Public Choice scholars have explained in detail why waste and folly are the norm for governmental action. To put their explanation in a nutshell, the incentives and information needed for efficiency are missing.
The extremely sorry record of governmental action sometimes leads people to think that non-governmental action must necessarily be better. That does not follow, though, as historian Martin Morse Wooster demonstrates in the new release of his book Great Philanthropic Mistakes, a revised and expanded edition of a book first published in 2006.
Wooster has written extensively on the problems of philanthropy — those who are interested in the field will also want to read his 1999 book The Great Philanthropists and the Problem of Donor Intent. Here he investigates eight instances in which foundations squandered large amounts of wealth on visionary projects. The eight cases involve efforts at improving medical education, finding a cure for cancer, population control, creating public television, reviving the inner cities, salvaging public education (twice), and the funding of “geniuses.” The cast of characters includes some of America’s most prominent philanthropic organizations: the Ford Foundation, Rockefeller Foundation, MacArthur Foundation, and others.
Surveying these cases, it becomes evident that private action can suffer from the same incentive defects that we find in political and bureaucratic action. The decision makers in philanthropies — the presidents and program officers — do not have a reliable feedback mechanism to tell them when their projects are doing more harm than good. And even if they might suspect that their operations are not working as planned, they suffer no direct loss. It is someone else’s money, after all.
As Milton Friedman famously remarked, “No one spends other people’s money as carefully as he spends his own.” Foundation officers spend fortunes amassed by others, and often do so in ways that run contrary to the philosophy of the benefactor. Rockefeller Foundation officers had nothing to do with John D. Rockefeller’s great business success and felt free to lavish the foundation’s money on social engineering that Rockefeller himself thought harmful. When Rockefeller found that his wealth was being devoted to purposes of which he disapproved, he also discovered that there was nothing he could do about it. Because of the irrevocability of money transfers, even to a foundation bearing one’s name, we now sometimes see foundations established with fixed lifetimes — the Olin Foundation being a prime illustration.
Flexner’s health care | Before getting into the particulars of Wooster’s cases, it is worth noting that the private action undertaken by charitable foundations sometimes entails advocacy for new or expanded government programs. Little wonder that philanthropic programs fail when they are just backdoor routes to increased governmental intervention in society.
That point is particularly important in the first case in the book, Abraham Flexner’s crusade to change medical education. Flexner was the prototype of the kind of social activist, with a head full of grand ideas, who then goes hunting for powerful supporters.
Owing to his wife’s success as a playwright, Flexner was independently wealthy and wanted something to do. In 1908, he published a critical review of higher education pedagogy, entitled The American College, and sent a copy to the president of the Carnegie Foundation, Henry Pritchett. Pritchett was much taken with Flexner and, when they met, offered him a job: to study and write a book about medical education. Flexner was not a medical doctor, but he undertook the work with relish. He became convinced that most American medical schools were deficient and should either be closed or reformed to what he thought were proper standards.
The resulting book proved to be a remarkable sensation, its attack on most medical schools resounding with the public much as had Upton Sinclair’s attack on the meat packing industry a few years earlier. Flexner’s writing was imbued with the spirit of the Progressive Era, favoring central planning by experts rather than marketplace competition and discovery. By his calculation, the United States needed only 31 medical schools, which meant that more than 100 existing schools should be shut down. He also insisted that students should already have undergraduate degrees before beginning medical studies and that professors should do nothing but teach — no outside income from practice.
The Carnegie Foundation could do nothing to implement Flexner’s proposed reforms, but state legislatures could. The book dovetailed with efforts by the American Medical Association to make medical education “more professional,” i.e., more of a barrier to entry. The result was increased regulation of medical education and licensing. Costs went up and many of the marginal schools folded.
Why was all this a “mistake”? The number of physicians fell from 154 per 100,000 Americans in 1910 to 121 per 100,000 by 1930. Many of the schools that were extinguished by the Flexner/Carnegie/AMA crusade had served women and racial minorities. Perhaps worst of all, the precedent was set for “expert” control over education rather than relying on competition.
There is an epilogue to the Flexner story. After his initial association with the Carnegie Foundation, he wrangled a longer one with the Rockefeller Foundation in which he burned through millions of dollars in pursuit of his visions about the ideal medical school. Mostly, he did not get his way.
Lasker’s war on cancer | Mary Lasker’s husband Albert made a fortune in advertising. After his death, Mary used his money to push for a cure for cancer. Her 30-year lobbying campaign, Wooster writes, “did as much as one person can do to expand the size and scope of the federal government.” She was not interested in having her foundation seek out and support promising researchers. Instead, she used the foundation’s money to push politicians into making it a responsibility of the federal government to find the cure for cancer.
A good example of the Lasker Foundation at work is a full-page advertisement it placed in the New York Times in December 1969. “Mr. Nixon, You Can Cure Cancer,” its headline read. The text went on to admonish the president to spend enough to cure cancer “by the nation’s 200th birthday.” It was one of the first significant pieces of advocacy to use the “If we can put a man on the moon, then we can…” conditional.
The pressure worked. In his 1971 State of the Union address, Nixon called for a $100 million fund for cancer research, saying that the same effort that “took man to the moon should be turned towards conquering this dread disease.” The Lasker Foundation succeeded in politicizing cancer research. Throwing money into the federal bureaucracy, however, is not a very good way of ensuring progress on a particular disease. Wooster quotes Dr. Norton Zinder of Rockefeller University, who observed that National Cancer Institute investigators, flush with cash, “tended to delegate study of scientific problems to friendly colleagues” and were known to award research contracts to close friends, a practice he called “embarrassing, if not illegal.”
Cancer has not been cured, but large amounts of foundation money and much larger amounts of taxpayer money have been spent with little to show for it.
Ford’s gray areas | This review cannot cover all of the cases in the book, but it would be indefensible to leave out the Ford Foundation, whose one-time president, McGeorge Bundy, once cut short a discussion over a project by saying, “I may be wrong, but I am never in doubt.” That attitude squandered tremendous amounts of Ford money. Consider, for example, its “gray areas” program in the 1960s.
The basic idea behind the program was to fund community organizations in impoverished areas, mostly inner cities. Ford officials assumed that activists in each community would know best what kinds of programs would be the most beneficial. Therefore, Ford first created new community organizations, giving their appointed leaders great latitude to do whatever they thought would improve conditions. The result (here Wooster quotes Harvard historian Stephan Thernstrom) was a set of organizations “so flexible as to be virtually spineless; agencies whose very existence was dependent on their ability to write proposals that reflected what their sponsors wanted to hear.”
The various “gray areas” groups, primed with Ford money, went to work on improving their communities. The most noteworthy of them, named Mobilization for Youth, occupied itself by organizing the poor in New York City to advocate increases in federal welfare programs — the philanthropy-to-government pipeline again — and fomenting rent strikes. Ford was sponsoring radical political activism on the Lower East Side. This all proved to be quite an embarrassment for the foundation, which terminated its support for Mobilization for Youth in 1964, by which time the federal War on Poverty money started to flow in.
Conclusion | Wooster’s book does not deny that philanthropy can accomplish worthwhile objectives. But he shows that it often dissipates wealth rather than solving problems, especially when decision makers see philanthropy as a means of catalyzing increased governmental activity. Anyone who has established a charitable foundation, or is thinking of doing so, should read both of Wooster’s books.