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
The depression of the 1890s exposed both the inherent
limits of private charities and the bankruptcy of their major strategy
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
- Health and Hospitals +25%
- Human Services
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
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
"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
"... 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
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
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
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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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
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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