The former director of special projects at the Rockefeller Brothers Fund and current policy fellow at the Ash Center’s Allen Lab for Democracy Renovation talks with Michael E. Hartmann about the various trade-offs in the relationships with government of legacy foundations and the new institutional vehicles that bigger, trillionaire philanthropists likely will use in the coming years, along with the growing global role of American givers.
Jeremy McKey has just become a policy fellow at the Allen Lab for Democracy Renovation, a project of the Ash Center for Democratic Governance and Innovation at Harvard University‘s John F. Kennedy School of Government. He joins the Allen Lab from Princeton University, where he studied international tech policy.
Previously, McKey was director of special projects at the Rockefeller Brothers Fund—for, among other things, he led a $14 million initiative to strengthen American democracy through reforms to political institutions, civil society, and civic culture.
Earlier this year, we noted with interest McKey’s “A New Age of Trillionaire Philanthropy Is Coming. Democracies Should Be Wary,” part of a series of articles in Tech Policy Press about “The Coming Age of Tech Trillionaires and the Challenge to Democracy.”
“Whereas billionaire philanthropy has historically been institutionalist—investing in American civil society and seeding a robust network of scientific and educational institutions—trillionaire philanthropy, when it emerges, may instead embrace an ethos of accelerationism: an ideology that countenances dismantling institutions seen to obstruct a techno-libertarian vision of progress,” he writes in the thoughtful, almost 2,700-word piece. “Democracy may become collateral damage.”
McKey describes, places in historical context, and critiques the accelerationist 2023 “Techno-Optimist Manifesto,” written by Silicon Valley investor and billionaire Marc Andreessen, who’s decidedly skeptical at best about the results and effects of much recent establishment grantmaking. McKey calls Andreessen’s manifesto “the closest parallel today’s techno-libertarians have to a modern ‘Gospel of Wealth,’” written by Andrew Carnegie in 1889.
McKey was nice enough to join me for a recorded conversation last week. In the first part of our discussion, which is here—after talking about his work and research interests—we address his work and research interests, differences between the billionaire philanthropy of the past and the trillionaire philanthropy of the future, and whether the tensions of each with democracy will also be different.
The just more than 17-and-a-half-minute video below is the second part—during which we cover the various trade-offs in the relationships with government of legacy foundations and the new institutional vehicles that bigger, trillionaire philanthropists likely will use in the coming years, along with the growing global role of American givers.
Trade-offs
“With the legacy foundations, maybe the trade-off is you as a wealthy individual,” according to McKey, “you will get a huge haircut on your tax bill if you give a billion dollars to a foundation, so that benefits you. But in return, you then are constrained by certain institutional guardrails that are just built into the sort of legal structure of the foundation.” There are “not a lot of guardrails, but there’s some of them,” including “you have to give to nonprofit organizations” and there are reporting requirements. There are also restrictions against certain kinds of political activity, of course.
“Then, put yourself in the in the position of an up-and-coming trillionaire today,” he continues,
who is sort of trying to think through different vehicles for channeling quote-unquote philanthropic wealth. Well, in a world where trillionaires are maybe not paying a lot of taxes anyway, maybe the tax-benefit factor just doesn’t weigh as heavily for them. And so they’re willing to gut that potential advantage in order to channel their philanthropic giving through an institutional structure that doesn’t have the kinds of guardrails that the foundation has—namely, an LLC, which itself is again like a private-sector entity and institution that embodies … this eliding of the distinction between making money and giving money.
Risking oversimplification, a philanthropic LLC is a limited-liability company that combines elements of business and charity, allowing donors to engage in charitable activities with greater flexibility and control. Unlike traditional foundations, philanthropic LLCs are not required to distribute a minimum percentage of their assets annually and can invest in a wider range of ventures, including for-profit businesses.
McKey asks, “Is it a better or worse world where foundations don’t exist and wealthy individuals pursue all of their philanthropic giving through LLCs and other kind of like private-sector-like vehicles. Is it better?” And after listing some considerations relevant to the question, he answers: “I don’t think it’s necessarily bad that new institutional forms are emerging” and people are “creating sort of more sort of institutional diversity in how philanthropy is practiced, one might say.”
Donor-advised funds (DAFs) “feel more problematic to me from … a normative perspective than LLCs,” McKey tells me. Again risking oversimplification, a DAF is a charitable giving account established by a donor at a public charity, allowing that donor to make contributions to it and receive an immediate tax deduction for them, even though that donor can recommend or “advise” grants to charities out of it over much more time. The sponsoring public charity manages the account, almost always for a fee.
DAFs “seem to me like an institution that pretends to be a foundation without actually being constrained by what it is maybe the most-important requirement imposed on foundations, which is giving out money every year,” McKey says. “There is this sort of what seems to be a little bit dubious deal of … an immediate reduction in the tax burden when you give money to a donor-advised fund, but no obligation to pay out funds in any short time frame—and also no transparency accountability requirements ….”
International giving
McKey’s next philanthropy-related project will examine American giving internationally. He asks, “How should we think about the role of foundations and private philanthropy in a world where increasingly, they are not only important domestic actors, but also important global actors?
“You could make the argument that as powerful as foundations are domestically, they’re even more powerful when they operate globally,” McKey says. “They are more powerful when they operate globally because they are, in some cases, operating in countries where their endowments are greater than the GDP of the country. They’re just incredibly powerful actors.”
They’re also “more powerful because in some cases, they’re operating in countries that have fewer restrictions on the sorts of things that foundations can do in the U.S.,” he adds. “I mean, foundations effectively fund the analogues of the [Food and Drug Administration] in other countries.” And “they’re powerful globally because they have a really important role in the multilateral system. There is a tight convergence at times between U.S. philanthropy and multilateral institutions, the U.N. in particular.”
Given this even-greater power in the global context, international giving deserves particular attention from those who scrutinize philanthropy from a democratic perspective, McKey believes.
At the same time, “If we think about foundations as addressing government failure domestically, a kind of failure of coordination,” he concludes—again citing and applying the work of Stanford’s Robert Reich—“well, there are a lot of coordination failures globally” too. “[T]here are a lot of wicked problems that don’t stop at the water’s edge that require perhaps even-riskier capital with an even-longer time frame. There’s a lot that foundations can do globally that feel distinctive, unique, really important.”
