Commentary – The Social Innovation Fund: Innovation for What?
Although the Obama Administration has asserted that it wants to support and strengthen nonprofit organizations, it has neither understood the vastness, diversity and needs of the nonprofit community nor launched a serious initiative to provide the resources required to sustain nonprofits in trying financial times.
Instead of coming up with a major substantial program, it has produced a “mouse,” the Social Innovation Fund, financed by an insignificant $50 million a year for several years. The Fund, alas, is the Administration’s pilot ship in strengthening the nonprofit sector. Why such a puny effort, and one that doesn’t target the significant problems facing the sector?
The Fund plans initially to award seven to ten grants of $1-10 million to intermediary organizations which, in turn, will redistribute the money to nonprofit groups that are making innovative efforts to improve the conditions of needy people in neighborhoods and communities throughout the country. Both the intermediary and local recipient groups will have to match the federal grants.
The intermediary organizations are expected to be private and community foundations. The reason given for selecting philanthropic institutions for this task is that they supposedly know best what is going on in local communities.
Many of the ideas about nonprofits adopted by the White House staff, Michelle Obama’s aides and Presidential advisers have been supplied by a very small group of social entrepreneurs who run nonprofits that stress innovative practices largely based on business models. New Profit, Inc, Echoing Green and City Year are among their most prominent practitioners.
Groups like theirs represent no more than a tiny sliver of the large nonprofit world. Yet, for some reason, they have captured the ear of the Administration. They do not reflect the needs of major or local social service organizations, homeless shelters, housing providers, local health centers, community organizing groups, national, regional and local advocacy entities and watchdog institutions that hold government and private sector groups accountable.
It is not surprising, therefore, that the Obama Administration, when it talks about nonprofits, never mentions activism, advocacy and organizing as fundamental approaches to problem-solving. Nor does the Social Innovation Fund. When Mrs. Obama speak about the “hidden gems” among nonprofits, she is talking about large, popular nonprofits that are entrepreneurial innovators with large and stable budgets, organizations that lend themselves to good publicity. The Social Innovation Fund is not likely to support activist or grassroots groups that can make a real difference at the local and regional levels and are so crucial to community well-being. In its search for non-risk taking and fairly safe organizations, it may well ignore those groups that have a real innovative capacity.
The President hopes that the Fund will prove to be a substantial stimulus for additional funding from the foundation community beyond the required matching funds of $50 million for the program. Indeed, five large foundations have recently pledged $45 million to the Fund for purposes that to date remain obscure. There was some indication in the press release announcing the pledges that the money would be used for matching purposes, but the Fund has already stated that the Fund’s initial $50 million would be matched by the intermediary foundations receiving the Fund’s grants. One of the five donors confided to a reputable source that he was really giving $10 million in order to get closer to the White House.
Involving a few foundations in the Social Innovation Fund is not an effective way of stimulating the foundation community to give more. A more compelling strategy would be for the Administration to push the Congress to increase the minimal payout that foundations are required to distribute annually from 5% to 6% of their assets, all in grants. Under current law, foundations can include all their management costs as part of the minimum payout of 5%. Such a change would provide at least an additional $10 billion a year to the budgets of nonprofits throughout the country.
Thousands of small nonprofits in rural areas and in regions currently underfunded by philanthropy are in desperate need of financial support. To meet this need, the Administration could use the Presidential bully pulpit to urge the foundation community to create new, large rural and regional foundations with the capacity to reach out to these overlooked nonprofit organizations and their communities.
But this is not what the President’s advisers seem to have in mind. The Social Innovation Fund is a diversion from the real needs of our nonprofit sector, an attempt to fund a few solid nonprofits, as well as gain some good public relations on the cheap. Ironically enough, the initiative is unlikely to produce the Fund’s goal…innovation.
Pablo Eisenberg is Senior Fellow at the Georgetown Public Policy Institute’s Center for Public & Nonprofit Leadership. Eisenberg served for 23 years as Executive Director of the Center for Community Change, a national technical assistance and advocacy organization working with low-income constituencies nationwide. He has actively contributed to national discourse on government accountability and reform, the role of philanthropy, and the achievements and problems of the nonprofit sector. Eisenberg has published numerous articles and chapters of books and has a regular monthly column in The Chronicle of Philanthropy. He has held senior positions with the U.S. Information Agency in Africa, Operation Crossroads Africa, Office for Economic Opportunity, and the National Urban Coalition. He is a founder and Vice-Chair of the National Committee for Responsive Philanthropy and President of Friends of VISTA.
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