Monday, March 11, 2013

"With Charity for All" by Ken Stern - Part I


Yellow wristbands. Lists of donors in a program or report, categorized by donation amount. Names on buildings, stadiums, or rooms. Charity is large and public in the United States. In his timely book “With Charity for All” Ken Stern, formerly the CEO and COO of NPR, reports that 1.4 million foundations, philanthropies, and charities exist to accept our donations. Charities, also known as not-for-profit corporations, dominate education, health care, the arts (including museums and orchestras), environmental groups and social services.

Charity has been part of American life since the Pilgrims landed. Stern estimates that the sector adds up to 10% of the US economy today. Stern reports that in 2011, we gave nearly $300 billion to charity, with the largest share going to religious and educational institutions. Charities employ 13 million people (an additional 61 million people volunteer) and rake in $1.5 trillion in revenues each year, including approximately $500 billion in government grants that pay for services. And that’s before we think about the tax expenditure – what it costs the federal and state governments in taxes it foregoes when you and I deduct our gifts from our income when we calculate our taxes. But what are we getting for our large investment? What should we be getting? A third question, how can we tell, is implicit in the first two. Stern does a good job of explaining the context and importance of these questions. He could have gone farther in answering them.

Stern vividly describes the development and broad reach of charities in our country. Giving expanded from the religious to the private sector when the 19th century robber barons, having made their fortunes, made substantial gifts to their communities: libraries, universities, museums, cultural institutions. Endowments seem to have kept the institutions operating for half a century. In the second half of the 20th century we enacted tax policies that encouraged giving, and governments transferred funding and operational responsibilities for social services to private entities. The number of charities took off.  Unfortunately, the amount of government oversight did not. In recent years, Stern tells us, the IRS has granted 99.5% of the applications for charitable status under the Internal Revenue Code, which allows donors to deduct contributions. Most state Attorneys General require at least registration for charities to operate within a state, though it’s unclear how much other monitoring goes on.

Stern also addresses the challenging question of why we give. He describes the impulse to donate as a complex mixture of altruism and the possibility of obtaining personal benefits (remember those wristbands). Stern reports finding no study that explains donor behavior. The one thing that’s clear is that we respond to stories.

[The donor] would hear a story of need, often through the media or through her network of friends and associates, and a check could follow within hours. This method of giving is in fact the norm for many donors: reactive to news and events, and responsive to individual stories and needs. It reflects the intimate and individualistic nature of giving in this country. . .

As a result, he says charities hone their narratives, not their services. “Charities know that they are rewarded not for finding cost-effective solutions to problems – nor solutions to problems at all – but for finding ways to personalize, humanize, and convey needs.”

Stern’s conclusion that charities focus on stories may be true for fundraising, but it is not true for management. For years, as Stern acknowledges, charities have been measuring their services. Accrediting agencies want to see a robust measurement program, including outcome measures, as do many funders, both foundation and government. It’s just we donors who often ignore the results. Stern uses the DARE anti-drug program as a prime example. Developed in the 1980s, DARE brings police officers into classrooms to educate middle and high school students about the dangers of drugs. Despite many studies that show DARE does not work, the program is still going strong – perhaps because it provides funding for several thousand police officers. DARE dismisses the research studies in favor of anecdotal evidence, but Stern exaggerates when he concludes that the entire sector suffers from a “medieval aversion to scientific scrutiny and accountability.”

Deciding what to measure can be a hurdle. It’s tempting to use measures that are easy and accessible. Test scores for elementary and middle school students come to mind. They are certainly a good measure of each child’s achievement at a particular point in time. There is even substantial evidence that SAT scores, especially in combination with grades, can predict a student’s first year college grades. But they are not the best measure of a teacher’s effectiveness, only an easily available one.

Unfortunately, measuring the wrong thing can result in misallocated resources. Stern’s example here, prevention of waterborne diseases in developing countries, is instructive. Water-borne diseases are endemic throughout the developing world, and digging a well feels like the obvious solution. Donating to support new wells is an understandable impulse, and Stern shows that the apparent simplicity of the solution increases the appeal. But, he asks, if the solution is so easy, why are waterborne diseases still occurring? Because each well requires a pump, and each requires maintenance. Stern points out that water charities don’t have the expertise, or the intent, to deal with the long-term problem of maintenance. In any case we donors don’t want to hear about it. We feel good when we give, and we don’t often care about what happens next.

This is the first part of a two-part review. 

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