THIRD FUTURE: WINNOWING OF THE SECTOR

My third scenario centered on a winnowing of the sector. At one point last fall, I predicted that as many as 100,000 mostly smaller nonprofits would disappear during the recession. This number was based on a simple extrapolation of small-business failure rates during the past two recessions. During the relatively mild 2001-2003 economic downturn, for example, roughly 10 percent of small businesses failed. Although the failures were almost entirely offset by the creation of new small businesses that were created by unemployed workers, there is little reason to believe that the nonprofit sector will not follow the pattern given the continued credit crisis.
There is ample reason to believe that some winnowing is underway, especially among smaller, government-dependent nonprofits. But it is difficult to estimate just how much winnowing will actually occur. There is no evidence yet of a wave of mergers and acquisitions, for example, and relatively few reports of nonprofit meltdowns. Whether the winnowing will reach 100,000 is clearly in doubt. But the probability of at least mild winnowing is still very high. The probability of 100,000 may now be close to zero, but the number will almost surely cross the 25,000 mark.
Whatever the final number, there is a nearly 100 percent probability that the winnowing will not be deliberate. The current winnowing is mostly a random shooting, based more on government payment rates, demand pressures, and lack of access to credit than any assessment of performance and community impact. As a result, I fully expect smaller and mid-sized nonprofits to stay at or very near disaster.