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Inequality

January 26, 2012

(Mark Rosenman, a nonprofit sector activist and scholar, directs Caring to Change, an effort in Washington that seeks to promote foundation grantmaking for the common good. In his last post, he challenged the notion that more nonprofit organizations necessarily translates into greater social good.)

Rosenman_headshotAlthough the public and a few elected leaders increasingly are focused on growing economic inequality in America, the topic isn't receiving much attention from charities and nonprofits. This in spite of the fact that the sector itself is characterized by a similar inequality.

That silence is surprising for a couple of reasons. Today's yawning inequality exacerbates the problems many people face as well as their need to turn to charities for assistance. It also directly affects the help they're able to receive; as a general rule, the larger a nonprofit organization's budget, the less likely it is to provide the kind of assistance needed by low-income Americans and those falling toward poverty. Wealthier charities tend to cater to wealthier Americans, and as the rich get richer, inequality -- in society and the nonprofit world -- grows.

Let's look at some statistics about growing inequality in the country and then explore what it means for Americans and the nonprofit organizations that serve them. Since 1979, after-tax income for the top 1 percent has more than doubled, even as it fell for middle-class and lower-income Americans. The top 5 percent of households in the United States now hold more than 60 percent of the wealth. The imbalance is even greater in the nonprofit sector, where the top 2.5 percent of charities that report data to the IRS control more than 50 percent of the wealth and account for over 60 percent of annual revenues.

Three types of exempt organizations -- hospitals, primary healthcare facilities, and institutions of higher education -- make up the top tier of the sector. Compare their finances with those of human service groups, which comprise more than a third of all exempt organizations but account for only 13 percent of its annual revenues (including government funding, fees-for-service and other income, and donations) and 11 percent of its assets.

It gets worse. This is the first recession on record in which the median income of working-age people was lower as the economy "recovered" than it was before the economy tanked. The wealthy, of course, continue to do well. Much the same is true for charities, as larger, more prosperous organizations see modest growth in contributions while many smaller nonprofits struggle to survive.

Higher education is a perfect example. The recession officially ended in the summer of 2009, and giving to higher education rose about 3.5 percent in 2010. Compare that to giving to the human services sector, which declined 1.5 percent in spite of contributions for disaster relief and recovery efforts in Haiti and elsewhere.

That's a problem, in part, because giving to higher educational institutions contributes to inequality. Consider the top two hundred or so colleges, where only 15 percent of students come from the bottom half of the income-distribution pyramid and 67 percent come from the top quartile. At most institutions, moreover, financial assistance for low- and moderate-income students has failed to keep pace with increases in tuition and related costs. And this as the increasingly large salaries paid many university presidents makes them "1-percenters."

Indeed, retiring Amherst College president Anthony Marx recently observed that "we are actually part of the problem of the growing economic divide rather than part of the solution." While having a college degree remains important to getting, or at least holding on to, a good job with benefits and some security, it also helps to legitimate inequality by seeming to validate a college education as a sure-fire route to meritocratic success.

But is it? According to a College Board study using Department of Education data, students with high test scores from low-income families were less likely to complete college than those with low scores from affluent families. And an Education Trust study of almost twelve hundred four-year colleges found that only five institutions (that's a number, not a percentage) were doing a good job serving low-income students.

The problem isn't confined to higher education. Nonprofit hospitals -- a category that includes some of the best hospitals in the country -- often fail to adequately serve those in greatest need while handing out executive compensation packages that would make a banker blush. In 2009, two-thirds of the nonprofit hospitals in the country dedicated less than 2 percent of their total expenditures for "charity care" -- i.e., medical care for the poor and indigent -- while only 7 percent directed more than 5 percent to such care. And this during a severe economic downturn in which health-related crises put countless numbers of low- and moderate-income people at grave economic risk.

I'm not suggesting that nonprofit organizations at the top of the income pyramid completely fail to provide beneficial services to society at large. They do. But with their elite reputational status and considerable economic wherewithal, they could do much more. The same is true of foundations.

Human service groups and community-based organizations often are the most helpful to people on the short end of the inequality stick. In addition to the direct services they provide, community-based organizations frequently advocate for and organize around the plight of the downwardly mobile and financially insecure. Yet, faced with ongoing budget cuts and flat or declining contributions, they are among the organizations that are most strapped financially as we head into an even more challenging future.

Notwithstanding the recent assertions of various Republican presidential candidates, it's not "class warfare" or "the politics of envy" to acknowledge -- and want to address -- growing economic inequality. On the contrary, it's a gross disservice to the nation to downplay its existence and assert that we can fix the problem by giving more tax breaks to the wealthy or by further deregulating corporations. As my kids would say, been there, done that. Acknowledging the divide between the haves and have-nots is an important step -- we can't solve the problem unless we are willing to speak frankly.

In short, nonprofit and foundation leaders need to talk more forcefully and publicly about economic inequality in America -- and do more to address it in both their programs and their own operations. They can start by countering the myths and obfuscation that characterize too much of today's political discourse. It's time we united, as a sector, to help people understand and act on their shared interests and better serve the common good.

-- Mark Rosenman

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