Feb 23, 2009

Jonathan Sarna on Jewish Philanthropy

Lessons From The Past

by Prof. Jonathan D. Sarna

The Jewish community grew wealthy, along with the nation as a whole, in the post-Reagan era. Arguably, more Jewish wealth was created in those good years than in all of American Jewish history put together. And since much of that wealth was created by investors and venture capitalists, it is no surprise that they brought a venture capital mindset into the American Jewish non-profit sector, promoting innovation and experimentation.

We also now know that the burgeoning number of Jews in hedge funds created a dangerous sense of overconfidence. We came to believe that smart Jews could make money whatever the markets did – up or down. Most of us could not understand how they made money, but thank God if we were lucky they would let us – for a price – share in the wealth. We could expect 10% returns almost guaranteed. That, in the end, paved the way for the way not only for the great market crash, but also for Bernie Madoff.

An Historian Looks at the Economic Downturn

This is not the first time that the American Jewish community has confronted an unexpected and severe downturn. Something similar happened eighty years ago, in 1929. Let me read you a few selections from the 1929 diary of Mordecai Kaplan:

"When I preached on the First Day of Succot concerning the need of using religion as a means of fortifying ourselves against the insecurity and precariousness of modern life, I little realized that I, as well as the people I spoke to, would soon have occasion to put their religion to the test. It was only two or three days after that [that] the big crash in Wall Street took place. Some of my friends and relatives lost heavily. Brous who was about to be married to my niece Harriet Baron, lost about $300,000 [about $3.6 million dollars in today's money]. Not having dealt on margin there is a possibility of my recovering some of the money that was invested for me. In the meantime, the value of my investments shrank from about $85,000 to $45,000 [drop from just over $1million dollars to $540,000 in today's terms.] I had hoped that in the course of a few years, by saving and investing in stocks that would rise in value, I would save up sufficiently to be able to give up all institutional connections and strike out boldly upon some program of spiritual reformation of Jewish life. Although that dream has now vanished I dare not complain. There are thousands of people who are in dire straits as a result of the crash and would consider themselves the happiest in the world if they were economically even half [as well] off as I am."  [M Scult (ed.), Communings of the Spirit, 392-93]

Kaplan's economic woes did not end there. Even though, he writes, "we invested in bank stock which we had been assured was the safest of all stocks," he like 1 in 5 New York Jews lost money when the Jewish-owned Bank of the United States closed its doors on December 11, 1930. Kaplan lost the equivalent of about $25,000 in today's money.

I recount this history not because I think that we are about to return to depths of Great Depression – nobody I know seriously believes that we are headed back to 25% unemployment  — but because I think that we need to look back to Great Depression for some lessons that may still be relevant to our day. 

Two negative lessons:

(1) The Great Depression saw a widespread abandonment of Jewish education – IN NYC between 1928 and 1935, the number of students enrolled in Jewish schools in NYC dropped by 22% [YA 10 p.50]. In just six months from Dec 1930-June 1931, enrollment in Chicago in Jewish education dropped 16%. We paid a big price for those declines. Those young Jews never made up what they lost. We need to be careful to avoid a repeat of that pattern.

(2) In the early years of Great Depression, American Jewry turned inward and paid little heed to what was going on abroad, particularly in Germany. As the American Jewish Year Book gently put it in 1931, "the Jews of the United States did not during the past years watch the situation of their  overseas co-religionists with the same concentration as in the preceding  twelve months." We were, as a result, less prepared as a community than we should have been for the terrible impact of world events.

On the positive side, Jews turned primarily to one another during the 1930s, relying on ties of faith and kinship to carry them through the hard times. Traditions of self-help and mutual aid overcame religious, ideological, and generational differences within the American Jewish community. American Jews assumed responsibility for helping their own. There is much that we can learn from this today. We have a huge opportunity to remind Jews of the benefit of the idea that all Jews are family, that we help one another in need. We desperately need to relearn some of our traditional communitarian values, some of them forgotten, in a few circles, during the years of plenty. America traditionally glorifies lone rangers and cowboys. We Jews, though, believe in community. The benefits of community – of mutual responsibility — become very clear when times are tough.

A second positive trend in the 1930s was the impact on Jews of New Deal programs and government centralization. More than anybody realized at the time, the Depression set the stage for the 5 day week and for growing government responsibility for social services. Together, these transformed postwar Jewish life in myriad ways. The New Deal also provided a model for growing centralization in Jewish life at the national and local levels.

Ronald Reagan, of course, reversed course at the national level when he became president in 1981. He argued that big government was the problem and not the solution. It was, he complained, inefficient, bureaucratic, slow, wasteful, and unable to innovate. Under him, we began a project of decentralization: cutting taxes and shifting power away from Washington. The American Jewish community, as if in step, likewise shifted course away from central control by the United Jewish Appeal and the Large City Budgeting Council (which were also deemed inefficient, bureaucratic, slow, wasteful, and unable to innovate), and we moved toward more local control. Most importantly for the Jewish Funder's Network, we also moved in the Reagan years toward our own version of privatization which resulted in the growth of private Jewish foundations.

To give you a sense of how rapid that change has been, let me remind you (as Felicia Herman reminded me) that prior to Ronald Reagan's presidency, which began in 1981, not one of the following Jewish foundations existed: Wexner, AviChai, CRB, Schusterman or Steinhardt. Back when I was studying the American Jewish community with Marshall Sklare, and reading Daniel Elazar, foundations were not on our radar screens.

The Jewish community grew wealthy, along with the nation as a whole, in the post-Reagan era. Arguably, more Jewish wealth was created in those good years than in all of American Jewish history put together. And since much of that wealth was created by investors and venture capitalists, it is no surprise that they brought a venture capital mindset into the American Jewish non-profit sector, promoting innovation and experimentation.

We also now know that the burgeoning number of Jews in hedge funds created a dangerous sense of overconfidence. We came to believe that smart Jews could make money whatever the markets did – up or down. Most of us could not understand how they made money, but thank God if we were lucky they would let us – for a price – share in the wealth. We could expect 10% returns almost guaranteed. That, in the end, paved the way for the way not only for the great market crash, but also for Bernie Madoff.

Let's look at where we are today and where we are likely to go from here
.

At the moment, following billions of dollars in losses to Jewish endowments and a significant decline in annual gift giving, different sectors of the American Jewish community are busy explaining to all who will listen why their particularly area of the Jewish economy has to be preserved at all costs. Human services (obviously a priority in tough times); Jewish education (as necessary as oxygen); Jewish camping (shapes Jewish memories and lifelong associations); innovative Jewish start-ups (they are the most efficient sector of the Jewish economy and in many ways the most creative); Birthright Israel (perhaps the most successful program we have established in decades & critical to preserving American Jews' ties to Israel). And so on and so forth – more or less every program is too good to give up. In a way, the community is like my university: everyone understands that we need to cut back in hard times. The faculty simply insists that: nothing be cut from crucial areas like the arts, the humanities, the sciences, the social sciences and the co-curriculars. Everything else is on the table!

The problem in the American Jewish community at large is that, aside from killing off CAJE and the American Jewish Congress, nobody has put forth serious ideas about how to cut the Jewish communal budget by one-third. That, however, might well be what we need to do. Foundations, even not taking into account the Madoff losses, are about 1/3 poorer than they were this time last year. If the downturn stretches into 2010, annual campaigns may be down by 1/3 as well.

Inevitably in downturns, the weak organizations are the first to fall. As Warren Buffett observed in his usual colorful way, "you don't know who is swimming naked until the tide goes out." My own guess is that, at the very least, many of the Hebrew colleges, many of the bureaus of Jewish education, several of the Jewish museums, and some other shakier Jewish organizations will not survive this downturn.

Orthodox Jewish organizations are apparently in the worst shape. Orthodox Jews have been disproportionately involved in banking and the stock market, and were also disproportionately hurt by Madoff ($2 billion, by one account, were lost by members of a single Orthodox synagogue.) They also are heavy users of our most expensive Jewish institutions (synagogues and schools). I have felt for a long time – and for numerous reasons – that Orthodoxy's rise had run its course. My sense is that the downturn will confirm this. I do not expect to see same kind of Orthodox growth moving forward as we have seen since 1960s, and my guess, sadly, is that some significant Orthodox institutions will not survive.

Seven trends to watch:

1. We have seen several Jewish organizations that either have or are close to being merged into non-Jewish organizations (Philadelphia Jewish Archives Center & Temple University; Baltimore Hebrew College & Townson State; rumors re Center for Jewish History & NYU; and Northeastern & Hebrew College. Some Jewish day schools are also talking of sharing secular classes and facilities with non-Jewish private or parochial schools. None of this could have happened in the 1930s, when anti-Semitism was so rampant. But today we are confident – maybe too confident – that we can make deals with non-Jewish organizations without fear of losing an essential part of ourselves.

2. Effort to re-engage small donors. Historically, American Jewish philanthropy was in the hands of a small number of wealthy elite Jews up to WWI. For years, Jacob Schiff held veto power in many aspects of philanthropy and communal policy. But then, the catastrophe or war, and the great desire of immigrants to aid relatives left behind led to mass philanthropy. For the next 60 years, or so, philanthropy was not only a way to raise money but also a form of Jewish identification. Then, over the past 20 years, business-minded consultants persuaded federation heads to focus on big givers, for the sake of efficiency. The cost per dollar raised was much less with wealthy donors, they observed, and with only so much time to educate donors, they thought it was a better investment in time and resources to educate wealthy ones. As a result, the donor base, according to UJC, dropped from 900,000 to under 500,000  over the past twenty years. Fortunately, new web technology has made it much easier to engage small donors cheaply and efficiently. The Obama campaign proved this. Some of the new minyanim, like Hadar, have demonstrated this as well. The loss of some of our wealthier older donors makes effort to re-engage small donors more urgent than ever.

3. Calls for higher standards of ethics and for greater transparency. Madoff losses and nationwide dissatisfaction with executive salaries and perks are bound to have an effect on the non-profit world. Donors will demand more openness, less reliance on "the wisdom of the rich," and a higher general commitment to ethical principles and to transparent investments and spending. My guess is that salaries at the top will fall at foundations, federations, day schools etc.. In the short run, this will have no effect; people are glad just to be employed. In the long run, it may deprive us of quality individuals who will prefer to work in the private sections.

4. Power will flow back to the center. The Jewish community tends to follow national trends. Now that we again have a president who believes that government is a force for good and a force for change, I expect more efforts to "rein in" the cowboys and to promote greater communal cooperation and centralized planning. Even Facebook, after all, has a leader who shapes policy. The growing power and significance of the Jewish Funders Network may be an indication of precisely this new trend.

5. New focus on sweat equity. In the absence of lots of start up money, young, creative, technologically savvy Jews will give time to causes that inspire them. We already see this in minyan world. I expect that we will see it elsewhere as well. Indeed, as unemployment rises the challenge is to try to harness the time of the unemployed for the benefit of the Jewish community. Many unemployed are eager to be useful. Can we figure out ways to use them productively?

6. There is a discernable focus inward in the contemporary US Jewish community, with less engagement with Israel (esp among non-Orthodox). Notice how few of the Jewish start-ups are Israel related; few Slingshot organizations are Israel related either. Even the war in Gaza did not lead to mass fundraising for Israel – a first. As Birthright takes fewer young people to Israel, we find ourselves back in the bad old days of the intifada when so many young Jews learned about Israel primarily from watching CNN.

7. At same time, downturns in the US generally promote aliyah. I expect an uptick in aliyah especially among the Orthodox and those who have already spent time in Israel, but did not think they could take risk of making aliyah. As prospects darken in US, some will look to Israel – Nefesh b'nefesh makes this easier (and it has just received unexpected new funding).

It behooves us to be humble as we try to imagine the future. As Yogi Berra famously observed, "prophecy is very difficult especially about the future."  Nobody in the wake of the great 1929 crash ever  imagined that just 20 years later 6 million Jews would lie dead in the Shoah; the State of Israel would come into existence; American Jewry would move from the cities to the suburbs, antisemitism would drastically decline; and Jewish education would become a growing communal priority. I do not have high confidence that we can predict the future today any more clearly.

But this much I am prepared to predict: the economic downturn will end, the stock market will turn around, Jews will begin to make money again, and Jewish funders will regain their confidence and search for new ways to make our community better and stronger.

Let's hope that this happens soon!

Dr. Jonathan Sarna is  the Joseph H. & Belle R. Braun Professor of American Jewish History at Brandeis University and Director of its Hornstein Jewish Professional Leadership Program. Dr. Sarna presented the above at a Jewish Funders Network event this past week.

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