Nonprofit Chronicles

Nonprofits often talk about inequality.

Rarely do they talk about inequality in the nonprofit sector.

But it’s a problem.

Scale begets scale in the nonprofit world. Big nonprofits, with their brand names and hefty marketing budgets, grow faster than small ones, even when the smaller ones are demonstrably more effective. The rich get richer; the rest are left behind. Sound familiar?

That’s the topic of a story that I wrote for Vox, headlined Rich charities keep getting richer. That means your money isn’t doing as much good as it could.

Here’s how the story begins:

The election of Donald Trump has lit a fire under people who donate to nonprofit organizations — or, at least, to some nonprofit groups. In the three months after Election Day, the ACLU collected more than $79 million online — more than 60 percent of what the organization spent in all of 2016. Planned Parenthood has been raking in donations as well, though it won’t say how much, possibly because the figure is so large that disclosing it would discourage more giving.

The largesse has been unequally distributed, however. Lesser-known organizations remain vulnerable. Washington, DC-based Ayuda, which provides legal assistance and social services to low-income immigrants, has seen a “nice uptick” in fundraising, executive director Paula Fitzgerald told me, but she fears losing, through Trump’s budget cuts, much of the 55 percent of its $4 million budget that comes from government. “We see real threats to our funding sources,” Fitzgerald says — and the increase in private donations she’s seen so far wouldn’t be nearly enough to make up the difference.

Small nonprofits that serve the global poor worry that they will be forgotten entirely because of the attention and dollars sucked up by big groups opposing Trump.

The power of brands in the nonprofit world has helped to create a remarkably stagnant sector. It’s harder than it should be for startups to grow. It’s also harder than it should be for big incumbents, no matter how ineffective, to fail.

Consider, for example, the Philanthropy 400, the list of big nonprofits published each year by the Chronicle of Philanthropy. With the exception of donor-advised funds–which are money-management operations, not operating charities–groups like the United Way, Catholic Charities, the Salvation Army and The Y top the list, year after year. Most of the names on the list have been around for decades, or more.

How have they performed? For the most part, that’s anybody’s guess. The American Red Cross has taken a fundraising hit for its demonstrated ineptitude, but the organization still managed to raise $613 million last year. Total revenues topped $2.7 billion.

Global anti-poverty group World Vision, by its own accounting, brought in $550 million in cash and another $236 million in in-kind gifts in 2016. Yet there’s little independent evidence–at least on World Vision’s website–that its programs are effective, unless you believe some math mumbo-jumbo that claims each dollar donated generates $1.30 in “impact.” World Vision continues to fundraise using “Sponsor a Child” messaging that has been discredited since the 1980s, it promises to make animal donations but doesn’t follow through and it ships free or subsidized food and other goods to poor countries, undermining local economies. (You can dig into the details here, here, and here.) My point is not that World Vision is evil; it’s likely that the organization does a lot of good. But, the fact is, we have no idea whether it is better or worse than other big anti-poverty NGOs like CARE, Save the Children or Catholic Charities. So where is the incentive for these organizations to get better at what they do.

Here’s one thing we do know:  World Vision raised more money than all six top charities vetted by GiveWell, which rigorously evaluates outstanding giving opportunities. Those groups are Sightsavers (for work on deworming); Malaria Consortium (for work on seasonal malaria chemoprevention); Against Malaria Foundation; Deworm the World Initiative, led by Evidence Action; the Schistosomiasis Control Initiative (SCI) and GiveDirectly. These groups have actually done pretty well when it comes to fundraising, thanks in part of GiveWell. But how long will it take them to rival the big NGOs in size? Put another way, where, in the nonprofit world, is the equivalent of Facebook, Uber or Air BnB, a startup with powerful idea that rocketed to scale? 

If we want high performance in the nonprofit world to be rewarded with more resources, we need to support intermediaries who can help individual donors and foundations figure out what works–groups like GiveWell, The Life You Can Save, ImpactMatters, and the Center for High Impact Philanthropy.

The sector also needs to find ways to help mediocre nonprofits get better or, absent that, allow them to fail or merge into better-managed organizations. As my story notes, there are no

nonprofit analogs to A&P, Blockbuster Video, Sears, or Bear Stearns — big outfits that failed when they lost customers. Creative destruction — the phrase coined by economist Joseph Schumpeter to describe the productive dynamism of capitalism, in which new products or companies replace outdated ones — is essentially absent from the nonprofit arena.

Of course, there are also far too many mediocre small nonprofits, many of which duplicate the efforts of others. The issue isn’t, at base, about big versus small. It’s about thinking beyond the brand names, so we can identify and support the best nonprofits of whatever size.

Please read the rest of the story. I’m excited to contribute to Vox, which is home to some of the best journalism on the web.