The Way We Think About Charity is Dead Wrong: It’s About a Fundraising Enterprise, Not Charity

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

I’ve spent several posts writing about the basic points that Dan Pallotta makes in his TED Talk: The Way We Think About Charity is Dead Wrong. And while I agree with several of his points – that we need to invest in advertising and marketing risk making and that we need to allow the time necessary for nonprofits to gain success from their innovations and experiments – I believe that I have made it quite clear that I find his underlying view troubling. That view is that philanthropy does not present an alternative to market and business forces, but a supplement to them; that the role of philanthropy is, at best, to fill the gap between the world that those forces create and a world that works for everyone. At worst, of course, given the final point of difference between the for profit and nonprofit worlds that he discusses, the nonprofit sector simply becomes another iteration of the for profit sector: a social location for the coexistence of the love-for-others of philanthropy and the love-of-self of the profit motive.

The rest of his talk is about the underlying problem that causes these distinctions between the for profit and nonprofit sectors: donors are, supposedly, concerned not about the impact that nonprofits have on the world, but about the amount of their money that goes to things like advertising and marketing, compensation, risk taking and so on... the areas of nonprofit work far too often referred to as ‘overhead’. I’ll take a moment to address this concern, but while this is what the rest of the talk is about, it isn’t what the rest of the talk is about.

So let’s talk about impact and overhead. Pallotta has a point that somewhat ridiculous to, for example, give $350,000 to a cancer researcher if an alternative exists where that $350,000 can be leveraged into $194 million:

We launched the breast cancer three-days with an initial investment of 350,000 dollars in risk capital. Within just five years, we had multiplied that 554 times into 194 million dollars after all expenses for breast cancer research. Now, if you were a philanthropist really interested in breast cancer, what would make more sense: go out and find the most innovative researcher in the world and give her 350,000 dollars for research, or give her fundraising department the 350,000 dollars to multiply it into 194 million dollars for breast cancer research?

Fair enough.

The problem, though, is not that there is some massive cultural failing where donors – or investors – are refusing to give money that will be leveraged into more money. After all, what Pallotta did was take $350,000 and throw a massive event that raised more money. Organizations across the country do this – some with more success than others – in the form of golf outings and basketball tournaments and silent auctions and a thousand other attempts to turn donations into more donations. As the events that Pallotta’s former clients attempted show, he was rather more successful at it than many others, but that doesn’t change the basic nature of what the breast cancer three-days are.

Most fundraising events, of course, aren’t nearly as successful. However, it does strike me as at least plausible that a nonprofit could market a fundraising even to potential sponsors on the basis of such a multiplication of gifts: the sponsor covers the entire cost of an event that is expected, of course, to raise considerably more than the sponsor’s gift would be worth on its own. And this would indeed require marketing savvy, a willingness to take risks and so on. Pallotta is right about that, even if I still think he’s wrong about the compensation issue and his apparent desire to blur the lines between the for profit and nonprofit sectors.

But, as I said, this isn’t really what his TED Talk is about.

So what is his talk about? It’s about legitimizing a particular model of independent fundraising that is, effectively, for profit.

Reading the transcript of the talk carefully, one would notice that while Pallotta uses words like ‘charity’ and ‘nonprofit’ and ‘philanthropy’, and while he uses generic examples of hunger charities and breast cancer charities, when he gives specific examples he turns to his own work with breast cancer three-days and AIDS Rides. While he speaks generically of delivering services, when it comes to specific examples he turns to fundraising.

There is, of course, no problem with drawing on one’s own experience – and Pallotta’s experience is in fundraising – but there are important differences between service delivery and fundraising. So, for example, it makes no sense to speak of a hunger charity taking six years to achieve scale before it put any money into actually serving the hungry. That would be like a restaurant waiting six years to achieve scale before it served a single dish to customers. All, of course, while still expecting investors to keep it funded. A service delivery organization – whether for profit or nonprofit – that does not deliver any services is, at best, skating on thin ice.

And what Pallotta means in this example is, of course, not ‘deliver a service’ but ‘turn a profit’:

So Amazon went for six years without returning any profit to investors, and people had patience. They knew that there was a long-term objective down the line of building market dominance. But if a nonprofit organization ever had a dream of building magnificent scale that required that for six years, no money was going to go to the needy, it was all going to be invested in building this scale, we would expect a crucifixion.

While I’ve already discussed this at some length, it’s worth noting the asymmetry of the analogy again: Amazon’s equivalent of putting money towards serving the needy is not “returning... profit to investors” but selling a book.

But once we look at this – and Pallotta’s other issues – in terms of fundraising, it all makes sense. A fundraising operation may only break even for a number of years before it reaches a scale to return money to service providers. There may even be a case for allowing a fundraising activity to lose money for some time if there is a reasonable expectation that it can reach the necessary scale – and eventual return – to make that investment worthwhile.

Now, say we apply Pallotta’s other suggestions not to service delivery but to a fundraising operation: imagine a fundraising agency with a staff whose compensation allowed it to compete with the for profit sector, that could spend large sums of money on advertising and marketing, that could take substantial risks with investors’ money, that didn’t need to produce results for years and that could use some of the money that it eventually did make not for service delivery but to pay its large investors. What you might end up with is a fundraising operation that looks a lot like Pallotta TeamWorks (PTW), Pallotta’s now defunct for profit fundraising agency. This, of course, is the agency that, in the talk, “went out of business, suddenly and traumatically” when organizations decided to start doing their own fundraising events instead of paying PTW for them.

There is, of course, a place for companies like PTW and Pallotta’s more recent venture: Advertising for Humanity. And there is a place for all the other for profit advertising and marketing groups and fundraising consultants and web developers and text-to-give operations and so on that are available to nonprofit organizations. But it is important to remember that this are not charities or philanthropic organizations or even nonprofits. These are businesses that happen to be available to nonprofit organizations.

And what Pallotta is proposing in this talk is not, ultimately, a way of transforming charity. It is a way of opening a market for businesses – like those he has run – that make their profits from helping charitable organizations: if people were not so concerned with outmoded concepts of ‘overhead’, the criticisms of PTW and massive fundraising events would simply never have appeared. That is a market that, perhaps, should be opened. Wouldn’t it be wonderful if, as Pallotta suggests, we increased charitable giving in the United States to three percent of GDP and if this increase went mostly to health and human services projects? Of course. And as long as for profit agencies like those Pallotta champions demonstrate that they can make this happen, there will be a place for them.

But those same agencies will – and should – be reigned in by the very criticism Pallotta laments. It really is a valid question whether a particular dollar should go to pay a fundraiser’s salary or to provide bread for the hungry. It really is a valid question whether a particular dollar should be spent on an advertisement that might attract more donors or a water pump that will allow a family in a drought stricken region to grow crops and lift themselves out of poverty. It really is a valid question whether another year should be given to the fundraiser to realize returns or we should begin meeting the immediate needs of those we serve.

And it is these legitimate questions and criticisms that come alongside them that allow people like Pallotta to do very well for themselves while also demanding that companies like the ones he champions do not become pseudophilanthropic organizations, playing upon the desire people have to serve others and playing at helping charitable organizations while really aiming to enrich executives and investors.

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So what do we do with this?

Well, first we recognize that Pallotta has legitimate points that affect both fundraising and service delivery: nonprofits really should invest both money and time in advertising, marketing and innovation.

Second, we recognize that while these investments are good and useful, they must never cause us to lose sight of the fact that philanthropy is about values. We should see the legitimacy of asking whether large salaries for CEOs – especially in the face of unimaginable human suffering – is compatible with our values. The same is true when it comes to spending money on advertising and marketing, on innovative (and therefore risky) ventures and on ‘profit-returning’ philanthropic vehicles.

Third, we recognize that – because philanthropy is about values – it need not be subsumed by the values of the market or of business. Philanthropy is not merely a supplement to the market, but an alternative to it.

And in recognizing these things we can move beyond the idea of doing well for oneself while doing good for others and begin to ask  the deeper questions of what doing well for oneself and doing good for others actually means. We can begin a dialogue between the for profit and nonprofit sectors that transforms both and actually moves us closer to the world that works for everyone.

The Way We Think About Charity is Dead Wrong: Profit

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

You might remember a couple of posts ago, when we looked at the issue of risk in the for profit and nonprofit sectors. As Pallotta points out, there is tremendous difficulty in getting donors to accept the idea that their gifts might be used on a project or initiative the success of which is not guaranteed. In the for profit world, of course, businesses can entice investors with the promise of profit: if you give us your money for this and it is successful, you will get a cut of the profits; of course, if it is not successful, you lose your investment. The same enticement, of course, cannot be used by nonprofits as there is no profit that can be gained and returned to the investors.

My solution to this problem was to educate donors about the importance of risk and innovation in service delivery. If donors understand that some experimentation will be useful for improving our ability to deliver services for efficiently and effectively, they may want to contribute to riskier projects precisely because of what the nonprofit might learn.

Pallotta has another solution, and the final area of difference between the for profit and nonprofit sectors that he looks at is profit itself:

So the for-profit sector can pay people profits in order to attract their capital for their new ideas, but you can’t pay profits in a nonprofit sector, so the for-profit sector has a lock on the multi-trillion-dollar capital markets, and the nonprofit sector is starved for growth and risk and idea capital.

Pallotta’s suggestion is that nonprofits gain access to capital markets – investment dollars that could be used not only for innovation (which is inherently risky) but transformative actions with greater guarantees of success – by doing exactly what for profit enterprises do: offer profits to investors.

At first glance, one might give this statement a well deserved, “What?” After all, it seems odd to suggest that it is a disadvantage for nonprofit organizations to be nonprofit organizations and that becoming, in some sense, a for-profit organization would be good either for any particular organization or the sector as a whole. Moreover, it is difficult to see how philanthropies that become, effectively, businesses or social businesses are supposed to fulfill the role that Pallotta has assigned to the sector: to fill the gap between the world as it is and the world that works for everyone that is left by businesses and social businesses. Pallotta seems to be undermining his own goal for the sector.

However, there are a few quasi-charitable vehicles that perform this role. Certain investments in charitable organizations can return ‘profits’ to investors at or below market rates. The question that arises is to what extent these investments are philanthropic: is giving up a certain amount of profit the same as making a gift? Looking at the vehicles that already exist for something like philanthropic investment – even if the question of whether such investment is truly philanthropic – one might be called to wonder if Pallotta is arguing against a situation that does not exist.

And yet it does remain true that the for profit world can rely on massive capital markets that much of the nonprofit world cannot. Even the largest, most powerful nonprofit organizations have little access to the kind of investments to which similarly sized for profit enterprises can appeal. There is little doubt, I suspect, that were even a fraction of the money that goes to large, multinational for profit organizations to go to nonprofit social enterprises the world would be brought substantially closer to the world that works for everyone.

So it rather makes sense that there is a temptation to suggest that nonprofit organizations should make a foray into the for profit world, perhaps becoming sort of hybrid organizations if not outright for profit endeavors that happen to address social issues. As already mentioned, this appears to undermine the very idea of a nonprofit sector, a sector that Pallotta insists is necessary, even if only to fill the gap left by business and social business. In short, this idea risks eliminating the difference between ‘pure’ philanthropy and philanthropy-business hybrids. This is not to say that there is a problem with philanthropy-business hybrids – though I happen to find them somewhat problematic – but that asking the nonprofit sector to begin turning a profit in order to open up markets undermines the very model of the world that Pallotta claims to champion.

Moreover, of course, it undermines the ability of philanthropy to present an alternative to the market and business forces that rule so much of our lives. The goal of the nonprofit sector should not be to turn to capital markets on the same – or even similar – terms on which the for profit world operates, terms that appeal not to the love of one’s fellow human beings but to the selfishness of the profit motive.

Again, this is not to say that there is no role for profit-returning mechanisms in helping those in need. It is simply to say that, as with the rest of Pallotta’s suggestions, we must keep a vigilant eye out for those points where we risk abandoning our values.

The Way We Think About Charity is Dead Wrong: Time

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

The next point that Pallotta makes is one about the difference in how we treat time in the for profit sector as opposed to the nonprofit sector:

So Amazon went for six years without returning any profit to investors, and people had patience. They knew that there was a long-term objective down the line of building market dominance. But if a nonprofit organization ever had a dream of building magnificent scale that required that for six years, no money was going to go to the needy, it was all going to be invested in building this scale, we would expect a crucifixion.

As with his discussion of risk, I think that Pallotta has an important point here but also missis a critical distinction between the for profit and nonprofit worlds.

Let me start with where I agree with Pallotta. Just as nonprofits need to be able to take risks and create new methods of delivering services and increasing philanthropic support, so do nonprofits need to be able to take the time to move such projects from their initial, risky stages to success and stability. It isn’t enough to be able to take risks if one can’t learn from those risks and make adjustments, a process that can take months or years. If our expectation is that everything nonprofits attempt succeeds instantly or is abandoned, we are robbing nonprofits of important opportunities to change the world and – more importantly – are robbing the people who are served by those nonprofits opportunities to have their worlds changed.

But let’s be clear about the analogy that Pallotta is using here. On the for profit side we have Amazon, a for profit organization whose major purpose is to increase the wealth of investors by making a profit and sharing that profit with them. That Amazon took six years to do so is unfortunate, but as Pallotta points out, investors had patience because they understood that Amazon was building market dominance and would eventually return profit to them. Of course, those investors also knew that by investing in Amazon they had taken a risk. There was always the possibility that they would not see any profit returned to them.

On the nonprofit side we do not have a named organization. Let’s suppose, for a moment, that it is the same hunger charity our Stanford MBA did not become the CEO of a few posts ago. This hunger charity, being a nonprofit, has no responsibility to make a profit and share that profit with its investors. Rather, its purpose is, presumably, to feed the hungry. Now, it is possible that there is a case to be made that, if the nonprofit has a plan to “build this scale”, it ought to have six years to do so before it feeds the hungry, but it’s difficult to imagine what that would plan would be or even what it would mean to “build this scale”. Amazon, after all, was building its scale to achieve market dominance. That doesn’t strike me as something nonprofits do.

There is, of course, a larger point here. Amazon, like all other businesses, makes a profit by doing something. In Amazon’s case this was selling products online and – in its early stages – this was selling books online. So Amazon really has a dual purpose: it must generate profit in order to create wealth for its investors and it does so by selling books online. The reason that investors could have some degree of confidence that Amazon would one day return profits to them was that it was really good at selling books – and eventually other products – online, even if it took some time to achieve the kinds of scale necessary to guarantee profits.

Our nonprofit does not have this dual purpose: its function is to feed the hungry. If such a nonprofit existed for six years – and solicited donations or investments for six years – while “no money was going to go to the needy”, its legitimacy would quickly be called into question. It would be as if Amazon existed for six years not only without returning profit to its investors, but without selling a single book! Without the nonprofit taking some action to show it was going to feed the hungry, there would be no reason for donors to believe that it ever actually would.

There are, however, nonprofit organizations that do follow a model similar to the one Pallotta is proposing. For example, organizations that fund cancer research are under no deadline to actually cure cancer or develop new treatments. People are happy to continue supporting such organizations. However, these nonprofits have to – and they should have to – show that they are actually performing research aimed at developing new treatments or cures. Moreover, while people are evidently patient with such research – much as investors were patient with Amazon – it should not be expected that people will be patient with these organizations forever. Just as Amazon would not have survived if it took it twenty years to return a profit to investors, it should at least be a valid question how long donors will continue to support research organizations if they do not develop new treatments or cures after decades of research.

And so there are two important points here. First: nonprofits, like for profits, do operate on a deadline of sorts. An organization might be able to function for years – or even decades – without achieving its goals, but it cannot operate forever without achieving those goals. Second: even as an organization – for profit or nonprofit – functions without achieving its goals, it must demonstrate that it is attempting to achieve them and, hopefully, that it is making meaningful progress towards them. Thus, it may take Amazon some time to realize a profit for its investors and it may take our hunger charity some time to eliminate hunger in its town, both must show that they are making progress towards those goals.

So, allow me to recap:

It is absolutely true that nonprofits need to be allowed time to grow services and that fundraisers need to be allowed time to realize returns on strategies, just as it is true that a for profit enterprise needs to be allowed time to realize profits for its investors. However, such time is not an unlimited resource: a for profit must more product in order to demonstrate that it is on a path towards profitability and a nonprofit must demonstrate that it is taking action – the precise nature of which will vary from organization to organization – to realize its goals. Moreover, even if an organization is taking action, failure to realize those goals after a reasonable time – ‘reasonable’ being a somewhat fluid concept here – may indicate that the goal is not achievable or that the methods being employed by the nonprofit are not going to be successful.

So, yes, by all means, time... more time. But let’s not pretend that the need for more time is an excuse for a lack of impact altogether.

The Way We Think About Charity is Dead Wrong: Taking Risk

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

The second point on which I agree with Pallotta is nonprofits and risk taking:

So Disney can make a new $200 million movie that flops, and nobody calls the attorney general. But you do a little $1 million community fundraiser for the poor, and it doesn’t produce a 75 percent profit to the cause in the first 12 months, and your character is called into question. So nonprofits are really reluctant to attempt any brave, daring, giant-scale new fundraising endeavors for fear that if the thing fails, their reputations will be dragged through the mud.

This is, I think, a more complicated issue than Pallotta lets on. It is true that nonprofits need permission to take risks – not only when it comes to fundraising, but when it comes to delivering services as well – in order to innovate. After all, none of us want to find that we could have been feeding the hungry or housing the homeless much more effectively for years if only the nonprofit organizations serving those populations would have changed the way that they conducting their fundraising operations or delivering their services.

It is also true, however, that the people who contribute to nonprofits are not expecting their gifts to be used for taking risks. Again, his is as true when it comes to service as it is to things like fundraising and administration. There is, far too often, barely an understanding that a certain amount of every gift is going to go to things like direct mail appeals and audits. How much trust would be broken if gifts were spent on fundraising activities that we weren’t even certain would work?

This, perhaps, highlights an important difference beween the for profit and nonprofit worlds; one that would be revealed if Pallotta went into more detail in his analogy. After all, when Disney makes a $200 million movie, it doesn’t simply ask people for funding and receive it with no strings attached. The investors are offered a certain rate of return or a share of the profits or whatnot. But they are offered that on the basis that the whole thing might fail. In effect, the investor is promised a certain percentage of the profits if the whole thing works out. If it’s a flop, the investor loses out.

This is the basis of market investment: you are rewarded for taking risks that turn out to be successful. Good investors are able to make good risk assessments and avoid those investments that are likely to fail.

The nonprofit world, of course, doesn’t work that way. When we are talking about gifts or grants or what have you we are not talking about investments from which the investor with benefit if they go well. We are talking about gifts or grants or whatnot that go towards social change, whether a bed for a homeless person, a bag of food for a hungry person or advocacy for the oppressed. A different sort of agreement is being made, and that agreement must be honored.

(Which is not to say that there aren’t giving vehicles that attempt to bridge the different. Such things exist: philanthropic investments that have rates of return at or below the market rate and that require the investor to assume a certain amount of risk. But most people don’t use those vehicles and it is questionable whether they remain within the sphere of philanthropy or become something else.)

And so we end up with this tension: for profit organizations can take risks and nonprofit organizations cannot. But this isn’t simply because one is for profit and one is nonprofit or because there is a different cultural expectation of for profits than there is of nonprofits. It is because the agreement between a for profit organization and its investors is different than the agreement between a nonprofit organization and its donors.

Shortly, Pallotta will take up another point where he will propose a solution to this difference. Before we get there, however, let me propose this: what nonprofits must do is educate donors on the impact of taking risks. The fact is that the only way the nonprofit sector will learn to deliver better services – services that do more good more efficiently – is to try new things. And trying those new things will always involve a certain amount of risk; and amount of risk that can be minimized, but cannot be eliminated. I think that there are many donors out there who – once they understand that taking a certain amount risk now can lead to their gifts having a greater impact later – will gladly fund philanthropic innovation.

The first step, however, is to for nonprofits to realize the benefits of taking risk.

The Way We Think About Charity is Dead Wrong: Advertising and Marketing

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

In the last two posts in this series, I stated pretty clearly that I think the market ideology that underlies this TED Talk is problematic. This is not least because it turns philanthropy into an instrument of market forces that are already problematic rather than allowing it to act as an alternative to those forces. This does not, however, mean that I disagree with his specific points on how nonprofit culture needs to change. And the first point on which I agree with Pallotta is this: we do advertising and marketing wrong.

The second area of discrimination is advertising and marketing. So we tell the for-profit sector, “Spend, spend, spend on advertising until the last dollar no longer produces a penny of value.” But we don’t like to see our donations spent on advertising in charity. Our attitude is, “Well, look, if you can get the advertising donated, you know, at four o’clock in the morning, I’m okay with that. But I don’t want my donations spent on advertising. I want it go to the needy.” As if the money invested in advertising could not bring in dramatically greater sums of money to serve the needy...

[snip]

[W]e tell the consumer brands, “You may advertise all the benefits of your product,” but we tell charities, “You cannot advertise all the good that you do,” where do we think the consumer dollars are going to flow?

Now, the critic in this hypothetical case has a point: money spent on advertising is money that does not go directly to the needy. And Pallotta has a point when he says that there is different expectation of for profit organizations than nonprofits: we expect for profit organizations to advertise in order to get people to buy their product; we expect nonprofits not to talk about the good that they do.

There is an obvious practical problem here: if nonprofits cannot advertise, then they cannot reach potential new donors, the people who would be passionate about the cause and invest in the organization if only they knew. And this includes not only advertising for new donors, but providing appropriate care for people who have already given. It has long been known in the nonprofit world that organizations not only encounter difficulties attracting new donors, but in keeping those donors over time. Nonprofits need to do a better job on advertising and marketing – from getting new people involved to providing strong ‘customer care’ (and, yes, that is part of marketing) – simply in order to survive, let alone thrive.

But there is also a values-oriented problem: if we are truly passionate about the problems we are addressing, the work we are doing and the solutions we are proposing, we should want to share that with others and involve them. Indeed, we should want to improve people’s lives in part by helping them become part of the solution. Understanding this helps us move beyond seeing advertising and marketing as things that take away from helping people to a critical part of helping people. Good marketing helps us escape transaction-based philanthropy and build communities that effect real social change.

So consider me in complete agreement with Pallotta on this: nonprofits need to be able to talk about the good that they do. Not because they want to brag, but because such communication is a critical part of building communities and bringing about change.

The Way We Think About Charity is Dead Wrong: Compensation

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

After speaking about the role of the nonprofit sector, Pallotta moves on to what he describes as a sort of apartheid between the for-profit and nonprofit worlds: “We have two rulebooks. We have one for the nonprofit sector and one for the rest of the economic world.”

And the first difference between the for profit and nonprofit worlds that he discusses is compensation:

So in the for-profit sector, the more value you produce, the more money you can make. But we don’t like nonprofits to use money to incentivize people to produce more in social service. We have a visceral reaction to the idea that anyone would make very much money helping other people. Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people. You know, you want to make 50 million dollars selling violent video games to kids, go for it. We’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself.

He goes on to give a hypothetical example, which I will merely summarize here. Imagine an MBA who graduates from Stanford with this choice: (1) she can enter the for profit world, (2) she can enter the nonprofit world and work for a major medical charity, or (3) she can enter the nonprofit world and work for a hunger charity. Now assume that she is a good business person and does a cost-benefit analysis . She knows that ten years after taking option (1), she would likely have a salary of $400,000; if she takes option (2), she would likely have a salary around $232,000; and if she takes option (3), she would likely have a salary of about $84,000. That’s quite a big difference!

Now, many people might suppose that there are many things in play when considering a career path: job satisfaction, stress levels at work, ability to get time away from work, the feeling of accomplishing something meaningful, etc. Pallotta, however, zeros in on the cost-benefit issue. How many people, he asks, who have “$400,000 worth of talent” are likely to take such a “sacrifice” and head up a hunger charity? And how many people are likely to do so when they can take the $400,000 salary, give $100,000 to the hunger charity (saving $50,000 on their taxes), be seen as a philanthropist and end up sitting on the board of the charity giving direction to the poor MSW graduate who did choose to head the hunger charity.

(An aside: There are again here issues of what, for Pallotta, is the Puritan Problem. Remember that in his description of where this division between the for profit and nonprofit worlds comes from, the problem starts with the Puritans. The Puritans, again according to Pallotta, faces a cognitive dissonance: they were capitalists who sought profit and they believed that the very self-interest that motivated their profit seeking was evil. So they used their charitable giving as a sort of release valve: they could use their charitable giving to ‘make up’ for their profit seeking. Pallotta is, essentially, suggesting that the current philanthropic climate makes it possible – indeed, advantageous – for the MBA to utilize the same release valve for their profit seeking.)

Now, this is clearly an approach to comparing compensation driven by markets: the Standford MBA has $400,000 talent that the nonprofit world undervalues (though one might wonder why she doesn’t have an $84,000 that the for profit world overvalues); the decision of what job to take is governed by average salary ten years out; the $316,000 difference between the for profit job and the hunger charity is a “sacrifice” that our Stanford graduate would have to make in order to work at the hunger charity; and so on. But such a worldview strikes me as one that is unfortunately governed both by the idea that money is the ultimate evaluator and by a view of appropriate compensation that only the well off could have. Indeed, what does it say about such a view that taking a cut from $400,000 to $87,000 – a move from the 98th percentile (of all households) to the mere 74th percentile – is seen as an unwise “sacrifice”?

But it is no surprise that money is the governing value – as I would say in a different series, the theos – of this critique, given the supplemental role that Pallotta assigns to the nonprofit sector. If, as Pallotta seems to have it, the role of philanthropy is to fill the gap between the world that business and the market create and the world that works for everyone – if philanthropy is nothing more than the “market for love” – then it makes sense that money would be the governing value.

As already noted, however, this makes philanthropy subservient to the very markets that are so very inadequate when it comes to creating a world that works for everyone. If we were, however, to accept philanthropy as proposing an alternative to the sort of market arrangements that lead to – or, at least, appear to accept – a world where our Stanford MBA can live on the equivalent of almost $1,100 per day while others live on $2 per day, then we might look at this compensation question differently. If we accepted love as the ultimate evaluator of values – as the word ‘philanthropy’ suggests – rather than money, we might ask whether the MBA making $400,000 per year in the face of such poverty was, in fact, “doing very well for [herself]“. We might begin to suspect that the only way to do well for oneself is to do good for others. We might, in fact, begin to suspect that the $84,000 is too much to accept for the privilege of working in the nonprofit world.

Such an idea would, of course, be rather revolutionary. But philanthropy should be nothing less. And it certainly should not be adopting the same ideologies that – from my perspective, at least – tend to create so many of the very social ills that the nonprofit sector is trying so desperately to address.

The Way We Think About Charity is Dead Wrong: The Role of the Nonprofit Sector

This post is part of the series The Way We Think About Charity is Dead Wrong.

Recently, I saw a TED Talk video by Dan Pallotta – they guy who created AIDS Rides and three day breast cancer walks – and I posted it here with a quick comment that there are parts with which I disagree and parts with which I agree. I thought I’d expand on that via a slow read like series.

You can find the video either in the post linked above or here, along with a transcript. For the sake of ease, I will quote from the transcript.

Pallotta starts with a statement about the role of the nonprofit sector that puts the sector in an interesting position. He clearly believes that business and social business “will move the great mass of humanity forward.” However, he points out, there are at least two reasons that business and social business can’t move everyone forward. First, business always leaves some people – the “most disadvantaged or unlucky” – behind. Second, both business and social business depend on markets and there are some things that cannot be monetized and thus no markets for those things. This leaves a space for philanthropy:

[T]hat’s where the nonprofit sector and philanthropy come in. Philanthropy is the market for love. It is the market for all those people for whom there is no other market coming. And so if we really want, like Buckminster Fuller said, a world that works for everyone, with no one and nothing left out, then the nonprofit sector has to be a serious part of the conversation.

In this vision, philanthropy is a supplement: we accept business as the major engine in moving the world forward but, realizing that the world business creates is not “a world that works for everyone”, we move on to philanthropy in order to bring the world, as it were, the rest of the way forward.

As those who follow this blog closely can probably imagine, this is, to me, a problematic view. And this is for three reasons.

First, I see no reason to accept the view that markets – and therefore some variation of business – are the normal or natural paradigm of social arrangement. Certainly most of us do not organize our daily lives on the model of markets – when a colleague asks to borrow a pen, we don’t charge rent – and entire societies have been organized without markets being a normal feature of everyday interaction. The fact that we happen to live in a society that pays a great deal of attention to markets does not mean that there isn’t an alternative. Perhaps there is even an alternative that is better.

Second, that said, I also do not see any particular reason to believe that business – or social business – “will move the great mass of humanity forward”. The very idea that it would, of course, raises questions about what we might mean by ‘moving humanity forward’. Forward towards what? But even if we were to agree on some forward course – say, for example, moving humanity towards a future where everyone had access to clean drinking water – business qua business, simply isn’t interested in that. Rather, the purpose of a business is to make a profit, regardless of whether its method of doing so improves life for a substantial number of people in any particular way, shape or form. Indeed, as history has shown, businesses are quite as capable of doing harm for a substantial number of people as they are of doing good.

Now, as Pallotta points out, there are such things as social businesses, such as Grameen Danone or Grameen Bank. Such entities are businesses in that they trade in goods and services; however, they differ from traditional businesses in that they are organized to address a social concern rather than simply seek profit. Of course, social businesses do seek profit and, usually, reinvest it in addressing the social concern. While these organizations are clearly more concerned with social improvement than traditional businesses, there is no doubt that they remain tied to market arrangements and are not only dependent on them, but reinforce market arrangements and ideologies.

Where I find Pallotta’s ideas troubling is not in his suggestion that business and social business can do good – “move the great mass of humanity forward” or make”a world that works for everyone” – but the apparent assumption that they will do so, as it were, naturally.

And this is where my third reason for finding this view problematic comes in. I do not believe that philanthropy should function merely as a supplement to the businesses and social businesses typical of a market based society. Philanthropy need not be something to fill the gap that exists between the world as businesses create it and the world that would work for everyone. Nor need philanthropy be something so crass as “the market for love” (what would it even mean for such a thing to exist?). Rather, philanthropy – the love of humanity, the basis for many of our most basic social arrangements – can be an alternative to market arrangements.

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There is a section later in the presentation where Pallotta gives an interesting summary of why we think about charity in the wrong way. He pins the start of the problem on what he takes to be a certain cognitive dissonance arising from Puritan beliefs. While I suspect that he oversimplifies Puritanism, it is an interesting proposal. On the one hand, according to Pallotta, the Puritans were “really aggressive capitalists, and they were accused of extreme forms of profit-making tendencies compared to the other colonists”. On the other hand, however, “they were taught that self-interest was a raging sea that was a sure path to eternal damnation”. As one can imagine, this creates quite a problem. After all, a considerable amount of capitalism relies on self-interest.

The solution to this dissonance, as Pallotta has it, was charity: “It became this economic sanctuary where they could do penance for their profit-making tendencies at five cents on the dollar.”  In other words, one could make a ridiculous amount of money – and stain one’s soul – through those splendid markets and then cleanse the soul by donating a portion of that money to charity.

As I said, I suspect that this is a vastly oversimplified understanding of Puritan attitudes towards money, capitalism and charity – and, of course, charity did not begin with the Puritans – but it is a telling story. Pallotta’s apparent view of philanthropy as supplement is, in the end, no different than the problematic view that he accuses the Puritans of holding. After all, so long as philanthropy can serve to bridge the gap between the world businesses – and markets – create and the world that works for everyone, it legitimizes those same businesses and markets. We can live with the inadequacies and harms of the market – the faces of the oppressed and suffering – so long as philanthropy has the opportunity to pick up the slack. And, indeed, we can even put the blame for philanthropy not picking up the slack not at the feet of the businesses and markets that participate in the causation and maintenance of such injustices, but at the feet of the philanthropies that are failing to serve as an adequate corrective.

And this, I believe, is the greatest failing of such a view: bringing philanthropy to the service of markets robs philanthropy of the ability to serve as an alternative. And an alternative is desperately needed.