Adapted with permission from Jay P. Greene, “Navigating the Financial, Political, and Information Constraint on Large-Scale Philanthropy,” American Enterprise Institute, March 2021.

The most difficult lesson for large-scale philanthropy is how to recognize its constraints. Even foundations with billions of dollars, numerous political connections, and a staff brimming with well-educated people lack the money, political influence, and information to achieve substantial change on their own. On some level, philanthropic leaders have always known this, but it is all too easy to forget these constraints and, like Icarus, attempt to fly too close to the sun.

The hubris of philanthropies often leads to failure in cases of ambitious, large-scale reform campaigns. While difficult, this disappointing experience should motivate philanthropic organizations to take the notion of constraints to heart and search for strategies less subject to their monetary, political, and information limitations.

One such strategy is place-based philanthropy. Foundations hope that by narrowing their focus to a particular geographic area or set of locations, their limited money, political influence, and knowledge may have a relatively larger impact. This strategy may help address financial and political constraints, but may unfortunately exacerbate the difficulty foundations have with getting accurate information about their efforts.

Foundations and familiarity

Advocates of place-based philanthropy sometimes claim that focusing on particular locations actually improves the quality of information available to foundations because they can familiarize themselves more with local circumstances. While focusing on an area does improve awareness of local issues, the main information problem is not lack of familiarity, but lack of accurate feedback about matters with which the foundations may be overly familiar. Constraints can provide foundations with the feedback they need, while the absence of constraints may enable foundations to misinterpret information and advance their initiatives uncritically.

For example, organized opposition to Common Core was a big hint that those standards were not well formulated, did not capture legitimate diversity of preferences, and therefore might not have been such a desirable reform proposal.

When political and financial resistance are largely eliminated by concentrating on a particular place, it is difficult for foundations to receive the reliable feedback they need to make good decisions.

The way forward

The solution to this “knowledge problem” for foundations is to subject their efforts to market or reality tests; that is, foundations wishing to reduce the knowledge problem should pursue reforms that are designed to generate financial and political support from the beneficiaries of those reforms. If the reforms can garner enough financial and political backing to survive independently of foundation support, it is a much safter bet that they are serving people’s needs cost-effectively.

Rather than eliminate constraints, foundations should actually embrace those constraints as ways of learning whether their efforts are faring well and producing success. Foundations that choose to focus their efforts in particular locations must be careful to avoid dominating the political and financial context in a way that hinders feedback on their progress.

Foundations seeking broad change should see themselves as providers of the startup support for efforts that then have to generate sufficient financial and political support to survive on their own. Explicitly thinking through how philanthropic initiatives become independently sustainable requires more careful and skeptical thinking than is common in foundations. It requires constructing a realistic theory about why the reform does not already exist, determining whether beneficiaries are likely to be well-positioned to organize and effectively advocate for the survival and expansion of that reform, and identifying what organized interests might oppose this reform and how they can be managed.

In the end, foundations cannot fully avoid constraints—whether financial, political, or informational. Instead, philanthropists should embrace the existence of those constraints and devise strategies that cannot only withstand, but also use those inherent limitations.

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