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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.
You can think of this as the nonprofit sector’s inequality problem. The rich get richer: Well-established, brand-name organizations see spikes in donations, especially during crises. Smaller groups, including those that are deemed to be more effective than their better-known peers, and especially those serving the extreme poor, are left to muddle along.
The upshot is that charitable giving doesn't do nearly as much good as it could.
There are two related problems here, both of which could be ameliorated with data. First, it’s difficult, if not impossible, for donors to know which nonprofits have the most impact, dollar for dollar, so they are drawn to the familiar. Scale begets scale, as big-name groups with long histories, hefty budgets, and sophisticated fundraising operations dominate the charity world. This is true regardless of the nonprofit’s focus: civil liberties, medical research, domestic poverty, international poverty, and so on.
Second, and relatedly, donors tend to favor organizations that focus on the US. This could be because many donors don’t realize that a dollar given to help residents of sub-Saharan Africa, for example, will likely make more of a difference to people’s lives than a dollar spent in the US. Giving to international causes accounted for just 4.2 percent of Americans’ charitable giving in 2015, the last year for which data is available, according to Giving USA, an annual report produced by the Giving USA Foundation Indiana University's Lilly Family School of Philanthropy.
When people open their wallets, they think of the same few familiar charities
Year after year, old favorites like the United Way, Feeding America, and the Salvation Army top the Philanthropy 400, a list of the biggest charities published by the Chronicle of Philanthropy. The American Red Cross raised more than $600 million last year, despite being pilloried for its inept responses to Hurricane Sandy and the 2010 Haitian earthquake.
Giving to the largest nonprofits outpaces overall giving. The Chronicle of Philanthropy crunched the numbers its 400 big charities, and found that their donations grew by more than 7 percent from 2014 to 2015. Giving to all charities, meanwhile, was up only 4 percent, according to the Giving USA report. The 400 large organizations collect more than $1 of every $4 raised for charity in America.
The problem is amplified because charitable giving is a zero-sum game, closely tracking national income. Charitable donations have hovered around 2 percent of GDP for years, according to Giving USA, which has reported on the nonprofit sector in the US for decades. In 2015, the proportion went up to 2.1 percent, slightly above the 40-year average of 1.9 percent.
In any given year, the zero-sum dynamic is at work: When donations spiked after Hurricane Katrina, in 2005, or the 2010 Haitian earthquake, that money came at the expense of other charitable contributions. (It’s much too soon to say whether the Trump donation bump will break the 2 percent ceiling, but if 9/11 and Katrina did not break the historical pattern, it seems unlikely that Trump will.)
We are better at weeding out terrible charities than identifying efficient, high-impact organizations
Until the nonprofit sector develops rigorous measures of impact that cover a broad swath of charities, the inequality problem will persist, or even worsen. Independent evaluators like Charity Navigator and the BBB Wise Giving Alliance do a pretty good job of calling out bad actors — charities that spend vast sums on fundraising or salaries, say — but they limit themselves to evaluating qualities like financial strength, the proportion of money spent on overhead costs, and responsive governance.
Big charities also have an advantage because they’ve become the go-to organizations for large conservative funders. In response to the threats facing refugees and immigrants, the Rockefeller Foundation recently made grants of $500,000 apiece to the International Rescue Committee, the ACLU Foundation, and the Anti-Defamation League, all big nonprofits. When the MacArthur Foundation made a $50 million “big bet” to curb climate change in 2015, all but one of its 10 grants went to prior grantees; feisty newcomers like 350.org, which built an effective grass-roots campaign around fossil-fuel divestment, were left out. Governments, which support much of the global development work done by charities like Care or WorldVision, also favor the tried and true and almost never support startups.
Unlike in the private sector, startups languish
By contrast, charity startups struggle to attract investment, no matter how creative or effective they may be. They can’t spend much on marketing because they don’t want to get dinged by the evaluators for spending money on expenses unrelated to directly helping people. They aren’t even rated by Charity Navigator until they are seven years old; the evaluator prioritizes longevity as evidence of stability. (That assumption is certainly not irrational, but the seven-year cutoff excludes a lot of solid groups.)
Still more evidence of how hard it is for nonprofit start-ups: New Profit, a fund that invests in social change organizations, examined 2,100 social-impact startups founded since 1970 that have been in operation for at least 25 years. It found that only 24 startups had raised as much as $20 million in a year.
Of last year’s 25 biggest charities listed by the Chronicle, the youngest is the 13-year-old Patient Access Network Foundation, which is financed by drug donations from pharmaceutical companies and thus doesn’t compete for donor funds. The nonprofit sector simply has no equivalent of Alphabet (Google’s parent company), Facebook or Amazon, which were formed less than 25 years ago and are now among the world’s most valuable companies.
In Europe, which is dominated by old-line companies like Nestle, Phillips, Mercedes Benz, investors look with awe at the ability of the United States to create major companies seemingly out of thin air. Unfortunately, America’s nonprofit world looks a lot more like Europe’s staid economy than it does like Silicon Valley.
Nor can you find 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.
In part, that’s because nonprofits have two distinct sets of “customers” who rarely cross paths: donors, who pay the bills, and the people they aim to serve, who are only rarely asked to deliver feedback on their satisfaction. There’s neither a penalty for lousy customer service, nor a reward for doing good.
At the margins, the “effective philanthropy” movement is making a difference. But donors need to ask harder questions, too.
That’s changing, but all too slowly. In the past decade or so, a handful of meta-charities — that is, charities that advise donors about charities — have been striving to rigorously identify the most effective nonprofits. These evaluators include The Life You Can Save, GiveWell, ImpactMatters, and the Center for High Impact Philanthropy at the University of Pennsylvania. But, collectively, they review only a few dozen of the 1 million nonprofit groups in the US. Their efforts are limited because it’s expensive and time-consuming to conduct rigorous evaluations of charitable efforts, in particular those that take time to deliver results. (Policy advocacy is hard to measure.) Few, if any, large charities have allowed themselves to be vetted.
The emergence of such groups has helped some startups buck the trend. GiveDirectly, for example, has raised about $136 million since it was founded 10 years ago. The charity, which makes direct cash transfers to extremely poor people in east Africa, draws support from Silicon Valley donors and from the “effective altruism” movement, which rewards charities that subject themselves to independent, third-party reviews. In general, however, “You don’t see the poor performers going out of business, and the great performers growing,” says Michael Faye, an economist and co-founder of GiveDirectly.
None of this is to suggest that the ACLU or Planned Parenthood won’t spend their windfalls wisely. The ACLU has laid out its expansion plans (Planned Parenthood has said little). Some smaller groups are also enjoying a Trump bump. Individual giving to the National Network of Abortion Funds, which helps poor women pay for abortions, grew by 66 percent last year, according to its development director, Debasri Ghosh.
The trouble is, it’s all but impossible for donors who care about immigration or abortion rights to know where their dollars will do the most good. More third-party evaluations are needed, says Benjamin Soskis, a philanthropy expert at the Urban Institute and a consultant to GiveWell. “If you want a dynamism that is good for the sector,” he says, “the best you can do is increase the public’s understanding of what works and doesn’t work.”
That said, we can’t let donors off the hook for the inefficiencies of the nonprofit sector. While most individual donors say they care about nonprofit performance, nearly two-thirds do no research at all before making a donation. Nor do they demand evidence of effectiveness from charities. Until that changes, we can be certain that some nonprofits do great work and others do little or no good at all. But wouldn’t it be nice to know which was which?
Correction: This story originally misstated the number of years that the Patient Access Network Foundation has existed. It was created in 2004.
Veteran reporter Marc Gunther blogs about philanthropy at nonprofitchronicles.com.
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