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Opinion Blog: Government

February 22, 2010
10:01 AM
Nonprofit Sector Needs to Be Better Understood

The nonprofit sector does not get enough respect.

The sector is big and sprawling, plays an indispensable role in society and the economy, and faces daunting financial and operating challenges.

Yet the sector generally is poorly understood and underappreciated.

A report prepared for Congress last fall by the Congressional Research Service gives a good snapshot of the sector’s magnitude and impact.

Released in November, “An Overview of the Nonprofit and Charitable Sector” features lots of data and information about the size and scope of the sector and how it is funded, and about its relationship with government and key policy issues it faces.

“The nonprofit and charitable sector represents a significant, highly diverse component of the U.S. economy,” the report says.

Noting that President Barack Obama has “turned toward the nonprofit sector while seeking solutions to social problems,” the report says the economic downturn “increased the demand for many of the goods and services provided by charitable organizations, while simultaneously placing the same organizations under increased financial constraints.”

In providing an overview of the charitable sector’s relationship with government, the report says that, in theory, “economics suggests that the government should subsidize activities that are either public goods or have positive external effects.”

And it says it “can be argued that some charitable activities possess these qualities.”

The report also examines the costs to government of providing grants; allowing charitable contributions to be deductible; exempting investment income of charities from tax; and providing property and sales tax exemptions.

It also looks at government’s oversight role.

And it reviews key policy options affecting the sector, including increasing government grants and subsidies to charities; creating an oversight agency within the federal government to gather data, conduct research, and advocate for the charitable sector; implementing policies to help charities and foundations in economic downturns; and changing the itemized deduction for charitable contributions by limiting the deduction, converting it to a credit or making it more widely available.

Among data in the report:

  • Over 1.5 million nonprofits are registered in the U.S., nearly 64 percent of them public charities, nearly 8 percent private foundations, and 29 percent other types of nonprofits.
  • In 2005, the nonprofit sector overall employed 12.9 million people, or 10 percent of the workforce,
  • From 1998 to 2005, nonprofit employment overall grew 16.4 percent, compared to 6.2 percent for overall employment in the U.S.
  • In 2004, the charitable sector alone employed an estimated 9.4 million people, or over 7 percent of the U.S. workforce, plus the equivalent of 4.7 million full-time volunteer workers.
  • Based on employment, the charitable sector is larger than the construction sector and larger than the finance, insurance and real-estate sectors combined, and it has nearly half as many employees as federal, state and local government combined.
  • In 2009, public charities reported $1.4 trillion in total revenue and $2.6 trillion in assets, while private foundations reported $181 billion in revenue and $621 billion in assets, and other nonprofits reported $386 billion in revenue and over $1 trillion in assets.
  • In 2008, a broad category of nonprofits known as “nonprofit institutions serving households,” a subset of the overall nonprofit sector, generated 5.2 percent of U.S. gross domestic product, or GDP, representing $751.2 billion worth of output.
  • Nonprofits’ share of GDP grew 0.4 percentage points from 1998 to 2008, consisting of wages paid to nonprofit employees, the rental value of assets owned and used by nonprofits while providing services, and rental income from tenant-occupied housing nonprofits own.
  • Charities raised $1.2 trillion in revenue in 2005, with fees or private payments for service accounting for 49 percent of overall revenue and government grants and contracts accounting for 29 percent; private contributions, return on investments, and other sources accounted for the remainder.
  • Total revenue for charitable institutions grew 68.6 percent from 1995 to 2005.
  • During the recession, from 2007 to 2008, charitable giving fell 2 percent in nominal terms, and 5.7 percent adjusted for inflation.
    imageTodd Cohen, a veteran news reporter and editor, is editor and publisher of Philanthropy Journal, an online newspaper that is a program of the Institute for Nonprofits at North Carolina State University in Raleigh, N.C. Cohen has taught nonprofit reporting and media relations at the University of North Carolina at Chapel Hill and at Duke University, and regularly speaks on the topics of nonprofit media relations and trends in the charitable world.
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February 10, 2010
10:32 AM
In a Changing Ecosystem, Whither Nonprofits?

I’m concerned about nonprofits. Are they aware of the threats they face?

Are they prepared to demonstrate their value in the face of changes in corporate and tax law, and, as importantly, changes in the cultural zeitgeist about social capital markets and social enterprise?

For almost a century, 501c3 nonprofits have held a privileged place in our communities and in our tax code. They are provided tax exempt status, and supporters can deduct their contributions to these organizations from their income taxes. In so doing, the US tax code privileges these organizations - from major hospitals and universities to small neighborhood groups - as providers of social goods and contributors to civil society.

Those privileges are being challenged from numerous directions. Let me list just a few:

  • New corporate forms that recognize social businesses (these are modifications to the corporate codes at state levels - L3Cs, B Corporations, proposed H corporation);
  • Tax credits for social businesses;
  • Foundations’ increasing interest in “sector agnostic” approaches to solving social problems;
  • Regulatory concern about good governance, payout rates, and endowment growth over charitable purpose;
  • Social investment exchanges that are expanding the revenue and capital streams to financial/social hybrids (not necessarily to nonprofits);
  • Growth of models for social goods/civil society that emphasize operating foundations or social enterprises more than a nonprofit framework (everywhere but USA).

Each of the innovations above has advantages and disadvantages and none may be explicitly targeted at putting nonprofits out of business. Most of the hybrid forms are promoted as expansions of the social sector.  The fervent interest in social investment exchanges and mission related investing or impact investing are also seen as new revenue sources to good. Note, however, that these are effectively ways of expanding the pools of social good providers and social good financing, effectively increasing the pool around nonprofits, not working to strengthen, support or expand financing to them.

What we are experiencing is a confluence of forces, each of which may have merit independently, but which collectively challenge our current framework (policies, mental models. and financing systems) for where civil society and social goods come from.

Who provides them, who finances them, and how are they distributed?

Michael Edwards’ new book, Small Change, which challenges the currently en vogue market model, comes closest to raising these questions.  And conferences on regulation, discussions of technological innovations, and celebrations of innovations and changing ecosystems contribute to the broad awareness of options.

But who is working on these big questions in pragmatic ways? Who is looking at what nonprofits do best, what social enterprises and social businesses contribute, and what roles government can and must play? Who is looking out for the whole? Or even looking at the intersections, not all of which are complementary or positive, of these many pieces?

Currently, most of the innovation in the sector is around the edges of our existing corporate and tax frameworks - we are developing “workarounds” to the 501c3 or commercial corporate model to encourage social entrepreneurs and new investors or donors.

The preponderance of these workarounds should have been our first clue - it is time to reconsider the entirety of the systems and policies for the production, financing and distribution of social goods and civil society in the Twenty First century.


imageLucy Bernholz is the founder and president of Blueprint Research & Design, Inc, a strategy consulting firm that helps philanthropic individuals and institutions achieve their missions. She is the publisher of Philanthropy2173, an award winning blog about the business of giving and serves as executive producer of The Giving Channel on Fora.tv.

 

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February 4, 2010
01:59 PM
The Effects of Joining the Conversation

It’s not a surprise to any of us that social media is changing the way our organizations work, not just communicate.  The lessons in social media are especially important for organizations working with the public, whether it’s public service or opinion.  The Hatcher Group, a Maryland-based public affairs and communications firm, released a great report this past fall called New Media & Social Change: How Nonprofits are Using Web-based Technologies to Reach Their Goals (PDF).  Despite the generic title, this is a report chock full of examples, best practices and data about the effects of joining the conversation online.

The 30 participating organizations in the report are members of the State Fiscal Analysis Initiative, a group of independent, nonprofits with a shared commitment to responsible budget and tax policies.  As such, it’s easy to identify some of the goals these organizations have for using social media, including: engaging with and even influencing the general [voting] public, influencing news, engaging with and influencing politicians and legislation, and sharing data, information or viewpoints. Social media is a prominent social gathering place where these goals can definitely be met. Joining the conversation is incredibly important if these organizations expect to change policy and change minds.

Joining the conversation really means conversations.

It’s not just a phrase or some insider lingo, when I recommend organizations join the conversation, I mean just that!  People are talking online and the best way to influence what they are saying or how they are thinking about issues is to talk with them.  The survey found that blogging and blog outreach was the most popular social media choice.

  • 83 percent currently reach out to bloggers and the remaining 17 percent plan to in the future
  • more than 93 percent now monitor citations of their organization in the blogosphere

Many groups included in the report maintained blogs (either on their own site or elsewhere), but what the numbers above (and the effects listed below) indicate is that you don’t necessarily have to create your own blog to join the conversation. It’s already happening, so go there!

Being an active member of the conversation pays off.

  • 88 per-cent of the organizations said they had been cited in blogs as a result of their outreach efforts
  • 64 percent felt that they had successfully affected blog coverage of an issue.
  • 16 percent of the organizations were subsequently invited to submit guest-posts

Real-time is just as important.

Over half of the organizations surveyed reported that they do not use Twitter and do not intend to, with only 24% reporting use of the tool.  This is a huge missed opportunity to influence public opinion, participate in the conversation, attract attention from journalists and policy makers, and more.  Twitter is part of the real-time Web, meaning it enables people to communicate, share information, spread news, and distribute links in “real-time” as it happens.  As more and more people join the micro-blogging platform Twitter, it becomes an even more relevant tool for organizations working on impacting legislation and connecting with voters.  It’s true that with blogs, there’s a bit more time for responses to be prepared (and even approved internally) before posting.  But, that should not stop organizations joining Twitter and empowering staff to leverage organizational talking points, resources and research to better information the conversations there.

One organization had particular success using Twitter to facilitate its state policy work. As the legislative session in the group’s state was winding down, things began moving at such a rapid pace that daily newspaper updates were not sufficient to inform and promote its advocacy efforts. The organization found that following Twitter updates posted by reporters and advocates from the statehouse was the fastest and easiest way to track legislative developments. The group’s representatives were also able to update their Twitter profile to provide rapid-response statements. These short and timely statements sent out on Twitter caught the attention of local reporters, who then contacted the organization to solicit quotes for stories.

What do you think?

How has your organization joined the conversation online? Are there any tools or techniques in particular that have helped you find or contribute to the conversations taking place across the web?

(Download the full report in PDF: New Media & Social Change: How Nonprofits are Using Web-based Technologies to Reach Their Goals)


imageAmy Sample Ward’s passion for nonprofit technology has lead her to involvement with NTEN, NetSquared, and a host of other organizations. She shares many of her thoughts on nonprofit technology news and evolutions on her blog.

 

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January 29, 2010
12:29 PM
Privacy (Still) Matters

Make no mistake: the data privacy debate is hotter than ever: the recent uproar over Facebook’s new Terms of Service—and then, more recently, Twitter’s new service terms—is all about privacy. As Georgetown privacy law professor Marc Rotenberg says, it’s not the “old-fashioned parchment scroll, carried by courier on horseback from the castle to the king’s army notion of privacy.” It’s all about modern-day privacy, “about digital identity, the control of personal information, and the brewing battle between what we post and its commercial value,” Rotenberg says. [For more on Rotenberg’s views, see his essay that ran recently in The Huffington Post, suggesting that “we give up personal information all the time but that doesn’t (nor should) end the discussion over privacy.” That, Rotenberg says, is where the discussion begins.]

Just don’t tell the social media executives meeting in Davos this week. There, halfway ‘round the world from Rotenberg’s Washington, D.C., office—and while Rotenberg was commemorating the first annual Data Privacy Day January 28 in press briefings and other talks elsewhere—the chiefs of Twitter, Facebook, and LinkedIn were squeezed into a small, packed anteroom at the World Economic Forum, discussing in a rare meeting of rivals why their companies hadn’t yet figured out a way to make big money off their subscriber’s digital social connections.

Tim Berners-Lee, the British physicist who invented the World Wide Web, told the Davos gathering that “little changes in how your treat privacy can dramatically affect the way a social network works.” He said that in eBay’s case, for example, the site has stepped-up privacy in some areas as the online auction site has matured. [The site now hides the identity of people bidding against each other.] Younger users, though, seem far more open to revealing personal details about themselves, he said.

Then it was Reid Hoffman’s turn. The executive chairman and founder of LinkedIn, the professional and job-hunting social network, told the group: “All these concerns about privacy tend to be old people’s issues.” Transparency and accessibility are two reasons, he said, that so many younger users—teenagers and young adults—put their mobile phones on Facebook or MySpace. “The value of being connected and transparent is so great,” Hoffman said, that privacy is not a concern but a hindrance.

Rotenberg wasn’t present. But Don Tapscott, author of books on the so-called Net Generation and the need for corporate transparency in the Digital Age, took Hoffman on. Social networking, Tapscott said, would become what “we want it to be” over time, meaning that if we wish to build civic values into social network sites, we will—and should. “[The Internet] has an awesome neutrality and we need to build into it basic human values,” Tapscott told Hoffman. “And one of those values is the right to informational privacy and the right to be left alone. I completely reject this view that privacy is dead. It’s in deep trouble, it needs to be saved and everyone needs to get involved to protect their own information.”

Indeed. [Says Rotenberg: “I smile every time someone says privacy is dead or the Facebook generation doesn’t care about privacy. If there is one issue that people feel passionately about today, that literally unites everyone who goes on line, it is the interest in privacy. And the battle is just beginning.”]

What do you think? Is privacy an “old people’s issue” or increasingly (or once again in society) more about civil liberties in the 21st century? Let us hear from you.



imageMarcia Stepanek is Founding Editor-in-Chief and President, News and Information, for Contribute Media, a New York-based magazine, Web site, and conference series about the new people and ideas of giving. She is the publisher of Cause Global, an acclaimed new blog about the use of digital media for social change. She also serves as moderator and producer of New Conversations for Change, Contribute’s forum series highlighting social entrepreneurs and new trends in philanthropy.

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September 10, 2009
11:24 AM
Momentum 2009: Fear and excitement about real momentum for progressives

It is ironic that the Tides Foundation founded the Momentum conference 6 years ago when there was no momentum behind the progressive agenda. Now, in its 6th year, Momentum finally has some real momentum. From health care to the environment to labor and the financial system, every speaker was visibly excited and somewhat surprised to find themselves suddenly with the opportunity they have been waiting years for: real change is now possible.

Coupled with that energy and enthusiasm was also fear—that the moment would be lost, or not seized upon entirely, or that the progressives could not put together and market a united front as effectively as the conservatives. There was also a hint of debate in all this excitement. Like a kid in a candy store, the question was: do I completely stuff my pockets and risk losing it all? or do I just grab a few jelly bellies and be content? And how do progressives stage a real debate on the issues while still supporting the President?

I attended the Momentum Conference on Tuesday, Sep 8, the first day of a three-day conference. Tides Foundation did a remarkable job of lining up fantastic speakers to make a long day engaging. Add to that the terrific food, a great location at the W hotel in San Francisco, and cool entertainment, and the event felt like a mini-TED conference. Drummond Pike, founder and CEO of Tides, said, “the purpose of the conference is to stimulate ideas, to move the agenda forward, but not to reach conclusions. Leadership begins with the imagination, and finding interesting new voices on a variety of topics promotes new thinking and strategies to step forward in to the moment.”
Given that objective, the conference succeeded. And with more than 500 registrants, this year was more than double the size of last year. Donors, activists, academics, media, socially responsible investors, students, and artists came together to discuss how to help activists build momentum for their movement. Topics included health care, capital, carbon, and work.

Between the SoCap conference last week and the Momentum conference this week, San Francisco is a great place to see and be seen amongst the leaders of the new economy. As long as we are not blinded into thinking that the rest of the country is thinking these same thoughts, the energy, ideas, and enthusiasm can inspire and catalyze change.

In the interest of full disclosure: SSIR was a media sponsor of Momentum.


AdvertisementGina Klein Jorasch is currently Senior Advisor to the Center for Social Innovation at the Stanford Graduate School of Business. Gina was a founder or early-stage executive at five for-profit tech start-ups, all of which had successful IPOs or acquisitions, and a founding board member for two nonprofit startups.

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May 20, 2009
11:08 AM
Nonprofits’ Attraction to Stimulus Funds Could Prove Fatal

Smitten with their new best friends in government, nonprofits need to be careful not to betray what makes them essential to a healthy democracy and civic marketplace.

The job of nonprofits is to take on social and global problems and make our communities better places to live and work.

To do that, nonprofits need to deliver effective services, find innovative ways to address both the symptoms and causes of problems, and ride herd on government lawmakers and policymakers.

But with Democrats controlling the White House and Congress, and spending billions of dollars to build the capacity of the giving sector and stimulate social innovation, nonprofits face a big temptation and a run a huge risk.

Seeing a chance after years as outsiders to get a piece of the action, both in federal spending and influence with policymakers, nonprofits risk losing the independence and incentive that have been essential to their work as civil society’s conscience and research-and-development arm.

On the political left and right alike, experts on the giving sector warn that nonprofits should not to abandon or abdicate their role as social innovators and government watchdogs.

Rick Cohen, a left-leaning watchdog who is national correspondent for The Nonprofit Quarterly and former executive director of the National Committee for Responsive Philanthropy, says keeping quiet about the Obama administration and Congress is the worst thing nonprofits can do.

“No, there’s something worse,” he writes in The Cohen Report, a publication of the quarterly.

“We can transform into an uncritical handmaiden of the handful of insiders who have grabbed the ‘nonprofit expert’ roles in the new administration, rather than doing what the nonprofit sector should always do, which is to stand apart, critique, mobilize the communities we represent, and demand social justice.”

Howard Husock, vice president for policy research at the right-leaning Manhattan Institute and head of its social entrepreneurship initiative, wrote recently in The Wall Street Journal that the Edward M. Kennedy Service America Act that President Obama signed into law threatens to stifle the social-entrepreneurship movement that has flourished in recent decades.

Standing in “notable contrast to established, large organizations – from Catholic Charities to the Salvation Army – which, in many cases, have come to rely on government contracts,” the social-enterprise movement has been fueled by “new, inventive nonprofits established and operated with little or no government support, says Husock, former director of case studies in public policy and management at the Kennedy School of Government at Harvard University.

But the Kennedy Act “will throw so much money at nascent programs that these otherwise independent efforts will lurch after federal dollars and bend toward government directives,” he says.

Nonprofits are known as the “independent sector” because their effectiveness in serving people and solving problems is rooted in their separation from government.

Nonprofits indeed stand to gain from a closer partnership with government that would generate more investment in the giving sector and give nonprofits a greater voice in shaping public policy.

But nonprofits should be careful that in chasing government money and access to power they do not devolve from entrepreneurial watchdogs into lazy and dependent lapdogs.


imageTodd Cohen, a veteran news reporter and editor, is editor and publisher of Philanthropy Journal, an online newspaper published by the A.J. Fletcher Foundation in Raleigh, N.C. Cohen has taught nonprofit reporting and media relations at the University of North Carolina at Chapel Hill and at Duke University, and regularly speaks on the topics of nonprofit media relations and trends in the charitable world.

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May 12, 2009
10:50 AM
Giving-sector Should Raise its Advocacy Voice

Fear of offending giving-sector powerbrokers, and a lack of resources, are muzzling nonprofits.

But supporting nonprofit advocacy, policy and community-organizing work can yield big returns.

Those are the conclusions of two new reports that underscore the need for greater investment in helping nonprofits to be stronger advocates.

While supporting a cause is central to their mission, a lack of funds and staff, along with concern that speaking out will upset donors and board members, often keeps nonprofits from raising their voice on policy issues, says a new report by the Nonprofit Listening Post Project at Johns Hopkins University.

“Nonprofits are supposed to be the agents of democracy and give voice to the powerless,” says Lester M. Salamon, director of the Center for Civil Society Studies at the Johns Hopkins Institute for Policy Studies. “But their ability to do this is hampered by limited funding.”

Participants in a roundtable discussion on the topic suggested nonprofits take a more strategic approach to advocacy, integrate it into all aspects of their organization, encourage foundations to support advocacy, build long-term relationships with government, and use social-media tools to support their cause.

A separate report by the National Committee for Responsive Philanthropy says $20.4 million invested over five years to support advocacy and community organization by 13 groups that work with underrepresented constituencies in North Carolina yielded over $1.8 billion in benefits, or $89 in benefits for every $1 invested.

An earlier report late last year found that $16.6 million in advocacy funding over five years for 14 groups in New Mexico generated $2.6 billion in benefits, or a payoff of $157 for every $1 invested.

“When nonprofit organizations and foundations tackle urgent issues in the state,” the National Committee for Responsive Philanthropy says in its report on North Carolina advocacy, “they can achieve tremendous success – especially when they use public policy advocacy and engage affected constituencies in the problem-solving process.”

The report says “philanthropic best practices” to fund advocacy and community organizing in North Carolina include providing grants for “core support” and over several years, soliciting input from nonprofits and helping to build their “capacity,” exercising leadership on issues, and reaching out to other funders to expand available resources.

The giving sector can be much stronger advocates to address the symptoms and the causes of the social and global problems the economic crisis only is making worse.


imageTodd Cohen, a veteran news reporter and editor, is editor and publisher of Philanthropy Journal, an online newspaper published by the A.J. Fletcher Foundation in Raleigh, N.C. Cohen has taught nonprofit reporting and media relations at the University of North Carolina at Chapel Hill and at Duke University, and regularly speaks on the topics of nonprofit media relations and trends in the charitable world.

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April 28, 2009
11:39 AM
The Best Thing we can do for Nonprofits–and Ourselves

Have you seen Rick Cohen’s typically smart and on-target piece “The Worst Thing We Can Do for the Obama Administration”?  While he’s speaking about the nonprofit sector and its/our special-interest-group needs, there’s a broader point: that those of us who supported the President’s election because we share his basic principles and values should express that support by remaining independent and criticizing when necessary, rather than by becoming supplicants to or apologists for the people we put in office.  That’s an idea relevant to each and all of us as citizens.

The Nonprofiteer’s own version of this insight struck her while she was raging at news of the Administration’s refusal to investigate and prosecute allegations of torture.  Abruptly she realized she had two choices: struggle to construct a rationale for a constitutional law professor’s apparent indifference to violations of the Constitution, or struggle to make it impossible for such apparent indifference to continue.  So she’s now volunteering with the ACLU,  whose legal work contributed to the release of the torture memos and which is helping to orchestrate public pressure to bring to justice the people who violated our laws in our name.

Politics, it is said, is the art of the possible.  The citizen’s job is to define for politicians what’s possible, and to make sure that the definition encompasses everything that’s essential.

As nonprofit leaders, we know first-hand how much of what’s essential requires the government’s support.  But as Cohen says, our primary job is not begging for that support; it’s giving or withholding our own based on how well the government–our government–lives up to our ideals, and its own.



imageKelly Kleiman, who blogs as The Nonprofiteer, is principal of NFP Consulting, which provides strategic planning, Board development and fundraising advice to charities and philanthropies. She is also a lawyer and freelance journalist whose reportage and essays about the arts, philanthropy and women’s issues have appeared in The Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; and on websites including Aislesay.com and Artscope.net.

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April 16, 2009
12:50 PM
The Innovation Imperative

I set out to write about President Obama’s forward-thinking decision to create an Office of Social Innovation to unleash new approaches to solving problems that have resisted traditional approaches. Even though the office and a related social innovation fund are still in their early planning stages and not even officially been announced, it is already clear to me that they represent a significant opportunity.

By creating this office and fund, President Obama is giving a clear signal of support for principles near and dear to Venture Philanthropy Partners: that the nation must invest in innovation targeted at the public good, that outcomes and impact matter, that dollars should flow preferentially to those who are having the greatest impact in addressing our growing social needs.

But a funny thing happened on the way to that blog item. After sharing a draft with others, wiser than I, to test ideas and “poke the system,” it became apparent that I was missing the forest for the trees. There’s no question that shining the spotlight on social innovation is remarkably important. Yet it will require innovation of the broadest possible breadth and depth if we are to solve our most vexing social challenges.

So instead of focusing on social innovation, I feel compelled to lift up a level and talk about innovation more broadly. I am convinced that, amid the many challenges facing our President, nothing is more important for the long-term strength of our nation than driving greater levels of innovation across all sectors of our economy, including the nonprofit sector.

From the halls of Congress to the rural towns in our heartland, we simply have to come to grips with the fact that the rest of the world is no longer ceding the role of lead innovator to America. Emerging powers like China are seriously challenging us in our core competency. As the journalist James Fallows concludes in an outstanding cover story in this month’s Atlantic Monthly, “China [is using the economic downturn] to design innovative products that will get it the high profits and the high-value jobs Americans kept to themselves for decades. And that is very bad news for the United States, unless it uses tough times to reinvent itself, too.”


Existential Urgency
My family and I visited Israel in 2006 as part of an awards program. I remember leaving extremely impressed by the positive attitude toward achievement, the concentration of intellectual talent, and the advanced thinking relative to the reuse and conservation of scarce natural resources.  I also remember that this attitude was present in everyone we met, from top officials and business leaders to the tour guides and shop vendors. In a trip report immediately following our visit, I shared this observation: “Israel is finding solutions to the scarcity of resources in ways we can’t yet comprehend. Their compelling advantage is that as a people and culture they know they have to in order to survive.”

America has a deep, proud tradition of innovation. But we don’t have this existential urgency and, in spite of all we’ve done, we do not enjoy a full cultural embrace of innovation. We desperately need that urgency and embrace.

Through radical innovation in our commercial, nonprofit, and public sectors, we must break the status quo that is too often miring us in mediocrity—from how we manufacture our products to how we educate our children, from how we consume energy to how we provide health care. We have no choice but to discover and deliver new, different, and better ways of dealing with our most vexing challenges. The aftermath of the financial crisis and threats to our global leadership will put America’s spirit of innovation and entrepreneurship to the test of its life!


Yes, We Can
We know we have it in us as a nation to meet this challenge. I witnessed the drive to innovate while growing up in the 1950s, when starting my career in the 1960s, and while riding the wave of information technology through the 1980s as an entrepreneur. But nothing in my experience compared to what I saw in the 1990s, when three forces converged to ignite an exuberant burst of innovation and entrepreneurship.

Motivation. The tumultuous industry shake-ups in the 1970s and ’80s caused a breakdown in trust for a generation of employees, blue and white collar alike. The shake-ups dramatically changed the mindset of millions who lost their jobs as a result of—pick your euphemism—“downsizing,” “restructuring,” “consolidation,” “merger,” “outsourcing,” or “reductions in force.”

I witnessed this in several ways. First, the software firm I co-founded helped a number of Fortune 500 firms consolidate operations, with resultant large, well, reductions in force. And, in our own firm, when I had the bitter task of telling good friends that I was letting them go, one looked me in the eye and said, “I understand what you have to do, but, @%*!, I’ll never work for someone again!” He struck out on his own; many others across our nation did the same.

Less obvious is how their sons and daughters internalized what they saw. When many of them started careers in the 1990s, they became entrepreneurs, embraced “free agency,” or went to work for smaller start-ups. They chased their dreams, drove change, and satisfied their desire for independence and self-actualization.

New Capital. Although wealthy individuals had invested through venture capital for a long time, the volume of capital exploded in the 1980s and ’90s as a result of changes in the Tax Reform Act of 1986 and an influx of large institutional investors. This vast source of capital funded many aspiring entrepreneurs and emerging business opportunities through the turn of the 20th century.

Disruptive Technology. Early in the 1990s, the Internet, previously the domain of the Department of Defense and academic researchers, went mainstream. It gave the Davids of the world the power to compete with corporate Goliaths. Suddenly, an entrepreneur working from his or her basement had the power to access the world’s resources—anyone, any place, any time. The price of basic business technology plummeted.


The Tailwinds Today
Great crisis and disruption can lead to important new inventions, as discoveries often emerge out of a period of economic collapse. I have a sense that something totally new and really big is going to emerge out of our current crisis. An innovator—or, more likely, a group of innovators collaborating across great distances—is going to create something that will fundamentally change the way we live. I haven’t a clue what it might be and, if past experience holds, I wouldn’t even recognize it if it were in front of me.

What I do know for sure is that I’m picking up the early signs of a new convergence.

Influx of Talent. The carnage in big corporations is going to drive millions of additional people—especially the young people who grew up in homes hit by corporate layoffs in the 1980s—to explore the entrepreneurial route. Clearly, the conditions are once again ripe for bright young minds to pour their energies into bootstrapping their own entrepreneurial ventures rather than tethering themselves to big companies.

In addition to young talent, we will also see an influx of seasoned Baby Boomers, the most highly educated generation ever, who are looking for purpose through an “encore career” rather than retirement. Not all encore careers are entrepreneurial in nature, but the potential for innovation is enormous. Just take a look at the remarkable winners of the Purpose Prize, sponsored by Civic Ventures. I love the story of the former lighting director who built a $28 nut sheller that has made a huge impact on the lives of farmers in West Africa!

In addition to these talent infusions, we will also see huge contributions from New Americans. A key ingredient to American success in innovation and invention has been its openness to new people with new ideas. A disproportionate number of innovators in America were born outside the United States, just as literally millions of small businesses were created by immigrants over the years. This is a vibrant source of talent for our future.

New Mindset. With youth setting the tone for this talent, a new mindset is emerging. Compared with previous generations of entrepreneurs, a far greater proportion of entrepreneurs today seek to do well by doing good. From engineering students at MIT developing an inexpensive shock absorber that harnesses previously wasted energy and uses it to improve fuel efficiency to Stanford grads selling hundreds of thousands of solar-powered LED lights in poor communities in Africa and Asia, the new entrepreneurs are rejecting the greed and ethical lapses they’ve witnessed in their young lives. They have been heavily influenced by macro events like Katrina, global terrorism, growing threats to our climate, and the meltdown of our global financial system. They are much more socially conscious, inherently global, more concerned about the state of our planet, less enamored of traditional political-party orthodoxy, United Way, apple pie, and Chevrolet. YouTube, Stephen Colbert, and the Smart Car are much more relevant.

New Network Technologies. Thanks to an entire new class of social networks, resource-matching and open-source models, and other innovations of the second generation of web development and design (Web 2.0), the Internet is becoming the ultimate tool, not just for connecting but also for organizing and coordinating across a broad and diverse continuum of resources—with a speed, ease, and effectiveness we’ve never witnessed before. The cost of coordination is falling to zero.

If you had a good idea in 1970, it was incredibly hard to move it forward and bring it to market; it was often one man or woman against the world. In the 1980s, the arrival of the PC allowed the little guy to look big and compete in new ways. When the Internet arrived in the 1990s, one man or woman could suddenly sell to the world. Now, thanks to the newest Web-based tools, it’s not just about selling to the world anymore. The next wave is collaborating with the world. The time from idea to result will—again—shrink dramatically.

We’ve only seen the first glimpses of this potential. For example, Barack Obama would still be the junior senator from Illinois if not for the online tools 20-something Facebook co-founder Chris Hughes and other innovators put into action. With a modest budget and small team of developers, Hughes and others created community-building tools for the Obama campaign website which made it far easier than ever before for motivated volunteers to organize themselves and mobilize others.

Even when the vast majority of the Obama campaign’s staff and budget were focused in the critical early-voting states of Iowa and New Hampshire, the Obama website was giving volunteers in every corner of the nation the training, talking points, images, databases, and other tools they needed in order to find supporters and get them to the polls. When it became clear that neither Obama nor Hillary Clinton was going to land a quick knockout, “all of a sudden it made a difference that we have 60 really organized groups in Kansas, a caucus state,” Hughes told Fast Company.

Dallas Mavericks owner Mark Cuban just launched a fascinating experiment in what he calls “open source funding.” He has invited entrepreneurs anywhere in the world to post business plans on his blog. He hopes that his open approach will produce not just good investment opportunities for his company but also spark widespread innovation. “I expect other people can and will comment on [your idea]. I also expect that other people will steal the idea and use it elsewhere. That is the idea. If it’s a good idea and worth funding, we want it replicated elsewhere. The idea is not just to help you, but to figure out how to help the economy through hard work and ingenuity.”


Half Full
These three converging vectors—talent, mindset, and technologies—could create the conditions for commercial and social innovation on a scale we’ve never seen before. This is the forest, the iceberg below the surface, the big kahuna. This is why our national cup could be half full even at this time of deep recession. This is what President Obama has a chance to harness.

If necessity is the mother of invention, then this crisis, which has laid bare the depth of our needs, provides us the dramatic necessity to drive innovation and spur entrepreneurs of all types and sizes to find ways to deal with our challenges. The real change makers will be those throughout the land in small and big enterprises, the new and the old, the scientific innovator to the obsessively compelled entrepreneur, across all sectors, who take up this challenge.
So while I could not be more supportive of the Office of Social Innovation, I believe this is a chance for the President to systematically foster a mindset in America that is nothing short of a cultural and economic ground-shift. He must broaden the focus across and among the private, public, and nonprofit sectors—to seek and spark the most promising innovations whether they come from commercial or social entrepreneurs, executives or line workers, community leaders, public servants, researchers, or citizens who don’t fit into any of these categories. The real opportunity before the President is to supercharge innovators from all walks of life and make commercial and social innovation our national imperative.


imageMario Morino, a former software entrepreneur, is the chairman of Venture Philanthropy Partners, based in Washington, DC.

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April 6, 2009
11:09 AM
Social Innovation in the White House

In the midst of a thoughtful discussion at the Wagner Center of the competing demands on philanthropies for funding of overtaxed social services and of social-change advocacy, big news: the White House is about to announce creation of the long-proposed Office of Social Innovation to bring together government responses and resources to the concerns of the philanthropic and charitable sectors.

Bureaucratic-style confirmation: the office appears on the list at whitehouse.govSpeculation about possible leadership has begun.


imageKelly Kleiman, who blogs as The Nonprofiteer, is a lawyer and freelance journalist whose reportage and essays about the arts, philanthropy and women’s issues have appeared in The Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; and on websites including Aislesay.com and Artscope.net.

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