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November 10, 2009

American philanthropy and the nonprofit sector it supports are under attack. The attack comes both from outside the boundaries of the sector and from within it.
Hyperbole? I don’t think so.
With recent books from Philanthrocapitalism to Uncharitable receiving prominent play—and their authors being feted by those within and outside the sector—there is real danger that an appreciation of the nonprofit sector’s distinctive identity and purpose will be lost.
Both of these books, though very different, contain some good ideas about how the sector can improve—and some completely wacky ones too. But the real problem lies in the fact that both caricature the sector unfairly and look simplistically and misguidedly to the markets and “business practice” as the answers. Both lack sufficient appreciation for the fact that if free markets or the government could solve all our problems or fulfill our needs for expression, we wouldn’t have any use for a nonprofit sector at all. But, alas, we do.
The authors seem not to appreciate the irony of looking to investment banks as a model of how to foster transparency—as Philanthrocapitalism does. Or to CEO compensation practices in the corporate world—as Uncharitable does. (That book even includes a table that, with seeming approval or at least no critique, lists the $119 million 2006 total pay of the former CEO of Lehman Brothers as evidence for how the nonprofit sector needs to reform its approach to compensation!)
Meanwhile, faculty at business schools such as my alma mater, Harvard Business School (whose publishing arm has given the author of Uncharitable a blog), speak breathlessly about the “blurring of the boundaries” between the sectors, as if this is only a good thing. There is much to be lauded about the newfound interest in “social innovation” and “social entrepreneurship” at leading business schools. And there is certainly much to be learned across sectors. But that learning should flow in both directions, as Peter Drucker famously pointed out in his terrific 1989 Harvard Business Review article “What Business Can Learn from Nonprofits.”  And it needs to be accompanied by an appreciation of the nonprofit sector’s distinct purpose, role, and value.
Claire Gaudiani, in her provocative book The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism (which, sadly, received much less attention even in the sector than the two books noted above), documents how the nonprofit sector and American philanthropy have invested in ideas that didn’t get support from business or government, but transformed our lives for the better.
“Rocketry, commercial aviation, stock market portfolio analysis, and radar are just a few of the important ideas that have flourished because innovative donors supported innovative thinkers and built prosperity in America through gifts to grow intellectual capital,” she writes.
She also points out that the role of nonprofits is often to reign in business, citing the environmental movement and giving specific examples such as the ban on DDT and the successful effort to convince McDonald’s to discontinue using foam containers in 1990. A more recent example that was at the heart of a presentation I heard just last month at the Philanthropic Foundations Canada conference—and that was achieved with support from a number of foundations—is the increase in use of recycled paper in the Canadian book publishing industry.  (See
Gaudiani goes so far as to argue that “philanthropy saves . . . capitalism. . . . Generosity has saved capitalism over many, many decades, like a smart, kind friend watches out for a somewhat gifted but intemperate colleague, advising him throughout his life on the need for self-restraint and better judgment.”
I find her case for the value of the sector much more compelling, much more rooted in historical fact, than those who suggest that the way to improve the sector is for it to adopt, wholesale, the practices of business.
The sector can and must improve, just as business and government can and must improve, but to suggest, as so many do, that the “Birkenstock world of charity”—as the authors of Philanthrocapitalism derisively label it—needs to be saved by “business approaches” (whatever that even means) is both dangerous and destructive.
Tomorrow: The Attack from Within

Phil Buchanan