Scarcity & the Social Sector

What do we do when we don’t have enough? When we can’t pay a bill or we constantly run out of time? We drop things — we go into debt or we do a rush job on a report. Or, in the words of Sendil Mullainathan and Eldar Shafir: we tunnel, we borrow and we fail to plan. A lack of resources adds up to scarcity, which has implications greater than a simple sum of its parts. When these two social scientists describe the challenges of scarcity for individuals they could just as easily be talking about today’s charities. If we want to improve the quality and the pace of the social sector, maybe it’s time to think about giving them more slack.

Mullainathan and Shafir call slack the extra mental bandwidth you have when you’re not experiencing scarcity. They use the example of packing for a long vacation. If you have a big suitcase, you have slack. You can bring things you might not use, you can toss things in without rolling them up tightly, and you bring that carefree mindset with you to the beach. If you have a very small suitcase, you have to spend a lot of effort figuring out exactly what to take. You’ll plan in advance, maybe purchase new things, and you might spend time on the plane and during your trip wishing you had packed better or brought that other pair of shoes. This is how scarcity begets scarcity; the lack of money isn’t just a financial tax, it’s a tax on your mental capacity.

Nonprofits spend a lot of their mental bandwidth fundraising and reporting to their members and funders. Donors are right to expect transparency for their donations but they’re not always willing to pay for the cost of all that transparency. It takes staff and internet access and rent to track progress and write up reports, which are costs often lumped together as ‘overhead.’ Foundations and charity rating sites have often evaluated organizations by how much they spend on overhead as opposed to what they spend protecting forests or serving meals. Most foundations limit the percent of any grant that can be spent on overhead. The implication is that restricting your charitable dollars for food or medicine or research is more valuable, or more virtuous, than investing in a nonprofit’s management infrastructure.

The problem is that this gives nonprofits no slack to work with. When all your funds are tightly tied to specific deliverables, you’re scrambling to cover the coffee for your volunteer clean-up. Setting aside time for staff training or researching new ideas can seem wildly out of reach. When I was a foundation program officer, I once had a finance advisor recommend against a grant because the grantee regularly used a standing line of credit. She thought it was a sign of weakness. I thought it was pretty impressive that the bank had that much faith in the nonprofit and besides, grants and donations didn’t arrive on regular schedules. The line of credit let them make payroll between grants, which meant they had staff around to actually write the grant proposals and do the program work. It gave them the slack to spend more time thinking about changing the world and less time worrying about layoffs. We made the grant anyways.

Getting out of a scarcity trap takes more than a simple, one-time intervention; you need to step back and see the cumulative stresses on the system. If you’re a funder worried about accountability, ask for breakouts of where unrestricted funds go but don’t limit up front. You could give money to infrastructure like staff training, R&D, and grant development. Or you could take an experimental tip from Mullainathan and Shafir and try and understand where the scarcity bottlenecks occur and target those. Create a ‘scarcity fund’ and track when the organization draws against it. You could find it’s not truly lack of money but a need to change the timing of when grants arrive, something you could improve by collaborating with other foundations.

Scarcity isn’t always bad. Scarcity can focus the mind, like a deadline, and too much slack can make people wasteful. But we’re far from that end of the spectrum in the social sector today. As we look more and more into taking business practices into the independent sector, we should consider importing some of their approaches to slack, like a Google 20 percent time for nonprofits. Finding and retaining good talent and designing and iterating social solutions takes investors and funders who understand the need for flexible funds. Focusing on impact might mean untying the hands of your grantees.