Donations

Can Our Culture Accept Charities That Are Run Like For-Profits?

Don't fear the overhead

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Dan Pallotta
Source: TED Conferences, LLC

Dan Pallotta, founder of the California AIDS Ride and the Breast Cancer 3-Day Walk, gave a recent TED Talk asking whether nonprofits would be better off if they were allowed to behave more like for-profit companies. He argues that our cultural attitude toward charities – not allowing leaders to be paid competitively, resisting as much overhead as possible, and not allowing for risky charitable ventures that may take years to pay off – holds charities back and ultimately resigns donations to making up only two percent of our Gross Domestic Product.

Pallotta's TED Talk can be watched here. He goes through the mathematics of showing how non-profits that invest in growth systems typically associated with profitable companies may increase the total pool of charitable giving.

Pallotta doesn't talk about the difference in public versus private spending on aid for the needy in his talk. I did wonder how a change like he proposed would alter the mathematics that show 70 percent of private donations actually reaching the needy as compared to 30 percent of public aid programs. So much government aid spending gets consumed by bureaucratic "overhead." Would it be acceptable for only 60 percent of private donations reaching the needy if the end result also improved charitable giving to 3 percent of GDP?

Pallotta's argument is actually not new. His book, Uncharitable: How Restraints on Nonprofits Undermine their Potential, published in 2008, discussed these possible reforms. ReasonTV interviewed him in 2009. He discussed many of the same issues back then, which means we're way more in tune with innovation than those TED people.

Below is ReasonTV's interview with Pallotta from 2009:

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  1. Most charities are for profit. They just produce their profits in the form of high salaries for those who work there.

  2. Sure, but only when they’re spun a certain way.

    See: Benefit concerts where all proceeds go to paying event costs.

  3. Glad Ted Beneke got another gig.

    1. Note the conspicuous absence of any lung cancer charity. Clearly, he is not a fan of Walter White these days.

  4. He argues that our cultural attitude toward charities[…] holds charities back and ultimately resigns donations to making up only two percent of our Gross Domestic Product

    Or maybe people are simply not willing to fork out their hard-earned money beyond the 2% GDP level to a bunch of strangers not related by blood or blackmail.

    1. And considering that we have something like a 14 trillion dollar economy, maybe we only need to spend 2% of our wealth on charity every year. 2% of 14 trillion dollars is a lot of money.

      1. And perhaps if Uncle Scam wasn’t annexing $2.8 trillion, or nearly 20% of GDP on an annual basis, people might be a little extra flush with cash for donating. Hell, even if Uncle Scam was annexing all that money, if it only spent just that amount of money maybe people wouldn’t be so actively afraid of the future where they feel the need to horde and grow what little pittance of money Uncle Scam permits them to retain.

        1. So you are telling me our problem is hoarders?

          1. Re: John.

            So you are telling me our problem is hoarders?

            Yes, there’s not enough of them.

  5. He argues that our cultural attitude toward charities ? not allowing leaders to be paid competitively…

    How much does the head of the Susan G. Komen “For the Cure” make? Hint

    1. According to that, only around half a million bucks, with no bonus or stock compensation. Although if you Google the name of the President/CEO shown there you’ll find that it probably wasn’t enough to keep her, as she has since left to become an executive at Arby’s.

      1. Susan G. Komen is a shitty organization. They basically try to shut down other breast cancer charities so they can reap the donors. Fuck em.

  6. He argues that our cultural attitude toward charities ? not allowing leaders to be paid competitively…

    How much does the head of the Susan G. Komen “For the Cure” make? Hint

  7. “The French attorney for Carlos the Jackal, Isabelle Coutant-Peyre, is reportedly in Tehran talking to officials about filing a lawsuit against Hollywood over Argo’s “unrealistic portrayal” of Iran. According to The Associated Press, which cites Iranian media, a decision to investigate how and where to file a suit came after cultural officials and movie critics screened the film on Monday at an event titled “The Hoax of Hollywood.” Which parties would be sued, by whom and under what jurisdiction, have yet to come to light. A Paris-based attorney who is not involved in the affair suggests Iran may have to go “jurisdiction shopping” if it proceeds. ”

    http://www.deadline.com/2013/0…..over-argo/

  8. This whole question goes away if you stop taxing business.

    1. How would you do that short of eliminating all income taxes and going to a national sales tax?

      1. There’s your answer, John. Eliminate all income taxes (which are in reality taxes on work) and create a national sales tax.

  9. Would it be acceptable for only 60 percent of private donations reaching the needy if the end result also improved charitable giving to 3 percent of GDP?

    60% of 3% of GDP = 1.8% of GDP reaching the needy
    70% of 2% of GDP = 1.4% of GDP reaching the needy

    So in theory it would be better, however the problem with posting numbers in percent of GDP terms is it does not explain how that additional percentage of GDP is achieved.

    If it was achieved by taking the 2% of GDP they previously received and generated ~152% annual return then the additional percent of GDP dedicated to charitable giving would have been from new GDP growth. However if GDP stayed stagnant as a result of their actions and instead they were merely able to capture an additional percent of the same pie then there is no actual net benefit

    1. Well, the assumption would be that the extra money spent on overhead would improve the efficiency of the dollars that did reach the needy, which would make people more willing to donate.

      So you’d see an increase in donations, and also an increase in the efficiency of the % of GDP reaching the needy. So it might just be an increase of .4% of GDP, but the effect would be greater than that.

  10. He goes through the mathematics of showing how non-profits that invest in growth systems typically associated with profitable companies may increase the total pool of charitable giving.

    That’s interesting, but I am not so sure exactly how charitable giving helps the people it purports to help even if charities invested in growth systems for extra funds. All charity is consumption – there’s NO way you can spin or distort that fact. People who seek charitable contributions for themselves will, more likely than not, spend that money on necessities. That money will thus be spent, gone. There is no net gain on the economy because there is no real exchange of goods or services in those transactions, merely a transfer of title of the claims to future goods from the previous owners to the new owners, but there’s no new wealth created. This means the person that receives charity is not really making a contribution to production, which means he is not improving his lot by producing; he’s merely consuming what OTHERS determine he gets to consume. That’s all.

    That’s not helping a person. It may be the same as supporting him, like one supports a pet, but don’t dare call it “helping.”

  11. If non-profits are for profit, doesn’t that make them… for-profits?

    In any case, I’ve checked out of TED. Too much hand-talking and bloviation for my time.

  12. I think transparency and convenience of access to information about a charity is the most important thing.

    I prefer charities whose leadership does not reap huge financial rewards. I think that should be entirely voluntarily, though. Transparency should be mandatory (for charities).

    Many Americans do give to charity. The assistance could be much greater if people in general did not consider the “safety net” to be a government role. One of the most common objections to disemboweling the monster that is modern government is the fear that some people will “fall through the cracks.” Private charity can address that much better than government can, but people refuse to believe it.

    Charities need to compete with myth of government goodness. When charities help, they need to let people know. They need to brag.

  13. “allowed to behave more like for-profit companies.” umm, who’s stopping them?

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