A Cross-National Philanthropic Puzzle

"Sometimes things get worse before they get better"—Doña Mica reflected during an interview. She was apologetic about the fact that her new initiative, which focused on building the capacity of indigenous youth to develop microenterprises, was rapidly losing money. Yet she remained confident that Fovaso—a small nonprofit organization in Central Mexico—would soon be financially viable again. When Fovaso's financial woes began, the organization embarked on a major strategic reorientation, phasing out its philanthropic programs to focus on social enterprise. As she explained, the hope was that a commercial model based on lending and selling rather than giving to clients would offer a more financially sustainable and potentially more effective approach to fighting poverty. Her sanguine outlook, however, was hard to understand. Survival of small nonprofit organizations in Mexico is challenging in the best of times. But when I interviewed Doña Mica, Mexico was in the midst of the so-called Tequila Crisis, which "caused one of the worst recessions to hit an individual country since the 1930s" (Krugman 2008:32). The stock market had recently lost almost half of its value, unemployment was at record high levels, and Mexico's risk premium was the highest in the world. At the time, no one knew how deep the crisis was going to be. Eventually the economy did improve, and Fovaso experienced some temporary financial relief. Over time, however, Fovaso's troubles returned. Ironically, the new social enterprise model alienated supporters of the previous model and failed to attract sufficient new support, leading to a reduction in social impact and financial decline. The fate of Fovaso was important because it was one of the few nonprofits in Mexico dedicated to the welfare and empowerment of two of its most vulnerable groups: rural indigenous women and children with special needs. To witness the decline of this valuable organization, which at its peak had employed more than forty people, was devastating for its clients, already hard hit by the crisis. Learning that Fovaso closed its doors in the early 2000s was also difficult for me, because I had previously volunteered a great number of hours to the organization. After almost a decade since its demise, no organization has stepped in to fill the vacuum in poverty alleviation work left by Fovaso's disappearance.

This book focuses both on the nonprofit sector in general and on specific cases studies of Mexican nonprofits like Fovaso, which tried to work and survive—not always successfully—in a risky environment. Study of these organizations' local vicissitudes generates broader lessons about philanthropy and the nonprofit sector, which perfectly complement wider cross-national statistical analysis. The main argument proposed here is that the apparently simple notion of risk helps explain the fundamental and contradictory influence of economic development on the nonprofit sector. When economic development leads to increases in macroeconomic instability, nonprofits tend to face rising levels of economic risk, and nonprofit sector strength tends to decline. In contrast, the nonprofit sector tends to become stronger when economic development decreases macroeconomic instability and the risk nonprofits face. In other words, risk resulting from the process of economic development is a major influence on nonprofit sector evolution. Such risk is a powerful, yet largely neglected, influence on philanthropy and the sector.

The trajectory of nonprofits such as Fovaso over the past two decades provides a vivid example of the Mexican nonprofit sector's travails. Annually, Mexicans donate a smaller fraction of national income to the nonprofit sector than citizens in any other country, around half a billion purchasing power adjusted dollars. They also volunteer less than anyone else does. Accordingly, Mexico has the weakest nonprofit sector in the world, employing only 0.4% of its labor force (Salamon et al. 2004). A different assessment ranked Mexico lowest globally in terms of nonprofit sector capacity and impact (Anheier and Salamon 2006). In sharp contrast, the nonprofit sector is burgeoning in the United States, where it is a significant part of the economy and culture. Most Americans are born in a nonprofit, and it is in nonprofits that they go through many of life's most critical moments: getting a degree, marrying, practicing their faith, recovering from sickness, and participating in the policy process. Consequently, 92% of the adult population belongs to at least one nonprofit and about 75% to more than one (Anheier 2005:76). It is not surprising, therefore, that Americans give over $300 billion annually (slightly over 2% of GDP) to the nonprofit sector, which employs close to 10% of the labor force in the United States, twenty-five times more than in Mexico even when adjusted for labor force size. Of course, the nonprofit sector is hardly an American phenomenon. The Netherlands and Sweden, for example, enjoy even higher levels of philanthropy, while Canada and Ireland have larger nonprofit sectors as a proportion of their labor force. Mexico's philanthropy and nonprofit sector are small when compared to such countries, but what is astounding is that they are smaller even than in poor countries such as Tanzania, Kenya, and the Philippines as well as ex-communist countries such as Romania and Hungary.

Why does Mexico have the weakest nonprofit sector in the world? Mexico's nonprofit sector anemia is surprising because current theory predicts that a country with intermediate levels of economic development and welfare spending, significant protection of civil liberties and political rights, and a favorable legal framework for nonprofit organizations should encourage significant philanthropy and a medium-sized nonprofit sector. Why are Mexicans less generous than others? Why are they less likely to make donations and volunteer for social causes? More generally, why do some countries have a vibrant nonprofit sector and others do not? The experience of countries with weaker nonprofit sectors, such as Mexico, is very relevant to general questions about the sector in other countries (see Hammack 2002). It offers a valuable opportunity for the study of the causes of nonprofit sector weakness and an important contrast to most existing research, which has focused on the much more developed nonprofit sector in rich countries. Indeed, study of this apparent outlier generates new theoretical insights that can subsequently be tested against broader cross-national evidence, thus revealing more general explanations than are currently available.

While anchored in a detailed analysis of the Mexican nonprofit sector, this book has broader, comparative ambitions. Cross-national research has been essential in expanding our understanding of philanthropy (e.g.,...