Charitable Foundations Research Paper

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Charitable foundations are endowments that are devoted to the pursuit of public purposes. Foundations are typically set up to exist, in principle, in perpetuity—spending parts of their annual income on public purposes, while retaining the remainder to preserve and grow their endowment assets. On occasion, however, donors limit the life span of a charitable foundation, requiring the foundation to spend out all assets over a given number of years, as was the case with the Julian Rosenwald Fund (1917–1948) and more recently the Bradley Foundation, established in 1985. Foundations have existed in one form or another for many centuries, and some observers have pointed to the Library of Alexandria and Plato’s Academy (bequeathed with income-producing lands to his nephew) as early examples in antiquity. Historically, foundations were closely linked to religious charity in the Judeo-Christian tradition, but similar concepts are found in other religious traditions as well, such as the al-wakif in Islam.

In the course of the twentieth century, however, much foundation activity has been linked to the concept of philanthropy. Literally “the love of humankind,” philanthropy can be most poignantly defined as the use of resources to examine and address the causes of social ills or problems. As such, philanthropy contrasts with traditional charity, understood as the eleemosynary, ameliorative use of resources. Although many charitable trusts existed for various purposes in early American history, and the “foundations” of Benjamin Franklin (1706–1790), James Smithson (1765–1829), and George Peabody (1795–1869) were of great significance, the birth of the U.S. foundation sector, and with it the rise of the concept of philanthropy, is typically located around the beginning of the twentieth century.

In an influential series of articles published in the 1880s titled Wealth, the industrialist Andrew Carnegie (1835–1919) began to argue in favor of an obligation on the part of the rich to devote excess wealth to public purposes and to help provide opportunities for the less fortunate to better themselves. Over the following decades, the traditional focus of charitable trusts on providing relief and amelioration was gradually supplanted by a new orientation toward analyzing and addressing the causes of social problems rather than just addressing their effects. Using the emerging sciences to tackle the “root causes of social ills” set the ambitions and operations of the early twentieth-century foundations apart from earlier foundation activities in the United States and launched what historians Barry Karl and Stan Katz (1987) have termed the modern philanthropic foundation.

The earliest of these new foundations included the Russell Sage Foundation (1907), the Carnegie Corporation (1911), and the Rockefeller Foundation (1913), which popularized the foundation idea and provided a blueprint that other wealthy donors began to follow in the 1920s and 1930s. High marginal tax rates that originated during World War II (1939–1945) and continued into the postwar period, in combination with lax regulation, further propelled foundation growth in the 1940s and 1950s. By the 1960s, however, perceived economic misuses of foundations led to a political backlash culminating in the introduction of the new and relatively stringent regulation of foundations through the Tax Reform Act of 1969. This law instituted, among other provisions, a payout requirement for grant-making foundations that currently requires the annual payout in grants and other qualifying contributions to be the equivalent of 5 percent of the foundation’s asset value. As such, the sum of foundation grants is closely tied to endowment value, and the run-up of the stock market in the 1990s—as well as the emergence of large-scale postindustrial philanthropists such as William Hewlett, David Packard, Bill Gates, Ted Turner, George Soros, and Warren Buffett—significantly increased the level of resources at the disposal of the foundation community at the beginning of the twenty-first century.

According to data provided by the New York–based Foundation Center, there were close to 68,000 grantmaking foundations in the United States in 2005, holding aggregate total assets of close to $510 billion and spending $33.6 billion in grant and other expenditures. While the number of foundations had only doubled since the late 1980s (there were about 30,000 foundations in 1988), there was a dramatic acceleration of the financial means of the foundation sector in the space of only a few years. More specifically, total assets in nominal terms more than doubled between 1995 ($227 billion) and 2005, and grant dollars almost tripled between 1995 ($12.3 billion) and 2005. Despite this growth, funding patterns have remained stable: Education receives about 25 percent of all foundation support, followed by health with about 20 percent and human services with 15 percent. The other major funding areas are arts and culture and public affairs, with slightly more than 10 percent. The remainder is distributed between environmental causes, science, religion, and international affairs.

Although not insignificant, foundation resources remain overall rather limited. For example, the roughly $8 billion in annual educational spending by foundations equals no more than four times the 2005 operating budget of Harvard University or any large urban school district. As such, foundations are seldom the most appropriate vehicle to provide basic financing of educational ventures or scientific institutions or to serve as guarantors of sustainability over the long run. Rather, foundations have traditionally sought a different function. Faced with a scarcity of resources on the one hand, and flexibility and freedom from external constraints on the other, foundations are usually at their best when pursuing the development of new ideas and concepts. During the twentieth century, foundations had their greatest impact in fostering innovation and pioneering novel approaches and then moving on to different areas once the innovations took root.

This pioneering function of foundations is well reflected in the development of the social sciences in the twentieth century. The Russell Sage Foundation, founded in 1907 as the first of the great modern philanthropies with the mission to pursue “the improvement of social and living conditions in the United States,” adopted early on a focus on a scientific understanding of the causes of poverty. This led to the development of the social work profession, and eventually turned the foundation into the mainstay of social science inquiry that it remains today. Similar to the Russell Sage Foundation, but with more of an economics focus, was the Twentieth Century Fund (now the Century Foundation) founded in 1919.

Other foundations focused on improving education, including the Julius Rosenwald Fund in the American South, but the larger foundations, particularly the Rockefeller and Carnegie philanthropies, soon devoted growing shares of their resources toward the development of the social sciences. These foundations were instrumental in helping to establish new independent institutions that would shape social science discourse for decades, including the National Bureau of Economic Research (1920), the Social Science Research Council (1923), and the Brookings Institution (1927). Beyond building an institutional infrastructure, foundations also sponsored a range of important research studies, such as Gunnar Myrdal’s (1898–1987) seminal work on race in the 1940s, that gave prominence and helped validate emerging disciplines. All this work became crucial in consolidating the role of social science in the academy. After the Ford Foundation came to national prominence in 1949, fostering the social sciences was among its main programmatic objectives. Ford heavily supported social science development in European universities in the aftermath of World War II, and is widely credited with introducing area studies in the United States. Although federal funding has come to overshadow private foundation support for research, foundations have long shaped the development of the social sciences and remain important supporters of innovative work.

Bibliography:

  1. Anheier, Helmut K., and Stefan Toepler, eds. 1999. Private Funds, Public Purpose: Philanthropic Foundations in International Perspective. New York: Kluwer Academic/Plenum.
  2. Dowie, Mark. 2001. American Foundations: An Investigative History. Cambridge, MA: MIT Press.
  3. Foundation Center. 2006. Foundation Yearbook: Facts and Figures on Private and Community Foundations. New York: Author.
  4. Karl, Barry, and Stan Katz. 1987. Foundations and Ruling Class Elites. Daedalus 116: 1–40.
  5. Lagemann, Ellen, ed. 1999. Philanthropic Foundations: New Scholarship, New Possibilities. Bloomington: Indiana University Press.
  6. Nielsen, Waldemar. 1972. The Big Foundations. New York: Columbia University Press.
  7. Prewitt, Kenneth, Mattei Doggone, Steven Heydemann, and Stefan Toepler. 2006. The Legitimacy of Philanthropic Foundations: United States and European Perspectives. New York: Russell Sage Foundation.
  8. Weaver, Warren, ed. 1967. U.S. Philanthropic Foundations: Their History, Structure, Management, and Record. New York: Harper.

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