Charities To Operate Like Businesses?

A Thought Provoking Article

So it seems?

This weekend (9/15/2012) edition of Wall Street Journal Review featured an article written by a prominent activist for charitable work, i.e. Dan Pallotta, titled “Why can’t we sell Charity like we sell Perfume?”.

I have to admit, I have never heard of this guy nor his long campaign to transform charitable enterprises before or I do not remember anymore.

Discrimination Against Charities

In his WSJ article, Mr. Pallotta argues in detail and not for the first time that there are such discriminations against charities in five critical areas:

1.       Non-profits are not allowed or are perceived to be obscene when they pay “competitive wages” like for profits. Consequently, non-profits are not able to attract the same talent as the business sector.

2.       Non-profits are not supposed to spend big money on advertising and marketing. Mr. Pallotta claims that “… money spent on advertising dramatically increases the money available for the needy.” He also contends that this imbalance between for profit and non-profit spending on these items “a big part of the reason that charitable giving has remained constant in the U.S. at about 2% of GDP since we began measuring it in the 1970s”.

3.       Non-profits tend to avoid daring new fundraising endeavors for fear of failure and heightened accountability.

4.       Non-profits are supposed to produce results immediately, while for profits can sometimes wait for years to turn a profit. [How many for profits have years before achieving success?]

5.       Non-profits cannot tap into financial markets are therefore “starved for growth and risk capital”. He thinks there should be a “stock market” for charities.

Stunning Vagueness

Nowhere does Mr. Pallotta mention or discuss that there are more than an estimated million charities operating in the USA covering probably every conceivable cause or one charity for every 300 citizens. Thus, I guess, most charities are fairly small and operate more local.

Mr. Pallotta is also mute on the subject that big government is the biggest competitor for charity in the US not the for profits. Why does he not call for government to do less and leave more to the private sector?

I would suspect that this universe of diverse charities in the US explains easily what Mr. Pallotta perceives to be discriminations against charities. He is also very vague as to what exactly these so called discriminations are about are they by law/regulation or are they by human perception and conventions or …?

He is also very vague how to measure the impact or effectiveness of charities over time or how to come up with a reliable, verifiable track record for charities. I would guess, this might be essential for any efforts to establish some kind of capital market for charities. Should this capital market be separate from the for profit capital market? Why? No answers.

What Mr. Pallotta Did Not Mention In His Article

Mr. Pallotta is, e.g., also behind the Charity Defense Council advocacy in Washington, DC. This organization appears to be an attempt to organize big charity (like big labor unions) to collude with big government to favor charities. Do charities in the US really have to be defended? From what?

The 5^th and final function of this Council is to “Organize Ourselves - Our sector does grassroots organizing for every cause but our own — for all issues except those that fundamentally undermine us as a sector. … We'll organize the sector on a town-by-town, state-by-state basis. …we can change the way the public thinks about charity.”

The 1st function of this council is to be an “Anti-Defamation League”. This seems to be awkward and strange to me.

The 2nd function seems to be more an obsession “Brave and Daring Public Ad Campaigns - … But we have to speak up for ourselves in the same media as the giant consumer brands, at the same volume, and with the same consistency.” Well, charity is not a perfume.

The 3^rd function is a “Legal Defense Fund”, but not what you quite expect, because “We will not be forced to speak about overhead when we want to speak about impact.”. Who or what prevents charities in the US to talk about or advertise impact?

And to top it all, in their 4^th function this Council advocates “The National Civil Rights Act for Charity and Social Enterprise - We deserve a thoughtful statutory code designed to help us change the world, not a fragmented set of oppressive laws and regulations that fundamentally work against us … we'll draft a National Civil Rights Act for Charity and Social Enterprise. …” (Emphasis added). Voilá! Big charities together with big government colluding for favors and preferences. A civil rights act for everything? Who still believes that the Civil Rights Act has been a blessing and its supposed benefits could not have been achieved other than by big government?