the Declaration of Independence and insulate it from efforts at government expropriation.

Gaudiani argues that “America’s tradition of citizen-to-citizen generosity”—what she calls “generosity unbound”—is related closely to our system of democratic capitalism. Successful entrepreneurs such as George Peabody, Andrew Carnegie, and Bill Gates channeled their wealth toward creating further opportunities for others to attain economic success. She sees a virtuous cycle of opportunity, prosperity, gratitude, and citizen generosity—which then starts the cycle all over again. While her argument is not new—others have written about entrepreneurial wealth “reconstituted” as philanthropy, which then creates opportunities for yet more wealth creation—Gaudiani uses it to rebut philanthropic critics. Should proponents of the “public-money” notion succeed, she shows, they would undermine not only philanthropic giving, but also the American economy itself.

The philanthropy-entrepreneurship connection operates along three avenues of capital investment: human (principally education), physical (including museums and hospitals), and intellectual (such as research). Few of these, Gaudiani points out, would pass the tests that Greenlining and the NCRP would impose on institutional philanthropy, but this only serves to illustrate how narrow their criteria are: “It is not necessary that philanthropic activity serve only the poor or unfortunate in order to qualify as charitable.”

Private foundations, the highest-profile philanthropic institutions, shouldn’t escape unscathed, of course. Few would argue that foundations should be exempt from all government regulation, and Gaudiani provides a brief overview of the history of foundations, noting that “the level of trust between the elected representatives of the citizenry and private foundations has remained in flux.” But the issues facing foundations go beyond regulation and the knotty questions of donor intent and trustee composition. It has become increasingly apparent in recent years that foundations require innovation in the areas of management and governance. How are institutions with no market signals and no constituencies to be properly managed to avoid frivolity or harm? Private foundations are acutely vulnerable to intellectual fads, and despite the burgeoning number of philanthropic consultancies, we still have far to go in understanding these issues.

Gaudiani is not as persuasive in her contention that the Declaration of Independence and the Constitution established the traditions of American charity and philanthropy. Gaudiani sees the Declaration as “the American mission statement,” one that citizens must be “generous and courageous” in order to advance. She seems to suggest that this American mission is generalized happiness for all, rather than the pursuit of happiness. Calling the Founders “revolutionary planners,” Gaudiani claims that their ideas “led directly to the creation of our unique social-profit sector” by building “the foundation of our citizen-to-citizen philanthropy.” But the Founders set out to safeguard preexisting natural rights, not have the government establish them. To the contrary, those rights must be protected from government intrusion.

In her unsatisfying conclusion, Gaudiani attempts to lay out what she calls the “Declaration Initiative,” a national set of goals to be achieved by July 4, 2026, chief among them the elimination of child poverty. She argues that “fatal disparities” continue to prevent millions of Americans from realizing the inalienable rights in the Declaration. Inequalities in health, education, income, and opportunity unquestionably plague the United States, but it’s not quite clear what Gaudiani has in mind when she calls on foundation leaders to initiate a “national conversation,” especially when she surveys all of the philanthropic efforts already under way in these areas.

Nevertheless, Gaudiani’s overall message is sound: philanthropy is an essential component of self-government, but a vulnerable one. It can be destroyed from within, by ineffectual management, or from without, by an overreaching government.