The charitable sector is going through a period of painful self-examination about the unintended side effects of well-intentioned philanthropic efforts.
TOMS, the popular “profit for good” shoe company that donates a pair of shoes to a needy child for every pair bought, has come under fire for dropping an “economic bomb on local industry” by effectively suppressing the business of local cobblers. US international food aid is criticized for destroying local farming communities. Some commentators even question whether domestic government aid programs are, essentially, subsidizing industries that don’t pay a living wage.
It’s getting to the point where some wonder if the best solution to social problems associated with poverty is simply giving money to poor people. GiveDirectly is trying out this concept in Kenya, and so far their rigorous evaluation of impact of their work looks pretty good.
I’ve begun to think about the unintended side effects of philanthropy in the cultural sector. It seems like funders give lip service to sustainability, yet many funders dole out money in a way that undermines efforts to create services with sustainable business models. Philanthropic support can damage the overall ecology of nonprofit finances by subsidizing underpriced services (like professional education) and lowering museums' price point for buying these services. This makes it hard for service organizations (like museum associations) to build self-sustaining, high performing programs that charge a fair market price.
See if this (generic) example sounds familiar: a nonprofit gets a three-year grant to deliver professional training to its sector. And the training is free! For three years—then it goes away. (Nowadays, funders rarely underwrite a program indefinitely, and they rarely are willing to step in to provide continued support for programs developed as signature projects by other foundations, unless the recipient organization can put a significant new twist on it.) Sounds great, yes? For the people and organizations benefiting from the training, maybe. But meanwhile, that three years of “free” has helped to create a market in which people are unwilling (and farther down the road, unable) to pay for that same service.
My personal experience is with the museum sector, but as I work more often across sectors, as I share content we’ve developed through CFM, I can’t help but notice how messed up our economy is, even relative to other nonprofits. People who work in museums have such a low price point for things like professional courses and professional conferences, that it is really difficult for the organizations supporting the sector (local, state, regional, national) to build robust, effective, sustainable infrastructure to deliver these services. I wonder how much of this is due to the constant influx of small bits of funding that temporarily support programs that are great while they last, but can’t stand on their own non-subsidized legs.
Museums might argue they simply can’t afford to pay the true cost of a sustainable educational program. To which I would respond that there are lots of necessary things nonprofits aren’t usually factoring into their business plans because they think they can't afford them. Reform activist Dan Pallotta argues this includes competitive salaries, adequate marketing budgets, and funds to invest in growth. Jesse Rosen, president & CEO of the League of American Orchestras, feels that for his constituents it includes building sufficient financial reserves to support risk taking. To this growing list I would add professional development, especially if museums are going to diversify their hiring to recruit people who may have little background in nonprofits in general, or museums in particular.
If professional training is really valuable, and essential, then the business model for museums needs to include generating sufficient funds to pay for it. And if one or six or a dozen organizations have a steady income stream from satisfied consumers paying a fair price for these services, they ought to be able to ramp up their programs, and help make the programs cost effective and affordable via efficiencies of scale.
These musing are just one line in the mental sketch I am trying to draw of the changing shape of museum financial models and the nonprofit economy as a whole. How does our dependence on unpaid interns, and volunteers, affect museum salaries? How do museum salaries affect who we attract into the sector, and how they shape their own benchmarks of success? How do our personal benchmarks for success affect our expectations for the impact, scale and scope of our operations? And how does our collective impact, scale and scope, in turn, determine who is willing to fund us, and their attitudes towards the nature of the nonprofit sector?
Meanwhile, my message for funders is: think about the effect your funding has on the system as a whole, not just the direct benefits of this program per se. Are you damaging the nonprofit economy by subsidizing underpriced services? And for museums seeking funding, I ask you to look at the flip side of that question: will the funding you seek create a good, one-time thing, or will it enable you to create or build out a program or service that can eventually stand on its own in the marketplace, without a funder's subsidy?