Supply, Demand, and the Nonprofit Non-economy

Supply and demand: it’s probably the one relationship any of us remember from some sort of economics or even government class we had in high school or college. The point where supply meets demand is the equilibrium; it determines price. It is the basic idea of our economy and it’s as fundamental to our daily experience as the air we breathe. It determines what most of us consume and how much, what we get paid for the work we do, where products we consume come from, the brands we choose, where we consume, how far we have to drive to get there, and how much we pay when we do. Despite its ubiquity in our lives, most of us don’t pay too much attention to this fundamental relationship.

But, what would happen if supply and demand suddenly acted independently? Or worse, what would we do if they acted in actual opposition to each other? What if supply never met demand?

Well, this is the economic reality for our community-based nonprofits that are serving our most vulnerable populations and providing basic services for our communities. At the time when the demand for services is growing, the supply of philanthropic investment has diminished. The data related to our recent recession demonstrate this effect most clearly as demand continues to tick upward in the nonprofit services arena and the supply of philanthropy, particularly for crisis and lifeline services, has continued a downward trend. 

Here is a glimpse at the current supply reality (There are a bunch of references below if you want to start digging deeper and countless more via Google. I’m just trying to make a point here.):

• 2008-2010 recession and post-recession giving represents an 11 percent decline from pre-recession highs (adjusted for inflation and including a modest 2010 rebound).
• There has been a significant disinvestment in people in need (human services) on the domestic front with a 5.6 percent decline in inflation adjusted numbers last year alone, and a modest decline again this year.
• 28% of wealthy Americans say the current recession has caused them to cut back on the total amount of money they give to charity.
• Less than 1/3 of philanthropic giving in the United States is targeted at the needs of the poor.

On the other (demand) hand:

• 87% of lifeline or crisis services organizations saw an increase in demand in 2010.
• Unemployment rate among youth in 2010 was the highest ever recorded since the end of World War II, and the labor force participation rate was the lowest ever recorded.
• 60% of youth and adult lifeline organizations increased the number of clients they served in 2010, yet only 43% were able to meet the demand for their services.

Hopefully you get the sense of where we are today, but the longer term picture tells an even more unsettling story.

While the good news is that philanthropic giving seems to be on a modest rise this year over last, the bad news is that the gap experienced over the past three years cannot easily be undone. The recession will leave a lasting and longitudinal gap. Put simply, when the economy does recover, the wealthy are more resilient than the poor, so the impact lasts longer the poorer you are. Therefore, when the economy starts to grow again, we also experience a perpetually expanding equity gap. The poor stay poor longer and the rich recover faster. The rich rebound fully. The poor rebound minimally. As this gap widens, the generational impact takes deeper root and the apparent shorter term economic shock of the recession becomes a long-term driver of poverty and instability. It becomes a cycle, and one that is not just bad for the poor, but is bad for the long-term health of the economy as a whole: 

“The adverse effects on lifetime earnings are most pronounced for unemployment episodes experienced by young people…In a recession, young workers tend to take worse jobs than they would during better times. And as they settle into family life and become less mobile, it is hard to recover from this “cyclical downgrading.” - “The Tragedy of Unemployment”, Finance and Development, December 2010

“There is consensus that macroeconomic instability is harmful for both growth and equity…In particular, episodes of instability disproportionately affect vulnerable groups in the short run, and…economic recovery rarely brings back poverty and equity to their pre-adjustment levels…In addition, it also acts as a deterrent for the determinants of growth, since they affect the process of savings and investment and thus, reduce long run growth and the potential for productive job creation.” - “Social Dimensions of Macroeconomic Policy: Report of the Executive Committee on Economic and Social Affairs of the United Nations”, December 2001, p. 11 

So, ultimately, unless philanthropic giving levels de-couple from the performance of the economy as a whole (not sure how this would happen), nonprofits will always fail to meet the needs of our communities. And, as every economic downturn occurs, those needs will grow and sustain long after philanthropy and the economy pick back up. The shock to the economy is temporary and the shock to our low-income communities perpetual.

Something’s gotta give.


References and Readings:
“Employment and Unemployment Among Youth – Summer 2010”, Bureau of Labor Statistics, August 2010

“The Steep Decline in Teen Summer Employment in the U.S. 2000-2010”, The Center for Labor Market Studies, April 2011 

“Social Dimensions of Macroeconomic Policy: Report of the Executive Committee on Economic and Social Affairs of the United Nations”, December 2001, p. 11 

“The Tragedy of Unemployment”, Finance and Development, December 2010

“The Other America’s Philanthropy: What Giving USA Numbers Reveal in 2011”, Nonprofit Quarterly, June 2011

“Nonprofit Finance Fund: America’s Nonprofits Struggle to Meet Fast-Climbing Demand for Services”, Nonprofit Finance Fund, 2011

“The Tragedy of Unemployment”, Finance and Development, December 2010 

“Giving USA 2011: Unpacking the numbers LIVE”, Philanthropy Daily, June 21, 2011

Center on Philanthropy at Indiana University, www.philanthropy.iupui.edu

Giving USA, www.givingUSA.org