Part one of a series discussing the critical role of nonprofits in the social impact sector.
It’s June and I’m wondering how can that possibly be? The last year has been long and short all at the same time. At times, it felt like we’d never get back to anything normal, but mask mandates are being lifted, restaurants and retail shops are busy again, and the summer of 2021 feels like it’s going to be very different from the summer of 2020.
While masks and social distancing will (hopefully) become a distant memory, there are things we’ll never forget: the loss of too many lives, businesses that couldn’t weather the storm of COVID-19, lives that have been changed by the loss of a job, the impact of distance learning on our children, parents who suddenly added the role of teacher to their already long list of responsibilities, and so much more.
We’ve also been asked to think about whether the past year will have any lasting positive impact on our lives. Many have learned that they love working remotely, some hate it, and others discovered they would thrive with a combination. Many have enjoyed and committed to continuing with a less hectic schedule. A friend of mine who teaches kindergarten said her biggest takeaway was putting more space between her students. While originally mandated by social distancing requirements, she plans to continue as she saw classroom disruptions nearly vanish leaving more time for learning. She said she probably would never have thought of it had the pandemic not required it.
One of our takeaways should also be the importance of nonprofits. When everything was turning upside down and shutting down, nonprofits were steadfastly continuing to operate. While continuing to support their current clients, many of whom had a sudden increase in the intensity or type of help needed, they were also finding ways to provide services to a whole new set of clients who suddenly found themselves in need.
Funders and donors stepped up as well, providing unprecedented levels of financial resources in record time so nonprofits could provide services such as shelter, food, health care, and telehealth options. According to a report from Candid and the Center for Disaster Philanthropy, more than $20 billion dollars were given to nonprofits in the heart of the crisis. Corporations gave nearly $9 billion or 44% of the total, high-net-worth donors gave $5.8 billion or 29%, and a significant portion of the remainder came from donor advised funds and community foundations which gave more grants than any other type of grant maker.
The COVID-19 crisis also exposed the fragility of our health and human services safety net. Jacob Harold, Executive Vice President at Candid, published a blog in July of 2020 detailing an analysis predicting the future of 315,698 nonprofits in the United States. In their baseline, no-crisis scenario, just over 12,000 (4%) of the nonprofits would close. In nine scenarios researchers believed are closest to reality, nearly three times that number would not make it. In the worst-case scenario, nearly 40% or 119,517 nonprofits would disappear.
Harold notes that the study shows that many nonprofits should survive the crisis. However, the majority of organizations that would close would be in the human services sector—one of the most critical areas of service when crisis strikes. The loss of these organizations has implications beyond the lives of those who need their services. When people lose access to critical supports that provide services for basic needs such as shelter, housing, education, and health care we all pay a price. From increased burden on law enforcement services to emergency rooms, the negative social impact is measurable.
Concerns about the nonprofit sector didn’t suddenly arise as the COVID-19 pandemic hit, but it made it even more evident that a new model is desperately needed.
Did you know we’re living through an industrial revolution? I always thought of industrial revolutions as something that happened long ago with steam engines and factories. However, modern economies are continually changing, and these changes usher in both advancements and challenges. The Fourth Industrial Revolution is well underway. Technology is rapidly transforming the way we work, purchase, travel, relate, and communicate. There will be many positive outcomes from the Fourth Industrial Revolution; however, it has significant potential outcomes that will negatively impact factors such as the labor force, income disparity, and our environment.
Our country’s three-sector system of nonprofits, for-profits, and governmental entities has worked for more than a century, supporting economic advancement and increased personal well-being while addressing serious societal issues. However, the system is woefully unprepared to address 21st century and Fourth Industrial Revolution challenges. Heerad Sabeti, CEO of The Fourth Sector Group, brilliantly summarizes the challenge before us: “Governments are under-resourced, overburdened and constrained by the business interests to which they are beholden for resources. Businesses are caught in an environment where the system demands them to behave in a way that maximizes profit, often at the expense of society and the environment—even though most stakeholders, from the CEO to the consumer, prefer to pursue a more responsible, purposeful and sustainable path. Non-profits are woefully under-resourced and face growing demand for their services, as businesses further externalize social and environmental costs and governments devolve from providing adequate social safety nets.”
What does this mean for the nonprofit sector?
The nonprofit sector is filled with brilliant, innovative, passionate, and compassionate people championing efforts to feed the hungry; house the homeless, care for the sick, and educate people of all ages. The sector is brimming with potential but is struggling to address today’s challenges with yesterday’s methods and approaches. The system in which the sector operates discourages innovation and binds nonprofits to a funding model that no longer works.
While the challenge before us may seem nearly insurmountable, there is hope. As we enter this new age, a fourth economic sector is emerging that will change our economy and society. The fourth sector is filled with organizations that prioritize purpose and profit, blending features of for-profit businesses and nonprofits. This sector offers a new perspective on business, but it also offers tremendous opportunity for organizations in the nonprofit sector. The emergence of the fourth sector will offer new options for partnerships and collaborations, funding models, and access to a workforce that places a high priority on meaningful work. The question is whether the sector’s stakeholders are ready to embrace a new mindset and leave behind funding models and operational practices that limit their social impact.
Stay tuned for part two of this series about nonprofits and their role in the social impact sector.
Shelley Loethen, GPC
President and CEO