Data seen driving change in social economy

Digital information is playing an increasingly pivotal role in the emerging “social economy” as “doers” and “donors” look to philanthropy, political giving and impact investing to find the most effective options for putting private resources to work for public good, a new report says.

And as they compete in the social economy, which includes the broad range of “business ventures, charitable efforts, philanthropy, and investment capital geared toward producing positive social results,” nonprofits and organized philanthropy will need to be smarter about the way they share data, handle mobile payments, and deal with the issues of transparency and privacy, says Philanthropy and the Social Economy: Blueprint 2013, a report from GrantCraft.

“We are standing at a new ‘starting line’ for data in 2013,” says the report, which was written by Lucy Bernholz, visiting scholar at the Center on Philanthropy and Civil Society at Stanford University.

That starting line, the report says, “is about putting the data we have to use, looking for relationships between nonprofit/philanthropic data and larger data sets from the public and private sectors, and experimenting with new practices that start from the premise that we now have access to enough useful data that we can move on to explore what to do with it.”

While philanthropy and nonprofits play important roles in the social economy and occupy a “privileged long-term position that allows them a front row seat to the changes underway,” the report says, they “are not the unchallenged center of the economy any longer, nor should we assume that their status, impact or privileged positions are unalterable.”

The next phase for the social economy, the report says, will be driven by a new discussion about “the unique role of organizations like those we know as nonprofits and foundations.”

Data overload

In a world of “digital overload,” with foundations, donors and nonprofits “soon to be drinking from the ‘data firehose,’ the most successful organizations will be those that “figure out how to manage this and thrive within its contexts,” the report says.

Some organizations will deal with data overload “by hiring data analysts to manage data flows, analytics and learning,” while an increasing amount of data “will be made public and transparent for the rest of the sector and any curious others,” it says.

“Data are a resource like money,” it says. “They are critical to success, unevenly distributed, and fundamental to the pursuit of privately resourced, public benefit activities. They are tools for reinforcing or redistributing power.”

Yet the decades of the “information age” have gone “essentially unnoticed by most foundations at least in terms of sharing their information quickly, readily and in a form that would allow easy comparison,” the report says.

By 2009, for example, only 29 percent of foundations “had hung out their nameplate on the Internet,” it says.

That has changed, it says, with over a dozen “meaningful efforts at sharing philanthropic data,” representing “real progress toward a ‘data backbone’ for nonprofits and philanthropy.”

Second phase

With new tools for “sharing raw data and make it useful to the public,” philanthropy has entered the “second phase of a data age” that will focus on “using it ourselves,” the report says.

That phase, it says, will be marked by “finding new ways to compare, analyze and present the data; asking new questions with it; and using the information to inform out work.”

Aggregated foundation grants data now can begin to be used “in ways that simply weren’t possible before,” it says.

With access to over 170 online giving platforms, the report says, the tools that individual donors have for giving are “light years ahead of most foundation check-cutting processes in terms of real-time information, targeted feedback loops, and the ability to  galvanize additional support by reaching out to social networks.”

And, in isolation, data about foundation grants and nonprofit data from IRS Form 990 are of limited use, the report says.

“They may reveal trends in funding interests, geographic density, and patterns of shared strategy,” it says. “But they say little about either an individual enterprises’ operational strengths or the financial/operational healthy of a group of organizations. These data tell us almost nothing about an organization’s strategies or the results it is achieving, nor do they shed light on the status of the larger issue, be it health access, student reading scores, or the number of hungry elders in a community.”

Foundations and nonprofits, the report says, “still lag behind governments and business in making good use of data.”

Digital engagement

Mobile phones and other digital devices represent the next phase of giving and volunteering, the report says.

“We’ll make smaller, more frequent donations, sparked by social network requests, by tapping a bank account or credit card number with a single swipe,” it says. “Freelance fundraising for our own favorite causes or organizations will be easier.  Crowd-sourced and -funded groups will be clean beaches, feed the homeless, help the elderly, respond to disasters, all while not relying on or turning to an organization for help.”

Because mobile payments can be handled through a smart phone, the report says, the individual donor “has all the pieces of big philanthropy — information and money — in one device. The technology has leapfrogged the big institutions in favor of networked individuals.”

Those developments are “not all positive,” the report says. “Ever-smaller donations to organizations can require ever-greater organizational investments in technology to manage.”

Mobile donations and digital data also raise issues of private and security, and underscores the gap  between people with access to a smart phone and those without access.

And while “networked individuals are good at starting things,” the report says, “the jury is still out on how effective they are at maintaining services over time.”

Privacy and transparency

In the social economy, nonprofits “will be defined by how they use their data for public good while protecting the personal privacy rights of all who contribute that data,” the report says.

Initially, it says, nonprofits will define themselves through “good practice,” while later they may be defined through legal requirements.

“We will all be well served if nonprofits take a leadership role in defining and demonstrating the practices they want to see encoded in future regulations,” it says.

Nonprofits continue to earn “higher trust ratings” than business or government, the report says, and how they use personal information will influence that standing.

And as the nonprofit sector tries to catch up on data, transparency and innovation, it says, “we need to differentiate data about people from data about enterprises.”

Organizations that seek to use private resources for public good need to get the issues of “private” and “public” right, the report says.

The way that enterprises “navigate the tensions of private data and public good will become a differentiating factor for organizations in the social economy — not all will make the same choices,” the report says. “These practices and choices about data may eventually serve to distinguish and define organizations within the social economy the way financial profit motive does now.”

Regulation in the social economy

Organizations and financing systems in the social economy are “not created equal,” the report says.

“Nor should they be,” it says. “They should be complementary. For that to be possible, we need to think about accountability, governance mechanisms, the use of free labor (volunteers), the role of incentives and oversight, and information ownership.”

As politicians resume talks this year about the tax code and limiting charitable tax deductions, the report says, the nonprofit sector “will need to make new arguments to preserve those privileges.”

And those argument “should not just be standard issue self-preservation,” it says.

The political battle may be “fought narrowly over maintaining the tax deductibility of charitable gifts,” and may not include “serious discussion about the most effective ways to provide incentives for private involvement on behalf of public benefit” or any discussion of “data as a public good” or “more substantial regulatory change.”

Yet regulatory change is needed in a social economy increasingly driven by “new networks of ‘doers’ and ‘donors’ using their non-hierarchical, distributed authority, open source model of the Internet and using it for political action and community change,” the report says, citing Future Perfect, a 2012 book by Steven Berlin Johnson.

“We’re reaching a point where impact investing and philanthropy are increasingly intertwined,” the report says, an emerging hybrid characterized as “enterprise philanthropy” in From Blueprint to Scale, a 2012 study from the Acumen Fund and Monitor Institute.

“Whatever you call it,” the report says, “more and more donors and institutional funders are looking at how they can best use a dollar — whether as a donation or an investment — based on the outcome they hope to achieve.

While the thinking of donors and funders now is shaped by rules government donations and investments, the report says, those rules “don’t always serve the larger purpose.”

And with data “beginning to gain traction in practice” as a philanthropic resource, the repot says, “it would be wise for philanthropy and nonprofits to take up the policy issues of data use, ownership, and privacy themselves, rather than wait for a regime to be imposed.”

— Todd Cohen

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