Is the social sector Too Big to Fail?
David Henderson     29 comments     May 21, 2010

The collapse of the U.S. economy, and subsequent bailout of the financial sector has brought the phrase “too big to fail” into the collective social conscience. The argument goes that the economy should not be so dependent on any one company that without it, everything falls apart. It seems fairly clear in hindsight why making a handful of profit seeking financial institutions socially indispensable was a bad idea.

I wonder however if the same logic doesn’t extend to the social sector. I work with non-profits big and small, all who claim they offer critical services. They make these claims to solicit donations, but in the aftermath of Too Big to Fail, the idea that certain social sector institutions are absolutely essential might be more unsettling than moving.

In the social sector we defend agencies’ rights to create monopolies, veiled in an avoidance of duplication of services. Social sector agencies argue that there are limited funds to produce social value with. Therefore, in order to maximize social output we should avoid situations where one agency’s service offering overlaps with another. The result is regional monopolies whereby a few organizations are granted full control over a range of social services, thus manufacturing an environment where agencies can claim to be critical backbones of the social sector.

Their claims of being too big, too critical to society, to fail, are legitimated by the dogmatic adherence to avoiding duplication of services. All the praise heaped on these organizations amazingly echoes the same complaints we now have about unwieldy financial institutions. Anti-competitive social sector collusion is the backdrop for the social sector version of Too Big to Fail.

The idea of social sector organizations being too big to fail is even more disturbing considering we don’t have much reason to believe they are effective, even though their entire hegemonic reign is predicated on the assumption of maximum social impact.

Organizations that successfully convince the public they provide essential services might very well be producing more marketing miracles than Hallmark moments. In fact, I have serious doubts about most organizations’ capacities to measure changes in client indicators period, let alone asses the extent to which those changes are the result of program activities.

I recently read a report about program measurement released by the Gates Foundation titled A Guide to Actionable Measurement (non-profit consultant Gayle Gifford has a nice write up about the report on her blog). While the report provides a comprehensive evaluation strategy, I was struck by the simple advice the report offers to not always focus on measuring social impact by relating program outputs to client outcomes.

I often drink the social outcomes measurement Koolaid, but this Gates report got me thinking that  simply understanding whether clients who receive a particular service are better off or not is a logical evaluative starting point. However, the extent of our evaluation woes is so deep that even such a simple, summary data type assessment of client indicators is more elusive than it ought to be, a problem that is compounded by a social sector culture that favors non-profit monopolies.

Through monopolization a handful of organizations, rightly or wrongly, are allowed to claim credit for a community’s status quo. The anti-competitive nature of the social sector creates an atmosphere whereby every organization can claim that reduced funding or closure of their programs will lead to social disarray.

I view the problems of anti-competitiveness and poor evaluation in the social sector to be linked. Anti-competitiveness, and adherence to avoiding duplication of services, supersedes the need for serious evaluation. Evaluation is not only a tool for evaluating client progress, it is a lens through which comparison between interventions, and agencies, can be drawn.

So long as the social sector continues to espouse anti-competitiveness cloaked in the flag of collaboration, we will continue to have a sector that is not necessarily too big to fail, but is certainly too small-minded to succeed.

(Photo by jeffisageek)

  • http://www.ayamba.com David Lynn

    The competitive nature of nonprofits is in part prevented by the funding situations. Would you rather give $5,000 each to 10 charities serving homeless in your community, or $50,000 to the one that's doing the best job? Yes, we end up in some lemming and monopoly situations, but we don't need such a large duplication of small agencies (there's over 10,000 nonprofits in San Diego, for instance).

    I'm not sure how to resolve the situation, but the reliance on donated funding is a significant impediment to successful competition in the sector.

    • http://intensedebate.com/people/david_henderson David Henderson

      Hi David,

      Thanks for the comment. You raise a good point that there may be a level of funding required in order to afford competition. The conundrum then is, can we afford to continue without competition? Organizations, no matter their size, all argue that there needs to be more funding. While that may very well be right, I think it is hard to believe that every organization is so underfunded that they cannot even demonstrate proof of concept as to their social value.

      So to your hypothetical, you are correct that 5k to 10 charities might not do much, but what about 22.5k to two, with the extra 5k to the organization with the most demonstrated success? The question becomes what is the right level of investment that allows funders to determine whether an idea, and an agency, will be able to provide the value it seeks. Furthermore, and perhaps more to the point, how do we create a funding system where established organizations are constantly challenged by new ideas and execution strategies. If the most established organizations deserve to take credit for the status quo, they should have nothing to fear from competition.

    • http://www.ceffect.com Gayle Gifford

      David L, You might find that there are different definitions of "best job" for each of those two seemingly the same organization. A real example for you. The mega-large homeless agency ($14m) that runs emergency shelters, temporary housing, workforce development, its own social enterprise, etc, looks like the better bet than the tiny ($100K) food pantry/soup kitchen/homeless outreach program. The mega agency has lots of data and analysis and the tiny one very little that you could find. But when you dig deeper, you find that the mega agency is more than happy to send it's most troubled clients to the tiny agency which can meet needs that it can't accommodate within the bureaucratic systems that it needs to run such a large operation. There are lots of individuals with mental illness who can't sit in their waiting rooms, who need extensive one-on-one supports that take up way too much time of the case managers at the large agency. Or maybe they would be better served by the pastoral counseling services at the faith based organization. Or maybe they need a day program, a warm and comforting place to just hang out, and the largest agency doesn't provide that.
      It pays to look below the surface, to understand that systems of support, not single agencies, meet community needs and that one-size, no matter how effective, doesn't suit all.

  • http://pollyannaprinciples.org/ Hildy Gottlieb

    David and David:
    First, David, thank you for this terrific post. And yes, the issue of competition starts at the source of the funds, not the recipients who have, as David Lynn noted, with the organizations who have no choice but to compete.. If foundations (as an example) continue to adhere to competitive funding models, of course organizations will compete!

    We have seen tremendous success with funders who actually have found ways to fund everyone who applies – and not with tiny grants, but with huge meaningful ones. I documented several of those in detail in The Pollyanna Principles, but you can get a sense of at least one of those examples here: http://hildygottlieb.com/2007/07/08/stop-sign-com… The 11 tips that follow (by link) from that post, as well as Part 1 (linked at the top of the post, plus ITS 11 tips) show that it is not wishful thinking but highly practical to consider other funding approaches.

    These are just examples, and I believe just the tip of the iceberg of what is possible when we stop thinking that "funding everyone" is IMpossible.
    HG / @HildyGottlieb

    • http://intensedebate.com/people/david_henderson David Henderson

      Hi Hildy,

      Thanks for commenting and for the link to your site. It's an intriguing concept you bring up of funding a group of grant applicants with the total amount of the cash dispersal so long as they work together. Obviously you highlight an anecdote in your piece in which the result was believed to be successful. There are some obvious red flags when thinking about the concept however, such as whether forced collaboration doesn't possibly lead to less optimal, rather than more optimal outcomes.

      However, I am one who tries to believe in evidence over intuition, and am certainly open to having my initial reaction swayed by fact. It seems that with your suggestion, pointing to this idea of massive collaboration, that you believe better outcomes are not necessarily achieved through competition but instead through cooperation. I guess my sense is that at times collaborative efforts are effective, but that the effectiveness of those collaborations still yields better results if they are borne from a competitive environment (such as corporate partnerships like Barnes and Nobel with Starbucks and Borders with Seattle's Best, for example).

  • trb

    I wish I saw the collaboration you speak of, where I live, in relations to non-profits and global poverty– I don't.

    Sometimes it feels like generalizations have half-lives: 20 years ago, I really liked the notion of mission statements and keeping admin costs low. Now I'm much less enthusiastic about both.

    • http://intensedebate.com/people/david_henderson David Henderson

      I don't know that I see collaboration so much as collusion… I too agree that keeping administrative costs low seems quite besides the point, and mission statements I think are largely neither here nor there. I wonder if an emphasis on evaluation will fall to the same principal of half-life generalization you speak of. I certainly hope not.

  • http://www.fullcontactphilanthropy.com Dan Elitzer

    David, you raise some great questions in this piece. I’m going to suggest that another driver of the de facto monopolization within the social sector (and especially social services) is the well-documented psychological phenomenon of loss aversion, which causes us to place a higher value on things we already possess. Put simply, loss aversion is why if you won a contest and received tickets to the Super Bowl, you would probably require a lot more money to part with your tickets than you would have been willing to purchase them for, despite the fact that the opportunity-cost should be the same.

    Even if funders had sufficient data to know that a new program would be more effective at generating desired outcomes than an existing program, this precept implies that the short-term drop in outputs from the existing program (if funding were shifted) would seem a disproportionate loss to funders. It would be nice to think rational analysis would overcome this emotional reaction, but I suspect it may play a bigger role in funding decisions than many people would like to admit.

    • http://intensedebate.com/people/david_henderson David Henderson

      Interesting observation Dan, makes me wish I'd taken some psychology in my undergrad days. Your point makes good sense then with the never-ending line of needing more funding, since the loss aversion mentality would require one to only accept accumulation of more programs, rather than giving up existing programs for new ideas.

      I think you are right to believe this type of thinking plays a greater role in funding than we might like to believe. Further reason to strive to try to take more of the "art" out of evaluation and funding. Certainly there will always be a level of skill and instinct involved, but with such poor metrics in the current funding playing field we are more likely to fall prey to the worst our instincts (such as loss aversion like you bring up) than to measured intuition.

  • http://www.ceffect.com Gayle L. Gifford

    David,
    Thanks for the heads up on my blog post and I'm glad it got you thinking.
    I'm always intrigued by the idea of monopoly in this sector. But I think that most of the conversation misses the real monopoly which isn't community sized social service organizations competing for crumbs from the government or philanthropic sectors but the egregious concentration of most of the resources of this sector in the hands of a very few organizations. It behooves us to look to see where and for what the vast majority of resources are spent and to ask whether we are getting the societal return that we would like to see from those expenditures of philanthropy.
    For example, if you look at resource distribution in my state, RI, you will find that most of the revenues and assets of the sector are largely concentrated in private higher ed and in hospitals. Together, in the larger category education (private) and health consume 72% of sector revenues while only accounting for 22% of all organizations.

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