Wednesday, June 9, 2010

The Legal Framework for Nonprofit Organizations

in Nonprofit Sector : A Research Handbook.

Powell, Walter W.(Editor). New Haven, CT, USA: Yale University Press, 2006. p 243.

Copyright ? 2006. Yale University Press. All rights reserved.

Most challenging, there is no single “law of nonprofit organizations.” Much of the common law of charity, property, and wills and trusts has found its way into state statutes. We find state laws on nonprofit corporations, federal and state tax laws, and state (and sometimes local) laws on charitable solicitations. Like businesses, many nonprofits worry about laws (sometimes with special rules for nonprofits) on contracting, labor and employment, torts and insurance, employee benefits, antitrust, bankruptcy, and political activity, as well as laws that govern specific industries such as hospitals and day care. Of final importance are several sources that are not themselves law but that influence legal development. The American Law Institute (ALI) published the Restatement (Second) of the Law of Trusts in 1959, and has published two portions so far of the Restatement (Third) of the Law of Trusts (the first, issued in 1992, covers prudent investing; the second, issued in 2003, addresses, among other topics, the definition of charity and the cy pres doctrine). Also in 1992 the ALI produced the Principles of Corporate Governance, relating to business corporations, and in 2001 opened a project on “Principles of the Law of Nonprofit Organizations,” for which this author is Reporter. The American Bar Association’s 1987 Revised Model Nonprofit Corporation Act (the “Model Act”) has been enacted (sometimes with variation) in more than two dozen states; the ABA’s prior version was adopted in thirty-nine states. The National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1972 adopted the Uniform Management of Institutional Funds Act (UMIFA), enacted (sometimes with minor variation) in forty-eight jurisdictions; a major revision of UMIFA had its first of two required readings in 2003. NCCUSL also approved a uniform trust code in August 2000, and states are beginning to adopt it. 5 In discussions below, for simplicity we usually refer to the ABA’s Model Act, UMIFA, the Uniform Trust Code, and the various ALI projects in lieu of specific state laws. Finally, an increasing amount of secondary legal guidance is being produced (see, for example, the very helpful ABA Section of Business Law 1993; Siegel 2006).

Choice of Form

Creators of a new charity can generally choose between two basic regimes: the nonprofit corporation and the charitable trust. 16 (Informal or other unincorporated voluntary associations, which traditionally function under the laws of agency and partnership, could expose the participants to personal liability.) State nonprofit corporation statutes vary. For example, New York State provides rules for four different types of “not-for-profit” corporations; states following the ABA’s Model Act differentiate between “public benefit,” “mutual benefit,” and “religious” corporations (as does California, whose law inspired the ABA); and Delaware and Kansas have a single statute covering both business and nonprofit corporations. Additionally, some states have enacted statutes for, among others, “unincorporated associations” (granting members limited liability), homeowners associations, cooperatives, health-care corporations, and mutualbenefit insurance companies. Finally, many states, again with variation, have codified the common law of charitable trusts, and adopted such specific statutes as UMIFA (Fisch et al. 1974; Bogert and Bogert 2000; Fremont-Smith 2004a). American advisers routinely recommend the nonprofit corporate form, although the trust form might be particularly appropriate for a charity (such as a grant-making foundation) that manages a fund of money and makes distributions.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 247.

Copyright ? 2006. Yale University Press. All rights reserved.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 246.

Copyright ? 2006. Yale University Press. All rights reserved.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 245.

Copyright ? 2006. Yale University Press. All rights reserved.

Tuesday, June 8, 2010

A Historical Overview of Philanthropy, Voluntary Associations, and Nonprofit Organizations in the United States, 1600– 2000


in Nonprofit Sector : A Research Handbook.
Powell, Walter W.(Editor).
New Haven, CT, USA: Yale University Press, 2006. p 32.

Copyright ? 2006. Yale University Press. All rights reserved.
accessed 7th June 2010


The land area now occupied by the United States was the object of rivalry between several European powers. Spain occupied a huge area of North America, stretching from today’s Florida, Alabama, and Louisiana in the Southeast through Texas, New Mexico, and Arizona in the Southwest and California on the West Coast. France occupied Canada and much of Maine and the territories composing the Louisiana Purchase. The Dutch held New York. The Swedes established a small colony on the Delaware River. And a variety of British settlements, most of them initially ventures by private trading companies, occupied the East Coast between Maine and Georgia. Settlement began at a time when European law was still emerging from the shadow of feudalism. Statutes were uncodified and judicial decisions only spottily reported. Customary and local law continued in effect, resistant to efforts to impose national uniformity on centuries-old patchworks of parliamentary enactments, royal decrees, and decisions by a variety of lay and ecclesiastical courts. Accordingly, the legal and institutional heritage of the Old World that colonists brought with them varied, depending on where they had come from and the nature and extent of their encounters with the legal systems of their native lands (Billias 1965). Religion and material circumstances affected the ways in which colonists drew on Old World institutions and practices. In the farther reaches of the Spanish empire, where colonial administrators were few and far between, clergy tended to assume judicial responsibilities, bringing to the task notions of the law that owed more to Scripture and local custom than to the laws of Spain or Mexico (Saunders 1995, 1998; Rosen 2001). Beyond administrative centers like Montreal, the French took a similarly casual view of legal formality, freely adapting Old World practices to New World exigencies (Banner 1996). The legal and governmental institutions of British North America developed very differently from those of the French and Spanish colonists, who governed substantial native populations as agents of the papacy or the Crown. In contrast, the English settled in areas with sparse native populations, and as inhabitants of colonies established by joint stock companies (such as Massachusetts and New York) or proprietorships (such as Pennsylvania and New Hampshire) their primary task was crafting institutions of self-government. This orientation to self-government was evident even in royal colonies (such as Virginia and the Carolinas), where governors appointed by the Crown held sway with the assent of elected legislative assemblies. The English brought with them a rich heritage of selfgoverning corporate institutions. Townships, the basic political building block outside the South, were treated under the law as municipal corporations, with citizens electing boards of selectmen. Churches— even Catholic congregations before the appointment of an American bishop in the 1790s— were governed by boards of deacons, elders, or vestrymen elected by their congregations. The handful of colleges— Harvard (1636), the College of William and Mary (1693), Yale (1701), Columbia (1754), Brown (1764), Dartmouth (1769), and the College of Charleston (1770)—were governed by boards of self-perpetuating and ex officio (either elected officials or clergy) trustees, fellows, and overseers. Like the French and the Spanish, the English settlers also shaped their Old World legal and institutional heritage to suit circumstances and their religious and political inclinations. In Congregationalist Massachusetts and Connecticut and in Anglican Virginia, where churches were supported by taxation and dissenters were forbidden to practice their faiths, religion was tightly bound to the interests of government. In colonies such as Rhode Island and Pennsylvania, where religious toleration was the rule, self-supporting and self-governing congregations enjoyed an autonomy that anticipated the status of voluntary associations of the nineteenth century. While evidently familiar with associational and corporate forms of collective action, the colonists were slow to embrace them. Corporate institutions such as Harvard and Yale were regarded as governmental or quasi-governmental entities (Whitehead 1973). Purely private corporations in the modern sense were virtually unknown, since colonial governments lacked the authority and legal knowledge to issue charters. By the middle of the eighteenth century, fraternal organizations (such as the Freemasons) and other informal clubs and associations (such as Benjamin Franklin’s famous Junto) began to appear. But on the rare occasions when they sought to formalize their status— as did a group of Connecticut physicians who sought to incorporate as a medical society— their efforts were firmly rejected. Charitable and educational activities that had primarily been the responsibility of the church in England were parceled out variously in the colonies (Trattner 1979; Katz 1996). In Virginia, as in England, parishes took care of the poor and ignorant. In New England, these responsibilities were exercised by municipal authorities. In larger cities such as New York, Boston, and Philadelphia, city governments operated specialized facilities— almshouses— to care for the dependent and disabled— out of which came the Bellevue hospitals of New York (1731) and Pennsylvania (1751; Rothman 1971). Because colonial legal codes did not clearly distinguish between public/private and proprietary/nonproprietary do- mains, corporations and associations (when they existed at all) served public rather than private purposes. These included maintaining public order and providing education, poor relief, and (in most colonies) religious services. Government meant a very different thing in colonial America than it does today; although colonial governments and municipalities collected taxes and enacted laws, they usually entrusted the actual tasks of caring for the poor, healing the sick, and educating the ignorant to families who could provide these services at the lowest cost. In New England villages, for example, the poor and dependent were often auctioned off to the lowest bidder. Where churches were taxsupported, the tasks of levying and collecting these taxes were carried out by the churches themselves, acting under authority delegated to them by government (McKinney 1995). Many of the early almshouses were contracted out to managers who could operate them at the lowest cost to the public. In colonial America, public and private domains were so imperfectly delimited that, in New England, it took until the 1670s for private property rights to be clearly established— and another 125 years passed before common law conceptions of property rights were universally accepted (Nelson 1975; Horowitz 1977). Legislatures generally refused to grant equity jurisdiction to colonial courts, and without them, trusts— charitable and testamentary— were unenforceable, resulting in the misdirection or failure of early charitable trusts (Prescott v. Tarbell 1804; Bowditch 1889; Curran 1951; Hall and Marcus 1998). In addition to substantial gifts from abroad, there was a modest tradition of indigenous philanthropy. The bequests of clergyman John Harvard in 1638 to the colony (“towards erecting a Colledge”) and Boston merchant Robert Keayne in 1656 to the town of Boston (“for a Conduit and a Town House Comprising a Market Place, Court Room, Gallery, Library, Granary, and an Armory”) and to Harvard College (which received books and real estate) suggest that while charitable giving was not unknown in colonial America, government was more likely than any private body to be its recipient (Bailyn 1970). Such institutions as Harvard, William and Mary, and Yale were regarded as public corporations, subject to legislative oversight and supported significantly in the form of legislative grants of money, real estate, and “privileges” (which could range from the levying of special taxes to a monopoly on the operation of ferries) (Sears 1922; Foster 1962; Harris 1970). Both the growth of trade and the integration of the colonies into the British commercial system in the late seventeenth and early eighteenth centuries initiated a wholesale transformation of legal, political, social, and religious institutions. For much of the first century of settlement, the English settlers of North America had been cut off from Europe by the Puritan Revolution and by incessant religious warfare on the continent. After the restoration of the Stuart monarchy in 1665, the Crown and Parliament began to look to the colonies as sources of cheap raw materials and growing markets for manufactured goods. Because trade regulations restricted the colonists’ production of certain manufactured goods, which British merchants were eager to exchange for certain commodities (timber, fish, tobacco, furs), growing numbers of Americans entered into a market economy, creating growing differences in wealth and upsetting traditional patterns of deference and mutual responsibility. Natural population increase, supplemented by renewed immigration, disrupted older forms of community. Trade brought epidemics of smallpox and other diseases, as well as an increasingly visible population of poor and dependent people for whom the public was expected to take responsibility. These changes forced Americans of the early eighteenth century to rethink the meaning of scriptural injunctions about loving one’s neighbor. Influenced by Newtonian cosmology, Boston minister Cotton Mather (1663– 1728) reframed doctrines of charity in Bonifacius

American Revolution

The centrality and effectiveness of voluntary associations in the Revolution served to kindle hostility toward them after the war, as Americans sought to establish governmental and legal institutions based on democratic principles. Democratic theory as it existed in the late eighteenth century viewed associations as inimical to popular government, not only because any combination of citizens was viewed as a threat to the political rights of individuals, but also because people feared that such associations representing special interests could capture control of elected governments.

During the last quarter of the eighteenth century, most states outside New England enacted laws restricting the powers of corporations, repealing sections of British common law relating to charities, and restricting the ability of citizens to give property to charities (Davis 1917). Southern states, influenced by Jefferson’s concerns about “un-republican” institutions, were particularly hostile to private corporations, associations, and charities. Virginia disestablished the Anglican Church and confiscated their assets (Terrett v. Taylor et al. 1815; Hirchler 1939). New York created the Regents of the University of the State of New York, which exercised regulatory authority over all educational, professional, and eleemosynary organizations (Whitehead 1973). Pennsylvania annulled the Elizabethan Statute of Charitable Uses and, by declining to give its courts equity powers, discouraged the establishment of charities, since without equity jurisdiction, courts could not enforce trust provisions (Liverant 1933). Even such states as Connecticut and Massachusetts, which would become the national centers for the chartering of corporations and the founding of private charities after 1800, were ambivalent about them in the decades immediately following the Revolution: Connecticut limited the amount of property eleemosynary corporations could hold, while Massachusetts declined for decades to grant its courts the equity powers needed to enforce charitable and other trusts (Curran 1951). Like other Americans of the time, Massachusetts Attorney General James Sullivan worried about the hazards that “the creation of a great variety of corporate interests” posed for republican institutions (Sullivan 1802). Sullivan’s misgivings were not far-fetched. In New England, which had chartered two-thirds of the 300 corporations in existence by 1800, business and eleemosynary entities had been generally chartered by conservative legislatures to help established elites resist the democratic masses, who were themselves using associational vehicles to mobilize politically (Davis 1917). As the nation completed its first decade under the federal Constitution, the institutions of republican government still seemed extraordinarily fragile. And of all the forces threatening its stability, none seemed so potently dangerous— to conservatives and liberals alike— as associations (which could accumulate unlimited political power) and corporations (which could accumulate unlimited economic power).

At the end of the eighteenth century, indigenous philanthropy and voluntarism were still embryonic. Most philanthropy was devoted to public institutions— municipal governments, schools and colleges, and religious congregations (most of which were tax-supported). Voluntary participation in organizations was restricted to fraternal associations, local social clubs, a handful of medical societies, and the secretive political societies that would eventually form the basis for political parties. The absence of a legal infrastructure to enforce charitable trusts, as well as broad hostility toward corporations, discouraged private initiatives professing to benefit the public.

The Search for an American Law of Charity

Given the primitive state of American law in the early nineteenth century, it was inevitable that the increasing number of voluntary associations and growing range of purposes they served, as well as the swelling amounts of property being given for charitable, educational, and religious purposes, would produce political controversy, acrimonious litigation, and landmark court rulings (Wyllie 1959; Miller 1961). The federal system, which limited the power of the central government and allowed states wide latitude to set their own policies, ensured that the outcome of this process would reflect the diversity of preferences already characteristic of the American people. The most famous of these struggles involved New Hampshire’s Dartmouth College. Founded in 1769 under a royal charter on a gift from the Earl of Dartmouth, the college remained stalwartly Congregationalist in a state in which religious dissenters had become the dominant political force. In 1816, the state’s newly elected Baptist governor, William Plumer, with encouragement from Thomas Jefferson, took control of the college and proceeded to reorganize it as a public institution. Its twelve-member self-perpetuating board was replaced by twenty-one gubernatorially appointed trustees and twenty-five legislatively appointed overseers who enjoyed veto power over the trustees (Jefferson 1856:440– 441). The president of the college was required to report annually to the governor on its management, and the governor and his council were empowered to inspect the college every five years and report on its condition to the legislature. When the old board of trustees contested the action, the New Hampshire Supreme Court upheld the state, drawing on the generally accepted doctrine that corporations, as creations of the legislature, were entirely subject to the state’s will (Trustees of Dartmouth College v. William H. Woodward 1817). The story might have ended there had not influential U.S. senator and Dartmouth alumnus Daniel Webster (1782– 1852) suggested that the ousted board of trustees appeal to the U.S. Supreme Court on the grounds that the state had violated Article II, Section 10 of the Constitution, which forbade states from impairing the obligation of contracts.

The charter, Marshall stated, was not a grant of political power, an establishment “of a civil institution to be employed in the administration of government,” or a matter of government funds. It was, rather, a “contract to which the donors, the trustees, and the Crown (to whose rights and obligations New Hampshire succeeds) were the original parties. It is a contract made on a valuable consideration. It is a contract for the security and disposition of property. It is a contract on the faith of which real and personal estate has been conveyed to the corporation. It is then a contract within the letter of the Constitution and within its spirit also” (Trustees of Dartmouth College v. William H. Woodward 1819). As such, Marshall ruled, Dartmouth’s charter could not be altered by the legislature “without violating the Constitution of the United States.” Despite the ruling in the Dartmouth College case, legal doctrines on the status of eleemosynary corporations remained confused. Although the Court affirmed the Constitution’s prohibition of states’ impairing the obligation of contracts, the decision did not require states to treat charitable corporations favorably. Even today, many states remain hostile to charities despite the Dartmouth ruling. Even the Supreme Court itself seemed ambivalent about the issue: in the same term in which it decided for Dartmouth College, it also affirmed the power of the Commonwealth of Virginia to hold invalid a charitable bequest by one of its citizens to establish a religious charity in another state (Philadelphia Baptist Association v. Hart’s Executors 1819). It was not until 1844 that private charity received an unambiguous blessing from the federal courts, when the Supreme Court heard the Girard will case (Francois Fenelon Vidal et al. v. The Mayor, Aldermen, and Citizens of Philadelphia, et al. 1844). The case involved the will of Stephen Girard (1750– 1831), a multimillionaire Philadelphia merchant who had left the bulk of his estate to the city for public works and for the establishment of a school for orphans. The central issue in this case involved the status of charitable bequests in states that had repealed the Statute of Charitable Uses. In the erroneous belief that the power to establish charitable trusts stemmed from this statute, earlier court decisions had upheld the power of states that had annulled it to limit or prohibit such trusts. But by the 1840s, advances in legal scholarship permitted the attorneys for the Girard estate to show that the Elizabethan statute had, in fact, merely been the codification of a long series of previous acts and precedents and that, as a result, the status of charitable trusts was unaffected by the repeal of the 1601 statute. Although the decision in the Girard will case secured under federal law the right of individuals to create charitable trusts, this decision did not affect particular states which chose to limit their activities. Nor did it particularly stress the importance of private philanthropy, since most of the objects of Girard’s legacy were public institutions. By the end of the nineteenth century, the legal and regulatory treatment of philanthropic and charitable institutions and voluntary associations fell into two broad categories (Zollmann 1924). A handful of states, almost all of them in New England, embraced a “broad construction” of charity under which virtually any kind of not-for-profit associational activity was not only permitted but encouraged through tax exemptions. For example, Massachusetts’s 1874 charities statute extended property tax exemption to any “educational, charitable, benevolent or religious purpose” including “any antiquarian, historical, literary, scientific, medical, artistic, monumental or musical” purpose; to “any missionary enterprise” with either foreign or domestic objects; to organizations “encouraging athletic exercises and yachting”; to libraries and reading rooms; and to “societies of Freemasons, Odd Fellows, Knights of Pythias and other charitable or social bodies of a like character and purpose” (“An Act” 1874). Trustees who managed charitable funds were both permitted broad authority in financial management and protected from claims by donors and beneficiaries. Most other states favored a “narrow construction” of charity, which restricted the kinds of activities that could be legally deemed charitable and required even those to demonstrate their redistributional and noncommercial intent as a condition for tax exemption. Thus, for example, Pennsylvania’s nineteenth-century charities statute required that such entities advance a charitable purpose (as defined in the statute), donate or render gratuitously a substantial portion of its services (limiting a charity’s ability to charge fees), benefit a substantial and indefinite class or persons who are legitimate subjects of charity, relieve government of some of its burdens, and operate entirely free of private profit motives (see Episcopal Academy v. Philadelphia et al., Appellants 1892 and Zollmann 1924). Clearly, many of the kinds of entities designated as charitable under Massachusetts law would not have been regarded as such in Pennsylvania. Where charities and tax laws favored private initiatives, philanthropic and voluntary enterprises flourished. Where the law discouraged them, they did not (Bowen et al., 1994; Schneider 1996). In the Northeast and upper Midwest, privately supported schools, colleges, and charities were founded in great numbers.

also, to the extent that institutional endowments were among the largest capital pools of the period, served as arenas for collective economic decision making. It was no accident that Massachusetts, whose charity-friendly laws permitted such institutions as Harvard and the Massachusetts General Hospital to accumulate substantial endowments, became an early center of investment banking— based on the strategic investment of these funds in the textile industry and western railroads (White 1957). In describing the temperance movement, Tocqueville noted the marked differences between the organizations used by the wealthy to pursue their agendas and those used by average citizens. “The first time I heard in the United States that a hundred thousand men had bound themselves publicly to abstain from spirituous liquors,” he wrote, “it appeared to me more a joke than a serious engagement, and I did not at once perceive why these temperate citizens could not content themselves with drinking water by their own firesides. I at last understood that these hundred thousand Americans, alarmed by the progress of drunkenness around them, had made up their minds to patronize temperance. They acted just the same way as a man of high rank who should dress very plainly in order to inspire the humbler orders with a contempt of luxury. It is probable that if these hundred thousand men had lived in France, each of them would singly have memorialized the government to watch the public houses all over the kingdom” (1945, 2:110). The temperance groups were organized as federations of state and local organizations that coordinated their activities nationally through staffed headquarters, newspapers, and periodic convenings of delegates (Putnam and Gamm 1999; Skocpol 1999a; Skocpol 1999b). The increasing use of associations by ever larger numbers of Americans helped to clarify the distinctions not only between public and private domains of activity but also between commercial and noncommercial organizations. Early corporation statutes drew little distinction between joint stock companies and membership associations (Dunlavy 2000). Over time, as Americans grew more familiar with the possibilities of associational and corporate forms, their experiments were eventually codified in the law. In the course of this process, many of the activities that we today think of as especially suited for nonprofits— arts, culture, education, and health care— were as likely to be produced by commercial enterprises as by noncommercial ones. Not until the end of the century, when rising taxes on real estate and other organizational assets and the imposition of inheritance taxes created financial incentives to adopt the not-for-profit corporate form, did the distinction between proprietary and nonproprietary firms emerge with any clarity. The efforts of urban elites in the post– Civil War decades also helped to clarify the distinction, as wealthy cultural entrepreneurs organized nonprofit orchestras and museums, closely tied to nonprofit universities, to help define and solidify the collective identity of the social groups to which they belonged (Fox 1963; Story 1980; Horowitz 1976; DiMaggio 1986; Bender 1987; Wooten 1990). By the 1850s, Americans had largely overcome their suspicion of voluntary associations and private charity. Elites, displaced by religious disestablishment and the political mobilization of the “common man,” turned to philanthropy and associational activity as alternatives to electoral politics (Bledstein 1976). The learned professions, especially medicine and engineering, formed national associations to define and uphold professional standards and to promote the diffusion of knowledge:

Nonprofits and Social Movements

As the United States assumed undisputed leadership of the free world after the Iron Curtain descended over Europe in the late 1940s, the policies of public and private institutions that subjugated racial and religious minorities and women became increasingly difficult to defend. Although the seniority of southern congressmen ensured that no significant civil rights legislation was enacted by the federal government until 1964, nonprofit advocacy groups, funded by foundations, worked tirelessly to change public opinion on civil rights issues and to pressure political leaders to change their votes.

One of the great legacies of twenty years of Democratic control of the White House and Congress was a liberal activist federal judiciary. Two significant legal innovations enacted by these jurists transformed litigation into an important instrument of policy making and turned nonprofits into major agents of policy change.

The first was the adoption of the doctrine of incorporation by the U.S. Supreme Court beginning in the late 1930s (Friedman 2002:203– 207). The incorporation doctrine derives from the Fourteenth Amendment, which declares that no state can deprive a person of life, liberty, or property without “due process of law.” In a series of cases, the Supreme Court held that these words “incorporated” the Bill of Rights in such a way as to make them applicable to the states. This meant that states that routinely deprived nonwhites of rights guaranteed by the U.S. Constitution— such as the right to vote— were subject to the jurisdiction of the federal courts.

The second innovation was a change in the federal rules of civil procedure— the code that defines the kinds of legal action permissible in the federal courts. In 1966, the U.S. Supreme Court, which enacts these rules, changed the rule governing who had standing to initiate litigation to permit “claims by unorganized groups” to be presented “as if they were those of organizations” (Friedman 2002:255). The impact of this rules change was dramatic. As legal historian Lawrence Friedman writes, “Litigation in late-twentieth century America became a political and economic instrument, a tool, a locus for strategic behavior. The class action was an important way to involve courts in battles over civil rights, corporate governance, protecting the environment, and consumer protection. And class action is central in the society of ‘local justice.’ Class actions depend on quirks and accidents of procedural history and the peculiarities of the American legal order— many legal systems have no such beast as the class action at all. But the class action has long since transcended its origins. It grew fat on the fodder of twentieth-century culture” (Friedman 2002:255). Civil rights organizations such as the NAACP were quick to recognize the opportunities offered by these changes. The NAACP’s landmark 1954 litigation over school segregation in Topeka, Kansas, Brown v. Board of Education, was based on the ability of its litigators to persuade the court that separate educational facilities were inherently unequal and, as such, violated the Fourteenth Amendment, which guarantees all citizens “equal protection of the laws.” This and other federal court decisions based on it compelled a reluctant federal government to initiate the process of intervening in states that excluded nonwhites from public schools, public transportation, restaurants, and other public accommodations.

Powell, Walter W.(Editor). Nonprofit Sector : A Research Handbook.
New Haven, CT, USA: Yale University Press, 2006. p 52.

Copyright ? 2006. Yale University Press. All rights reserved.

American Philanthropy

by Robert H Bremner
Chicago History of American Civilization
Editor: Daniel J Boorstin
Publisher: the University of Chicago Press, Chicago

History of American Philanthropy

Colonial America
. John Winthrop's (Puritan leader) lay sermon "A Model of christian Charity" aboard ship Arbella to the people travelling from England to New England in 1630 - duty of neighbourliness and brotherly love.

. William Penn (1644-1718) - refuge for Quakers in Pennsylvania - no conflict between efforts to live a better in the world and endeavours to better it - they regarded the conduct of daily lfe as much a part of religious observance than formal worship - belief in separation between church and state, insistance on individual right of freedom of conscience - concept of stewardship ie man accountable to God for their wealth and the way they spent their lives and wealth

. Cotton Mather (1663-1728) - involved in witchcraft trials- influenced by German ideas - believed in doing good by helping out the poor and needy - also through spiritual and religious preaching - promoter of associations for such purposes - believed strongly that charity should not be misapplied so that it should be withheld from the undeserving- dissaproved of the abuses of private charity

. Benjamin Franklin (1706-90) - an enemy of mather but very much influenced by him - introduced secularism into doing-good - shifting emphasis from pious works and personal charity to efforts to improve general welfare - called for a repeal of the poor laws on the ground that public provision for the needy had a greater tendency to harm the poor- he believed not in making the poor easy in poverty, but in efforts to lead them out of poverty- he promoted voluntary associations (eg voluntary fire fighting company)as suitable for american conditions

. The Great Awakening - George Whitefield- around 1742- a mass movement - a wave of religious fervour that strenghtnedn individual religious independence and weakened the authority of the churches -
a. fostered humane attitudes and popularized philanthropy at all levels of society, especially among the poorer classes;
b. impact on humble men and women , many that belonged to no churche and beyond the reach of religious appeals - gave them the opportunity to indulge in feeling usually regarded above their proper station in life and participate in feelings of piety and benevolence
c. most important change - transformation of do-goodism from a predominatnly upper and middle class activity into a a broadly shared and popular avocation

. 30 years between Great Awakening and the American Revolution - joint public-private partnership in alleviating the poor - many disable soldiers and refugees from the frontiers - churches, friendly societies, public officias and new insitution such as Pennsylvania Hospital etc, jointly financed by taxation and private contributions - helped with the poor

American Revolution and post Independence 1776
.democracy - substantial equality - no classes or upper class - common set of moral values and economic principles - americans did not question the right of any man to get rich by personal effort but concerned with the uses to which wealth was put once it had been won - democracy sought to impose same middleclass standards of thrift, sobriety and responsibility on the rich
.thus,in the first half of the 19th century, the rich American had only 1 extravagance - ie to luxury of doing good - even bequething of large estates to children was frowned upon- there was criticism of the methods by which some of these commercial classes obtained their wealth- early americans voiced suspicion that philanthropy was used by the rich to atone for their method of acquiring wealth - "atonement theory of philanthropic motivation"
.by 1820 many American cities had a lot of benevolent organization (through the principle of voluntary associations)
. many addressed slavery issues, moral reform and gifts to the unfortunate. between 1800 and 1860, many colleges were founded because the federeal govt and the state govts barely supported the field of higher education. Mainly they were set up as theological seminaries and manyu churches organized small colleges which called themselves universitied. ergo Harvard (Unitarian since 1805)
.various gifts and bequests to the Federal Govt towards education were made - founding of Smithsonian Insitution and Lowell Institute were the result of such gifts
. also charity reformers - setting up of almshouses and poor farms to enable the poor to work and have food

Civil War 1861

.many civil war philanthropies on both sides
.Sanitary and Christian Commissions - brought more scientific approach to the charitable actions of the people
.fouding of the American Red Cross

Scientific philanthropy

. end of the 19th century
. period of acquisitiveness and self-seeking but synonymous with generosity and altruism
. more scientific approach - to discover facts about the specific causes of each applicant's need
.bringing about more efficiency and humanity to State welfare services
.depression o f1873-78 - nationwide natural disaster - private citizens, older charitable organization and public authorities set up soup kitchens, breadlines, free lodging houses and distributed coal an dfood to the poor in their homes. - there seemed to be an excess of mistaken charities and chaotic distribution of private charitable assistance - many municipal expenditures for poor relief went to impostors or grafting politicians-
. rise of charity reformers or professional philanthropists - demanding better organization of relief operations, more discrimination in the bestowal of assistance and more attention to the individual needs of the persons helped - unfortunately they demanded stoppage (instead of improvement) of public aid

Came the idea that private charity was to purged of sentimentality and organized into an effective force.- rise of charity organization socieites which acted as clearinghouses and bureaus of information (no aid or assistance given out)- but eventually they provided aid through penny savings banks, coal savings funds, provident wood yards, day nurseries for the children of working mothers

Wholesale philanthropy

Andrew Carnegie and "Wealth"

. he addressed the millionaire class in america - the self made man- he attributed their wealth to their fitness to survive and competitiveness - he attributed a concept of trusteeship to the millionaire class - but as an agent of the public, not a servant of God- trusteeship devolved on the man of wealth because he was fittest to exercise it and in the exercise of this trust he was accountable only to his own conscience and judgment of what is best for this community
.his advise was "To assist, but rarely or never to do all".
. to him it was a disgrace to die rich

Rockefeller, Sr

. a month before Carnegie published "Wealth", Rockefeller made his first gift of $600k to the founding of the University of Chicago.
.he had been a regular charitable contributor, not waiting to be rich before he started giving.
.as his business was in Standard Oil company, there were many detractors to his philanthropy, labelling the gifts and contributions as "tainted money".
. drowning in his wealth, 10 years after the founding of the University of Chicago, Rockerfeller advised "men of worth and position" to put thier surplus money in a trust.

Modern trusts and foundations

From 1901 onwards, Rockefeller, Carnegie etc established a series of foundations.
.Relieving the needy not the objective. they looked at the sources, through research. concentrated on education and medical research
.fear of big and poverful organizations after 1910
.Rockefeller and Carnegie found institutions capable of distributing private wealth with intelligence and vision, and put large-scale giving on a businesslike basis

Retail Philanthropy - business of benevolence
.from 1900s onwards
. many organizations and associations such as Boy Scouts, American Cancer Sociaety, Goodwill Industries cameinto being - diversity of interests
. but these were still haphazard not well organized
.WW1 - fund raising efforts - gave rise to professional fundraisers

. individual giving remained the mainstay of american philanthropy

Sunday, May 16, 2010

Waqf in Malaysia. Legal and Administrative Perspectives

by Siti Mashitoh Mahmood

Observations regarding waqf in Malaysia:-

1. Characteristic of many awqaf-Form of ibadah, consisting of immovable assets and dedicated for mosques and cemeteries. Also many Islamic religious schools; reasons
a. Belief in the community that any benevolent act associated with worship is most desirable;
b. Designed to fulfil fard al-ayn;
c. Community is limited in knowledge on concept of waqf ie that waqf must only be in immoveable property;
d. No serious effort on part of SIRC to inform communit about valid practice of waqf involving moveable assets until recently when the SIRC of Selangor, Johor, Penang, FTKL, Malacca and Pahang have introduced saham wakaf.

2. No listing or complete records of waqf. A statutory vesting needs to be effected and notified to the land office which will then be endorsed by the land office on the title – see Circular of Director General of Federal Lands and Mines (No 8/99)

3. Some waqf given over land has not observed the rule that the land must be wholly owned in perpetuity by the waqif. Many land is held under leasehold title ie 99 years, so any waqf land given in respect of these leasehold titles do not fulfil the permanency requirement.

4. Many waqf properties came under the Control of Rent Act 1966 , and due to the limited rental that can be charged, many of these properties became uneconomical and fell into disrepair. The CRA was repealed in September 1997.

5. Local Government Act 1976 - waqf property is subject to municipal rates same as other property.

6. Waqf property is also not exempt from state acquisition under the Land Acquisition Act 1960, subject to appropriate compensation.

7. Awqaf are vested in the respective SIRCs. Some of the SIRCs proposals for istibdal have been objected to by the local Muslim community, leading to inability of the SIRC to develop the waqf property optimally.

8. SIRCs are empowered to appoint committees to assist them in the performance of their duties-

State-Enabling subsidiary legislation-Delegated committee-Subsidiary Companies of SIRC

Malacca-Zakat and Fitrah, Wakaf and Baitulmal Affairs Rules of the State of Malacca 1982-LUKMAL- to determine investment policies and overall management of awqaf assets in the state-MAIM Properties Sdn Bhd

Johore-Wakaf Rules 1983 -Wakaf Committee of Johore – empowered to invest and exchange (istibdal) awqaf assets with the permission of the SIRC johore. Also empowered to establish collective shares (wakaf musytarak) by unifying other forms of awqaf shares

Perak-Control of Wakaf Rules 1959-State Wakaf Control committee- to advise the SIRC on all matters relating to awqaf and their administration

Penang-(under enactment)-Committee of Wakaf – investment of waqf-As-Sahabah Holding

FTKL- (under enactment)-Development and Investment Committee (of the Jabatan Agama Islam, ie secretariat to the MAIWP) – interalia the development and investment of awqaf assets-Pusat Rawatan Islam Sdn Bhd and Baitulmal Zenith Battery Sdn Bhd

Sarawak - (under enactment)-Baitul mal and Wakaf Board- to administer assets of Baitul mal and manage its collections contributions to the fund

Selangor- (under wakaf enactment)- Wakaf Management Committee – administer and manage all matters relating to waqf in the state of Selangor Bakti Suci Properties Sdn Bhd

Negeri Sembilan-( under enactment)-Committee on Investment-Edi Fajar Development Sdn Bhd

9. Other bodies that assist the SIRCs are the Wakaf Development Corporation (Malaysia) Sdn Bhd, the Research Division of JAKIM and the Department of Wakaf, Zakat and Haji in the PM’s Dept.

10. Some SIRCs have established companies to develop existing awqaf assets in Malaysia.

11. Problems faced by SIRC in developing awqaf assets-

a. Financial constraint due to low income from awqaf assets – inability to incur debt or obtain credit
b. Legal constraints due to the various laws ; also illegal settlement of awqaf properties by squatters; claims by heirs of founder who challenge the waqf
c. Administrative constraints due to lack of manpower and capability in administering the waqf assets and optimizing their economic potential, project management or financial background
d. Non strategic location and small sizes, and scattered
e. Opposition to commercialization projects for waqf property by local community
f. Lack of understanding and exposure by the local community of the waqf as an Islamic developmental institution – and indifference to the idea that the waqf is fard kifayah and should be encouraged.

12. In FTKL-

a. Process for the receiving and transferring of awqaf asset in FT under the MAIWP;- (SEE PG 110) – handled by the Baitul section (GRSU? What is this?)) one of the steps involve a survey of the property by the GRSU officer to investigate the status and availability of the property for constituting a waqf. Once transferred to the MAIWP, the responsibility for development and administration is given to the Development and Investment Section under the Jabatan Agama Islam WP(JAWI) (the secretariat of the MAIWP). But, if awqaf is for mosque or surau, they are handled by the Kariah Unit of the Dakwah section of JAWI, and if it is religious school it will be administered by the Education and Research Section.

b. Motives of founders ranged from spiritual or religious reasons, to more mundane reasons such as not wishing to pay the municipal assessment rates, or the lands are situated in non-strategic locations where no development can be effected.

c. Istibdal – there is a general fatwa by mufti of FTKL regarding the validity of istibdal - each istibdal is to be approved by the mufti on a case by case basis

Wednesday, April 7, 2010

Super Freakanomics

by Steven Levitt & Stephen Dubner

1. People respond to Incentives.
2. Declared preferences are how people say they behave. Revealed preferences is how people actually behave.
3.Gary Becker - "the economic approach" - a systematic means of describing how people make decisions and how they change their minds.
4. Natural experiment is a set of conditions (in the natural world) that mimic the experiment you want to conduct (in a lab, eg) but for whatever reason, you cannot.
5. Rational decisions - a typical person makes rational decision in line with his own self-interest.
6.Altruism - what about giving money away?
Experiment: - the game Ultimatum - demonstrates seemingly kind behaviour in Ultimatum are inextricably tied in with potentially selfish motivations. the game Dictator - show that human being seem hardwired for altruism.
7. But, John List's experiments showed that when a person comes into some money honestly and believes another person has done the same, he neither gives away what he earned nor takes away what doesn't belong to her.
8.So how to explain the games that show altruism? Could be because lab experiment results are unbelievable because:
a. selection bias in terms of volunteers;
b.scrutiny - effect on the behaviour of the volunteers;
c. context - ie the incentives/social norms/ framing references/past experiences which results in a productive way to act;
d. forced cooperation.

Note too that US tax codes are the most generous in allowing deductions for contributions.

9. Impure altruism or warm-glow altruism.
10.Externality is what happens when someone takes an action but some one else without agreeing, pays some or all the costs of that action. It is an economic version of taxation without representation.
11. How to address a negative externality?
To make sure the doer faces the full costs of his action ie to "internalize" the externality.
12. Not all externalities are negative.

Monday, April 5, 2010

Social Capitalism in Theory & Practice

by Robert Corfe

"In the first volume of my book, Social Capitalism in Theory & Practice, I’ve

explained how industrialised societies in the developed world are ready for such a transformed view of humanity and such a fresh approach to politics.

37 – In the same volume I’ve also elaborated on the need for such a viewpoint, on the grounds that a fair and egalitarian society can only be achieved through the willing cooperation of all sectors of society.

38 – I’ve also argued strongly that a fair, free, and egalitarian society can never be achieved by Socialism as we’ve known it, for a host of reasons, but primarily because:- 1. The spirit and aims of collectivism contradict the needs of freedom and the individual; 2. The resentment of class consciousness oppresses aspirational values; 3. The bureaucratisation of enterprise destroys the business dynamic, and hence imposes an authoritarian elite for production and distribution; and 4. and most significantly, the idealisation of a proletarian class – however that is defined – has not led to a free and egalitarian society, but on the contrary and everywhere, to a society which is shackled by the restrictions of its limited vision.

39 – Social Capitalism, as described in the second and third volumes of my book, is dependent on the ownership and management of the means of production, distribution, and exchange, not by any abstract collective entity, but by individuals at the grass roots level, and through their influence on the hierarchy of authority.

40 – This is made practicable through changes to company law in conjunction with proven systems of co-determination and employee share-ownership. It leads to what I have described as the Responsible Society."

Sunday, April 4, 2010

Labor and social capital: disengaging from social justice?

by Dr. Lou Wilson and Keri Chiveralls

Idea of social capital started from Marx. "For Marx capital is both the accumulation of wealth and a social relation, which leads to the formation of social classes and social power".

Pierre Bourdieu began to publish on the forms of capital in French language journals in the 1960s and 1970s. His work was not accessible to English language audiences until the publication of Many Forms of Capital in 1985. According to him, capital can present itself in three different forms: cultural capital, social capital and economic capital. Critically, Bourdieu (1985: 241-248) suggests social capital has three elements:
1. The social relationship that enables individuals to gain access to resources possessed by their associates.
2. The amount of those resources. 3. The quality of those resources

Bourdieu’’s work was extended by James Coleman (1988), three types of capital are physical, human and social capital. Like Bourdieu, for Coleman, social capital is an endowment of social structure, located in the spaces between and among individuals.

While Coleman (1988) saw social capital in terms of its benefits to individuals or groups, Bourdieu (1985) saw social capital as an explanation of social stratification.

the concept was not popularised until the release of the works of Robert Putnam (et al. 1993, 1995. In this seminal study, Putnam argues that governmental effectiveness in Italy can be tied to levels of social capital in the regions through the rubric of civic engagement. Putnam’’s work suggests that in order to attain economic growth, community development initiatives must consider the importance of civic groups that may seem to have little to do with either politics or economics. An important conceptual shift takes place in Putnam’’s writings as social capital becomes no longer a property residing in relationships between individuals but the property of groups and even nations.

Latham (Australian labor politician)
In his book with Peter Botsman, The Enabling State: People Before Democracy, Latham (2001) argues that we live in a period of relentless insecurity, which threatens the cohesion of our society. The welfare state is said by Latham to have failed to provide certainty in this time of insecurity. The new insecurity is associated with economic prosperity but some people are being left behind and excluded from the benefits of the new order, which is attributed by Latham to the provision of ““passive welfare services”” that encourage welfare dependancy. Passive welfare services are programs that provide social security to citizens without requiring mutuality in the form of work for the dole schemes and similar forms of obligation (Latham 2001).
Latham is often accused by his political opponents of simply lifting his ideas from Tony Blair’’s New Labour and the Clintonian Democrats. Without wishing to unpack politically motivated accusations of plagiarism against Latham, it is clear that Latham’’s ideas on social cohesion and social exclusion are in accord with the so-called ““Third way”” project of Bill Clinton and Tony Blair.

In broad terms, Latham (1998: 31-36, 126, 165, 223-231) argues that the cost of providing social welfare must be reduced and wage earners made to pay more for their retirement, the education of the children, their health and periods of unemployment because the state can no longer raise taxation from capital as it has in the past. The advent of transnational corporations and the new international mobility of capital means that rather than taxing nationally-based capital, governments are increasingly involved in a bidding war to attract capital investment. Therefore social welfare assistance must be reduced or made to pay for itself.


The concept of social capital is not new, having received theoretical attention from the time of Marx’’s conception of the term as a form of social power related to the formation and reproduction of social stratification and from scholars as diverse as Bourdieu, Coleman and Putnam.
Mark Latham clearly prefers Robert Putnam’’s normative reconception of social capital as a virtuous, singular entity. Latham believes social capital in this sense is capable of transforming the Australian social protection system to make it more compatible with neo-liberal economic reforms, which Latham also favours. Unlike his predecessors in the Labor Governments of the 1980s and 1990s, Latham does not advocate redistributive social justice policies to alleviate the impact of neo-liberal economic reform on Labor’’s core supporters. Latham argues that the redistributive welfare state undermines the ““risk positive culture”” that so many cultural theorists hold to be the hallmark of ““late-modern”” society. Instead he favours an expanded ““user pays”” system of social protection and substituting redistribution with relatively inexpensive social capital nurturing programs which will reduce the tax burden on ““risk takers”” and build virtuous cycles of trust, reciprocity and prosperity.