Monday, November 11, 2013

Futurist Scenario Exercise

Besides being interested in the nonprofit sector, I have also been interested in new ways of delivering education and how these disruptors are changing pedagogy. One way that these two interests have intersected is that I am volunteering to be a "test pilot" for the American Alliance of Museums's Center for the Future of Museum's (AAM/CFM) MOOC that is in beta-testing mode (i.e., Massive Open Online Course). (I know, I know--that's just way too many acronyms!) While writing my previous post from November 2 about the limits of the nonprofit sector,  I was also completing a homework assignment for CFM's MOOC class. I did enough of a good job on my homework assignment (whew) that CFM posted it on their own blog. I didn't realize the conceptual connection between my blog post and homework assignment until CFM's founding director Elizabeth Merritt called it to my attention, and so I'm posting my homework assignment here. This can be a companion, exercise-oriented piece to my November 2 post.

To give a little context to the exercise, what follows is an imaginary scenario written to stimulate thinking about trends happening today that will impact the future. This scenario is not meant to be predictive, rather it is meant to be provocative. Exercises like this help organizations really plan for the future, not just in short three-year strategic planning chunks, which is far too short-term to effectively plan ahead. You can answer these questions yourself or as a group with co-workers. One of the shortcomings of organizations in the nonprofit sector has been their inability to plan ahead in ways that take into account major trends, such as demographic changes, economic forces, and technological advancements. I wrote a guest blog post on that topic for CFM way back in 2010, which you can also read here. Using the following exercise is a way to anticipate and ready organizations today for dramatic changes that will certainly come.

(Originally published by Elizabeth Merritt, founding director of the Center for the Future of Museums on November 5, 2013. The following is her original post copied here.)

The second flight of “Test Pilots” is winging their way through the CFM Digital Badging project. Besides helping the Alliance test the potential of this form of microcredentialing to serve our members, and providing some training on strategic foresight as applied to museums, I had hoped the course might generate some good content to share on this blog. And it has! This week’s post is a “story seed” created by CFM Council member (and test pilot) Angie Kim. This seed is the kernel of what could become a longer, more detailed story of what I think is a very plausible future.

Date of this scenario: 2025

Trends observable today, and a plausible future event, that could lead to this future:

Trend 1: Government support of social issues continues to decrease.

Trend 2: Private philanthropic support continues to underfund pressing social and humanitarian issues relative to personal-interest giving (such as for arts and culture, medical research, and higher education).

Trend 3: Triple bottom-line private enterprises continues to grow in number and in strength making corporations that operate for the social good both popular and commercially viable

Trend 4: Wealthy, young business entrepreneurs from the technology industries have emerged as leaders in the nonprofit sector, with an interest in applying capitalistic, entrepreneurial strategies to fixing social problems.

Event: All 50 states recognize triple bottom-line, social benefit corporations and yet-to-be-tested litigation uphold directors’ ability to prioritize social and environmental good over earning profits.

Story Seed: The Fourth Sector: 2025

Since the 1950s, the number of nonprofits in the United States has exploded, with well over 1 million 501(c)(3) public charities today. Despite this number, not all nonprofits and their issues are supported equally. The majority of private philanthropic support has gone to private-interest areas, such as elite universities, arts and culture, and medical centers, and not to helping the poor or to solving environmental issues (The Center on Philanthropy & Google, 2007). Exacerbating this problem is the unabated decline in government support for social issues. Consequently, the nonprofit sector is no longer seen as the space for solving social problems, such as poverty, hunger, homelessness and climate change. Instead, for-profit commercial enterprises that are incorporated as multiple bottom-line businesses have emerged as powerful agents of social change.

Although these businesses donate time and money to social causes, their charitable activities have far less impact than their enterprise ability to marry consumer spending with positive changes in such areas as sourcing of sustainable materials and humanitarian improvements in their production chain that protect natural resources and lift workers out of poverty. Commercial enterprises that unleash the power of capitalism on solving social problems has become so effective that new investment classes are being invented that further secure financial resources in this socially responsible marketplace. Unlike the nonprofit system that depended on the voluntary actions and behaviors of donors, the private enterprise market of consumers and investors are able to ‘move the needle’ on social issues like never before.

Here are five discussion questions Angie suggests you use to guide a conversation, in a museum or other organization, about this scenario and how it might inform your planning:
1) Is the nonprofit sector the best sector for solving social problems? Why or why not?
2) How should nonprofits respond to the evidence that the sector does not do enough to solve social problems?
3) How can nonprofits set aside their individual competitive needs in order to strengthen the overall sector’s ability to ‘move the needle’ on certain issues?
4) Is the emergence of commercial enterprises that operate for social good a positive or negative development for nonprofits? In what ways, and why?
5) In what ways might nonprofits be so shortsighted in their visions for the future that they miss the opportunity to be the leading sector for social change?

Saturday, November 2, 2013

When Is the Nonprofit Sector Big Enough?

I had the opportunity to read two opinion papers back-to-back that presented very different views of private philanthropy. The implications of their ideas raise big-picture questions about the purpose of the nonprofit sector. In her article “Plutocrats at Work,” Joanne Barkan described today’s philanthropic sector as contributing to an era of plutocracy—rule by the wealthy.

Mega-foundations are more powerful now than in the twentieth century—not only because of their greater number, but also because of the context in which they operate: dwindling government resources for public goods and services, the drive to privatize what remains of the public sector, an increased concentration of wealth in the top 1 percent, celebration of the rich for nothing more than their accumulation of money, virtually unlimited private financing of political campaigns. . . . In this context, big philanthropy has too much clout.

What troubled Barkan is that a minority of wealthy elites is tremendously influential in addressing large-scale social problems with no mechanism for them to be accountable to the populace. Consequently, decisions about how to resolve critical issues, such as in education, are not made democratically, but by those with money and concomitant power. Informal channels for accountability have been ineffective: The court of public opinion does not attend to the charitable activities of the wealthy, and journalists are unwilling to critically question private foundations (Feldman, 2007). Basically, there is no direct mechanism for the public—let alone the poor, the disenfranchised, and the underserved—to shape how the wealthy spend their money on issues that affect them. In short, there is no democratic say in how private philanthropists set or enact their agendas. Furthermore, what particularly galled Barkan is that taxpayers subsidize this undemocratic approach. Through tax deductions for charitable giving and tax exemptions for private foundations, we all enable a minority of wealthy individuals and their philanthropic institutions to become powerful in determining how our nation’s social issues are addressed without any accountability to the larger public.

Rob Reich’s[i] article “Philanthropy and Caring for the Needs of Strangers” presented a very different view, arguing that the American philanthropic sector actually performs, not undercuts, democracy. In prefacing his argument, Reich acknowledged that the nonprofit sector, including private philanthropy, is not effective in supporting or solving the needs of the poor. “Philanthropy appears to be more about the pursuit of one’s own projects, a mechanism for the expression of one's values or preferences rather than a mechanism for redistribution or relief for the poor.” He cited a Google-commissioned study by Indiana University’s Center for Philanthropy, which not only found that the minority of all charitable giving goes to those in need (only approximately one-third of all giving) but also that the wealthier the donor, the less they donate to issues concerning the poor. Given these findings, Reich concluded, “philanthropy is not much about caring for the needs of strangers.” But, Reich argued that the charitable sector was not intended to be a place to solve social problems and help the poor and, thus, these should not be the measuring stick against which to judge philanthropy. Rather, philanthropy and the subsidies to promote charitable giving are meant to encourage the wealthy to express freely their charitable impulses, not to solve social problems.

As I read Barkan and Reich's positions, the mantra ‘to do no harm’ was a constraint refrain in my head. No surprise as it has remained fixed after a decade of working at private foundations. This adage is the only explicit mechanism (albeit a voluntary and subjectively interpretable one) to invoke democratic accountability among grant making decision makers. Does one worldview—Barkan or Reich’s—result in more harm than the other? In considering this question, I thought of an article that has long been influential among arts funders—John Kreidler’s “Leverage Lost: The Nonprofit Arts in the Post-Ford Era.”

In this seminal essay, Kreidler described the birth of today’s nonprofit institutional model of support as it developed out of the arts. The arts in the United States looked very different up until the mid-twentieth century when modern-day forms of public charities and private foundations began to emerge. Before then, there were two kinds of ‘arts’—the high arts supported by the wealthy, such as museums and classical music, and the low, popular arts that competed in the commercial marketplace, such as vaudeville and comedy shows, radio programs, and dance halls.
Beginning in 1957, the Ford Foundation invented a new method of proliferating the high arts throughout the country. The foundation introduced the concept of short-term grants (commitments of no more than five years) that required a match of their funds. Not only did this proliferate the establishment and expansion of institutions of high art forms, but also the lure of Ford Foundation’s matching support transformed locally based people of means to become philanthropists and enjoy the prestige that came with it. In this way, Ford Foundation’s grant design introduced an institutional support model based on decentralization of support to local levels with resource dependency on no one funder, leveraging of dollars, and establishing, growing, and expanding non-commercial institutions.

If there’s any question of the success of this institutional support model, take a look around. In 1940, there were but 12,500 charitable organizations registered with the Internal Revenue Service (Hall, 2010). In 2010, there were nearly 1 million 501(c)(3) public charities out of over 1.5 million nonprofit organizations registered with the I.R.S. (Blackwood, Roeger, & Pettijohn, 2012). Public charities had revenues of $1.5 trillion and held assets of $2.7 trillion as of 2010 (Blackwood, Roeger, & Pettijohn, 2012). (For those curious about the arts, this sector accounts for about 10% of the total number of public charities.)

Before the mid-twentieth century, the institutionally based nonprofit model basically did not exist. Certainly there have always been charitable, voluntary, association-based efforts since the time of the Puritans, but these were a far cry from the complex, interconnected, and multi-faceted system that we now call the nonprofit sector. Consider that the annual revenues of U.S. public charities, in aggregate, is larger than the budgets of most governments around the world—larger than Spain, Russia, South Korea, India, and Hong Kong (if Wikipedia is to be believed).

So why am I recalling Kreidler to talk about Barkan and Reich? Taken together, these three essays paint a troubling picture of the nonprofit sector. The nonprofit sector, according to Kreidler, was designed to focus on institution building, with roots in elitist notions of the kinds of institutions that should be supported—arts, universities, specialized medicine. Also, the data tells us (Center on Philanthropy at Indiana University, & Google, 2007) and Reich acknowledged that what’s been built so effectively since the mid-twentieth century is a charitable institutional complex that better serves the interests of the wealthy than the basic needs of the poor. Moreover, as Barkan pointed out, taxpayers are underwriting the costs of avoiding solutions by subsidizing financiers of the nonprofit sector who are both undemocratic in their lack of accountability and ineffective at addressing non-elitist issues.

Having worked at and with a number of private foundations that are trying, truly trying, their damndest to make a positive difference, it’s hard to see this unflattering macro-picture. But, whenever foundation leaders defend the philanthropic sector, such as its tax exemption or its payout rate, they are reinforcing the very structures that have been, at its root, about realizing the interests of wealthy elites. And, same too of charitable organization leaders who, in their mission-driven focus on their own sector-specific issues, lose sight that the more money that flows into their sector at the expense of bolstering public coffers, the more resources stay within a sector that data and anecdote agree is unaccountable, not redistributive, and ineffective at realizing large-scale solutions. In other words, our shortsighted trust of our own nonprofit sectors has blinded us to the significant flaws that undermine addressing social and environmental problems. After all, each one of us is so good-hearted, how can we possibly be contributing to a system that reinforces inequities and undermines social change?

Most modern-day nonprofit institutions are less than 60 years old and federally recognized private foundations have been around for only 44 years. When will we assess the nonprofit sector’s limitations in solving social problems relative to other sectors’ abilities (i.e., public governments or private enterprise)? The nonprofit subsectors have regularly taken a protectionist stance in maintaining the status quo on charitable tax exemption levels, foundation payout, and estate taxes rather than give government more money. Certainly, such defense was necessary in order to develop this sector. But, are we at a point now when growing the nonprofit sector does more harm than good? Does continuing to fight for the nonprofit sector’s growth make sense today if we acknowledge that this sector is not effective at solving social problems, especially those that affect the most disadvantaged?

In no way am I saying we should dismantle the nonprofit sector or private foundations; after all, they provide a safety net and an essential infrastructure for charitable work to occur. Not only that, but public charities and foundations do exceptionally wonderful work. Consider that Rockefeller Foundation funding helped in the founding of historically black colleges and that Ford Foundation supported the establishment of the Urban Institute and the Center on Budget and Policy Priorities to cite three of innumerable examples of this sector's public good. I am merely questioning when is enough enough? Recent efforts in the commercial sector to develop their own structures to solve social problems, such as state-recognized benefit corporations, B Corp certification, and new investment classes of triple bottom-line businesses are examples of how the nonprofit sector is not being seen as a place to realize solutions. In addition, some private funders are becoming increasingly interested in funding non-501(c)(3)s, which is another indication that there are limitations to this sector. So I leave you with these questions. In what ways is the nonprofit sector now harming, rather than helping, us reach our mission-related goals? Should it still be our priority to preserve and grow the charitable institution complex? How can we align wealthy donors’ freedoms with meeting the needs of the poor? And, when should nonprofit workers and leaders channel resources to the best sectors able to solve social problems, no matter if it is in the nonprofit or not?

Works Cited

Blackwood, A., Roeger, K. L., & Pettijohn, S. L. (2012). The nonprofit sector in brief: Public charities, giving, and volunteering, 2012. Washington, DC: Urban Institute Press.

The Center on Philanthropy at Indiana University, & Google. (2007). Patterns of household charitable giving by income group, 2005. Indianapolis, IN: The Center on Philanthropy at Indiana University.

Feldman, B. (2007). Report from the field: Left media and left think tanks--Foundation-managed protest? Critical Sociology, 33(3), 427–446.

Hall, P. D. (2010). Historical perspectives on nonprofit organizations in the United States. In D. O. Renz (Ed.), The Jossey-Bass handbook of nonprofit leadership and management (3rd ed.) (pp. 3-41). San Francisco, CA: Jossey-Bass.

Kreidler, J. (1996). Leverage lost: The nonprofit arts in the post-Ford era. The Journal of Arts Management, Law, and Society, 26(2), 79–100.

Reich, R. (2013). Philanthropy and caring for the needs of strangers. Social Research, 80(2), 517–538.

[i] Rob Reich often gets confused with another sharing a similar name, but the two could not be more different in their views of the nonprofit sector. This Rob Reich teaches political science at Stanford University where he co-directs the Center for Philanthropy and Civil Society. The other is political economist Robert Reich, who was former Secretary of Labor under President Clinton and now teaches at UC Berkeley.