Nonprofit Worlds - A Comparison

Some of my nonprofit colleagues on both sides of the fence have asked me about my impressions of the German and European nonprofit sector, and how it compares to the US.  So this post is for you, my colleagues of the Third Sector. It is entirely subjective and non-scientific.

If you are interested in a more data-grounded analysis, there are a few, somewhat dated scholarly comparisons of the nonprofit sectors in a variety of countries, among them the Johns Hopkins Comparative Nonprofit Sector Project.

In short: some of the structures and the regulatory environment here are different, as are the sector relationships, overall infrastructure and the governance of nonprofits. And then some things are strikingly similar, above all the constant quest for money and resources in a similar culture of scarcity and self-exploitation.

Shapes and Laws and Regulations

Starting with the differences: The regulatory and legal environment that nonprofits operate in is a little different here. While there is a similar concept of nonprofit-ness, based on a charitable purpose and tax exemption, the details are different. For example, the equivalent regulatory entity to the IRS (das Finanzamt), does not have a central, federal exempt organizations department, and charitable status is granted by whatever general tax clerk happens to get your application at the local tax office.

There is some interesting variety in corporate forms:  there are, of course, foundations (more about them below), small community based nonprofits called Vereine, they include neighborhood and community organizations, little groups supporting schools, and the infamous rabbit breeders. Rabbit breeding is a serious charitable purpose in Germany.

Kaninchenzüchterverein W 103 Burgsteinfurt. Foto: Theresa Gerks

Then there are these gigantic corporate service provider kingdoms. Finally there are a good number of limited liability corporations with tax-exempt status. The whole hybrid LC3 is-it-good-or-bad discussion that we had in the US over the last few years? Does not happen here. Hybrids are a reality. People don’t really care about what flavor your organization is. A term of reference here is the “social economy” which encompasses all the stakeholders involved.

Giants

Those really large nonprofits I mentioned are called Wohlfahrtsverbände, and they are something like umbrella associations of smaller providers. These have most of the health and social services government fee-for-service market cinched up.  Out of the six large ones, four are faith-based. Generally, you’d have to be part of that denomination to work for one of the providers (I’m pretty sure that’s illegal in the US). The Christian Verbände employ 1.5 Million people. 90 % of their income comes from public sources, including social security.  Their members, many of them large conglomerates themselves, run day care centers, assisted living and nursing facilities, women’s shelters, hospitals, developmentally disabled programs, drug rehabs, mental health facilities, reentry programs – they provide really any health or social services you can think of.

In the US, these services are provided by individual organizations, serving specific groups of populations, and competing for funding and policy -maker attention. Just imagine the power and efficiency of the Verbände that comes from joint effort around maintaining funding, influencing policy and through supporting their member organizations with almost everything: evaluation, personnel management, professional development, resource development, compliance, accounting, QI, and data – all those things that seem to slowly kill social service providers serving our US communities.

Foundations

Philanthropy features a few strange birds, too: First, there are party-related “foundations”, which requires some explanation to my colleagues in the US, where foundations are prohibited from any political activity. Each major party has an affiliated foundation (corporate-form-wise, most of them are actually regular nonprofits, not foundations), and their mandate is political education. They serve as think tanks, places of research, dialogue and public education. Many also have stipends for Masters and Doctorate candidates working in their areas of interest.  

There is a quickly growing field of mid-sized family foundations, as well as small foundations supporting specific nonprofits. Last year, around 600 new foundations were started in Germany, for a total of over 20,000. This is of course a reflection of the incredible wealth in this country, and of the German baby boomer generation trying to figure out how to socially invest their surplus. The 300 community foundations in Germany seem to be very small and rather undercapitalized, and very grass-roots.

Then there are large family and corporate foundations, just like in the US. Except here they seem to openly operate for the combined purpose of sheltering revenue from taxes and influencing politics, both of these purposes at a level of mutual reinforcement which would lose any US foundation their EO status in minutes.  The Bertelsmann Foundation is the most well-known and aggressive version of this business model.

There are, to my surprise, very few accountability mechanisms for foundations, or for that matter, any nonprofit organization. Once you have the status, you have to file tax returns, just like in the US, but the returns are not public documents. Boards are not viewed as the accountability mechanisms that they are supposed to be in in the US. Rubberstamp boards, board members getting paid, boards completely removed from the organization’s constituency, all these are the norm, and are not discussed much. The exceptions, at least nominally,  are the 515 nonprofits that pledged to abide by voluntary transparency measures, an initiative of Transparency International.

Looking across the Pond

People in the nonprofit sector here are very interested in US  sector developments and trends. This does not seem to extend to policy, but more to trends in organizational consulting, fundraising and philanthropy.  A few nonprofits here have discovered social innovation and collective impact, for example. A consultant told me that FSG had considered to open an office in Germany a few years ago, trying to protect their “trademark”. I am not sure what happened. Fortunately, there is a healthy critical questioning of everything US, and especially of copying any new trend, maybe FSG felt that.

Some of the newer US-bred concepts and fads, especially those from the corporate world, such as the whole “if you can’t measure it, it doesn’t exist” business, are very popular here. Bertelsmann Foundation spun off a whole organization that does very involved, very expensive impact assessments for organizations, and upon passing, the client gets a stamp that says: Impact! It makes you shudder.

I went to a presentation on their method, and the speaker was enthusiastically talking about logic models like they were this great new tool that will save the sector. I walked out after the Bertelsmann representative in the room cut off the interesting discussion that had emerged from critical questions of the audience.

Some of the older schools of thought, for example Peter Senge, are still represented on most consultant shelves, and seem to stick longer than in the US, where new, sexy tools, theories and schools of thought seem to crop up on a weekly basis. Here they still happily use SWOT analyses and read “The Fifth Discipline.”  The EU Commission requires grant applicants for a number of programs to submit a logframe matrix with their proposal, a tool developed in the late 60ies in the US and then further fine-tuned by many development agencies.

Troubles

In the US I have always worked with and for small or mid-sized, often rural organizations. So I want to say a few words about that part of the sector here: It totally feels like home to me. Small organizations here have the same structural and capacity issues as small and rural groups in the US. The real or perceived impending doom that will come from shrinking public funds have caused them to turn their attention to fundraising from private sources and earned income strategies. Lobbying may come more naturally to some of these groups, than to their colleagues in the US, as they advocate for maintaining their public dollars.

The main capacity issue, mentioned over and over again in any conversation I have had with small organizations and with consultants, is termed here as “projectitis”: The tendency of funders, both public and private, to fund only projects. If your organization wants to provide services on a sustainable basis, you still have to chop your work and your thinking up into projects. The administrative burden increases with every new funding source, and soon enough people are busy with admin work, rather than with achieving their mission.  Sound familiar? Except that in the US, there is now a pretty broad awareness of this problem, and at least some foundations have started to implement more sensible funding strategies.

New ideas have a hard time cropping up in an environment where even the basic work is threatened by funding cuts. If at all, innovation may happen within those large associations (Verbände), which have extra revenue from church tax  (yes, everyone pays church tax here!) and earned income, and also strong organizational capacity. But these may not be the grassroots innovations most appropriate to today’s social challenges.

Consultants

In the consulting field, there are some differences as well. In the US, if you run or found a small organization, you can do most of the work yourself, with the occasional help from a tax person, more rarely will you need a lawyer.  The system has been designed to not be that complicated. Many nonprofit consultants acquire some tax and legal skills, often because the real lawyers and tax accountants have failed to acquire nonprofit specific skills. In Germany, when you found a new nonprofit, you just give it to the lawyer, and you don’t even mess with that stuff.  They will write your mission statement and your tax-exempt application for you. It’s a little scary to me. 

Later, if you have conflict, or plan a change process in your organization,  or need money, then you hire the nonprofit consultant. Many of these consultants have not as much technical knowledge, and instead have backgrounds in psychology, organizational development, or conflict mediation. The sort of generalist service that we provided to rural organizations in NM is not really available here, with a few sort of underground exceptions. These little guerilla-consulting shops keep quiet about the tax and legal advice they might slip occasionally, so they don’t get in trouble with the law.

The F word

And then there is, of course, “Fundraising”.  This has been a quickly growing priority, field, and profession over the last decade or two. Based on the premise (or the fundamental misunderstanding) that public funds will go to shit and Germany will move towards a model of more private funding for charity. Like in the US, right?

Except that private contributions in the US still make up only a 13.3 %  of nonprofit revenue – we just think  of philanthropy as bigger, because it is so loudly self-important.  Same here. The term fundraising, by the way, has been officially accepted in the German language and here it encompasses everything: grant writing, earned income, as well as working with foundations, individual donors and events. We’d call all of this (resource) development. (Oh well. Did you know Germans call their mobile phones “handy”?)

So there are fundraising workshops, certificate courses, master degrees etc., etc.  There is lots of noise and lots of interest, and, based on my very subjective impression, very few funds are raised. The exception seem to be European Union grants and contracts, a significant source of public funds that some organizations have tapped into successfully for a long time, and others are just finding out about.

Another larger source of resources for nonprofit and for-profit employers alike over the last decade has been coming through the so-called 2nd labor market. Since welfare benefits were merged with unemployment benefits, similar to what happened in the US under Clinton, the German government pumps a lot of resources into subsidizing and fostering employment. So small organizations have been able to hire people who are lingering on the 2^nd labor market (they have been unemployed long enough to lose their first-level unemployment benefits), and receive very substantial subsidies, often up to 100% of the labor cost. My subjective impression is, that this policy has created a 2^nd class of employees, and that they do not necessarily move back up into the first labor market. The effect on organizations seems to be similar to what happens in the US, when nonprofits rely too much on AmeriCorps members, VISTAs and volunteers to run their programs: high turnover, lots of time spent on training, questionable quality of services.  While the well-meaning intention of the German policies was to move people out of the “Prekariat”, the class of precariously employed people, it seems to just have grown that class.

The Umbrella Infrastructure

Given the diversity of the nonprofit sector here, the nonprofit support infrastructure is much less developed than in the US. The European Foundation Centre is an international membership association of foundations and corporate funders. They have a whooping 231 members. There is an association of German foundations, which also runs a searchable foundation database.  This tool is unfortunately much inferior to the great Foundation Directory Online provided by the Foundation Center in the US.  Nor is there any data source even comparable to GuideStar. This is probably due to the fact that tax returns are not public documents, and thus also not a source of data for researchers, grant seekers and funders.  

While the German Verbände serve as policy advocates for their members, there is no overall association of nonprofits in Germany, any of its states or, for that matter, Europe. There are lots of networks, of course, with varying functions such as capacity building, volunteer matching and collaboration.  Most of them are organized around larger policy themes, such as youth, peace, or development aid. An important one in the Germany is the BBE, the network for civic engagement. There is also a professional association of fundraisers, much like the AFP, and a newer one for EU fundraisers.

Volunteerism is promoted widely, and supported by government programs, a new 2007 law to foster civic engagement, networks and online platforms. I have shared my unpopular opinion about volunteerism in this prior post.

Finally, in regards to education, there are a few well-designed master programs for nonprofit management in Germany, the most prominent at the Center for Social Investment at the University of Heidelberg and the MA program  for Nonprofit-Management and Governance in Münster. Both shops also engage their students in hands-on projects and consulting. Both take two years and run about 10,000 Euros. If I didn’t have to make an income, I’d be a student again…..

To wrap up this rather lengthy post:  the German nonprofit sector shows a huge diversity in terms of corporate forms and structures, with organizations ranging from service provider firms, semi-public agencies, large conglomerates to small political groups and neighborhood initiatives with no legal status.  The European dimension adds more diversity and confusion, as well as new exciting opportunities for transnational collaboration and exchange  - accompanied by a glut of EU funding.

Service organizations are largely funded by government, providing most basic and all specific human and health services. This is based on the collaborative partnerships that emerged within the social democratic welfare state model in Germany. The power and wealth of the large Verbände assures continuity, resources and quality in services, although the system is by no means foolproof  or perfect. The lack of community-based boards assuring accountability is a real risk in my view. In the US, on the other hand, we have a lot of smaller, locally rooted organizations, operating fairly independent from each other, with associations, foundations and collaboratives constantly trying to offset the impact of this fragmentation. And everyone is constantly hunting for funding, which often is damaging to collaborative efforts.

Certainly the much discussed blurring of the lines between the three sectors has occurred a long time ago in Germany, at the cost of accountability and with the advantage of more effective systems.

So… I hear someone asking, then which model is better? I will stay on the fence, and not answer this question.  The civic sector models are a reflection of the type of welfare system, the history and the political culture of each country.  As with all the topics on this blog, we can learn some stuff from the other side of the fence, and some stuff will just not apply.