(Illustration by Adam McCauley)
The United States has one of the highest levels of income inequality among industrialized nations. But the problem becomes even starker in particular regions and cities. In 2014, San Francisco, a bastion of progressivism, saw the divide between rich and poor stretch further than in Rwanda. Miami’s inequality proved greater than Kenya’s, and income discrepancies in Boston grew wider than those in the Ivory Coast.
This income divide contributes to health and social problems such as obesity, drug abuse, violence, and stress. To address these ills, a multitude of welfare nonprofit organizations have arisen to offer affordable housing, job training, adult education, child care, and other support services. But given the complexities of the problem and of the communities these organizations serve, determining the overall impact of these efforts proves challenging.
Pascual Berrone, professor of strategic management at the IESE Business School in Madrid, set out to determine the conditions under which such welfare nonprofits are able to reduce inequality at the city level. In particular, they sought to learn the circumstances under which more welfare NGOs in a given city lessen inequality, and, in particular, whether having too many organizations can be counterproductive.
Berrone and his colleagues studied 245 American communities across the country from 2006 to 2012. They aggregated data from the US Office of Management and Budget on metropolitan areas and calculated the number, size, and characteristics of NGOs, unions, and financial institutions in these cities. They then calculated each locale’s Gini coefficient, the chief indicator for measuring income inequality.
As more NGOs opened their doors in a community, the researchers saw the level of inequality drop. “At the beginning, you’re creating a critical mass of welfare organizations, and there seems to be a beneficial effect by having more concentration, more density,” Berrone says. But the benefits do not continue to accrue as increasingly more NGOs enter the picture. “There’s a point after which the greater the number of welfare NGOs increases the level of inequality.”
When just a few welfare NGOs have appeared on the scene, leaders at the organizations tend to help each other. They share ideas and solutions, they inspire each other, and they collaborate. But Berrone discovered a point beyond which there are too many NGOs, and the organizations are forced to compete for resources, attention, and donors. “They spend their efforts thinking about competition rather than on their mission and shift their focus, and therefore they become more inefficient at reducing inequality.”
In Philadelphia, Michael Hollander offers legal representation to expunge criminal records of poor people at the legal-aid provider Community Legal Services. He and his colleagues have borrowed tactics for reaching clients at convenient times and places from a similar group at Philadelphia Lawyers for Social Equity. “Every nonprofit is competing for resources, but a proliferation of ideas is a helpful thing, and lots of different groups engage a community in different ways,” Hollander says. “While too many nonprofits threaten to suck all of the oxygen from the room, you have to be careful you don’t discourage new innovative ways to engage the community.”
Berrone’s research team also discovered that governmental and institutional conditions of a given city matter when it comes to how productive a welfare NGO will be. For instance, when local governments have strong law enforcement capabilities and exert pressure on compliance, NGOs tend to be more effective. By contrast, when local governments have specific programs targeting inequality, NGOs become less successful. “We argue that government and NGOs do not collaborate; they seem to act as a substitute” for one another, Berrone says.
Other institutional arrangements also had noticeable, and surprising, effects. For example, in cities where unions were very strong, welfare NGOs tended to have a smaller impact, perhaps because of a lack of trust between the two types of organizations, due to competition over staff and resources. And in cities where financial institutions were strong and, therefore, where norms of financialization might counter the aims of social welfare, the NGOs were actually more effective. Such findings suggest that welfare nonprofits tend to be more effective in communities where there is a misalignment of norms between the NGOs and rival institutions, thereby opening potential space for impact.
The larger lesson here, Berrone suggests, is that NGOs should be cautious about the circumstances in which they operate: “What we want is not to discourage welfare NGOs, but help them think perhaps a little bit more strategically about their chances of being successful.”
Read more stories by Corey Binns.