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Decentralized Globalization: Free
Markets,

U.S. Foundations, and The Rise of Civil and  Civic Society

from Rockefeller's Latin America to
Soros' Eastern Europe

PREFACE by Olga Lazin

This volume, (entitled “Decentralized
Globalization: Free Markets,

U.S. Foundations, and The Rise of Civil and  Civic Society

from Rockefeller's Latin America to
Soros' Eastern Europe

”) could well have been sub-titled:

1)          
“American
Experiments In Using U.S. Philanthropic

Tax Law to Decentralize Development
Decisions from the Government to the Non-Governmental Sphere,”

2)      “Civil
and
Civic Society Versus the Negative

 Heritage of World Statism: Case Studies of
Mexico and Romania," or

3)       “Free Markets and the Shift from ‘Gradual

Globalization’ to ‘Fast-Track
Globalization.’”

These possible
sub-titles reflect this work goals of, which are at least ten:

         First, to
distinguish between “Gradual Globalization” and

“Fast-Track Globalization”—the latter offering a new
conceptual basis that allows us to compare competing definitions for what the
term means as well as to develop the bibliography for studying the issues
surrounding it, especially in free markets and philanthropy.

         Second, to go
beyond the existing conceptualizations about how to define “Civic Society
(which I capitalize because of its importance),” “civil society,” and the role
of U.S. philanthropy. These three concepts have not been clearly analyzed in
relation to each other, especially confusing Civic Society with civil society,
thus misleading countries that seek to emulate the U.S system of decentralized
government.[1]

         Third, to
articulate for the developing world how U.S. philanthropy is defined to be the
tax-deductible basis for a healthy Civic Society based on funds that are ceded
by the government through tax deductions ceded to hundreds of thousands of
civic-minded Non-Governmental Organizations (NGOs).

         Fourth,
to how the negative heritage of statism persists, government bureaucracies
resisting loss of power. The concept of “statism” is examined in the Introduction,
below.

         Fifth, it
examines the role of free markets in making possible Fast-Track Globalization.
Free markets include international trade communications (such as phones, free
press, radio, TV, news, fax, e-mail, and the web) and jet travel.

         Sixth, to show
that globalization and the role of “free trade” is often misunderstood by
critics who fail to see how the new worldwide networking system of
communications makes dictatorships difficult or impossible and laying the basis
for almost instant exposure of human rights violations.  

         Seventh, to
compare and contrast in case studies two countries as they strive to modernize
their governmental systems and economies.

         Eighth, to show
how two aspects of free trade profits have been diverted to philanthropy to
stimulate the growth of civil and Civic Society in the world based on the U.S.
model. The Rockefeller Foundation has been based on investments in world
regions; the Soros Foundations have been based on both freely flowing world
investments and free trade in currency values.

         Ninth, to
clarify to policymakers in the developing world that the term “Not Profit
Organization” is misleading, as we will see in the case of Mexico and Romania
where it is was officially mis-translated as meaning “no profit.”  If the term had been translated from its
correct name in English, that is

                  “Not-For-Private Profit Organization (NPPO),”

it would not have been mis-translated in Mexico and Romania.

Let us be clear here that profits are desirable in order that
the tax-exempt non-governmental organization (NGO) can make productive
investments and use the interest as a basis of continued existence and
expansion, as we will see.

         Tenth, the
concept NGO and its role in society is here defined in a new way in order to
clarify its breadth. It is a term that covers grant-making foundations (such as
Rockefeller and Soros), operating foundations (such as universities and
hospitals), and innumerable types of decentralized organizations authorized in
a pro forma manner by the U.S. government
to encourage the myriad activities old and new which are beyond the government
to imagine, let alone administer.

         “Globalization”
is defined here in terms of the drive to standardize international laws and
regulations in order to facilitate worldwide long-run development of free
markets—intellectual as well as economic.[2]  This process led by the United States, with
some important exceptions such as cellular phone service where the European
Union (EU) standard will have to prevail, requires that countries everywhere
understand how the USA "works."

Especially important is learning how
the U.S. permits non-governmental, tax-exempt funding of citizen-based
political activity through a society that is organized to almost instantly
mobilize and transfer ideas, capital, and information worldwide. Without such
understanding this process, developing countries will be unable to catch up to
the U.S. standards, let along to compete economically in process of
globalization

         In the process
of globalization, the European Union has been created since the 1950s to
provide its own alternative standard for globalization, as well as to negotiate
with the U.S. on equal footing. In many cases, however, the EU has not
developed consistent

standards, as in the case of philanthropy where 15 separate
sets of rules exist to govern Civic Society, which is often confused with the
broader term “civil society.”

         The distinction
developed here between “Civic Society” and “civil society” is as follows: Civic
Society, the activist sector of civil
society, seeks democratically to
initiate change for the “public good.”[3]  Civic Society has in part been identified as
“Civic Culture by Gabriel A. Almond and Sidney Verba, with whom I see as having
appropriately laid the basis for distinguishing between civic society and Civic
Society. They identified in 1963 the idea of “Civic Culture”—which they alternatively define as “political culture.” [4]

Although they did not themselves make a distinction between
Civic Culture and “civil society” (and did not even include “civil society” in
their index to their work in 1963 and their revisiting of the idea in 1980),
their work implicitly leads in the direction that I develop here.

That Almond and Verba did not see the
connection that I see here is due perhaps to the fact that as political
scientists seeking to compare political views in England, America, Germany,
France, and Mexico, they were more concerned with their survey research to
compare attitudes than with examining the role of persons in Civic Society as
actively trying to change the civil society (including professional government)
in which they lived.

My own view is that Civic Culture
encompasses

1.    that part of government which falls
under civil law and is administered by civil service employees. Indeed civil
government ideally is based upon a professional corps of civil servants
protected under “civil service” laws that permit qualified people to administer
government affairs regardless of change of elected leaders;

2.    the broad private sector of citizens
who participate in society as citizens. The concept of civil society its
origins in ancient Greece where citizens invented the idea of participatory
democracy to organize the city-state. Since ­­­­­then, the notion of civil
society has been used in different ways by different groups and defined in a
tremendous variety of ways.

         The first to explicitly use the concept
were the thinkers of the Scottish Enlightenment of the 18th century. They
created an important body of thought, which planted the idea of establishing a
market economy with moral values.

         Subsequently,
the French tradition begun by

Montesquieu and de Toqueville posed the idea that civil
society has multiple dimensions.  They
emphasized the role of non-political autonomous associations among citizens. De
Toqueville’s travels led him to conclude that the new United States of America
was the epitome of civil society, the USA having built upon and gone beyond the
English civil law tradition.

Eventually England, too, saw its own
civil society

flourish by limiting the power of the monarchy under which it
continued to live.

The concept Civic Society presented
here involves non-governmental organizations (such as foundations and voluntary
associations) as well as civic-minded citizens who donate their time and money
for causes of their choice.

In my view, the concepts civil
society and Civic Society both exclude the military, Church hierarchies (but
not socially active lay groups), and one-party systems (such as the Communist
Party[5]),
if they seek to create “group-think” by preventing and/or discouraging citizens
from thinking for themselves. Civic Society involves individuals and groups who
seek to expand civil-rights (such as voting and access to independent courts)
and human rights (such as the right to live with ethnic expression and the
right not to be tortured and/or exterminated).

Both civil society and Civic Society
have been stunted in much of the world by “statism,” or the situation that
occurs when a nation-state comes to own more than half of the country’s gross
domestic product (GDP). Statism also involves governmental development of
extensive laws and rules which stultify and discourage the role of citizens.

         To explain the
rise of statism in Romania and Brazil, Professor Joseph Love, in his book
entitled Crafting the Third World:
Theorizing Underdevelopment in Romania and Brazil[6],
focuses on showing how the rise of state power was justified by
"nationalists," who sought to explain the poverty of their countries
by blaming the "capitalist" model and especially the "gradual
globalization" of markets led by the USA. 
Such statism not only caused economic stagnation but set back seriously
the role of civil society in Latin America and Eastern Europe, subjecting the
regions to dictatorships of political as well as social poverty.

         In
my view, it is only since their return to globalization, this time at
fast-track speed. that regions such as Latin America and Eastern Europe have
begun to fight wasteful centralism, especially through the rise of new civil
society.  In this process of recovery,
Mexico and Romania have "capitalized" on U.S. funds (both from the
U.S. governmental and philanthropic sectors) as well as ideas (such as basing
citizen-led activism in tax-exempt organizations such as NGOs).

         As part of my
analysis of globalization, I argue that the concept includes not only the flow
of Profit-Making Funds (needed to finance and conduct business affairs), but
also includes the flow of Non-Profit Funds (needed to build Civic Society and
human capital as well as to protect human rights and the world's physical
environment.)

         America
operates with the advantage of being able to enact one standard law for Non
Profit Organizations (NPOs) whereas the
EU is only beginning to do so in such areas as taxation and pensions, and has
been unable to do so at all for NPOs, where 15 national legal standards
prevail.

         My field
research has revealed that countries such as Mexico and Romania have had
difficulty in understanding and adopting U.S. tax law, which is the basis for
standardization because of problems in analysis of how U.S. economic sectors
interrelate.

 U.S. analysts
themselves have failed to articulate the relations among economic sectors, thus
confusing the way in which policy analysts interpret U.S. law to the world.
Thus, the concept “Non Profit” has been mistranslated as “No Profit,” as we
will see in this study.

Hence, I encourage here use of the
term Not-For-Private Profit (NPPO) to specify that profits can be made but not
diverted for private use. Such profits can be used only for the tax-exempt
purposes for which any organization is founded, including the expenses of
running the organization (salaries, travel, rent, etc.) as well as invested to
increase the size of the NPPO and ensure its continued existence.

         As part of my
contribution to globalization studies, I here

redefine U.S. societal spheres as being four:[7]

                  1.
Government (State) Sphere (centralized and

                                    Decentralized)

                  2.
Private Sphere

                  3.
Mixed State/Private Sphere

                  4.
Philanthropic Sphere (often erroneously called

                           the
“Third Sector”)

         Confusion about
definition of societal sectors comes when analysts fail to take into account
the role of the Mixed state/private sector, which for so many years has come to
provide a “theoretical bridge” between government and the private business,
especially in England and the USA, as well as to keep inefficient and corrupt
statism in power, especially in Latin America and Eastern Europe.  Given the “third-way” ideology espoused by
diverse leaders in different times (for example, Juan Domingo Perón in
Argentina in the 1940s) and England’s Tony Blair (1990s), such a concept is not
helpful because it is by now empty of meaning.

         I seek to show
in a new light the relation of the profit and not for-private-profit sectors,
the latter funded by the former. Further, I develop new analysis here to help
citizens everywhere to understand the roles of government, which must include
the study of GONGOs (governmentally organized NGOs), QUANGOs (quasi-autonomous
NGOs) as well as to understand that
"non-profit organization" does not preclude such organizations
from earning profits but rather require that the profits must be used for the
purposes chartered and not for private gain.

         With regard to
meaning of words, one final statement is in order. I do not use the word
“public” per se because it has two distinct meanings. For formerly statist
societies, “public” means government or government-owned. For non-statist
societies such as the USA, the word’s meaning depends on context: “broad
general public,” in the context of philanthropic analysis; “public utility”
owned or regulated by the government, in the context of economic analysis.
Hence in discussion here I discuss foundations as “broadly supported by the
general public”; and I do not use “public foundation” which could give the idea
of government-owned foundation.

         This approach provides the overarching
framework for analyzing the full impact of:

4)   the findings of Margaret Carroll’s
UCLA doctoral

dissertation in history entitled:
"The Rockefeller Corollary—The Impact of Philanthropy and Globalization in
Latin America (1999);

5)   the findings of James W. Wilkie in
notes and oral

history interviews with (a) Norman E.
Borlaug, the father of the Green Revolution; and (b) with the staff of the “El
Paso Community Foundation” about its operations, upon which he drew to develop
the framework for the U.S.-Mexican international philanthropic standard that
emerged from his policy research as President of PROFMEX (Consortium for
Research on Mexico).

6)   my findings based on field research
in Mexico, Russia,

and Eastern Europe on the problems
especially facing Romania as it attempts to establish Civic Society; and my
interviews with George Soros in New York City.

         In
this work, I argue that the challenge is for formerly statist countries such as
Mexico and Romania is to establish Civic Society and free markets as the
countervailing forces needed to reform centralized legal systems. Both Mexico
and Romania, which once "benefited" from Roman Law and the Napoleonic
Code, find that they now suffer from the legal limits that preclude action not
expressly permitted by the state. Indeed this legal situation is the problem
hampering the development of philanthropy in both countries. Until they adopt a
legal system that allows companies and persons to innovate without obtaining
prior authorization from the government, innovation will be stifled by fear of
bureaucratic retaliation.

          In my view, where Rockefeller’s model of tax-exempt
organization has been centrally based in New York City, George Soros offers a
fascinatingly different model of decentralization. Soros has used globalization
of profit-making funds to finance his Not-For-Private Profit branches of the
Soros Foundations around the world. Soros, Hungarian-born and London-educated,
lives in New York City where he oversees his worldwide economic operations. His
profits from currency speculation[8]
in all areas of the world, however, go into his Curaçao-based Quantum Fund, which
pays his salary and fees to him in New York City.  From his own personal profits (Quantum Fund
being one source), Soros donated and tries to donate at least half to his New
York-based Soros Foundation, which is organized to take advantage of the fact that
the USA has the most flexible Tax Exempt
the same time limiting political action and requiring rigorous accounting.

         The Soros
Foundation does not make its decisions through a New York-based board, as do
most of the world's other major foundations such as Rockefeller and Ford, but
transfers most of its tax exempt funds to more than 30 nation-based boards.
These boards are made of leading citizens who are attempting to construct Civic
Society in their own country. Local Non-Governmental Agencies (NGOs) determine
their own priorities providing their input, local boards of prestigious
citizens representing various professions are in charge of identifying where
grants should go.

The Fundación Soros-Guatemala serves
as a good example. Board members have been chosen as to reflect different
sectors of the society and ethnic groups: a Jesuit sociologist, a Mayan
economist, ex-government officials, and a local businessman. Local NGOs detain
the highest legitimate information and knowledge and can provide the local
links from the outset in efforts of reconstruction following the 36 years of
civil war in Guatemala.        

         Romania is
especially interesting. (as also is all of Eastern Europe)  for comparison to Mexico. As I argue here,
Romania is following the same path of moving from statism to de-statification;
and thus it seeks to understand how Mexicans have faced with varying degrees of
success the process of nationalizing (1917-1982) and then de-nationalizing
(since 1982):

-     
industry,
banking, ports, airports, toll roads, and

railroads (in which nationalization
meant loss of

accountability and in which
de-nationalization has

meant establishing open accounting);

-       agricultural land (in which
nationalization meant

creation of communal holdings and in
which de-

nationalization has involved
disincentives to  (but not

prohibition of) the right of peasants
to hold land

communally;

-     
trade
(in which nationalization meant integration

asymmetrically into large trade blocs
turning inward and in which de-nationalization has meant integrating outward
into free trade markets);       

-       philanthropy (in which
nationalization left little or no role for civil society and in which
de-nationalization has required foreign philanthropy to fund Civic Society).

         To portray how
in the 1990s Mexico officially sought to enhance the role of Civic Society, I
analyze its adoption of the U.S. model where government builds a compact with
its citizens to exempt from taxation money and property that are devoted to philanthropic
purposes. The Mexican government realized that by establishing the basis for
instituting the U.S. philanthropic model it would be compensated for the loss
of revenue because

         (1) It is
relieved of the burden of financing all activities that otherwise the state
must fund; and

         (2) Government
does not have the "mental space" capable of identifying and
attempting to resolve problems or develop new plans in thousands of places at
once, as statists once believed to be possible through the use of central
planning, even later including the use of computers.

         Thus I offer a new historical view of
globalization to explain how the U.S. model of philanthropy has come to serve
as basis for Civic Society in many countries of the world. This process is not
clear to much of the world, nor has it been well articulated by the U.S.
Council on Foundations, which has sought to lead such change.

Funding of the Green Revolution by
the Rockefeller Foundation serves as one excellent point of departure to
examine the philanthropic basis of Civic Society’s importance in the
globalization process.  Although such
countries as Mexico and Romania have been attempting to follow the U.S. legal
model to achieve de-statification, this has not been easy because even in the
USA their is little clear understanding of how the U.S. model of philanthropy
has come to fit into the overall economic structure of society. Hence it has
been difficult for other countries such as Mexico and Romania to emulate the
U.S. model.

         I see U.S.
philanthropy as the most important historical model for all countries because
it holds the world's largest pool of foundation funds for expenditure on world
development. Its importance is that it flexibly sets one standard under U.S.
law to permit private persons and corporations, be they U.S. or foreign, to
incorporate in America and to give outside the USA as well as inside. Although
Enrique Barón, noted member of the European Parliament, claims that the EU is
the world’s largest funder of NGOs,[9]
and therefore impliedly more important than America, his argument does not take
into account the fact that the EU’s huge pool of funds about which he writes is
more plan than reality; and in any case it operates under 15 separate
standards, one for each country, thus dissipating EU’s effect on the world.

         To arrive at my
goal in this work, I define in this work Civic Society in a way that can well
be understood outside as well as inside the United States; and develop the
argument that civil society (regardless of its limitations) has provided the
basis for the health of Civic Society by both leaving it free and also
cooperating with it to assure financial freedom to organize Civic Culture
without government interference.

         The U.S. law on
Tax Exempt Organizations (TEOs) has created tax deductible incentives to help
NPPOs (including NGOs) carry out their plans to establish voluntary-action
programs and donations of money and time. The scope of the U.S. NPPO Law on
Philanthropy (which is my name for the body of U.S. law that does not
explicitly use the term “philanthropy”) does not set any limits on the types of
activities that can be funded. Although the law includes some key concepts,
they do not constitute a limit because the fast-changing world cannot foresee
what should or should not be funded.   I
summarize U.S. tax law to define non-exclusively these guiding categories as
involving the “HEW-SEER-PUC” factors:

1.    Health,

2.  Education,

3.    Welfare (and human rights),    

4.    Science

5.    Economy,

6.    Environment (and ecology),

7.    Religion

8.    Publication (and literary societies,

9.    Charity (including the facet of
poverty relief).

While not limiting what can be
funded, U.S. NPPO law does limit how such activities can be funded, but
flexibly so.

         This
work is organized into six chapters:

Chapter 1 argues
that the Fast-Track Globalization process is based on the rise of rapidly
expanding free markets. Here I argue that free trade of goods, communications,
and services provides the context for the rise of Civic Society. I do not see a
direct, measurable correlation between the two, but rather that the context of
free trade opens international communication and makes possible and more
effective the role of Civic Society. In this chapter I present my view that
Globalization is accelerating from a “Gradual” process for many centuries prior
to the 1980s to a “Fast-Track” process.
Beginning in the 1980s, U.S. President Ronald Reagan and United Kingdom
Prime Minister Margaret Thatcher joined forces to foster the many factors
involved in Fast-Track Globalization based upon open communications that have
facilitated the flow of funds among For-Private-Profit Organizations (FPPOs),
many of which donate a significant share of their profits to NPPOs seeking to
foster change in the developing world.

         Chapter
2 deals with developing a clear definition of the U.S. model for Tax Exempt
Organizations (TEOs) such as foundations, NGOs, and a wide range of NPPOs). It
is because a definition does not exist that there is so much confusion in the
world as well as in America about how U.S. NPPOs function.

Chapter 3 takes up the Rockefeller
Foundation, which I portray here as representing the Centralized Model of
Philanthropy wherein decisions are made in the USA and not in the country
receiving the benefit of U.S. philanthropy.

Chapter 4 analyses the rush of world
countries into Free Trade Blocs which are not only opening the world to the
free flow of ideas for developing civil society and Civic Society but also
expanding the base of profits from which funds are donated for philanthropic
purposes. Civic Society is the main beneficiary of such donations.    Chapter 5 defines the Decentralized Model
for Philanthropy developed by George Soros and illustrated by analyzing the
rise and

role of the Open Society Foundations
around the world.

         Chapter
6 treats globalization of Civic Society and

compares the experiences of Mexico, and Eastern

Europe’s Romania, which constitute my two case studies.

The Epilogue examines two new model
of U.S. philanthropy for the world: The El Paso Community Foundation with its
decentralization to the local level and its cross-border Board of Directors
also representing Ciudad Juárez—the part of Greater El Paso Metropolitan Area
that has the largest share of population.

 The Epilogue also examines the recentralization
of philanthropy in the Bill and Melinda Gates Foundation, over which Bill
Gates’ father presides. This new type of personal philanthropy eschews the
development of a bureaucratically oriented foundation run by a professional
staff; rather the foundation leaders use their huge new “dot.com” fortunes to
personally choose huge projects that will have worldwide impact.

         The purpose of
this study, then, is to show how the four models of U.S. philanthropy all
encourage open societies and the new role of Civic Society to combat both the
negative heritage of statism as well as the Ultra-Liberal reaction to it.

Although non-governmental funding is
the key to successfully developing Civic Society, each of the foundations
discussed here is shown to take a different approach to the problem of using
grants to “prime the pump,” thereafter finding their own continued funding and
not becoming dependent upon their benefactor. At the same time, theoretically
foundations thus can use their funds to “prime new pumps.”  Unfortunately, theory and practice rarely
coincide, as will see. 

Finally, let me note that this work
is written under the auspices of the UCLA Program in Policy History and
Globalization. Where area studies used to limit their focus to one geographic
part of the world, that approach makes little sense in light of the
interactions of regions around the globe. And although country-specific
histories remain vital, they only make sense in the ebb and flow of
international influences that require a globalized policy framework, which
invites the policy recommendations of historians who are familiar with
long-term change and its meaning.

                       

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[1]
For examples of works that are either so grounded in theory that they lack
specificity  or so grounded in the U.S.
experience that they fail to understand the global context, see, respectively:
Jean Cohen and Andrew Arato, Civil
Society and Political Theory,
Cambridge: MIT Press, 1992; and Putnam Barber, “Coming to Terms with ‘Civil
Society,’”<www,nonprofit-info.org/tess/civil/html> March 6, 1997.

[2]
The
term “globalization” is defined more extensively in the Introduction and in
Chapter 1, below.

[3]
By
making the distinction here between “civil” and “Civic,” I differ with authors
such as Adam Seligman and Ernest Gellner who, because they use the two terms
interchangeably, see civil society as no more than a separate sphere “between”
public government and private activities. I see Civil society as providing a
counterweight to statist dictatorship and/or political cronyism of leaders who
appoint their followers as part of a “spoils” system; and I view Civic Society
as providing a counterweight to both statism and the mistaken policies of civil
government. Further Civic Society attempts to solve problems of which the civil
government may not even by fully aware. Cf. Adam B. Seligman, The Idea of Civil Society, New York:
Free Press, 1992; and Ernest Gellner, "Civil Society in Historical
Context", International Social
Science Review, No. 129, 1991, pp. 495-410.

[4]
Gabriel A. Almond and Sidney Verba, eds.,
The Civic Culture

 Revisited,
Newberry Park, CA: Sage Publications, 1989.

[5]
For a differing view that sees Communist Associations and Communist youth
groups (such as the infamous “Pioneers” who excelled at “group-think”) as
having constituted a non-western form of civil society, see Chris Hahn and Elizabeth
Dunn, Civil Society: Challenging Western
Models, Routlege: New York, 1996.

[6]
Joseph Love, Crafting the Third World:
Theorizing Underdevelopment in Romania and Brazil, Stanford University
Press, 1996.

[7]
Discussed at length and shown in chapters, below.

[8]
Critics usually consider “speculation” in a derogatory way, but all investment
is based on speculation, some with more risk than other types. Investment in
any stock market involves speculation and is not guaranteed to be profitable,
as we will see in this work.

[9]
José María Atienzar, , “[Entrevista con Enrique Barón Crespo, Presidente del
Parlamento Europeo:] Europa Unida y Abierta”,

La
Opinión, Nov. 8, 2000.

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