The New York Times has a story about GiveWell — a nonprofit started by two young former hedge fund analysts — which studies charities and ranks them on their effectiveness. Unlike other philanthropic rating services that rely on tax forms filed by nonprofits, GiveWell applies more sophisticated financial analysis to gauge outcomes achieved with the money.
Most would agree that developing better measures of performance for nonprofits would be a good thing, because it would increase accountability to donors and could help the organizations improve.
Although GiveWell itself doesn't make this point, its attempt to rate the efficiency of nonprofits raises the question of how we evaluate government efficiency — and whether there's any equivalence between the two.
The public sector, too, should be open to effectiveness measures — especially when the information can be used to improve the value of public services.
Under Gov. Arne Carlson, Minnesota used to do a very good job of this. That effort was cut from the budget after 2002, and since, we've heard mostly about lowering costs, not improving outcomes. (The Times story noted that funder bias against paying for administrative costs discourages nonprofits from collecting and evaluating the performance data GiveWell seeks.)
One anti-government talking point claims that charity is a good alternative to government spending. But what data supports that contention? Are smaller nonprofit service models scalable to a size that can serve all citizens across the state? And if they are, will citizens voluntarily fund them to a sufficient level?
Even in generous Minnesota, it doesn't seem that charitable giving can provide for substantially more public sector services.
In 2005, individuals, foundations and corporate giving programs gave a total of $5.1 billion in charitable contributions, according to the recent Giving in Minnesota Report. Using the report's data on institutional giving and applying the national average to individual giving, Minnesota contributes just slightly over half of the $5.1 billion to non-religious programs.
So let's say there's a $2.6 billion total capacity of voluntary private giving to fund existing education, health and human services, arts, environment, public affairs and other programs. That's equal to about 15 percent of the state budget.
What are the chances that any sort of tax cut would double present philanthropy? Even if we did muster another $2.6 billion in giving, it would equal only about half the state's annual health and human services spending.
The nonprofit sector simply doesn't have the capacity now to serve all Minnesotans, and a system of voluntary funding would come nowhere near equaling the government's capacity.
Growth & Justice is developing a project to help better understand when government is being effective and how we can make it more accountable to us donor-taxpayers. We'll keep you posted.
— Charlie Quimby
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