The Recession and Transforming the Nonprofit Sector

I just attended a webinar hosted by the Nonprofit Quarterly that featured Dr. Paul Light, NYU Wagner's Paulette Goddard Professor of Public Service, about emerging trends in the nonprofit sector.

Dr. Light is well known in the sector for, among other things, his gloomy 2008 prediction that up to 100,000 nonprofits would close as a result of the economic downturn.  While the number of nonprofits that have gone under in the intervening years is difficult to quantify (nonprofits do not necessarily report to the IRS when they close their doors), Dr. Light indicated that numerous sources have cited closures and mergers in the nonprofit sector.  In addition, the IRS is likely to revoke 501(c)(3) status from between 50,000 and 100,000 nonprofits as a result of their failure to file required reports with the IRS.  At the same time, though, the IRS approved 60,000 new exempt organizations last year.

In his 2008 article entitled, "Four Futures," Dr. Light explored four possible paths the nonprofit sector might take as a result of the economic downturn:

  1. The rescue fantasy (an idealistic scenario where the nonprofit sector is "saved" by the kindness of strangers and giving remains at high levels)
  2. A withering winterland (in which every nonprofit feels the financial and resource pain of an economic downturn)
  3. An arbitrary winnowing (in which those organizations that have the most resources continue to have the most resources, and others falter, purely based on size, scale, marketing, etc., rather than the quality of services provided)
  4. Transformation (in which the sector sees the economic downturn as an opportunity to reinvent itself)

While the rescue fantasy clearly hasn't occurred (though Dr. Light noted that for a limited number of organizations, the economic stimulus package provided a version of this fantasy), it seems a combination of the other three have – and will likely continue.

The silver lining to an otherwise sobering scenario is that the nonprofit sector continues to have an opportunity to transform itself.  Dr. Light specifically mentioned alliances and advocacy as areas where we can take more control of our own fate than we have been: the nonprofit sector, when speaking with a unified voice, is a powerful institution.  We need to mobilize that voice to urge legislators at both federal and state levels not to continue cutting nonprofits' funding and delaying payments.  We need to challenge the prevailing wisdom that appears rampant among legislators that nonprofits will always be around, regardless of how aggressively their budgets are impacted by legislation and the economy.

nonprofit sector transformation

The notion of challenging prevailing wisdom really struck me.  The nonprofit sector still has a ways to go in emerging from the financial crisis in which we’ve found ourselves for the last several years, and I think there are several prevailing wisdoms within our own sector and modus operandi that we need to challenge.

Stay tuned for tomorrow's post – Challenging Four Prevailing Wisdoms.



Author: Dahna Goldstein
February 23, 2011, 04:06 PM

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