Can Philanthropy Remake Capitalism?

The Ford Foundation makes grants to support New York City taxi drivers and minor-league baseball players. The William & Flora Hewlett Foundation invests in scholars at Harvard, Yale, and Stanford. The Omidyar Network tried to persuade voters in Illinois to raise taxes on the rich.

These disparate activities are part of an ambitious, sprawling, and loosely coordinated effort by some of America’s biggest foundations to do nothing less than fix the problems with American capitalism. Ford, Hewlett, and Omidyar, among others, have committed nearly $500 million over the next five years to transform the economic system that, not incidentally, made possible the great fortunes that underpin their work.

Capitalism must be remade, these foundations argue, because unregulated markets are at the root of the most important social and environmental problems we face.

“Capitalism in its current form has caused record income inequality, staggering racial wealth and wage gaps, sluggish productivity, and declining economic dynamism and innovation,” says Mike Kubzansky, CEO of Omidyar Network, in the network’s Call to Reimagine Capitalism in America.

But do America’s biggest foundations have any hope of bringing sweeping changes to the $24 trillion U.S. economy? While foundations have long favored world-changing approaches to giving like this one over mere charity, critics say their grand plans to usher in social and political change have delivered mixed results, at best.

William Schambra, a senior fellow at the Hudson Institute, says: “Fully a century after the dedication of American philanthropy to root-cause solutions, there are virtually no social problems to the root of which we have gotten and which we have solved once and for all.”

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Others see efforts to transform market capitalism as an example not just of overreach but of the politicization of large-scale philanthropy.

James Piereson, a conservative scholar and president of the William E. Simon Foundation, says that the market revolution of the 1980s has “been successful in improving the standard of living for most Americans. We’ve had pretty steady growth. A lot of innovation.” Problems such as poverty, racial inequality, and climate change deserve attention, he says, “but you can work on those problems without throwing out the market system. To say the system has failed is totally wrong.”

Activism and Policy Work

While Ford, Hewlett, and Omidyar all aspire to remedy what they believe to be deep and persistent flaws in the workings of the American economy, their approaches vary.

Ford supports activist groups that aim to empower workers. The foundation’s Future of Work(ers) program seeks to ensure “that all workers, regardless of their status, have equal rights to labor protections, that social protections are guaranteed to all, and that workers shape the policies and economic systems that affect their lives.” Ford has put more than $200 million in grants behind the effort, which began in 2016.

Hans Pennin, AP

Hewlett has taken a loftier path, seeking to replace neoliberalism — an ideology that, broadly speaking, favors free markets, deregulation, and limited government spending — with a still-to-be-determined framework that would entail a bigger role for government in the economy. Larry Kramer, president of Hewlett, which launched its Economy and Society Initiative in 2020, blames neoliberalism for skyrocketing income inequality and the unfolding climate crisis. Hewlett has committed $107 million to this work.

Omidyar is pursuing an approach that more overtly seeks to change policy, such as promoting measures on state ballots and lobbying, while also engaging in conventional grant making. Its work seeks to bring about what it calls “a new, inclusive economy where markets serve the interests of all people and society.” So far, Omidyar has committed $93 million to Reimagining Capitalism.

The foundations have been loosely coordinating their efforts since 2019, when Hewlett and Omidyar brought together foundation leaders, wealthy donors, and nonprofit executives to share ideas. Open Society, Rockefeller, and Surdna also have programs to make the economy more responsive. In the past few years, the foundations have largely coalesced to advance goals that include a bigger federal government, higher taxes on business and the wealthy, and an active regulatory state that reins in corporate influence while amplifying the power of workers and consumers. It’s too soon to say whether their work has had any impact.

Their agenda bears a strong resemblance to the platform of the progressive wing of the Democratic Party. “There is a lot of overlap,” says Felicia Wong, CEO of the Roosevelt Institute, an influential Washington think tank and a grantee of Ford, Hewlett, and Omidyar.

Roosevelt is officially nonpartisan, but like most of the think tanks, academics, and advocacy groups being funded under the banner of fixing capitalism, it leans left. “We need to make full use of government power,” Wong says. “The danger of doing too little is far greater than the danger of doing too much.”

Still, this grand undertaking carries two significant risks. One is that it could fail. Private foundations can’t get involved in partisan politics, but their agenda requires new laws and regulations. Those depend on the outcome of elections. Should Republicans gain control of Congress or the presidency, opportunities to expand government and enact policies that favor workers over capital will dim.

It’s not just Republicans. Centrist Democrats remain wary of the big programs — subsidized child care, universal preschool, free community college, paid family and medical leave, Medicare for All — championed by many of the nonprofits funded by Ford, Hewlett, and Omidyar. Gallup’s latest polling data shows that more than 70 percent of Americans self-identify as conservative or moderate and just 25 percent call themselves liberal. Whether the foundations can shift public opinion is an open question.

Manhattan Institute

A second risk, which is not as obvious, is that the foundations and their allies could succeed. They could usher in an era of expanded government that would leave the United States looking more like a European welfare state. This, too, might not bring about the outcomes they seek.

Many economists believe that government spending, taxes, and regulation curb economic growth. Slower growth generates fewer jobs, hurting those who are most vulnerable. Federal spending currently stands at about 30 percent of gross domestic product, the highest level since World War II; the federal deficit also is at a 75-year high. While European welfare states spend more than the United States on education, health care, and social services, all of which reduce income inequality, their citizens are generally poorer.

“People believe we can spend and spend and spend and not ever pay for it,” says Veronique de Rugy, a libertarian economics professor at George Mason University. “You have a feeling that people truly believe that there is a solution that is painless. I don’t think that’s ever the case.”

Power Shift

What philanthropy has done, philanthropy can undo. So, at least, says Hewlett’s Larry Kramer. He recognizes that the idea of a few well-meaning foundation leaders changing the trajectory of the American economy may sound grandiose. His response? It has happened before.

Conservative foundations worked in concert for decades to spread the free-market gospel of Nobel Prize-winning economists Friedrich Hayek and Milton Friedman. “The funding of free-market ideas in the 1950s to ’70s may constitute the single most successful example of effective philanthropy in history,” Kramer wrote to Hewlett’s board in 2018, from which these efforts to revamp capitalism took root.

“Fiscal policy, monetary policy, labor policy, trade policy, welfare policy, and industrial policy, to name only a few, have been fundamentally altered in line with the ideas of Hayek and Friedman and their followers,” he wrote.

“The triumph of market ideology did not occur organically,” Kramer went on. “It was, in fact, an intentional, cultivated, and — most important for present purposes — well-funded effort.”

(The Hewlett Foundation is a financial supporter of the Chronicle of Philanthropy.)

Philanthropy’s contribution to the triumph of neoliberalism is a model for Hewlett’s work on capitalism today, centered as it is on the influence of ideas and elites. In February, Hewlett and Omidyar announced more than $40 million in grants to help establish academic centers at Harvard’s Kennedy School, Howard University, Johns Hopkins, MIT, and the Santa Fe Institute. Hewlett had earlier funded researchers at Columbia, Harvard, Stanford, and Yale, as well as essays and journals such as the Boston Review and the American Prospect.

“We are very focused on the idea gestation,” says Brian Kettenring, who directs the economy and society grant making at Hewlett. “Modest investments behind good ideas can have a tremendous impact.”

Ideas are also the purview of left-leaning think tanks including Roosevelt, the Center for American Progress, theEconomic Policy Institute, and the Washington Center for Equitable Growth, all of which are backed by Hewlett. But Hewlett is decidedly nonpartisan, supporting right-leaning thinkers at the American Conservative, American Compass, and the Niskanen Center who challenge free-market dogma about trade and immigration.

Ford and Omidyar underwrite think tanks, too. Unlike Hewlett, though, they are wading into the trenches of the class struggle to fund activists on the left. While they cannot support candidates for office, they can and do put money behind progressive organizations that advocate for low-income people and challenge corporate power.

Their grantees include the Center for Popular Democracy, which supports and organizes campaigns to win a “pro-worker, pro-immigrant, racial, and economic-justice agenda”; Community Change, whose work includes immigrants rights and housing; Jobs With Justice, which supports striking workers and pushes for worker-friendly labor laws; the National Domestic Workers Alliance, which organizes on behalf of nannies, housecleaners, and home-care workers; and United for Respect, which focuses on retail workers, with campaigns against Walmart and Amazon.

The Omidyar Network goes a step further by seeking to influence campaigns and elections, a step it is allowed to take because, unlike Ford, Hewlett, and other foundations, it is a limited-liability company. That means it can make grants through its tax-exempt arm and political gifts that are not deductible through its political arm.

In Illinois, for example, the Omidyar Network supported Vote Yes for a Fair Tax, a group that advocated for a 2020 ballot measure permitting the state to collect higher taxes from the wealthiest 3 percent of Illinois residents. (It failed.) Omidyar also contributed to coalitions working on ballot issues in Massachusetts, one to protect labor-law standards for gig workers and another that would raise personal income-tax rates on those with incomes over $1 million. Altogether, the Omidyar Network spent $3.5 million on political activities.

Vote Yes for a Fair Tax, Facebook

Ford has spent far more money than either Hewlett or Omidyar on its efforts to change the economy. Its Future of Work(ers) program has moved $204 million to organizations advocating for labor since 2016, a figure that does not include another $63 million to those groups made through its Building Institutions and Networks program, known as Build, which makes long-term, unrestricted grants to nonprofits.

“We’re in a long moment of crisis for working people and their families,” says Sarita Gupta, vice president of U.S. programs at Ford. “Build has been really instrumental in giving grantees the ability to adapt to unforeseen challenges.”

Ford tries to collaborate with other grant makers when possible, Gupta says. As an example, she cites the Families and Workers Fund, which early in the Covid-19 pandemic made cash grants to more than 215,000 workers who lost their jobs. With Ford leading the way, the donor collaborative says it unlocked $115 million in philanthropic funding for emergency cash relief — charity, if you’ll excuse the expression.

The fund then pivoted to “address root causes versus symptoms,” promoting economic mobility rather than giving people money. The fund, which now has more than 20 donors, makes grants to nonprofits for a variety of purposes — pilot projects, job training, and the like — aimed at advancing good jobs. One nonprofit, called Resilience Force, trains workers in New Orleans to respond to natural disasters. Another, the think tank New America, published a report about how to better deliver unemployment benefits.

Ford also ventures into obscure corners of the economy. Last year, the New York Taxi Workers Alliance, a union of 21,000 drivers, got a $1.5 million grant to fight for the rights of professional taxi drivers; the organization helped secure debt relief for cab drivers and raises for those who contract with Lyft and Uber.

With a $200,000 Ford grant, a nonprofit called Advocates for Minor Leaguers hired Harry Morino, a former minor-league pitcher, as its first executive director. Morino, who earned a law degree after his baseball career fizzled, says minor leaguers, many of them people of color, work long hours for as little as $8,000 a year.

Business as Usual

It’s too early to assess the impact of these efforts to remake capitalism, although there are some small signs of progress. Think tanks like the Roosevelt Institute, American Compass and the Niskanen Center are increasingly part of the policy conversation in Washington. Jennifer Harris, who led Hewlett’s Economy and Society work, now helps shape international economic policy inside the Biden White House. Given the scale of the undertaking, no one expects short-term results. These foundations, after all, are trying to steer the entire economy in a new direction.

If capitalism is going to be reimagined, however, philanthropy will have to change the conduct of corporate America. As it happens, for the past two decades, foundations including Ford, Hewlett, and Omidyar, have been trying to do just that by supporting nonprofits and activist groups that aim to change business for the better.

Those grants have had an impact. Terms like “sustainability,” “corporate responsibility,” and “ESG,” which stands for the environmental, social, and governance criteria that many investors have embraced, have become part of the business lexicon. Nonprofit groups pushing companies to take an expansive view of their role in society have won victories: Companies buy renewable energy, pledge to reduce their carbon emissions, and report on the diversity of their work force.

The Business Roundtable, an association of chief executives of America’s biggest companies, declared in 2019 that the purpose of a corporation is to operate for the benefit of all stakeholders — customers, employees, suppliers, and communities — and not just for shareholders. The Wall Street Journal deemed that a “major philosophical shift.”

But critics say that all the talk about corporate responsibility has failed to drive meaningful change, at least not in two critical areas — climate change and the equitable distribution of wealth.

On the all-important climate issue, U.S. government policy matters more than corporate practices. Big companies have done little or nothing to advocate for federal climate policy. To the contrary, they continue to support trade associations and members of Congress who oppose federal action. There’s a disconnect between what companies do internally and what they do in the halls of power.

Rank-and-file workers, meantime, have yet to see the benefits of corporate responsibility. An analysis by American Compass finds that while GDP per capita rose 92 percent from 1979 to 2019 and corporate profits rose 77 percent, wages for nonsupervisory workers rose only 9 percent. Over the same period, average compensation for CEOs at the 350 largest publicly traded U.S. firms went from being roughly 30 times larger than the average worker’s to being 300 times larger.

Writing in the Harvard Business Review, Ken Pucker, a former Timberland executive who now teaches at Boston University’s business school, said: “Corporate sustainability efforts have not, in the aggregate, made much difference for society or the planet.”

To get a sense of the challenge, consider the nonprofit B Lab, a small but well-respected player in the corporate-responsibility arena. B Lab certifies companies that do good for people and the planet as B Corps. With funding from the Ford, Omidyar, Rockefeller, and Skoll foundations, B Lab and its allies have built a global movement, certifying more than 4,000 B Corps in 70 countries since its launch in 2006. That’s impressive.

Certification as a B Corps company signals that it has met high and verifiable standards of social and environmental performance. Widely admired firms, including Patagonia, New Belgium Brewing, and Warby Parker, are certified as B Corps, as is Ben & Jerry’s, a division of Unilever, and Danone North America, whose products including Dannon yogurt and Silk plant-based drinks

Jay Coen Gilbert, a co-founder of B Lab, says he’s proud of B Lab’s accomplishments. “The idea that corporations should be accountable to all of their stakeholders [and not just their shareholders] has become much more accepted,” he says.

But B Lab has yet to achieve its ultimate goal of “transforming the global economy to benefit all people, communities, and the planet,” Gilbert acknowledges. Most B Corps are small. Not one company on the Fortune 500 has been certified, for a variety of reasons.

In its efforts to change business for the better, B Lab has plenty of allies. Foundations have supported As You Sow, which organizes public-spirited shareholders to advocate for change; Ceres, a coalition of environmental groups, investors, and companies; and the Sustainability Accounting Standards Board, known as SASB, which makes data about corporate sustainability performance available to investors.

But, there’s scant evidence that do-good corporations can by themselves bring about a more just economy.

“Corporate voluntary action won’t reform capitalism,” says Pucker, the sustainability expert. Only politics will do that. “We need new rules. We need new boundaries.”

Setback in Congress

Those working to revamp capitalism know that philanthropy can’t, by itself, drive transformative change. Foundations and those they fund can spread ideas, build institutions, and challenge conventions. Their role is to ensure that “when the brute force of events make[s] a change inevitable, there is an alternative available to change it.” Those are the words of free-market advocate Milton Friedman, quoted by Hewlett’s Larry Kramer.

For Friedman and his allies, opportunity arose in the late 1970s when high inflation, high interest rates, and high unemployment triggered widespread discontent. The election of Ronald Reagan in the United States (and Margaret Thatcher in Britain) ushered in what Kramer has termed “the neoliberal takeover.”

The Covid-19 epidemic, racial unrest following the police killing of George Floyd, and increasingly dire warnings about the threat of climate change appeared, for a time, to create an analogous opportunity for change. Progressive groups rallied behind President Biden’s Build Back Better plan: It aimed to deploy the power of government on a massive scale to expand the government safety net, tackle income inequality, and combat climate change.

“After decades of neoliberalism as the dominant political and ideological order, we are at the precipice of a badly needed paradigm shift,” said Roosevelt’s Wong. The Roosevelt Institute called the plan “a historic step toward the high-care, low-carbon economy of the future,” the kind of economy envisioned by Ford, Hewlett, and Omidyar.

Patrick Gaspard, president of the Center for American Progress and the former president of Open Society Foundations, called the Build Back Better Act “the most consequential piece of economic legislation in a generation.”

But Build Back Better is dead. U.S. Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, along with all 50 Senate Republicans, opposed its size and scope. Transformational change will have to wait until Democrats have a stronger hold on both houses of Congress.

What this suggests is that those who want to remake capitalism will need to build political power. Philanthropy, at best, can play a supporting role.

Hewlett’s Larry Kramer put it like this: “We should not step onto this pathway without acknowledging that the effort could take years or even decades; will not progress in a linear fashion; may involve periods of stagnancy or backsliding; and will, at best, be difficult to measure and assess.

“Yet what institution other than philanthropy can be expected to even try?”

Reporting for this article was underwritten by a Lilly Endowment grant to enhance public understanding of philanthropy. See more about the grant and our gift-acceptance policy.