Nonprofits in Crisis

Nuno S. Themudo

Description

Winner, Best Book Award, Academy of Management Public and Nonprofit Division

Why do some countries have a vibrant nonprofit sector while others do not? Nonprofits in Crisis explores the theory of risk as a major mechanism through which economic development influences the nonprofit sector. Nuno S. Themudo elaborates this idea by focusing on Mexican nonprofit organizations, which operate and strive to survive in a risky environment. The study of these nonprofits generates broader lessons about philanthropy and the nonprofit sector that complement wider cross-national statistical analysis.

Preface
1. A Cross-National Philanthropic Puzzle
2. A Risk Perspective on the Nonprofit Sector
3. Economic Development, Risk and the Nonprofit Sector in Cross-National Perspective
4. When Crisis Hits: Lessons of Courage and Compromise
5. The Long-term Impact of Economic Risk on Nonprofit Sector Strength
6. Nonprofit Sector in Crisis: Implications and Strategies for Risk Management
Notes
Bibliography
Index

Sujets

• Political Economy
• Social Science
• Charities
• POLITICAL SCIENCE
• Sociologie, société et politique
• América del Sur
• Charity
• Charitable organization
• Philanthropy
• South America
• Latin America
• Economics
• Philantropy
• Caribbean

Informations

• Publié par: Indiana University Press
• Date de parution: 26 septembre 2013
• Nombre de lectures: 1
• EAN13: 9780253006950
• Langue: English

Extrait

PHILANTHROPIC AND NONPROFIT STUDIES
Dwight F. Burlingame and David C. Hammack, editors
NONPROFITS IN CRISIS
Economic Development, Risk, and the Philanthropic Kuznets Curve
Nuno S. Themudo
Indiana University Press
Bloomington and Indianapolis
This book is a publication of
Indiana University Press Office of Scholarly Publishing Herman B Wells Library 350 1320 East 10th Street Bloomington, Indiana 47405 USA
iupress.indiana.edu
Telephone orders       800–842–6796 Fax orders        812–855–7931
© 2013 by Nuno S. Themudo
All rights reserved
No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage and retrieval system, without permission in writing from the publisher. The Association of American University Presses' Resolution on Permissions constitutes the only exception to this prohibition.
The paper used in this publication meets the minimum requirements of the American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48–1992.
Manufactured in the United States of America
Themudo, Nuno S.
Nonprofits in crisis : economic development, risk, and the philanthropic Kuznets curve / Nuno S. Themudo.
   pages cm. — (Philanthropic and nonprofit studies)
Includes bibliographical references and index.
ISBN 978-0-253-00685-1 (cloth : alk. paper) — ISBN 978-0-253-00695-0 (ebook) 1. Nonprofit organizations—Management—Case studies. 2. Nonprofit organizations—Finance—Case studies. I. Title.
HD62.6.T525 2013
338.7—dc23                2013016441
1 2 3 4 5    17 16 15 14 13
To my lovely family
Contents
Preface
1 A Cross-National Philanthropic Puzzle
2 A Risk Perspective on the Nonprofit Sector
3 Economic Development, Risk, and the Nonprofit Sector in Cross-National Perspective
4 When Crisis Hits
5 The Long-Term Impact of Economic Risk on Nonprofit Sector Strength
6 Nonprofit Sector in Crisis: Broader Implications and Strategies for Risk Management
Notes
Bibliography
Index
Preface
W HY DO SOME countries have a strong nonprofit sector while others do not? This book offers a new answer to this question by focusing on a neglected puzzle: the fact that Mexico—a democratic, middle-income country—has the weakest nonprofit sector in the world. Cross-national analysis reveals that, far from being exceptional, Mexico fits into a broader pattern. Middle-income countries such as Mexico, Brazil, and India tend to have smaller nonprofit sectors than both rich and poor countries. Moreover, middle-income countries typically have the lowest levels of philanthropy, civic participation, and social capital. I label this puzzling nonlinear relationship between level of economic development and nonprofit sector strength the “philanthropic Kuznets curve” (PKC), because its U-shape resembles the famous Kuznets curve. The PKC challenges existing theories of the nonprofit sector, which predict a linear relationship with economic development. To explain the PKC, the study develops a new theoretical framework and tests it using advanced statistical methods for cross-national analysis as well as detailed qualitative and quantitative analysis of Mexico.
This book draws on economic and game theory to develop a new theoretical explanation of nonprofit sector strength based on the impact of economic risk. Middle-income countries are disproportionately exposed to macroeconomic crises and instability, which create risk for middle-income countries' citizens and organizations. The nonprofit sector is especially vulnerable to such systematic economic risk, because it has more limited opportunities to access capital and insurance markets than do government and business. The problem is compounded by the fact that in high-risk economies, donors are likely to heavily discount the future, being even less likely than in more stable economies to support the development of nonprofits' long-term capacity and capital base, which are essential for the sustainability of the sector. Consequently, both philanthropy and the nonprofit sector tend to be weaker in middle-income countries than in rich and poor countries.
This theoretical explanation also predicts that nonprofits in fields of activity with shorter-term impacts, such as emergency food assistance, are less likely to be adversely affected by macroeconomic risk than those in fields with longer-term impacts, such as environmental conservation. Moreover, nonprofits in high-risk environments will be more likely to be resource-dependent on commercial activities, because nonprofit income from philanthropy and government grants is likely to be more adversely affected by risk than income from commercial sales. Economic volatility and risk, therefore, is hypothesized to have a profound influence over the nature and strength of the nonprofit sector, helping to explain the puzzling PKC.
On the cusp of what has been termed the “Great Recession” (2008–2009), this book's focus on the impact of economic crises and risk on the nonprofit sector is timely. On March 9, 2009, the Dow Jones closed at 6,547, down from 14,164 on October 9, 2007. Although officially the recession ended in June of 2009 in the United States, the impact of this epochal decline will probably still be felt for many years. Indeed, five years later, the Dow Jones has still not recovered. Perceptions of risk relating to the stock market, and even traditionally safe investments such as housing, have fundamentally changed. Current political debates focus on the crisis's effects, such as unemployment and the high level of public debt that has resulted from government efforts to stimulate the economy. The Great Recession reminded everyone, even those in relatively stable economies, that the effects of economic shocks are often profound and persistent.
To test and refine its risk-based explanation of philanthropy and nonprofit sector strength, this book combines econometric examination of cross-national data with a detailed study of the effects on Mexican nonprofits of the so-called Tequila Crisis, which devastated the Mexican economy in the mid-1990s. As I wrote this book, I was struck by the similarities between the “Great Recession” and the “Tequila Crisis.” Findings from organizational case studies, organizational registration data, and a random survey of Mexican nonprofit leaders before, during, and after the crisis coalesce around the profound impact of macroeconomic volatility and risk. Available data on the impacts of the Great Recession on the nonprofit sector in the United States are broadly consistent with the analysis of the Mexican nonprofit sector. Similarly, analysis of cross-national evidence lends strong support to the theorized relationship between level of economic development, macroeconomic risk, and nonprofit sector strength. The empirical analysis shows that high levels of economic risk can lead to a stubborn “risk trap” that undermines nonprofit sector development. In high-risk environments, nonprofits have a greater need for capital, liquidity, and reserves, but ironically stakeholders are less likely to support capital accumulation than in more stable ones. Constant organizational change in reaction to a short and intense macroeconomic cycle and the high death rate among local nonprofits in risky environments increases the mismatch between donor interests and organizational priorities (i.e., “philanthropic friction”), further undermining supporters' propensity to support nonprofits in the long term. This analysis helps to explain why economically unstable middle-income countries, such as Brazil, India, and Turkey, tend to have very weak nonprofit sectors and low levels of philanthropy, volunteerism, and civic participation. It also helps to explain why the nonprofit sector is stronger in more stable environments. If, as many commentators now warn, economic volatility is on the rise everywhere, then understanding how nonprofits cope with macroeconomic risk is particularly pressing.
During my field work in Mexico, I was struck by the silence in the media and academia about the impact of the Tequila Crisis on the nonprofit sector. As Mexican society obsessed about banks and the peso, the heroic struggles of nonprofits focusing on equally important issues, such as improving the life of poor, indigenous communities, and children with special needs, were sidelined. This book is also an effort to tell some of those stories. Like so many other books on the nonprofit sector, this book documents widespread heroism in the nonprofit sector. But it also highlights great fragility and vulnerability, as this research allowed me to witness the complex dynamics and many of the inescapable contradictions involved in nonprofits' efforts to generate social change in risky environments. I believe it is only by recognizing our weaknesses that we can address them. In this sense, this book is more than a study: it is a call to action. Many nonprofit entrepreneurs told me that they couldn't afford to think about economic risk and had instead to hope for the best. Risk remained an intangible concept, out of minds and balance sheets—until it materialized. Similarly, government officials systematically transferred risk to nonprofits, because they wrongly assumed that risk