Investing In Each Other

The White House’s current proposed budget includes a 29% cut in spending for the Department of State and international aid, a 13% cut for the Department of Housing and Urban Development and Department of Education, and a 31% cut for the Environment Protection Agency. This proposed budget and the recent CBO score for the American Health Care Act that predicted 23 million American will be uninsured in the next decade show us that the current leadership has no intention of putting “America First.”

To solve the problems facing our generation and the generations of Americans after us like terrorism, global warming, poverty and financial instability, homelessness, inequality, cancer and disease, and racism in a globalized economic world rooted in capitalism, don’t we first have to invest capital as a society? The left is the only side talking about these issues that affect the prosperity and peace of our nation moving forward. As a child brought up in a Catholic and conservative household, I see and understand that there is a conservative side to this. Let’s face the facts: government is a large and slow moving machine that is designed to reflect our society, not create its own vision of our shared future. However, I do not see a side of the conservative party that is talking about encouraging social innovation and entrepreneurship through the private sector. Conservatives seem to treat charities inspiring to change the world as an form of penance and as a way to improve their public image. In a recent interview with the Washington Post, Mick Mulvaney, Director of the Office of Management and Budget under Donald Trump said, “We are no longer going to measure compassion by the number of programs or the number of people on those programs…We are going to measure compassion…by the number of people we help get off of those programs.” In this statement, he is exactly right. What he fails to address is how these people are going to come off of government programs without any kind of change in how we fundamentally help people. Their current plan will help people get off government programs, but by ultimately showing them the door and saying don’t ever come back, you are society’s problem now through cutting the budget for these programs. Without help these people will struggle and suffer and that suffering does not stay isolated to those people singular but it now becomes the suffering of a family, of that family’s community, and ultimately our society both financially and morally.

In 1994, Amazon launched with just over $8 million invested. As it stayed afloat through the dot-com bubble burst, its initial investors did not see Amazon make a profit for 6 years after the company started. In 2015, according to Forbes, Amazon was worth around $248 billion. In 2015, Americans gave $373.25 billion to over 1.5 million charities. How can one company be worth more than 50% of all of the money donated to non-profits in one year? Moreover, how are non-profits supposed to solve the problems we face let alone slightly improve conditions socially or economically in our communities?

Dan Pallotta, an activist and fundraiser, gave a TED talk in 2013 that addresses five problems that non-profits deal with in wrestling away market share from the private sector. We will address four of them:

  1. Compensation: In the private sector, the more value you bring to a company, the more you are paid. However, in the non-profit sector, leaders are expected to make around $100,000 to $200,000 per year generally on the high end. This results in a disincentive for even those interested in making a difference to avoid working in charity and puts charities at a competitive disadvantage in recruiting. Dan Pollotta boils it down very well. A Stanford MBA at the time is expected to make around $400,000 per year at age 38. A CEO of a medical charity was expected to make around $232,000 per year and an executive director of a hunger charity was expected to make around $84,000 per year. Even if you were interested in working in the non-profit sector with this comparison you could do more good by working in the private sector. If your annual income in the private sector was $400,000 per year you could donate half of your earnings to the hunger charity or cancer research (which is tax deductible) and still end up better off than those working at the highest tier of the non-profit sector.

 

  1. Advertising and Marketing: The for-profit sector is expected to spend money on publicity. How many for-profit brands can you name off the top of your head? Next, given you don’t work in the non-profit sector, how many non-profit brands can you name off the top of your head? I would assume you could name far more for-profit private brands than non-profit ones and that most of the non-profit brands you could think of are national organizations. For private companies, money is spent on marketing and advertising because it generates revenue. Non-profit agencies spend money on marketing because it generates donations and income that they can then use to help other people. However, we don’t expect non-profits to spend all that much money on marketing and advertising. Marketing and advertising falls under the term overhead, which is generally a negative term in the non-profit sector. In fact, most donors look for charities that spend very little on overhead and spend more on serving clients. On its face, this sounds like a great concept. However, if you think about it marketing and advertising ultimately should have a goal of generating income for the non-profit. In the hands of a good marketer a $5,000 donation could easily turn into $15,000 in generated income. Ultimately, your $5,000 donation now turned into a $10,000 donation that can help two times as many people.

 

  1. Taking of risk on new revenue ideas: Cheaply made movies can easily have a budget of around $2-$3 million dollars. Larger movies can have budgets that end up in hundreds of millions of dollars and a lot of times they have a high risk of being a flop. In the non-profit sector a $100,000 idea has a lot riding on it. For a lot of charities, $100,000 could easily be a fifth of their total annual budget. This creates reluctance for non-profits to take risks on new ideas for generating revenue.

 

  1. Time: As mentioned before, Amazon took 6 years to invest in scale and capacity and ultimately turn a profit. Charities often don’t have this luxury. If a charity came to you and asked for an $8 million donation and for 6 years none of the money would go to a person in need you would think they were crazy and maybe they are. However, if you take a step back and think about what kind of systems, capacity, and infrastructure that could be built with $8 million and years and, with the right people, you may think twice. Something on this scale could diminish homelessness, feed millions of people globally, or create systemic and policy changes that could create a significantly more equal society.

In these four concepts of creating a successful business, non-profits are at a disadvantage; this is arguably tied to how we ultimately view investing in people and communities. Living in a capitalistic society, how are we supposed to even begin addressing the problems that have been on the shoulders of every generation for centuries when we do not seriously and without hesitation begin investing in solutions. The California Endowment, a larger non-profit and funder, has a program called Building Health Communities. In a nutshell, Building Healthy Communities is a 10 year, $1 billion initiative to transform 14 cities throughout California. It was founded on the premise that where you live, down to your zip code, can determine how long you live. Factors like racism, violence in families, poverty, access to health care and services, and financial instability pose a dramatic effect on your life span. The initiative created what we will call affiliates in each city that works to meet the need of the communities they are serving. However, as innovative as this initiative sounds and is I would say it is not enough. It will likely and hopefully have a dramatic and profound impact on the communities they are seeking to improve but I think that it will end up as a drop in the bucket of what needs to be done and the amount that needs to be invested. If you zoom out and think about this nationally, how many communities could benefit from a similar program? Now, if you think about it globally how much do you think we need to invest in the issues that plague humanity?

Moving back to Donald Trump’s proposed budget and the American Health Care Act, if you think we can accomplish more in the private sector I would agree with you. However, they are not asking you to invest in the private sector and at the same time are gutting the solutions we have tried to put in place through the public sector. They are not bringing it to the forefront and they do not have America’s or the world’s interest in mind let alone first. As a society and as a nation, we can have a lot of influence in changing the narrative of the human race, but I really do not think we have even begun to try.

BR

Cover image property of: blogs-images.forbes.com

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s