Patterns in static

Colluding for a better world

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10 May 05.

I didn't look very hard, but the first (and only) journal article I found validates the beliefs I've gained from hanging around DC, so I stopped looking. The article is Susan Feigenbaum's "Competition and Performance in the Nonprofit Sector" (footnote 1), and it explains how nonprofits respond to comptition by becoming less efficient. [There's more in the hospital-oriented literature which I haven't gone into. This article would be a good starting point if you're interested in further research.]

The real constraint in these markets is not demand for services, since most nonprofits give away their services and are nowhere near the point where the problem they face is solved. Nor is the constraint labor: DC is filled with people who will work full time for pizza and a thank you. No, the constraint is the supply of cash.

Say that a group has a monopoly in its cause, and another organization comes in to compete with it. This probably won't have much effect at all on how much donors are willing to spend on the cause. The representative donor has probably talked with his or her accountant last year and worked out what to spend on charities, and it will take a whole lot of lobbying to get the donor to up that significantly.

Instead, a group which used to have a relatively easy time finding grants must now compete with a similar organization to maintain its funding. Competition in grantwriting will lead to much higher quality grant proposals, but that ain't a goal to be proud of.

Feigenbaum's article supports this empirically. It finds that the number of firms in a field is positively correlated to administrative costs (with significance).(2)

The policy implication is simple, and something any conservative could have told you without looking in the literature: there are too many nonprofits.

Dear NARAL and NOW: you could be killing twice as many babies if you stopped fighting for funding! Dear Brookings Instution and Urban Institute: think how many more brains you could fit in your think tanks if you weren't always competing with each other for grants! Dear Hunger Project, Action Against Hunger, Children's Hunger Fund, and Stop Hunger Now: you're duplicating US AID's effort, only US AID has backing by the largest grantmaking body on the planet---and the US military! Merge! Collude! Conspire! Spend your money on doing good instead of competing amongst each other!

Or, to put it more generally, Dear go-getting, innovative altruist: even though you think your new organization will be different from the existing organizations in the field, nobody else can tell the difference. We all realize the inefficiencies and drawbacks of big, staid organizations, but one big organization is still more efficient than two small ones fighting for the same limited pool of funds. The best thing you can do is use your go-getting abilities to push forward--and perhaps tweak--the goals of an existing organziation. It's not as fun working for an existing bureaucracy, but it's probably the best use of your abilities.(3)

Already working for an existing group? How can your group work with others to merge those projects which overlap, and otherwise minimize competition? I wander DC's bars all evening and hear the complaints of people who spent all day writing grant proposals to outdo the guy writing grant proposals two booths down. What a waste of time and energy that could have been better spent.(4)

Not working for a nonprofit organization now? Well, maybe you shouldn't. As well as competition among organizations, there's competition among people to get into those organizations. Everybody wants to be in the trenches getting their hands dirty, but this can potentially be a self-centered desire if the organization has enough people in the trenches already. The want ads for the do-gooder organziations get monotonous very quickly: almost all of them are exclusively seeking a development officer, where `development' is an annoying euphemism for `fundraising'. The hands are readily available, it's the cash that's lacking in almost every case--partly because of the afforementioned competition for grants. Where the hands are lacking, it's not the will-work-for-pizza types that are in demand, but the ones who will work a steady job for a steady wage--that is, the labor shortage is really a cash shortage.

The moral: if you're trying to decide between the do-gooder job for $20k a year and the not-as-fun corporate job for $50k, the best thing you can do for the cause is to take the corporate job and send the do-gooder organization $25k every year, even though this will be completely not fun for you. On the plus side, there's no implicit guilt trip when you demand more pay. (5)

This is really the same moral as the last essay, in yet another context: efficient is boring. I wholeheartedly dread working for the ginormous beaureaucracies that I often contract for, but I know that those bureaucracies are really the best means of effecting change in the world.

author = {Susan Feigenbaum},
title = {Competition and Performance in the Nonprofit Sector: The Case of US Medical Research Charities},
journal = {The Journal of Industrial Economics},
number = {3},
pages = {241--253},
url = {here},
volume = {35},
year = {1987}

2. To belabor the point for the theorists, think of the firm as having two subfields: grantwriting and doing good. If the firm makes as much money from a good grant as an OK one---the no-competition case---then it will write OK grants and spend a lot on doing good. If the expected marginal return to a better grant is steep, then it will shift funds to grantwriting and away from doing good until the imaginary marginal return is equalized again.

3. One exception to all of this would be organizations which have access to funding that other organizations don't, and therefore do expand the supply of cash for the cause. Religious organizations are the star example. But they should take care to avoid mission-creep which causes them to fight for not-exceptional funding.

4. Are there any lawyers reading this? If so, are there any antitrust laws with regards to nonprofit grant-seeking? What if the Brookings and Urban board really did meet every week and explicitly divided up the available grants?

5. Personal to Ms JW of Washington, Columbia: you're the best grassroots organizer one could ever imagine. The world would be a worse place if you ever work outside the nonprofit sector.

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on Tuesday, May 10th, zoe said

>Personal to Ms JW of Washington, Columbia: you're the best grassroots organizer...

Isn't she, but? The roots of grass for about ten miles around our apartment are so organized they look like a photo shoot from Martha Stewart Living. Even the dandelions are carrying tiny posterboards. That girl is off da hook.

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