Be Careful What You Wish For

I am bemused by the Bush Administration. The rhetoric is all about smaller government and free markets; the reality is huge farm subsidies, protectionist tariffs for steel manufacturers, increased federal regulation of local schools and vastly increased police powers for federal agencies.

 I am bemused by the Bush Administration. The rhetoric is all about smaller government and free markets; the reality is huge farm subsidies, protectionist tariffs for steel manufacturers,  increased federal regulation of local schools and vastly increased police powers for federal agencies.

 

Now we have an angry broadside in the Wall Street Journal by John DiIulio, late of the White House Office of Faith-Based and Community Initiatives, advocating lawsuits by faith-based organizations that aren’t getting their piece of the government pie. DiIulio says that failure of these grass-roots organizations to share more substantially in government contracting amounts to discrimination.
DiIulio should be careful what he wishes for.
Since the days of Alexander De Tocqueville, voluntary associations have been a defining characteristic of the American civic landscape. Philanthropy and social action have depended greatly on what we have come to call the Third Sector. It is at least plausible that the social value of this sector comes from its independence—from the fact that it is beholden neither to government nor market.  Over the past decades, however, we have seen an increasing “governmentalization” of the nonprofit world, which now gets thirty percent of its financial support from various government sources. Scholars are just beginning to understand the ways in which increased dependence on government money changes nonprofit organizations.
In Indiana, AIDServe is a case in point. Formed as an early, voluntary response to the AIDS crisis, the organization later became a government contractor, a conduit for various sorts of government assistance to those afflicted with AIDS. But government pays slowly and regulates extensively. Scarce resources were shifted from helping sick people to reporting and accounting required by state regulations. When contract payments were slow, the organization “robbed Peter to pay Paul”—paying overdue bills from the “wrong” accounts. That triggered an audit that slowed payments further. AIDserve finally disbanded. Recently, a federal audit of the Indiana Department of Health found bureaucratic processes to be a significant factor in its demise.
Pointing a finger at state management failures, however, misses the point. Government cannot just send tax dollars to well-intentioned organizations and trust that those dollars will be properly spent. Government employees have a fiduciary duty to taxpayers. Regulations are necessary. But compliance with regulations requires skills different from those needed for client services.
In order to become a compliant government contractor, organizations often must become something other than what they originally were—a voluntary association of people who have come together to address a particular problem in their own way. In order to keep contract funds flowing, they adopt government procedures and adapt to government-imposed standards. Rather than providing a creative alternative to government, they become an extension of it. 
We need to strengthen, rather than weaken, the independence of the nonprofit sector. We could start with the one feature of President Bush’s Initiative that virtually everyone supports—allowing non-itemizers to deduct contributions to charitable organizations. That would be action that is actually consistent with Administration rhetoric—a refreshing change.