Archive for July, 2010

Fundraising and campaigning (part 3)

Thursday, July 29th, 2010

In a previous post, I asked, “how are [nonprofit] fundraising and [political] campaigning related?”

What would it be like if there were campaign finance reform for nonprofits? Nonprofits often choose to publicize their donors, and savvy ones understand these as recognition opportunities and use them to leverage more donations. For political campaigns, their donors are both a source of secrecy and of pride. Stories about the prowess of the Bush and Obama campaigns in mobilizing tremendous constituencies of grasstops fundraisers (how else to describe cadres of semi-rich folk shaking down their friends?) are legion, but institutional donors are often hidden, either at the donor’s request or the recipient’s.

What if nonprofits were required to disclose where their funding came from, down to the $200 level or below? Would it incentivize them to think about ways to recognize their donors more, and about how their donors align or not with their mission?

Related question: what if foundations were required to disclose the companies in their investment portfolios – not the specific positions per se, but just the companies in which they’re invested, as a check on what kind of mission alignment there would be. Is that the campaign finance reform the nonprofit/philanthropic sector needs? Or would it be followed by another Citizens United? What if foundations wanted to advertise where they invested, they way many want to advertise their grantees? Are potential branding benefits another, maybe less explored side of mission-related investing?

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Fundraising and campaigning (part 2)

Wednesday, July 28th, 2010

In a previous post, I asked, “how are [nonprofit] fundraising and [political] campaigning related?”

Electoral and legislative campaigns have to do fundraising from the public and from various institutional interests (corporations), akin to how nonprofits fundraise both from the general public and from institutional donors (foundations, corporations, and government).

Why don’t political campaigns and nonprofits compare notes more often about successful fundraising strategies, particularly from individuals? Fundraisers learn a lot from commercial marketing techniques, but for whatever reason, the lessons of political fundraising/campaigning operations aren’t tapped, from what I see.

One reason may be that nonprofits are afraid of anything having to do with lobbying. While there are restrictions on the amount and kind of lobbying 501c3 nonprofits can do, they are allowed to lobby, and foundations can support them in those efforts (check out Alliance for Justice for more info).

But whatever the reason, why aren’t members of the Association for Fundraising Professionals reading Campaigns & Elections magazine?

Fundraising and campaigning (part 1)

Tuesday, July 27th, 2010

In my last post, I asked, “how are [nonprofit] fundraising and [political] campaigning related?”

There are different types of political campaigns: some are electoral, about getting a particular candidate elected; and some are legislative or advocacy-related, about getting a particular piece of legislation passed.

Electoral campaigns have recurrence built in (candidates want to get re-elected). Advocacy campaigns may be cumulative, building on a series of legislative victories, but generally they have a specific end in mind, and they end after it’s reached.

Nonprofits are more like the electoral campaigners, in that their problems generally don’t go away, they have to keep coming back to be “re-elected” by donors to help address the problem. The House of Representatives has a different dynamic than the Senate because Congresspeople are re-elected every two years, so they’re constantly campaigning and raising money.

Nonprofits seem like the Congresspeople of the social sector, constantly campaigning for “re-election” by donors, with an even more grueling re-election cycle, an annual one.

Are foundations like the Senators of the social sector? The membership is more exclusive, you generally have to be rich to get in, they’re not tied to the retail politics of representing a specific district, they have power out of proportion to their numbers, they have arcane rules of order* that certain members pride themselves on maintaining no matter how bizarre they look to the rest of us (How is foundation payout calculated? What exactly is “cloture,” again? In this respect, a recent HuffPost headline is interesting), and while they’re meant to work together with the House, they often have opposing approaches and aims that require elaborate procedures of “reconciliation.”

What would reconciliation look like in the social sector? With health care reform, there had to be some consultation with the Senate parliamentarian to figure out what could and could not be done. Where might the precedent for more effective collaboration between nonprofits and foundations be found?

Voting systems and philanthropy

Wednesday, July 21st, 2010

Interesting article in the New Yorker about different voting systems. The way we elect presidents in the US, with “winner takes all” in a majority system, is not the only way to do things: there’s proportional representation, where parties get seats in accordance with their vote share, preference voting, where you rank candidates and can express more than one preference, etc. This is one of the central topics in political science, and the literature gets dense quickly. I thought there was a missed opportunity in the article to talk more about examples from other countries, and about the differences between presidential and legislative elections.

This seems like a good excuse to flesh out some of the potential topics for this blog based on my two questions, particularly the second one, “What would it mean to democratize philanthropy?” There are a lot of market-based metaphors floating around to describe how philanthropy does its work (I almost said, “does its business”). Part of the reason for my musings about influence and impact is to explore non-market-based metaphors for our work. The idea of voting and voting systems gives some room for this.

A few initial questions:

  • In what ways are grant decisions and voting related? Letters of inquiry, internal rating systems, discretionary grants, Board approval, consent agenda – what would it look like if we overlaid the structure of political elections on these?
  • How are fundraising and campaigning related? Are individual donors like Presidential voters, requiring broad majoritarian appeals, and institutional donors like legislative voters, requiring targeted narrowcasting based on the quirks of locality? (It was a Congressman who said “all politics are local,” after all.) What if campaigning for institutional grants had to occur in public like campaigning for votes?
  • Social media give people the opportunity to express preferences in a variety of ways – sharing, liking, rating. What are the implications of applying such systems to grant decision processes? How would a political scientist view the Chase Challenge?

Those sound worth exploring. How else are philanthropy and voting/electoral systems potentially related?

Influence and incentives

Tuesday, July 20th, 2010

Previously on TBBKA”DP?”, I wondered about the difference between having impact and having influence. Impact sounds like two independent bodies colliding; influence suggest two streams coming together. Another buzzword that’s a euphemism for power is “incentives.” The gradual invasion of economic thinking into every corner of life continues apace; the power of incentives is one of the signal contributions of the dismal science to popular discourse in the past several years (witness the success of “Freakonomics”).

If impact is hard power, and influence is soft power, what are incentives? They’re relational and structural. Incentives are a function of a situation: the importance of grades and test scores for admission into competitive colleges incentivize students to cram for tests. They’re relational both synchronically (at a given moment) and diachronically (over time). Someone or something incentivizes you at a given moment (study hard and you’ll get a good grade on the test) and/or over a period of time (keep studying hard over the years and you’ll eventually get into a good school). Because they’re structural or situational, incentives can be nested: study to get grades, get grades to get into school. In fact, incentives may be most powerful when they’re most embedded. Tocqueville said revolutions would be increasingly less likely in America because more and more people had a stake in the functioning of the system. If you own property, you have the obligation of a mortgage and need money to keep coming in; there are multiple sets of incentives that link up in straightforward ways.

The thing about all these incentives is that they’re visible and relatively easy to understand. Influence can be quieter, work behind the scenes. When two rivers converge, you can’t tell where one starts and the other ends. (Well, except for the black and sandy Amazon Rivers.) Incentives are visible and accessible to all; influence is either so dispersed as to be essentially invisible (What determines whether a movie ends up being popular? We see it happen, but no one can really explain why, so the mechanism of influence remains mysterious.) or hidden out of public sight (whatever happened to the climate bill?).

So maybe impact is hard power, incentives are visible soft power, and influence is invisible soft power. How might these concepts be useful for understanding the way nonprofits and philanthropy do or do not make a difference on the issues they care about?

Varieties of capitalism, varieties of philanthropy (part 4)

Friday, July 16th, 2010

So last time, I wondered: what kinds of innovation might an emerging hybrid CME/LME nonprofit economy be good at? Such an economy would be like a European coordinated market economy in that standard setting would happen cooperatively instead of competitively and labor relations would be “sticky” (it’s hard to fire people), but like an Anglo-American liberal market economy in that financing would happen in a public market with publicly available information and workers would continue to come in with general rather than highly specialized skills.

Coordinated market economies are good at incremental innovation, and liberal market economies are good at radical innovation, according to Hall and Soskice. Why should that be? Here I’m reminded of one of the key methodological lessons I learned from grad school; when thinking about causality, focus on the mechanism. This is one way to get across the gap between correlation and causation: try to tease out and classify the chain of events by which one thing causes another.

For example, in my dissertation, I argue that politicized security forces – in which the army and police have roughly equal resources, the army is more professionalized, and politicians have control over police at the local level – make a government characteristically susceptible to a particular type of armed challenge: insurrection from below. The mechanism I adduce for this is the incentives such a security-force configuration generate for potential armed rebels at the local level. If the police are captured by politicians and are not very professional compared to the army, there is a higher probability that when faced with insurrection from below, they will defect and join the rebels. (This happened a fair amount in Colombia during the La Violencia civil war of the 1940s and 50s, which was my case study.) And if the army is not that much stronger than the police in terms of resources, then they can’t simply crush rebel-affiliated police. This creates an opening for potential rebels, and in a country with politicized security forces, like Colombia in the 1940s and 50s, you’d expect to see more insurrection than other types of armed challenges, like military coups. (These, I argue, are likelier to happen in a country with militarized security forces, like Chile or Argentina.) The mechanism is the incentives that the configuration of control and power among army, police, and politicians creates for potential armed rebels.

So what’s the mechanism for radical vs. incremental innovation in coordinated vs. liberal market economies? For Hall and Soskice, it’s the incentives that labor relations and inter-firm relations create for workers and firms (think nonprofits).

  • In a coordinated market economy, job security, peaceful labor relations, and high levels of skills give workers the freedom to try new things in the confidence that there will be uptake from management and that firms will be willing to share ideas with each other in the interest of improving overall processes.

How does that work in a hybrid model? You have relative job security, labor relations (at places outside large nonprofits like hospitals and universities) are generally peaceful. But are nonprofits open to new ideas from their workers? And do they share new ideas with each other?

  • In a liberal market economy, the job market is much more open, which means that firms wanting to try something new have the latitude to hire workers knowing they can easily lay them off if the new project doesn’t work out. Financing is also more open, so established firms can acquire other firms doing innovative things (think Microsoft or Google hoovering up the startups that created Hotmail or YouTube) – which is a mechanism by which there are incentives for entrepreneurs to create startups that try radically new things. (This is not always a good thing; I remember meeting someone when I lived in the Bay Area in the late 90s who worked for a startup whose idea was “smell over the internet.” You would put a USB doohicky on your monitor that would emit different scents based on the webpage you were on. The doohicky was shaped like a nose.)

How does this work in a hybrid model? (The labor and firm relations, not the nose thing.) It’s relatively easy to hire nonprofit workers, but firing them is difficult. If financing were to become more open, more based on publicly available information, would we see established nonprofits “acquiring” other nonprofits doing innovative things?

It’s a fascinating possibility – a social-service agency that realizes it needs to do policy advocacy to really have impact on education “acquiring” a grassroots community-organizing effort that’s developing new advocacy tools. But it’s difficult enough for nonprofit mergers to happen, let alone nonprofit acquisitions.

Would this change with a social capital market? I’m not sure, because what the “varieties of capitalism” approach teaches us is that the systems of financing, labor relations, education, and inter-firm relations are connected, and their incentives shape and reinforce each other in powerful ways. So to change the financing structure without looking at the other systems might lead to some strange unintended consequences. I’ll explore those in a future post.

Varieties of capitalism, varieties of philanthropy (part 3)

Thursday, July 8th, 2010

All right, let’s recap this series:

  • There are different kinds of capitalism, different ways of organizing a market economy. According to one model from Hall and Soskice, two of the major ones are “liberal market economies” (LME) like the U.S. and England, and “coordinated market economies” (CMEs) like Germany and Japan. The main difference is in the level of coordination among firms, government, and labor: in CMEs, coordination is high; in LMEs, coordination is low.
  • Different varieties of capitalism are good at different things; in particular, according to Hall and Soskice, CMEs are good at incremental innovation while LMEs are good at radical innovation.
  • In applying this framework to philanthropy and nonprofits, thinking of nonprofits as firms, it looks like the U.S. nonprofit economy functions as a kind of CME within the broader LME of the U.S. economy. Which brings up the question of convergence; will nonprofits respond to incentives in the overall economy and start becoming more LME-like?

To get at this last question, let’s look at coordination in more detail. Hall and Soskice contrast Germany and the U.S. in terms of the relationships among four systems that impact the firm: education and training, corporate governance, inter-company relations, and industrial-relations (or labor relations).

System German Coordinated Market Economy U.S. Liberal Market Economy
Financing Obtained behind the scenes, enforced by reputational monitoring Obtained on public markets, reputation less crucial for monitoring
Education/training Develops highly skilled workers who are guaranteed employment Develops workers with general skills
Labor relations Secures places for highly skilled workers by moderating wage claims and promoting labor cooperation Easy to hire and fire workers, labor has less natural power
Inter-company relations Standard setting and technology transfer happen through cooperation Standard setting and technology transfer happen through competition

Again, it looks like nonprofits, in their relationship with foundations, operate in many respects like they’re in a coordinated market economy.

  • Financing, that is, grants, are obtained not on public markets, but through private negotiations using information that’s not publicly available, and where “reputational monitoring” underlies the relationship – e.g., program officers talk to each other about their grantees.
  • In terms of labor relations, nonprofits tend to find it hard to fire people, and it can be difficult to pay competitive salaries, so it’s not necessarily easy to hire and fire workers.
  • Standard setting and technology transfer, to the extent they happen, tend to be fairly cooperative, with infrastructure organizations like NPower being open to lots of different kinds of nonprofits.

Where the comparison doesn’t hold up is in the education/training system – there, a lot of nonprofit workers come into the field as generalists, and only specialize over time.

So does it look like there’ll be convergence? Will the nonprofit economy start to look more like the LME of the overall economy? I think convergence, if it happens, will be partial: new models of financing are emerging and multiplying, and we are moving toward social capital markets that will be based on publicly available information. But I don’t know that standard setting and technology transfer are going to start becoming more competitive, necessarily. If anything, the trend is toward greater coordination – witness the merger of TechSoup Global and Guidestar International, and the cooperation among Charity Navigator and other nonprofit rating agencies about getting beyond the primacy of the overhead ratio.

It’s worth considering what kinds of activities – what kind of innovation, for example – this kind of hybrid CME/LME model might be good at.

Influence vs. impact

Wednesday, July 7th, 2010

I’m wondering if another way of thinking about the impact that foundations and nonprofits can have is in terms of influence.

Impact sounds big, it suggests two solid bodies crashing into each other. What was that other asteroid-threatens-Earth movie that came out at the same time as “Armageddon?” “Deep Impact.” Lot of fallout from impact, a lot of debris kicked up. Both bodies, once solid and intact, are changed somehow, and not generally in a good way.

Influence sounds more sinuous, less mass-y. It suggests flow, fluidity, influx – two streams joining together to become something larger and different, with the differences between them no longer as visible. Maybe influence is soft power and impact is hard power?

Impact is inherently ambitious, it seeks visible change; influence is less flashy, it often operates behind the scenes. But with our Twitter feeds and Facebook news feeds scrolling down our screens, influence is becoming more visible, being broken down into its constituent bits – building a presence, an influence one “Like” at a time.

Our metaphors matter, so I find myself wondering about the difference between impact and influence, and how such alternative concepts might, um, shape our thinking about foundations and nonprofits.

Varieties of capitalism, varieties of philanthropy (part 2)

Tuesday, July 6th, 2010

I’m picking up again after some time off. Good to be back to blogging.

I was wondering in a prior post about how the difference between Anglo-American (“liberal”) market economies and Continental-Japanese (“coordinated”) market economies, or “varieties of capitalism,” might map onto “varieties of philanthropy.”

One take on this question is to think about what types of activities/products/services each type of capitalism is “good at.” The primary activity on which Hall and Soskice, editors of the seminal “Varieties of Capitalism” volume (2001), focus is innovation: Anglo-American LMEs are set up for “radical innovation,” while Continental-Japanese CMEs create incentives for “incremental innovation.” This is because LMEs have fluid labor markets and little coordination among firms, while CMEs have more structured labor markets, with more overt coordination and cooperation between labor and management, and feature more coordination among firms (e.g., Japanese keiretsu).

In a prior post, I suggested that nonprofits in the U.S. operate in a kind of CME embedded within a broader LME, and wondered whether such a difference was sustainable, or whether convergence of nonprofits toward the LME of the broader economy was in some sense inevitable. The varieties of capitalism literature would seem to suggest that the emergence of social capital markets and the pooling of data about the production of social goods that we’re seeing all around are part of the convergence process. Across countries, differences between varieties of capitalism tend to reinforce themselves, so that countries gain “comparative institutional advantage” for being good at certain kinds of innovation. Within a country, the overall incentive structure pushes firms into certain types of arrangements.

How interesting then that U.S. nonprofits and their funding sources have managed to operate within a CME-type arrangement for so long within an overall LME structure. What about nonprofit capacity for innovation? Would we say that the U.S. nonprofit sector is characterized more by radical innovation or incremental innovation? Hall and Soskice:

The key distinction we draw is between radical innovation, which entails substantial shifts in product lines, the development of entirely new goods, or major changes to the production process, and incremental innovation, marked by continuous but small-scale improvements to existing product lines and production processes (pp. 38-39).

Sounds to me like nonprofits have tended to be better at incremental innovation, but that as part of the possible convergence to the LME model of the overall economy, nonprofit firms (pardon the oxymoron) are emerging that are embracing radical innovation that are introducing “major changes in the production process” of social goods: Kiva, DonorsChoose, etc. Well, perhaps not production per se, but financing. Harlem Children’s Zone might be more of an example of major change in the production process, so to speak. Point being, such radical innovations, if they are that, might be a harbinger of an overall convergence of the CME nonprofit economy to the overall LME economy. (Of course, this all assumes that nonprofits are good at any kind of innovation!)

There’s more to consider here. I’ll come back to this issue, and consider the relationships among firm governance, production, and the labor market in LMEs vs. CMEs, and keep trying to map those onto the “nonprofit economy,” with the nonprofit as the firm.