Four Futures

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During these troubled times, what lies in store for the nonprofit sector, and what do we need to do about it? Along with every family in America, the nonprofit sector is wondering about its future. Will we miraculously survive as we largely do today? Will we starve our organizations to the core or emerge from the current economic calamity mostly intact? Will we fight the prevailing downturn on behalf of our individual institutions and leave others to defend themselves, or instead will we join forces to shore up the sector as a whole? In the aftermath of this financial crisis, will we have real options and choices?

The answers are not yet clear, but it appears that an intensifying struggle for ownership of the sector and how it is structured, governed, and deployed is under way. When boiled down to its fundamentals, the question is whether nonprofits are “owned” by their institutional funders (governmental and philanthropic) or whether a broader community of stakeholders should make the choice about the future nonprofits pursue. The search for an answer may yet produce a struggle for the identity and soul of the sector. Traditionally the sector belongs to this country’s citizens who have exercised their right to associate through civil society, but there is, of course, pressure from those who have the resources on which the sector depends.

In the midst of this struggle, larger “brand name” nonprofits may seek greater market share through muscular fundraising machinery and carve up territory that will in some cases undermine the self-direction and survival of smaller, community-based entities. Words like scale, efficiency, and metrics may come to dominate conversation in the sector, overshadowing concepts like civic engagement and democracy—ideas renowned for their messiness in practice. And indeed, the recession may convert an implicit agenda into a much more explicit goal: to reduce the number of nonprofits—or more precisely, the amount of philanthropic demand—where such winnowing perhaps works to the advantage of brand-name nonprofits. In this institutional melée, citizens may be left out of the equation, even though they have a legitimate claim to involvement because they subsidize the sector’s tax status.

Let’s now consider four different futures that will shape this debate.

The rescue fantasy. The first future scenario is based on the “kindness of strangers” and is likely to leave the nonprofit sector in the same position as poor, homeless Blanche DuBois. The idea is that Americans are a generous people and will continue giving, perhaps rising to the challenge and giving more from their strained budgets. In some ways, the American psyche expects an increase in generosity, but the sector is no longer dependent on just individual contributions. It has grown accustomed to a huge share of revenue from government and marginal dollars from philanthropy. But when you consider the amount of dollars from government and philanthropy that might have to be replaced, it is reasonable to assume that individual givers cannot fill the gaps, however much we hope they will.

And even if it did occur, this rescue would likely help some nonprofits, but not others. The public is used to supporting certain kinds of groups but not others. There are whole fields of work that receive little in public donations because they have traditionally been subsidized so heavily by government. They are often virtually unseen by the public and many also work with the most vulnerable, and sometimes marginalized, populations: the chronically mentally ill, the developmentally disabled, and substance abusers, for example. Some of these programs are quite intensive and, in some cases, residential and therefore quite expensive. Many such programs are funded by the state and will be subject to the trickle-down effect of reduced federal budgets, combined with reduced tax income at the state level. The public is unlikely to pick up the tab in small private donations.

So what about a nonprofit bailout? Some well-connected and well-known nonprofits will no doubt be congressionally pardoned even if already economically stressed individuals do not give at higher levels. Last October, in the first of what could signal several visible bailouts, the Red Cross received a $100 million no-strings-attached grant from Congress to cover a shortfall in fundraising following hurricanes Gustav and Ivan. Other large national nonprofits could line up for funding as well, but many smaller nonprofits would be left behind. Rescues tend to favor single organizations or relatively small slices of an industry.

And as for community service as the answer to our current situation, it is not clear that a service nation could do enough to produce a rescue. A community service–oriented solution may well be this administration’s version of the Bush faith-based proposal: a good but inadequate response. Although an expansion of AmeriCorps and the creation of a new Serve America fellowship may draw as many as 300,000 to 500,000 new recruits to the sector, the numbers of such “voluntary stipended” recruits are just too small to fix a frayed social safety net.

A withering winterland. This second future is more probable. This scenario has every nonprofit in the sector suffering. Most nonprofits, even the nationally known brand names, now feel the pinch of the downturn. Fall galas have fallen well short of past highs, even as once-steady gifts shrink. Several major corporate foundations have stopped giving entirely, particularly in the beleaguered financial sector, and many have trimmed back to near zero. Government also expects deep deficits and will adjust nonprofit contracts accordingly.

Depending on the length of the economic downturn, many nonprofits will starve themselves into a weakened organizational state through hiring freezes, pay freezes, layoffs, and deferred organizational maintenance. Although they may not be immune to these cuts, large nonprofits have more fat to trim, but trim they will, perhaps to the point of becoming predatory on their weaker brethren. How ironic that organizations created in part to help the needy may well contribute hundreds of thousands to the ranks of the nation’s unemployed. With roughly 20 million Americans now looking for work, federal job centers are already overwhelmed by demand. How many of those cast aide will be from the ranks of the nonprofit sector?

An arbitrary winnowing. This is the most likely scenario and would result in rebalancing the sector toward larger, richer, and fewer organizations. In this scenario, some nonprofits will fold, while others will prosper as contributions flow to the most visible and largest organizations as well as to those most connected to and influential with their donors. Marketing budgets and levels of community engagement may be the best predictors of survival. Well-known organizations will survive through more aggressive fundraising appeals, while some small nonprofits will survive through sheer will or because their communities are used to supporting them. Others will merge, be acquired, or simply melt away.

Midsize organizations with little immediate capacity to replace lost funds will falter and cut to the bone. This winnowing would effectively eliminate the middle class, leaving the sector with fewer but bigger nonprofits and a lot of smaller nonprofits that already live hand to mouth. Overall employment will decline somewhat, though not in most universities and hospitals, but the total number of nonprofits could drop by 10 percent. As with the withering scenario, a winnowing scenario would seriously undermine the sector’s ability to meet increasing demand.

Transformation. This fourth scenario is hopeful but different, and it is likely only if nonprofits make it so. As has been noted in several of this issue’s articles, nonprofits could use the faltering economy and its impact on the sector as an opportunity to reinvent themselves. But this approach requires examining all possible options quickly and creatively. In state budgets, should certain services be saved over others? Are there ways to redesign organizations to achieve greater synergy between community players? Are there ways to involve communities in rethinking and reenergizing our work? A transformation-oriented approach requires deliberate and collective action by the sector’s stakeholders: communities, philanthropists, governments, intermediaries, constituents, nonprofit associations, and boards.

Whether small or large, every organization will make its own decisions, and the sector’s infrastructure is left with several tasks to help aggregate these decisions into a best possible future. What should these tasks be?

  • Ensuring a voice for the less powerful. It’s imperative to ensure that the less connected and powerful have a say in the future of this sector, which is, after all, meant to facilitate our ability to self-organize. In states with well-organized state associations, these venues can act as a convening point to consider priorities and collaborative strategy and as a conduit for advocacy, public education, and, yes, even lobbying. State associations of nonprofits could lead this effort by providing training, aggregating concerns, and expressing a clear call to action. Associations such as the Minnesota Council of Nonprofits have already proven that advocacy works, if not to prevent cuts entirely, then at least to reduce them.
  • Advocacy. Generally, advocacy must be seen as a necessary capacity for nonprofits—and one that should be funded well during times of political upheaval. There is no way to recover quickly from a government retrenchment that has already happened. The sector needs to weigh in loudly on where the trenches have been dug.
  • Dialogue on philanthropy. Since philanthropy is a private allocation of funds to be held in public trust, in times of such serious upheaval there should be a more public conversation about philanthropy. This doesn’t mean that philanthropy needs to coordinate better among itself but that it should be more responsive and responsible to its community partners.
  • Flexibility. Whatever happens, the sector needs to innovate and mobilize more flexibly to keep pace with a new era.

Bringing flexibility, innovation, and responsiveness to the sector, however, requires several changes within it.

  • Resisting funding restrictions. Philanthropy should not predetermine what is needed by restricting funding too tightly. Providing more core support allows nonprofits to seek out new ways of making things happen at an administrative and a programmatic level. Instead of exerting too much control, philanthropists may want—as has been suggested by Margaret Wheatley—to ensure that each organization has an active learning process in place and that there are methods for sharing learning among organizations.
  • Collaboration. Nonprofits must seek new ways to collaborate with other organizations and with the people in their communities. It is in the friction between unlike bodies that brilliant breakthroughs are made. Philanthropy should support but not direct these efforts.
  • Effective research. Researchers should more closely coordinate their work to help the sector learn more quickly about what works well and under what conditions. This learning should be broadly, rapidly, and effectively shared.
  • Rejecting the hype. Philanthropy should avoid overdependence on predetermined metrics as a method for encouraging effectiveness. Such dependence slows innovation in all but the best-funded organizations. Of course, measurement is not a negative—nonprofits should be rigorous in determining what constitutes success. But fixed measures of efficiency and fundraising effectiveness are not a substitute for a deeper understanding of the social return on investment, which may involve both quantitative and qualitative assessment.
  • Enlisting the young. Nonprofits must focus more on integrating young people into leadership. The nonprofit sector tends to operate in the present tense and on immediate need. As a result, it often misses key trends that alter futures. The alternative gives young people a voice in determining the future of the nonprofit sector.
  • Broad based use of technology. The sector needs to ensure that management and technological aids for nonprofit work are spread evenly across the country and particularly to rural and marginalized populations. The Obama administration has promised to help do so but needs to support the have-nots in the effort. The nonprofit sector belongs to society as a whole, not just the brand-name nonprofits and philanthropists that receive the greatest media coverage.
  • Social entrepreneurship. Nonprofits must also embrace the spirit of social entrepreneurship and claim it. The Obama administration has included social entrepreneurship as part of its language. But do not believe that this is a new phenomenon whose spirit and processes are owned by a talented and well-educated few. This sector has always focused on social entrepreneurism. Social entrepreneurism is what many nonprofits already do and what more should do. Although there are talented social entrepreneurs within the sector, organizations’ social entrepreneurship often goes unrecognized for its focus, creativity, energy, skill, and instinct that easily rivals that in the business sector.

The nonprofit sector can always let the future take its course by failing to choose among these competing scenarios. But in doing so, it would almost surely experience either the withering of organizations that comes from inaction or a random winnowing based on influence and ready cash, not performance. It can reap the benefits of transformation only by deliberate choice.

Copyright 2009. All rights reserved by the Nonprofit Information Networking Association, Boston, MA. Volume 15, Issue 4. Subscribe | buy issue | reprints

  • Jean Logan

    My partners and I have been having the same discussion for the past year…so glad that you have again been articulate on the choices. These scenarios are beginning to play out, and I’m having flashbacks to the Reagan-era block grant era. From that threat Wisconsin advocates built some strong advocacy collaboratives to stave off the funder-driven view of what was needed. The threat is very real that the small agencies that are connected to at risk consumers will get axed. We need to again work as communities to walk the transformational road.

  • Melinda Korenchuk

    To survive the new economy, smaller nonprofits need new ways to carry out their missions. One important step towards change is to band together to share infrastructure costs in general, and technology costs in particular. The Technology Leveraging Cooperative is offering ways to do that. Efficiency is not necessarily the purvue of large organizations!

  • Deb Linell

    The vast majority of nonprofits are small. Together they weave an invisible network of people, organizations, neighborhoods, towns and cities working at the local level on quality of life issues, equity and justice (among other things). As Ruth likes to say – these groups are our democracy in action. Still, the power of this network has yet to be realized. I like Paul’s suggestions regarding ensuring a voice for less powerful and for advocacy. The state-wide nonprofit associations could be an important convener of this IF they could come together themselves with a shared vision for advocacy and messaging at the state and federal level. As autonomous statewide organizations their development has been uneven and strategies and goals vary from place-to-place. While there are many fine statewide nonprofit associations the local nature hinders a national agenda. Even so, the associations are a natural home for advocacy and for connectedness across state boundaries – these times beg for a national advocacy agenda to emerge across these groups. Deb

  • Dennis Young

    While I think there’s
    real merit in Paul’s speculation, I also think that the picture is somewhat
    more complex than he suggests.

    First, it is worth noting that the nonprofit sector is already pretty
    concentrated in terms of the proportions of its resources devoted to the
    largest organizations. This pattern appears to cut across the sector
    although some fields are more concentrated than others. For example, there
    are approximately 15,000 nonprofit performing arts organizations and
    museums in the U.S. but more than 83% of the expenditures in this subsector
    are concentrated in the top 10% (1500) organizations. Similarly, more than
    80% of the expenditures of the 7200 environmental organizations are
    concentrated in the top 10% of these organizations. At GSU we have run some
    initial numbers for 16 nonprofit subsectors. The highest concentration in
    the top 10% that we found was for science and technology nonprofits (95%)
    while the lowest was for elementary and secondary education (61%). All this
    suggests that there’s quite a bit of concentration of resources already but
    that the vast majority of nonprofits find a way to hang on. It could get
    worse, and indeed the sector could very well become more concentrated by
    for-profit industry standards, but I’m not sure that current conditions mean
    that there will be a major shake out.

    That said, I agree with Paul that the pressure will probably be on those
    nonprofits in the middle range. The larger nonprofits will likely survive
    because they have found ways to become efficient resource gatherers. The
    smaller ones probably have figured out how to survive on a shoe string,
    perhaps heavily reliant on volunteer resources. Mid-size nonprofits that do
    good work but are not well-oiled fund development machines will likely have
    more trouble. All this is not to say that those nonprofits that survive or
    thrive are necessarily doing the best job. We really need some good
    research to determine how effective nonprofits of different sizes are in
    addressing their missions. Large ones could be effective resource gatherers
    but wasteful or ineffectual in their social impact. We all remember Boys
    Town. Many mid-sized and smaller nonprofits may be more focused on mission
    than resource gathering and doing excellent work but finding it difficult to
    make ends meet. We really need to find out what is going on at these
    different levels but measurements of performance are problematic at best.
    All this poses some interesting policy dilemmas. Should we really be
    encouraging further sector consolidation? Should we apply anti-trust
    concepts under the theory that there are benefits of competition that are
    being lost by high concentrations of resources in a few nonprofits? How can
    we encourage social entrepreneurship, which tends to be individualistic and
    likely to manifest itself through smaller nonprofits, while at the same time
    promoting collaboration and consolidation?

    Finally, we need to take a closer look at the economic forces now affecting
    the sector. While many sources of support for nonprofits have gone South
    (endowments, giving, state and local government funding) there may also be
    some rays of hope. With unemployment up, more volunteer help may be
    available and labor costs for paid staff may ease. With interest rates low
    and the real estate market down, there may be opportunities for saving on
    costs of facilities and equipment. While state and local funding is
    squeezed, new federal initiatives may provide new opportunities for
    nonprofits in areas such as health, education, environment and energy
    conservation. While giving is impacted, donor priorities may shift to areas
    of high demand for services, such as foodbanks, homeless shelters and other
    areas of nonprofit activity addressing pressing human needs. While, people
    have less to spend on discretionary activities such as the arts, they may be
    more willing to spend for education, etc. It’s a complex picture that will
    affect different kinds of nonprofits in different ways.

    At GSU, we’re beginning to sort out the “industrial structure” of the
    nonprofit sector. It’s an area that hasn’t been well studied but whose
    importance will only grow in current and near future economic circumstances.
    Let us know if you would like us to elaborate on this theme for a future
    issue.

  • Damian Tapia

    One thing I have noticed missing from dialog about the future/transformation of the sector is the creation and advocacy for a new legal entity, social entrepreneurship is definitely the way to go, a major factor in breaking the barriers to doing this type of work would be to break down the definition between enterprise and social value creation. The social sector will continue to have problems with sustainability and self-determination as long as the stigma and legal limits of making money are imposed. Business will continue, exponentially, to refrain from being socially relevant as long as the obsession with profit at all costs continues. We need a new framework that supports wealth creation (monetarily and socially) we have here an opportunity to redefine our economy and culture into one that is more human, and ultimately, more realistic.

  • Raquel D. Gutierrez

    Paul, thank you for presenting a clear summary of the very real issues impacting nonprofits of all sizes.

    I appreciate the inclusion of how smaller nonprofits will be affected. The realities of smaller nonprofits, though they make up the majority of the nonprofit sector, are often left out of theoretical frameworks offering solutions to how nonprofits can be more effective as agents of social change. As a nonprofit community we have a tremendous opportunity to transform the future of our sector; I just want to make sure that from the get go the conversation (and subsequent actions taken) include the voices of smaller nonprofits who often tend to a very specific need or part of the larger community. I for one am reflecting how I can be an active part of the transformation scenario.

    Finally, the one thing all these scenarios have in common is the necessity for those engaged in the process to take good care of themselves (mentally, physically, emotionally, spiritually) during these stress filled times, in order to move from a place that is rooted in values, beliefs, and actions that reflect the social change we seek.

  • Karen

    The non-profit with which I work is among the smallest of the small – a historical society with two museums. There are some passionate and dedicated supporters but funding is a constant crisis. We have attempted to implement several of the suggestions above. We have developed four programs for the elementary and secondary schools, who are also struggling, are working energetically to bring young people onboard with a goal of adding one or more to our board as non voting members, increase our social enterprise efforts while keeping in line with our mission and starting the nucleus of a collaborative group of small nonprofits in our rural area.

    We believe these efforts will bring us more attention and enhance our value to the community. But will it be enough? Time will tell and I hope the answer is yes.