price_of_citizenship.jpg (9774 bytes) The Price of Citizenship

Chapter Six

Chapter Six: The Independent Sector, the Market, and the State

Governments have relied heavily on private institutions and agencies resulting in America's distinctive mixed economy of social welfare, with its blurred boundaries between public and private. At the same time, in the way they earn their incomes and manage their businesses, nonprofits have grown closer to the world of commerce; they have watched, too, as for-profit firms, also sustained by public funds, have invaded their domains and found new ways to make money from human and social services.

Themes in the History of Charity

The history of the public response to dependence refutes the fantasy that private charity ever cared for all or most of America's needy; public funds assisted far more dependent people than private charity did. Very early in their histories, state and local governments used private institutions to accomplish public purposes.

The depression of the 1890s exposed both the inherent limits of private charities and the bankruptcy of their major strategy 'scientific charity'.

Only occasionally or in small towns does charity consist of bands of women and men helping their needy neighbours. In the metropolitan regions where most Americans live, most charities, social agencies, and philanthropies are themselves bureaucracies staffed by full-time professionals sometimes assisted by volunteers. The independent sector may exist between government and the market, but in its own way it is big business.

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The Assimilation of Social Welfare to the Market and the State

"Independent sector"  is often used interchangeably with "third," "voluntary," or "nonprofit sector."

Most nonprofits are small and have few assets. A handful of giants control most of the nonprofit wealth. 3.8% of nonprofits held 76% of the assets. Three sources - private contributions, government grants, and private payments (dues, fees, and charges) - provided 89% of the independent sector's income. In 1992, social, legal, and health services depended most heavily on government funds, and arts and culture, the least.

The independent sector delivers most of the human services in America (1980, 40% with 20% going to for-profit agencies and only 40% was spent by government).

Figures clearly show that the activities of the independent sector constitutes a huge share of America's economy.

Independent sector accounted for 7.9% of America's GDP, in 1993.

By the 1980s, private agencies received at least 30% of their $500 billion annual income from governments - more than came from donations. Medicare and Medicaid made government a major source of income for private health care providers, and private agencies increasingly served as contractors or service providers for government - indeed, most of the money spent by private social services came from government sources. Of all government support for nonprofits, more than three-quarters went to hospitals and other health care providers - a reflection of the size and growth of Medicare and Medicaid. Between 1982 and 1997, federal support for health rose 185%. In 1997, federal support for social services was 79% of its level in 1982. Government spending on health and housing grew while spending on social services and income maintenance declined.

Despite these cutbacks, in the 1980s, paid employment in nonprofits grew by 41% in the U.S., which was more than double the growth in national employment. From the 1979 to 1989, revenues rose an astonishing 79%. The money came from state and local governments who provided them by purchasing services from nonprofits.

Private donations amounted to 0.69% of the nation's wealth in 1999, compared to 0.71% in 1998. "The very top group could be giving 10 times more than they do and not impair their wealth at all."

Between 1991 and 1997, donations to social service charities dropped while contributions to health and hospitals, education, and religion increased:

  • Social Services              - 5%
  • Health and Hospitals   +25%
  • Education                    +21%
  • Religion                       +12%


  • Religion                          60%
  • Human Services               9%
  • Health                              5%


People are volunteering, but when they do, its more of a one-shot deal - half a day one Saturday, instead of once a week for x number of weeks.

Private giving cannot substitute for public funds, and charity cannot take over the financial role of government; when it comes to any purpose other than religion, Americans are not very generous with their money; and private contributions did not account for very much of the startling rise in non-profit sector income during the 1980s.

With declining government funds and stagnant private contributions, the independent sector survived by entering the marketplace.

Today, America's largest non-profit charities unfairly earn millions of dollars by "hocking their halo". Small business cal non-profit practices "unfair competition".

For-profits accounted for all the growth in home health care establishments and 74% of the growth in employment. For-profits gained ground in the social services with the federal welfare reform bill of 1996. The bill allowed states to contract out the administration of public assistance to for-profit firms and religious organizations.

"No company can be expected to protect the interests of the needy at the expense of its bottom line, least of all a publicly traded corporation with a fiduciary duty to maximize shareholder profits. The recipient is much more valuable in her dependency; she is a national resource."

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Faith, Charity, and Inner Cities

Religions (faith-based) charity and social service remain a crucial part of today's private welfare state.

Their relation to the market remains less consistent. They rest on the motivating power of faith, not profit, But their activities often draw them into the commercial arena - whose principles they must adopt to survive - while dependence on public money at the same time draws them close to the state.

More than half - 57% - of congregations contribute toward social service activities. But, congregational involvement in social service activities remains small.

By encouraging states to engage faith-based organizations as providers of federally funded welfare services, the "charitable choice" provision of the 1996 welfare bill accelerated the devolution of the welfare state.

Reliance on faith-based organizations fits well with the conservative agenda. By justifying reduced state activity, it serves conservatives hostility to government while it promotes the role of religion in public life. "The odd thing, is that many prominent conservatives who... suggest that government ruins everything it touches are ardent advocates of a partnership between government and churches."

"... he viewed poverty, dependence, and violence as moral and spiritual crises - not solely material issues."

"... Black America is under siege, and its casualties are falling at the churches door."

The mainstream black church has been the social glue and center in black communities. Only one generation ago, 80% of blacks went to church; by the mid-1990s the number had dropped by half, to 40%.

In 1998, Congress exempted faith-based providers from the fair employment practices included in the Civil Rights Act and does not prohibit them from discriminating against beneficiaries on account of their religion.

The most significant trend in American religions life was the growth of the very large church. Large churches were shopping malls, with entertainment and services all under one roof. Some churches have 10,000 members. The danger, was the transformation of these giant congregations into "the sectarian equivalent to gated communities, enclaves in which members can shut themselves away from the urgent problems of nearby communities. Some churches spend nothing for activities that benefit non-members. This highlights the limits of transforming voluntary, faith-based organizations into the nation's primary safety net."

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The Apotheosis of Voluntarism:

Conservatives viewed voluntarism as "replacing a government that 'doesn't work', rather than being a road to better government." They stressed the private, apolitical side of voluntarism and the transfer of responsibility from the public to the private sector.

The American political culture distrusts government and exalts the individual but Americans are reluctant to spend their volunteer time or their money on people unlike themselves, on institutions to which they do not belong, or on causes outside their neighbourhoods.

Community Development Corporations and the Limits of Nonprofits

CDC tested the capacity of nonprofits to substitute for the state. Their experience underlined the inability of even the most effective nonprofits to solve great public problems.

By the end of Carter's presidency, an estimated $2.6 billion flowed annually from the federal government to community based initiatives; by 1988, the Reagan administration had cut that amount in half.

In 1994, 80% of CDC's reported housing production, and only 23% reported business development.

By the mid-1990s, observers within the CDC movement began to raise uncomfortable questions about both the consequences of market-driven practices and the effectiveness of CDC's at meeting their initial mission of improving economic well-being in inner-city neighbourhoods. There were questions on a 'locality-based strategy in a regional economy.' CDC's remained too small to undertake the massive redevelopment needed to "restore the ordinary mechanisms of the marketplace" to vast stretches of big cities or to make them places "in which anyone with choice" would care to live. Most community development also gained the "requirements of social mobility." In other words, it had paid "far too little attention" to "household poverty defined by access to good jobs and the accumulation of wealth." "Neighbourhood development strategies reinforce the segregation of the poor by building housing in the worst employment markets." Rather than abandon community economic development, Nowak wanted to reorient it toward "poverty alleviation," which, in turn, required linking inner cities to regional economies through strategies that promoted opportunities and helped families build assets.

As the 1980s drew to a close, community development more closely resembled a guerrilla war against poverty than a large-scale invasion. More than any other variety of nonprofit, CDC's had attempted to fill the void created by public abandonment. Although they accomplished a great deal, they only scratched  the surface of need, and their experience underscored the inability of the nonprofit world to substitute for the state.

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Chapter Summary

History and experience has shown that society cannot depend on the independent sector (nonprofit) to substitute for the state when it comes to ensuring that America;s needy are looked after. The trend in recent years has seen the off-leading from the federal government to the state, and from the state to the cities, which in turn have sourced-out to private for-profit and nonprofit entities. The end result has been an increase in poverty along with, in many cases, the creation of America's very own apartheid system, that includes not only racial but class segregation, between those who have and those who don't.

History refutes the fantasy that private charity ever cared for all or most of America's needy; public funds assisted far more dependent people than private charity ever did. Very early in their histories, state and local governments used private institutions to accomplish public purposes. It appears that instead of a federal agency dealing directly with a client, the money is filtered down to middlemen (state, local and private/nonprofit) who in turn have bureaucracies and agenda that are not necessarily conducive to dealing constructively with the problems of poverty and dependence.

The federal government has been attempting to off-load their responsibility on the pretext of an ideology that has proven to not be sound and the result has been disastrous for those in need. Private giving cannot substitute for public funds, and charity cannot take over the financial role of government. When it comes to any purpose other than religion, Americans are not very generous with their money... or their time.

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