Nonprofits in Crisis: Economic Development, Risk, and the Philanthropic Kuznets Curve

By Nuno S. Themudo | Go to book overview

Preface

WHY DO SOME countries have a strong nonprofit sector while others do not? This book offers a new answer to this question by focusing on a neglected puzzle: the fact that Mexico—a democratic, middle-income country—has the weakest nonprofit sector in the world. Cross-national analysis reveals that, far from being exceptional, Mexico fits into a broader pattern. Middle-income countries such as Mexico, Brazil, and India tend to have smaller nonprofit sectors than both rich and poor countries. Moreover, middleincome countries typically have the lowest levels of philanthropy, civic participation, and social capital. I label this puzzling nonlinear relationship between level of economic development and nonprofit sector strength the “philanthropic Kuznets curve” (PKC), because its U-shape resembles the famous Kuznets curve. The PKC challenges existing theories of the nonprofit sector, which predict a linear relationship with economic development. To explain the PKC, the study develops a new theoretical framework and tests it using advanced statistical methods for cross-national analysis as well as detailed qualitative and quantitative analysis of Mexico.

This book draws on economic and game theory to develop a new theoretical explanation of nonprofit sector strength based on the impact of economic risk. Middleincome countries are disproportionately exposed to macroeconomic crises and instability, which create risk for middle-income countries’ citizens and organizations. The nonprofit sector is especially vulnerable to such systematic economic risk, because it has more limited opportunities to access capital and insurance markets than do government and business. The problem is compounded by the fact that in high-risk economies, donors are likely to heavily discount the future, being even less likely than in more stable economies to support the development of nonprofits’ long-term capacity and capital base, which are essential for the sustainability of the sector. Consequently, both philanthropy and the nonprofit sector tend to be weaker in middle-income countries than in rich and poor countries.

This theoretical explanation also predicts that nonprofits in fields of activity with shorter-term impacts, such as emergency food assistance, are less likely to be adversely affected by macroeconomic risk than those in fields with longer-term impacts, such as environmental conservation. Moreover, nonprofits in high-risk environments will be more likely to be resource-dependent on commercial activities, because nonprofit income from philanthropy and government grants is likely to be more adversely affected by risk than income from commercial sales. Economic volatility and risk, therefore, is hypothesized to have a profound influence over the nature and strength of the nonprofit sector, helping to explain the puzzling PKC.

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