Inefficient nonprofit marketplace – addendum

For those who don’t subscribe to the comments section of this blog (horror!) you might be interested to see the comments from last week’s post.

I’d like to highlight Sean Stanndard-Stockton’s point (paraphrased): it is specifically because donors do not directly experience the end product of most nonprofit work that the feedback loop (from “purchaser” to the “end product”) is likely less well-developed than in other sectors.

I think there’s probably something in what Sean is saying, though I would still ask whether, for example, the buyer of High Price Mutual Fund X (or Crummy Subprime Loan X) really has much of  a feedback loop at all (since the data says that, in the long term, nearly all mutual funds underperform the market, yet the money persists year after year in these funds.)  And I think Sean highlights another important question that we can ask, namely: in which sectors/products are feedback loops strong and where are they weak, and what can we in the nonprofit sector learn from these observations that will inform our work?

More broadly, my latest reflections a week after the post are:

a) I’m all for more transparency and better feedback loops, I just think we should be realistic about what the impact will be (less, I think, than some are claiming)

b) There’s a lot to learn from other sectors – specifically the corporate responsibility space (new standards and transparency launched a decade ago were meant to drive wholesale shifts in corporate behavior; changes have been much more incremental); and the individual investing space (multiple suboptimal products successfully competing for investor dollars).  And I’d like us spend more time looking at adjacent spaces that have things to teach us, and less time beating ourselves up about how messed up the nonprofit capital markets are.

c) I firmly believe that for significant changes to occur in how capital flows in the nonprofit sector, leading advocates will have to get into the capital moving business.  This could be by moving money in $10 increments (by building a powerful new online platform) or $10 million increments (by raising capital from forward-thinking philanthropists); it could be with predictive markets or challenge funds or some other mechanism…  But “provide better information and great stuff will happen” has, I believe, proven to be an ineffective model for making real change happen.

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