The Foundation Boom
Whether they serve cultural, environmental or other purposes, the number of foundations in Germany has risen sharply since the 1990s. The sociologist Helmut Anheier studies the causes and effects of the “foundation boom”.
Professor Anheier, why are so many more foundations founded today than before?
More foundations have in fact been founded over the past decade than existed during the entire twentieth century. There are several reasons for this: people are living longer and having fewer children, the East German states have caught up economically, and there is a greater awareness for civic engagement. Moreover, new models such as the community foundation have been developed. And foundations now receive more attention – for example, from financial advisors who pass on the idea of establishing a foundation to their clients.
Only the state ensures stability
Are foundations increasingly taking over the tasks of the state?
The annual expenditure of all German foundations represents only a fraction of what the state annually puts into infrastructure, health, social welfare, pensions and so on. Because of their secure endowments and political independence, the strength of foundations lies in their capacity to support riskier projects. They can support new solutions and social innovations, but for the broader range the state remains indispensable. Moreover, civic engagement is wilful. No one can force a foundation to spend its money for one thing today and another tomorrow. That kind of stability can be ensured only by the state.
Some people call for the wealthy to pay higher taxes rather than to establish foundations, so that then money would be more equitably distributed.
Seen from a social point of view, it’s as undesirable that all wealthy people should establish foundations as the assumption is unrealistic that state funding has no structural weaknesses. Multigenerational houses are an example. Here over the decades foundations have furnished important financing for construction until the state began to fund the concept more broadly. In terms of combating social problems, the state and foundations have specific strengths and weaknesses. At best, they weaken each other’s weaknesses and strengthen each other’s strengths.
There is the thesis that, historically, foundations have been founded in greater numbers especially when the established order has begun to falter.
The opposite is the case. A vital foundation sector is the expression of a stable, liberal order. At the beginning of the twentieth century, Germany had a much larger foundation sector than the United States, the country with the most foundations, has today. The hyperinflation of the 1920s destroyed many endowments and the Nazi state and socialism didn’t tolerate private persons pursuing their own charitable purposes.
One of the largest foundation sectors in the world
How does the foundation scene in Germany differ from that of other countries?
Though far behind the United States, Germany has one of the largest foundation sectors in the world. Notable is the co-existence of a strong liberal and a strong corporatist sector. By liberal foundations I mean foundations established by private persons or organizations. Under the other type of foundation come those that are dependent to a substantial degree on public funding or are administered by representatives of public agencies, as, for example, the Prussian Cultural Heritage Foundation or the Federal Foundation for the Environment.
Recently there have been reports of the strain put on German foundations because of the low interest rates. What effects has this had on the foundation scene?
The foundation boom has been stalled somewhat. Foundations without professional asset management are now happy if they can keep their interest revenue above the inflation rate. For small foundations there’s no longer enough money for project work; they’ve been virtually incapacitated. All this makes the establishment of a foundation sensible only if one disposes over significantly higher sums than, say, ten years ago.
What role do material factors play in the decision to establish a foundation and what effect have the tax changes enacted around the turn of the millennium had?
If you establish a foundation, you have to pay neither inheritance nor gift tax on it. In addition, the donated amount can be deducted from the income tax. With the endowment of a patrimony, however, the founder is no longer its owner, which is why a foundation under German law isn’t useful as a tax shelter. The founder can make himself the chairman of his foundation by statute, but he must always be able to prove that all its expenses have been used for charitable purposes.