Where Are We Going?
Friday, June 12, 2009
By: Susan Raymond, Ph.D.

Well, the numbers are out, and they largely validate the reality that everyone in the nonprofit and philanthropic sectors has been experiencing for the last year. To review, in case there are readers just back from Antarctica, Giving USA estimates that giving fell 5.7% in 2008, just slightly more than the largest drop in the last five decades, the 5.4% drop in the midst of the oil crisis of the mid-1970s.

This is neither comforting nor particularly surprising.  Nor is it particularly revealing.  Which is not to say we do not thank Giving USA for their continued dedication to producing these data.  We do, because this author, at least, understands how largely thankless the numbers job can be in a sector where relationships, not numbers, are the heart of the matter.

Still, one searches for meaning.  The economy has come through, arguably is still in,  dark times.  The sector represents just under a trillion dollars in spending.  It would be miraculous indeed if the sector were immune from the crisis.  Indeed, many nonprofits are less immune than many other institutions because the last year has had a double effect the reduction in private giving and the reduction in government financial flows for programs and services as Federal and especially state budgets are under assault. Indeed, many nonprofits are less immune than many other institutions because the last year has had a double effect the reduction in private giving and the reduction in government financial flows for programs and services as Federal and especially state budgets are under assault.

So.  Enough about where we are.  We know where we are.  The only question that matters is, where are we going?  Let us address this issue from two perspectives, that of the economy (which will inform our thinking about timeframes) and the institution (which will inform our thinking about strategy).

First to the economy.  As we have previously noted, there have been a number of years that have seen year-over-year declines in inflation-adjusted giving.  There have been only two periods, however, with sequential annual declines, the mid-1970s during the oil embargo and the early years of this millennium (that should wake the reader up) after the terrorist attacks of September 11 in the context of an already weak economy hobbled by the bursting tech bubble.  What history teaches is that it takes a blow to the American economy of proportions previously unexperienced to throw the philanthropic throttle into multi-year reverse.  Is this one of them?  Perhaps.  This is so for at least three reasons.

First, the response to the financial crisis required massive action to flow money into the economy.  There are only three ways for the government to get money.  Print it.  Borrow it.  Tax it.  We did, or are doing, all three.  The result is both a need to control inflation and a need to work out of debt.  In September 2008, the estimated Federal budget deficit was $438 billion.  In January of this year, it was $1.2 trillion, nearly a three-fold increase in one quarter.  The deficit has to be financed, which takes borrowing (assuming someone will lend) and taxation.  The burden of that deficit (however necessary) on the future growth of the economy will take years to lighten.

Second, the best predictor of giving is actually neither GDP nor the stock market.  The majority of giving comes from individuals.  Therefore, a measure of individuals is needed.  We at Changing Our World have looked at 40 years of quarter-by-quarter seasonally adjusted employment data and mapped it onto 40 years of individual giving.  The pattern is nearly a perfect fit.  When unemployment goes up, individual giving goes down.  When unemployment goes down, individual giving goes up.  Unemployment is now at about 9.5%, and 25% of the unemployed have been without jobs for at least 27 months.  In March of this year, the Department of Commerce estimated that unemployment would not return to its boom-years’ 5%-6% levels until 2013.  So, we can expect to see continued pressure on individual giving for some time.

Third, when economic growth returns, it will be on the basis of a reduced economy.  Something on the order of $10 trillion of economic value has disappeared in the U.S. from the stock market highs of October 2007.  That number is $25 trillion globally.  There is no particularly strong relationship between equities values and giving data at the macro level.  However, at the level of individuals, one wonders.  AARP has surveyed its members and found that nearly half (46%) have lost at least 30% of their retirement accounts in the economic downturn.  A survey by the Opinion Research Corporation for Ameritrade found that a third of Americans now have less than $50,000 in investable assets.  Rebuilding wealth will take time.

So, for the economy, time is the issue.  Admittedly, it is true:  economies do face crisis and whither completely away.  The Scythian empire comes to mind.  However, Americans have several things going for them that the Scythians lacked, so that is unlikely to happen here.  But, recovery will take time and the climb out will be long.  However, time is also important to philanthropy.  An examination of the last four recessions shows that the rate of increase in the first year after a recession far exceeds the increase before the recession, and quickly makes up ground for any previous decline.  Giving is hot-wired into American hearts and minds, and recovery triggers higher levels of giving than before or during the downturn.

For that reason, planning NOW is key.  The planning must be for maintenance over a reasonably long term, given that the effects of this recession will last at least through 2010, and for growth as the recession ends.

Let us, therefore, turn from the economy to our second perspective, that of the institution.

Hand-wringing is a tempting response to a 5.7% decline in giving.  Perspective is important, however.  That decline means that giving is back to where it was in about 2005.  Not exactly the ice age.  Moreover, the dollar value of giving of the last five years, even with that decline, was more than a third higher than in the previous five years, which was higher than the five years before that.  So, over the last decade nonprofits have involved significantly increased numbers of people in supporting their work.

Today, and looking at where we are going, the absolutely most important job of every nonprofit is engagement.  If we focus on HOW MUCH people are giving, we miss the point.  We need to be sure THAT people are giving.  It is engagement not dollar value that is important.  Engagement -- continuing to deeply involve people of all stripes and all means and all interests -- in your work is the fundamentally necessary core of strategy as you prepare for recovery.  Recovery will come, and with it giving.  But, without determined, purposeful, meaningful engagement of people, that giving will flow elsewhere.  Engagement is the North Star of strategy where economic recovery promises to be prolonged.  Measure engagement before you worry about measuring dollars.

But, of course, there is that pesky utility bill.  What to do about that?  It is easy, you may say, to argue for long term wisdom.  Unfortunately, the landlord too prefers to be paid in the short term.  Indeed.

Which is why I believe the current state of affairs is actually an opportunity in the nonprofit sector.  It provides a compelling reason to think creatively about how we do business in this sector.  Now is the time to go back to the management drawing boards, to examine every last system for efficiency.  Moreover, now is the time to pick up the phone, call the executive directors of your colleague nonprofits and sit together to determine how services might be shared, how programs might be combined, how collaboration might both reduce costs and improve quality.  Now is the time to take a sledgehammer to organizational silos.  It has always been the right thing to do.  Now it is the necessary thing to do.

Having done so, taking the risk that is inherent in leadership, nonprofits will be able to demonstrate efficiency and a willingness to collaborate in the interests both of cost-reduction and in the interests of program quality.  That can be the booster rocket on fundraising when the economy turns the corner.

So once we are done mourning the world that was, let us understand that the numbers actually open up a door to the improved world that can be.  They provide the opportunity to re-commit ourselves to all the people who have come forward over a decade to support nonprofits, and to bind them more closely to us not because of their money but because of their commitment to the betterment of our society.  The numbers also provide us a much-needed incentive to work more closely together in the interests of maximizing the social and programmatic return on every dollar available.  More than the ups and downs of money, that combination -- deep engagement and purposeful collaboration -- place the silver lining of opportunity within the grasp of our generation.

About the Author

Susan Raymond, Ph.D., an Executive Vice President at Changing Our World, Inc., a leading philanthropic consulting firm, is the co-author of Mapping the New World of American Philanthropy: Causes and Consequences of the Transfer of Wealth, published by Wiley. She can be reached at sraymond@changingourworld.com.