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Why ‘Crowdfunding’ Government Is a Bad Idea

February 26, 2015

Crowdfunded_dollar_signGovernments at the local, state, and federal level increasingly are competing with charities for private-sector donations using crowdfunding and other individual donor-focused techniques. That's a problem not just for nonprofits, but for all who depend on government to address our shared needs.

Most people would agree that the more each of is willing to do to help those in need, whether with our time or money or both, the better off we all are. That kind of engagement makes for better neighbors and better citizens, both of which are key ingredients of a better society.

So why are we suddenly eager to substitute individual philanthropy for collective public responsibility? Do we really trust people's personal motivations and sometimes impulsive altruism to substitute for government in prioritizing problems and aggregating resources to address those problems over the long haul?

Consider the ALS Association's wildly successful Ice Bucket Challenge, which has raised more than $115 million since its debut in July for the organization's efforts to find a cure for Lou Gehrig's disease (amyotrophic lateral sclerosis) – about six times the association's total revenue from all other sources in 2014. The challenge, which encouraged participants to video themselves having a bucket of ice water poured over their heads and then nominating others to do the same within twenty-four hours or pay a "penalty" in the form of a contribution to the association, also drove worldwide donations for ALS of an additional $100-plus million. No wonder nonprofits and governments at all levels have become interested in crowdfunding and other social-media-driven techniques. Yet, for all its success, the Ice Bucket Challenge also highlights some real issues.

Few would begrudge the ALS Association a penny of those contributions. But one could be forgiven for wondering why the 2.4 million new donors to the organization (triple the number it could boast prior to the challenge) made the decision to contribute.

As Michael Hitzlik notes in the Los Angeles Times, ALS is a rare disease affecting fewer than twelve thousand people in the United States at any one time. Contrast that with the 5.2 million people who suffer from Alzheimer's disease. In the most recent year for which IRS data is available, the Alzheimer's Association raised seven times as much the ALS Association (though with the success of the Ice Bucket Challenge, that advantage assuredly has narrowed) for over 400 times as many ill people. While one can debate whether ALS or Alzheimer's is the more pressing need, my point is simply to suggest that the vast majority of "ice-bucketers" probably didn't consider the question before deciding to donate.

Given that charitable giving in the U.S. has long remained relatively flat at about 2 percent of GDP, that's a concern. Regardless of how much a fundraising campaign generates for a particular cause or issue, it's more than likely those dollars come out of – rather than augment – the pool of money available for charitable causes.

There has been a lot of speculation and some academic analysis about what's behind the astounding success of the Ice Bucket campaign, with a gentle form of peer pressure and the viral, sometimes narcissistic nature of social networking cited by many. Still, the campaign's success was unusual and is not easily replicated. Indeed, there's every reason to believe the ALS Association will not do comparatively better than to retain the 25 percent of donors who typically follow up an initial charitable gift with a gift to the same organization or cause in year two.

That fact hints at what many see as a major problem with the idea of crowdfunding for public sector initiatives. Will donors truly care about the projects and initiatives they are convinced to support? And even if they do, can governments count on their interest, and dollars, over time?

Today's fundraisers and development professionals understand that successful crowdfunding efforts depend in great part on good public relations. One study of support for scientific research – government's share of funding for which has dropped by half since the 1960s – suggests that individual researchers with large followings on Facebook, Twitter, and/or YouTube attract the lion's share of crowdfunded dollars. Government officials have figured this out and now actively promote crowdfunding campaigns for science-related projects using social networks and other online channels. That might be fine for charities, but it raises real and important questions when it comes to public-sector initiatives.

Rather than truly serving the broader common good, such campaigns tend to appeal to the narrower concerns of prospective donors and what is likely to pique their interest at a particular moment. It also means that instead of making policy decisions about how best to allocate public funds in the context of pressing priorities, governments increasingly are looking to promote projects with the potential to catch people's attention.

There's something unsettling about that. Funding for important public initiatives and programs ought not depend on the whims of individual donors and foundations. Such an approach will only serve to distract government officials from the consistent efforts needed to address urgent social problems, instead encouraging them to see such matters as parochial issues of interest to a relatively small number of potentially-engaged citizens. In other words, it will make it much more difficult in the long run for government to adequately support and advance the broad-based efforts necessary to improve our social, political, and economic institutions.

As an example, take Detroit's James Robertson, whose daily 21-mile roundtrip walking commute to his factory job (where he had a perfect attendance record) was featured on the local news and led to donations of $350,000 and a new car from 13,000+ people who just wanted to help. As the Washington Post's Michelle Singletary notes, however, Robertson's story does nothing to address the lack of public transportation in low-income communities or the inability of working people to earn enough to own and maintain a car. To do so would require government policy changes and a commitment of significant public resources.

Crowdfunding also tends to favor the interests of the economically secure. Over the past three decades, politicians have passed tax cut after tax cut benefiting the wealthy, effectively transferring money from the public fisc to those least in need. And just as President George W. Bush did with our national parks, they are now asking us to voluntarily consider diverting some of our charitable dollars to projects or initiatives that really should be funded by tax dollars in the first place.

That might be a fine way to fund "nice-to-haves" – if governments were meeting the basic needs of every American, maintaining our highways and bridges, providing quality public education in every community, safeguarding our food supply, and so on. But, strapped for revenue, they aren't. Indeed, the federal government has a recent history of cutting spending for many so-called discretionary activities and passing those obligations on to foundations and corporations. And now we see a growing number of state and municipal governments, metaphorical tin cups in hand, reaching out to individuals with the same goal in mind.

The folks at the libertarian Cato Institute can argue until they are blue in the face that "taxes are a form of charity"; most Americans understand that they are not. Discretionary decisions made by individuals, even if aggregated through crowdfunding platforms, are not a substitute for rational, accountable policy making or revenue allocation decisions by democratically elected officials.

Headshot_mark_rosenmanWe all have a personal responsibility to promote the common good, and government is the principal mechanism through which we do that. Do we really want to substitute the fickleness of individual altruism for what is in fact a shared obligation? It's fine to join friends in a good cause, but let's not walk away from the hard and important work of making government accountable to us, and making ourselves accountable to government.

Mark Rosenman is a professor emeritus at the Union Institute & University. In his last post, he explained how the charitable sector keeps us all afloat.

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