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How the Charitable Sector Keeps Us All Afloat

October 14, 2014

Rosenman_headshotAs social and environmental problems grow worse and the resources to address them are stretched thinner, nonprofit organizations and foundations have to make hard strategic choices about where best to intervene. In effect, they need to think about their distinctive societal role when considering their options. While experienced staff, veteran board members, and expert consultants struggle with those decisions, there's an apocryphal tale that many at a recent Alliance of Arizona Nonprofits meeting found useful in terms of framing the problem.

But first, what is the distinctive role of the charitable sector in American society? That question has become more complicated with the emergence of for-profit conversions, social-benefit corporations, social impact bonds, and other types of hybrid organizational structures and market finance schemes that blur the lines between the not-for-profit and for-profit sectors.

Based on years of personal polling from the back seat of taxicabs, I have come to realize that the American public thinks charitable organizations are all about voluntarism, sacrifice, and donated income in service to those in need. Clearly, that's not true these days for large swaths of the charitable sector. What, for instance, makes a nonprofit daycare center different from a for-profit one just across the street?

When I ask them the question, nonprofit leaders most often say their organizations provide services to those who can't afford to buy them. But when you consider the increasing prevalence of third-party payers, subsidies to service users, and contracts and grants to service providers and the preferential tax treatment they often receive, along with the fact that fees-for-service generate the lion’s share of charities' income, this "market failure" rationale doesn't hold up very well.

The nonprofit leaders I've spoken to also say their organizations, as distinct from businesses, do much to improve civil society in the U.S., though they rarely provide specific examples of how their organizations do this. Similarly, nonprofits claim a distinction between sectors with regard to a strengthening of democracy, though few can point to related activities beyond their own governance.

A final distinction seems more significant: nonprofit leaders often point out that for-profit businesses are all about increasing the market for their products, while nonprofits typically work to reduce and eliminate societal need — although, again, most aren't able to say how their organizations actually do this. Still, it points to a compelling difference between the two sectors, especially when linked to nonprofit efforts to strengthen democracy and civil society.

And it's exactly at that juncture, reducing need and strengthening democracy, that nonprofits attain their distinction and fully realize their extraordinary value across the full range of charitable missions.

Which brings me to my tale.

During a break at a nonprofit leadership retreat, five executive directors went for a walk beside a small river near the conference center. Suddenly, they noticed a group of toddlers being swept downstream. As they looked on in horror, the number of babies in peril grew.

One of the EDs jumped into the river and started to grab kids, throwing them one-by-one up onto the dry riverbank to save them. A second ED also jumped in and steered some of the babies toward a section of the river that was calmer, where she began to teach them how to swim.

Then a third ED jumped in and began to organize the now-swimming toddlers to teach their non-swimming peers how to help themselves. The fourth ED turned and started to run back to the conference center, telling the others he would round up some volunteers, solicit donations of dry clothes, raise as much money as he could to support rescue efforts, and secure technical assistance with the goal of making those efforts more efficient and effective.

The last of the EDs ran off in the other direction. When her confused colleagues asked where she was going, she said she was headed upstream to see why so many babies were falling or, worse, being thrown into the river.

We know that nonprofit organizations, to be successful, need to use all five of those strategies — and more — but that even the best-run charity is doomed to a Sisyphean future unless its leaders think about what's happening upstream. It's not enough for a nonprofit to provide services; it must always be thinking about the factors that created the problem in the first place and what it can do to address and ameliorate the problem.

This exhortation holds for every nonprofit with a charitable mission. While some organizations may not think their clientele or constituents are in immediate peril or facing a life-or-death situation, the fact of the matter is that growing inequality, entrenched poverty, and a decline in middle-class living standards, as well as the erosion of participatory democracy — thanks to an out-of-control campaign finance system and partisan gerrymandering — affect us all.

Recent research has shown that the higher people are in the class structure and the more power they have, the less sensitive they tend to be to other people's concerns. In fact, the Chronicle of Philanthropy recently reported that there has been serious erosion in the generosity of the wealthiest, even as the rest of us find ourselves digging a little deeper.

Another study found that the American dream is dying, with only 20 percent of Americans believing their children's generation will do better than their own; more than a few social scientists attribute that pessimism to Americans’ awareness of both increasing inequality and the unwillingness and/or inability of politicians to do anything about it or other problems.

When it comes to nonprofit work, government matters — not only because of its unique ability to command and allocate resources to specific problems and the overall betterment of society, but also because of its critical "upstream" role. Through the enormous power of its purse, as well as regulation and other safeguards, government is the actor in society most able to affect the factors that, to return to my parable, lead to so many of us falling into the river.

Commenting on international challenges, Harvard professor Michael Ignatieff recently observed that "What alarms America's allies is not the weakening credibility of its strategic guarantees. American power remains overwhelmingly credible when used with discrimination and care. The real problem is democratic dysfunction at home: the twenty-year impasse between Congress and the executive branch, the reality-fleeing polarization of political argument, the gross failure to control the invidious power of money in politics, weakening domestic infrastructure and public disillusion with democracy itself….A still deeper problem," Ignatieff adds, "is American disillusion with their own institutions."

Nonprofit organizations and philanthropy together comprise one of those institutions. Given the failures of political leaders and the self-serving nature of the corporate world, it falls to charities to do something to reverse the trends Ignatieff describes — not just for themselves, but for the benefit of the rest of us.

This will require the charitable sector to remember and once again assume its distinctive role to serve the public interest and the common good effectively and with integrity. And that, in turn, will require it to pay more attention to the strength of our democracy, to ramp up its voter education and engagement efforts, and to do more to limit the corrosive influence of unregulated campaign finance and gerrymandering. The sector must help people understand that government is not the problem, it is an important part of the solution.

Mark Rosenman is a professor emeritus at the Union Institute & University. In his last post, he wrote about charities and the "compassion gap."

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