We are entering fundraising season. The pitches will arrive by the dozens. There is a complication: the rise of a new cynicism that could put a dent in the impulse to give.
We are in the midst of a collapse of public trust in virtually everything. Universities, churches, and nonprofits of all sorts are confronting this now. The problem traces to a new transparency concerning the source of funds and what is done with them.
It would make perfect sense for donors today to withhold charitable dollars until they find out precisely how they are used.
After all, we’ve been inundated for several years now with reports of nonprofits receiving astonishing amounts from government agencies. Oftentimes, tracing the financial connections can be exhausting, but plenty of researchers have done it. Like so many other institutions over these years, nonprofits have lost credibility.
Truly, if the United States stops giving, the charitable sector for the whole world will atrophy, if not die completely. The issue, then, is serious.
This entire sector is sometimes called the third sector. It’s not the government, and it’s not the commercial marketplace. That means that its very existence does not fit neatly into conventional political ideology. Typical philosophizing about society and politics is forever assessing the relative merit of market-based means and government-based means of solving problems.
Our politics is largely set up this way. This artificially constrains our understanding of reality. Nonprofits are enormously important for any civilized society for one main reason. Many of the services necessary for a well-developed society simply cannot be provided with the sole motivation of making a profit. And those same services cannot be provided with effectiveness and humanitarian focus if they are turned over to government.
Let’s just return to the second half of the 19th century, following the horrible Civil War and the desperate need for society to normalize. It was a time of tremendous technological advance, demographic change, migration within and to the country, and a reassessment of many matters concerning education, religion, and more.
The cities were filling up thanks to new modes of transportation and new industries. Economics was no longer about the family farm with multigenerational housing and jobs for all ages. The industrial age was spreading to all corners. The passage of time was measured in every home by clocks, newly available for everyone.
Another innovation: books in middle-class homes. This introduced the possibility of expanding population erudition and education, even raising the dream of a wholly literate population and schools in every neighborhood. Formal education was not just for the rich, but for everyone.
This is where matters stood in the 1870s as the children of agricultural lineage considered migrating to the West and to the factories in the Northeast for more money and more independence.
All of this upheaval called forth dramatic demand that the usual commercial marketplace was not suited to satisfy. The country needed more hospitals, schools, universities, orphanages, libraries, and churches. The demand was huge.
The philanthropists stepped up. Yes, a major portion of them were “robber barons” with Gilded Age fortunes, but they were among the most charitable people the world has ever known. They built libraries and churches and schools. They endowed universities. They built the orphanages and hospitals.
They embraced causes such as real health, animal welfare, and universal schooling. They cared for the elderly without family and found homes for the orphans. They cleaned up the cities and built municipal parks. They worked to beautify every public space and underwrite the improvement of society.
It wasn’t just the large fortunes; it was the fact that they made it fashionable to be generous. In time, we had symphonies and libraries everywhere, and every religion had gorgeous houses of worship. Public gardens grew up everywhere alongside civic centers and museums. The Smithsonian Institution began in this spirit with the help of private money.
In those days, everyone came to believe that philanthropy was indispensable to a functioning society because everything that made life wonderful came from charity, given generously from both fortunes and middle-class incomes. In those days, there were no illusions that any of these wonderful things could be provided with a for-profit business. No, we needed philanthropy to make it possible.
Consider a slight detour into theory here. In the business of commerce, you have a direct trade: money for goods and services. It is subject to normal accounting assessments. You do what makes money and stop doing what does not make money. It’s a purely bidirectional exchange.
Nonprofits are different. They provide services and goods to people who are not the direct providers of revenue. The people who benefit are mostly themselves beneficiaries of someone else’s mission-driven desire to make the world a better place. So there is this triangularity to the exchange: the provider of resources, the institutional allocator of the resources, and the beneficiary. Very often the real benefit flows to the whole of society.
In other words, it is simply not possible that the services provided through this third sector can be provided via accounting profits. This is why most governments in most places, realizing this to be true, have carved out a special tax status for nonprofit organizations. As long as they don’t directly engage in political activity, the donors are permitted to deduct what they give from the taxes they are otherwise forced to pay.
This is why museums, libraries, churches, universities, and so many other mission-based organizations are registered as nonprofits. It’s because they are absolutely essential to the good society.
A tragic thing happened in the Progressive Era. Many of the largest fortunes that were the source of so much philanthropy were gutted by the income tax, the estate tax, property taxes, and more. This only intensified from 1913 through 1930, such that charitable donations began to dry up. The families themselves had to sell magnificent homes and otherwise pull in their spending. Of course, philanthropy was the first to go.
At the very same time, the ideology of Progressivism preached that all the services provided by charity could be provided better by government in any case. Thus did we embark on the great experiment of the welfare state and state museums and social services. The idea was to get rid of the philanthropic source of funds and bring science to the cause.
How did that work out? Not well. It turned out to be a disaster for several reasons. Instead of providing humane services, the welfare state produced a cycle of dependency. It also wasted trillions of dollars in wealth that fed bureaucracies. The welfare state and state-funded arts did not alleviate the need for private donors to step up.
We now desperately need to reconstruct the civilized society that we left behind during these years of upheaval. There is so much need, so much suffering. And yet there are organizations out there that are trying to provide. They need your help. They need my help. They need everyone’s help.
Neither government nor the financial markets are going to provide the whole of what is needed right now. We will rebuild the same way we built in the first place: through vision, charity, and humane concern for the betterment of all. That absolutely requires this third sector, which should be revered, protected, and funded.
Yes, there are racketeers out there, and it is wise to be careful, spending your charitable dollars with attention to getting the best results. There is no need to give to massive institutions that are only building bureaucracies and huge endowments. But the smaller organizations that genuinely care and do great work? They need your help.
Give generously this season, please. This is how we leave a legacy for the next generation.
