The Godfather of Spend-down: What Donors Can Learn From Julius Rosenwald

A friend of mine rolls her eyes whenever I speak skeptically about the value of charitable endowments. “You’re neglecting the future!” she tells me. She thinks that I’m being profligate and shortsighted by advocating for distributing charitable funds rather than letting them build up.

Actually, my skepticism about endowments arises precisely because I care about the future. And I’d like to illustrate my argument by describing the life of Congressman John Lewis—and the philanthropist who helped make Lewis’s achievements possible.

Born in 1940, Lewis grew up in Pike County, Alabama, one of ten children born to sharecropper parents. Lewis was a black child in the Jim Crow South, so to say his opportunities were limited is a gross understatement. He was born into a world of legally sanctioned segregation, utter power imbalances, zero due process and racial terror.

But thanks to the vision and generosity of one philanthropist, the young John Lewis had a fighting chance. That philanthropist was Julius Rosenwald, the president and chairman of Sears, Roebuck.

Rosenwald is an underappreciated exemplar of effective philanthropy. In the first part of the 20th century, Rosenwald was one of the three best-known philanthropists in the country, along with John D. Rockefeller and Andrew Carnegie. Though Rosenwald had broad charitable interests, he was best known for providing educational opportunities for African American students in the segregated South. At the time, many communities had no schools whatsoever for black students. Many of the schools that did exist were crumbling, poorly staffed, and open for only a few months a year.

Rosenwald changed that. He proposed a formula to Southern communities: If the state or local government would provide one-third of the money for constructing a school, and if local donors, black and white, would provide the second third, he would provide the final third—along with architectural plans. Additionally, Rosenwald required that the schools be open for a full nine-month school year. Rosenwald’s efforts bore remarkable fruit: He was responsible for the construction of over 5,300 schools around the South, eventually serving hundreds of thousands of African American children.

One of those children who benefitted from Rosenwald’s philanthropy was John Lewis. As he describes it in the excellent new documentary Rosenwald, the local Rosenwald school was a lifeline. “It was the only school we had!” It was also, of course, where Lewis learned to read and write and think about the world outside of Alabama.

John Lewis went on to graduate from Fisk University, and as chair of the Student Nonviolent Coordinating Committee, he became one of the most recognized leaders of the civil rights movement. Lewis’s road to prominence was not an easy one. Most notably, he was viciously beaten by Alabama State Troopers while marching across the Edmund Pettus Bridge in Selma with Dr. Martin Luther King in 1965. But Lewis subsequently built a career as a 15-term congressman from Georgia—a position he holds to this day. That the same man could nearly be killed for demanding voting rights and later be elected multiple times to Congress is surely one of the heroic political stories of our times.

John Lewis is a man of extraordinary talents and character, but by his own testimony, he wouldn’t have gotten very far without the start provided by his local Rosenwald School.

Why isn’t Julius Rosenwald better known today? In large part, because he chose not to create a permanent foundation named after himself. Rosenwald specifically ordered that his fortune be given away for charitable purposes—most in his lifetime, and the remainder in the years after his death. Rosenwald thought that a permanent foundation was an utterly inefficient way of changing the world. He wanted to see his good works in action right away.

Instead of creating a permanent foundation that would have invested its funds in Wall Street, Rosenwald invested in people like John Lewis, who in turn touched the lives of those around them for the better. And while not every beneficiary of Rosenwald’s philanthropy became a civil rights leader or congressman, Rosenwald helped hundreds of thousands of boys and girls to build the skills and confidence to become doctors, nurses, letter carriers, teachers, accountants, bookkeepers, clergy, businesspeople, secretaries, bus drivers and, yes, politically engaged citizens. It can be argued that the civil rights movement in the 1950s and 1960s was that much more successful because of Julius Rosenwald’s philanthropy in the 1910s, 1920s and 1930s.

And what if Rosenwald had instead created a permanent foundation, an entity that would have grown over time and distributed five percent of its assets every year in grants? Well, he would have built only a small fraction of the 5,300 schools that were actually constructed. Would he have built the school in Pike County, Alabama, that John Lewis attended? Possibly, but probably not. The Rosenwald Foundation today would no doubt have a large and impressive office in Chicago with a well-paid staff, and we would all know the name of Julius Rosenwald because of the foundation’s ongoing grants. But hundreds of thousands of African American children would have attended vastly inferior schools, if they attended school at all. And the nation would have had a far more difficult time leaving behind the Jim Crow laws and moving into an era of greater civil liberties.

Maximizing an endowment’s capital growth is not the same as maximizing impact. Investing in people today helps many more people tomorrow: the beneficiaries’ families, employees, students, patients, clients, colleagues, readers and constituents. The same can be said for environmental philanthropy. If you’re trying to save a species or habitat from destruction, you need to do it now, or it’s too late; if you’re trying to slow down climate change, well, you’d better do it now, or else.

Julius Rosenwald could have created a permanent mega-foundation. He didn’t. Instead, Rosenwald provided enormous opportunity for hundreds of thousands of people, and he helped change the nation. It’s hard to argue with that approach—though, surprisingly, the majority of people involved in philanthropy tend to do just that. They’re taken by the notion that the best use of a charitable dollar is to invest it for future use. I respectfully, and strongly, disagree.

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Alan M. Cantor is principal of Alan Cantor Consulting LLC (www.alancantorconsulting.com), a firm working with community-based nonprofits in the areas of development, strategy, and governance.