The International Journal
of Not-for-Profit Law

Volume 7, Issue 3, June 2005

Edited by Lenore T. Ealy
The Project for New Philanthropy Studies at DonorsTrust / 105 pp. / Free Online
(Download Now)

Reviewed by Michael Bisesi*

In the 1990 film MindWalk, Liv Ullmann, Sam Waterston, and John Heard play, respectively, a scientist, a politician, and a poet. All three are at personal turning points when they converge on Mont St. Michel in France. As the video box explains, “A conversation begins, then the magic of interaction and the fever of ideas takes over.”

In many respects, philanthropy, the nonprofit sector, and the very notion of “the public good” likewise have reached crucial turning points. Accordingly, DonorsTrust (www.donorstrust.org) has launched the Project for New Philanthropy Studies with the first in a series of books called Conversations on Philanthropy: An Interdisciplinary Series of Reflections and Research. Lenore T. Ealy, a former program manager with the Heritage Foundation and the Milton and Rose Friedman Foundation, is the Series Editor. The first volume addresses Conceptual Foundations, and the second one, to appear shortly, will cover New Paradigms. Future volumes are planned on accountability, transparency, and donor intent, among other topics. (DonorsTrust describes itself as “the only community-style foundation committed to promoting a free society as instituted in America’s founding documents.”)

While this inaugural volume of Conversations on Philanthropy may not be optioned for a screenplay, there are enough provocative observations to ensure that the “fever of ideas” will persist long after the reader closes the book. DonorsTrust assembled an array of thinkers from economics and political philosophy to contribute to the volume. Each of the book’s two “conversations” consists of an essay followed by discussant comments.

In an introduction, Lenore Ealy (another Ealy appears later in the book) says that the volume could have been named Reclaiming the Public. She contends that 20th-century public policy “crowd[ed] out any meaningful work for voluntary philanthropy to accomplish” – hence the “public” that needs reclaiming.

Without getting into the meaning of “meaningful work,” the question of what constitutes “public” merits a quick digression. Nonprofit organizations have been described variously as a “public trust in private hands” (BoardSource video) that engage in “private action for the public good” (Walter Powell, Yale). Section 501(c)(3) of the Internal Revenue Code, in its definition of “public charities,” includes this assurance regarding nonprofit organization revenue: “no part of the net earnings … inures to the benefit of any private shareholder or individual.” The creation of the welfare state in the 20th century certainly diverted funds from charities, but there is more to “public” than money.

Lenore Ealy then argues that the changing nature of public goods, virtues, and values calls for an “inquiry into the nature of public action itself.” This inquiry unfolds in “Conversation 1″ with two economists who respond to the following blunt question: “Is an Independent Nonprofit Sector Prone to Failure?” Peter Boettke and David Prychitko, from George Mason University and Northern Michigan University, respectively, provide an essay on Lester Salamon’s 1987 article “Of Market Failure, Voluntary Failure, and Third-Party Government.” They argue that Salamon views another pivotal nonprofit scholar, economist Burton Weisbrod, “through the wrong theoretical lenses.”

Boettke and Prychitko, adherents of the Austrian school (so called because they follow Ludwig von Mises and Friedrich Hayek, among others), believe that “market failure” leads to such inefficient outcomes as pollution, whereas “government failure” entails an inability “to compel its citizens to act” in a certain way.

Boettke and Prychitko acknowledge that Weisbrod at least “has the virtue of using the market failure concept correctly,” and he “also uses the concept of government failure generally correctly.” Their intellectual mentor, James Buchanan (the economist, not the U.S. president) is then cited for his commentary on the problem of “collectivization” and the difficulty of meeting “individuals’ private demands.” (Defining “private demands” leads to a second quick digression, prompted by the memory of an old sociology exam question: “Where does society end and self begin?”)

Enter Roger Lohmann and “The Commons” as an alternative to the so-called “failure project” theory. For West Virginia University’s Lohmann, “pursuit of common goods is rational behavior, albeit distinguishable from the self-interested pursuit of profit that characterizes markets.” He questions the treatment of different nonprofits as running on “unproductive” labor, and then calls for “construction of a genuine economics of common goods.”

Boettke and Prychitko, noting that they “have tried to draw their work into Austrian economic theory,” go on to say that they are “troubled by Lohmann’s appeal to Adam Smith” because of the requirements of the standard maximization model of economics. Relying on their Austrian preference, they also suggest it is pointless to search for such calculations as “social return on investment.” (Their reaction brings to mind the wonderfully surnamed British economist John Eatwell, who once noted: “If the world is not like the model, so much the worse for the world.”)

The essayists reconcile the issue by offering praxeology (the general theory of human action) as the overall organizing principle, with economics (the study of calculative action) as the primary subset. In this context, they argue that voluntary donor contributions should be the principal source of financial support, and they bemoan the reality that “many nonprofits often bypass the responsibility of persuasion and voluntary exchange and instead seek support from the state.” They believe that nonprofits act as a brake on government, and they find Salamon’s “partners in public service” notion lacking in conceptual clarity.

Brief commentary from four individuals, including the much-quoted Roger Lohmann but not the even-more-quoted Lester Salamon, rounds out the first half of the book. Lohmann regrets that social philosophers have paid too little long-term attention to nonprofit organizations and voluntary action. Zoltan Acs (Baltimore) believes that government partnerships “distort the incentives for nonprofit innovation.” Emily Chamlee-Wright (Beloit) reminds the reader that the Austrian perspectives of “non-monetary discovery” and “cultivation of local knowledge” offer important insights. And Richard Stroup (Montana State) is skeptical of partnerships because, in his view, government is not capable of achieving much.

“Conversation 2: The Necessity of Overcoming the Prejudice of Political Philosophy as a Condition for Philanthropy,” starts with an essay by Steven D. Ealy, senior fellow at the Liberty Fund, an Indianapolis-based educational foundation. He wants to know why “the political solution to social problems appear[s] to be the default position in contemporary America.”

Steven Ealy begins by turning to the work of Leo Strauss. Political philosophy, according to Strauss, is “committed to an unwavering search for the truth.” But while Strauss argues for political association, Steven Ealy examines alternatives (anarchism and polycentrism) and suggests that polycentrism is a useful approach to voluntary action. He also critiques George Will’s Statecraft as Soulcraft (1983), because Will sees government as playing a central role in personal matters ranging from moral education to community-building. Steven Ealy’s final argument connects Will with the William James essay on “The Moral Equivalent of War,” suggesting that deploying state power to address social problems preempts independent alternatives.

“Is there any place in [James’s or Will’s] society,” Steven Ealy wonders, “for an independent and vital philanthropic enterprise?” Returning to the “political association” concepts of Strauss, he introduces the insights of Michael Polyani and Michael Oakeshott. Polyani writes that science does not lend itself to central planning, thus suggesting that nonprofit organizations are best when autonomous. Oakeshott prefers law, custom, and tradition to political activity, commenting (for example) that the Bill of Rights may have been implemented by political activity, but its content evolved from a more intellectual process. Steven Ealy concludes his paper by noting that his main purpose is “to clear away one of the important intellectual roadblocks to the fostering of an independent and robust philanthropic enterprise” – namely, the notion that government is the central figure in addressing public issues.

Three discussants follow with key observations. Gus DiZerega (St. Lawrence) disputes the science analogy: “Science has it easy. There are no time constraints….” Eugene Miller (Georgia) writes that the only (!) thing standing in the way of non-governmental action on all public issues is the cost of information and the cost of organizing. Gordon Lloyd (Pepperdine) highlights what he describes as a mistaken connection between public issues and government.

Future volumes in this series would be enhanced by more interaction among the scholars (Lenore Ealy could act as moderator of a discussion). And in the interest of fairness, balancing a long critique (such as Salamon’s work in “Conversation 1”) with a response from the person being critiqued seems appropriate if not obligatory. One final note: while concepts like “Pareto Optimality” undoubtedly appeal to trained economists, future volumes would not suffer from the absence of such jargon.

Notes

* Michael Bisesi is Professor and Director of the Center for Nonprofit and Social Enterprise Management, Seattle University.