Provocative Thoughts on Social Sector Effectiveness

“The Way We Think about Charity is Dead Wrong”

Dan Pallotta recently gave a TED talk entitled, “The Way We Think about Charity is Dead Wrong.”  Until today I hadn’t had a chance to sit and watch it in its entirety and think deeply about its implications.  Obviously, he covers a lot of ground here in just over 18 minutes.  One of the biggest critiques that he has received for it is that his take is “too simplified.” I agree, he does simplify the situation. But anyone giving such a speech has to do this. So I am going to give him the benefit of the doubt on this one. Instead, I am going to focus on what reactions I have to his speech in this post.

1) Overhead of Non-Profits and the Social Sector

Dan is absolutely right that there is a great fear of overhead.  It’s a fear which can prevent innovation, simply because without a willingness to scale organizational efficiency and service, a nonprofit or social venture will never be able to serve to its fullest potential. At its best it will be able to serve a local community, but will never have a larger reach (at least not effectively).  If there is not a willingness to make an investment in skilled labor on the organizational side, there is no change that the organization will have the leaders, know-how, and willingness to really do as great work as possible.

I am not saying, however, that all overhead is good. This is certainly not the case.  If an organization permanently spends more than 20% on overhead, there is great room for concern if not rebuke.  But without being willing to invest in overhead, which is a fancy and usually derogatory term for labor and leadership in the social sector, there is little hope for sustained growth, effective service, and especially efficient service.

2) Pay and Compensation Comparison

People who work in the social sector will inherently be paid less than the for-profit sector.  However, they still need to be paid a healthy and fair living wage, otherwise how can people expect them to do the best job they can do in their roles? This same argument  can hold for ministry in a congregational setting as well. It is important to not take lightly that these are people’s jobs and vocations, and they rightfully deserve fair compensation and support.  His point about Stanford MBA’s is a bit extreme, but in reality its accurate in reflecting on the disparity between job types.  If a non-profit wants the same quality MBA at its helm, it is going to take either a deep commitment to its leadership (or ‘overhead’) in that form of an investment, or it will have to hope a successful for-profit CEO decides to come to the non-profit later in life as a last job where they have already earned more than enough and can afford to work for less, or they have to settle for someone who may not be at the same caliber of skills and attributes unless they find a socially minded person who doesn’t mind making less but has the same education and experiences.  Let me be clear based on my own experience and vocation, I am probably somewhere in the last category myself, but recognize that I can’t work for dirt cheap either. That education that I earned certainly cost something, and the loans that go along with it need to be paid.

3) The Potential For Cross-Sector Partnerships

I think what Dan is discussing hints at the need for cross-sector partnerships. No longer can the social good be served by just non-profits, or just treated as projects being funded by philanthropists.  Such thoughts and actions lead to the creation and cycles of poverty traps as money as seemingly thrown at problems and initiatives, and of projects which are done by outsiders without the support and leadership of the local communities and people actually being served and affected by them.   This is what I believe is the “do-gooder problem” if you can call it that.  People want to feel that they have done some good so they have given some money and want to see that actually have results, therefore, if they know that money may not go directly to a project but be used to pay for ‘overhead’ they are less apt to give to the project.

The problem is, like Dan points out, is that the work of the nonprofit in order to be successful, depends on the leaders and minds which are constituted as ‘overhead and personnel’ on the balance sheet, and on the investment needed to make such projects last and sustainable.  What good is it to give money for malaria nets for example, without investing in training people how to best use the nets and repair them?

What I see in this is the ability for creative partnerships.  Imagine if a successful for-profit, could help partner with related non-profits and foundations.  Imagine if they could share leadership insights, training costs, and work collaboratively together recognizing that together they are making the world better in someway through innovation and relationship?  This is what I am a part of actually in the work I am doing with the start-up around unemployment issues in Minnesota. We have partnered with a for-profit company which needs to hire more full-time employees who are dedicated and want to have a successful career, we have partnered with non-profits who do work with the unemployed in particularly affected communities and demographics who are looking for job opportunities, we are partnering with government entities to provide the infrastructure necessary to make it possible for these people to get to and from their places of employment and to be then more effective members of society, etc.  Its partnerships like this which stretch across the separate sectors of government, business, non-profits, social entities, etc., which give me hope.

4) The Problem with Dan’s Take on Fundraising

For too long we have thought that the needs we see in the world (hunger, poverty, AIDS, unemployment, the health of our environment… etc.) can only be served by particular agencies or organizations. The problem with this is that it results in nonprofits competing  with one another for few dollars by grants and other fundraisers, and because they are left trying to fight for a few bucks, they are unable to focus on sustaining their work and the end result.  (I am not against competition in the marketplace by any means. But competition within the social sector and among nonprofits I argue makes most of them much less effective.)

There has to be a better way to fund-raise by telling the story about what the organization is doing, and about how to talk about innovation by partnering with for-profits who are socially minded or other non-profits and foundations.  Simply tripping over each other is what has happened in Haiti by  the multitude of NGOs there.  The people of Haiti have been served very poorly in response to their 2010 earthquake, in spite of now easily having the most money and effort ever given to a post-disaster situation.  Because the NGOs and nonprofits have been focusing on their own work, rather than collaborating we have this mess that it has become.

There is a lot to chew on here.  But these are just the immediate four reactions I have to hearing Dan’s talk.  What was your reaction to his talk?  What do you make of my observations and perspectives? I certainly do not have the answers but perhaps together we can come up with some ideas anyway.


[Writer’s Note:  If there are any questions regarding the timing of this post, it was originally written this past spring.  However, for some reason it was discovered that it was never published. Thanks for the understanding.]

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