Giving When It Hurts: Rethinking charity in the midst of an economic crisis

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This article is part of a package on rethinking charity in the economic crisis. For more, readLadling Soup, Raising Hell: Nonprofit insider Robert Egger is out to reform charities from within,The Revolution Will Not Be Funded: It’s time to liberate activists from the nonprofit industrial complex, andTips for Practical Giving: Where to give, what to ask, and the lowdown on emerging philanthropic trends.

Most of us tend to think about charitable giving during the holiday season, at tax time, or when a scandal involving a well-known nonprofit or benevolent philanthropist makes headlines. In the past few months, though, as the world economic crisis has intensified, questions about how much to give, and to whom, have taken on a new urgency.

Perhaps you’ve decided to scale back your charitable giving until the market finds its footing again. Perhaps you’ve seen friends, family, or neighbors slip a rung or two down the income ladder and wondered if there will be enough help to prop them up. Perhaps charity is no longer something you can choose to dole out, but something you suddenly need, as debt, unemployment, and the rising cost of health care bring the threat of financial doom to your doorstep.

As the recession rolls on, the people who run the nation’s social service nonprofits expect people’s needs for food, shelter, and other types of assistance to rise dramatically, just as donations from businesses and individuals are falling: In December, a survey of nonprofit professionals reported the gloomiest fund-raising outlook in a decade. At the same time, cash-strapped government agencies at the federal, state, and local levels are further cutting back on social spending and allocating less money to nonprofits that citizens have come to depend on for a wide variety of services. Making matters worse, a number of these same nonprofits–as well as an array of municipalities, school boards, and public works agencies–got caught off guard by poorly structured investment portfolios and scandals, like the Bernard Madoff affair, and have seen their risky Wall Street investments all but vanish.

To consider how we might remedy this state of affairs, it’s worth asking how we got here. In a way, it’s quite simple: We’ve outsourced compassion. Over the past few decades, the United States has deliberately and steadily shifted the burden of meeting social needs from the government onto a loosely organized, haphazardly regulated patchwork of nonprofits. Many groups have overlapping or competing missions, many are closely aligned with business interests through their funding or their boards, and many rely heavily on foundation funding, which ties them even more closely to Wall Street’s fortunes.

Is this really the best way to do things? Several critics have recently been asking this and other hard questions about what some have dubbed “the nonprofit industrial complex”–the $300 billion-a-year sector of the economy that encompasses everything from art museums to private colleges to local food shelves. Reform-minded critics come from both right and left, with proposed remedies that range from mildly corrective steps to a fundamental makeover of the system. Here are some of the big ideas that are being floated.

Free the nonprofits. Some charity reformers think nonprofits are hobbled by government regulations that limit expenditures in areas such as advertising, marketing, and executive salaries and should be unleashed to do their good works under a free-market model.

“It is about freeing charities–and all of the good people who work for them–from a set of rules that were designed for another age and another purpose, and that actually undermine their potential and our compassion,” writes Dan Pallotta in Uncharitable (Tufts University, 2008).

Pallotta is a real-world innovator in mixing good works and business, having run a for-profit company that funneled money to nonprofit charities through two big events, AIDSRides and Breast Cancer 3-Days. He is also no stranger to controversy, having endured withering criticism for high overhead, relatively low returns, and his own $400,000 salary–the type of expense he argues nonprofits should be free to make to lure top talent.

The feisty grassroots activists in the group INCITE! Women of Color Against Violence are as suspicious of corporate influence as Pallotta is enamored of it. In the anthology The Revolution Will Not Be Funded: Beyond the Non-Profit Industrial Complex (South End, 2007; see excerpts on p. 44), INCITE! members push back against business culture’s intrusion into community organizing, arguing that foundation money with too many strings attached can co-opt or corrupt a once-fiery group. Donor pressure and government rules, they contend, make them a part of the flawed capitalist system and keep them from pushing for real reform: Fixing health care, for instance, is a matter not just of creating community-health programs but also of battling for universal health care.

Nonprofit reformer Robert Egger, while he’s less radical than the INCITE! crew, also maintains that nonprofits should be more politically engaged, as well as more organized (see “Ladling Soup, Raising Hell” on p. 41). His V3 Campaign, a nationwide network of nonprofit advocates, aims to strengthen their collective voice on public policy issues that affect them and their constituents.

Tap the new Rockefellers. A host of articles and books have celebrated the new breed of benevolent tycoons such as Warren Buffett, Bill Gates, and Ted Turner. Perhaps no one has done so as exhaustively or exuberantly as Matthew Bishop and Michael Green, authors of Philanthrocapitalism: How the Rich Can Save the World (Bloomsbury, 2008). They argue that capitalism has been wonderful at creating great wealth, especially lately, and those who have feasted most heartily on this bounty are well positioned to share it, by setting up foundations, funding specific projects, or contributing to other large endowments.

Of course, much of this wealth “creation” has been proven illusory by the global recession, which caused stocks worldwide to lose 42 percent of their value in 2008, reversing all the gains made since 2003. And the Bernard Madoff scandal hasn’t exactly bolstered the case for leaving charity dollars in the hands of the ultrarich: Amid the victims of the $50 billion bilk job were foundation-funded groups such as the Innocence Project, which helps exonerate wrongfully convicted people; the Brigham and Women’s Hospital in Boston; and a host of Jewish charities.

Bishop and Green do deserve some credit, though: They celebrate the work of grassroots web giving tools such as, a microfinance site, and, a giving marketplace, both of which allow folks with more modest incomes to contribute. The two authors also openly grapple with the fact that their grand philanthrocapitalistic vision basically relies on the better natures, and judgment, of a few extraordinarily wealthy individuals.

Give it back to the government. For decades, more and more Americans have bought into the argument that helping people too much leads to dependence, and this pervasive belief is a key driver behind the steady outsourcing of charity to private groups. In The Samaritan’s Dilemma: Should Government Help Your Neighbor? (Nation Books, 2008), Deborah Stone traces the origins of this “help is harmful” dogma to President Ronald Reagan and his trickle-down economic guru, Milton Friedman. It was the fuel that fed the downscaling of welfare and other social service programs even during the Clinton years, along with the steady ballooning of the nonprofit sector.

“Americans love charities almost as much as they hate government,” writes Joel Berg in All You Can Eat: How Hungry Is America? (Seven Stories, 2008), a book that makes the case that local charities simply aren’t up to the task of feeding the nation’s hungry. “Trying to end hunger with food drives is like trying to fill the Grand Canyon with a teaspoon. Because local charities cannot possibly feed 35.5 million people adequately, and because their efforts rarely enable people to become self-reliant, this belief that charity does it better than government only ensures hunger will persist in America.”

Berg thinks it’s time for the public to ditch its knee-jerk preference for anything with the nonprofit label and recognize that government can, in fact, do some things better.

The debate over the future of the nonprofit system is rooted in questions about how, and how much, to help the most unfortunate among us. How we decide to answer this dilemma will not only tell us much about ourselves but perhaps also steer the very course of our meandering nation.

Amid the bleak economic news are causes for optimism. Charitable giving has historically been somewhat recession-resistant, hovering at around 2 percent of the average disposable income for decades; we tend to reach out to help others even when we feel ourselves slipping.

Perhaps most importantly, despite all the attention paid to billionaire “megagifts,” they amount to little more than 1 percent of total giving, and far more donations come from individuals than from corporations or foundations. So the solution to our charity crisis in some sense still lies with each of us.

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