Editors’ Note: Thomas Adam, author of Philanthropy, Civil Society, and the State in German History, 1815-1989 (reviewed yesterday by Stefan Toepler), continues HistPhil‘s week-long book forum on German philanthropy history.
The last two decades have seen the rise of social enterprises and social entrepreneurship in which profit-seeking ventures are combined with philanthropic forms. This “new hybrid of profit-seeking foundations,” as it has been labeled recently by David C. Hammack and Helmut K. Anheier in their book A Versatile American Institution (2013), has been treated as an entirely new phenomenon without historical precedent. And if one searches in the existing literature on philanthropy from Lawrence J. Friedman and Mark D. McGarvie’s Charity, Philanthropy, and Civility in American History (2003) to Olivier Zunz’s Philanthropy in America (2011) for historical precedents of this marriage of philanthropy and profit, one will not find any historical example. The problem, however, is not that it did not exist; the problem is the narrow definition of philanthropy employed by most authors.
Hammack and Anheier, for example, decided to adopt the present definition of “foundation” as it is used by the IRS for their book. According to this definition, foundations are narrowly defined as grant-making and not-profit seeking institutions. Such a normative and legal definition might be necessary for the government to decide about the tax-exempt status of institutions today, but it is of little help when it comes to a historical exploration of the phenomenon of foundations and philanthropy at large. This definition imposes a modern understanding of philanthropy that does not reflect the reality of nineteenth-century society. Nineteenth-century society was characterized by a plethora of philanthropic institutions that included mutual aid societies as well as limited profit-seeking associations and non-profit institutions. The clear division between market and philanthropy was not known to donors before World War II.
Throughout the nineteenth-century, donors in the Western world sought out different entrepreneurial forms to provide funding for public institutions from museums and zoological gardens to social housing enterprises. In the 1840s a multitude of limited dividend social housing companies emerged in London. These companies were stock companies that sold shares to their investor-donors. However, in contrast to purely profit-seeking enterprises, the profit distributed to their shareholders was limited to five percent (therefore this was called Philanthropy and Five Percent). The main goal of these stock companies was not to make money for their investors but to provide healthy and affordable housing for working-class families. These companies proved very popular with investor-donors and attracted hundreds of supporters.
From the 1840s to the 1880s, social reformers from Germany and the United States traveled to London to learn about these companies. By the end of the nineteenth century limited dividend housing companies dominated the production of working-class apartments in many American, British, and German cities. In Germany, they later morphed into cooperative housing companies, which combined philanthropic support with self-help of laborers since stockholders were not only wealthy bourgeois but also laborers in need of affordable housing. These housing cooperatives became and remain one main pillar of housing production in German cities to this very day.
But it was not only social housing that owed its existence to stock companies. Zoological gardens across Germany were founded as stock companies. The very first such stock company was created in 1845 in Berlin and provided the basis for the famous Berlin Zoo. From 1845 to 1910 this stock company sold more than 1500 shares to willing investor-donors. In contrast to limited dividend companies in the world of social housing, investor-donors did not receive any financial compensation. Instead, they were offered free entrance for themselves and family members.
These shares were officially listed at the Berlin Stock Exchange and their value increased significantly in the last century and a half. However, they were never traded. In fact, once these shares were bought by a donor, they remained within the donor’s family for generations. They were passed on from parents to children as signs of that family’s civil responsibility and displayed publicly in offices and living rooms for visitors to see.
Museums in German and American cities too were founded and supported by stock companies. When in 1837 Leipzig’s burghers decided to establish a public art gallery, they chose the stock company as the enterprise’s business organization. Shares in this stock company were sold at just three thalers. Shares in the stock companies for the zoological garden in Berlin, by contrast, were sold at 100 thalers. These membership fees of just three thalers were clearly not sufficient to fund the building and maintenance of a public museum. Donations to a building fund and donations towards the creation of endowments for the acquisition of art were needed. And Leipzig’s burghers heeded the call. In the second half of the nineteenth century, the stock company received many donations in money and artwork that enabled the museum association to build its own museum building and to fill it with art work. The business principle of the Leipzig Art Museum provided the model that appealed to wealthy New Yorkers when they created the corporations for the Metropolitan Museum of Art and the American Museum of Natural History.
The use of stock companies to reach philanthropic goals is neither a new phenomenon nor was it a failed attempt in the history of philanthropy. Stock companies were a favored means among donors to create and support public institutions that served social and cultural needs. This form of philanthropic engagement enabled citizens with limited financial means to participate in these endeavors. These stock companies, thus, contributed to the democratization of philanthropy. They further contributed, in countries such as Germany where political participation rights were severely limited even for middle-class citizens, opportunities to make policy. The activities of these stock companies shaped cityscapes and formed public spaces. More importantly, each investor-donor – independent of his social status in society – was given one vote in the yearly membership meetings. Since these companies counted hundreds and sometimes even thousands of members, they became schools of democracy by affording each stock holder one vote. Well before women won the basic right to vote as citizens either in Germany or the U.S., some were voting in philanthropic affairs. In fact, social housing companies such as the Boston Cooperative Building Company counted 58 women among its 163 stockholders in 1872. These companies enabled wealthy women to take up positions of directors and treasurers. Of the nineteen directors of this Boston social housing company nine were women in 1872. And this company was not alone among social housing companies in welcoming women as stockholders and board members.
The use of stock companies for philanthropic purposes fell out of favor in the first half of the twentieth century not because they failed, but because understandings of philanthropy changed. The arrival of big foundations in the United States and the growth of social welfare states in Europe pushed aside smaller philanthropic enterprises such as limited dividend stock companies. Legal definitions of philanthropic activities and the creation of norms about proper ways to further the common good contributed to the sidelining of this hybrid form. The introduction of concepts of the Third Sector that operated seemingly independent of the state and the market left no space for enterprises that existed across two sectors.
Thomas Adam is professor of transnational history at the University of Texas at Arlington. He has recently published Philanthropy, Civil Society, and the State in German History, 1815-1989 (2016) and Transnational Philanthropy: The Mond Family’s Support for Public Institutions in Western Europe from 1890 to 1938 (2016).