The author of “Madisonian Nonprofit Law” talks to Michael E. Hartmann about effects of philanthropic LLCs on Madisonian nonprofit law and of a Madisonian nonprofit sector on political parties and politics; the tradeoffs in analyzing the interaction between nonprofits and politics and thinking about both the nationalization and commercialization of nonprofits; democracy and the “art of losing;” and democratically expressed backlash against elites, including philanthropic ones, and its risks to Madisonianism.
Daniel J. Hemel is the John S. R. Shad Professor of Law at New York University School of Law, where his scholarship includes focusing on tax law and policy and nonprofit organizations, among other subjects. Before joining NYU Law’s faculty in 2022, he taught at The University of Chicago Law School and held visiting appointments at the Harvard, Stanford, Yale, and NYU law schools. He clerked for U.S. Supreme Court Justice Elena Kagan and federal appeals-court judges Sri Srinivasan and Michael Boudin, and he was a visiting counsel to Congress’ Joint Committee on Taxation.
A graduate of Harvard College, the University of Oxford (as a Marshall Scholar), and Yale Law School, where he was editor-in-chief of The Yale Law Journal, Hemel combines rigorous academic scholarship with influential, careful public commentary.
In Hemel’s ambitious “Madisonian Nonprofit Law,” forthcoming next year in the Harvard Journal on Legislation, he develops aframework understanding the nonprofit sector’s place in America’s democratic and constitutional order. Risking oversimplification in summarizing, he broadens our understanding of the familiar modes in which the sector engages with government—supplementary, complementary, and adversarial. While most have considered only the third one to be “Madisonian,” read metaphorically and applied in this context, he argues that all of them have the capacity to healthily serve as checks on and balance state power.
Hemel also adds a fourth characteristic of nonprofits—socialization. Nonprofits teach democratic habits, according to the article, including what Jan-Werner Müller calls “the art of losing.” As part of many voluntary associations in civil society—from churches to amateur sports leagues—members “have to” accept electoral defeat, submit to organizational decisions, rotate leadership, and continue participating after losing. These healthy habits are essential to constitutional democracy itself, he maintains, and the nonprofit groups’ nurturing of them should be recognized, whether it be in discussions about theory, law and regulation, or policy.
He then applies his framework to various specific legal and policy debates about and questions facing the sector.
Hemel was kind enough to join me for a recorded conversation earlier this month. In the first part of our discussion, which is here, we talk about James Madison, Alexis de Tocqueville, checks and balances in the context of the nonprofit sector in general, some of the different ways in which nonprofits engage with and can check government, and the role of philanthropy in particular in counterbalancing government power, or not.
The just less than 21-minute video below is the second part, during which we discuss the effects of philanthropic LLCs on Madisonian nonprofit law and of a Madisonian nonprofit sector on political parties and politics; the tradeoffs in analyzing the interaction between nonprofits and politics and thinking about both the nationalization and commercialization of nonprofits; democracy and the “art of losing;” and democratically expressed backlash against elites, including philanthropic ones, and its risks to Madisonianism.
With the increased use by mega-givers of limited-liability corporations (LLCs) that do not have nonprofit tax status for their philanthropy, “we’re not getting a significant reduction in tax benefits. The reason why folks are using LLCs is they’ve got lots of appreciated stock,” Hemel tells me. “They’ll ultimately claim the charitable-contribution deduction when the money goes from the LLC to the grantee—very often, there’s a parallel foundation that will take some of the gifts—but housing the appreciated stock in the LLC means that we get less transparency. Which is what they want it.” Pushed to “speak for” Madison, Hemel says he doesn’t “think that’s what Madison would want.”
Asked about the politicization of philanthropy, while noting “we’re going far afield from the paper,” Hemel asks in return,
Have policies that have facilitated contributions to organizations working outside the party structure, while restricting until very recently campaign contributions to the parties, has that been good for American democracy? I think we can say that was a catastrophic failure, and that we would be better off with stronger political parties. That would also create opportunities for ordinary people to participate in politics, right?
Whether nonprofits should engage in politics generally depends on the problem one is trying to solve, by Hemel’s analysis. If the chief problem is low political participation, on the one hand, allowing nonprofits greater electoral involvement could help mobilize citizens. If the chief problem is polarization, on the other hand, keeping nonprofits formally nonpartisan allows them to serve as places where people with different political views remain in community with one another. Given that today’s greater danger is polarization rather than inadequate mobilization, his view is—though he notes that “15 years ago or 20 years ago, I think most people would have said the opposite”—that restrictions against politicization that preserve nonprofits as institutions of civic bridging are warranted.
As for how to think about the effects of the nationalization of nonprofits, Hemel also presents an on-the-one-hand and the other. “It depends what function you want civil society to serve. If you want civil society to serve say the function of bridging over ideological divides while creating strong local communities, yeah, nationalization was a disaster,” according to Hemel, echoing Theda Skocpol. “If your model of a Madisonian nonprofit sector is impact litigators who are taking runaway agencies, rogue agencies to court, then what we’ve seen over the course of the last half-century would be positive, right? We’ve seen more resources going toward those nonprofit professionals, many of whom have J.D.’s.”
More balancing, and backlash
As with the role(s) of philanthropy in a Madisonian nonprofit sector, discussed in Part 1, the commercialization of the sector conceptually cuts two ways to Hemel, as well. Larger, wealthier, revenue-generating nonprofits have greater capacity to check government power, which is a Madisonian virtue. But high executive compensation and increasingly business-like nonprofits also crowd out more-traditional forms of civic participation and volunteerism. Here too, he thinks, the positive “income effect” need be balanced against a negative “substitution effect.”
On the “art of losing,” Hemel says, “A context in which most of us are introduced to losing is amateur sports. It hurts. But,” for example, “those of us who persist in amateur sports come to accept it. And the tentative claim that the paper makes is learning to deal with losing in other walks of life habituates us toward accepting losing in politics.
“[I]t’s a little hard to explain what the positive externality from amateur-sports competition is,” he says. “But if we think of the nonprofit sector playing this political-socialization role and learning the art of losing as an important part of political socialization, then it makes more sense that we would subsidize amateur sports.”
Asked about what Donald Trump’s political ascendance may or may not add to Hemel’s Madisonian framing, he says Trump exemplifies a failure to learn the “art of losing.” Recent conflicts between the federal government and universities bolster the belief that independent nonprofits need sufficient autonomy to resist government pressure, Hemel says.
Mightn’t Trump’s ascendance itself represent a democratically arisen, checking-and-balancing backlash against establishment philanthropy and elite institutions? Hemel acknowledges that “lots would agree that big philanthropy went too far in one direction.” It’s a “form of political backlash that also led to the agglomeration of lots of power in one individual,” others might say, and “Madison would not have liked that. But he’d say there are some ways in which this story is playing out the right way.”
