The paradox of policy advocacy: philanthropic foundations, public interest groups, and second-order policy feedback effects

The Tax Reform Act of 1969 introduced formal legal barriers designed to limit the political activities of foundations. How do these constraints affect foundations’ funding decisions and the capacity of public interest organizations that rely on philanthropic support for their advocacy work? We argue that the policy regime governing private foundations’ work has produced two layers of feedback effects that not only shape philanthropic behavior, but also create real obstacles for grantee organizations and their advocacy efforts. We contend that, particularly for recipient organizations who (1) have a primary mission of political advocacy and mobilization and (2) rely heavily on philanthropic support, the policies governing foundation behavior can create incompatible goals between grantors and grantees pursuing policy change. Drawing on records of grant activity, archival material, and elite interviews, we explore this argument using a salient case study: anti-predatory lending reform. Ultimately, we find that policy restrictions on foundation giving may limit the capacity and threaten the success of advocacy organizations engaged in grassroots political work necessary to promote policy change, thus curtailing the potential for the very reforms foundations are eager to pursue.