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| Opportunities & Exposures: Philanthropy |
Be Charming and Multiply
Michael O’Neill
08/01/2005
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There were 1 million charitable nonprofit organizations in the United States,
not including churches, in 2004. Twenty years ago there were 350,000.
Competition for financial and other resources is fierce. Foundations and
corporations are inundated with requests. Households have seen a sharp increase
in direct-mail appeals. Groups like the United Way, some foundations and even
federal and state governments have been openly asking whether there are too many
nonprofits, suggesting that a wave of mergers or, at the very least, more joint
grant proposals, is in the cards.
 This concern is understandable but
misguided. It fails to take into account a fundamental fact: The nonprofit
sector is largely a free-market economy, not unlike the business sector.
In
the for-profit sector, a product’s market value is assigned by consumers, whose
choices reward efficiency, effectiveness and responsiveness. It may seem, at
first glance, that nonprofits spring up to address a problem in society rather
than to satisfy consumers, but there is also a supply side to the sector.
Consider consumer protection organizations and Planned Parenthood, to name just
two examples of nonprofits that created a movement before mainstream society had
articulated the need. When they start tackling a problem, nonprofits compete in
the marketplace for money and time from individuals, foundations, corporations
and governments. As they develop, they raise more money, strengthen and
diversify their services, improve their marketing and sales operations,
implement efficiencies and cut budgets and staff when necessary.
Nonprofits
that do these things well survive and grow; others fade away. Anyone who does
not believe there is serious competition among nonprofit theaters, environmental
groups, disease opponents and even churches has not looked very closely. Private
colleges and universities also compete vigorously for students, faculty and
research grants.
This nonprofit market economy is now an important segment of
the national economy. In addition to its 100 million volunteers, the U.S.
nonprofit sector has 11 million employees—more civilians than are employed by
the federal government and the 50 state governments combined. Annual nonprofit
revenue exceeds $1 trillion, more than the GDPs of all but six foreign nations.
From 1975 to 1995, nonprofit assets and revenue more than tripled, while the
U.S. economy grew 74 percent (both figures are adjusted for inflation). All
major types of nonprofit work—health care, education, social services, arts and
culture, religion, advocacy, international work, funding—have grown
significantly.
Are a million charities too many? Do we have too many drug
rehabilitation centers, preschool programs, chamber music ensembles, youth
groups or international relief agencies? It is ironic that a number of private
foundations whose own wealth was created by the free market want to impose a
planned economy on nonprofits. Instead, they should say to nonprofits: “Be like
our own funders, our parent companies: increase and multiply, compete and let
the worthiest survive and thrive.” Naysayers argue that increased competition
spurs nonprofits to waste capital and creative energy. There are, for example,
more than 600 charities pitted against breast cancer, all striving for dollars
and exposure. While expensive marketing campaigns can frustrate funding
institutions that want to see their money going directly to a cause, many
charities have found ways to communicate and fund-raise without expensive
overhead, through volunteer efforts and high-profile spokespeople.
Some
object that there is a finite amount of philanthropic resources to go around.
True, but what is it? Last year American individuals, foundations and
corporations gave $250 billion to charity (three-quarters of nonprofit revenue
comes from fees for service, such as school tuition and ballet tickets, and from
government grants and contracts). Americans on average give 2 percent of their
income to charity. Why only 2 percent? Some groups—Mormons, for example—give 5
percent or more. If all Americans followed suit, that would generate an
additional $125 billion to $375 billion a year. Investment expert Claude
Rosenberg, founder of NewTithing Group, estimates that the wealthy could
comfortably afford to give far more than they currently do to charity. The truth
is that no one knows what the finite limit of American philanthropy might be;
some suspect that we have not nearly reached it. Moreover, there seems to be no
market-dictated ceiling on the two largest sources of nonprofit revenue: service
fees and government grants. Philanthropic giving has experienced real growth of
200 percent in the past 40 years, while payments for nonprofit services and
government aid to nonprofits have grown even faster.
Nonprofits compete not
only with each other, but also with business and government. Nonprofit hospitals
still dominate their subsector, but health maintenance organizations, an idea
originated by nonprofits such as Kaiser Permanente, now form a mostly for-profit
industry. The long-running Broadway hit A Chorus Line began its run at the
nonprofit Public Theater in New York. Nonprofit advocacy groups often uncover
what economists gently call “imperfections” in for-profit markets and government
operations and exploit them, albeit altruistically.
As the number of
nonprofit appeals increases almost daily, this nonprofit sector is characterized
by extraordinary diversity, creativity and results. The growth of this sector is
something to be celebrated and supported, not fretted over.
Art by Matt Mahurin.
Michael O’Neill is professor of nonprofit management in the College of
Professional Studies at the University of San Francisco.
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