Philanthropy and Nonprofit Efficiency: A Review of Goldberg

Introduction

Steven Goldberg's Billions of Drops in Millions of Buckets: Why Philanthropy Doesn't Advance Social Progress proposes that donors require assistance to differentiate between efficient and inadequate nonprofits. He then provides a method to attract third-phase financing to organizations that are effectively addressing "$100 million social issues," through a virtual nonprofit stock exchange known as IMPEX (Impact Index). Goldberg argues that the significant absence of efficiency-driven philanthropy means that better use of existing resources is more critical than simply increasing total giving. In present circumstances, he contends, "charitable contributions find their way to donors by way of a haphazard blend of fortune, charm, and razzmatazz which is inappropriate for their work" (Goldberg, 2009, p. 29). This paper explores the position introduced by Goldberg and develops an argument in support of it.

Goldberg suggests that the failure of "anaemic" governments leaves philanthropists with the obligation to finance solutions to America's pressing social problems. The reluctance to support tax-financed, state-organized remedies is difficult to understand for those who, on the whole, benefit from well-funded social, educational, and health services. Goldberg is on stronger ground when he explains the functions of international stock markets — how they operate using expert consultants, sophisticated investors, and marketplace incentives — and how that framework can be applied to the nonprofit marketplace.

Goldberg makes a compelling case that some form of marketplace mechanism is needed to improve the distribution of philanthropic funds. Citing Voltaire's observation that "the ideal is the enemy of the good" (p. 191), he mounts a spirited challenge to "measurement snobbery" and argues that the difficulties involved in defining and calculating social impact do not mean that meaningful differences do not exist or are not worth measuring. While it may be a "fool's errand" to search for perfect measures of social impact, he believes any effort to close the "nonprofit data gap" and create indicators that move markets in the right direction is worthwhile, because "it seems absurd to believe that philanthropically-oriented individuals are indifferent to how much good their money accomplishes" (p. 207).

Argument in Support of Performing Nonprofit Organizations

It is undeniably true that the current distribution of philanthropic funds is sub-optimal — funds do not consistently follow effectiveness. However, a model of the nonprofit marketplace in which donors' sole goal is to rationally allocate their gifts fails to capture the dynamics of philanthropy, in which giving is meant to improve the wellbeing of both recipients and contributors. As Peter Frumkin argues, philanthropy simultaneously serves as a means of meeting public needs and an expression of private values. While philanthropists do wish to help build a better society, they also give in order to seek meaning and purpose in their own lives (Frumkin, 2008). Nobody disputes that donors can make better decisions, and that a shift from devotion-centered to value-centered philanthropy is achievable.

Cost-Centered Financing for NGOs in Haiti

In Haiti, Management Sciences for Health (MSH) worked with a network of approximately 30 local, service-oriented nongovernmental organizations (NGOs) to implement the HS2004 project. The project's broad mission — delivering effective, high-quality primary healthcare to the people of Haiti — was carried out by these agencies. Virtually all had well-established service delivery missions, and all had engaged in processes to improve the effectiveness and impact of their services (Pollock, 2003). Each organization received an individually negotiated contract with MSH to provide a defined service package, developed with the full participation of a wide range of stakeholders, to meet the following agreed-upon project objectives:

The USAID financing support program operating in Haiti prior to HS2004 reimbursed NGOs for documented costs but did not link support payments to outcomes. Recognized problems with this type of cost-reimbursement model included the following:

A 1997 population-based survey identified wide variation in the efficiency benchmarks later recognized by HS2004 (Eichler, Auxila, & Pollock, 2000). For example:

Each participating NGO, under a fixed-cost, fee-for-service type of contract, agreed to receive 95% of its targeted budget (the estimated cost of meeting service delivery targets) as a fixed-cost financing base, with payments released at intervals and in amounts determined by the NGO itself. The results-based incentive would amount to 10% of the targeted budget when all objectives were substantially met — resulting in an additional 5% over the targeted budget, which the NGO could allocate at its own discretion (Pollock, 2003). Failure to meet specific goals resulted in a reduction in the incentive payment according to a pre-established formula. Complete failure could result in no incentive payment and could represent a significant financial loss to the NGO (5% of projected operating costs).

This model has since been adopted by public payers, donors, and private payers seeking to improve the impact of their resources. The NGO community built a forum for exchange and quality monitoring that extended beyond the HS2004 project period. Several participating NGOs began negotiations with other donors to adopt a similar model for managing and improving performance.