How often have you heard the complaint "There are too many nonprofits?" This is one of those issues - like politics and religion - that can be so divisive that you don't want to talk about it with certain relatives at certain holiday meals.
Is it true? Those who think it is say things like this, "In 1975 there were 220,000 organizations filing 990 forms with the IRS; in 1995 there were more than 1.2 million; and in 2005 there were more than 1.8 million." Ironically, the creation of new nonprofits is one place where growth in numbers is often met with derision, whereas growth in other enterprises is touted as a sign of progress and societal health.
But how are those numbers calculated, how many of those organizations are functioning past their filing, how do those numbers compare to populations and needs? How would we know if more is too many? Isn't it really a question of "Do we have an adequate set of supports, service providers, and enterprises producing and distributing social, environmental, and cultural goods to meet the needs?" This is a question which has meaning mostly at local levels - it doesn't help if we have "enough" museums or "enough" shelters for abused children if they're located in places that can't be reached by those who need them. In other words, the question of "too many" also needs to consider "to do what and for whom?"
Nonprofitmapping is one initiative that is trying to get better information on the number and distribution of nonprofit organizations. I've heard some folks talk excitedly about the possibility that the economic crisis will winnow the number of nonprofits, though the assumptions of efficient markets, accurate data on impact, and rational donor behavior that drive these expectations are tenuous at best, in my opinion.
For me, the question that really matters is a combination of the above:
"Do we have the right number of nonprofits to provide and distribute the social, environmental and public goods we need to those who need them?"**This more complicated question gives us an opportunity to think about how we decide how many we need.
- It has to be more than just market-driven, if for no other reason than the known inefficiencies and indirectness of the donor/organization/client market.
- It can't be dictated from above, for choice is a cherished right embedded in the American philanthropic system and culture.
- And this week's uproar over cancer screening recommendations - which provide a perfect case study of the conflagration that ensues when data meet popular and personal expectations - should give pause to all of us who tout the rationality of data as a force for public good.
I want to take this moment to look not at the outcome of the process for approving nonprofits - that just drives us back to the "enough or too many" question. I want us to look at the how part of the equation. If we presume, for the sake of argument, that we need nonprofits to produce and distribute public goods that are not adequately provided by markets or government, shouldn't the public have some say in how we allocate this tax privileged organizational status? Right now, the tax exempt status that 501c3 approval designates is decided by professionals within the IRS. They rule on regulatory fit, not community need. There has not been, to-date, a viable way for these professionals to consider community need.
These IRS professionals have a federal government employee peer group with a similar problem, patent officers. The US Patent Office is also charged with ruling on the adequacy of public applications for a federally granted privilege - patent protection. In 2009 the US Patent Office began an experiment - peer to patent. This experiment uses 21st century crowdsourcing technologies to bring the public interest into work with the expertise of the patent office. Community reviewers - who both know and have a vested interest in the areas of invention - provide insight and information to the patent office, vastly increasing the breadth of the officer's expertise. There are checks and balances built in to maximize the wisdom of the crowd and the specificity of a patent officer's expertise.
Would something like Peer-to-Patent make sense for the 501c3 approval process? Could it provide a means of factoring in community need and existing community resources to approval decisions? Where would it be subject to abuse and where do the pitfalls lie? What expertise and data would be needed to strengthen a system that might match regulatory reviewers with community-based practitioners?
I'm thinking out loud and in public. You may well hate this idea. Go ahead - please tell me why (but no need to be nasty about it). What problems, if any, might it solve? What problems would it cause? What vested interests does it threaten? What benefits might it provide, and at what increased (decreased?) cost?
**For simplicity's sake in this blog post I am deliberately leaving out the discussion of other enterprise forms that can provide and distribute social, environmental and public goods we need to those who need them. These include social enterprises, social businesses, public agencies and informal networks. This oversimplification is itself, I realize, problematic.