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The State of Nonprofit America
Brookings Institution Press
Copyright © 2002 Aspen Institute
All right reserved. ISBN: 0815706243
Chapter One
When three hijacked planes crashed into the World Trade Center and the Pentagon on the morning of September 11, 2001, the police, fire, and military organs of New York City, Washington, D.C., and the U.S. government were not the only entities to respond with heroism and élan. The events of that horrific morning also triggered a spirited response from the vast, uncharted network of private voluntary institutions that forms the unseen social infrastructure of American life. In small towns and large cities, from the Florida Keys to northernmost Alaska, people rushed to offer assistance. In part, the responses were spontaneous and unstructured. But in far larger part, they were organized and orchestrated, mobilized by the vast assortment of organizations and institutions that compose what is increasingly recognized as a distinct, if not wholly understood, sector of our national life known variously as the nonprofit, the charitable, or the civil society sector. Like the arteries of a living organism, these organizations carry a life force that has long been a centerpiece of American culture-a faith in the capacity of individual action to improve the quality of human life. They thus embody two seemingly contradictory impulses that form the heart of American character: a deep-seated commitment to freedom and individual initiative and an equally fundamental realization that people live in communities and consequently have responsibilities that extend beyond themselves. Uniquely among American institutions, those in the nonprofit sector blend these competing impulses, creating a special class of entities dedicated to mobilizing
private initiative for the common good.
The terrorists who crashed civilian jetliners into unarmed buildings on that fine September morning did not, therefore, assault a nation without the capacity to respond. That capacity extended well beyond the conventional and visible institutions of government. It embraced as well a largely invisible social infrastructure of private, charitable groups and the supportive impulses to volunteer and give that it has helped to nurture.
And respond it did. Within two months, individuals, corporations, and foundations had contributed $1.3 billion in assistance to a wide array of relief efforts. Blood donations alone were estimated to have increased between 250,000 and 400,000 pints in the wake of the disaster. Some of the institutions involved in mobilizing this response were household words-the Red Cross, the Salvation Army, and United Way. Others were established but less-well-known institutions like the New York Community Trust, the Community Service Society of New York, the Chicago Mercantile Exchange Foundation, and many more. Still others were created especially to deal with this crisis-the September 11 Fund, the Twin Towers Fund, Trial Lawyers Care (to assist victims with legal issues), and the Alaska Culinary Association (to benefit families of restaurant workers killed in the World Trade Center collapse). Altogether, some 200 charitable organizations reportedly pitched in to help directly with the relief and recovery effort in New York alone, and countless others were involved more indirectly. According to one recent survey, an astounding 70 percent of all Americans made some kind of contribution to this response.
Revealing though this episode has been of the remarkable strengths of America's "third," or nonprofit, sector, however, it simultaneously revealed the sector's limitations as well. Private voluntary groups, though highly effective in mobilizing individuals to act, are far less equipped to structure the resulting activity. In short order, the fragile systems of nonprofit response were severely challenged by the enormity of the crisis they confronted in the aftermath of September 11. Individual agencies, concerned about their autonomy, resisted efforts to coordinate their responses, either with each other or with government authorities. Individuals in need of assistance had to navigate a multitude of separate agencies, each with its own eligibility criteria and targeted forms of aid. Inevitably, delays and inequities occurred; many individuals fell through the slats, while others benefited from multiple sources of assistance. What is more, misunderstandings arose between the donors, most of whom apparently intended their contributions to be used for immediate relief, and some agencies, most notably the Red Cross, that hoped to squirrel the funds away for longer-term recovery, general institutional support, and other, less-visible, disasters down the road. What began as an inspiring demonstration of the power of America's charitable community thus became a demonstration of its shortcomings as well.
In this, the story of the nonprofit sector's response to the crisis of September 11 is emblematic of its position in American life more generally. Long celebrated as a fundamental part of the American heritage, America's nonprofit organizations have suffered from structural shortcomings that limit the role they can play. This juxtaposition of strengths and limitations, in turn, has fueled a lively ideological contest over the extent to which we should rely on these institutions to handle critical public needs, with conservatives focusing laser-like on the sector's strengths and liberals often restricting their attention to its weaknesses instead. Through it all, though largely unheralded and perhaps unrecognized by either side, a classically American compromise has taken shape. This compromise was forged early in the nation's history, but it was broadened and solidified in the 1960s. Under it, nonprofit organizations in an ever-widening range of fields were made the beneficiaries of government support to provide a growing array of services-from health care to scientific research-that Americans wanted but were reluctant to have government directly provide. More than any other single factor, this government-nonprofit partnership is responsible for the growth of the nonprofit sector as we know it today.
During the past twenty years, however, that compromise has come under considerable assault. At the same time, the country's nonprofit institutions have faced an extraordinary range of other challenges as well-significant demographic shifts, fundamental changes in public policy and public attitudes, new commercial impulses, massive technological developments, and changes in lifestyle, to cite just a few. Although nonprofit America has responded with creativity to many of these challenges, the responses have pulled it in directions that are, at best, poorly understood and, at worst, corrosive of the sector's special character and role.
Despite the significance of these developments, little headway has been made in tracking them systematically, in assessing the impact they are having both generally and for particular types of organizations, and in getting the results into the hands of nonprofit practitioners, policymakers, the press, and the public at large. This book is intended to fill this gap, to offer an overview of the state of America's nonprofit sector, and to identify the changes that might be needed to promote its long-term health. To do so, the book assembles a set of original essays prepared by leading authorities on key components of the American non-profit scene and on the key trends affecting their evolution. The result is the first recent integrated account of a set of institutions that we have long taken for granted, but that the Frenchman Alexis de Tocqueville recognized more than 175 years ago to be "more deserving of our attention" than any other part of the American experiment.
This chapter summarizes the basic story that emerges from this assessment. Given the diversity of America's nonprofit institutions and the multitude of forces impinging on its various parts, this is no mean task. From my perspective, however, a dominant, if hardly universal, impression clearly emerges from the separate brush strokes of analysis offered in this book's chapters. Fundamentally, it is an impression of resilience, of a set of institutions and traditions facing enormous challenges but also important opportunities and finding ways to respond to both with considerable creativity and resolve. Indeed, nonprofit America appears to be well along in a fundamental process of "reengineering" that calls to mind the similar process that large segments of America's business sector have undergone since the late 1980s. Faced with an increasingly competitive environment, nonprofit organizations have been called on to make fundamental changes in the way they operate. And that is just what they have been doing.
What is involved here, moreover, is not simply the importation of "business methods" into nonprofit organizations, although that is sometimes how it is portrayed. While nonprofits are becoming more "business-like," the business methods they are adopting have themselves undergone fundamental change in recent years, and many of the changes have involved incorporating management approaches that have long been associated with nonprofit work-such as the emphasis on organizational mission, the ethos of service to clients, and the need to imbue staff with a sense of purpose beyond the maximization of profit. In a sense, these longtime nonprofit management principles have now been fused with business management techniques to produce a blended body of management concepts that is penetrating business and nonprofit management alike.
Like all processes of change, this one is far from even. Some organizations have been swept up in the winds of change, while others have hardly felt a breeze or, having felt it, have not been in a position to respond. What is more, it is far from clear which group has made the right decision or left the sector as a whole better off, since the consequences of some of the changes are far from certain and at any rate are mixed.
Any account of the "state of nonprofit America" must therefore be a story in three parts, focusing first on the challenges and opportunities America's non-profit sector is confronting, then examining how the sector's institutions are responding to these challenges and opportunities, and finally, assessing the consequences of these responses both for individual organizations and subsectors and for nonprofit America as a whole. The balance of this chapter offers such an account. To set the stage, however, it may be useful to explain more fully what the nonprofit sector is and why it deserves our attention.
What Is the Nonprofit Sector and Why Do We Need It?
The nonprofit sector is a vast and diverse assortment of organizations. It includes most of the nation's premier hospitals and universities, almost all of its orchestras and opera companies, a significant share of its theaters, all of its religious congregations, the bulk of its environmental advocacy and civil rights organizations, and huge numbers of its family service, children's service, neighborhood development, antipoverty, and community health facilities. It also includes the numerous support organizations, such as foundations and community chests, that help to generate financial assistance for these organizations, as well as the traditions of giving, volunteering, and service they help to foster.
More formally, we focus here on organizations that are eligible for exemption from federal income taxation under Section 501(c)(3) of the tax code, plus the closely related "social welfare organizations" eligible for exemption under Section 501(c)(4) of this code. Included here are organizations that operate "exclusively for religious, charitable, scientific, or educational purposes" and that do not distribute any profits they may generate to any private shareholder or individual. Alone among the twenty-six types of organizations exempted from federal income taxation, the 501(c)(3) organizations are also eligible to receive tax-deductible contributions from individuals and businesses, a reflection of the fact that they are expected to serve broad public purposes as opposed to the interests and needs of the members of the organization alone.
Scale
No one knows for sure how many such nonprofit organizations exist in the United States, since large portions of the sector are essentially unincorporated and the data available on even the formal organizations are notoriously incomplete. A conservative estimate puts the total number of formally constituted 501(c)(3) and (c)(4) organizations at 1.2 million as of the mid-1990s, including an estimated 350,000 churches and other religious congregations. As of 1998, these organizations employed close to 11 million paid workers, or over 7 percent of the U.S. work force, and enlisted the equivalent of another 5.7 million full-time employees as volunteers. This means that paid employment alone in non-profit organizations is three times that in agriculture, twice that in wholesale trade, and nearly 50 percent greater than that in both construction and finance, insurance, and real estate, as shown in figure 1-1. With volunteer labor included, employment in the nonprofit sector, at 16.6 million, approaches that in all branches of manufacturing combined (20.5 million).
Most of this nonprofit employment is concentrated in three fields-health (43 percent), education (22 percent), and social services (18 percent). With volunteers included, the distribution of employment changes significantly, with the religious share swelling to 23 percent and health dropping to 34 percent (figure 1-2).
These large categories disguise, however, the huge array of separate services and activities in which nonprofit organizations are involved. A classification system developed by the National Center for Charitable Statistics, for example, identifies no fewer than twenty-six major fields of nonprofit activity and sixteen functions-from accreditation to fundraising-in each. Each of the major fields is then further subdivided into subfields. Thus, for example, the field of arts, culture, and humanities has fifty-six subfields, and the field of education has forty-one. Altogether, this translates into several thousand potential different types of nonprofit organizations.
Even this fails to do justice to the considerable diversity of the nonprofit sector. Most of the employment and economic resources of this sector are concentrated in large organizations. However, most of the organizations are quite small, with few or no full-time employees. Of the nearly 670,000 organizations recorded on the Internal Revenue Service's list of formally registered 501(c)(3) organizations (exclusive of religious congregations and foundations) in 1998, only about a third, or 224,000, filed the information form (Form 990) required of all organizations with expenditures of $25,000 or more. The remaining two-thirds of the organizations were thus either inactive or below the $25,000 spending threshold for filing.
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Excerpted from The State of Nonprofit America Copyright © 2002 by Aspen Institute
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
