The Magazine

The Nonprofit Industrial Complex

Is there such a thing as too much civil society?

Apr 23, 2007, Vol. 12, No. 30 • By GERARD ALEXANDER
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And they aren't the only nonprofits with bulging portfolios. The top 765 U.S. universities and colleges (including state schools) tracked by the Chronicle of Higher Education jointly held $340 billion in their endowments as of mid-2006. At least 62 of them have endowments of $1 billion or more, with Harvard at $29 billion, Yale at $18 billion, and Stanford at $14 billion. Northwestern, Emory, and Washington University in St. Louis each have around $5 billion. Here, too, growth has been accelerating. In 1981, Harvard was the only single-campus school to have more than $1 billion in the bank. But in the 1980s, schools started aggressively fundraising, and in the 1990s, many schools doubled or even (like Yale and MIT) tripled their endowments. By 2002, Harvard alone had amassed more than the combined endowments of all 192 colleges that had been tracked in 1981. With massive ongoing fundraising campaigns, university endowments could easily surpass traditional foundations as the largest nonprofit asset-holders, each one with a single designated recipient. Harvard may already have more money than the Gates Foundation, and four other schools have surpassed the Ford Foundation.

America is such a rich and charitable country that the list doesn't stop there. Their annual reports show that the Howard Hughes Medical Institute, in Chevy Chase, Md., has a $16.3 billion endowment; New York City's Metropolitan Museum has amassed $2.2 billion; the Wildlife Conservation Society, which funds New York City's zoos, has $463 million invested; and the Metropolitan Opera has $300 million in the bank. These institutions have hundreds of more modestly endowed counterparts in hospitals, zoos, and arts institutions across the country. Ten leading U.S. think tanks have just under $1.4 billion in combined endowments.

Even secondary schools are in the game. The titan is the ethnic-favoring Kamehameha School group in Hawaii, which has over $7.6 billion to its name, deriving from an original property bequest. Of the better-known boarding schools, the leading dozen (such as Andover, Deerfield, and Choate) have more laboriously amassed endowments that approach a whopping $4 billion combined. The next dozen have hundreds of millions more. And none of this includes the assets held more opaquely by institutions like the Church of Jesus Christ of Latter-day Saints, whose assets were estimated a full decade ago at $25-30 billion.

All U.S. nonprofit endowments combined probably exceed $1 trillion, sloshing around America's stock, bond, and real estate markets. And observers see more coming, if high-asset baby boomers, as expected, pour tens of billions more into personalized foundations designed to cure specific ills at home and abroad.

America's nonprofit sector is now so large, and hosts so many well-feathered nests, that academic programs are being built around the subject. A slew of university centers are devoted to the study of nonprofits and philanthropy, scores of graduate schools, including leading business schools, now offer concentrations in nonprofit management, and in 2004 Indiana University launched a Ph.D. program in philanthropic studies.

And the United States is leading the way. Only a few small countries have a greater share of their workforces in paid employment at nonprofits. And none matches this country in terms of assets. This is partly because "European countries do not offer comparable tax benefits" for charitable donations, points out Tyler Cowen, an economist at George Mason University. Compared with charity-favoring U.S. laws, European rules often offer donors complicated, few, or even no tax deductions, and make foundations very labor-intensive to create and then difficult to run under state supervision. Higher tax-takes may also mean that Europeans amass less of the private wealth that is the basis of most philanthropy.

Whatever the reason, Europeans make donations, for example, to their alma maters at what Americans would consider very low rates. So it's not surprising that most European universities have few assets. Cambridge and Oxford are standouts for their American-style endowments of around £4 billion each. But the U.K.'s other universities lag far behind, with only a handful having as much as $150 million in recent years. That means that Phillips Exeter boarding school has a larger endowment than more than half a dozen leading British universities combined. And many continental universities don't have endowments to speak of at all. It's no coincidence that some European nonprofits like British universities and museums come to the United States in search of donors.