The Bernard Madoff scandal has sent shock waves through the world of nonprofit organizations, and the impact is just starting to be felt.
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Independent investigators had raised alarms about Madoff for years, noting the hard-to-believe low double-digit returns year after year and Madoff’s refusal to allow independent audits. Nevertheless, the Securities and Exchange Commission found no cause for concern. Madoff’s scheme only fell apart when the stock market went into a freefall and banks started closing, leading investors to withdraw money.
Madoff’s victims included extremely wealthy clients—in fact, Madoff has come under such intense heat only because he targeted his own class. As subprime mortgage lenders have shown, preying upon and deceiving working-class people for super-profits is hardly a crime under capitalism. But the ripple effect of the collapse of Madoff’s house of cards will ultimately hurt poor and working-class people already reeling from the economic meltdown.
As just one example, the pension fund for city workers in Fairfield, Conn., lost $42 million. Several large philanthropic organizations have been buffeted, and some have shut down entirely.
Madoff had handled the assets of the Picower Foundation, which had given $268 million to various causes including the Childrens’ Health Fund and the New York Public Library since its inception in 1989. The foundation, once listed as the 71st largest such organization in the United States by the Council on Foundations, announced Dec. 19 that it was going out of business. Another of the many foundations hit hard was the Carl and Ruth Shapiro Foundation, which lost $145 million.
The New York-based JEHT Foundation also went out of business as a result of the Madoff scandal. Among other things, the organization had made a $400,000 donation to the Innocence Project of Texas, which used the money to pay for DNA tests for Dallas County inmates who claimed innocence. Needless to say, the government itself should pay for those tests to ensure that innocent people are not serving time.
Chattanooga Endeavors, a group that runs a job assistance program for recently released prisoners, had been in discussion with JEHT for a grant, but the group will now have to look elsewhere for funding.
Can people’s needs be met when profits trump all else?
The downfall of these philanthropic organizations raises questions about corporate charity in a capitalist society. In the absence of a centrally planned economy that distributes resources according to social needs, the whims of the wealthy determine which causes will or will not receive funding. When the economy takes a hit, those institutions that actually serve a social function are left to fend for themselves.
The devastating impact of the Madoff scandal on philanthropic organizations illustrates this all too well, but other foundations have been severely jolted by the broader economic crisis. The Starr Foundation, which relied on stock in the American International Group to fund programs ranging from education to health care, lost at least $1 billion—a third of its value—when AIG shares plummeted.
Aside from suffering from the financial insecurities of the profit system, many of these foundations are funded by the very capitalists who earned their fortunes exploiting the working class. Capitalists with such iconic philanthropic names as Rockefeller, Ford and Carnegie were all vicious exploiters. The foundations they set up dole out their charitable donations to organizations that, at the very least, do not threaten the capitalist system. Several of them outright support and promote the profit system, touting “free trade” and “humanitarian military interventions.”
Soup kitchens, homeless shelters and other institutions providing services for those in need are staffed with many people who genuinely want to help relieve suffering. But without an economic system where the use of resources is centrally planned, the welfare of society is subject to the ups and downs of the capitalist system, and dependent on politicians who are eager to cut social programs and handouts whose size and allocation are at the discretion of the rich. Under capitalism, workers and the poor have no guarantee that their needs will be even considered—let alone met—in the absence of a fierce struggle.
