Summer 2018 final

Promoting Spirited Nonprofit Management  Summer 2018  $19.95Nonprofits as Engines of a More Equitable Economy andDo Donor-Advised Funds Need Regulation? Rushkoff, Yakini, Dubb, and Kerlin on Building Community Wealth Madoff, Zerbe, and McCambridge on Tensions around DAFs Also: Understanding Nonprofit Markets Ethical Leadership in Divided Times SPECIAL REPORT: Effects in the Sector of the IRS’s Nonprofit Automatic Revocations

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Volume 25, Issue 2 Summer 2018 3 Welcome PAGE 6 25 Visions of a New Economy from PAGE 38 Detroit: A Conversation with 4 The Nonprofit Whisperer Malik Yakini Is there a guideline for measuring how many A democratic society, contends activist grant writers are needed on staff to raise x and educator Malik Yakini, requires amount of funds? Is that even the right question? embedding the economy in “a universal, The Nonprofit Whisperer weighs in on the respectful, inclusive approach to importance of a strong culture of philanthropy. spirituality that recognizes . . . the connection we have to each other and to Features the planet.” This interview situates the search for a more democratic economy in 6 RETHINKING THE ECONOMY AND OUR the history of the movements for Black ROLE WITHIN IT liberation and food justice in Detroit. 9 The Economy Is Changing—and 32 Social Enterprise: What the U.S. and So Must We European Experience Can Teach Us— And Where to Now? “What is the role of civil society in a world where the economic ground beneath us is As author and professor Janelle shifting rapidly?,” asks Nonprofit Quarterly Kerlin has noted, “From practitioners senior editor Steve Dubb. This article to policymakers, activists, and funders explores that question and outlines some of the social good, social enterprise has paths toward community wealth. captured the imagination and hopes of by Steve Dubb a growing cross-section of society that seeks to find a more sustainable answer 20 Organizing Our Economy as if to the problems of society.” This article We Lived on a Single Planet: examines notable differences between A Conversation with Douglas Rushkoff the philosophy and practice of social enterprise in the United States and Europe. If efficiency requires us to send slaves into caves to extract metals and create toxic by Janelle A. Kerlin waste that destroys the planet, notes media, technology, and society expert Douglas Rushkoff, then maybe we should be less efficient. This interview explores the inherent problems with our current extractive economy. ON THE COVER COVER ART: “NEWTON II” (DETAIL) BY ELSA JACOB/WWW.ELSAJACOB.AT COVER DESIGN BY CANFIELD DESIGN

38 ADVANCING A DAF REGULATORY Departments AGENDA FROM WITHIN THE NONPROFIT SECTOR 57 You First: Leadership for a New World “Tipping Points—Tipsy Times” 41 Do Donor-Advised Funds Require “With news that CO2 levels in April 2018 hit the highest average ever recorded, I couldn’t Regulatory Attention? help but think about the boiling frog video.” Thus begins Mark Light’s meditation on organizational change efforts and why we tend to resist them. Donor-advised funds have been by Mark Light, MBA, PhD around for a half-century, but until commercial financial firms began 60 SPECIAL REPORT How Many Nonprofits Are There?: What the IRS’s Nonprofit playing the part of sponsors, DAFs Automatic Revocation and 1023-EZ Processes Left Behind were largely uncontroversial. Now, This report, by Nonprofit Quarterly consulting editor Michael Wyland, is a first-of-its-kind DAFs are in direct competition with analysis of the state of the nonprofit sector since the IRS’s nonprofit automatic revocation community foundations, and tensions process and introduction of the 1023-EZ. are erupting. The problem is, DAFs do by Michael L. Wyland not operate in a transparent manner yet are afforded tax deductions. And 68 Community Influences: Understanding Nonprofit Markets this, writes Nonprofit Quarterly editor Here, Spectrum Nonprofit Services principal Steve Zimmerman outlines how to undertake a in chief Ruth McCambridge, “raises holistic market analysis so that an organization can both better understand the needs of its questions about accountability and community and be better positioned to serve it. access.” by Steve Zimmerman by Ruth McCambridge 78 Courageous and Ethical Leadership in a Polarized World This article is a reminder that we can choose where we stand in a moment of challenge. 46 Three Simple Steps to Protect Such choices, well and courageously made, can be both very dangerous and the deepest Charities and American Taxpayers expression of respect for ourselves and each other. from the Rise of Donor-Advised by Grant Oliphant Funds Nonprofit Information Networking Association “Without a doubt, the most Joel Toner, Executive Publisher noteworthy story affecting the charitable sector over the past Ruth McCambridge, Editor in Chief twenty-five years has been the Nonprofit Information Networking Association Board of Directors meteoric rise of donor-advised funds,” writes Ray Madoff, cofounder and Ivye Allen, Foundation for the Mid South director of the Boston College Law Charles Bell, Consumers Union School Forum on Philanthropy and the Public Good. This article lays out three Anasuya Sengupta, Activist/Strategist/Facilitator steps to ensure that DAFs work “for Richard Shaw, Youth Villages everyone.” www.npqmag.org by Ray D. Madoff The Nonprofit Quarterly is published by Nonprofit Information Networking Association, 52 DAF Reform—A Chance 112 Water St., Ste. 400, Boston, MA 02109; 617-227-4624. to Provide a Real Benefit to Working Charities Copyr­ight © 2018. No part of this publication may be reprinted without permission. ISSN 1934-6050 This article, by former tax counsel to the U.S. Senate Committee on Finance Dean Zerbe, asks what it would look like if donor-advised funds reform focused on, among other things, “getting . . . dollars out of warm banks and into the hands of working charities.” The result, concludes Zerbe, would be nothing short of astonishing. by Dean Zerbe2 ​T H E   N O N P R O F I T   Q U A R T E R LY WWW.NPQMAG.ORG • SUMMER 2018

WelcomeExecutive Publisher Dear readers, This edition of the NonprofitJoel Toner Quarterly focuses on advancing two conversations that the editors saw asEditor in Chief being “stuck.” But when we talk about stuck conversations, we are not simply addressingRuth McCambridge polarized communications but also conversa- tions avoided or badly framed. The two topicsSenior Managing Editor we have taken up here are (1) ideas around community wealth building, and ways in whichCassandra Heliczer social enterprise might really matter to the economy (and what, in our understanding ofSenior Editors it, is holding it back); and (2) questions around whether donor-advised funds, which make up an ever-expanding portion of theSteve Dubb, Cyndi Suarez charitable giving sector, are in need of regulatory attention—and if so, what kind. In both cases, the conversations have gone off track and are stalled. With respectContributing Editors to social enterprise, any thought of extractive capitalism as not being the natural way of things sends the dominant culture into a panic. So, what we have done in thisFredrik O. Andersson, Shena Ashley, Jeanne Bell, country is to infantilize the movement for a pluralistic economy, treating it as if it has no way forward except as a collection of boutique-type efforts to be cooed over.Chao Guo, Brent Never, Jon Pratt This is true even as a movement to encourage worker-owned business structures has taken root across the country and as land trusts are being used in increasinglySenior Online Editor Community Builder creative ways. Peter Senge, who popularized the idea of the learning organization, once commented that one of the reasons why that concept did not take off more inJason Schneiderman Erin Rubin the corporate sector was that it challenges some of the most central notions of power and pay and intelligence, and this has erected a natural obstructive wall. Thus, theDirector of Digital Strategies problem with spreading the concept of an alternative economy may have everything to do with a relatively hostile larger economic culture that drowns out any sense ofAine Creedon promise. This, then, requires a clearer explication of that promise and of the central proposition of the difference social enterprise can make to community wealth.Graphic Design Production In the case of DAFs (which have been in relatively wide use for at least thirty years), any arguments about the need for regulation are stalled by the fact that thereKate Canfield Nita Cote is a veil that obscures from public scrutiny what is happening in individual funds, even after the donors are given tax breaks—which is at least a part of the allure forMarketing and Development Manager donors. So, we can see the basics about the donor-advised sponsor—what its payout Amanda Nelson rate is, for instance—but not about the individual funds. Some will see the lack of bad news as good news, of course, but others see at least the potential for abuse inOperations Manager the hazy depths of these funds. There have been any number of problems with this conversation, including the fact that those having it have tended to attribute badScarlet Kim motives to the other side, and that this sector appears to be stuck in a preventive mode from having conversations about potential regulations—and that mode is defensive.Copy Editors Proofreaders As ever, we welcome your input!Christine Clark, James Carroll,Dorian Hastings Dorian Hastings InternsKristen Knight, Mrudula Vempuluru Editorial Advisory Board Elizabeth Castillo, University of San Diego Eileen Cunniffe, Arts & Business Council of Greater Philadelphia Lynn Eakin, Ontario Nonprofit Network Anne Eigeman, Anne Eigeman Consulting Robert Frady Chao Guo, University of PennsylvaniaRahsaan Harris, Emerging Practitioners in Philanthropy Paul Hogan, John R. Oishei Foundation Mia Joiner-Moore, NeighborWorks America Hildie Lipson, Maine Center for Public Interest Lindsay Louie, Hewlett Foundation Robert Meiksins, Forward Steps Consulting LLC Jon Pratt, Minnesota Council of NonprofitsJamie Smith, Young Nonprofit Professionals Network Michael Wyland, Sumption & Wyland Advertising Sales 617-227-4624, [email protected] Subscriptions: Order by telephone (617-227-4624, ext. 1), fax (617-227-5270), e-mail ([email protected]), or online (www.nonprofitquarterly.org). A one-yearsubscription (4 issues) is $59. A single issue is $19.95.SUMMER 2018 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​3

ORGANIZATIONAL LIFE The Nonprofit Whisperer Matching the number of grant writers to the amount of funds an organization wishes to raise may sound logical, but it’s not the way to go. Rather, a grant writer’s work should be well integrated into the organization’s fundraising goals, which should be developed based on past results and supported by sound fund development plans and financial management practices—in other words, by a healthy culture of philanthropy. Dear nonprofit whisperer, that takes asking someone who has Within the context of a culture of phi- Is there a rule of thumb or some been effective with that organization to lanthropy and a fund development plan, such guideline for how many introduce me. And, actually, if you are some organizations will employ grant grant staff members are needed not the executive director, that too may requests to aligned foundations and gov- to raise a certain dollar level of just be hard—because, after all, many grant- ernment, corporate, and religious giving grants? I am the only person managing, makers still wish to craft that relation- programs. The goal for the grants portion writing, researching, and submitting ship with the human in charge, unless the should be based on research done by grants, yet I’m expected to raise a certain organization has established a tradition first understanding the cost of business amount (which I have never achieved, of multiple high-level representatives. by program area for the organization and which gets larger every year). and then projecting that cost at least What kind of staffing is needed? For From your letter, it sounds as if one year (ideally three years) forward, example, one staff member for every you might be working in some isola- and developing a plan for resourcing the $100,000 received in grants? Or, ten tion (asked to sit in a corner and write costs. The grant-writing goal is further for every million? grants). I hope you are more integrated established by researching the usual and Frayed into the whole organization, and mini- unusual grant-giving suspects for your mally able to meet with program staff field or in your geography, and identi- Dear Frayed, and the organization’s constituents to get fying likely and possible grants within Oh my gosh! You cannot measure grant a real sense of the work on the ground. realistic ranges. And, hopefully, your work in such a linear way. Seasoned Your grant writing will be more authentic organization is not asking you to “spray development folk know that the time as a result. But to get to a sort of fund- and pray”—sending out multiple propos- spent on writing a grant sometimes raising flow, you have to go yet one step als to multiple sources without benefit of seems in direct contradiction to the further;1 NPQ has recently published and researching whether or not there is a true amount of money on possible offer. Thus, provided webinars on the need to build match. Over-the-transom requests, where it is possible for a $10,000 grant request a culture of philanthropy in nonprofits.2 there has been no personal contact of any to be more time intensive than a $100,000 type (like a call to ensure a request might grant request. A culture of philanthropy means that be considered) are the least likely to be fundraising is not seen as an evil neces- funded. And neither ask is likely to be very sity but rather as an integrated way of life cost effective if you (or your organiza- for the entire organization. Each person, We hope, for your sake, that your tion) have not already struck up a rela- from the board chair to the receptionist, work is integrated with fundraising goals tionship with the source. The Whisperer has a role in the philanthropic life of the for each type of fundraising technique tries never to send out a grant request organization—not necessarily asking for your organization uses: individual gifts, without having a conversation with a money directly, but in understanding that grants, events, and so forth. The goals decision maker ahead of time, even if resourcing the mission is as important as should be developed based on past ensuring good strategy. 4 ​T H E   N O N P R O F I T   Q U A R T E R LY WWW.NPQMAG.ORG • SUMMER 2018

results—in your case, in grant writing— a new board president who has con- IU Lilly Family ORGANIZATIONAL LIFEand within the context of an overarch- nections to those very-hard-to-access School of Philanthropying fund development plan that board donor-advised funds; a foundation thatmembers and other staff have been a changes strategy and is no longer aligned; Leading philanthropypart of creating. The fund development a change in the political landscape that master’s programplan needs to be nested in organizational decreases current contracts or opens upvalues, vision, and current and near-term new sources; a recession that hits and NOW AVAILABLEstrategies. And, it should be supported by is a predictor for decreasing grants; and ONLINE!sound financial management practices, so forth.including the ability of the organization José Lusende, CFREto accurately forecast budgets beyond If you are working for the type of Director of Advancementthe current fiscal year—a critical need organization that sidelines fundraising Martin Universityfor the fundraising folks. and puts “Baby in a corner,” or if you are M.A. Student in Philanthropic Studies working without a plan, simply churning Many organizations write grants to out grants against a goal that does not •Onlineraise money for their current financial seem based on a reasonable triangula- •Executiveyear. Ideally, though, you are writing tion of data (again, an established cost ofgrants for the projected year—meaning, doing business, researched future sources On-campusraising grant funds that will be used six of grants, and internal capacity to reachto twelve months from the time the pro- those sources), then consider looking philanthropy.iupui.eduposal is submitted. The planning process at some other organizations that mightshould include the organization’s man- align with your personal mission and haveagement team, who help keep future their act more together as regards theirprogramming strategically aligned with culture of philanthropy. Fund develop-future resources—and your research ment staff, including grant writers, are inshould be supporting the latter part of the high demand, and you shouldn’t feel stuckbudget plan by establishing a realistic in a less-than-ideal situation.goal for all fundraising (including grants),with maybe a 5 percent increase over the Notesprevious year. (So, if you typically raise 1. I mean “flow” in the positive psychology$300,000 via grant requests, the increase sense of the word. See “Flow (psychol-is to $315,000.) The final piece is internal ogy),” Wikipedia, updated April 13, 2018,capacity: there may be $500,000 in poten- en.wikipe​ dia.org/wiki/Flow_(psychology).tial gifts sitting out there, but if there is 2. See, for example, “Fundraising Brightnot enough “labor power” or leadership Spots: The Secrets of Successful Fundrais-attention to organize yourself and other ing from Individuals,” NPQ webinar, Aprilstaff and board members to execute it, 18, 2017, nonprofitquarterly.org/2017/04/18then the goal must be reduced to match /bright-spots-fundraising-secrets/.staff and/or organizational capacity. The Nonprofit Whisperer has over thirty Of course, the plan will not be static years of experience in the nonprofit sector,and must include contingencies and time serving variously as nonprofit staff andto manage new opportunities or a change board member, foundation staff member,in fortune and to begin the strategy-plan- and nonprofit management consultant.request-“get”-implementation-reportloop all over again simultaneously. A To comment on this article, write to us atkind of planned flexibility is required to [email protected]. Order reprints frombe able to forecast change and manage http://store.nonprofitquarterly.org, usingsurprises. These might include: a new code 250201.resource that appears on the horizon;SUMMER 2018 • WWW.NPQMAG.ORG  T H E   N O N P R O F I T   Q U A R T E R LY  ​5

Community Wealth Building Rethinking the Economy and Our Role within It As the articles in this The word economy derives from the Greek section stress, the word oikos, which, roughly translated, means managing the household. Ulti- economic system as mately, no matter how technical eco- we know it needs a nomics may seem, the decisions about how we profound reboot. And structure our economy and our policies are deci-the nonprofit sector— sions about how we as a community manage our common home. And if the economic system that whose mission is we have known all of our lives is faltering andlargely (if erroneously) failing to meet social needs, that will affect us all. seen as plugging the holes and filling in the The idea that the economic system as we knowgaps left by inadequate it needs a reboot, is one that permeates the articles government and for- that follow. Steve Dubb, a senior editor at the Non-profit services—needs profit Quarterly, notes that labor unions played to focus on changing a critical role in the post–World War II economic system in the United States and in the rest of the systems to help so-called “developed” world. For many decades, make possible an labor unions were able to serve as a countervail- equitable economy. ing force to business, helping to ensure the broad sharing of wealth generated from our common economic home. But labor has shrunk to a sliver of its former self. While nonprofits have grown in scope and scale to fill some of the gap, more and more “the duct tape is not holding,” Dubb remarks. Noting the increasing concentration of wealth and income in our economy, he suggests that one way out of the dilemma may be through greater community ownership in the economy, including nonprofit social enterprise—changing who owns the profits generated by business. As for nonprofits, Dubb proposes that in an economy6 ​T H E   N O N P R O F I T   Q U A R T E R LY  “WATCHING” (DETAIL) BY KEITH POINTING/WWW.SAATCHIART.COM/ACCOUNT/PROFILE/970048



and polity that is fragile and where systems are resource-intensive. And, because our economic increasingly unstable, nonprofits need to focus system relies on continuous growth, it is increas- less on plugging holes and filling gaps and more on ingly resource-intensive over time. Science-fiction changing systems to help make possible a transi- fantasies aside, developing our common eco- tion to a more equitable economy. nomic home, limited by the resources of a single planet, requires an economy structured around For her part, Janelle Kerlin, an associate pro- forms of business ownership—like nonprofits and fessor at the Andrew Young School of Policy cooperatives that share wealth—alongside demo- Studies at Georgia State University, examines cratic, stakeholder-governed commons manage- both the U.S. and European experiences of social ment systems. enterprise, with an eye toward identifying how these divergent experiences of the interaction The second interview is with Malik Yakini, of nonprofits and the economy help us respond who situates the search for a more democratic to a period of increased systemic instability. economy in the history of the movements for In the United States, Kerlin notes, two schools Black liberation and food justice in Detroit. Yakini of thought predominate—one that focuses on came of age politically shortly after the 1967 urban earned-income activities that generate com- rebellion in Detroit. His work has been grounded mercial revenues for social goals, and another in many local projects—ranging from participat- that places greater emphasis on the innovative ing in a free breakfast program in nearby Ypsilanti social entrepreneur, “with the social enterprise while in college to creating a school informed as the vehicle through which a social innovation by an Afrocentric curriculum to developing a is delivered with or without a commercial base.” seven-acre urban farm to now helping create a In Europe, by contrast, much more emphasis is food co-op and commons space in Detroit’s North placed on social criteria, such as having partici- End neighborhood. But Yakini emphasizes the patory, stakeholder-based governance. A notable need for that work to be informed by a “vision difference, too, is that in the United States, coop- of where we are headed, and align our work with eratives are largely excluded from the discussion that.” He adds that to rebuild our economic home, of social enterprise; by contrast, in Europe coop- we must challenge both capitalist exploitation and eratives—or what are sometimes called “social white supremacy, which are intertwined. A demo- cooperatives”—are the most typical form of social cratic society, he contends, requires embedding enterprise. What becomes clear in Kerlin’s analy- the economy in “a universal, respectful, inclusive sis is that the effort within social enterprise to approach to spirituality that recognizes . . . the con- more effectively address social problems through nection we have to each other and to the planet.” business intervention is part of a broader journey, as she puts it, “to find a more sustainable answer Of course, while we can recognize that old to the problems of society.” assumptions regarding the stability of our eco- nomic system and many other social systems This section also includes two interviews no longer hold, we do not know any more than with field leaders. One is with Douglas Rushkoff, our readers do where our path of social and eco- author of more than a dozen books on media, nomic change will take us. Much of the Nonprofit technology, and society. Rushkoff calls on non- Quarterly’s coverage of the economy—whether profits to think of their role not as charities critiquing current mainstream practices (such but rather as businesses: “Nonprofits are busi- as the mad scrum to “win” Amazon’s multicity nesses. Nonprofits are a better model for doing competition) or highlighting promising emergent business than for-profit companies. The only practices—is part and parcel of a broader civil difference between a nonprofit company and a and social exploration of better paths forward. for-profit company is that a nonprofit company Readers’ thoughts on how our community can can’t be sold,” Rushkoff says. In particular, he meet this challenge are welcome—and submis- emphasizes that the current economic model, sions on the many topics that are arising within while generating considerable wealth, is also this emerging field are highly encouraged.8 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

The Economy Is Changing— And So Must We by Steve DubbSince fall 2017, the Nonprofit Quarterly president emerita) of the F.B. Heron Foundation, has covered a growing number of stories wrote a paper titled “The World Has Changed and on emergent forms of economic organiza- So Must We.”2 Miller was talking about capital tion. This includes writing on employee markets and the need for a mission-based approachownership, cooperatives, social enterprise, com- to investing foundation assets. But what about us?munity development finance, anchor institutions, In other words, what is the role of civil society—the growth of nonprofit-owned businesses, and the people who our sector represents, independentthe rise of community land trusts. We’ve run fea- of our legal form—in a world where the economictures on a union-co-op conference in Cincinnati; ground beneath us is shifting rapidly?on the use of employee ownership as a businesssuccession strategy as the baby boom generation In our sector, nonprofits typically act to mendretires; and on the rise of platform cooperatives— problems. The basic assumption behind this isthat is, app-based platforms that are co-owned by that the system, despite major problems here andthe workers, in lieu of the investor-owned Ubers there, is more or less functional, and our role isof the world.1 to come up with clever solutions—be good social entrepreneurs, if you will—to plug the holes and In their own right, these are important stories, fill in the gaps.but there is something deeper going on here, too.A few years ago, Clara Miller, then president (now But it is increasingly evident that these basic assumptions don’t remotely describe the world inSteve Dubb is a senior editor at NPQ. Dubb has which we operate. Last December, NPQ’s Cyndiworked with cooperatives and nonprofits for over two Suarez wrote:decades, including twelve years at The DemocracyCollaborative and three years as executive director of “Places like Puerto Rico that are experi-NASCO (North American Students of Cooperation). He encing full-scale collapse are simply atis the lead author of Building Wealth: The Asset-Based the edge, experiencing it first. In DmitryApproach to Solving Social and Economic Problems Orlov’s The Five Stages of Collapse: Sur-(Aspen, 2005), coauthor of The Road Half Traveled: vivors’ Toolkit, he proposes that currentUniversity Engagement at a Crossroads (MSU Press, civilization has entered the collapse phase2012), and curator and author of Conversations on where, rather than long-term decline, weCommunity Wealth Building (Democracy Collabora- have sudden changes caused by systemstive, 2016), a collection of interviews of community out of control. Perhaps these moments arebuilders conducted over the previous decade. the new high-leverage points in systems change; when systems are collapsing, there is a vacuum and a battle for the new order.”3“ W AT C H I N G” ( D E TA I L ; A N D P. 19) B Y K E I T H P O I N T I N G / W W W. S A AT C H I A R T. C O M /A C C O U N T/ P R O F I L E / 9 70 0 4 8 T H E   N O N P R O F I T   Q U A R T E R LY  ​9

Before talking about So, if the current political and economic the nation’s political-economic institutional struc-the contemporary systems in the United States are corrupt, decaying, tures were somewhat functional—for some­—forprocess of corruption, or even collapsing, then plugging holes and filling a time. The result was that wages broadly keptdecay, or collapse, it is in gaps—no matter how well we are guided by pace with productivity. But that world hasn’timportant to start out sophisticated logic models showing the wisdom of existed for a good four decades now, even thoughwith the obvious: that our interventions—will fail. This means that those some often pretend that it still does.for all of our society’s stories about so-called alternative forms of eco-accomplishments, for nomic organization may be more than “feel-good” To greatly simplify history, for the past nearlymany the United States narratives of community self-determination;4 in three-quarters of a century, the existing U.S.has never been the fact, they may be glimpses of another world institutional structure has been based on a seriesshining “city upon a hill” emerging. In short, if our economic, political, of compromises that emerged out of the Greatthat leaders dating and social systems are changing before our eyes, Depression and World War II. One can call thisback to colonial then community-based economics stops being infrastructure many different things—commonMassachusetts governor a nice-to-have and starts becoming a must-have. names include the New Deal institutional infra-John Winthrop have structure, American liberalism, and the welfareenvisioned. How Did We Get Here? state. Similar structures, with generally more generous social benefits, emerged at roughly the Before talking about the contemporary process of same time in Canada, Europe, and Japan—often corruption, decay, or collapse, it is important to under the guise of social democracy. But call it start out with the obvious: that for all of our soci- what you will, two critical elements of the eco- ety’s accomplishments, for many the United States nomic model that emerged after World War II has never been the shining “city upon a hill” that were the following: leaders dating back to colonial Massachusetts gov- • A relatively strong central (federal) govern- ernor John Winthrop have envisioned. The “Ameri- can project” has always been an imperial one. ment, funded by relatively high taxes and Noting the country’s history of genocide against growing welfare state protections—especially Native Americans, Yale historian Paul Kennedy, for Social Security, Medicare, and Medicaid, but example, remarked, “From the time the first set- also many other benefits, such as subsidized tlers arrived in Virginia from England and started student loans, job training support, food moving westward, this was an imperial nation, a stamps, and welfare conquering nation.”5 And, of course, the nation • A relatively strong labor movement that could was also built on the sweat and tears of Black slave effectively pressure corporations for higher labor. Another Yale historian, David Blight, points wages and benefits, and lobby government for out, “Slaves by 1860 were worth approximately greater social benefits $3.5 billion. That was the largest single asset in the entire U.S. economy. That was worth more Note that nonprofits do not appear above; this than all railroads, more than all manufacturing, all is because initially nonprofits were not major other assets combined.”6 As Ta-Nehisi Coates and players. Broadly speaking, if one looks at the eco- others have demonstrated, the impact of slavery, nomics of the period spanning from 1945 to the Jim Crow, and ongoing discrimination has ensured present, it is clear that the United States has expe- the persistence of vast race-based gaps in income rienced two markedly different periods within and, especially, wealth. And, without enumerating the past seventy-plus years. The first era—the them all, the United States has been riven by many one that coincided with a relatively strong labor forms of inequality—among them, patriarchy, dis- movement—was marked by a relative degree of crimination against Latinx and Asian Americans, economic equality; this began to shift, however, homophobia, transphobia, and class divisions— in the 1970s, and the period of 1980 to the present throughout its history. has been marked by rapidly rising inequality. In short, there is no sense in idealizing the In 1945, 35.4 percent of private sector, non- past. And yet, even with all of its shortcomings, agricultural workers were in unions.7 According to the U.S. Department of Labor, figures for 2017 reflect that the number in the private sector is10 ​T H E   N O N P R O F I T   Q U A R T E R LY   W W W​. N P Q M A G​. O R G • S U M M E R 2 018

a paltry 6.5 percent. Only the continued strong sector. For example, in 2013 the nonprofit con- Between 1979 and 2010,(34.4 percent) presence of unions among public tribution to GDP was $905.9 billion, while non- the top 1 percent ofsector workers keeps the overall union member- profit revenues were nearly twice as high, at $1.73 Americans saw their realship rate in double digits (barely), at 10.7 percent.8 trillion.19 As a percentage of employment, non- incomes rise by profits employ an estimated 10.2 percent of the 80 percent, while The economic contrast between these two workforce.20 The difference between nonprofit the median incomeperiods is quite clear. As Jared Bernstein, who revenues and their contribution to GDP derives increased onlyserved for a time as the chief economist and eco- from the need to avoid double counting. It gets 11 percent.nomic adviser for Vice President Joe Biden, testi- complicated—but, to give one example that mightfied to Congress, “Over the three decades from illustrate the complexities: if government pays for1947–79, real median family income grew almost insurance that individuals use to purchase ser-in lock step with productivity growth.”9 Bernstein vices (for example, Medicare or Medicaid), thatadded that while between 1947 and 1979 the top counts as a nonprofit contribution to GDP; and,1 percent of Americans saw a 119 percent increase if government pays for a government employee’sin real income, the median household also saw insurance to use the same nonprofit hospital, thatincomes climb a similar 112 percent.10 Disaggre- counts as a government contribution to GDP.gating by race, median income for Black families(adjusted to 2011 dollars) rose from $14,216 to It would be remiss not to point out the$32,537 between 1947 and 1969, a 128 percent obvious—namely, that healthcare is a major driverincrease, and faster than white incomes rose. In of nonprofit sector growth. The Urban Institute1949, Black median income was 51.1 percent of estimates that 49.8 percent of all nonprofit rev-white income; by 1969, the ratio had improved enues are from hospitals, and 59.1 percent are into 61.3 percent.11 (In the 1970s, Black income nonprofit healthcare, broadly defined (includinggrowth slowed as deindustrialization hit Black nursing homes and clinics).21 According to the 2016workers first and harder than white workers, at Nonprofit Almanac, healthcare under that broaderleast initially.)12 definition generates 76 percent of commercial non- profit revenue—that is, the number that feeds into By contrast, between 1979 and 2010, the top GDP.22 Still, the growth of the nonprofit sector has1 percent of Americans saw their real incomes been remarkable. Even if you wanted to assume—rise by 80 percent, while the median income incorrectly, of course—that health played no roleincreased only 11 percent.13 Meanwhile, the ratio at all in the nonprofit sector in 1945, and subtractedof Black income to white income has been stuck all healthcare nonprofit income from today’sat 61 percent.14 Because overall income growth numbers, nonprofits still would have outpacedhas slowed, median Black household income since overall economic growth in the postwar period by1969 has risen only to $39,715, a much more modest at least 50 percent. More reasonable assumptions22 percent.15 To reiterate, over a span of twenty would likely show that the nonprofits’ share ofyears (1949 to 1969), Black incomes increased by GDP outside of healthcare has doubled.23128 percent, compared to a much more modestgain of 22 percent in the forty-year “post-civil And, of course, GDP numbers fail to considerrights movement” period that followed.16 the nearly $800 billion gap between nonprofit total revenue—this latter figure includes donor contri- As labor unions receded—and as economic butions and government and business contracts,inequality increased—nonprofits have grown. as well as commercial revenue—and direct non-Colin Burke, writing in the Nonprofit and Volun- profit contribution to GDP.24 Of course, many oftary Sector Quarterly, finds that in 1945, nonprof- these noncommercial sources of revenue speak toits contributed a rather paltry 0.9 percent of gross shifts of service responsibility from governmentdomestic product (GDP). By 1980, that number to nonprofits. Data for total nonprofit revenuehad gradually climbed to 2.9 percent of GDP.17 can’t be tracked as far as GDP numbers, but a 2008Today, nonprofits generate 5.4 percent of GDP.18 IRS study found that nonprofit sector revenue, adjusted for inflation, increased by 174 percent Moreover, it is worth noting that the GDPfigures understate the importance of the nonprofitS U M M E R 2 018 • W W W​. N P Q M A G​. O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​11

The United States would from 1985 to 2004, far outpacing GDP growth of government, which might shield thebe a much colder, 58 percent during the same period.25 succored poor from the dead hand ofharsher place were it bureaucracy. . . . On the opposite end of thenot for the intervening What has caused the growth in the nonprofit ideological spectrum, radical activists envi-role of nonprofits in the sector, in short, is not an increase in generosity. sioned community-based organizations aswake of government Indeed, Burke shows that total U.S. voluntary weapons of political empowerment, instru-cuts. But even as giving relative to national income was three times ments to liberate the poor from chronicnonprofits win battles, as high in the 1940s as in the 1990s. And even as neglect.31the war has often been a percentage of personal income, U.S. givinga losing one as wealth peaked at a little over 2.5 percent of income in It is probably not necessary to observe hereand income inequality the early 1960s before dropping back down to that nonprofits have been a continuing source ofreach record highs. 2 percent, where our sector has seemed stuck innovation, and that the United States would be ever since, be what the tax laws may be.26 a much colder, harsher place were it not for the intervening role of nonprofits in the wake of gov- The main driver of nonprofit growth, in fact, has ernment cuts. But even as nonprofits win battles, been government funding. At first gradually, then the war has often been a losing one as wealth and more rapidly (as one of the critical elements of the income inequality reach record highs. initial post-World War II model—namely, strong labor unions—eroded), nonprofits have filled the And it’s not just about money or who controls gap. Indeed, the pace of nonprofit sector growth the wealth—it’s fundamentally about how people (sixfold, relative to GDP) is almost a mirror image live. As James “Gus” Speth found in 2011—basing of the decrease of private sector unions, which his analysis primarily on data culled from the have declined more than 80 percent, relative to Organization for Economic Cooperation and the size of the nation’s workforce.27 Development (OECD), which ranks the status of the group’s generally wealthy member nations in Of course, correlation is not causation. But as manifold issue areas—the United States has the unions and the politicians that they had backed following: saw their power decline, they often still had • The highest poverty rate, both generally and enough power to shift government services to the nonprofit sector when the government cut for children; back on service provisions. Healthcare is the • The greatest inequality of incomes; most obvious area, but hardly the only one. Such a • The lowest government spending as a per- shift was bipartisan in nature, as Democrats could claim victory for preserving social programs while centage of GDP on social programs for the Republicans could claim victory for limiting the disadvantaged; role of government. • The lowest number of paid holiday, annual and maternity leaves; An example of this process at work is the • The lowest score on the UN’s index of “mate- growth of the neighborhood-based nonprofit rial well-being of children”; community development corporation (CDC). • The worst score on the UN’s gender inequality The first CDC formed in 1966;28 forty years later, index; approximately forty-six hundred CDCs exist in • The lowest social mobility; cities, suburbs, and rural communities across • The highest public and private expenditure on the country.29 Back at the start of the millennium, health care as a portion of GDP, yet accompa- the late Louis Winnick, formerly of the Institute nied by the highest: of Public Administration, perhaps too gleefully wrote in a Public Interest journal article that the -- Infant mortality rate “meteoric growth of CDCs and related grassroots -- Prevalence of mental health problems initiatives owes much to their appeal across the -- Obesity rate political spectrum.”30 He continued: -- Portion of people going without health The anti-statist Right saluted com- care due to cost munity development as a proxy for -- Low birth weight children per capita (except for Japan)12 ​T H E   N O N P R O F I T   Q U A R T E R LY   W W W​. N P Q M A G​. O R G • S U M M E R 2 018

-- Consumption of anti-depressants per since there are a little over 125 million households In terms of racial capita in the United States, having a trillion more dollars inequality, the wealth in those households would work out to every disparities are enormous • The shortest life expectancy at birth (except family having an additional $8,000.37 and getting larger. for Denmark and Portugal); A study released last And if we break the numbers down by income year found that if current • The highest carbon dioxide emissions and group, for most that trillion-dollar number climbs trends continue, “by water consumption per capita.32 even higher. Because wages of workers at the 2053 the median Black very top (the 1 percent, if you will) have seen household would have And there is more—for Speth’s complete list of their earnings climb even as labor’s total share a net worth of zero.”woes is even longer. Of course, the United States of total income has fallen, economist Olivierdoes better in some areas, and has a respectable Giovannoni found that the share of income goingranking (tied for tenth) on the overall United to the bottom 99 percent of the U.S. populationNations Human Development Index.33 Nonethe- “has fallen 15 [percentage] points since 1980,” anless, the growing signs of a fraying of the U.S. amount that he calculates to result in a $1.8 tril-economy, polity, and society as a whole have lion shift in income.38 That is more than the annualnever been more obvious. Since promoting a revenue of the entire nonprofit sector.39flourishing civil society could be thought of asour sector’s raison d’être, these trends require a Then there is the nation’s ever-increasingnonprofit sector response. wealth inequality. According to Forbes maga- zine, the four hundred wealthiest Americans And yet nonprofits cannot do it alone. I once in the United States have net assets of $2.7 tril-asked a United Way staff member about the orga- lion, an amount that works out to $6.75 billionnization’s goal to end poverty, and whether that each.40 This is more than the combined net worthwas something the United Way could reasonably of the bottom three-fifths of the United States’hope to achieve. The woman replied that when population, who, according to data culled fromshe had first heard that her organization had set the Federal Reserve 2016 triennial Survey ofa (then more modest) goal to cut poverty in half, Consumer Finances, collectively have aboutshe had said under her breath, “If that is possible, 1.9 percent of the nation’s net worth. And givenit should have already been done.”34 the Federal Reserve’s calculation that total assessed personal net worth is $98.7 trillion, this Her considered response touches on some- would work out to a net worth for the bottomthing that I think in our hearts we already know: 60 percent of the U.S. population of $1.9 trillion,we are not going to program our way out of or 40 percent less than the Forbes 400 list.41poverty. She added that while nonprofits—usingthe best data and methods—can play an essen- As a paper released by the Board of Gover-tial role, ending poverty would take “multiple nors of the Federal Reserve this past Januarysectors . . . a social movement, the people who put it, “The U.S. is becoming more economicallyare in poverty playing a part.” unequal than is generally understood.”42 In terms of racial inequality, the wealth disparities areWhat Is the Extent of Our enormous and getting larger. A study releasedNation’s Economic Hole? last year found that if current trends continue, “by 2053 the median Black household would haveIn short, even though nonprofits are growing, eco- a net worth of zero—meaning that at least halfnomic inequality is growing faster. Overall, govern- of Black households would have a negative netment figures show that labor’s share of income worth, with Latinx households hitting the samein the U.S. economy has fallen by six percentage negative threshold 20 years afterward.”43points in the past four decades.35 Since total per-sonal income in the U.S. economy is over $16 tril- The nonprofit response to these negativelion, this decline means that employees receive trends has been impressive, but it still often feelsabout $1 trillion a year less than they would have like putting fingers in a dike. Nonprofits havereceived had labor’s share of income in the growing reacted not just by growing in size but also ineconomy remained constant.36 Put another way,S U M M E R 2 018 • W W W​. N P Q M A G​. O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​13

Nonprofits may be filling scope. As institutions, nonprofits have taken on to include a new form of generating and distribut-critical gaps in business, a seemingly endless number of roles, including in ing the wealth of our society. That requires takingcommunity organizing business (think of the growing role of nonprofit seriously the gaping holes in our nation’s politi-and advocacy, and social enterprise), labor (think of the growing cal–economic system and creating paths to makerepresentation, but importance of nonprofit advocacy), and even it function more effectively for what has becomeultimately a new path public governance and direct representation (in an increasingly disenfranchised majority.forward has to include a which they are playing a greater role than ever).new form of generating A Community Wealth Pathand distributing the Regarding the growing quasi-governmentalwealth of our society. or representation role of nonprofits, in a 2016 For the past dozen-plus years, I have been writing American Sociological Review article, University about community ownership. The central idea of Michigan sociologist Jeremy Levine remarks: behind this strategy is that for communities to act as agents of their own transformation, they need Over the course of four years, I followed to build their own businesses, own their own land, nine CBOs [community-based organiza- generate their own livelihoods, and—broadly tions] in six Boston neighborhoods as they speaking—operate from an economic base of a planned community development proj- reasonable level of self-sufficiency. ects. The CBOs in my study superseded elected politicians as the legitimate repre- The reason for this focus gets back to that sentatives of poor urban neighborhoods. declining labor’s-share-of-income conundrum. Private funders and government agencies The complex combination of reasons behind legitimated CBO leaders’ claims and treated the shift of income away from working people— them as the preferred representatives of among them, the rise of neoliberalism and a neighborhoods’ interests. Elected district general political shift to the right, the develop- representatives, by contrast, exhibited ment of global supply chains, and technological limited influence over resources and were change—is daunting. But, in terms of how this rarely involved in community development situation has led to a shift in income from workers decision-making.44 to investors, at the most basic level there are only two ways a shift back toward greater equality can Levine’s research resonates with my own occur: (1) some mechanism—the traditional one experience. I can recall walking with a CDC being the union—enables a greater share of busi- executive director in the South Bronx back in ness income to once again go to labor; or (2) labor- 2005. We couldn’t go more than fifty feet without ers have to become owners of capital themselves somebody coming up to my colleague to ask and increase their share of income that way. There about some project or favor or request. It felt like are, of course, at least a million different possible I was walking the streets with the mayor. That permutations of these two routes—including, of was because, for all intents and purposes, I was course, varying combinations of each; but, funda- walking with the mayor—the de facto mayor of mentally, these are the only two possible paths. If the neighborhood. increasing the labor share of income is the tradi- tional union path, community wealth building is But even though I may have felt like I was predicated on the alternative path of fundamen- walking with the mayor, the reality is that I wasn’t. tally altering ownership of capital in ways that And what Levine saw (and perhaps he had similar result in a more equitable distribution of assets feelings while conducting research in Boston as a and ownership. graduate student many years later), while hearten- ing at one level, also disappoints—for city council It is not out of the question, of course, that representatives should not be irrelevant but rather labor could stage a comeback. But structural eco- effective representatives of their constituents. nomic changes—especially the relative decline Nonprofits may be filling critical gaps in business, of mass production—mean that if labor does community organizing and advocacy, and repre- revive, it will look very different. This is true sentation, but ultimately a new path forward has demographically, of course, but it is also true14 ​T H E   N O N P R O F I T   Q U A R T E R LY   W W W​. N P Q M A G​. O R G • S U M M E R 2 018

in terms of sectors. For example, in Dearborn, Community land trusts enable nonprofit Worker co-ops are stillMichigan, a single factory—the Ford River Rouge community-based organizations to take land off fairly small in the Unitedplant—once employed over 100,000 autowork- the market and place it in a trust, thereby creat- States, with about threeers.45 By contrast, in 2015, General Motors and ing permanent housing affordability. Typically, hundred to four hundredFord combined employed 101,000 autowork- most of the equity gain accrues to the trust and businesses with seveners nationwide.46 On the other hand, entirely only a minority accrues to the resident—allowing thousand total worker-new sectors have emerged. For instance, the the trust to offer housing to a subsequent low- to owners. Despite theUnited States today has more than two million moderate-income owner at an affordable price. sector’s small size, it hashome-care workers.47 More than fifteen thousand families own homes a lot of growth potential, on Community Land Trust property.52 particularly for smaller Labor activists themselves recognize the need businesses.for a shift in how workers organize. Rob With- Platform cooperatives—that is, commonerell of the United Steelworkers union has led platform ownership by workers and/or com-his union’s effort to support the development munity members—also show promise. While inof union-affiliated worker co-ops.48 Witherell their infancy, such instruments could assure thatexplains the union’s thinking: the profits of companies structured like Uber are broadly shared in the field by the providers What we have in common is that we are of those services instead of going to outside trying to accomplish the same things. Why investors. do unions exist? [Why] do people try to create cooperatives? At the most basic level, One could also go on to discuss a variety of in both cases, it is about workers helping potential mechanisms: from nonprofit-owned each other out to create a better life for social enterprise to community development themselves. When you start from that base- finance to hybrid enterprises—such as benefit line, we can start thinking about worker corporations and low-profit limited liability com- ownership and cooperatives and unions panies (L3Cs)—to new forms of crowdfunding to as part of a broader labor movement. The innovative uses of common resources for common means for achieving their goals are differ- benefit (as the Wikimedia Foundation has dem- ent, but their goals are very much aligned.49 onstrated). There are also mechanisms that policy-makers can use to leverage public assets In terms of mechanisms, there are many to reduce wealth inequality. For example, publicways to apply community ownership principles banks, using a mechanism first developed in theto business. Employee ownership, whether of United States by the state of North Dakota in 1919,the employee stock ownership plan (ESOP) or are a way to leverage assets that states and citiesworker cooperative variety, is an increasingly already possess to support community-based eco-common mechanism not only to ensure a more nomic development.53 As Oscar Perry Abello notedequitable distribution of ownership but also in Next City, “State and local governments holdsimply to keep businesses alive as a growing around $458 billion in deposits, according to thenumber of baby boomer business owners retire. Federal Reserve Bank of St. Louis, while state and local pensions hold $3.7 trillion in investments.”54 Worker co-ops are still fairly small in the This provides the potential base for redirectingUnited States, with about three hundred to four the investment of a considerable amount of publichundred businesses with seven thousand total capital. New democratic planning mechanismsworker-owners.50 Despite the sector’s small size, are also important to coordinate investments. Anit has a lot of growth potential, particularly for emerging form of governance, called participatorysmaller businesses (say, with fifty employees or budgeting, is a means to use community engage-fewer), where setting up a pension plan—as an ment to ensure that public assets, such as capitalESOP requires—is impractical. ESOPs, by con- improvement dollars, are spent wisely. The prac-trast, are already quite prevalent. The latest figures tice, which first emerged in Brazil, is increasinglyshow 10.8 million workers at 6,669 businesses as being employed in U.S. cities. To date, twenty-twoof 2015, with worker equity at $1.3 trillion.51S U M M E R 2 018 • W W W​. N P Q M A G​. O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​15

All of this leaves us in U.S. cities have used participatory budgeting Questions to Address on the Road toa new place—a place strategies, resulting in community-based alloca- Restoring the Norm of Reciprocitywhere practices once tion decisions that have provided $238 millionconsidered mainstream in public dollars to support over fifteen hundred Last fall, in an article for NPQ, Elizabeth Castillomay become marginal, community-based projects.55 wrote about how our present mixed capitalistand practices currently economy has been built on two contradictoryseen as marginal may Of course, these efforts are marginal after a principles, citing the work of Austrian theorist(soon) become fashion—but if you start adding up some of the Karl Polanyi:mainstream. dollar amounts, one can see that these emerging practices are gaining ground. After all, if the U.S. “The one was the principle of economic economy as a whole has a little under $100 trillion liberalism, aiming at the establishment of in assets, and if you add state and local govern- a self-regulating market . . . using largely ment assets of over $4.1 trillion, ESOP assets of laissez-faire and free trade as its methods; $1.3 trillion, cooperative assets of over $3 trillion, the other was the principle of social protec- and nonprofit assets in excess of $3 trillion—well, tion . . . using protective legislation, restric- that’s over 10 percent of the overall asset value of tive associations, and other instruments of the economy.56 intervention as its methods.”61 In theory, the economic foothold of nonprof- Of course, historically, late nineteenth-century its, cooperatives, employee-owned companies, capitalism—think the Gilded Age and the robber and public pensions provides nonprofits and barons—gave way to the reforms of the New Deal. their civil society allies with the potential to Now, however, the New Deal’s institutional frame- leverage existing assets to begin to design an work (with Great Society additions) is increasingly economy that works toward economic equality. fraying. To a certain degree, nonprofits have helped And small steps are happening in this direction. keep that framework in place far longer than it oth- For example, following the lead of the F.B. Heron erwise would have held. Often, our present safety- Foundation, the Nathan Cummings Foundation net infrastructure is being kept together with the recently announced that it would dedicate nearly institutional equivalent of duct tape, as one of the 100 percent of its assets to impact investing.57 key pillars of the old social contract—namely, the The Ford Foundation, too, recently announced labor union—has largely disappeared. that it would place $1 billion of its $12 billion endowment in impact investments.58 At a policy Alas, increasingly the duct tape is not holding. level, both the city of Richmond, Virginia, and the We can see this process of unraveling in so many city of Rochester, New York, have open offices places. I have not even mentioned such critical of “community wealth building” to coordinate pressing challenges as mass incarceration, police public policy to support community-owned enter- brutality, gun culture, the ecological crisis, the prises.59 And, as NPQ covered back in February opioid epidemic, and the rise of new technolo- 2018, Great Britain’s opposition Labour Party gies (for example, artificial intelligence), to name announced the establishment of a Community just a few. Wealth Building Unit to back national policy that would support the creation of community-owned Broader cultural shifts are afoot, too, both in enterprises among British cities.60 response to the United States shifting from being a white majority nation to one where people of Still, while there is growing interest in a com- color are in the majority—a shift that the non- munity wealth building approach, it would be profit sector itself is far behind on addressing—as erroneous to suggest that we’re at the cusp of a well as the decline of U.S. geopolitical power, also paradigm shift. So far, the dominant approaches to known as imperial decline. Much of U.S. identity economic organization remain. There is growing has been tied up in what former secretary of state ferment and experimentation, but the necessary Madeleine Albright once called “the indispens- cultural shift has yet to develop, except in rudi- able nation.”62 mentary forms. All of this leaves us in a new place—a place where practices once considered mainstream16 ​T H E   N O N P R O F I T   Q U A R T E R LY   W W W​. N P Q M A G​. O R G • S U M M E R 2 018

may become marginal, and practices currently 7. Gerald Mayer, Union Membership Trends in theseen as marginal may (soon) become main- United States (Washington, DC: Congressional Researchstream. We are hopeful that, just as the New Service, August 31, 2004), archived by Cornell UniversityDeal emerged in response to the excesses of its ILR School, DigitalCommons@ILR, digitalcommons.ilr​day, the growth of movements today for commu- .cornell.edu/cgi/viewcontent.cgi?article=1176&context​nity ownership and community wealth building =key_workplace.(which are gaining ground but still fairly small) 8. Bureau of Labor Statistics, United States Departmentmay also gather momentum in the years to come. of Labor, “Union Members Summary,” news releaseAs for those of us working within nonprofits, Cas- no. USDL-18-0080, January 19, 2018, www.bls.gov/news​tillo, in her article, talked about restoring norms .release/union2.nr0.htm.of reciprocity in our economy. And that is cer- 9. Stories from the Kitchen Table: How Middle Classtainly one way to think about these challenges Families Are Struggling to Make Ends Meet: Hearingfacing our sector. on Examining Middle Class Families, Before the Senate Comm. on Health, Education, Labor, and Pensions,Notes 112th Cong. (June 23, 2011) (testimony of Jared Bernstein,1. Steve Dubb, “Grassroots Movement Promotes Senior Fellow, Center on Budget and Policy Priorities),Adoption of ‘Union–Co-op’ Model,” Nonprofit www.cbpp.org/testimony-jared-bernstein-senior​-fellowQuarterly, December 15, 2017, nonprofitquarterly​ -before-the-senate-health-education-labor-and​-pension.. o r g / 2 0 1 7 / 1 2 / 1 5 / g r a s s r o o t s - m o v e m e n t - l o o k s - t o​ 10. Ibid.-step-up-adoption-of-union-co-op-model/; Steve Dubb, 11. “Median family income, by race and ethnicity, 1947–“Can Employee Ownership Hold Back a Tsunami of Small 2010 (2011 dollars),” in Economic Policy Institute, TheBusiness Closures?” Nonprofit Quarterly, November 27, State of Working America (Washington, DC: Economic2017, nonprofitquarterly.org/2017/11/27/can-employee​ Policy Institute, May 21, 2012).-ownership-hold-back-tsunami-small-business- 12. Melvin L. Oliver and Thomas M. Shapiro, Black Wealth/closures/; and MJ Kaplan, “Voices from the White Wealth: A New Perspective on Racial Inequality,Field: Can Co-ops Displace the Gig Economy?” 2nd ed. (New York: Routledge, 2006), 26; see also: GeraldNonprofit Quarterly, December 21, 2017, D. Taylor, Unmade in America: Industrial Flight andn o n p r o f i t q u a r t e r l y. o r g / 2 0 1 7 / 1 2 / 2 1 / v o i c e s - f r o m​ the Decline of Black Communities, (Washington, DC:-the-field-can-co-ops-displace-the-gig-economy/. Alliance for American Manufacturing, October 5, 2016).2. Clara Miller, The World Has Changed and So Must We: 13. “Median family income, by race and ethnicity.”Heron’s Strategy for Capital Deployment (New York: The 14. Ibid.F.B. Heron Foundation, April 27, 2012). 15. Ibid.3. Cyndi Suarez, “Puerto Rico’s Nonprofit Sector at 16. Ibid.a Crossroads,” Nonprofit Quarterly, December 11, 17. Colin B. Burke, “Nonprofit History’s New Numbers2017, nonprofitquarterly.org/2017/12/11/puerto-ricos​ (and the Need for More),” Nonprofit and Voluntary Sector-nonprofit-sector-at-a-crossroads/. Quarterly 30, no. 2 (June 2001): 174–203.4. Frankly, I don’t like the word alternative, because many 18. Brice S. McKeever, The Nonprofit Sector in Briefso-called “alternative” forms of economic organization 2015: Public Charities, Giving, and Volunteering (Wash-may become necessary forms of economic organization— ington, DC: The Urban Institute, October 29, 2015).and perhaps a lot sooner than we have been led to believe. 19. Ibid.5. Paul Kennedy, “The Eagle Has Landed,” Financial 20. ”Economic Impact,” National Council of Nonprofits,Times, February 22, 2002. accessed May 6, 2018, www.councilofnonprofits.org​6. “Historian Says ‘12 Years’ Is A Story The Nation Must /economic-impact.Remember,” David Blight, interview with Terry Gross, 21. McKeever, The Nonprofit Sector in Brief 2015.Fresh Air, WHYY and National Public Radio, October 22. “Table 4.1: Revenues of Nonprofit Institutions24, 2013, accessed May 20, 2018, www.npr.org/templates​ Serving Households, 2004-14 (2014 $ billions),” in Brice/transcript/transcript.php?storyId=240491318, accessed S. McK­ eever, Nathan E. Dietz, and Saunji D. Fyffe, TheMay 20, 2018. Nonprofit Almanac: The Essential Facts and Figures forS U M M E R 2 018 • W W W​. N P Q M A G​. O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​17

Managers, Researchers, and Volunteers, 9th ed., Urban 36. “Personal income in the United States from 1990Institute Press Series (Lanham, MD: Rowman & Littlefield to 2016 (in billion U.S. dollars),” Statista, The Statis-Publishers, 2016), 139. tics Portal, accessed May 6, 2018, www.statista.com​23. Burke, “Nonprofit History’s New Numbers (and the /statistics/216756/us-personal-income; and “LaborNeed for More).” share of output has declined since 1947,” TED: The24. McKeever, The Nonprofit Sector in Brief 2015. Economics Daily.25. Paul Arnsberger et al., “A History of the Tax-Exempt 37. “Number of households in the U.S. from 1960 to 2017Sector: An SOI Perspective,” Internal Revenue Service (in millions),” Statista, The Statistics Portal, accessed MayStatistics of Income Bulletin 27, no. 3 (Winter 2008): 105. 6, 2018, www.statista.com/statistics/183635/number-of​26. Burke, “Nonprofit History’s New Numbers (and the -households-in-the-us/.Need for More).” 38. Olivier Giovannoni, “What Do We Know About the27. Nonprofit numbers are from Burke, “Nonprofit His- Labor Share and the Profit Share? Part III: Measures andtory’s New Numbers (and the Need for More), and from Structural Factors” (Working Paper No. 805, Levy Eco-McKeever, The Nonprofit Sector in Brief 2015. Union nomics Institute of Bard College, Annandale-on-Hudson,numbers are from Mayer, Union Membership Trends in New York, May 2014), 2.the United States, and from Bureau of Labor Statistics, 39. McKeever, The Nonprofit Sector in Brief 2015.“Union Members Summary.” 40. Kerry A. Dolan and Luisa Kroll, “Forbes 40028. Alexander von Hoffman, “The Past, Present, and 2017: Meet The Richest People In America,” Forbes,Future of Community Development: The changing face of October 17, 2017, www.forbes.com/sites/luisakroll​achieving equity in health, education, and housing in the /2017/10/17/forbes-400-2017-americas-richest-people​United States,” Shelterforce, July 17, 2013, shelterforce​ -bill-gates-jeff-bezos-mark-zuckerberg-donald-trump. o r g / 2 0 1 3 / 0 7 / 1 7 / t h e _ p a s t _ p r e s e n t _ a n d _ f u t u r e _ o f​ /​#7a4429195ed5._community_development/. 41. Jesse Bricker et al., “Changes in U.S. Family Finances29. National Congress for Community Economic Develop- from 2013 to 2016: Evidence from the Survey of Consumerment, Reaching New Heights: Trends and Achievements Finances,” Federal Reserve Bulletin 103, no. 3 (Septemberof Community-Based Development Organizations: 5th 2017); and Edward N. Wolff, “Deconstructing HouseholdNational Community Development Census (Washington, Wealth Trends in the United States, 1983 to 2016” (paperDC: NCCED, June 2006). presented at the First WID World Conference, Paris,30. Gar Alperovitz, America Beyond Capitalism: France, November 27, 2017).Reclaiming Our Wealth, Our Liberty, and Our Democ- 42. Jonathan Fisher et al., “Inequality in 3-D: Income,racy (Hoboken, NJ: John Wiley & Sons, 2004), 105. Consumption, and Wealth,” Finance and Economics31. Ibid. Discussion Series, 2018-001 (Washington, DC: Board of32. James Gustave Speth, “We’re Number One!” YES! Governors of the Federal Reserve System, December 11,Magazine, March 22, 2011, www.yesmagazine.org​ 2017)./people-power/on-american-superiority; and “The Organ- 43. Steve Dubb, “Report Finds U.S. Racial Wealth Gapisation for Economic Co-operation and Development Still Growing at an Alarming Pace,” Nonprofit Quarterly,(OECD),” About the OECD, OECD, accessed May 27, September 15, 2017, nonprofitquarterly.org/2017/09/15​2018, www.oecd.org/about/. /report-finds-u-s-racial-wealth-gap-still-growing-alarming​33. Human Development Report 2016: Human Develop- -pace/.ment for Everyone (New York: United Nations Develop- 44. Jeremy R. Levine, “The Privatization of Politicalment Programme, 2016), 198. Representation: Community-Based Organizations as34. Private conversation between the author and a United Nonelected Neighborhood Representatives,” AmericanWay staff member. Sociological Review 81, no. 6 (December 2016): 1251–75.35. “Labor share of output has declined since 1947,” TED: 45. “Ford Rouge Factory Tour: History & Time-The Economics Daily, Bureau of Labor Statistics, United line,” The Henry Ford, accessed May 7, 2018,States Department of Labor, March 7, 2017, www.bls​ w w w. t h e h e n r y f o r d ​ . o r g / v i s i t / f o r d - r o u g e - f a c t o r y.gov/opub/ted/2017/labor-share-of-output-has-declined​ -tour/history-and-timeline/.-since-1947.htm. 46. “Ford tops GM in U.S. factory jobs: Dearborn company’s18 ​T H E   N O N P R O F I T   Q U A R T E R LY   W W W​. N P Q M A G​. O R G • S U M M E R 2 018

UAW work force has trailed rival’s since at least ‘30s,” accessed May 7, 2018, www.participatorybudgeting.org​Automotive News, February 15, 2015, www.autonews​ /impacts/..com/article/20150215/OEM/302169970/ford-tops-gm-in​ 56. Steven Deller et al., Research on the Economic Impact-u.s.-factory-jobs. of Cooperatives, University of Wisconsin Center for Coop-47. Stephen Campbell, “U.S. Home Care Workers: Key eratives, rev. June 19, 2009; and “Quick Facts About Non-Facts (2017),” PHI (Paraprofessional Healthcare Insti- profits,“ National Center for Charitable Statistics (NCCS),tute), September 6, 2017, phinational.org/resource​ accessed May 7, 2018, nccs.urban.org/data-statistics​/u-s-home-care-workers-key-facts/. /quick-facts-about-nonprofits.48. Rob Witherell, Chris Cooper, and Michael Peck, Sus- 57. Marian Conway, “Nathan Cummings No Longertainable Jobs, Sustainable Communities: The Union Just Experimenting with Impact Investing,” NonprofitCo-op Model (United Steelworkers, Mondragon Interna- Quarterly, March 27, 2018, nonprofitquarterly.org/2018​tional USA, and Ohio Employee Ownership Center, March /03/27/nathan-cummings-no-longer-just-experimenting​26, 2012). -impact-investing/.49. Steve Dubb, “Interview of Rob Wither-ell, Representa- 58. Debby Warren, “Can Ford Foundation’s $1 billiontive, United Steelworkers (USW),” Community-Wealth. Impact Investing Commitment Alter the Field?” Non-Org, March 2013,community-wealth.org/content​ profit Quarterly, March 6, 2018, nonprofitquarterly​/rob-witherell. .org/2018/03/06/can-ford-foundations-1-billion-impact​50. “What Is a Worker Cooperative?” Democracy at -investing-commitment-alter-field/.Work Institute, US Federation of Worker Coopera- 59. Office of Community Wealth Building,tives, accessed May 7, 2018, institute.coop/what-worker​ Richmond, Virginia, accessed May 7, 2018,-cooperative. w w w. r i c h m o n d g o v. c o m ​ / C o m m u n i t y We a l t h51. “A Statistical Profile of Employee Ownership: Building/; and Mayor’s Office of Community WealthCount of ESOPs and Participants/Plan Asset Value,” Building, City of Rochester, NY, accessed May 7, 2018,National Center for Employee Ownership (NCEO), www.cityofrochester.gov/wealthbuilding/.March 2018, www.nceo.org/articles/statistical-profile​ 60. Steve Dubb, “Labour in UK Adopts Community-employee-ownership. Wealth Building Strategy as Party Policy,” Nonprofit52. Jeff Bounds, “Community Land Trust Lending Update, Quarterly, February 9, 2018, nonprofitquarterly.org​Part 1,” Business News, Fannie Mae, January 26, 2016, /2018/02/09/labour-uk-adopts-community-wealth-building​www.fanniemae.com/portal/media/business/clt-pt1​ -strategy-party-policy/.-012616.html. 61. Elizabeth A. Castillo, “Restoring Reciprocity:53. Steve Dubb, “Public Bank Movement Gains Ground How the Nonprofit Sector Can Help Save Capitalismin Cities and States across the US,” Nonprofit Quar- from Itself,” Nonprofit Quarterly, October 31, 2017,terly, January 2, 2018, nonprofitquarterly.org/2018/01/02​ nonprofitquarterly.org/2017/10/31/restoring-reciprocity​/public-bank-movement-gains-ground-cities-states-across​ -nonprofit- sector-can-help-save-capitalism/; and Karl-us/. Polanyi, The Great Transformation: The Political and54. Oscar Perry Abello, “Welcome to San Francisco. Economic Origins of Our Time, 2nd ed. (Boston: BeaconWould You Like to Make a Deposit?,” Next City, Feb- Press, 2001), 77.ruary 19, 2018, nextcity.org/features/view/welcome-to​ 62. Secretary of State Madeleine K. Albright, interview-san-francisco-would-you-like-to-make-a-deposit; “State with Matt Lauer, The Today Show, NBC-TV, Columbus,and local governments, excluding employee retirement Ohio,February 19, 1998, 1997-2001.state.gov/statements​funds; total currency and deposits; asset, Level,” FRED /1998/980219a.html.Economic Data, Economic Research, Federal ReserveBank of St. Louis, March 8, 2018, fred.stlouisfed.org/series​ To comment on this article, write to us at feedback/SLGTCAQ027S; and Oscar Perry Abello, “There’s a $27 @npqmag.org. Order reprints from http://store.nonprofitTrillion Pot of Money to Tap for Affordable Housing,” quarterly.org, using code 250202.Next City, January 16, 2018, nextcity.org/daily/entry​/trillions-money-for-affordable-housing.55. “Our Impact,” Participatory Budgeting Project,S U M M E R 2 018 • W W W​. N P Q M A G​. O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​19

Organizing Our Economy as if We Lived on a Single Planet: A Conversation with Douglas Rushkoff20 ​T H E   N O N P R O F I T   Q U A R T E R LY  Editors’ note: Douglas Rushkoff is a writer, documentarian, and lecturer, whose work focuses on human autonomy in a digital age. He is the author of more than a dozen bestsell- ing books on media, technology, and society, including Program or Be Programmed, Present Shock, and Throwing Rocks at the Google Bus. His award-winning documentaries include PBS Frontline’s Generation Like and Merchants of Cool. He is Professor of Media Theory and Digital Economics at CUNY/Queens, technology and media commentator for CNN, a research fellow at the Institute for the Future, digital literacy advocate for Codecademy.com, and a lecturer on media, technology, culture, and eco- nomics around the world. Nonprofit Quarterly: You’ve promoted the concept of a distributed economy. Could you talk about what your notion of this is, and, if there were to be a distributed economy, what that would look like? The idea you develop is “ WATC H IN G” (D E TAIL; AN D P. 24) BY K EI T H P O IN T IN G/ W W W.SA ATC H IAR T.CO M/ACCO U N T/PR O FIL E /97004 8

rooted in some ways in the history of craft where the focus is not on growth but rather on If every dollar that youeconomies in the Middle Ages, but a new kind what size they need to get to in order to be a sus- borrow or every unit ofof craft economy, based on high technology tainable business. And I don’t mean sustainable money that you borrowrather than isolated villages. environmentally or good for the world—just a has to be paid back with sustainable business that doesn’t need to extract interest, then you needDouglas Rushkoff: I think that the simplest more resources from the world and grow in order the economy to grow inway to understand what I’m talking about is simply to survive. order to keep payingto remember that the economy in which we’re back more money to theliving right now was constructed by particular NPQ: Can you expand on the current econo- lenders. So, that’s whypeople at a particular moment in history with my’s growth imperative, and how that’s become we’re stuck in thisvery particular agendas. And, you know, it’s not a problem given environmental constraints? growth trap.conspiracy theory or anything strange—it’s justthat they developed an economy to work in a par- DR: Well, the growth imperative was embed-ticular way. So the economy we live in, the way it ded in our economy once we made it illegalfunctions is to give capital returns to investors— for anyone to use anything other thanand that’s fine. But when that’s the only thing interest-bearing central currency. So, kings inan economy is optimized for, you end up getting the early Renaissance outlawed market moniessome weird, maybe unintended, consequences. and local currencies and non-growth-based exchange mechanisms, and said everyone had So, yes, in the late Middle Ages there was to use coin of the realm, which was borrowed atan economy that was based in the exchange of interest. And the way the math works is, if everyvalue. It was really based, let’s say, in revenue— dollar that you borrow or every unit of moneyin people making money for trading stuff or that you borrow has to be paid back with inter-doing services for one another. And the basic est, then you need the economy to grow in orderproblem with that kind of economy was that to keep paying back more money to the lenders.the wealthy didn’t know how to participate in So, that’s why we’re stuck in this growth trap.a system where everybody was just buying andselling things to each other. So they needed to And the problem with the growth trap is,change the regulations under that economy to we’re living on a planet with finite resources. Imake it harder for people to buy and sell stuff to know there are many opinions on this, but I doone another without borrowing money from big think that our planet and the atmosphere arebanks or central treasuries, or working for char- rather fixed. And when you have a growth-basedtered monopolies that had exclusive dominion economy, it not only needs to grow but alsoover a particular industry. So, today we live in needs to accelerate its rate of growth, becausean economy where we understand that to have 2 percent of a zillion-dollar planet is more thana successful business you need to borrow money 2 percent of a million-dollar planet.from someone and then pay them back biggerreturns. And then, when you look at the sort of digital solutions that are carrying this ethos forward, Thus, what I’m suggesting to large corpora- you get either an Uber or an Amazon achievingtions is that they change their business model— these giant platform monopolies, or you get ideasthat instead of thinking about how much of the like bitcoin—which does what? Bitcoin basicallyworld they can own, instead they look at what burns fossil fuels as proof that it has value, andservices they can provide people and organiza- that’s all bitcoin is doing. So, not only do we havetions and companies and towns and cities. an energy shortage on the planet, now we also burn energy symbolically as a way of showing And what I’m suggesting is that people are our commitment to some kind of digital coin.now open to doing business in other ways; thatpeople are willing to start companies that may NPQ: There have been those who have givennot grow forever; that people’s long-term vision bitcoin and its like a sort of liberatory veneer.of their companies is switching to somethingS U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​21

Right now, we have an How do you see the role of those currencies? As companies. The only difference between a non-economy that punishes you know, bitcoin has often been sold as a way profit company and a for-profit company is thatdoing business in an to get back to that market-based exchange that a nonprofit company can’t be sold.appropriate, generative you were talking about.way and rewards people Think about it like this: if you had a furniturewho just take money out DR: Yeah, but it’s not. It’s retrieving something. company, what if the thing that mattered mostof the system. Marshall McLuhan, the great media theorist, to that company was the quality and sales of the used to talk about how technologies retrieve furniture? I know it sounds like I’m being ironic things from the past in new forms. So what we or strange, but that’s not the way business works. really needed to retrieve were market monies. What you care about is the company making And market monies were basically valueless— revenue. like poker chips, which were issued in the morning and which allowed people to conduct Right now, the product of most businesses is their trade and then settle up in the evening. No the shares that they’re selling to investors—and one wanted those chips. They weren’t worth any- if the share price isn’t going up, then an activist thing after a certain period of time. investor comes in and figures out how you can hurt the company in order to give more money Bitcoin is more like gold. Gold was the to the shareholders. So, the object of the game long-distance currency used by royals and large becomes: How do we squeeze our suppliers? How chartered companies. Regular people couldn’t do we fool our customers? How do we outsource use gold—it was too valuable. You would hoard our production? All to the detriment of the actual gold once you had it. Bitcoin is a currency that business. celebrates its limited supply and celebrates the fact that it’s an excellent investment—and that’s NPQ: One other difference with nonprofits is what it is right now. They call it gold for millen- that they don’t pay taxes. nials. It’s a hedge against the rest of the market. DR: Yes, and part of the reason they’re exempt But that’s not what we’re looking for. The one from tax is their mission, but another part of good thing about bitcoin—or the blockchain the reason they’re exempt from tax is because really, the technology undergirding bitcoin—is they’re putting money into circulation. Right that it gives people a way to authenticate their now, we have an economy that punishes doing transactions without turning to some central business in an appropriate, generative way, and authority. So, you don’t need the bank or the Fed rewards people who just take money out of the or the government to say, “Yes, you’re you and system. he’s him and you just exchanged money.” NPQ: If you’re trying to move from an extrac- The problem with bitcoin is, it doesn’t really tive to a generative economy, there’s the transi- engender trust in any way. It just replaces trust tion problem of how you get there. You’ve talked in a new way. All it’s really doing is substituting about implementing the sort of pilots that would technology for trust instead of substituting some foster more circulatory economic practices. institution for trust. How would you do that, or what would some of those pilots look like in your mind? NPQ: Switching gears a bit, how do you see nonprofits fitting into this effort to restore DR: One I talk about a lot is, rather than a bank trust? giving a one-hundred-thousand-dollar loan to a pizzeria in order to expand its business, it would DR: No one likes hearing this, but nonprofits have give the pizzeria fifty thousand, dependent on its to stop thinking of themselves as some adjunct ability to raise the other fifty thousand from its to the market—as something other than busi- community. In this way, people from the com- ness. Nonprofits are businesses. Nonprofits are munity would be investing in their town rather a better model for doing business than for-profit22 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

than outsourcing investments to the S&P 500. DR: Well, you can think of it physically or tem- A real commons isThey would be seeing their investments make porally or spiritually, I guess; but I mean most governed. There aretheir main street better—increasing their prop- simply that all the cells in your body may not rules around a commons.erty values, raising the tax base, improving be conscious of the fact that they’re all part of It’s not a weird free-for-their schools—because they would be investing this one big body. They’re just doing their indi- all. The market is therather than outvesting. vidual jobs, and they have little walls. There are weird free-for-all. some membranes and permeability between So far, the only entities that have taken me up them, but they might think—for as much as theyon the idea of running small trials of this kind think—“I’m just me.” They don’t think, “Oh, waitare credit unions. Credit unions are nonprofit. a minute, there’s this thing called Doug that we’reA credit union’s mission is to improve the eco- all part of.” And I think of human beings the samenomic functioning of the region where it’s oper- way—that we’re all part of this large team, thisating, whereas a bank’s mission is to extract as human organism. And even if we’re not part ofmuch capital as it can from the region where it’s one organism, we’d better start acting like we’reoperating. part of one organism, because we’re sharing a scarce resource of planetary abundance. So, if The reason to experiment with small trials is we don’t orient to the planet as a commons ratheryou don’t threaten as many of the powers that be. than a property, then we’re going to continue toYou can prove that something is profitable even exploit it at our peril rather than maintain it forif it’s not working in a way that they understand our collective benefit.and do it—I mean, the object of the game is not tothreaten the shareholders or the board of direc- NPQ: Could you talk a little more abouttors before you’ve had a chance to prove that it the commons? There are obviously someis a good way of doing business. very prominent examples in the digital world, such as Wikipedia and the CreativeNPQ: Credit unions do have over a trillion Commons licensing. But, more broadly,dollars in assets; so, while they’re not a huge when you think about commons manage-part of the financial system, they’re not tiny ment, what forms do you think it might takeeither. That’s a lot to build off of, actually. Are in this coming era?there any specific examples you can give ofcredit unions that have implemented the idea DR: I feel that if we don’t start treating wateryou were giving of a kind of half bank loan and as a commons, things could get kind of dark.half crowdfunding strategy? There are people making markets in water even in places where it’s not scarce, because everyoneDR: An example like it is VSECU, Vermont State is realizing that it’s going to become a really fixedEmployees Credit Union, which does some- resource. And they use this so-called “tragedy ofthing called “milk money.” At VSECU, people the commons” as their rationale for why peoplecan invest locally in other local businesses in can’t be trusted, or government can’t be trusted,return either for a stake in the business—just to maintain the viability of a shared resource.as a regular loan—or for a special relationship But the tragedy of the commons isn’t valid,with the business. it’s not real, it’s not based on anything. A real commons is governed. There are rules around aNPQ: Tacking back to ecology and the finite commons. It’s not a weird free-for-all. The marketplanet we live on, you have noted that a trait is the weird free-for-all.of our age is a growing understanding of our-selves as a single organism. Can you say a little NPQ : You mentioned platform coopera-about that? For instance, if we accepted that tives earlier. Could you expand on theirin some respects we’re part of a single organ- significance?ism, how should that understanding affect ourbehavior?S U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​23

When you understand DR: Really, it’s just another way of saying DR: Well, if anybody still read Adam Smith, todayplatform cooperatives. . . employee ownership. I mean, once you under- he would be considered a socialist—although,well, UBI is kind of silly. stand platform cooperativism, which is basi- of course, he’s not. It’s because he imagined anYou shouldn’t give cally just employees owning the thing instead of economic landscape that would be regulated topeople only income; employees being just another resource, you start favor the smaller operators. He saw everybodyyou’ve got to give people to look at a lot of things differently, like universal involved in small businesses and exchange. Heownership. basic income [UBI]. didn’t really understand the danger of a few large players dominating the whole economy or the When you understand platform coopera- whole landscape. But I think he thought that we tives . . . well, UBI is kind of silly. You shouldn’t would want to avoid that. give people only income; you’ve got to give people ownership. That’s why I like Marina So, now, because the entire society that we’ve Gorbis’s [(executive director of the Institute built is servicing credit or debt—or the entire of the Future)] idea that universal basic assets society is about paying bankers for money— are better than universal basic income. Are you we can’t imagine or understand a society in willing to let the people share in ownership of which people worked less. That’s why even the business, platform, or resources, or do the well-meaning folks like Obama say, when they corporations really have to own everything? look at the problem with the economy, “Oh, all we’ve got to do is figure out how to create more And that’s where it gets interesting. Right now, jobs,” or, “We’re going to lend money to banks most big corporations are not willing to become so that they can lend money to companies, so cooperatives, but they’re being successfully chal- they can build factories, so they can hire people.” lenged by cooperatives and employee-owned We’ve lost sight of the fact that, if we have enough companies. So, Walmart is under fire by WinCo. In goods and we have enough services, then we most of the states where they’re competing head don’t need to be working as much. to head, WinCo is doing better than Walmart, and that’s because WinCo is an employee-owned Plus, the reality is, we are working in ways that company and Walmart is not. And when I’ve are unsustainable, anyway. If the way we’re using talked to Walmart’s investors about it, they’re so labor requires us to send slaves into caves to get confused as to how WinCo could be doing better the rare earth metals for our smartphones— than them, when WinCo is paying their workers and if the way we manufacture is destroying more. The reason is because WinCo doesn’t have the planet, is creating so much toxic waste and the investors to pay back. It doesn’t have to give mountains of used-up technology that’s being 90 percent of its assets back to these people who buried in China and South America, and that’s have nothing to do with the operation or profit- going to destroy everything—if that’s what we ability of the business. It’s a better, leaner model. have to externalize to be this efficient, then we should be less efficient. Maybe if we hired more NPQ: Another thing you’ve written about is people to work in better, more meticulous, maybe that technology has often made people work more time-consuming ways, we would get to stay harder rather than smarter—and there’s a bit on the planet longer. of irony in that. For example, the economist John Maynard Keynes famously wrote a trea- To comment on this article, write to us at feedback tise called “Economic Possibilities for Our @npqmag.org.Orderreprintsfromhttp://s​ tore.nonprofit Grandchildren,” about the idea that, as technol- quarterly.org, using code 250203. ogy developed, we’d have more things produced in fewer hours, therefore we’d spend less time working and have more time for leisure. And it hasn’t worked out that way, at least not so far. So, where did we go wrong, and how do you see us getting back on track?24 ​T H E   N O N P R O F I T   Q U A R T E R LY

Visions of aNew Economy from Detroit:A Conversation with Malik Yakini Editors’ note: Malik Kenyatta Yakini is an activ- T H E   N O N P R O F I T   Q U A R T E R LY  ​25 ist and educator who is committed to freedom and justice for African people in particular and humanity in general. Yakini is cofounder and executive director of the Detroit Black Community Food Security Network (DBCFSN), which since 2006 has managed the seven-acre D-Town Farm. DBCFSN is also leading efforts to create the Detroit Food Commons, a thirty-thousand-square-foot facility on the city’s North End that will include a food co-op, café, kitchen incubator, office, and community space. Nonprofit Quarterly: Could you talk about your background? Malik Yakini: I was born in 1956. Both of my parents were postal workers. They didn’t go to college, but there were many people with college degrees working at the post office. It was a vehicle for upward mobility. The 1960s was a period of great hope—it was a relatively prosperous time for a lot of people in Detroit, and things were opening up for many Black Detroiters. The neighborhood we moved into had opened up. Black people followed Jewish people—that seemed to be the pattern, and that’s what happened where we moved. Restrictive housing covenants were breaking“ W AT C H I N G” ( D E TA I L ; A N D P. 31) B Y K E I T H P O I N T I N G / W W W. S A AT C H I A R T. C O M /A C C O U N T/ P R O F I L E / 9 70 0 4 8

No matter which of down. The auto industry was booming. Blacks are the two pillars. Sometimes I was in a kind ofthe paths you take, were moving into jobs. strange space, because many Black nationaliststhe dismantling of didn’t have a clear analysis of capitalism. Muchcapitalism is the We were in and out of each other’s houses. of what some Black nationalists were proposingnecessary prerequisite. We used to have block parties. There was a real was a painted Black version of capitalism. EvenYou’re not going to be a sense of community in my neighborhood. All of though I wasn’t a Marxist, I was always willingsovereign socialist state our parents knew each other. That was my experi- to be supportive of groups that were. If we agreeexisting side by side ence, and it was a wonderful childhood. that capitalism needs to be dismantled, we havewith capitalism. a strategic alliance. But many of the Marxist folks In 1966, I played Little League Baseball on the didn’t understand revolutionary nationalism, field at Detroit’s Central High School. A year later, where you have a clear analysis that there isn’t the field was turned into a military base with the going to be any kind of Black sovereignty as long 101st Airborne Division, after what at the time we as capitalism is intact. called “riots” but which activists in Detroit now call an “urban rebellion.” In recent years, social There are multiple tendencies within the Black justice activists have challenged the language—a liberation movement. The New Afrikan Indepen- rethinking, a reframing of history. dence movement—of which Chokwe Lumumba [1947–2014] was a major voice—are secessionists, That year was a watershed moment; in some and seek to carve out five states. Some favor repa- ways, Detroit history can be divided into pre- and triation. With Rastafarianism, many ultimately post-1967. It was a huge defining point, a period hope to return to Africa. Then there are those that of tremendous hot-fire Black consciousness. see the city as the Black man’s land, and seek to Detroit was an epicenter of that—it was certainly build zones of power in cities. In many ways, the a strong epicenter of this Black revolutionary Black liberation movement has been fragmented. consciousness. No matter which of the paths you take, the dis- mantling of capitalism is the necessary prerequi- I turned thirteen in 1969. Thirteen is a criti- site. You’re not going to be a sovereign socialist cal year in many traditions. You go from child- state existing side by side with capitalism. hood to the beginnings of young adulthood. It is a time when you’re very impressionable and create In college, I was chairman of the Black Student a concept of yourself. I was going to a school Association at Eastern Michigan University, in called Post Junior High—one of many schools Ypsilanti. We ran a free breakfast program at that were centers of Black consciousness. Walk- an elementary school, patterned after the Black outs, protests, were mostly at the high school Panther Party, and we also had a co-op—a buying level, but my junior high was also active. In 1969, club—that we called the Ujamaa Co-op Buying a teacher of mine played a recording in the class- Club. We would take orders in our organization room of Malcolm X’s “Message to the Grassroots.” and the community, and two of us would make the I don’t follow behind any man, but Malcolm’s life forty-minute drive to Detroit’s Eastern Market on example and teachings had a profound impact on Saturday, buy things in bulk, and divide it up. At me. In fact, in many ways my activism is rooted that point, I didn’t know anything about a food in hearing Malcolm X for the first time. movement, but cooperative economics was part of our thinking. That was the beginning of my social activism, and we saw it as the Black liberation movement In 1989, I cofounded Nsoroma Institute, an more than a movement for social justice. African-centered school rooted in the ideas of unity, self-determination, collective work and Early on, one of the tenets of Black radical responsibility, and cooperative economics. The thought was this sharp critique of capitalism. I school was designed to give African-American read Mao, Marx, Black radical thinkers, becom- children a sense of where they fit into their own ing very committed at a very early age to the cultural and historical continuum. I directed the idea that capitalism is in many ways the root of school for twenty-two years, and doing gardening our problems—not the only problem, but a huge factor. I’ve been anticapitalist for the vast major- ity of my life, and anti–white supremacist. Those26 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

work there in the late 1990s got me into the food yet few Blacks own stores. The average person Who has the authoritywork that I am doing now. can see that, and experiences it every day. So to own the earth? This that kind of explicitly racialized way in which is a rhetorical question,NPQ: What is the story of Detroit that we do wealth is being extracted, at least in Detroit, is of course. It is just basednot hear? quite evident. There is a need for us to cooperate on who has power. The for our own collective benefit. universe doesn’t bestowMY: There has always been this revolution- authority on anyoneary consciousness in Detroit. A sharp critique NPQ: Some within the Black community have to dole the earth out.of capitalism has been part of the thinking of suggested that the pathway to liberation is The whole thing is amany activists in Detroit for a long time. And through changing the color of capitalism. Why con game.the labor movement, while not anticapitalist, isn’t that adequate?provided an analysis of the economy and howthe average person should have greater benefits MY: There are some efforts now by progressivethan those enjoyed within the rampant capital- Black folks in Detroit to do just that. One reason itism that existed pre-union. There is a certain is not adequate is that there are fundamental flawsconsciousness in Detroit’s having been shaped in the concept of private land ownership. Who hasby movements—as being a movement town. the authority to own the earth? This is a rhetorical question, of course. It is just based on who has Contemporary Detroit is informed by its power. The universe doesn’t bestow authority onown history. The Detroit People’s Food Co-op anyone to dole the earth out. The whole thing is ais rooted in that history. For some time, we had con game. We need to push back on that.various visions of how we might create an alter-native economy within capitalism, at least on a I don’t want to advocate going backward, butcommunity level—how we might stop the hemor- we need to think about how to move forwardrhaging that occurs in Black communities, and informed by the ideas of indigenous cultures,how we might find ways to capture our own value who saw themselves as stewards of the earth andinstead of having that extracted from us. Instead as temporary occupants in harmonious balanceof being seen as a market for larger forces to with the animals and plants, in recognition ofdump cheap goods into, how do we start seeing the matrix of life. That whole idea of privateourselves as an answer to our problems? How do ownership of land, which in large part is howwe create structures where we are cooperating wealth is generated in capitalism, is problematic.with each other to meet our own needs? The question of access to land is critical. It is on land that we build houses, communities, extract One of the things that [Collective Courage resources; it is where most of our food is grown,author] Jessica Gordon Nembhard points out is how we acquire many of our fibers and materialsthat many efforts that we can call “cooperative” for housing. What we used to say in the seventiesdidn’t necessarily call themselves that. They was land is the basis of power. If land ownershipwere sometimes framed as “self-help efforts” is based on who has the most might, those withor “mutual aid societies,” but they functioned the most might will also have the most economicco­operatively for the collective good. There is power. We need to figure out different ways ofa strong history of efforts to create a more just relating that reduce the disparities in wealth thatand more cooperative economy. in large part are based on land ownership. One of the things that is so stark about Detroit The other flaw—which can exist in socialism,is the clear racial element of the wealth extrac- also—is the idea that the earth is a commod-tion that is going on. It is so clear, that the average ity, and what we need is more production, moreperson sees it and sees how it impacts his or her extraction. I think a new way of looking at ourcommunity every day—and that makes it easy to relationship to the earth is required.appeal to people. Many of the stores are ownedby Chaldeans, an ethnic minority from Iraq. You But the other thing is that because capitalismhave a city that is 80 percent African American, intersects with white supremacy, you have anS U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​27

We need to figure out enormous amount of wealth concentrated in the society. If we are going to create communitiesways that communities hands of (usually) a few white men. That is a huge that are first looking to serve their own needs, tobenefit from their own problem, as the Occupy movement pointed out. capture their own wealth and labor, then we havelabor, instead of having It is based on the genocide of indigenous people, to have an education system that prepares peoplethat labor extracted to the enslavement of Africans, and the enormous for that kind of economy. In other words, we needcreate value for amount of wealth that forced labor created in an educational system that prepares us to take oursomeone else. the process of industrial production. We have energies and turn them inward to our own com- the vast majority struggling to survive and a few munities rather than outward toward an extrac- people with an obscene amount of wealth. There tive system that we have very little control over. are multiple reasons why capitalism is flawed and shouldn’t be replicated in blackface. NPQ: Do you see principles of a new economy being articulated widely in Detroit? NPQ: What do you see as guiding principles for a more socially oriented economy? MY: There is the Allied Media Conference in Detroit that is advancing these ideas and attract- MY: In terms of guiding principles, I don’t have it ing people across the country. The production and all figured out. We might have some ideas of what planning of it is an articulation of the principles, a post-capitalist alternative economy might look and the principles are articulated at the conference like, but not a clear, coherent plan by any means. itself. There is the Boggs School. There are a few African-centered schools. There is urban farming. We need to figure out ways that communities Not everybody is involved for the same reason— benefit from their own labor, instead of having some are profit driven, some are social-justice that labor extracted to create value for someone focused. There are a number of small co-ops. else. Another principle might be communities There is the Colors Co-op Academy, run by Res- meeting their own needs. So, if people in Detroit taurant Opportunities Center. There is the work need something, such as shovels, how do we of the Detroit Black Community Food Security produce shovels within the community? And, Network. There are a number of small efforts that since I’m an advocate of cooperatives, if we can are manifestations of this vision of a new economy. have a shovel cooperative, it creates collective wealth, collective ownership, and greater par- NPQ: How should nonprofits and philanthropy ticipation in democratic decision making. To me, respond? that is the preferred mode. How do we first find ways to supply our own needs, and in the process MY: The nonprofit sector is diverse, of course. capture the value of the wealth that we generate? You have people on the left-leaning radical edge who are functioning within nonprofits, and you Communities don’t have walls around them— have others who are very conservative upholders they are porous. I’m talking in generalities here. of the status quo. For those who see themselves It’s not like there are clear lines of demarcation. as consciously working toward a new economy, I don’t think we want communities to be in isola- what we need is more cooperation among the tion but rather to be pods or liberated zones that groups. If we are trying to work on a new eco- connect in an economic way and also connect nomic vision, that is bigger than the work of socially and culturally. That would be a principle any single organization. What are the individual of what this might look like. pieces? Who is creating what? How do we make linkages between those pieces? NPQ: What is the role of education in building a new economy? Sharing of staff might be one piece. Maybe not every nonprofit needs its own accoun- MY: Schooling prepares people to participate in tant or finance department. Maybe we create the economy. While that shouldn’t be the only a cooperative business that serves multiple reason, it is a primary function of school in this28 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

nonprofits, allowing those nonprofits to use and of feeling like we have to measure up and If we talk about a fairtheir hard-fought-for funding more effectively but that we’re inadequate, and that white people have and just society, wealso generate another institution that builds the some special monopoly on shaping reality. need to change not onlyalternative that we are trying to create. our relationship to the We have all been debilitated. Even as we strug- economy but also how We need to sharpen our analysis. We need more gle to bring about a more just society, inevitably we see ourselves asdiscussions about the big ideas. I was on a panel last what happens is that this white arrogance still human beings.week talking about the big ideas that sometimes manifests itself. It is not even always intentional. Otherwise, we willare not on the ground, although I do on-the-ground White people have been conditioned. The only way replicate, maybe inwork, too. It is important to ask the bigger ques- to get past that is to first recognize that it exists, different ways, thetions. We can’t just do the day-to-day. We need to that we have all been afflicted by it. Then, most same sort of distortedhave some vision of where we are headed and align importantly, enter into a course of action to heal relationships.our work with that. If we don’t have time to create the damage from the system of white supremacy.the vision—if we don’t have time to explore the big It takes a life-long commitment. Hopefully, wequestions like, What would a just society look like can pass a saner way on to the next generation.or a cooperative new economy look like?—then It takes a real commitment, particularly for whitewe can’t get there. We need to get a little bit out people—people who are defined as white—to beof the boxes we are in so that we can align our introspective and to look to value ways of beingactions with our visions. beyond what has been their experience. There is a robust discussion within the emer- Inevitably, when we try to create multiracialgency food sector about the limits of the charity formations, this rears its ugly head. Across themodel and how in some ways giving food to country, I hear Black folks pushing back. In non-people may create further dependence. So, how profit settings they feel marginalized, with whitedo we think about the causes of the hunger? How men taking up all of the air in the room. It takesdo we foster community self-determination? We commitment to recognize and hold ourselvesneed to spend more time collectively looking at accountable. It is one thing to say that you believethe bigger goals of a society that we are trying in racial justice and equity, but what does thatto bring into being. We need to have a dream of look like? Who are you accountable to? If you getwhat we want in order to move in that direction. off track, who holds you accountable?NPQ: You have said in talks that none of us If we talk about a fair and just society, weescapes the impact of white supremacy. How need to change not only our relationship todoes racial equity get incorporated into com- the economy but also how we see ourselves asmunity economy building work? human beings. Otherwise, we will replicate, maybe in different ways, the same sort of dis-MY: The last several hundred years of the history torted relationships. The same can be said for thein the so-called Western Hemisphere have been socialist–capitalist argument. Capitalism pro-shaped by a European colonial-conqueror nar- motes racial division and inequity. But changingrative. It is so pervasive that it is almost like the from capitalism to socialism doesn’t mean thatair that we breathe. It is so much around us, it the same kinds of racial elements won’t be repli-permeates our consciousness. In broad generali- cated in socialism. White supremacy is a systemties, people who are defined as white tend to have that is overarching. It can infect both a capitalista sense of arrogance and a sense of feeling that society and a socialist society.their particular experience is the universal expe-rience by which others should be evaluated: their NPQ: What is the role of arts and culture instandards of beauty, their ways of operating, their building a new society?ways of being. It functions in so many ways, thissense that their way of doing things is somehow MY: I’m a musician. I’m an artist of sorts, also.better. People of color have issues of inferiority, For many of us, there has never been a line of demarcation between activism and the arts. InS U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​29

As we are building a new the 1960s, Detroit was a hotbed of the Black arts Yes, it is declining and will eventually decay.society, I would like to movement. We have had a long-standing tradition Rather than just build our vision for the future,see this sense of of socially informed art. we need to build new community models and stillspirituality—not a undermine capitalism.reductive religious Art can help motivate people, can help peoplemanifestation that pits to see the world in different ways. Art can touch Some of the social movements become pointspeople against each people in ways beyond the intellectual touching of leverage—for example, the pushback againstother but a universal, that might happen as a result of a lecture or of police killings. People are starting to see howrespectful, inclusive reading a book. Art touches on a deeper emo- oppression is racialized in the United States—approach to spirituality tional level, gets us out of our heads. That’s part how it connects to wealth and lack thereof. Itthat recognizes that the of the Eurocentric paradigm. The idea of being in activates people to push a bigger analysis ofconnection we have to your head is very much a construct of European society—not just what we don’t want, but whateach other and to the colonialism as opposed to models that look at we do want: policing justice, a new relationshipplanet is a fundamental your heart and how your heart and head are con- to the economy. These are a huge focus in thepart of how we think of a nected to your spiritual self. Movement for Black Lives.new economy. Most African and indigenous ways of knowing The #MeToo movement that is challenging the and being are rooted in a sense of spirituality. historic way that women have been exploited and This idea of the economy or social aspects of life abused is another point of leverage. It is causing devoid of spirituality is not rooted in the tradi- people to rethink many things. It is prompting a tions of African people or indigenous peoples, rethinking of masculinity, femininity, woman- which is one of the reasons that Marxism has had hood, and how women function. To me, what is a hard time in Africa. Marxism has had influence most important is the shift in consciousness, the in some places in Africa, but because Africans shift in how we are seeing and valuing women in are largely spiritual, an ideology that is based on families, the workplace, and the larger society. materialism often doesn’t resonate. As we are building a new society, I would like to see this Another point of leverage is the blatant putting sense of spirituality—not a reductive religious of democracy into a coma that occurred with manifestation that pits people against each other emergency management in Detroit. And, as I but a universal, respectful, inclusive approach to mentioned earlier, the clear ownership of busi- spirituality that recognizes that the connection nesses by other ethnicities in African-American we have to each other and to the planet is a fun- communities. Such points of leverage can help to damental part of how we think of a new economy. shift people’s consciousness and ultimately shift If not, then profit becomes the main measure. We societal relationships. need something larger connecting us to past and future generations. If we are not part of the fabric But once you shift people’s consciousness, of life, we are moving in isolation. And the arts they need to have specific activities they can connect one’s entire self. become involved in. So, what do we do differ- ently? And on a national level, not just in isola- NPQ: Grace Lee Boggs talked about how auto- tion, because what is happening on the national mation and decentralization meant that the level is also a point of leverage. There is a tremen- conditions that had placed industrial workers dous amount spent on the military, while people in a privileged position no longer hold. She sug- see suffering and dilapidated infrastructure in gested community building from the ground up. places like Detroit. The general regressive and Where are the points of leverage today? xenophobic approach is something that people can readily see. We are in a time period that is ripe MY: Grace and I disagree somewhat. I agree for alternatives. Those of us who have some idea with her on the importance of building from the of what those alternatives might be must develop ground up, but I think it is still important that we models that people can participate in. try to kick the legs out from under capitalism. NPQ: How should nonprofits conceive of social enterprise?30 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

MY: We favor cooperatives. Social enterprises progressive efforts are being done by people ofmay be a step above capitalism driven solely by color. If we don’t hear about them, we can’t rep-profit, where there is some degree of concern licate them. Shifting the narrative is important.for the welfare of the community and the envi- Telling the stories of Black-, indigenous-, andronment, but it is still short of the benefits that Latinx-led efforts is one of the necessary steps.derive from cooperatives. Cooperatives are what Many of these collective, self-help efforts may notwe need both to collectively hold wealth and, always be called cooperatives. Regardless, identi-equally as important, to learn to make decisions fying and lifting community-based innovations—collectively. What happens to people in a capital- through social media, speaking, publications,ist system is that their sense of agency is eroded. films, video—is important. We run a seven-acreThey become used to being decided for. Having farm. There are many people who have neverto make decisions on our own behalf, and do that heard of us. How do we get the word out? Therein league with other community members, is a are people around the world who know of us, andprocess we need in order to heal ourselves and people around the block who do not. Most peoplerestore our humanity. People need to exercise in positions of power are thoroughly wedded tothose muscles and know how to make decisions the capitalist system. Any models that fundamen-on their own behalf. tally challenge that don’t get much media play. It is critical that we build a more cohesive move-NPQ: What can be done to identify, lift up, ment that is capable of injecting these ideas intosupport existing efforts that build toward new the public discourse and consciousness.vision? To comment on this article, write to us at feedbackMY: This idea of race enters into the discus- @npqmag.org. Order reprints from http://s​ tore.non-sion again. In many cases, some of the most profitquarterly.org, using code 250204.“The Nonprofit Quarterly is the Harvard Business Review for our world.”S U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​31

32 ​T H E   N O N P R O F I T   Q U A R T E R LY  Social Enterprise: What the U.S. and European Experience Can Teach Us—And Where to Now? by Janelle A. Kerlin U se of the term social enterprise has been growing in popularity since the mid- 1980s, though the activity itself has long been in existence. Generally defined as any market-based activity to address a social issue, social enterprise has by some accounts become a global movement to sustain socially beneficial activities largely by means other than traditional government and philan- thropic resources.1 Though the value added from Janelle A. Kerlin is an associate professor in the Andrew Young School of Policy Studies at Georgia State University. She has authored and edited a wide number of books and articles about social enterprise, including being the editor of Shaping Social Enterprise: Understanding Institutional Context and Influence (Emerald Insight, 2017). Kerlin holds an MS in social work from Colum- bia University and a PhD in political science from the Maxwell School at Syracuse University. Prior to joining Georgia State University, Kerlin was a research associ- ate in the Center on Nonprofits and Philanthropy at The Urban Institute, Washington, D.C. “ WATC H IN G” (D E TAIL; AN D P. 37) BY K EI T H P O IN T IN G/ W W W.SA ATC H IAR T.CO M/ACCO U N T/PR O FIL E /97004 8

undertaking social enterprise can be emphasized Understandings of the concept of social Understandings ofdifferently depending on geographic context, enterprise and what it is associated with can the concept of socialsocial enterprise generally speaks to increasing vary across global regions as well as individual enterprise and whatthe self-sufficiency, long-term sustainability, pro- countries and even subnational spaces.5 Varia- it is associated withgrammatic autonomy, and beneficiary empow- tion can be seen in the predominant activities, can vary acrosserment of organizations involved in pursuing clients, outcome focus, funders, regulation, and global regions asa social mission. Looking globally, the social legal forms for social enterprise in different con- well as individualenterprise movement of the last three decades texts.6 In Europe, a number of countries provide countries and evenhas been spurred on by the need for resources strong national government support for social subnational spaces.or programming (or both) to fill gaps in systems enterprise, including some welfare states thatattempting to serve the disadvantaged.2 Largely are viewed as having co-opted social enterpriseas an outlier, social enterprise in the United for their own policy purposes (namely, the workStates also encompasses activities that support integration of the hard to employ), often throughthe improved well-being of populations beyond social cooperatives that enjoy substantial govern-the disadvantaged. Thus, typical examples ment subsidies—though there are variations oninclude organizations that provide work for the this model.7 Strong government support for thishard to employ, thrift stores that sell secondhand particular type of social enterprise activity hasgoods to support a social purpose, scouts that sell led to the term’s association with the provisioncookies or other items to fund their youth pro- of employment and less so with other social pur-gramming, microfinance organizations that lend poses, though this is more the case on the conti-money to the poor for their small business start- nent than in the United Kingdom.8 There is also aups, and museum stores, among many others. growing list of countries with specific legislation for social enterprise legal forms on the national The exact definition of social enterprise is level, many of which are adaptations of the coop-often contested along its commercial and social erative form. In 1991, Italy was the first to adoptboundaries. Indeed, Trent University associ- the social cooperative legal form, with a numberate professor Raymond Dart says of social of other countries later following suit9—includ-enterprises that they “blur boundaries between ing France, Greece, Poland, Portugal, and Spain.nonprofit and for-profit.”3 Some in the burgeon- Alternatively, in 2005, the United Kingdom passeding social enterprise field, however, appear to a modified for-profit legal form, the Communitybe coalescing around parameters, albeit broad Interest Company (CIC), to address the call toones, for the term. Social enterprise is increas- elevate social mission in a for-profit setting.10ingly defined as distinct from corporate socialresponsibility (CSR), where profit-driven busi- Differences between Social Enterprisenesses donate only a fraction of their funds or in the United States and Europeemployee time to social projects. Corporatephilanthropy is also often seen as separate from Social enterprise in the United States is, bysocial enterprise, due to the primacy of the profit comparison, largely left to the private and civilmotive in the corporate generation of revenue rel- society sectors. Here, a national-level legalative to the comparably small social cause work form has not been created for social enterprise,of the organization. Other discussions exclude though there is significant state-level tinkeringcharitable/nonprofit organizations that gener- with adaptations of for-profit legal forms thatate only a small amount of commercial revenue. legally allow social and profit goals to coexist,Thus, while the broadest definitions may include such as the low-profit limited liability corpo-all of these forms of commercially backed social ration (L3C), the benefit corporation, and theefforts, definitions of social enterprise—either social purpose corporation. The cooperativeinherently or explicitly—often exclude undertak- form has historically not been associated withings that are relatively lacking in either the social the term social enterprise in the United States;or commercial aspect.4 however, this is changing with the emergence ofS U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​33

A hallmark of European such entities as the Evergreen Cooperatives in a network of nonprofit and for-profit subsidiar-social enterprises is that Ohio and the Cooperative Home Care Associates ies, creating a nonprofit conglomerate such asthey are established in New York.11 Also, by contrast, in the United Housing Works, which serves the homeless withand managed by citizen States there is generally more emphasis on HIV/AIDS in New York City.15groups rather than revenue generation in support of a wide range ofpublic or private entities, social purposes that may or may not involve ben- In the United States, social enterprises arethough they can receive eficiaries in the earned income activity and that also housed within a for-profit business form.significant funding focus on the disadvantaged as well as improved Dual-purpose businesses (hybrids) mediatefrom these sources. well-being more generally. Historically, the profit goals with internally realized social development of social enterprise has involved objectives to achieve either a double bottom more foundation than government support.12 line (financial and social returns) or triple bottom line (financial, social, and environmen- Typical organizational arrangements for tal returns). An example is Pura Vida Coffee’s social enterprise in the U.S. context span both mission, which calls for providing living wages nonprofit and for-profit legal forms.13 In terms for farmers and producers in Latin America of nonprofits, the social purpose organiza- through the sale of fair trade coffee, the educa- tion involves the generation of earned income tion of consumers and business leaders to take through the in-house sale of products or ser- action toward social good, and serving at-risk vices. An example is the physical fitness and rec- children and families in Latin American com- reational services provided by the Young Men’s munities and around the world. Christian Association (YMCA). In the European context, there can be varia- The sale of products or services can also be tions on these organizational arrangements with arranged through a nonprofit or for-profit sub- the for-profit and charity/association (similar to sidiary. The creation of subsidiaries allows a nonprofit) legal forms found there. However, the nonprofit to engage in activities that may only use of a single organization appears to predom- be peripherally related to its mission or to reduce inate over a conglomerate, with this typically its risk as it experiments with a new program being the cooperative or social cooperative legal or business ideas. Such subsidiaries are con- form (when such legislation is present). Asso- sidered social enterprises when they include an ciations may also house a revenue-generating earned-income component. For example, a com- component; however, this is only where laws prehensive social service provider might estab- allow business activity within the association lish an employment agency for hard-to-place legal form. inner-city residents as a separate nonprofit subsidiary. While the parent organization may Another point of differentiation between provide start-up funding and administrative Europe and the United States is the internal services, the subsidiary is able to adopt its own governance of the social enterprise. In the structure and create a business-like culture.14 European context, the governance of the orga- nization carries greater importance due to its The for-profit subsidiary is often chosen when expected role in the democratic advancement a nonprofit seeks to protect its tax-exempt status of the economy.16 Indeed, the European social while engaging in substantial business activ- enterprise focus on autonomous development, ity that is not related to its charitable exempt decision making exclusive of capital ownership, purpose. Profits from the for-profit subsidiary and participation of multistakeholders in the are taxed at normal corporate income tax rates, governance of the organization all speak to the even though they support the charitable activi- cooperative roots of social enterprise in Europe. ties of the nonprofit. The Sustainable Community In terms of autonomy, a hallmark of European Initiatives’ establishment of a for-profit subsid- social enterprises is that they are established iary called Community Forklift (a recovered and managed by citizen groups rather than building materials store) is an example of this. At public or private entities, though they can receive times, nonprofits go a step further and establish significant funding from these sources. As such,34 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

public–private partnerships are not included in the Social Enterprise Alliance (the U.S.’s pro- In the U.S. context,their conceptualization of social enterprise, fessional association), as well as among many democratic governancethough they can be at times in the U.S. context.17 social science scholars.21 From this perspec- of the social enterpriseDecision making in European social enterprises tive, social enterprise encompasses a variety gets less attention, andis based on the premise of one member, one vote, of forms along a continuum from dual-purpose more focus is placed onand is not determined by capital ownership, as it businesses that mediate profit goals with social ensuring businesscan be in the United States with for-profit social objectives (hybrids) to nonprofit organizations management expertise,enterprises. The involvement of multiple stake- engaged in mission-supporting commercial especially in the case ofholders—including employees, beneficiaries, activity (social purpose organizations, for-profit the nonprofit socialvolunteers, sponsors, and government and busi- subsidiaries of nonprofits, nonprofit-business enterprise.ness actors from the local community, either on partnerships, etc.).22the board or as members—creates a situation ofmultistakeholder ownership and governance of The second school of thought, the socialthe social enterprise. These last two character- innovation school, is more focused on the indi-istics are captured as requirements in the legis- vidual (as opposed to the organization), andlation for social enterprise legal forms in some is embodied in the innovative social entrepre-European countries.18 neur, with the social enterprise as the vehicle through which a social innovation is delivered— In the U.S. context, democratic governance with or without a commercial base.23 Businessof the social enterprise gets less attention, and schools and foundations in the United Statesmore focus is placed on ensuring business man- largely espouse the social innovation school.24agement expertise, especially in the case of the Some authors, however, promote a distinctionnonprofit social enterprise. Enterprising Non- in the use of these terms that aligns with theprofits: A Toolkit for Social Entrepreneurs by two schools of thought. Paul Light, for instance,Greg Dees, Jed Emerson, and Peter Economy states, “Whereas social entrepreneurship seeksdiscusses many alternative means to structure tipping points for innovation and change, socialsocial enterprise in relation to the nonprofit enterprise seeks profits for reinvestment andthat has given the enterprise birth.19 Alterna- growth.”25 Citing J. Gregory Dees, Light arguestive board structures might include an advisory that on an academic level there is increasingboard or a business enterprise board. If the enter- agreement that social enterprise is distinctprise is located inside the nonprofit, an advisory from the foundation definition of social entre-board can be established to specifically provide preneurship due to its connection with revenuesupport and counsel on the enterprise side. Such generation.26advisory boards typically have more representa-tion from clients and the community, and can be In Europe, the EMES International Researchformal or informal. When the social enterprise is Network established a set of loose criteria to usehoused in a legally separate for-profit subsidiary, in identifying social enterprises in that context.a business enterprise board can be established at These include the economic/entrepreneurialits head with a focus on profit making. criteria of “a continuous activity producing goods and/or selling services; a high degree of Given the above, it is not surprising that autonomy; a significant level of economic risk;Europeans and Americans often define a minimum amount of paid work.” They alsosocial enterprise differently. In the United include the social criteria of “an explicit aim toStates, there are, broadly speaking, two prin- benefit the community; an initiative launchedcipal schools of thought: the earned-income by a group of citizens; a decision-making powerschool and the social innovation school. The not based on capital ownership; a participatoryearned-income school focuses on social enter- nature, which involves various parties affectedprise organizations and activities that generate by the activity; a limited profit distribution.”27commercial revenue in support of social goals.20 This approach differs from the ways social enter-Indeed, a version of this definition is used by prise is typically conceived of in U.S. circles. OneS U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​35

Their affirmative critique key difference is the European focus on having that the road towards approximating them will. . . challenges those a multistakeholder governing body as well as a remain forever arduous.”31 What is increasinglyinvolved to not settle for lack of emphasis on social enterprise as involv- clear is that social enterprise is one of the impor-the status quo but rather ing “innovation.” It should be added that in the tant tools that can take us along this path—if dueto push the field’s European approach, not every criterion listed diligence is paid to the steering of it.frontiers to achieve the above needs to be met precisely in order to placefull potential of social an organization in the social enterprise sphere.28 Notesenterprise and address 1. This section was adapted from Janelle A. Kerlinany needed corrections Moving Forward and Kirsten Gagnaire, “United States,” in Socialalong the way. Enterprise: A Global Comparison, ed. Janelle A. As I have noted elsewhere, “The concept of social Kerlin (Lebanon, NH: Tufts University Press, 2009). enterprise continues to raise the interest of 2. Janelle A. Kerlin, “A Comparative Analysis of the people around the world. From practitioners to Global Emergence of Social Enterprise,” Voluntas: policymakers, activists, and funders of the social International Journal of Voluntary and Nonprofit good, social enterprise has captured the imagi- Organizations 21, no. 2 (June 2010): 162–79. nation and hopes of a growing cross-section of 3. Raymond Dart, “The Legitimacy of Social Enter- society that seeks to find a more sustainable prise,” Nonprofit Management & Leadership 14, no. answer to the problems of society.”29 4 (Summer 2004): 411–24. 4. Dennis R. Young, Elizabeth A. M. Searing, and Realizing that potential, however, can be Cassady V. Brewer, eds., The Social Enterprise Zoo: a challenge. Indeed, social enterprise is not A Guide for Perplexed Scholars, Entrepreneurs, without its critics on both sides of the Atlantic. Philanthropists, Leaders, Investors, and Policy- Pascal Dey and Chris Steyaert recently pub- makers (Northampton, MA: Edward Elgar, 2016); lished an edited collection of papers written Carlo Borzaga and Giulia Galera, Social Enter- by scholars in North America and Europe that prises and their Eco-systems: Developments in critique social entrepreneurship and enterprise. Europe (Brussels, Belgium: European Commission, The five sections in the book bring awareness Directorate-General for Employment, Social Affairs to and open a discourse around assumptions and Inclusion, 2016); Janelle A. Kerlin, ed., Shaping about social entrepreneurship; its political and Social Enterprise: Understanding Institutional ideological representations; how it is enacted Context and Influence (Bingley, UK: Emerald Pub- through language, trust, and compassion, with lishing, 2017); and Social enterprise: A strategy for sometimes unintended consequences; its moral success (London: Department of Trade and Industry, predicaments and limitations with respect to July 2002). participation and democracy; and how newly 5. Janelle A. Kerlin, “Social Enterprise in the United understanding it from a relational view can States and Europe: Understanding and Learning shift thinking around what is possible, includ- from the Differences,” Voluntas: International ing systems change. Their affirmative critique— Journal of Voluntary and Nonprofit Organizations which positions the current phenomenon of 17, no. 3 (September 2006): 247–63; Kerlin, Social social entrepreneurship and enterprise as Enterprise; and Ramón Fisac-Garcia and Ana María “inadequate yet necessary”—challenges those Moreno-Romero, “Understanding social enterprise involved to not settle for the status quo but rather country models: Spain,” Social Enterprise Journal to push the field’s frontiers to achieve the full 11, no. 2 (2015): 156–77. potential of social enterprise and address any 6. Kerlin, “A Comparative Analysis.” needed corrections along the way.30 7. Jacques Defourny and Marthe Nyssens, “Social enterprise in Europe: At the crossroads of market, As Dey, in an article with Hanna Schneider public policies and third sector,” Policy and Society and Florentine Maier, puts it, this requires “first 29, no. 3 (March 2010): 231–42; and Marthe Nyssens, . . . an enticing positive vision (e.g., democracy, ed., Social enterprise: At the Crossroads of Market, justice, good life, human decency). Secondly, in alignment with such ideals, it should be made clear that they will always remain elusive, and36 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

Public policies and Civil Society (London, UK: corporate form and purpose,” International JournalRoutledge, 2006). of Entrepreneurship and Innovation Management8. Ibid. 6, no. 3 (January 2006): 241–55.9. Ibid. 23. Paul C. Light, “Reshaping Social Entrepreneur-10. Ibid. ship,” Stanford Social Innovation Review 4, no. 311. Cassady V. Brewer, “The ongoing evolution in (Fall 2006): 47–51; David Bornstein, How to Changesocial enterprise legal forms,” in Young, Searing, and the World: Social Entrepreneurs and the PowerBrewer, The Social Enterprise Zoo, 33–65. of New Ideas (New York: Oxford University Press,12. Kerlin and Gagnaire, “United States,” in Social 2004); and Roger L. Martin and Sally Osberg, “SocialEnterprise. entrepreneurship: The Case for Definition,” Stanford13. Kim Alter, “Social Enterprise Typology,” The Four Social Innovation Review 5, no. 2 (Spring 2007):Lenses Strategic Framework, accessed June 5, 2018, 28–39.www.4lenses.org/setypology. 24. Teresa Chahine, Introduction to Social Entre-14. Joseph J. Cordes, C. Eugene Steuerle, and Zina preneurship (Boca Raton, FL: CRC Press, 2016).Poletz, “Examples of Nonprofit/For-profit Hybrid 25. Paul C. Light, The Search for Social Entrepre-Business Models,” unpublished paper, Urban Insti- neurship (Washington, DC: Brookings Institutiontute, Washington, DC, 2002. (This paper was later Press, 2008), 5.published as Appendix 3.1 under the title “Examples 26. J. Gregory Dees, Social Entrepreneurshipof Nonprofit–For-Profit Hybrid Business Models,” in is About Innovation and Impact, Not IncomeJoseph J. Cordes and C. Eugene Steuerle, eds., Non- (Durham, NC: Center for the Advancement of Socialprofits and Business (Washington, DC: Urban Insti- Entrepreneurship, Fuqua School of Business, Duketute, 2009), 69–82. University, 2003); and Light, The Search for Social15. Cordes, Steuerle, and Poletz, “Examples of Non- Entrepreneurship.profit/For-profit Hybrid Business Models.” 27. Defourny and Nyssens, “Conceptions of Social16. Jacques Defourny and Marthe Nyssens, “Concep- Enterprise and Social Entrepreneurship in Europetions of Social Enterprise and Social Entrepreneur- and the United States,” 27.ship in Europe and the United States: Convergences 28. Defourny and Nyssens, “Conceptions of Socialand Divergences,” Journal of Social Entrepreneur- Enterprise and Social Entrepreneurship in Europeship 1, no. 1 (March 2010): 32–53. and the United States.”17. Defourny and Nyssens, “Conceptions of Social 29. Janelle A. Kerlin, “The Macro-Institutional SocialEnterprise and Social Entrepreneurship in Europe Enterprise Framework: Introduction and Theoreti-and the United States”; and Young, Searing, and cal Underpinnings,” in Shaping Social Enterprise:Brewer, The Social Enterprise Zoo. Understanding Institutional Context and Influ-18. Defourny and Nyssens, “Conceptions of Social ence, ed. Janelle A. Kerlin (Bingley, UK: EmeraldEnterprise and Social Entrepreneurship in Europe Publishing, 2017), 1.and the United States.” 30. Social Entrepreneurship: An Affirmative Cri-19. J. Gregory Dees, Jed Emerson, and Peter tique, Pascal Dey and Chris Steyaert, eds. (Chelten-Economy, Enterprising Nonprofits: A Toolkit for ham, UK: Edward Elgar, 2018), 2.Social Entrepreneurs (New York: John Wiley & 31. Pascal Dey, Hanna Schneider, and FlorentineSons, 2001). Maier, “Intermediary Organisations and the Hege-20. Defourny and Nyssens, “Conceptions of Social monisation of Social Entrepreneurship: Fantas-Enterprise and Social Entrepreneurship in Europe matic Articulations, Constitutive Quiescences, andand the United States.” Moments of Indeterminacy,” Organization Studies21. “What is Social Enterprise?” Social Enterprise 37, no. 10 (October 2016): 1451–72.Alliance, accessed May 15, 2018, socialenterprise.us/about/social-enterprise/. To comment on this article, write to us at feedback22. Dennis R. Young, “Social enterprise in commu- @npqmag.org. Order reprints from http://s​ tore.nonprofitnity and economic development in the USA: Theory, quarterly.org, using code 250205.S U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​37

Donor-Advised Funds Advancing a DAFRegulatory Agenda from Within the Nonprofit Sector As the following articles describe, tension has built up around the lack of substantive regulation of donor-advised funds. “Tracking the extent of anyproblem (or whether a problem even exists),” writes Ruth McCambridge, “is made difficult by the veil provided by sponsors—which allows DAFs to be almost entirely opaque. This raises questions about accountability andaccess, and it should come as no surprise that these questions are emerging even as these funds grow relatively astronomically in numbers and dollarvalue.” But there is a place for both self-regulation and external regulation of DAFs, and the general sense is that this is where we will eventually land. There are all kinds of dynamics that get in the way of advancing any particular conversation, but in many cases those dynamics are pretty familiar—and if we name them, there is at least a chance that a true dialogue can get traction. The following articles address a set of proposals for regula- tions having to do with donor-advised funds, or DAFs. These proposals are not actively in play in Congress, but as that field—characterized in part by its built-in veil for individual funds— continues to grow explosively, the need to respond to concerns grows ever more critical. The Dynamic Thirteen years ago, former Massachusetts Attorney General Scott Harshbarger wrote an article for NPQ in which he characterized the policy-related behavior of the nonprofit38 ​T H E   N O N P R O F I T   Q U A R T E R LY  “THE EMPEROR” BY ANCA STEFANESCU/WWW.ANCASTEFANESCU.COM



infrastructure as “ragging the puck” (“Ragging particular set of vested interests. . . . While the Puck: Not a Viable Strategy for the Whole I believe in the importance and mission of Game,” Nonprofit Quarterly 12, Special Issue, our sector, and while I have observed a 2005). He was referring to policy related to regu- host of exceptional leaders and governance lating the sector itself. “Ragging the puck” is, of models, I have great fears that the sector, course, a hockey term that refers to the prac- given the choice, will do exactly what it has tice of worrying the puck around the rink while done historically, and in fact exactly what running the clock down, so that the opposing the leaders of corporate America are doing team has no chance to make a goal. The article now: ragging the puck with task forces and was written over a decade ago, but much of the studies proposing more standards and sector’s response to regulatory proposals has more voluntary action, while at the same remained defensive—largely, attempts to keep time talking only to fellow “insiders” and regulatory advocates from scoring. There are true believers. Assertions that regulation some exceptions to this, as with the proposal for will divert time and money from our core a Universal Deduction last legislative season— missions, and that we should not all be but that was being floated against the tax over- tainted by a few bad apples, prevent us haul’s curtailment of the charitable deduction, from considering the benefits of meeting and could also have been seen as part of a defen- the challenge to participate actively sive strategy. in the evolution of a carefully crafted, well-tended, well-bounded, well-refereed, A good defense is great, but if it is your only and sun-drenched playing field—and one move, after a while it will become less than effec- that need not be “one size fits all,” form over tive. At the time, Harshbarger was reacting in substance, or unduly costly. part to the insistence by some national groups that the sector could achieve better results . . .What we are missing is the kind of through self-regulation and the affirmative prom- positive, proactive advocacy from the ulgation of best practices than it could through sector—at the national level as well— external regulation. that will help achieve the best balance of imposed and voluntary accountability Clearly, there is a place for self-regulation and measures. We must all value, not fear, the dissemination by a field of its own standards the principles of democracy—account- and best practices, but there is also a place for ability, transparency, disclosure, checks external regulation—as is the case with the and balances, integrity, openness, robust rapidly expanding field of donor-advised funds. debate, public and private-sector partner- The articles in this section give space primarily ships, and, above all, civic engagement to those advancing reform proposals, but we also by all of us, including an educated, active suggest that some of the work needed to respond constituency. to those concerns is being done already or could Finally, the following questions by Harsh- be done affirmatively by the DAF sponsors them- barger apply as strongly today as they did back selves, with the help of independent researchers in 2005: who could be used as monitors. So, will the nonprofit sector and its lead- We end, here, as we began—with advice in ership follow the for-profit leaders in its that long-ago article from Harshbarger: response to the call for more accountabil- ity? Will it rally to resist mandatory change Too often and too consistently, the non- by circling the wagons, raising the rhetori- profit sector’s leadership has resisted cal flags, prophesying doom, and trying review in the same terms and to the same to run out the clock? Or will it seize the effect as corporate America. Much of the moment to help order the regulatory and “leadership” that has had the time and accountability landscape? drive to lobby on the regulatory environ- ment at all has or is well aligned with a40 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

Do Donor-Advised Funds Require Regulatory Attention? by Ruth McCambridgeThe Nonprofit Quarterly is by no means appointed or designated by the donor) has or rea- convinced that there is widespread sonably expects to have advisory privileges over abuse in donor-advised funds—but do the distribution or investments of the assets.”1 we believe that the conditions exist for Donor-advised funds tend to be held at threewidespread abuse? That is a different proposition. different types of institutions: community foun-There are two categories of concern that some dations, commercial funds established by invest-advocates would like to see answered with regu- ment firms, and charities serving a particular fieldlation: the first has to do with the establishment or need.of systems of accountability that look into thetransactions of individual funds, and the second is To establish a little background, whilewhat such a sight line might reveal—for example, donor-advised funds have by some accounts beenovervaluation of noncash contributions, inactivity around since 1931 (when the first such fund wasin disbursement of funds, and transfers of funds started by the New York Community Trust, by itsfrom private foundations in an attempt to bypass own claim), DAFs only started to spread signifi-their payout rates. Thus, the first concern about cantly since the Tax Reform Act of 1969, whenopacity can lead to the polarization we now see Congress enacted regulatory reform (includingabout whether or not the field is in need of regu- reduced tax benefits and payout requirements) onlation, because the concerns of DAF skeptics are private foundations.2 Given the new constraints,not disprovable while DAF sponsors see the veil community foundations (which were designatedas being of value to the donors they serve. Is there public charities rather than private foundations)a way forward other than waiting for the almost realized that they could provide donors with ainevitable scandal to catch the attention of Con- beneficial alternative (to foundations) by offer-gress? We think so. ing a relatively individualized giving vehicle for donors through the donor-advised fund model.Background Donors would get all the tax benefits of a transfer to a public charity, but there would be an under-A donor-advised fund (DAF) is defined as “(1) a standing that the funds would be segregated andfund or account owned and controlled by a spon- the donor would retain functional control oversoring organization, (2) which is separately iden-tified by reference to contributions of the donor Ruth McCambridge is the Nonprofit Quarterly’sor donors, and (3) where the donor (or a person editor in chief.“ T H E E M P E R O R ” ( D E TA I L ; A N D P. 45 ) B Y A N C A S T E F A N E S C U / W W W. A N C A S T E F A N E S C U . C O M T H E   N O N P R O F I T   Q U A R T E R LY  ​41

Tracking the extent of the distribution (and sometimes investment) of giving. You must approach the individual (orany problem (or whether the donated funds. vice-versa), but the grant is finally made by thea problem even exists) is DAF sponsor, which retains real ownership/stew-made difficult by the veil In 1981, the category of donor-advised funds ardship over funds that have been transferred toprovided by sponsors— was written into law.3 At that point, DAFs began the DAF. Lila Corwin Berman calls this an “inter-which allows DAFs to be to proliferate largely in community foundations, section of these two modes—charitable endow-almost entirely opaque. but they have only become controversial since ments and individual donor control over public commercial financial firms entered the field as charitable dollars.”7 sponsors in the early 1990s, establishing their own public charities to receive, hold, and dispense the This plays out to hold the sponsor responsible funds.4 This placed them in direct competition for its own transparency as a whole entity while with community foundations, and there was a obscuring the activities of the individual funds. good deal of hostility that built up. That hostility Tax guidelines promulgated in [the Pension Pro- has since dissipated to some extent as community tection Act of] 2006 require each donor-advised foundations realized that the marketing of DAFs fund sponsor to report the total number of funds, done by the financial services industry assisted total assets in the funds, and total contributions the growth of DAFs in community foundations to and from the funds on their Forms 990, but any as well. But the discomfort that others feel with information on the individual funds themselves, the vehicle in general has grown, along with the regardless of size, is obscured.8 very rapid expansion of the field, which is main- tained below the sight line of the public. Tracking To explain what the issues are, we invited the extent of any problem (or whether a problem two advocates, Ray Madoff and Dean Zerbe, well even exists) is made difficult by the veil provided known for their criticisms of the DAFs field, to by sponsors—which allows DAFs to be almost provide their takes on what needs regulatory entirely opaque. This raises questions about attention. We also invited others to write about accountability and access, and it should come as no surprise that these questions are emerging For the most part, charities with DAFs face laws and rules even as these funds grow relatively astronomi- simpler than those applying to private foundations, but cally in numbers and dollar value. they must still deal with some provisions not applying to other public charities. For example, donors can DAF asset values more than doubled between donate assets (and sometimes capital gains taxes) on 2010 ($33.6 billion) and 2015 ($78.6 billion).5 Year the unrealized appreciation, but the deduction limits as over year, as you can see below, the growth has a share of adjusted gross income for the deduction are been nothing short of phenomenal while all of lower for donations to private foundations than for those giving as a proportion of disposable income has to DAFs, which are treated like most other charities. Private stayed relatively stable.6 foundations must pay a 1 or 2 percent excise tax on net investment income each year, but DAFs are not subject Changes in the Number of Funds and the Asset Value of to the excise tax. Private foundations are mandated to DAFs and Private Foundations from 2014 to 2015 make minimum distributions each year, but DAFs do not have a distribution requirement, although some Type of Total Number of Funds Dollar Value of Assets sponsoring organizations have their own policies regarding Giving (thousands) (billions) minimum or occasional distributions. Private foundations Vehicle must disclose donor information on tax form 990-PF, but 2014 2015 Percent 2014 2015 Percent sponsoring organizations (e.g., a community foundation Change Change or Fidelity Charitable) are not required to publicly disclose donor information. Thus, DAFs can grant more anonymity DAFs 242.4 269.2 11.1% $70.3 $78.6 11.9% to donors than can private foundations, but not necessarily any more anonymity than donors to other public charities.9 Private 79.7 81.8 2.6% $712.45 $781.6 9.7% Foundations Source: National Philanthropic Trust (2016) Another grounding issue for those trying to make sense of policy needs for this vehicle is that DAFs have a dual character that leaves them sitting oddly between foundation and individual42 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

Proposals from Madoff and Zerbe Problem it addresses ObjectionsProposalImpose some requirement that encourages The problem being addressed here is the concern Those in the field object to payout requirements, because overallor ensures that DAF assets make their way to that donors are being given maximum tax payout percentages on the pools of funds are in many cases highernonprofits. Three proposals are: benefits for contributions to DAFs (because they than at most private foundations, which have tended to view the are public charities), but there is no requirement minimum floor payout of 5% as a ceiling requirement. In contrast,(1) Create a legal annual percentage requirement for the funds to ever be distributed out of the some donor-advised fund sponsors report payout rates of 10% tofor payouts from donor-advised funds. DAF. Currently, it is impossible to determine how 20%; this, of course, is an average, and may include some funds many of the individual donor-advised funds that act as pass-throughs (receiving and dispensing funds in close(2) Require that all funds in donor-advised funds may simply be in holding patterns and for what chronological proximity) and some that are relatively inactive.be spent out within a set period of time. periods of time. Furthermore, the donor-advised funds are as much like individual donors as they are like foundations; in other words, the individual(3) Adopt rules that incentivize distributions funds are not regarded as endowments.from each fund such that donors are encouragedto move more quickly in making final distributions.(Madoff and Zerbe)DAF sponsors should have boards that are The boards of any public charity shouldcredibly independent from their related be free from the temptation to serve thefor-profit financial institutions. interest of a private institution over the interests of the public.(Zerbe)Tie the tax benefits of complex asset contributionsto the actual amount that becomes availablefor distribution for charity rather than anappraised value.(Madoff and Zerbe)End the practice of transfers from foundations Some foundations use giving to donor-advised There are pages of examples of why this practice of transferringand/or make them transparent. funds to meet the 5% payout requirement. between private foundations, public foundations, and other This constitutes a violation of public trust and DAFs should be allowed. Objectors to curtailment of such activity(Madoff and Zerbe) exacerbates the sense that the funds are being include the Philanthropy Roundtable, the Council on Foundations, used as a workaround to the legal requirements Independent Sector, and others. of private foundations.To provide protection against abuse of charitable laws,improve reporting requirements and transparencyso that reasonable monitoring is possible onpayout, dormant/inactive funds, acceptanceof non-publicly-traded property, and other issues.(Madoff and Zerbe)why such broad-based congressional attention to do with affording more access for nonprof-was not now needed and to speak up about what its, which is what bugs many organizations.additional, but more limited, regulations were When complaining about donor-advised funds,needed, but we mostly got demurrals. So, we nonprofits generally talk about the inability towere stuck trying to make some sense of what access the names and contact information ofmay be priority issues for regulation, which we fund advisors and related information abouthave done below with the benefit of prior analy- grant types, amounts, and so forth. That par-ses from the Urban Institute and others. The ticular issue flows from the individual giverissues we have identified as deserving of atten- aspect of the DAF identity. Despite the fact thattion are not the issues you may most commonly the money is being held as charitable funds andhear from nonprofits, by the way, which have a deduction has been taken, there is no require-to do with the ability to identify donors with ment for the publishing of material that identi-DAFs; but they are the issues where we have fies the giver, and the funds see that prospectdetermined the most abuse might be occurring. as being a potential wet blanket on the proposi- tion they are offering donors—that of nailing None of the proposals advanced below haveS U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​43

While the funds the donor down to a dollar-giving intention but payout rules should be seen as especially egre-are championed as not revealing that publicly nor requiring any pre- gious, since it may not be illegal but certainlydemocratizing giving, commitment to any particular nonprofit. flouts the intent of the payout requirement.there are some But there is no way to determine the extent ofindications that the While the funds are championed as democ- the problem without extraordinary efforts. Ofdonors continue to ratizing giving, there are some indications that course, there is a way for donor-advised fundact more like high- the donors continue to act more like high- than sponsors to help make the field more transpar-than low-end givers. low-end givers; as the Lilly Family School of ent by funding more independent research them- Philanthropy at IUPUI reports, “there are some selves, based on increased access to the data. similarities between donor-advised fund grant- See more on this idea below. ing patterns and the national distribution pat- terns . . . there are even more similarities when • • • donor-advised fund granting patterns are com- pared to data on individual donors only.”10 Some It is unclear what the congressional appetite is may feel that providing a veil for high-end givers for the regulation of DAFs. Former Michigan primarily is unfair treatment; that veil, in fact, Congressman David Camp’s proposal in 2014 stands directly in the way of our understanding to levy an excise tax on DAF funds not distrib- the extent of some of the problems identified by uted within five years of contribution has been Madoff and Zerbe. Thus, no one really knows largely left for dead.12 However, as evidenced the extent of the problem of private foundations by the recent rules regarding university endow- avoiding the 5 percent payout rate through the ments and sports seating, Congress does appear use of donor-advised funds, but they have been largely mindful of concerns over the relationship left trying to surmise it through the use of other between charitable tax benefits and the public information, as is described here by IUPUI: good.13 While Congress appears largely uninter- ested in donor-advised funds, it is demonstrably . . . researchers endeavored to understand increasingly and critically interested in endow- why giving to public-society benefit (PSB) ments that do not accrue properly to the benefit from donor-advised funds was higher of the public. Donor-advised funds that aren’t than the national trendline. In 2015, fluid are alike enough to endowments to pose a giving to PSB accounted for 16 percent of threat to the entire field by providing rich soil donor-advised fund grant dollars, while and a veil for misbehavior in that sweet spot of PSB garnered 8 percent of total giving in congressional attention. Additionally, it is in the the same year according to Giving USA best interests of the whole sector to understand 2017. how these bodies work to ease or dam the flow of charitable giving into nonprofits that provide The public-society benefit subsector, as benefit to our communities and society. defined by Giving USA, is a collection of many distinct charities including national The one issue that is most talked about as donor-advised funds, United Way chapters, in need of policy change is the issue of payout Jewish appeal funds and federations, vet- rates, which has compared very favorably to eran’s affairs organizations, civil rights foundation payouts—but not so favorably, of nonprofits, and others. course, to direct giving, if you assume that the same amount would have been given elsewhere. Upon closer inspection of the public- society benefit subsector data, we found In any case, in the absence of transparency, that a certain proportion of granting from one could assume that none of the proposals donor-advised funds was going to other have merit or almost all of the proposals have organizations classified as donor-advised merit—and therein lies a big problem. It should fund sponsors (DAF-to-DAF granting).11 be said that many DAF sponsors have already begun implementing internal rules that answer This particular problem of private founda- tions using contributions to DAFs to bypass44 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018

some of the concerns—for instance, some have w w w.cof.or g / sit e s /defau lt /f i le s /docu ment s /f i le srules in place to prevent funds from remaining /DAF-timeline.pdf; and “SIMPLIFY YOUR CHARI-dormant for too long. Fidelity Charitable, for TABLE GIVING. WE DO ALL THE WORK,” The Newexample, sweeps funds that have been dormant York Community Trust, accessed June 16, 2018,for three years or more, and grants the money w w w.nycom mu n it y t r u s t .or g / g i v i n g / how- t o - g i veitself in individual funds. But codifying such /donor-adv ised-f u nds /.practices and fine-tuning them to close any loop- 3.  Giv i ng USA Fou ndat ion, T h e D at a o nholes that have opened up during this period of Donor-Advised Funds: New Insights You Need toexplosive growth will either be done by the field Know (Indianapolis: Indiana University Lilly Familyin a way that lends itself to strict fieldwide stan- School of Philanthropy at IUPUI, 2018), 14.dards or may eventually end up in the hands of 4.  Kevin Johnson, “The Economist Weighs in onCongress when we least expect it (and possibly Donor-Advised Funds: A Philanthropic Black Box?,”following a scandal or two). Nonprofit Quarterly, March 28, 2017, nonprofit quar terly.org / 2017/ 03 / 28 /donor-adv ised-funds Finally, the whole field would benefit from -philanthropic-black-box/.independent research that examines a number of 5.  2016 Donor-Advised Fund Report (Jenkintown,key questions, identifying patterns that violate PA: National Philanthropic Trust, 2016).standards already in law or regulation. This 6.  Ibid.proposal was advanced in 2015 by the Urban 7.  Lila Corwin Berman, “Donor Advised Funds inInstitute, in their paper “Discerning the True Historical Perspective” (paper presented at thePolicy Debate over Donor Advised Funds,” in Forum on Philanthropy and the Public Good, Wash-which a call was issued to national DAF spon- ington, DC, October 23, 2015).sors “to share data with independent third-party 8.  “New Requirements for Donor-Advised Funds,”researchers in ways that could accommodate Internal Revenue Service, accessed June 15, 2018, wwwprivacy concerns.”14 In fact, such access could .irs.gov/charities-non-profits/charitable-organizationsprovide the robust research and data that would /new-requirements-for-donor-advised-funds.allay regulators’ concerns—if no cause for 9.  Ellen Steele and C. Eugene Steuerle, Discerningconcern exists. the True Policy Debate over Donor-Advised Funds (Washington, DC: Tax Policy and Charities Initia- In the end, as former Massachusetts Attor- tive, Urban Institute, October 2015).ney General Scott Harshbarger asserts in the 10.  Giv i ng USA Fou ndat ion, T h e D at a o nintroduction to this section, the field itself has Donor-Advised Funds, 30.an opportunity to achieve the best balance of 11.  Ibid., 29.imposed and voluntary accountability measures 12.  Grace Allison and Jessica Baggenstos, “Campif it moves toward accrediting DAF sponsors, but Tax Reform Proposal & the Income Tax Charitableit cannot expect the public to continue to take Deduction,” eReport, The American Bar Association,it on faith that these bodies are managed to the April 2014.highest ethical standards without more assur- 13.  CASE; “The College Athletic Seating Deduc-ances than exist now. tion is Out. Here’s What We Know (So Far),” blog entry by Brian Flahaven, January 26, 2018, blogNotes .c a s e.or g / 2 018 / 01 / 2 6 / t he - col lege - a t h let ic - s e a t i n g1.  “DONOR-ADVISED FUNDS GUIDE SHEET EXPLA- -deduction-is-out-heres-what-we-know-so-far/.NATION,” Internal Revenue Service, U.S. Department 14.  Steele and Steuerle, Discerning the True Policyof the Treasury, July 31, 2008, www.irs.gov/pub/irs-tege Debate over Donor-Advised Funds.”/donor_advised_explanation_073108.pdf.2.  “What is a Donor-Advised Fund (DAF)?,” National To comment on this article, write to us at feedbackPhilanthropic Trust, accessed June 16, 2018, www @npqmag.org. Order reprints from http://s​ tore.nonprofit.nptrust.org/what-is-a-donor-advised-fund; Donor quarterly.org, using code 250206Advised Fund Timeline: Milestones in the Historyof DAFs (Arlington, VA: Council on Foundations),S U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​45

46 ​T H E   N O N P R O F I T   Q U A R T E R LY  Three Simple Steps to Protect Charities and American Taxpayers from the Rise of Donor-Advised Funds by Ray D. Madoff Without a doubt, the most noteworthy story affecting the charitable sector over the past twenty-five years has been the meteoric rise of donor-advised funds (DAFs). Within the blink of an eye, DAFs have grown from obscurity to ubiquity—and with the 2017 tax law1 making bunching the new word in charitable giving, the growth of DAFs is expected to continue unabated. Ray D. Madoff is a professor at Boston College Law School, where she teaches and writes in the areas of philanthropy policy, taxes, property, and estate planning. Madoff is also the cofounder and director of the Boston College Law School Forum on Philan- thropy and the Public Good, a nonpartisan think tank that convenes scholars and practitioners to explore whether the rules governing the charitable sector best serve the public good. She is the author of Immortal- ity and the Law: The Rising Power of the American Dead (Yale University Press, 2010) and the lead author of Practical Guide to Estate Planning (CCH, 2005). “ T H E E M PER O R ” (D E TAIL; AN D P. 51) BY AN C A S T EFAN E S C U/ W W W. AN C A S T EFAN E S C U.CO M

Consider the following: The donation of appreciated property DAFs are not only being • In 1992, the top ten fundraising charities were provides a double tax benefit for donors, funded by individuals. because it enables donors to both avoid Many private all well known to the public and included such capital gains taxes on donated property foundations make familiar names as the American Red Cross, and offset their income tax liability based significant distributions the American Cancer Society, and Catholic on the fair market value of the contributed to DAFs. Charities USA. In 2017, none of the above property.7 These benefits are particularly charities were on the list, and six of the top valuable as applied to donations of complex ten were DAF sponsors and were unknown assets—property other than publicly traded to most Americans (and sounding more like stock—because these assets only provide commercial financial institutions than tradi- very limited tax benefits when contributed tional charities).2 to private foundations.8 • While contributions to charities as a whole 3. DAF sponsors earn fees for the manage- have grown at a slow and steady pace, the ment of DAF funds. Ever since financial rate of growth in DAF contributions has been services companies have begun creating astronomical. Since 2011, overall annual char- DAF sponsors, they have used their consid- itable giving has grown from $300 billion (in erable marketing skills to fuel their growth. 2011) to $410 billion in 20173 (total growth of In addition, because individual financial 36.6 percent).4 Over that same time period, advisors are also able to profit from manag- annual contributions to Fidelity Charitable, ing DAF funds, their influence has assisted the largest DAF sponsor, have grown from the growth of DAFs, as well. This increased $1.7 billion in 20115 to $6.8 billion in 2017 (total public awareness of DAFs has fueled the growth of over 400 percent).6 growth of all DAF contributions, not just • DAFs are not only being funded by individuals. those associated with the financial services Many private foundations make significant industry. distributions to DAFs. Private foundations can use DAFs to satisfy their 5 percent dis- Three Steps to Ensure That tribution requirements while still retaining DAFs Work for Everyone ongoing control over the distributed prop- erty. In addition, DAFs allow private founda- DAF sponsors and their representatives take the tions to meet their disclosure requirement position that DAFs have been an unmitigated (by reporting their distribution to the DAF good for the charitable sector—democratizing sponsor) while maintaining secrecy about the philanthropy by making it easy for small donors ultimate recipient of their distribution. to create their own perpetual endowments, and opening new sources of charitable giving Why have DAFs moved to such a dominant by facilitating donations of complex assetsposition in the charitable landscape? There (referred to by some as “philanthropic frack-are three main reasons for their extraordinary ing”). However, by focusing on the interests ofgrowth: donors, these arguments fail to recognize that two critical interests have been ignored in the 1. DAFs enable donors to obtain current tax existing regulatory approach to DAFs: (1) chari- benefits of charitable giving while main- ties and the beneficiaries they serve, and (2) taining functional control over the invest- American taxpayers. ment and distribution of the donated property, without incurring the adminis- The following three rules would address trative expense and disclosure obligations these interests by ensuring that charities get imposed on private foundations. the necessary funds to do their work, and that the government doesn’t provide tax benefits that 2. DAFs enable donors to obtain maximum are incommensurate with public benefit, thereby tax benefits for their contributions by facili- burdening American taxpayers. tating the donation of appreciated property.S U M M E R 2 018 • W W W. N P Q M A G . O R G  T H E   N O N P R O F I T   Q U A R T E R LY  ​47

The fact that DAF Rule #1: Save Charities by Ensuring financial management decisions about DAFsponsors and financial or Encouraging the Flow of Dollars assets may increase the feeling that DAFadvisors benefit from DAFs to Charities accounts belong to donors, thereby increas-financially when assets ing the endowment effect.remain in the DAF may Tax benefits for charitable giving were granted 3. The fact that DAF sponsors and financialcause them to subtly in order to increase the flow of dollars to orga- advisors benefit financially when assetsencourage donors to nizations engaged in charitable work. DAFs remain in the DAF may cause them tothink of DAFs as accounts undermine fulfillment of this purpose by subtly encourage donors to think of DAFsto hold rather than as allowing donors to get all of the tax benefits of as accounts to hold rather than as fundsfunds to disburse. charitable giving at the time that the donation is to disburse. One way that sponsors and made to the DAF, without providing any mecha- financial advisors may do this is to encour- nism (or even encouragement) to ensure that age donors to think of DAF funds as a char- any of the tax-benefited dollars are ever made itable legacy to be passed on to younger available for charitable use. Because current generations. law does not require payouts from DAFs, donors can indefinitely defer charitable distributions In order to counter these tendencies, Con- from their DAF accounts, even across multiple gress should adopt rules that either incentivize generations. While some individuals distribute distributions from DAFs or require DAFs to be their DAF accounts entirely within a single year, distributed within a reasonable period of time others make no distributions at all. According from contribution. to an IRS study, while some DAF sponsors have high overall distribution rates, nearly Incentivize distributions. Congress could 22 percent of the DAF sponsors in 2012 made incentivize distributions from DAFs by tying zero distributions.9 Even for those DAF spon- some of the charitable tax benefits to the release sors with higher payouts, the reported rates can of DAF funds. For example, Congress could enact be misleading because they include distribu- rules that would allow donors to avoid capital tions to other donor-advised funds, which can gains on transfers of property into DAFs, but be substantial.10 would delay the charitable deduction until such time as funds are distributed from the DAF to There are many reasons why well-meaning non-DAF beneficiaries. donors may fail to make significant distributions from their DAFs, including the following: Set a Time Period for Payout. Alternatively, Congress could impose a maximum time period 1. Charitable decisions are difficult to make, for DAF accounts to be distributed outright to and many donors have busy lives and there- charities. This could easily be accomplished by fore want to defer decision making. This requiring donors, as a condition of the deduction, common desire to defer decision making to name a non-DAF charity that would receive until absolutely necessary is evidenced by any undistributed funds at the end of the des- the number of charitable gifts that occur ignated period.11 For example, if Congress were in the final days of the calendar year. By to impose a maximum time period of ten years, allowing donors to get the full tax benefits then a donor who funds a DAF in 2018 would be of giving without requiring outright (i.e., required to name a charity that would receive non-DAF) transfers of charitable assets, any remaining funds in the 2018 DAF account donors may never feel the need to discon- by 2028.12 DAFs would maintain their flexibility, nect from their DAF accounts. because donors could change their charitable designations by simply making distributions 2. Insofar as donors have a sense of owner- from that account before the termination date. ship over DAF funds, behavioral econo- A maximum distribution period would not under- mists suggest that the endowment effect mine the effectiveness of DAFs or their appeal may give donors a sense of loss when DAF to donors. It would simply establish a limit that accounts go down due to the distribution of DAF funds. The ability of donors to make48 ​T H E   N O N P R O F I T   Q U A R T E R LY  WWW.NPQMAG.ORG • SUMMER 2018