Mom and Pop Giving Over to Big Brother?

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Paul Light has suggested that there are four possible scenarios for the future of our sector—one of these being an “arbitrary winnowing” which would “result in a rebalancing [of] the sector towards larger, richer and fewer [nonprofit] organizations.” Dr. Light said nothing in his NPQ article about the private sector but I have noticed a disturbing macro trend worth paying attention to if you are at all interested in retaining a modicum of local ownership and control over the organizations that so richly populate our communities.

In yesterday’s New York Times was an article about how small businesses are faring in this downturn. Here is a shocking statistic: from the second quarter of 2007 through the third quarter of 2008, businesses with fewer than 20 employees have accounted for 53% of all job losses in the private sector—even though those companies employ only 20% of the employees.

One observer comments that this is just the market “being cleansed of unneeded goods and services.” Though far from an economist, I might suggest that this phenomenon may be more a question of available capital and a function of a further monopolization of our markets by large business concerns. Slate.com runs a story about CIT Group, the number one lender to these very small firms under the Small Business Administration’s 7(a) program. The 7(a) program typically makes loans to small businesses that have exhausted other options. Close to bankruptcy itself, it is under consideration for a bailout—a step supported by Lloyd Chapman of the American Small Business League, who has traditionally opposed providing bailout funds for large financial institutions. “If my tax dollars are going to be used to rescue banks and other financial institutions,” says Chapman, “CIT is the kind of firm I want to see saved.” But Slate reports that the “thinking within the administration . . . is that because its collapse would have little or no effect on the larger financial system, bailing out CIT may not be worth the time or the money.”

Chapman is concerned that small business is largely overlooked in the federal government’s credit programs, pointing out that America’s Recovery Capital Loan program (part of the ARRA) will make only $225 million in loans to small business, where CIT made more than three times that in 2008 alone.

I worry that there is an insufficient understanding within this administration about the value of small, locally controlled organizations to civic life and I, for one object, as much on behalf of local owned business as locally controlled nonprofits. We are in danger of losing the essential character of the nation in this trend.

So when the administration proposes working hand in hand with large philanthropic institutions to craft collaborative approaches to “social innovation,” and if that conversation remains less than fully transparent to date, excuse us if we wince a little at the more downside potential of that, particularly when the groups mentioned as models are very large, well connected and well funded.

Any way, I am interested in your thoughts as always. Do you think that the administration has placed enough emphasis on small organizations?

p.s. In celebration of the fact that small nonprofits and small business have common concerns, I attach this “Small Business Survival Guide,” a great, practical approach to cash scarcity, albeit with some differences. It’s well worth the read!

  • Julie Grower

    What a great article! As the ED of a small non-profit I am terrified of these
    changes. I feel that so many in the non-profit sector are supporting the new administration without seeing the entire long-term economic picture.

    As a small non-profit that has always received more support from local business owners who are now going to give less–I’m worried.

    We are going to have more opportunities for government funding but less support from local people. This puts the government in control and not our local communities which have more at stake, require more
    oversight and know what our real needs are. I have more faith in ourlocal supporters who have given so much than in the politicians. I feel that government is saying “we are smarter than the local people
    and we have the answers”. Aren’t we in the non-profit sector the ones who believe all people have potential and can overcome obstacles to determine their own futures? Don’t we work at getting people to be
    self-sufficient and not government dependent? Isn’t this taking power from the people instead of empowering people?

    Why is it that I feel like the non-profit sector is saying “the new administration is making great changes” and no one seems to see the big picture?

    Thank you for writing about the big picture. We need to start
    thinking about where we are being led!

  • William L. Huddleston

    Excerpted from an open letter to the Independent Sector Colorado Springs meeting about the future of the non-profit sector:

    2. The question: