Is Government Funding the Kiss of Death?

Over the past few years/months talking to various people in the charitable and non-profit sector a recurring theme has emerged: More and more of them are either eschewing government funding or trying to find ways to do so.

Given that governments are the largest source of funding… why would they do this?

The reason is simple. The overhead of administering, overseeing and reporting back on (particularly federal and provincial) government grants or awards has become so onerous that the costs of oversight are increasingly greater than the value of the grant itself. This is particularly true of smaller grants (in the 5 digit range) but still true of even 6 figure awards. In addition to oversight, many people in the sector inform me that governments are not only looking more closely at how recipients spend the money they receive but are increasingly assertive in specifying how they should spend it.

So, in sum, it’s not hard to see why organizations want to walk away. The costs of the money is increasingly too great. On the one hand, compliance means more and more money is diverted to administration – rather than the core mission of the group – and increasing oversight means a loss of autonomy. Consequently, less money can go towards innovative, but riskier, new approaches that might yield better outcomes, or greater efficiencies.

The outcome, I fear, is a non-profit and charitable sector that starts to cleave in two.

On the one side will be non-profits (like those of some colleagues I know) that see eschewing government money as the only way to stay nimble, innovative and independent. These groups will either find progressive granting organizations, wealthy individuals or alternative ways create revenues. Freed to spend their funds as they see best, the most effective will achieve escape velocity and be able to operate for long periods of time without needing to consider government funding.

On the other side, there risks being those locked into government dependency. Unable to fund new projects and innovative approaches that might attract new external funding, they will be trapped in a government deathgrip, forced to adopt traditional approaches and take on excessive overhead, all in order to meet their funding obligations. In short, they will need to mirror the very bureaucracy that not being independent from was what was supposed to give them a competitive advantage.

On the one hand, this is the kind of situation that makes me jealous of the United States with its large pool of private foundations and granting organizations that ensure innovation thrives in the non-profit/charitable sector. But that is a structural difference smaller countries like Canada will not be able to overcome. We need our government’s to be smarter since we can’t replicate the American model.

This is made all the more difficult since those who’ve achieved escape velocity want little to do with government, while those dependent on government funding are probably the least likely (or empowered) to speak up. Sadly, no one wants to upset the government… (why bite the hand that feeds, even if the fruit is poisoned?) so we live in a world of silence on this issue.

I’ll confess, I’m somewhat stumped by the issue but I am worried about it. This country depends on non-profits more than people realize… anything that hampers their effectiveness is a collective drain on productivity, efficiency and competitiveness, to say nothing of social justice.

9 thoughts on “Is Government Funding the Kiss of Death?

  1. Pingback: Tweets that mention Is Government Funding the Kiss of Death? | eaves.ca -- Topsy.com

  2. Peter Van Garderen

    Great article David. Sadly ,the same is true for for-profits too. The NRC Industrial Research Assistance Program (IRAP) is not interested in providing funding for our projects because we use an open-source business model. According to them, they can’t fund projects that aren’t creating proprietary intellectual property. Of course, this is nonsense. Thanks to our technical innovation and precisely because we open-source it, we are a market leader and increasing revenue year after year, with almost all of it coming as service exports to organizations outside Canada.

    At any rate, my point is that for every time I whine about this situation I get at least one person who’s been through the IRAP motions telling me that this is a blessing in disguise as the IRAP paperwork, oversight and conditional spending rules outweigh the value of the funding for the exact reasons you describe above.

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  3. Kwills

    Ah escape velocity, a Chris Brogan term and business. Well, I think the not for profit sector has more that should concern them than simply government based funding. Private sector funding has issues of ethics and control that should not be taken lightly and the move to shift more and moremnon profits to a business model neeeds to be looked at with clear eyes. The volunteer aspect of non profits is shifting too far into primarily paid roles. Internal politics are creating a situation where far too much time and energy is wasted on that rather than the purpose of the organization and the advent of very expensive fundraising consultants direct far too much cash to the fundraiser and the administrative process of funding and far too little to the purpose of the organization.

    After much consideration I have decided to no longer donate to any organization that uses expensive for profit fundraising consultants, that send of ‘gifts’ such as greeting cards and stickers for which they expect a ‘donation’ in return. That is not a donation it is a commercial transaction and a poor practice at that since you can’t control the amount someone will pay.

    In addition this practice, which has become the unfortunate norm, drives a mindset that takes us away from helping others (community building) based on caring for our fellow humans or animals etc. to mindset where we only ‘help’ if we get some tangible physical item in eturn.

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  4. Alison Loat

    This is an extremely important issue and one in which some discussion is desperately needed. On one hand, governments must be accountable publicly for the expenditure of citizens’ tax dollars, so of course they must be vigilant. But on the other, it’s led to the situation you outline Dave. Worse, it’s created a class of non-profits that are pros at getting these grants (are basically governments in disguise) that also serves to shut out newer initiatives that don’t have the infastructure to apply.

    I had a recent experience that illustrates this. The area in which I work is one that does not fit the funding priorities of any major foundation (prviate or corporate)

    About 10 years ago there was a “Voluntary Sector Initiative,” funded

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  5. Anonymous

    In trying to look forward, I’d dare propose a reconsideration of what constitutes “compliance” for the government. In several other field, a risk-based approach allows for flexibility and desto creativity to be maintained while ensuring focussed scrutiny,

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  6. Nick Grossman

    Apart from the contracting & grant management overhead you describe, the other reason many gov 2.0 types prefer working from the outside is that it’s often easier to go around government than to try and fix it. In other words – since government is often such a beast when it comes to internal procedures, bureaucracy, etc., transformative innovation will necessarily start from outside, leapfrog govt, and then incent government to catch up. In other other words, “pull” (from the outside) vs “push” (from the inside).

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  7. Pingback: News in Review – Week ending December 3, 2010

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