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Conservative Think Tank Adjusts to Tough Times

Cover-mar-april-2007.jpg
Cover-mar-april-2007.jpg

Clockwise from bottom-left: Michael Ledeen, Joshua Muravchik and The American magazine

?The buzz at this year’s American Enterprise Institute gala was, ironically enough, about how much easier it was to get inside. For eight years, entering the annual black tie dinner — put on by the influential conservative think tank that supplied the George W. Bush administration with dozens of high-level officials — meant sharing a vast hotel ballroom with the president or vice president, which meant extra scrutiny of your car and a security checkpoint to screen for weapons. This week, Dick Cheney was present, but armies of secret service agents were not.

Image by: Matt Mahurin
Image by: Matt Mahurin

Image by: Matt Mahurin

<.pullquote>”It’s much more fun without the metal detectors,” joked one libertarian think-tanker who’d been attending the galas for at least a decade.

There was also buzz about the size and style of the dinner, especially after Arthur C. Brooks, the new president of AEI, commented in his opening remarks about how the think tank was under some stress. Despite the international economic crisis, and despite the hand-wringing and rumor-mongering afoot at the city’s other think tanks, the event was at the same location, in the same scale, with the same open bar, that guests have grown accustomed to, with the same A-list guests: Ken Blackwell, Byron York, Doug Holtz-Eakin, Rep. John Shadegg, Tucker Carlson, John Fund, and Grover Norquist, to name a few.

These are trying times for most Washington, D.C. think tanks. Since the financial crisis began, the corporate and philanthropic foundations and donors who gird most think tanks have become stingier about their grants. In the case of AEI, the economic downturn has meant cutting back one prestige product and trimming some minor costs and low-level staff. AEI Outlooks are sent around digitally, instead of printed out en masse. Several long-time scholars have left for more complicated reasons. “I wouldn’t hear anything,” said one former staffer, “and then I’d notice that a name was off a door, or a scholar’s profile had been taken down from the web site.”

For liberals, a dip in AEI’s fortunes would be welcome news. This was the think tank that Slate’s Tim Noah called “the wellspring of President Bush’s worst ideas,” and its graduates include former United Nations Ambassador John Bolton, former Defense Policy Board Chairman Richard Perle, former Treasury Secretary John Snow, and Dick Cheney himself. There has been a mini-exile of neoconservatives from AEI, but there is little evidence that a sudden drying up of executive branch access is hurting the think tank. There are more mundane problems to worry about.

AEI’s bleaker financial picture is not a secret. It was clear at the end of Chris DeMuth’s 22-year tenure as president of AEI. At the November meeting of the Philanthropy Roundtable, a libertarian-leaning organization that produces research on and gives advice about charitable giving, DeMuth spoke on a panel about the future of conservative think tanks and acknowledged the “dramatic economic contraction” that was making their work difficult.

“We will work very hard on the revenue side,” said DeMuth, “soliciting support from people such as are attending this conference. But there is no way we are going to be able to get through the period ahead without looking at the cost side as well. We will have to become more lean, more focused.”

Unlike many think tanks that largely depend on endowments, AEI’s funding sources are inherently less stable. “AEI is heavily funded by corporate philanthropy,” explained Christopher Levenick, the editor of the Philanthropy Roundtable’s magazine and the former W.H. Brady Doctoral Fellow at AEI. “Naturally, they’ve taken a hit. Folks who have sponsored them for years have fallen by the wayside. They’ve always been a different kind of non-profit and they’re hurting because of it.”

The details of AEI’s financial picture are private, and spokespeople for the think tank do not discuss fundraising or financial specifics. Much of its donor information is privileged, although some foundations reveal the size and purpose of the grants they have given AEI. But it is clear that the foundation grants and large corporate donations that go to AEI have changed, in ways that have affected the bottom line, overall spending, and individual scholars. Companies that have given generously to AEI in the past, such as General Motors, are facing harder times.

“We’ve contacted AEI,” said Greg Martin, a spokesman for the General Motors Foundation, “and we’ve told them that this is a very tough time for General Motors and we’re either cutting or closely reviewing the contributions we’re giving to think tanks.”

Information about the think tank’s investments is similarly obscure. Tax filings from 2006, the most recent publicly available, reveal that some of AEI’s investments were in the hands of hedge funds that have been struggling. For example, AEI’s investments with Farallon Funds were worth $5.7 million in 2006, but Farallon Capital Management LLC took a 44 percent hit overall in 2008.

Norm Ornstein, the congressional scholar whose centrist work clashes with the neoconservative image of the think tank, was told last year by the Carnegie Foundation to look elsewhere for money to fund his Election Reform Project. He was pointed to the Open Society Institute, funded by George Soros, although he said Thursday he never made that call.

“In the last few years, I haven’t had to go out and beat the bushes because people were interested in what we’re doing,” Ornstein said. “That’s changed over the last few months. I’ve had to be a lot more active.”

Veronique Rodman, a spokeswoman for AEI, said the think tank is on “sound footing,” and pointed to the hiring of Toby Stock, a Harvard admissions dean who is now the think tank’s director of marketing and development. But she allowed that the economy was taking an obvious toll. “We may not get new desks and new furniture this year, but we’re OK.”

The most obvious cutback has been the fate of The American, the magazine launched in 2006 by James Glassman — the conservative editor who later served as undersecretary of state for public diplomacy — to replace The American Enterprise. In November, word came down that the print version of the magazine would stop, and the publication would continue online under current Editor-in-Chief Nick Schulz. The reason given, then and now, was that online magazines like Politico.com were proving that the medium could be profitable. The American was, according to someone familiar with this decision, “hemorrhaging” cash.*

Other AEI cutbacks that have drawn attention are explained as matters of organizational politics as much as by economics. Last year Joshua Muravchik, Michael Ledeen, and Reuel Marc Gerecht, all prominent neoconservatives, left the think tank in what journalist and historian Jacob Heilbrunn thought might be a “purge.” Ledeen said this week that his move from AEI to the Foundation for the Defense of Democracies “had nothing to do with any cash issue.” But Ledeen’s Freedom Chair Endowment followed him from AEI to FDD, and some at AEI said that the organization had suffered a hit with the loss of Ledeen’s friends and funders. Muravchik said he was fired because of differences with AEI Vice President Danielle Pletka, but that he was offered a smaller severance package than he’d been offered when the possibility had been discussed before.

Those familiar with the funding of other conservative think tanks are not surprised that AEI is taking some hits. Carsten Walter, the director of membership for the Heritage Foundation, said the aggressive marketing and direct mail campaign of that think tank had made up for expected damage from skittish large donors and foundations. Since 2006, Heritage’s network of donors has expanded from 275,000 to roughly 415,000. Small-money donors who are angry at the new Democratic administration can show their might by supporting a conservative think tank. This sort of revenue stream isn’t available to AEI.

Back at AEI, Rodman is confident, but well aware that a longer economic slump will lead to greater problems. AEI has been through financial crunches before–when Chris DeMuth took charge in 1986, the organization was facing a bigger budget crunch than now. In the years since, the think tank has been parsimonious. The economic crisis is providing some hard lessons in the virtues of fiscal conservatism.

  • This article originally contained this sentence: “Duncan Currie, who was managing editor of the magazine and is now a reporter and editor of National Review, was informed that AEI was 20 percent over budget and that cutting The American sliced the shortfall in half.” Mr. Currie tells us that this is inaccurate.

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