I have long believed in the power of market forces and the need for social sector participants to adopt proven practices from the business community for the purpose of achieving impact at an exponentially greater scale. Dan Pallotta’s Uncharitable: How Restraints on Nonprofits Undermine Their Potential was a revelation for me.  My head bobbed nonstop in agreement as I read Pallotta’s case for competitive compensation, building philanthropic demand through advertising, long-term planning, and experimenting with new revenue-generating endeavors.

At their core, Pallotta’s arguments in Uncharitable come down to the idea that the activities of nonprofit organizations have been governed by social norms tracing back to the Puritans that hinder the ability of charitable groups to effectively address the problems they are tasked to solve. The antidote to these damaging social constructs is rational application of market norms to our expectations of charitable organizations, allowing groups and individuals free reign within these broader confines to take the most expedient approaches to achieving their missions. Not allowing such groups access to these tools is irrational.

While I agree with the logic behind almost all of Pallotta’s individual recommendations, I’ve come to recognize that most people who aren’t social sector professionals aren’t willing to make the effort to intellectually understand how philanthropy “should” work. Even among professionals within the sector, there is little consensus over what constitutes good philanthropy and whether Pallotta’s ideas are a step in the right direction. How can we expect those who are not living and breathing this work to reach conclusions that go against their gut instincts about acceptable ways for charities to operate? It’s not that they don’t care about poverty and climate change and human trafficking; it’s that their lives don’t rotate around these issues. Although they want to help, they don’t have time or energy to dedicate to understanding why it’s a good thing that the charity they just gave $20 of their hard-earned money to is going to spend part of it to pay more competitive salaries for its staff, rent a billboard to raise awareness about its cause, or experiment with an unproven but potentially lucrative fundraising event. Their involvement in philanthropy is based around social norms, which are governed by our desire for community, altruism, and interactions without explicit expectations of reciprocity. It is difficult to reconcile that goals arising from a set of social norms may be best advanced by adopting practices that are based around costs and benefits, individual merit, and financial transactions.

What if we do succeed in creating a broad shift in public sentiment towards the acceptability of applying market norms and market thinking to aspects of philanthropy? At what point does our encouragement of donors and professionals within the sector to apply market norms begin to seep into other areas and overwhelm our social motivations? Market norms and social norms do not mix well together. In Predictably Irrational, behavioral economist Dan Ariely relates the story of how a few years ago, the AARP was rebuffed in their request for lawyers who would be willing to offer their services at reduced rates of around $30 an hour to retirees. But when the AARP went back and asked the lawyers to volunteer their time, they received an overwhelmingly positive response. In both cases, the AARP was attempting to appeal to the lawyers’ sense of social obligation, but the involvement of even a hint of a market transaction overwhelmed the social instincts to assist the elderly. This is a trend that shows up again and again in behavioral economics: when money or market norms are introduced, social norms tend to go out the window.

I don’t mean to suggest either that the approaches Pallotta advocates in Uncharitable exclude the role of social norms or that it is impossible to introduce aspects of market functioning into the social sector. Yet, the combination will not be easy, and those who attempt to navigate the grey area where social and market norms may overlap will have to be cognizant of the trade-offs involved. When investors (social or not) begin to question whether an organization may be shifting away from the “rules” that were implicitly or explicitly understood when their investment was first made, their willingness to make future investments is likely to diminish.

Pallotta has established himself as a leading voice of reason within the social sector and I consider him to be one of the most consistently insightful writers in this space. That said, his views on how charitable goals can be met most effectively are still far from commonly accepted even within the social sector. I see a future where more widespread acceptance of the application of market norms to various aspects of social sector behaviors will result in more resources for the sector and better outcomes for the populations it seeks to serve.

At the same time, it is important that we do not discount how deeply embedded, powerful, and valid the presence of social norms is in the decisions of the people we hope to enlist to our causes. We need to find ways to tap into those “irrational” forces and direct them to more effectively create social impact. After all, these forces are responsible for countless hours of volunteering, in-kind contributions, and $300 billion in donations that flow into US charities each year.

The concepts of market and social norms and more broadly the study of how emotions and perception can trump logic in decision-making are the subject of an emerging field known as behavioral economics. A fantastic primer for those interested in behavioral economics and how to apply some of its core findings to social sector work can be found in the creatively titled, Homer Simpson for Nonprofits: The Truth About How People Really Think and What It Means for Promoting Your Cause, available as a free download from Network for Good.