It is said generals are often guilty of “fighting the last war.” For example, in response to the traumatic experience of World War One, France constructed the Maginot Line in the 1930s as protection against an invasion from Germany. The Maginot Line would’ve worked great, if only the technology of warfare hadn’t changed. But of course, in 1940, it failed miserably, as German tanks simply maneuvered around it.
However, it is not only military leaders who are guilty of misapplying historical models to present-day challenges. This is true of economists, politicians—and, yes, nonprofits and philanthropy too.
Today, when it comes to economic challenges, what constitutes our go-to mental model of the “last war” is clear: the Great Recession. The fact—and I think it is fair to call it a fact—that many, if not most, of us intuitively view economic crises through the lens of the Great Recession is completely understandable. After all, the Great Recession was the largest economic crash to hit the United States since the Great Depression. Few Americans alive today can recall the Great Depression, and if they can, they were probably children at the time.
By contrast, the Great Recession took place only a dozen or so years ago. Millions of people lost their homes. Trillions in household wealth was lost, with that loss of household wealth heavily concentrated in low-income communities and communities of color. So much of US politics of the past decade, including nonprofits and social movements, has occurred in its shadow.
We elected our first Black president as a response to the onset of the Great Recession. And, as Ta-Nehisi Coates astutely observed in the Atlantic, the nation also elected its “First White President” because of social and political forces unleashed by the Great Recession. Social movements too, including Occupy and Black Lives Matter, developed out of the political and social firehose that was the Great Recession.
And for nonprofits and philanthropy, there are some important lessons that can be gleaned from the Great Recession. Indeed, in our magazine’s spring edition, NPQ decided to focus on these. We came up with this topic last fall. We were not clairvoyant and certainly did not see a global pandemic coming, but we assumed another recession would occur eventually, and we wanted to see how nonprofits might perform better the next time a recession hit.
We observed that “the last recession did not damage the nonprofit sector so much as it severely damaged individuals and communities,” although of course not every segment did well. (Public benefit nonprofits in particular did not.) Public policy favored the accumulation of wealth, resulting in greater racial and economic inequality after the Great Recession than before.
Perhaps the most important finding was, “The sector was perhaps too focused on the recovery of its own institutions with respect to longer-term fiscal health, instead of on the longer-term recovery and advancement of the financial well-being of its constituents. While we do not suggest that this sector in any way ignored the immediate needs of its communities during the depth of the downturn, we do conclude that by remaining inactive on tax and regulatory policies, the sector has enabled an economy that is increasingly regressive and threatening to our democracy and the well-being of present and future generations.”
A common refrain in the nonprofit sector is “no margin, no mission.” What we learned from our studies of nonprofits in the Great Recession was that the nonprofit sector might have learned their lesson too well—margins were protected; mission not so much.
As NPQ noted, “Although nonprofits appear to have accepted advocacy as a core competency, this advocacy may be too often focused on themselves, in too many cases involving the community only by extension.”
Come the Coronavirus: An Economic Shutdown Like No Other
The word “unprecedented” tends to get thrown around widely, but there is no other word to adequately describe the pace of the current shutdown. In the week ending March 28, 2009, the worst rise of unemployment in the entire Great Recession, a total of 665,000 people filed unemployment claims in a single week.
Our current economic shutdown makes that number seem almost quaint. A week ago, reported weekly unemployment claims were 3,307,000 (originally 3,283,000, but revised upward)—a number nearly five times that Great Recession peak. Then, this week, new weekly unemployment claims doubled again—to 6,648,000. In two weeks, just shy of 10 million joined the unemployment rolls. Way back in February 2020—remember then?—unemployment stood at 5.79 million people. It’s now close to triple that.
We do not know how high the unemployment numbers will go. A recent analysis by Miguel Faria e Castro, an economist at the St. Louis branch of the Federal Reserve, came up with some chilling numbers, with a “point estimate” of 32.1 percent unemployment, or 47 million people out of work by the end of June 2020, a number that would greatly exceed the peak unemployment rate of 24.9 percent in the Great Depression.
To be fair, Faria e Castro’s estimate did not account for the potentially ameliorative impact of the stimulus bill, which can and should slow the rise of unemployment numbers. But even in his best-case scenario, the unemployment rate at the end of June would be 10.5 percent—a number which, by the way, still exceeds the peak unemployment rate of the Great Recession. The investment firm Goldman Sachs predicts the unemployment rate by the end of June to rise to 15 percent.
Recession, Depression—What’s the Difference?
The terms “recession” and “depression” get thrown around a lot. But they are rarely defined. So, what is the difference? One common refrain is that “a recession is when your neighbor loses his job; a depression is when you lose your job.”
A more technical definition is that a recession is defined as two consecutive quarters (six months) of declining gross domestic product (GDP), while a depression is a subset of—if you will, extreme recessions—marked by a decline in economic activity of at least 10 percent. The investment firm Goldman Sachs is currently projecting an annualized rate of decline in GDP of 34 percent, up from a 24 percent estimate a week ago, in the second quarter of 2020. So, thinking of the current crisis as an impending depression is not at all unreasonable.
A depression, in short, involves a severe economic restructuring that is usually much longer lasting than a recession and does far more economic damage. As Robert Samuelson explains in the Washington Post, a depression “implies permanently higher levels of unemployment (though joblessness would still fluctuate), greater economic instability, and a collision between democracy and the economic system.”
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In the US, we have not experienced a depression in 80 years. But other countries have experienced depressions more recently. Henry Olsen, also writing in the Post, recalls that in Finland in the early 1990s, “a combination of a banking crisis and the collapse of the Soviet Union, which was a major export partner, pushed the tiny Nordic nation into a deep depression. The unemployment rate skyrocketed from about 3 percent in 1990 to 18 percent in 1993. GDP dropped for three consecutive years, much as in the United States during the Great Depression. The stock market dropped by as much as 70 percent, and housing prices plummeted.” The good news, Olsen notes, is that Finland recovered and is considered a prosperous state today.
Of course, not every recession—or depression, for that matter—is the same. The Great Depression in the United States was driven by extreme inequality of wealth (sound familiar?), which led to a set of crises. The fall in the stock market was the most visible indicator, but there were collapses in agriculture and housing in the 1920s that preceded the stock market crash, and a collapse in banking that followed it. Ultimately, the US escaped the Great Depression due to a combination of New Deal social welfare programs (e.g., unemployment insurance, social security) and, ultimately, mass government spending resulted from war mobilization during World War II.
What about the current situation? Clearly, the initial cause of our depression is the pandemic-induced economic shutdown. That said, our current situation—like the Great Depression—is made far worse by preexisting economic inequality.
The pandemic, in short, has exposed deep fissures in US society. There is a tremendous health cost to pay for the pandemic in terms of likely lives lost. But even after the pandemic ends, rebuilding the economy post-pandemic is certain to require a far deeper response than simply turning back the “on” switch and expecting pre-2020 capitalism to spring back to life, especially since—already, in two weeks, 10 million workers have been detached from their employers. Getting those people back to work will be no small matter.
Philanthropy and Nonprofits: Our Role
So, where to now? Already it is clear to many in nonprofits and philanthropy that it is different this time. This time, we have experienced just in the last two weeks mass layoffs among nonprofits, including museums and theaters, the arts, childcare and gyms, and more. All nonprofit programming that requires close personal contact is at risk. This, to put it mildly, did not happen in the Great Recession, when nonprofit employment actually acted as an economic stabilizer—with job numbers in nonprofits increasing even as private for-profit employment fell.
Nonetheless, the Great Recession is still the main referent for many. For example, in a public letter to grantees released earlier this week, Hewlett Foundation president Larry Kramer writes:
Two years ago, the foundation adopted and announced a plan for dealing with economic disruptions. Experience in 2008 taught us the need to balance two paramount considerations that come into conflict during a major downturn. On the one hand is the welfare of our current grantees, whose work and institutional health will suffer if we abruptly reduce or terminate funding in the wake of an economic contraction. On the other hand is the long-term condition of our endowment, whose spending power will diminish in real terms if payout in grants exceeds what’s necessary to sustain growth over time—reducing the foundation’s capacity to have impact in the future.
One can—and we did at NPQ—critique the response of our sector and philanthropy to the Great Recession. In all too many ways, nonprofits and philanthropy worked together to protect themselves during the Great Recession, while letting many of the people served down. Nonetheless, the above analysis would make sense, provided that this downturn bore some measure of resemblance to the Great Recession.
The Great Recession was painful and resulted in millions of lost homes, trillions in lost wealth, and millions of unemployed. For the nonprofit sector as a whole, however, the impact was modest. For instance, a 2013 Urban Institute paper found that, “five percent of charities (12,831 of about 254,500) reporting $50,000 or more revenue in 2008 were gone by 2012, only slightly higher than the 4.3 percent ‘death’ rate in the years leading up to the recession.”
Does anyone think we will be writing the same about our current shutdown in 2025? No, already it is clear that for many nonprofits, the current shutdown threatens to be an extinction-level event. Which begs the question: what good is it to preserve an endowment if you lack nonprofit partners to spend that endowment on?
This is why so many groups are now calling for throwing out the playbook. Indeed, flawed though the CARES bill was, did anyone notice that the federal government—hardly known as a progressive institution—just threw out its own playbook?
A letter released yesterday by nine national organizations—BoardSource, the Center for Effective Philanthropy (CEP), the Council on Foundations (COF), Grantmakers for Effective Organizations (GEO), Hispanics in Philanthropy (HIP), Independent Sector, the National Center for Family Philanthropy (NCFP), the National Committee for Responsive Philanthropy (NCRP), and the United Philanthropy Forum—makes an essential point. They write, “The strength of a funder’s grantees at the end of this crisis will be a much better measure of the significance of a foundation than the size of its endowment. Unprecedented challenges require unprecedented responses—and a casting aside of traditional norms and approaches.”
A Vision Beyond
A lot can be written about visions for a more just and democratic economy. I do so regularly in NPQ’s Economy Remix column. But for now, simply looking at the basics, we have already learned in just three weeks of shutdown a lot about our economy.
We have seen, in real time, the costs of lacking universal health coverage, the costs of lacking universal paid sick leave, the lack of spare capacity in our hospital system, the weakness of our social safety net (we had to create an unemployment insurance system for gig workers overnight, for example), and the inability of the government to get money out to people and businesses who need it yesterday—just to name a few problems.
Going back to 2019, frankly, is not an option. This is true for public policy. It is true for nonprofits and philanthropy as well. We don’t yet know how, but surely our practices and the ways we do business and communicate will change, even after the pandemic is behind us.
Writing for Inside Philanthropy, Farhad Ebrahimi of the Chorus Foundation notes that we need to change not just our practices, but our values. “If we’re serious about equity,” Ebahimi writes, “then we need to talk explicitly about power.… It’s one thing to say that we want equitable policies in response to a global pandemic. It’s another thing to say that we want equity in who has a consistent voice and role in how such policies are created in the first place. This is a question of power, and it has much broader implications than any particular policy, or even any particular crisis.”