Arnold Kling  

Finished Reading Pallotta

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Consumer Surplus from the Inte... Pacifism Redux...

Bracing diagnosis, disappointing prescription. Having finished Uncharitable, I have that capsule review.

As I see the diagnosis, donors evaluate non-profits on criteria that are not related to results. The big one is "percentage of donations that go to the cause." You can probably anticipate most of the problems with this measure if you think about it.

Once we decide to evaluate non-profits on process rather than on results, it is easy to predict what happens. We get process, not results!

Anyone who has worked in a large organization, including profit-seeking enterprises, is familiar with the problem. Managers run their departments with "seat of the pants" approaches. They measure activities, not outcomes.

When I was at Freddie Mac, senior management tried to implement Operational Planning to overcome this. We were supposed to think in terms of KRAs and IOPs (key results areas and indicators of performance). It's a good discipline. It may not work in practice quite as well as in theory, but it probably works better than going with seat-of-the-pants.

There is a saying in organizations that "what gets measured gets done." The thing is, as Garett Jones said, most of us are building organizational capital, not widgets. Organizational capital is harder to measure. That is what makes it hard to come up with the right IOPs.

So, whether you are talking about a for-profit or a non-profit, if management is going to be results-oriented, you have to be able to come up with good IOPs. In the operational planning methodology, this is a negotiation between senior managers and middle managers.

But who manages the senior managers, to make sure that they stay focused on KRAs and IOPs? In the for-profit sector, the decentralized processes of consumer choice and competition force the issue.

In the non-profit sector, it is up to donors to provide discipline. But donors, I would argue, tend to be interested in expressive philanthropy rather than in results.

What Pallotta proposes is a big national effort to evaluate charitable organizations. The criteria would be complex, including both results and organizational capabilities.

I doubt that prescription would work. You might just as easily propose a national effort to evaluate middle management at for-profit businesses. But I believe that such an effort would fall apart because of lack of local knowledge. Fortunately, we do not need such an effort for the private sector, because we have market discipline. It's far from perfect, but it is much better than a remote national agency.

I am inclined to think that with non-profits, you get what you pay for. With donors caring about expressing themselves, the non-profit industry is bound to evolve toward satisfying donors' desire for self-expression. That does not mean that it will produce no good results. However, it will not produce results as well as it might if donors were single-mindedly focused results.



COMMENTS (4 to date)

I would be interested to know what both you and Pallotta think of http://www.givewell.org/ , a private charity evaluator that attempts to measure them by impact.

I don'tt pretend that they have solved all of the relevant local knowledge problems -- think of them instead as trying to solve some information coordination issues for the perhaps small market niche of donors who wish to give as to maximize results.

Jacob AG writes:

GiveWell, Charity Navigator, GuideStar, J-PAL, Innovations for Poverty Action, and others are just a few of the organizations working to evaluate the effectiveness of charities and their programs. This industry and style of giving is still in its infancy, so the jury is still wwaaayyyy out on whether it will actually work.

Personally, I think it will help, but won't be a panacea.

Last point: maybe this is the wrong place to be expressing this view, but publicly funded charity like the work of USAID, Army Corps of Engineers, Department of Defense, the State Dept, and others, might be less susceptible to the problems that come with "expressive giving." See the comments section here for a good discussion of the problems that come with a well-intentioned but largely ignorant and selfish donor base, vs. public funding: http://aidwatchers.com/2011/04/all-cups-no-tea/

"When I left the govt funding environment I had many criticisms of the bureaucracy and top-down approach to setting program objectives and indicators. I thought a privately funded environment would allow program staff to set goals based on need. What I’ve discovered is that we are beholden to 50,000 donors far less informed than the USAID contracting officer." - Bula

Granted (pun intended), publicly funded charity has its own problems (e.g.: http://www.nytimes.com/2011/07/06/opinion/06zorpette.html?pagewanted=all), but still--the incentives are different from, and in some ways better than, private giving.

Steve Sailer writes:

"But donors, I would argue, tend to be interested in expressive philanthropy rather than in results."

That explains the vast wealth piled up by the Southern Poverty Law Center (approaching a quarter of a billion dollars). People give huge amounts of money to the SPLC to show how much they hate the KKK. (You can hardly expect the SPLC to explain to the rich rubes that the KKK barely exists anymore except for informers hired by the SPLC and FBI.)

It's like that scene in Bad Teacher where the dweeby rich teacher played by Justin Timberlake is visiting Abe Lincoln's log cabin and goes on for three minutes about how much he hates slavery, while Jason Segel needles him by asking him how much he hates sharks.

Somebody should start the Abe Lincoln's Log Cabin Center for the Hating of Slavery. He'd wind up as rich as Morris Dees.

DougT writes:

Foundation support for nonprofits is non-trivial, and that tends to be far more outcome / results oriented. I served on the Grant Review Committee for a local United Way for several years and we received a great deal of training in outcome-oriented management. That's what we focused on during our site visits. Foundations that are outcome-oriented can exert a powerful influence on non-profit organization.

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