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A new era of wealthy foundations demands a new era of transparency.

Several years ago, the New Yorker ran a cartoon showing a man in a suit throwing money out a window. An older colleague is running up behind him, arms waving wildly, screaming, “Just a minute, young man. That’s not the way we do things at the Ford Foundation!” As the caption slyly suggests, foundation operations are often poorly understood. Efforts to poll citizens on the street for their impressions of foundations tend to produce hilarious results, while Dwight Macdonald famously reduced these institutions to “a large body of money completely surrounded by people who want some.”

In his new book, The Foundation, Duke University’s Joel Fleishman pulls aside the veil of mystery to educate general readers, potential donors, and the “philanthropoids” who run these institutions about what foundations were, are, and should be. He has chosen a uniquely opportune time to do so. Richard Branson’s $3 billion pledge to combat global warming, Warren Buffett’s $31 billion gift to the Gates Foundation, and that foundation’s continuing growth are just a few of the avalanche of stories about philanthropy that have filled the news this past year. This generosity marks the culmination of the “second Gilded Age,” a rough-and-tumble period of corporate expansion, corruption, and king-making akin to the first Gilded Age a century ago, which consolidated the fortunes of men like John D. Rockefeller and Andrew Carnegie.

However, the extraordinary generosity of the Buffett and Gates families is only part of the story. The other is the unprecedented growth in the number of foundations over the past three decades, the majority of which have been nothing like the headline-grabbing giants. Rather, they are small organizations operating at the community level, but also playing an increasingly significant role in the American public sphere by virtue of their numbers. Only a few foundations were in operation during Rockefeller’s lifetime; today, there are more than 70,000, up from 22,000 in 1980. Together, they control over $500 billion in assets, a figure that some observers predict may reach $2 trillion in the coming decades.

Clearly, foundation philanthropy has become big business. And it has done so in an era of government downsizing, devolution, and soaring deficits, trends that will shape the role of the nonprofit sector for decades to come. At the same time, there has been a growing emphasis on accountability. Senator Charles Grassley recently led an investigation of foundation and nonprofit activities, which some believe may be an opening salvo in a string of queries akin to those that occurred in the wake of the last significant spurt in foundation growth, in the 1950s and 1960s. These hearings, in turn, were sparked by a series of exposés that ran in the San Jose Mercury and the Boston Globe about abuses at the Irvine Foundation and an array of smaller organizations.

There is no doubt that this sort of scrutiny will continue, and perhaps rightly so. Not only journalists, but all those in the public sphere, will doubtless take notice as this increasingly wealthy and entrepreneurial sector plays a more influential and direct role in public policy–from education for inner-city children to battling HIV/AIDS and promoting maternal and child health in Third World villages. Indeed, recognizing the shape and influence of the foundation community may be critical to understanding the future of American policy-making.

What impact do foundations have? That is, what value do they add, and how do they optimize the efficacy of their grants? This question surfaced at the Grassley hearings, but it unfortunately elicited little more than isolated anecdotes. Indeed, the question is key to understanding the rationale for creating foundations from their beginning. Men like Rockefeller and Carnegie had strong ideas about the obligations of wealth and the importance of systematizing their giving. “The man who dies rich dies disgraced,” thundered Carnegie, who siphoned much of his fortune into the Carnegie Corporation and the Carnegie Foundation for the Advancement of Teaching (CFAT). Rockefeller viewed foundations as a means of transposing the corporate model that he developed at Standard Oil onto “the business of benevolence.” Run by the “best men,” heavily capitalized and funded in perpetuity, these institutions broke with earlier philanthropic models by building their own professional staffs, investing in research, and demanding measurable results. Rockefeller drew a sharp distinction between charity, which deals with symptoms, and philanthropy, which aims at the root causes of social ills. Unlike charities, foundations were designed to identify social problems, test solutions, and provide replicable models for national and international reform.

Fleishman taps into this definition, arguing that foundations conferred “significant social benefit on the people of the United States over the past century.” This can be overstated, however, since grant-makers historically underwrite the development of new social initiatives but rarely have the resources to develop them comprehensively, leaving that work to the government. To illustrate his point, Fleishman provides a series of case studies of influential grant-making programs in medical and minority education, public policy research, public television programming, and agricultural and social reform. Although he skips lightly over some of the critical commentary surrounding these activities, his point is well-taken. At their best, foundations can indeed provide resources for innovation and reform within specific fields.

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