Summer 2013 – When Charities Behave Badly

Can we tolerate the disorder of philanthropic freedom?


With Charity for All: Why Charities Are Failing and a Better Way to Give
by Ken Stern
Doubleday, 2013
$26.95, 272 pp.

Every few years a book appears claiming that beneath the much-admired surface of America’s charities lies a cesspool of corruption, greed, and ineffectiveness. The latest entry comes from a former National Public Radio chief executive, Ken Stern. Its title—With Charity for All—is meant ironically. The last thing Stern believes is that the nation’s charities act charitably.

Among his complaints: Hospitals and other organizations charge high fees for their services and seem more concerned with getting patients to pay up than with helping the needy who cannot meet their bills. Charities spend too little on accomplishing their goals and too much on enriching their leaders through high salaries. Donors are too indulgent, choosing to support activities that make them feel virtuous but do nothing to solve social problems. And despite the substantial tax breaks that charities receive, government oversight of those charities is too loose.

None of these criticisms will surprise anyone who has followed the past decade’s newspaper and Congressional investigations of charitable malfeasants, from which Stern draws many of his examples. But do they reveal, as Stern believes, that America’s charities are “failing” and that we need “a better way to give”? If so, what is it?

Recent years have certainly produced a number of highly publicized charitable scandals, often involving accusations that money intended for good purposes instead wound up providing benefits to the people who ran (or solicited funds for) the organizations that raised it. But Stern exaggerates the scope of such misconduct.

For example, to buttress his claim that large numbers of charities engage in financial misconduct he cites a sensational 2008 article from the New York Times headlined, “Report Sketches Crime Costing Billions: Theft from Charities,” which put 2006 losses at $40 billion, or 6 percent of total non-profit revenues that year. However, neither Stern nor the story makes clear that this was not hard fact but just the opinion of a sample of members of the Association of Certified Fraud Examiners—or mentions that the same sample believed wrongdoing to be far more extensive in government and business than in the non-profit sector.

Stern also cites surveys showing that the public trusts charities less than it used to. But these same surveys show that confidence in most American institutions has been slipping for quite some time, and that charities are generally still held in higher esteem than Congressmen, journalists, corporations, and many others.

Non-profit hospitals come in for particular reproach in Stern’s book. He charges that they increasingly behave like their for-profit counterparts, pointing out that in addition to the similarities in the salaries their top executives are paid, each type of institution seems to provide about the same amount of “charity care.” He views this as evidence of a spreading commercial ethos among hospitals but does not consider the alternative possibility: that doctors and other health-care personnel have a consistent view of their professional responsibilities and appropriate salaries regardless of whether they work in for-profit or non-profit institutions.

Donors are not spared, either. Stern contends that many give self-servingly—to feel good, or bask in public acclaim—rather than follow proven ways of dealing with social problems, as if the two things were irreconcilable. He says the wealthy do not give as large a proportion of their incomes to charity as lower-income people do. However, to reach that conclusion, he has to ignore some inconvenient facts: Among the “low-income” donors he cites are the elderly, whose giving comes from assets accumulated when their incomes were higher. Moreover, wealthier people are more likely to donate than those in other income groups.

Among the millions of charities in the United States, undoubtedly some—perhaps even many—behave less than charitably. (Stern singles out as prime examples the small number of non-profit groups that sponsor college football bowl games; originally established to raise scholarship funds, they now operate more like advertiser-fueled promoters of sports and tourism, producing little for education but a lot for their leaders. The Internal Revenue Service has been trying to tax them for years, mostly without success.) And doubtless the ranks of philanthropists include some—perhaps even many—whose motives are less than purely altruistic.

But no one, least of all Stern, has offered any evidence that such conduct is widespread, or that America’s charities are collectively “failing.” This absence of evidence does not stop him from offering two ideas for improving giving, both of which are problematic.

First, Stern calls for increased oversight of the non-profit sector, including a narrowing of the definition of what a charity is. While acknowledging the “benefits to an open charitable system,” Stern professes dismay with the latitude that federal and state officials give the same system, including the infrequency with which they re-examine, let alone revoke, the legal protections of charities that have strayed from their intended purposes. He characterizes the IRS approach to deciding what is or is not a charity as too much of an “open-gate” policy.

With Charity for All was published just before the Inspector General’s report on the IRS’s targeting of conservative political groups, which illustrates the dangers of more aggressive oversight by regulators empowered to decide what is and is not “legitimate.” And the dangers of a more intrusive government role go beyond the possibility that tax or other laws will be manipulated for political purposes. What it means to be “charitable” has long been debated, and in a heterogeneous society like the United States the answers will inevitably take many forms. American law has been conspicuously lenient in allowing organizations to obtain the status of charities, which undoubtedly helps explain why U.S. charities are so numerous compared to those of other countries.

A more restrictive approach, far from producing more “charity for all,” would simply produce less charity. That result might be of little concern to those who see art museums and symphony orchestras—or teaching hospitals and Ivy League universities—as less worthy than programs to help the needy. But many Americans would miss the consequent loss of diverse benefits provided by voluntary giving.

Stern’s second proposal calls for a change not in laws but in attitudes. He says charities—and those who fund them, including government—should focus less on good intentions and more on good results. In recent years this sentiment has enjoyed increasing support, not without reason, among non-profit professionals and prominent philanthropists like Bill Gates. Stern gives examples of well-known charities that have grown substantially despite considerable evidence that they have achieved little or nothing. He also profiles results-oriented organizations that seem to have had success with difficult social problems like improving pre-natal and post-natal care for low-income mothers.

Sensible as this recommendation seems, it, too, has critics. Some point to the challenges (and costs) of properly assessing the sorts of subtle or long-term changes that many charities hope to achieve. Others emphasize both the limits of knowledge about what works and the crucial role that non-profits play in testing new approaches, including ideas that are risky or controversial. Too much focus on measurable outcomes, they fear, will lead to less innovation and, ultimately, less capacity to solve stubborn social problems.

The main problem with Stern’s second proposal, though, is that, as with the definition of “charity,” people disagree about what “effectiveness” means. Take education. Should a non-profit that is interested in the school problems faced by children from low-income families measure its success by improvements in test scores? By high school or college graduation rates? The jobs eventually obtained by the children it helps? The incomes they earn? Something else?

The answers to these questions depend on the values that the organization and its supporters consider most important. Indeed, beyond the leniency of our laws, the large number of American charities is due to the fact that Americans have so many different ideas about what results should be most welcomed—including some ideas that will not seem like good measures of success at all except to those who embrace them. Stern suggests that if we want to get serious about increasing charities’ effectiveness, we should pool our donations and turn them over to experts, who will decide how to use them for maximum impact. But this would only substitute the experts’ judgments about what really matters for those of the rest of us, an undemocratic result that will curtail our involvement with charities and stunt our collective desire to help fix social problems.

For all its flaws, With Charity for All highlights an important disagreement in today’s non-profit world: between those like Ken Stern, who wish to make American philanthropy more orderly, more focused, and more capable, and those who see it as an expression and engine of popular ideas, hopes, and fears, however unruly, unguided, and passionate. Traditionally, Americans have leaned toward the wide-open side of this debate, judging that in a democracy, it is worth tolerating organizations that are imperfect and susceptible to exploitation for the sake of maintaining an engaged citizenry. But a steady diet of anecdotes like the ones that fill Ken Stern’s book and regularly appear in newspapers and government hearings could make that position harder to sustain.

Suzanne Garment is a visiting fellow, and Leslie Lenkowsky a professor, at Indiana University. Jointly, they are writing a book on philanthropy and public policy.

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