Nonprofits in America

Alexis De Toqueville

 The nonprofit sector in the United States has long enjoyed a special place in American civic life, providing the services that business cannot do profitably, and that government is not trusted with. While a robust nonprofit sector has proliferated around the world in recent decades, the concept and principles of voluntary association in the name of societal benefit is uniquely American. When Alexis De Tocqueville came to study the U.S., he was in awe of the readiness with which Americans formed voluntary associations to tackle societal problems.

"The Americans make associations to make entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; In this manner they found hospitals, prisons, and schools. If it is proposed to inculate some truth or to foster some feeling by the encouragement of a great example, they form a society. Wherever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association. (p.106)"

The charitable work that De Tocqueville describes was primarily the work of the aristocracy before the advent of representative democracy in Europe. Even after such democracy had been set up in countries like France, there was a reliance on the social hierarchy to do such work. Immigrants to the new world, on the other hand, left Europe precisely because they wanted to escape such hierarchy and rigid class system. Despite a system of government where the people rule, mistrust of rulers still runs deep in the American ethos. The voluntary associations that were formed in the U.S. were a truly bottom up system where took matters into their own hands to cooperate in the name of creating a better society. However, since the turn of the last century, the nonprofit sector has seen its professionalism and bureaucracy grow as rich donors and even the government have shown a far greater interest in using nonprofits as a means of carrying out their own ideological ends. What remains unclear is how independent nonprofits will remain and to what extent they will retain their origins of voluntary association.

Modern Nonprofits

The modern nonprofit sector is inextricably tied to the rise of modern philanthropy. In his 1889 essay, The Gospel of Wealth, steel tycoon, Andrew Carnegie argued that giving money away to charity was preferable to allowing ones heirs to inherit it, or for he money to be surrendered to the state, and in doing so would, “bind together the rich and poor in harmonious relationship.” (Carnegie, 1889, p. 58) However, he also argued against the direct transfer of money from the rich to the poor.

In bestowing charity, the main consideration should be to help those who will help themselves … Neither the individual, nor the race is improved by alms giving... The rich man is thus almost restricted to following the examples of Peter Cooper… and others, who know that the best means of benefiting a community is to place within its reach the ladders upon which the aspiring may rise... (Carnegie, 1889, p. 60-61)

Carnegie's assertion was that it is better to give the masses the tools by which they could gain skills to acquire wealth, rather than a simple transfer of resources from the rich to the poor. His establishment of libraries across the country is testament to this notion. By giving the poor the means to become educated, they will use their new knowledge to engage in activities which improve their lot in life. This attitude was emulated by many of the so-called Robber Barons, such as John D. Rockefeller and their successors into the early 20^th Century. (Hall, P., 2010)

Interestingly, despite Carnegie's reticence to handing his vast fortune over to the state, the types of organizations he was most known for funding, libraries, have since become the province of government. Indeed, many of the New Deal programs created in the 1930's during the Great Depression, not only provided a safety net, but funded many of the types of programs – arts, parks, education, etc. (Carnegie, 2012, p. 61) – that Carnegie advocated for. From the 1930's through the 1980's the public attitude towards the government's involvement in everyday life softened and many social services that had largely been privately funded such as elder care, healthcare, and university education, saw their work greatly expanded through the public sector, as well. (Hall, P., 2010)

In contrast, the Reagan Revolution beginning in 1980, and continuing even into the present, often with great political controversy, aimed to cut federal programs (Salamon, L., 2010). Despite the rhetoric of cutting government to spur private sector growth and create private wealth, the demand for social services did not go away. Indeed, the lack of safety net made many workers too unstable to hold permanent employment, and acted as an economic drag. As a way to cut government spending, while still making an effort to provide services, much of the funding for services was shifted away from directly funding government agencies, and towards block grants to states, and consumer subsidies to increase competition amongst service providers. The nonprofit sector sucked up many of these newly available funds and expanded dramatically over this period. Professionalism also increased due to the strings attached to government funding, combined with comparatively low tax rates. From 1985 to 2004 giving to nonprofits increased by 107% in inflation adjusted dollars (Arnsberger, Ludlum, Riley & Stanton, 2012). However, as government budgets continue to shrink and private donations have failed to keep pace with demand for services, many nonprofits have turned to fee for service models, selling new products, and even turning to for-profit models in order to continue to provide services (Salamon, L., 2010).

Going Forward

The primary challenge for the nonprofit sector going forward is going to be deciding whether the earned income model is viable for carrying out services consistent with their mission. While private donations from both foundations and individuals have rebounded from 2008 financial collapse, it has failed to keep pace with the demand for services. As nonprofits turn to fees as an income stream, people who may need those services are priced out of the market. Fortunately, new revenue models, such as social enterprise, crowdfunding, and mission related marketing, offer a way to use the private marketplace to generate funds. On the other hand, relying on a direct corporate tie for funding may hamstring the missions of nonprofits as their corporate backers put strings on their contributions in order to continue to maximize their profits (Belk, 2013). The other option, where nonprofits spin-off their own for profit enterprises, seems more promising. In this way the nonprofit has oversight over the business operations, instead of the other way around. Figuring out a balance for the tax implications of these new vehicles will be important work to prevent undue private inurement.

The second major challenge in the sector gets more at the heart of what kind of work nonprofits should actually do. Carnegie's “hand up” philosophy has dominated the nonprofit sector for the last century. However, recent research and experiments within the nonprofit sector show that this is actually an inefficient way to promote success in work and society and perhaps Karl Marx had it right when he said, “Since the working-class lives from hand to mouth, it buys as long as it has the means to buy.” (p.449) Meaning that if you give the poor resources, they will put them to use. For example, by simply giving people housing, as opposed to putting strings on vouchers for housing, the recipients of what is essentially a wealth transfer are more likely not to relapse into homelessness, to find work, and to become stable. This is also a much cheaper model, as the administrative cost of compliance is vastly reduced.(Utah, 2013). The same applies to other transfer programs, such as food stamps and most especially in healthcare, where countries who have single-payer or other universal systems deliver, by any objective measure, drastically better results at a lower cost than our system in the United States. These services are, perhaps obviously, most efficiently provided by government. When doing a direct transfer, there's little need for the middleman in the nonprofit sector, and extracting wealth from the rich is most efficiently done through taxation.

What we as a country and even a planet must decide is how much we are willing to trust our governments to deliver these services. A democratic government is, after all, the most basic form of voluntary association. On the other hand, governing a large population is difficult, and more difficult is keeping the people connected to democratic institutions. Additionally, it's not to say that the “hand up” endeavors will go away. The demand for the arts, education, job training, etc. continues to be high. Indeed, wherever there is a subset of the population who believes they have a better or unique way to deliver a product or service that is for the benefit of society, the nonprofit sector will continue to thrive.

REFERENCES

De Tocqueville, A (1835) Democracy In America (Unknown, Trans.) Retrieved from http://ereserve.me trostate.edu

Carnegie, A. (1889). The Gospel of Wealth. In J. Ott & L. Dicke (Ed.) Nonprofit Leadership and

Management (2^nd ed.) (pp. 58-62). Philadelphia: Westview Press

Hall, P. (2010). Historical Perspectives On Nonprofit Organizations In the United States. In D. Renz

(Ed.) Nonprofit Leadership and Management (3^rd ed.) (pp. 3-41). San Francisco: Jossey-Bass.

Salamon, L. (2010). The Changing Context of Nonprofit Leadership and Management. In D. Renz (Ed.) Nonprofit Leadership and Management (3^rd ed.) (pp. 77-100). San Francisco: Jossey-Bass.

Arnsberger, P., Ludlum, M., Riley, M. & Stanton, M. (2008) A History of the Tax-Exempt Sector: An SOI Perspective. In J. Ott & L. Dicke (Ed.) Nonprofit Leadership and Management (2^nd ed.) (pp. 125-140). Philadelphia: Westview Press

Belk, J. (2013) As corporate giving bounces back, six things nonprofits need to know. Retrieved from http://www.philanthropyjournal.org

Utah Housing and Community Development Division, State Community Services Office (2013). Comprehensive Report on Homelessness. Retrieved from http://jobs.utah.gov/housing/scso/ documents/homelessness2013.pdf

Marx, K., (1885) Capital, Volume II (Untermann, E. Trans.) Chicago: Charles H. Kerr. Retrieved from http://oll.libertyfund.org/titles/966