With Charity for All by Ken Stern, part 2

 

Often, as donors, we make a donation and then don't think about a charity - and what it does with our money - until we hear from it again. Donors should care about what happens after we donate, and Stern ably shows why. We should care because if we don’t care, then charities won’t care. They’ll continue to raise money, but may become bloated and unresponsive, like the Red Cross after Hurricane Katrina. Or they’ll keep on doing the same thing. What Stern could have addressed better is the reasons for the inertia. One reason is structural: restricted funding streams make it very difficult for charities to function differently, or respond to emerging needs. Our system is extremely inefficient, and Stern reminds us that it results in economic costs (for all our generosity a lot of people in the US live in poverty), increased competition for charitable dollars and confusion on the part of the public. But it’s also because charities are often ineffective at measurement.

Measurement, if done well, is exacting, difficult, time-consuming, and expensive. It may tell the managers of a charity something they do not want to know, as in the DARE example. Success means different things in different contexts, and coming up with a definition forces managers to grapple with existential questions: what does it mean to say that a charity, NPR for example, is successful? What about the Metropolitan Opera?

Most of all, though, measurement is expensive. Studies that follow many people for many years, like the High Scope Perry Preschool Studies of the long-term effects of early childhood education, are labor-intensive. It takes staff long hours to track down individuals, collect and analyze information, and explain to managers, boards and funders what a study means. And once it’s done, the analysis is not static. If you reach your goals, you have to reset them. If you don’t, you have to figure out why you did not, and whether you have set the correct goals in the first place.

Not many charities can afford the investment in staff, follow-up, and data analysis a good study requires, but a few do. Moreover, though Stern does not discuss it, many foundation and government funders have been demanding outcome measures as part of their contracting process over the last decade. Unfortunately, because a funder can require outcome measures only for the program – or part of a program – it is funding, the result can be fragmentation, of efforts, and of understanding. And when a charity is providing similar but not identical information to another funder opportunities for manipulating the reports may be irresistible. Better accountability efforts by funders and board members are also necessary.

Stern, as befits the former CEO of NPR, tells a good story. He reveals a series of structural issues around the charitable sector: low barriers to entry into the charitable field mean that almost any cause or event, like a college town beer festival, can become a charity. Often executive salaries are high, though they are usually lower than those of executives managing comparably-sized private businesses. And “crooks gravitate to crises,” Stern says. After the Haiti earthquake, scam artists sent out hundreds of fake appeals on Facebook, Twitter, and by e-mail. Stern reports that the FBI estimated that more than 2300 fake charity sites solicited donations after Hurricane Katrina. Lately a disturbing trend that Stern calls celanthropy – celebrities setting up charities – has arisen.

Stern doesn’t really distinguish between charities that provide social services from charities, like colleges, that can be said to serve donors. Their operations are very different, even if their tax status is similar. Stern doesn’t fully piece his arguments together. If charities had some kind of normal life cycle the way private businesses do, for example, government agencies might have the time to focus on the egregious cases. While Stern describes failed efforts to write sunset provisions into the charities laws in the 1970s, he never fully circles back to make the point.

Instead, Stern concludes that as governments retreat from supporting arts and social services donors have to be willing to invest more in charities, not less, and to invest differently. He identifies several private (and charitable) programs that create and enlarge effective charities by providing multi-year grants and consulting services, urges that their work be expanded. This kind of social entrepreneurship very rare in US, and by itself is probably not enough.

Stern’s point would be considerably stronger if he had addressed the many new ways government is providing and funding social services, and recognized the promise these developments hold for the charitable sector. To give just one example, last year the federal Center for Medicare and Medicaid Innovation offered a competitive grant seeking innovative service and payment models for health care. Huge amounts of data are now being collected about social services (even the foster care system in New York City has automated, on-line records). Jim Manzi, in his book “Uncontrolled,” (Basic Books 2012) (my review is here) suggests establishing an agency, akin to the NIH, that can oversee and fund the design and interpretation of randomized social policy experiments, harnessing the power of big data for social services.

Stern also could have engaged usefully with the new funding models social entrepreneurs have developed. Social impact bonds, in which a government contracts with a private bond issuer to pay for services based on outcomes or achieving performance targets, have been used in the UK and are starting to be used in the US. The bonds raise enough money for a rigorous program evaluation – and payment depends on success. Once results become available, effective programs can be ramped up quickly, while ineffective ones can be stopped. Health impact bonds function similarly, by providing preventive health care services. In his book “The Non Nonprofit” (Jossey-Bass Books, 2012) (my review is here) Steve Rothschild describes how his Minnesota charity used data to show a return on government and foundation investments, creating economic value from social benefit. Rothschild has now expanded the concept into something he calls Human Capital Performance Bonds, which operate like social impact bonds except that a government entity issues the bonds.

We have different kinds of charities in the US – large arts organizations, family foundations, tiny programs run out of church basements. They enjoy different funding mixes, ranging from almost entirely government funding to entirely private funding. “With Charity for All” raises some important issues about charities, their effectiveness, and our unique blend of public and private funding. It also includes some useful suggestions. But without a more analytical look at how different kinds of charities operate we, like the charities Stern describes, are going to continue doing what we’ve always done.

This is the second part of a two-part review. You can read the first part here. Yesterday, I briefly posted an incorrect version of Stern's name. I regret the error and have corrected it.

"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 19^th 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 20^th 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.