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National Affairs


Non-Profits And The State

December 22, 2010

By Howard Husock

Anyone concerned about the future of the non-profit charitable sector should pay close attention to the Obama administration’s new Social Innovation Fund. Established in 2009 as part of the Edward M. Kennedy Serve America Act, the fund is intended to direct taxpayer money toward new, imaginative, and effective non-profit social-service organizations. The first 11 grant recipients — “intermediary” organizations that will then make their own choices of grantees — were announced last summer; nearly $50 million will be dispersed over the next two years. The fund represents the most recent attempt by government to plausibly answer a question that has long bedeviled America’s non-profit sector: How can organizations that are doing an especially good job, but not helping as many people as they would like, find the funds to do even more? Or, to use the business-school jargon so common in philanthropy, how can these organizations “go to scale?”

Those who study the world of non-profit organizations frequently worry that philanthropy is far too scattershot, that funds are divided among too many recipients, and that donors fail to distinguish between good intentions and effective implementation. Moreover, those who establish and manage not-for-profit organizations routinely lament the fact that donors are more apt to provide “seed funding” than “growth capital”: Supporters will help a non-profit get started, and then move on to make the next grant, leaving the new organization unable to grow. And so, as Thomas Tierney of the Bridgespan Group (a non-profits consulting firm) has noted, the result too often is that “a problem requiring a $1 million solution gets a $100,000 solution.”

Since the 1960s, as successive versions of this problem have emerged and re-emerged, government — at both the state and federal levels — has brought public resources to bear in repeated efforts to solve it. These days, the favored approach is to find and fund “social entrepreneurs” — people like Geoffrey Canada, president of the Harlem Children’s Zone (a comprehensive program for helping disadvantaged children), or Robert Chambers, co-founder of More than Wheels, which helps poor New England families buy the cars they need to get to work. Both Canada and Chambers are entrepreneurs in the true sense: They started new organizations from scratch, guided not by someone else’s cookie-cutter grant design but by their own ideas about what might truly help the poor.

Both men were cited as examples by President Obama in June 2009, during the White House ceremony in which he signed the legislation authorizing the Social Innovation Fund. “Instead of wasting taxpayer money on programs that are obsolete or ineffective,” Obama said, “government should be seeking out creative, results-oriented programs like the ones here today and helping them replicate their efforts across America.” In principle, this seems like a worthy goal: a modest, straightforward way of getting more of a good thing. Access to taxpayer dollars would extend the reach of non-profit social-service providers whose programs have proved to be effective (and, for that matter, the reach of the entire non-profit sector); it would make the successful growth or replication of their good ideas possible.

But while the principles behind the Social Innovation Fund are appealingly simple, putting them into practice has proved to be far more complicated. For the aims and even the methods of the fund are nothing new in our politics: The federal government already directs billions of dollars to not-for-profit social-service organizations, and has tried many times to use taxpayer dollars to identify those that best serve people in need.

The story that emerges from these efforts is not a very happy one. It raises many messy questions addressed nowhere in President Obama’s rhetoric or the legislative language authorizing the Social Innovation Fund — most notably the question of just what the first principles and top priorities of non-profit organizations ought to be. Should they seek to maintain a robust social-service sector as an alternative to government? To provide aid to the needy with the nimbleness, flexibility, and care with which the independent non-profit sector has historically been associated? Or to simply extend some help to as many people as possible? Beyond the management and direction of non-profits, the ideas animating the Social Innovation Fund also touch on longstanding arguments about the proper relationships among individuals, civil society, and the state — matters at the core of self-government.

The experience of government efforts to “scale up” non-profits, and the implications of those efforts for our social services, therefore offer some cautionary lessons about the nature of the American social-welfare state — lessons that the designers, administrators, and recipients of the Social Innovation Fund should take to heart.


Until the 1960s, America’s non-profit social-service sector was essentially independent of government. Government (and especially state and local governments) provided some direct services to the needy (from poorhouses to relief payments), but did not fund non-governmental intermediaries. And such private mediating institutions were by far the most significant sources of help to the poor. By the turn of the 20th century, the work of the social-service sector — from providing foster care to orphans to helping alcoholics recover from their addictions — had come to fall largely upon established agencies (like Big Brothers/Big Sisters, or the YMCA) that often relied on “community chests” of private funds raised by local United Way appeals. Government, however, was still largely absent from the scene. A survey published in 1914, for instance, found that state grants to non-profits, even of modest sums, were uncommon; in fact, 22 state governments made no such contributions at all, while 15 others did so only “sparingly.” The federal government provided essentially no funds at all.

This arrangement of private organizations was more than just a social-service “system”: It was a self-organized cornucopia of charitable groups forged by citizens of dedication and imagination. It was the fruit of the America described, famously, by Alexis de Tocqueville:

Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies but associations of a thousand other kinds — religious, moral, serious, futile, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books; to send out missionaries; they found in this manner hospitals, prisons and schools....Wherever, at the head of some new undertaking, you see the government in France, or a man of rank in England, in the United States you will be sure to find an association.

The provision of aid in America was conducted, in other words, by a “non-system” system — one able to mount decentralized responses to what could otherwise be overwhelming social problems.

One example of this prevailing approach was the settlement-house movement of the late 19th and early 20th centuries, which arose in response to the wave of unskilled, poorly educated immigrants flooding America’s cities. These locally based centers, offering everything from English-language classes to nutrition instruction for young mothers, became popular vehicles for successful assimilation: In 1911, a publication called the Handbook of Settlements listed about 400 such organizations in 34 states and territories. Helping the poor was a high-profile cause that attracted money, volunteers, and prominent local citizens to serve on the boards of settlement houses, and those settlement houses reflected a larger norm. They were first and foremost local organizations, accountable to boards of private citizens who were also major donors, linked to professional networks of similar organizations — and not guided or funded by government.

Beginning in the 1960s, however, the situation changed dramatically. In their 1993 book Nonprofits for Hire, Steven Rathgeb Smith and Michael Lipsky wrote that, “[i]n contrast to the traditional image of government and nonprofits as two independent sectors,” the changed relationship that came about in the ’60s “amount[ed] to one of mutual dependence.” By 1988, Smith and Lipsky noted, the Child Welfare League of America reported that government funding accounted for (on average) 59% of its member organizations’ revenues.

Moreover, the Great Society era gave rise to new programs such as Head Start — the early-childhood education program that today spends $7 billion a year helping disadvantaged children — that were funded by the federal government through grants to non-profits. In fact, many of these non-profits were new “community action programs” established primarily to serve as conduits for the fresh flux of federal dollars.

Much as the White House intends to do today, these government programs of the 1960s sought out the most effective independent non-profits and — in an effort to help them perform their work — made them partners of the government. A few decades later, the results of the shift had made themselves evident. In a series of groundbreaking 1994 articles for Crain’s New York Business, Robin Kamen and Steven Malanga found that the New York City government alone awarded “about 3,000 social service contracts worth nearly $3 billion a year, making private social services by far its largest group of vendors.” The addition of state and federal contracts in New York City, Kamen and Malanga determined, brought the total to $7 billion.

The trend has grown only more pronounced with time. And the temptation to augment the funding of effective non-profits with public money has been yielded to by both political parties. The White House Office of Faith-Based and Community Initiatives — created by George W. Bush, and continued by the Obama administration — is just the latest example. Through that office, Washington provides its seal of approval (and access to government funds) to non-profits engaged in social services, though it mostly focuses on religious groups and smaller community organizations rather than on the usual non-profit federal grantees.

Support for larger, more traditional non-profits has also continued apace. In fiscal year 2011, the Administration for Children and Families — an agency of the federal Department of Health and Human Services — will spend $58.8 billion on social services. Virtually all of the money will be disbursed to state or county governments that, in turn, will contract with non-profits. Such spending has transformed the non-profit sector’s base of support: As the Chronicle of Philanthropy reported, an October 2010 study by the Urban Institute found that “federal, state and local government agencies have about 200,000 formal contracts and grant agreements with about 33,000 human-service groups that total about $100 billion. Government aid accounts for more than 65 percent of these organizations’ total revenue.”

This explosion of support from federal, state, and local governments raises several questions — questions that are especially salient now, as the federal government again plans to turn the most effective and creative non-profits into government partners and clients. How, for instance, has the decision to make non-profits “service providers for the welfare state” (to borrow Smith and Lipsky’s phrase) worked out in practice? Have the billions spent over the past several decades been effective? Has the new model succeeded so clearly that it should be applied to yet another generation of independent, less traditional non-profits? And might further government investment inadvertently compromise the effectiveness of the groups it seeks to champion? More broadly, how should government and America’s robust social-service sector relate to each other — as complements, interchangeable substitutes, or some combination thereof?


Without a doubt, the collaboration between non-profits and the welfare state has extended the reach of social services. Programs of all types are more widely available, including those that serve racial minorities and regions of the country that have historically lacked the community institutions required to care for people in need. This extension has been viewed favorably by observers such as Lester Salamon (among the leading scholars of American non-profits), who sees it as an appropriate response to what he terms “voluntary failure,” or the inability of the voluntary sector to provide services to all who might need them.

Salamon’s term is derived from the two great shortcomings that, he believes, combine to create the need for social services. The first is the for-profit sector’s “market failure,” which renders it unable to provide adequate remedies for certain social ills (think of the drug addict who cannot afford to pay for treatment and so does not receive it, and is therefore left to continue posing a threat to himself and others). The second is the non-profit sector’s failure to command enough resources to provide the services that the for-profit sector cannot. In this view, cooperation between government and non-profit groups offers the ideal solution: In contracting with non-profits to provide needed services, government can offer the money and other support the sector requires to expand its reach. But the delivery of these services can retain the idealism and flexibility that have historically characterized the non-profit sector, and have thus distinguished it from government.

But reach is one thing; grasp is another. And it is very difficult to determine whether the expansion of social-service programs in the United States has in fact ameliorated the social ills these programs were intended to address. As Smith and Lipsky pointed out,

[I]n human services it is particularly difficult to measure performance. This is the case typically in services which consist of the discretionary judgments of human service workers in such areas as intake, diagnosis and treatment....One cannot know if [a] judgment was sound and [an] intervention ultimately effective.

This difficulty, they continue, is part of why government tends to judge the quality of the work for which it contracts “simply by recording the production of service units.” In other words, government is likely to mistake “outputs” for “outcomes.” We can therefore expect the character of the expanded “non-profits for hire” model to resemble that of many government efforts: extensive, but mediocre.

Indeed, the signature social program of the 1960s — and of the welfare-by-contract state — falls squarely into this category. The billions of dollars spent through the Head Start program are largely channeled through the once-independent non-profit sector. And today, even though Head Start can now be found in all 50 states, the program shows little clear benefit in helping disadvantaged children close school-readiness gaps before they begin pre-kindergarten.

This, at least, was the conclusion of a January 2010 report by the federal Department of Health and Human Services — titled Head Start Impact Study — that compared Head Start participants to a control group. The study found that virtually all gains in vocabulary, math, and other skills realized by Head Start children had dissipated by the time the students completed the first grade. To Isabel Sawhill of the Brookings Institution and Jon Baron of the Coalition for Evidence-Based Policy, the report demonstrated that the program “had almost no effect on children’s cognitive, social-emotional, or health outcomes at the end of 1st grade.” These disappointing results were not an exception, but rather closer to the rule: Sawhill and Baron note more broadly that the Head Start study “is the 10th instance since 1990 in which an entire federal social program has been evaluated using the scientific �gold standard’ method of randomly assigning individuals to a program or control group. Nine of those evaluations found weak or no positive effects.”

The response to these poor results has been revealing. Instead of taking them as an occasion to fundamentally rethink the government-contracting approach to providing social services, too many have argued that the findings simply highlight the need to fine-tune existing program models. Indeed, when the 2010 Head Start report was released, Health and Human Services secretary Kathleen Sebelius concluded that, “for Head Start to achieve its full potential, we must improve its quality and promote high standards across all early childhood programs.” But Head Start has already been in operation for decades, spent billions of dollars, and involved hundreds of different programs run by local grantees. Far more than a proposed remedy for the program, Sebelius’s observation must thus be considered an indictment of it.

Instead of tweaking existing channels of funding, we would do better to determine whether there are dynamics inherent in the social-services-by-contract regime that lead to disappointing results. After closely examining the “transformation of nonprofit service delivery” that took place in 30 major non-profit agencies as a result of the “advent of government funding,” Smith and Lipsky were unequivocal in their conclusion: “[G]overnment,” they wrote, “gradually influences the behavior of independent nonprofit contractors to accept its practices and preferred policies.” To Smith and Lipsky, the administrative regime that follows the acceptance of public money inevitably changes the nature of the services provided, if only because of fear of misappropriation.

It also seems intuitive that government-like non-profits would attract a different type of employee — one who is more focused on a long-term professional career path and less inspired by idealism. Such employees are more likely, in other words, to be bureaucrats than entrepreneurs. Moreover, volunteers — the lifeblood of many traditional non-profits, infusing the organizations with energy and compassion — are likely to become less significant in the work of a government contractor. Indeed, Smith and Lipsky found that volunteers in government-contracting non-profits are more likely to be relegated to working in a “support capacity,” while “[d]irect service roles are performed by paid staff.” As a result, they noted, “[m]any volunteers, disillusioned with the changes in the organizations, simply leave.”

Government contracts also lead to the politicization of non-profits — the use of these organizations as sources of jobs and political influence. In their 1994 articles, Robin Kamen and Steven Malanga characterized New York City’s non-profit social-service sector as “the new Tammany Hall.” They noted that significant percentages of New York City Council members and state legislators had backgrounds in social services:

Money and jobs have generated political muscle. The route to electoral success used to run through membership in political clubs and unions — classic models of patronage and organizing. But today, the path more often winds through the social service field.

Things have not changed for the better since Kamen and Malanga wrote those words. In recent months, New Yorkers have learned the details of the non-profit-based political career of Brooklyn state assembly member — and Democratic Party leader — Vito Lopez. Highlights include what the New York Daily News described as “scamming at the $100 million-a-year, taxpayer-funded social services nonprofit that is Lopez’s power base,” the Ridgewood-Bushwick Senior Citizens Council. Among other revelations, the city’s Department of Investigation uncovered the fact that the director of the council was paid $659,591 in one year, even though she was working just half time. The rest of the time, she was serving as Lopez’s campaign manager. And another high-ranking employee of the organization earned $329,000 as head of housing programs. She was Lopez’s live-in girlfriend.

Taken together, these patterns and practices tend to produce non-profits that do little to reduce the overall scope of the problems they have been hired by government to deal with. According to Sawhill and Baron,

[T]he problems [that federally funded social] programs are designed to address have not gone away. The nation’s official poverty rate in 2008 was 13.2 percent — higher than in 1973. Similarly, the country has made very limited progress in raising K-12 reading, math, or science achievement over the past 35 years, according to the National Assessment of Educational Progress’ long-term-trend reporting. Advances have been made in some areas of social policy, such as reducing rates of teenage pregnancy and violent crime, but in many key areas progress has been minimal.

It would seem, then, that for all their promise and potential, government-backed non-profits have not proved to be a very successful model for delivering social services.


In fact, it is precisely the failure of this model that has inspired the kinds of new non-profit organizations that the Obama administration and Congress now seek to turn into government contractors.

As President Obama has pointed out, a new wave of “social entrepreneurship” has emerged in the United States over the past 20 years (thanks largely to an increase in charitable giving fueled by nearly three decades of economic growth). Indeed, the phenomenon of social entrepreneurship — that is, the establishment of new organizations that address social problems largely without government funding, inspired by the principles and practices of the corporate sector — has developed its own identity. It has prominent champions (such as William Drayton, founder of Ashoka, an organization that describes itself as “the global association of the world’s leading social entrepreneurs”), as well as a place in graduate-school curricula (including a certificate program at Indiana University, as well as course offerings at Harvard’s Kennedy School of Government and New York University’s Stern School of Business). Some organizations associated with the new “social entrepreneurship” wave have become household names: Habitat for Humanity, Teach for America, and the Knowledge Is Power Program (KIPP) are all prominent examples. Dozens of others are less well known, but are generally considered effective in the communities they serve and by people who study the world of private-sector charity.

Looking at this surge in organization-building, some see merely further opportunity for government to move in and “assist.” But it is the fact that several billion dollars’ worth of government-directed social-service spending has failed — both in ameliorating the problems the money is supposed to help address, and in allowing grantees the flexibility to anticipate and react to new challenges — that has driven the growth of social entrepreneurship in the first place. Far from being a seedling that must now be nurtured by government, the social-entrepreneurship movement of the past two decades seems instead to be a rebuke of government. And yet, even as Washington hopes to spend millions of taxpayer dollars to boost these service providers — through mechanisms such as the Social Innovation Fund — the federal government still seems not to understand that its own past activities have created (or at least left unmet) the needs that the present movement of social entrepreneurs is now rising to fill.

It is in this context that one must consider Obama’s move to make the social-entrepreneurship movement an extension of the existing non-profit welfare state. Indeed, it is far from clear whether government intervention is even desired by the service providers government is now seeking to “help.” After all, many of the better-known new non-profits have gone out of their way to operate outside government, rather than as grantees of existing programs. They have acted almost as if the government-funded programs did not exist.

Take, for instance, Upwardly Global, an immigrant-assistance organization that works in San Francisco, New York, and Chicago. The federal government already has large contracts with well-established non-profits, many of them church-related, to assist immigrants in finding jobs. But because of the rules under which their government contracts compelled these non-profits to work, when the organizations encountered immigrants with special skills — skills that could, with the right assistance, qualify them for high-paying jobs — the groups would nevertheless steer them to the first available position, which was often low-skilled work. In 2000, Jane Leu, a woman who had worked with these groups and was frustrated by their one-size-fits-all approach, founded Upwardly Global — which, in contrast with the federally funded programs, specializes in helping immigrant professionals.

Other non-profits, while perhaps not founded in direct opposition to existing government programs or policies, suggest by their very existence that such programs or policies are not working. Consider the private early-education program Jumpstart. Founded in 1993 by two Yale students, Jumpstart brings “college students and community volunteers together with preschool children in low-income communities for a full school year of individualized mentoring and tutoring,” with a focus on developing literacy and social skills in the years before kindergarten. Jumpstart does accept government funds (mostly in the form of Americorps volunteers, whose stipends are paid for by the federal government). But of course the very need that the program is successfully meeting suggests that another, much larger, government program is failing. After all, giving poor young children the preparation they need to succeed in elementary school (and beyond) is the raison d’�tre of Head Start. If the program’s $7 billion a year actually achieved what it was intended to, Jumpstart would be unnecessary.

A similar dynamic obtains in the case of the Boston-based job-training program Year Up, which aims to provide inner-city high-school graduates with the professional skills they need to compete with their college-educated peers. Year Up is strikingly similar to Upward Bound — a remedial-education program now found on hundreds of community-college campuses, on which the Department of Education spends hundreds of millions of dollars each year.

Despite the existence of the large federal program, the founder of Year Up saw that there was still a need to take on the problem of the “opportunity divide” between students who had received only a high-school education (often a poor or incomplete one) and those who had been able to attend some college. It is easy to see why: Studies have shown that, despite the huge flow of federal funding, Upward Bound is ineffective. So it is ironic (to say the least) that Year Up will now receive federal support from the Social Innovation Fund, as part of what the Corporation for National and Community Service characterizes as a “response to the increasing health needs, economic challenges and gaps in youth achievement facing low-income rural and urban communities” — as if these problems were not already the target of large government-supported programs.

As they set out to support impressive new social entrepreneurs, then, the Obama administration’s grant-makers should ask themselves a simple question: If government support for non-profits is such a good idea, why has the social-entrepreneurship movement taken root and, indeed, flourished?


To be sure, some successful organizations founded by social entrepreneurs have tapped into streams of government support without losing their identities or sapping their own effectiveness. Both Teach for America and the KIPP schools combine government and philanthropic funding, and still manage to do a great job educating poor children. Even Habitat for Humanity, which famously does not seek government grants, has been willing to accept land cleared or improved by local governments (often with community-development funding) to make way for its housing construction. But this sort of support is qualitatively different from funding provided to organizations that serve as straightforward contractors: Whereas the contractors must respond to government’s requests for proposals, the social entrepreneurs have found ways to bring government to them — getting support for the work their organizations are already doing.

Perhaps it is this latter sort of interaction that will be enabled by the Social Innovation Fund. At the very least, the fund is clearly structured to avoid certain mistakes of the past and to allay doubts about the federal government’s ability to identify innovation. One safeguard is a private matching-funds requirement; indeed, in the Social Innovation Fund’s first grant round, almost $50 million in federal money is being matched with $74 million in private philanthropy. Moreover, the fund’s money will not go directly to social-service organizations themselves, but rather to “venture philanthropy” funds that already have established records of investing in successful new organizations (as judged by specific performance measures). “Intermediary” philanthropies like the Boston-based New Profit Inc. — which has had success as a “stock picker” of promising non-profits, including Jumpstart — will deploy some portion of its Social Innovation Fund money through grants to other “hidden gems” (to use President Obama’s phrase) of the non-profit world. At a time when charitable giving has declined, this approach, at least on paper, would appear to be creative and tough-minded.

And given the state of social services in America today, an emphasis on identifying and funding organizations with demonstrated positive outcomes is surely better than increasing spending on programs that have actually been shown not to work. (Of course, federal funding is still growing for Head Start.) Moreover, it is conceivable that demonstrations of success in areas where the federal government is already spending large sums could influence existing programs to change for the better.

Still, even if the Social Innovation Fund concept promises to spread new approaches and influence older ones, it — like previous efforts at government investment in non-profits — courts some real dangers, even beyond those that, to date, have led the services-by-contract regime to produce mediocre results.

One such danger is the further politicization of the non-profit sector, which has typically relied on the passion of organizational founders and enthusiastic private supporters. The Social Innovation Fund will be administered by the Corporation for National and Community Service — the same organization that oversees the Americorps program, which, in effect, makes grants of volunteer labor to organizations selected by the CNCS national office or by one of 50 state commissions. The members of the state commissions (which make the majority of the selections) are chosen by state governors. Thus, the flow of government-provided volunteer labor — directed by boards appointed by elected officials — has been inherently politicized, as a series of recent scandals involving the allocation of Americorps resources has demonstrated. It stands to reason that the same politicization might affect CNCS’s decisions in administering the Social Innovation Fund.

There are already warning signs that the fund’s policy priorities coincide conveniently — perhaps too conveniently — with the interests of Obama’s political constituencies. Of course, every administration is free to advance its own policies, even when they are not universally admired — that, after all, is how representative democracy works. But what theoretically sets the Social Innovation Fund apart from other Washington enterprises is a singular focus on improving the reach and effectiveness of social services. Given the character of some of the fund’s grantees, however, one has to wonder whether the motive behind the decision-making is the absolute expansion of the services that most people are most in need of, or whether funds will go instead to the administration’s pet causes. Consider the $3 million grant to the San Francisco-based Roberts Enterprise Development Fund, which seeks to build “sustainable nonprofit social enterprises” — what the president often praises as “green jobs.”

Even if the politicization of direct grant-making can be resisted, the fund’s use of philanthropic intermediaries to select the ultimate award recipients provides another mechanism to reinforce the administration’s policy priorities — and potentially in a way that could elevate political concerns above those pertaining to the reach and effectiveness of social services. The Social Innovation Fund’s grant-making is described as a “portfolio” concentrated in select areas chosen especially to improve the lives of disadvantaged youth: “economic opportunity, healthy futures and youth development, and school support.” Each of these is an important cause, to be sure, but these priorities reflect a particular understanding of what matters most in the lives of disadvantaged youth. For instance, the encouragement of marriage and two-parent families — so important to the Bush administration’s agenda — is nowhere on Obama’s list.


Historically, American philanthropy has been based on the idea that we cannot be sure just what will work best to solve great social problems. As a result, our charitable giving has been fueled by diverse imaginations as well as personal passions. And government, of course, has been known to subdue both.

So it is worth asking whether “going to scale” — and, as in the case of the Social Innovation Fund, using government’s money and priorities to do it — should always be the goal (and measure) of an effective non-profit. Or, put another way, is the social-service system inherently a failure if it can’t provide every needy person with quick access to a helping professional? Under this rubric, there would be virtually no room for philanthropic activity that did not respond to a particular social need identified by government, or that government did not demonstrably need some help in addressing. One can easily imagine, for instance, the Corporation for National and Community Service politely declining Andrew Carnegie’s request for a grant to support library construction, on the (not illogical) grounds that too few Americans at the time had the reading skills to benefit from such institutions. Carnegie, however, understood that it was precisely the building of libraries, and their presence in American communities, that would inspire residents to read.

It is also worth considering whether successful non-profits — even if they have waiting lists, as it were — can serve and influence their communities simply by establishing norms that are strengthened by the presence of prominent local citizens on boards, and by the voluntary nature of their charitable support. Ultimately, in other words, the most effective form of scaling is cultural change — and that is less likely to stem from billions more in federal appropriations than from the launching of effective local programs and their replication (with local adjustments) by those who find them inspiring. The establishment of such norms — whether related to reducing teen pregnancy, Americanizing immigrants, or combating alcoholism — may be as powerful (or more powerful) as a means of influencing behavior than the universal provision of services through “non-profits for hire.” And clearly, such norms must be established at the level of local communities, where people influence one another face to face. Bigger is not always better, especially when programs rely on government to grow.

Consider, for example, the case of CeaseFire — a Chicago-based non-profit that aims to reduce gang-related shootings and murders. While the program does provide some direct services like helping gang members find job training and drug rehab, CeaseFire’s overwhelming emphasis is the changing of social norms. The program enlists reformed gang members, teachers, parents, police, clergy, and local business leaders to reinforce the notion that gang shootings are not simply “normal,” and that neighborhoods don’t have to accept murder and mayhem as a way of life. CeaseFire receives millions of dollars from the support of private philanthropic foundations, but in recent years, it has become more dependent on government funding. And when the state of Illinois cut the program’s funding in 2007, the organization reported that the cuts forced “most of CeaseFire’s communities to close down,” and that “during the time when CeaseFire was shut down, shootings skyrocketed.” It is a cautionary tale for non-profits that, in expanding their reach, become overly dependent on government money to do so — thereby compromising the local, person-to-person, norm-changing emphasis that made them successful in the first place. If the nation is to contemplate new directions in social policy, there needs to be room for approaches that go beyond turning to government for support.

Moreover, for non-profits that contract with government, as Smith and Lipsky observed, “some degree of change is virtually inevitable as government contracting increases and evolves....government contracts eventually bring administrative and accountability demands which may be at odds with the agencies’ original visions.” The result for non-profits is a growing danger of managerial ossification. And the Social Innovation Fund now poses the danger of yet more flattening of variety within the non-profit sector, as it provides incentives to channel philanthropic giving into specific program areas. The timing is especially troubling, as the Obama administration continues to propose tax-law changes that would reduce the absolute volume of philanthropic dollars available. Government would not only be taking over and stifling more of the non-profit sector: It would also be squeezing out many of the non-profits that act as government’s competition.

The idea of government’s stamping a seal of approval on select non-profits — and serving as a magnet for private money, promoted as a means of “scaling up” — can plausibly be interpreted as an attempt to lay the groundwork for increased government direction of charitable dollars. Indeed, the Social Innovation Fund has already begun to have that very effect: In May 2010, five of the largest private American foundations — the Eli and Edythe Broad Foundation, John and Ann Doerr’s family foundation, the Omidyar Network, the Open Society Institute’s Special Fund for Poverty Alleviation, and the Skoll Foundation — announced pledges of $45 million to provide what the Chronicle of Philanthropy characterized as “support” for “the new federal grants program for promising nonprofit groups.” Ultimately, this money became part of the $74 million in private matching grants for the Social Innovation Fund.

If this becomes a prevalent model of the relationship between philanthropy and the state, it is possible that the federal government — by choosing which types of social entrepreneurship to support, using a metric that considers the nature of an organization’s work as well as its results — may end up picking winners and losers in a version of industrial policy for the non-profit sector.

None of this is to say, of course, that there is no room for driving the philanthropic sector to improve, and for helping the most effective non-profits to grow. Yet there is some reason to believe that progress is occurring on this front already, independent of government involvement. The New York-based Growth Philanthropy Network has set out to choose a group of non-profit “growth stocks” that might be listed on a “social impact exchange,” thereby attracting the attention of philanthropists and the sort of growth capital of which even successful non-profits are generally starved. The past decade has also seen the advent and increasing sophistication of non-profit ratings agencies, such as GuideStar and Charity Navigator, that hold out the promise of accessible information about non-profits’ management and effectiveness — useful to even individual small donors, as well as to an increasing number of family foundations and donor-advised funds. In other words, this may be exactly the wrong time to give up on private philanthropy’s ability to pick and reward winners on its own.


Even if greater government involvement were not likely to diminish the effectiveness of private charity — as it has in many of the cases where it has been tried — the broader implications for private social services in America would counsel caution.

Assuming the work of non-profits could be “scaled up” with the success that proponents promise, would it be worth compromising the independence, flexibility, and compassion that have been hallmarks of America’s charitable enterprises? Is it worth taking the risks inherent in subjecting this sector of American life to the dynamics — indeed, the whims — of politics? The actual experience of such attempts to date strongly suggests the answer is no.

Original Source:



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