Nonprofits and Government: Collaboration and Conflict

Published by EH.NET (July 1999)

Elizabeth T. Bor is and C. Eugene Steuerle. Nonprofits and Government:

Collaboration and Conflict. Washington, D.C.: The Urban Press, 1999.

xii + 383pp. Tables, notes, bibliographies, index. $57.50 (cloth), ISBN

0-87766-687-5; $29.50 (paper), ISBN 0-87766-686-3.

Reviewed for H-Business and EH.NET by Milton Goldin, National Coalition of

Independent Scholars (NCIS).

The New Gospel of Wealth

Today, in the second Gilded Age, a hundred years after the first,

scholars at universities and think tanks have replaced clerics and muckraking

journalists as primary observers of America’s philanthropic system. And

government has replaced the private sector as financier of welfare services.

But no one has replaced the Reverend Walter Rauschenbusch, Lincoln Steffens,

Ida Tarbell, and others like them,

individuals who attempted to tie together charity, the generosity of the very

rich, social justice, and public outlays. Nor has any scholar emerged as a

latter-day Thorstein Veblen, the University of Chicago gadfly whose writings

discombobulated robber barons.

Nonprofits and Government, an Urban Institute tour de horizon of

philanthropy at the turn of the 20th century, consists of a foreword by William

Gorham, the institute’s president, an introduction by Elizabeth T. Boris,

director of the institute’s Center on Nonprofits and Philanthropy, and ten

essays by various scholars. As a summary of current relationships between

501(c)3 organizations and Washington, and as insight into who among savants

thinks what,

it is a must-read, not only for individuals who work in government, the media,

and nonprofits but for business historians who want to know where the economy

stands with respect to voluntary organizations.

Gorham writes that “there is a nonprofit organization to fill almost every

imaginable human need or interest…. Regardless of their individual origins,

these organizations create relationships and networks that connect people to

each other and enable them to work toward mutual goals” (p. xi). Four

paragraphs later and more expansive,

he tells us that “Nonprofit organizations have been called the glue that holds

civil society together.” This prepares the way for Boris’s comment that

“relationships such as those fostered by choral societies, bowling leagues,

and other community associations build the trust and cooperation that is

essential for the effective functioning of society,

politics, and [the] economy” (p. 18).

From that point, however, the text takes on a steely tone. Writers set about

demolishing some of our most treasured philanthropic understandings. If you

believe that corporations have a genuine interest in preserving traditional

American community values, consider Dennis R.

Young’s claim that despite “massive gifts” by George Soros and Ted

Turner, “corporate philanthropy generally is becoming more of an exercise in

strategic marketing and employee morale-building than [in]

corporate social responsibility” (p. 82). If you believe that Americans are

extraordinarily generous, consider C. Eugene Steuerle and Virginia A.

Hodgkinson’s view that “In 1996, charitable giving stood at 1.9 percent of

personal income, slightly [sic] below its post-1964 average of 2.3 percent . .

. .” And, given media stories about staggering sums raised, if you believe

that private giving pays for social services,

ponder the same two authors’ observation that nonprofits receive in donated

funds “about one-twelfth of the government’s social welfare spending” (p. 79).

So much for starters. Conservative writers fondly argue that cutting taxes

increases amounts raised for charity. But Alan J. Abramson, Lester M. Salamon,

and Steuerle tell us that “on balance, the overall thrust of tax policy [that

is, tax benefits for the very rich] in the 1980s and 1990s appears to have

weakened the financial incentive for charitable giving” (p. 121). The wealthy

“experienced sharp increases in the after-tax cost of giving between 1980 and

1994, when the after-tax price of giving $1 rose from 30 cents to 69 cents

between 1980 and 1991 and then fell back to about 60 cents in 1994 and beyond”

(p. 122). The result of this process was that the wealthy came to the belief

that it was better to create tax shelters than to seek deductions after making

charitable gifts.

In neither conservative

nor liberal camps do scholars question that tax exemptions provide nonprofits

with benefits that are denied for-profits.

Nonprofits get to keep nearly all the surplus they earn from a variety of

income-producing activities, ranging from fees for services,

to cost-plus programs on behalf of public agencies, to for-profit ventures.

The other side of the coin is that tax exemption means that government annually

certifies a nonprofit’s operations. (Which is actually less and less of a

problem, as the IRS keeps cutting the number of employees available to

investigate exempt organizations.)

These situations lead John H.

Goddeeris and Burton A. Weisbrod into one of the

most interesting discussions in the book, “Not for-Profit?

Conversions and Public Policy,” in

which they address the question, Why should a growing number of nonprofits,

particularly those in health care, want to convert to for-profit status, given

certain incomes from public funds and fees?

Part of the answer, they tell us, hinges on the “non-distribution constraint”

imposed on nonprofits; that is, the restriction prohibiting distributions of

profits or surpluses to managers and/or trustees. As early as 1983, the answer

also began to hinge on cut-offs of federal grants and loans for HMOs and the

removal of tax advantages for Blue Cross and Blue Shield companies. Insiders

considered the loss of these benefits intolerable to their personal financial

gain, if the nonprofit had accumulated valuable assets. Moreover, “As the

market for hospital services has become more price competitive and the level

of over-capacity more apparent, hospitals have come to view affiliation with

larger organizations as necessary for survival. The most attractive suitors

have often, though not always, been for-profits” (p

. 250).

How we got to where we are today and whose interests have been served during

the journey, subjects addressed in part in all the essays, are discussed by

Young in an awesomely-titled essay, “Complementary,

Supplementary, or Adversarial? A Theoretical and Historical Examination of

Nonprofit-Government Relations in the United States” (pp. 31-67).

Young writes that “public policymakers,” both on the left and on the right,

have “oversimplified” views of nonprofits, although of late there have been

improvements. Even dedicated Reaganites no longer argue that if government

pulls

out of welfare programs, nonprofits and volunteers will happily take over

responsibilities, using donated funds. On their part, liberals agree that the

centralized welfare state

should be dismantled to some degree and that local nonprofits should assume

more responsibility.

Young further suggests that differing understandings of philanthropy’s role

should not be surprising. Three theories of the role of voluntary organizations

in the national life, in some ways contradictory, have been operative since the

founding of the Republic. In a “supplementary model,” nonprofits fulfill a

demand for public goods left unsatisfied by government. In a “complementary

view,” nonprofits operate as partners with government, to deliver public

goods. And in an “adversarial view,”

nonprofits exist mainly to prod government into adjusting its policies to

provide public goods.

The problem is that Young’s explanation does not go far enough to address a

new trend, as the 20th century comes to an end. We are currently in the midst

of the greatest transfer of wealth in world history. Possibly between five and

six trillion dollars (no one knows for certain) is either already in, or en

route to, foundations,

charitable remainder trusts, and similar financial creations, dispatched by the

World War II generation and the first Baby Boomers to retire.

Unlike their predecessors during the first Gilded Age, these rich often have

little or no interest in philanthropy. Preservation of capital is not just

part of the story, it is very nearly all of the story. What will happen to the

philanthropic system as the rich park more and more of their assets in

tax-sheltered instruments is anyone’s guess. There is no discussion of this

development in Nonprofits and Government.