The term “industrial complex” appeared originally when the former U.S. President Dwight Eisenhower in his farewell speech warned the American people about the dangers of the military-industrial complex.
“We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex,” said Eisenhower, who had tried to rein in spending on the private defense industry during his presidency. “The potential for the disastrous rise of misplaced power exists and will persist.”
Of course, the Nonprofit Industrial Complex must be viewed through a slightly different lens. We have to recognize that there is a vast difference amongst nonprofit organizations, and their funding mechanisms are extremely diverse. Basically, nonprofits range the gamut from small, grassroots organizations with minuscule budgets to vast global organizations that manage billions of dollars. The power is less consolidated than with the military or even prisons.
In Part 1 of this column, I wrote about what the Nonprofit Industrial Complex is. This week, I’ll focus on the meaning of Nonprofit Industrial Complex and possible ways to continue mission-driven work despite these issues. But the reality remains that the Nonprofit Industrial Complex in the United States is a trillion-dollar business.
Candid, a nonprofit organization itself that was created in 2019 through a merger between GuideStar and Foundation Center, attempts to provide transparent data about the nonprofit sector to help donors decide how to direct their giving.
According to Candid, there are 1.9 million nonprofits in the United States. These nonprofits employ 12.5 million workers, making the nonprofit sector the third-largest industry in this country. Finally, U.S. nonprofits raise a combined $3.7 trillion and spend $3.5 trillion annually.
Two out of three nonprofits in the United States received at least one government grant or contract in 2023, the Urban Institute reports. Furthermore, over a third of nonprofit organizations got more than 25 percent of their revenue from government sources, and about a fifth of nonprofits received more than 50 percent of their total revenue from government.
The Urban Institute report showed that the average nonprofit received one quarter of its revenue from government sources in 2023. In Tennessee, that same year, more than half of all nonprofits received local government and state government grants.
The Nonprofit Industrial Complex has become what some term a “shadow state” that offers social and educational services that in essence would be the tasks of government agencies to provide. Consequently, the term public-private partnership is often used to explain that the government uses nonprofit agencies to do its bidding.
There is a place for true public-private partnerships. But the questions then become how much independence is there on the nonprofit side and how much are these partnerships corrupted by power struggles?
This matters because often the goals of governments do not necessarily align seamlessly with the missions of nonprofit organizations. And since many nonprofits depend on government dollars, mission creep happens when those organizations adjust their services to fulfill funders’ goals.
We see that happening right now when we look at the homelessness sector in Nashville. The government, through the Office of Homeless Services (OHS), which is controlled directly by the Mayor’s Office, is focused on looking good to their main constituents — the voters. Therefore, their priorities lie in presenting themselves as working to solve homelessness, and to do so, they choose to focus on data reporting over service quality, outcomes, and long-term community impact.
In Nashville (and in other cities), data collection that shows high housing placement rates has become more important than meeting people’s needs. The data does not necessarily show a favorable picture of how many people who enter temporary/gap housing move on to permanent housing. Those numbers could significantly improve if temporary housing were part of an effective Housing First system. Rather than ask questions and improve processes, nonprofits do not push back on OHS for fear of losing out on the millions of dollars that Metro has made available to the nonprofit sector over the past three years.
And that top-down control is the problem of the Nonprofit Industrial Complex when the power of the funding entity controls the outcomes, and nonprofits no longer function independently.
Nashville’s homelessness example shows a system that is broken due to misaligned goals, and the nonprofits are largely quiet. With one exception: those whose budgets do not depend in large amounts on government funding!
When we look at the Nonprofit Industrial Complex, we also need to examine who the workers are within the nonprofits. We will often find the staff represent the very communities that nonprofits aim to serve. For example, we see staff who identify as LGBTQIA+, as immigrants, as formerly homeless, as victims of domestic violence and more. They work in the very organizations that focus on serving the populations they represent.
We also know that nonprofits are notorious for underpaying their staff, which makes it more attractive for governments to grant money to them because they are more cost-effective than hiring people on government salaries and benefits. The very people who are working at nonprofits are often exploited by the system.
Social workers have come to me and expressed their dismay that they themselves would qualify for the services they offer to their clients. This is not uncommon. They did not mind working with their clients and did so happily, but the burnout they experienced from expectations to go above and beyond, even when self-imposed, was real. This is detrimental to nonprofit workers, creates high turnover, and results in constant loss of expertise.
Many social workers also report they feel heavily censored — either through self-censorship for fear of losing their jobs or through explicit warnings from their executives when they were too outspoken in a meeting.
I myself got reprimanded more than once when I was working for Metro for allowing nonprofit workers to speak their mind in public meetings when the comments were directed against local government entities, even if the meetings were not recorded and attended by only a dozen or so people. But I have always believed that people have the right to state their opinions, especially in coordination meetings that depend on building trust between different entities.
These stories are the true detriment that happens when we allow government leaders — or any major funders, for that matter — to exert undue political pressure on the very organizations that were created to help the poor.
“True nonprofits can and do provide an important check on government authority, deliver goods and services in the absence of public provision, and operate with a different set of economic principles. At the same time, they receive more revenue from the U.S. government than they do from private donors, and while not profit-distributing, nonprofits are nevertheless revenue-seeking and participate in the market economy, albeit with certain tax advantages,” writes Clair Dunning, an assistant profession in the School of Public Policy at the University of Maryland, in a 2023 blog post entitled The Origins of the Nonprofit Industrial Complex.
Do we dismantle the Nonprofit Industrial Complex to solve the problem?
“The way forward … does not lie in the ending government grantmaking nor in the elimination of the sector,” Dunning suggests. “Such efforts are simultaneously too small and too dramatic. Nonprofits have an important role to play in our society and funding from both public and private sources enable life-saving and life-affirming services.
“At the same time,” Dunning writes, “public funding is not the same as public provision — as everything from charter schools, housing vouchers, and, yes, nonprofit services — attest.”
Most agree with the need for nonprofits, but the power structure should be more focused on serving the families and individuals in need to achieve long-term outcomes and impacts that strengthen our communities.
What Dunning proposes further is “a wider reimagining of what public goods are and who should provide them.” For me, that means that we need to include more people with lived experiences and actually give them not just a seat at the table but help them be decision-makers.
We have become too focused on building bureaucracy that creates competitive rather than complementary environments focused on organizations rather than how people are served within a system. Funders (regardless of public or private sectors) often want to see quick outcomes for their dollars, which creates a reporting environment that focuses on outputs rather than sustainable long-term efforts that lift people out of poverty.
Instead of dismantling the entire nonprofit sector, we need to ask for more transparency from funders. We need to explore different nonprofit or charity models that ease the top-down power tension.
Here are a few different models that encourage a dynamic that shift power, are more equitable, and help nonprofits find a more independent voice:
- Mutual aid networks or hubs, which are grassroots, local networks where neighbors share resources. We have examples here in Nashville, such as community kitchens or disaster response groups that form to meet neighborhood needs without a formal structure of government funds;
- Worker-led organizations, such as unions that focus on labor advocacy, are another example of how people can exercise their combined or collective power and influence;
- Participatory grantmaking is one way for foundations and funders to dismantle the top-down power structure of philanthropy; or
- Unincorporated collectives that operate without 501(c)3 nonprofit status, which allows them to avoid bureaucratic constraints.
A variety of different models could help us rebuild a public support system that helps people with access to housing, food, healthcare, and education.
Nonprofits can start to focus more on grassroots fundraising that relies on small donations, community events and membership dues rather than large foundation or government grants.
And as with everything, one size does not fit all. I advocate for a variety of approaches that aim at equitable, long-term change — which necessitates transparency and accountability for leaders sitting in governments and other institutions. To do so, we need government leaders who stop intimidating and attempting to censor people working in the nonprofit sector. We need nonprofit leaders willing to listen to their staff and the people they serve and push back on funders when necessary.
Most importantly, we need honest conversations that focus on our responsibility to advocate for a living wage. A demand that we all, including government leaders and politicians at all levels, can and should step up and work on policies that promote a living wage that allows families to thrive.
Judith Tackett is a longtime homelessness expert and advocate for housing-focused, person-centered solutions. Opinions in this column are her own.