If Corporations Will Give

by LAIRD BELL

1

THE first corporations were supposed to be soulless affairs incapable of charitable impulses. It is still perhaps good textbook law that corporations have no right to give away the stockholders’ money. Yet the Revenue Act of 1938 permitted corporations to deduct, as an expense of doing business, 5 per cent of their taxable income for charitable contributions. Thus corporations may now to some extent indulge in generosity.

The underlying forces that have brought about this change are worth examining. Fifty or seventyfive years ago business was, except for railroads, a matter of relatively small units. The units had proprietors that were sole owners, or at most a comparatively few owners. When fortune smiled on them — or it might be more agreeable to say, when thrift and industry were rewarded by the success prophesied in the copybooks — the owners were free to do with the profits what they liked.

They were not only free to do a little something for the community: they were expected to. The owner himself was looked to for a contribution to the hospital, and his wife was duty bound to play Lady Bountiful and visit the poor. The owner, too, was a true member of the community. When a businessman in the fine free old days turned a pretty deal, he built a library or gave a nice park to the town. Particularly if the deal left his conscience a little troubled, he was apt to do something rather handsome and conspicuous.

But the wealth which carried those obligations in earlier days has an altered form now. The iron furnace that one man used to own has become one of a battery of furnaces operated by a billion-dollar corporation. The prosperous drygoods merchant who used to stand by the front door to welcome his old friends has sold out to a chain. The good brick mill that dominated the town has been closed down as a marginal operation, and a streamlined affair of steel and glass in a strategic location employs its thousands elsewhere. The destinies of the businesses are controlled from something known as an executive office in a skyscraper in New York or Chicago. And the former owners have stock certificates in a safe-deposit box.

Clearly the great corporations have taken the place of the individual as custodians of that wealth which ever since Old Testament times has been deemed to carry with it some degree of charitable obligation. The stockholders of these corporations are said to be the owners of the business. But what they own, realistically, is a piece of paper which indicates that they are entitled to a minute fraction — of what? Not of the property itself, not even of its profits, but of so much of the profits as a board of directors thinks it prudent to let the stockholders have. And it is not considered financially respectable to let them have anything like all the profits. The remainder is “plowed back” into the business. The wealth that thus accumulates remains in the corporation.

Taxes have been the whipping boy — and alibi — for so many things, that one hesitates to drag them into this discussion. Yet they do have a particular bearing here. For under our revenue system Uncle Sam takes his cut twice before sweet charity gets a chance at the generosity of the individual stockholder. If a business is owned by a corporation, Uncle Sam dips first into the corporate profit and then again into the dividend received by the stockholder.

At the same time the very size of income taxes and death duties is effectively eliminating the individual donors who can express themselves in large figures. A new crop of millionaires may be in the making, but if so, they haven’t yet learned the art of graceful giving. Even the citizen who can deduct his charities from an income in the 90 per cent brackets must now reflect that he needs that other 10 per cent, and the satisfaction of making the Treasury lose a tax on 15 per cent of his income is diluted by that realization.

When it comes to gifts out of capital, too many men who used to be considered wealthy have to hang on to their liquid assets to be ready for estate taxes. Charities must look elsewhere for their major support in the future.

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THAT some degree of charitable obligation goes with the wealth held by corporations has been increasingly recognized. In the early stages, boards of directors felt the need of justifying contributions on some theory of benefiting the corporation. They were relieved when they were able to figure out suitable objects of giving — the community center would help peaceful relations with labor, for example, or the local welfare services would look after disabled employees. It was not a long step from this to considerations of a prosperous community, or that nebulous thing called public relations. Then came the community chests with their comprehensive appeal, and we had a successfully developed psychology that every enterprise in the community ought to go along. No longer did such contributions constitute “giving away” the stockholders’ money.

There followed nation-wide appeals like the Red Cross. Happily the peak of these appeals coincided with the excess-profits tax, and the fun of getting an enormous tax deduction relieved the doubts of executives and directors about the propriety of giving in to charitable impulses. The repeal of the excess-profits tax has reduced the fun, but Uncle Sam can still be nicked for 38 per cent of the gift and there is a trace of pleasure left in doing that. At any rate the barriers against being charitable with the stockholders’ money have now been pretty well broken down and perhaps the time is ripe to consider on their merits what principles may fairly govern corporate giving.

The plea of this article is that the duty should be recognized as one inherent in the control of wealth, and that it not only should include community giving but should go much further, particularly in the field of education.

Some reasons for corporate interest in education, not too obvious at first glance, lie in certain trends in education which should give corporations increasing concern. Two of these are outstanding, both involving the heightening of governmental control of education.

The first is the very bulk of the institutions directly supported by the state. Whole cities of students have moved in upon the state universities. California, Minnesota, Illinois, Wisconsin, to name only a few, have populations in the neighborhood of 25,000 each. Annual budgets of more than 25 million dollars are accepted as a matter of course by the legislatures. To date, the legislatures have usually kept their hands off what the educators do with the money, and the freedom of the state universities in their educational endeavors has, on the whole, been respected. One wonders, however, how long legislators will restrain themselves as they pour out these colossal sums.

Frontal attack upon such freedom is probably not so threatening as that from the flank. The happy sport of legislative investigating committees and the witch hunts for “reds” in faculties contain hints of control that don’t have to be spelled out for teachers. And we might as well face the fact that to the average man, and particularly the businessman, academic freedom is not an appealing concept. The businessman is accustomed to giving orders and to firing people whose actions don’t meet with his approval. He doesn’t like to have his own economic and political views questioned by persons who never met a payroll, or to have “ impressionable young people” subjected to acquaintance with “wild theories”; he would get rid of those disturbing professors. And legislators think in these respects much as businessmen do. It is a fair assumption that the prospect is for more governmental control rather than less.

Well as the state institutions have defended their academic integrity so far, there can be little doubt that the privately endowed institutions are more secure in their freedom from political pressure. It is charged, mostly from the left, that capitalists exert a subtle pressure by their past munificence and the hope of more. But this is small stuff compared with the fear of endangering appropriations that must be received every year. At least relatively, the endowed institutions may be regarded as citadels of freedom from political domination.

There is no need to expand on the plight of the endowed institutions. Teachers must eat, like the rest of us, and their salaries will have to follow the cost-of-living curves. State pride can be counted on to enlarge university appropriations to meet growing costs. But endowment funds are not so elastic; rather, their yield has been drastically cut down. Tuitions cannot be raised indefinitely in competition with the state-supported schools, even if the colleges were prepared to disregard the bad social effect of excluding students of slender means. At best, mounting costs and falling income may well snuff out the endowed lamps of learning in the fairly near future unless substantial help is forthcoming from sources which can afford such help.

That such an outcome would be a disaster to the freedom which we cherish, and in which corporate enterprise has flourished, can hardly be questioned. Where the tradition of independence of learning has not been established, government has easily subjugated the universities to its purposes; witness Germany and Russia. Where the tradition is strong, government has respected it; witness Sweden.

There are also subtler results to be feared. Our own state institutions are not so free as the endowed to experiment and to pioneer in untried lines, or in lines which may in the first instance be looked at askance by the voters. Or it may be necessary, in order to get funds for serious projects, to submit to logrolling and set up courses demanded by pressure groups, such as the ology of beauticians in California, thereby at one stroke debasing higher education and dissipating the energies of administration over trivialities. A brilliant project like the Nieman Fellowships at Harvard would be almost unthinkable but for private generosity; a state university would probably have had to set up one more school of journalism to grind out mediocre reporters for whom there are no jobs.

The possibility of dry rot and mediocrity settling down upon state-supported schools without the stimulus of competition from the freer schools must also be recognized. The effect of all these factors can be tested by imagining what it would be like if we had forty-eight state universities and no Harvard or Chicago or similar institution to set the pace; or by contemplating the extinction of the liberal arts colleges.

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A MORE immediate concern of corporate business is research. Evidently business considers research worth while. No business feels itself up to date unless it spends some money on research, and reports to stockholders are full of pictures of handsome young men in white coats, looking at test tubes. The idea of research has, it is true, been debased somewhat as it has functioned in commerce. There is a tendency to feel that you put a nickel into the machine and take out a bottle of research. It covers everything from cooking up a new plastic to counting the people that go past the corner drugstore. There is, however, enough serious research going on in business to make it clear that managements believe the genuine article to be worth paying for.

Much excellent scientific work has been done in corporate laboratories, but it is necessarily somewhat cramped, because it must be pointed directly at developing a product or a process that will create profits in the near future. Yet nature doesn’t have her secrets departmentalized; a botanist may develop an anesthetic, as has in fact been done. Yet few corporations can justify staffs in all branches of learning, while the investigator in a university can call upon specialists in nearly every field. Forwardlooking managements are therefore turning more and more to the widespread facilities of universities for light on their problems, and the field has been but scratched.

Another and more fundamental feature of university research, as against what the individual enterprise can hope for, lies in the difference between applied science and pure science. The extent of the difference, indeed the existence of the difference, may be debated, but for our present purposes it is quite clear. The example of nuclear science is a fair illustration of the point.

The development of atomic power would not have been possible but for pure and “useless” research. The dread bomb is the outcome of a high order of engineering skill in the utilization of the forces released by nuclear fission, but the “secret” of such fission was the product of pure science. It followed upon years of measuring, speculating, testing, by scientists working inconspicuously in universities all over the world. It probably didn’t seem a practical achievement when Thomson succeeded in weighing an electron. But that was one step in producing the bomb. The scientists who worked on the bomb have been the first to say that they were working on a glorified engineering problem the solution of which would not have been possible if the theoretical work had not already been done by pure researchers. And they themselves long to get back to their laboratories and “useless” projects.

The story of nuclear fission is illustrative only. The same situation has been duplicated many times in the incredible developments of medicine and in other sciences. The present far-flung attack on cancer may depend on the success of some scientist who seems now to be merely playing with enzymes.

Production, and yet more production, comes close to being our national religion. No one can tell in what field the discoveries of some lonely laboratory worker may revolutionize production. Forwardlooking industries like the oil industry and those concerned with food and drugs recognize the value to themselves of “useless” research. Where they have blazed a way, other industries should not fear to follow.

Sustaining research may be regarded as buying something for the stockholder, or at least taking a fair business gamble that an investment in research will in the long run prove profitable. But only two or three great corporations have undertaken pure research. For research has become a very expensive game. It has to be played more and more with blue chips. Cyclotrons and betatrons are costly paraphernalia, and last year’s cyclotron can easily become a discarded toy when somebody thinks up a better gadget. It isn’t a game that many individuals can sit in on any more. Indeed, few corporations can afford to play a lone hand. It calls for the combined resources of many of the well-to-do concerns. In fields like nuclear science, in fact, it is a fair question whether any agency short of government can hold the pace. Only Uncle Sam could have afforded to bet two billion dollars on the atom bomb; perhaps no one else can afford to make the bets necessary to turn atomic power to peaceful use.

But this is no reason to sit back and leave it all to Uncle Sam; if anything, the situation only emphasizes the obligation of private enterprise to have a part in the development. If corporations can be said to have an over-all faith, it is clearly in private enterprise. And it is the negation of private enterprise to leave the limitless possibilities of research to government to develop.

Private enterprise doesn’t like government in business; but if government is the sole agency of unlocking the secrets of nature that make possible better processes and products, government will be in business in earnest, and private enterprise will not be consulted much. Even though private enterprise cannot manage the whole thing, it can at least be a junior partner. It need not give government the right to say, “You left me alone to develop this thing. I propose to exploit it, and don’t come around, after I have succeeded, to ask to get in on the benefits.” Unless business makes some contribution, it can hardly hope to keep its foot in the door of progress.

Up to now governmental grants for research have been commendably free of restrictions. Thanks largely to the wise policies of the Office of Scientific Research and Development during the war, research institutions have been given problems and left free to solve them in their own way. It takes no prophetic vision, however, to see that it is unlikely that government in the long run will keep its hands off. The man that pays the piper notoriously has views about the tune. The temptation for legislators to impose conditions on grants will be very great. What the conditions may be — conceivably that the investigators should have only correct social and political views — does not matter. The institutions will be helpless unless they themselves can contribute some part at least of the resources. Private enterprise cannot expect scientific research to be kept free unless private enterprise itself makes an effort to keep it so.

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MANY difficulties can be foreseen. How is the small manufacturer, or the big one for that matter, to know where his money is likely to do the most good? In the case of the national corporation, will it be in trouble if it contributes to a California institution and neglects one in New England? How is it going to follow up the effectiveness of the use of its funds? If atomic energy, for example, is made practicable by the use of government funds even in part, it must be expected that the results will be made available to all. What benefit can the contributing company get that its non-contributing competitor doesn’t get? These questions may perhaps be answering themselves to some extent. For increasingly some institutions specialize in certain fields and it may be fairly clear where effort should be concentrated. True, the issue may become pretty technical for the ordinary corporation management. But this might be met by organizing groups of contributors in different fields who could employ sufficiently expert advisers to ensure that the money is well directed. Such groups, moreover, would be more effective than individual corporations in asserting the claims of private enterprise as against bureaucratic control. Contributors, without violating the general principle that results obtained by government aid should be open to all, might fairly be rewarded by having their own research men kept currently abreast of developments and stimulated by continuous contact with scientists of the highest caliber.

Even harder questions may arise when we get out of the field of research, which can be expected to yield relatively tangible results, and consider the role of the colleges — including liberal arts colleges and technical schools.

Yet it must be clear to any thoughtful executive that the colleges are the schools that prepare the experts of tomorrow and its executives. True, students may find out what socialism is, or even communism, but it is a poor defender of free enterprise that doesn’t know what resources his opponents have. Some young people are “spoiled” by education, but by and large the product of the colleges cannot be considered other than good. Many enlightened concerns recognize this and actually proselytize among the best of the graduating classes. If the colleges produce a product that is worth getting onto a corporation’s staff, it must be a reasonably simple deduction that it is worth while for a corporation to promote good schools. This is as true of the liberal arts schools, which attempt to create wellrounded citizens, as of the technological schools, which aim to turn out good technicians.

Even though this be accepted in principle, obvious problems persist. The qualifications of the several colleges are not so easily differentiated or measured as those of research institutions. Here, too, we run into Old Grad trouble. Loyalty to dear old Siwash must be tempered by more detached considerations. A certain machinery for inducing impartiality may have to be invented.

The problem may be answered in part geographically. Local corporations may fairly be asked to help the institutions which serve primarily students from their own localities. For corporations which are spread over wide areas, special agencies for allocation could be developed. Also there might be joint appeals by particular classes of institutions; the appeal of the United Negro College Fund is a case in point, and corporations have not hesitated to contribute to that. Area groups can be imagined; there are, for example, several liberal arts colleges of the first grade in the Middle West that deserve the support of the industries of the region which recruit from their graduates. Technical schools could make a combined appeal. And the women’s colleges, which have struggled along doing a magnificent job on pitifully small resources, should be able to make their peculiar claims effective.

Scholarships and fellowships in particular are a medium through which corporate gifts could be channeled, scholarships for undergraduates and fellowships for the research workers and graduate students. Such contributions could be endowed or not; in either case they would lift the current load of the institution. Such awards would also reduce some of the other problems suggested. Scholarships could in the first instance be confined to sons and daughters of employees, and the problem of which college is to be attended could be solved by leaving it to the student’s choice or by restricting it as the corporation might determine. Holders of graduate fellowships obviously would be directed to institutions the work of which might particularly interest the corporation.

It is safe to say that if corporations could be inspired with generous impulses, machinery to utilize the proceeds would quickly develop.

In sum, we should face the implications of the fact that a great part of our national wealth is locked up in corporate form. If we may assume that the haves are under some obligation to help the havenots, the corporations are clearly indicated as in the top flight of haves. They have come generally to recognize the obligation when community needs are involved. They recognize it when it is a question of meeting disaster on a national scale, as in the case of the Red Cross and the war services like USO. Some few of the advanced corporations recognize that it is good business to promote higher education in its research aspects. The logical next step is to recognize an obligation to promote both theoretical research at the university level and the production of good citizens at the college level.