01/15/2009 05:12 am ET | Updated May 25, 2011

Change the Way We Create Change

The nonprofit sector can be a pivotal player in Barack Obama's mission to bring fundamental change to America. Given the constraints he'll face with the Federal budget, he'll need all the outside help he can get. But in order for charity to step up to the plate we'll have to untie its legs, hands, imagination and potential, all of which are bound by a set of irrational economic canons that work against it on every level, and they have been elevated, of all things, to the status of "ethics."

The word "profit" comes from the Latin noun "profectus," meaning "progress." Thus the term "nonprofit," means literally, non-progress. The sector remains bound by an ethos of deprivation laid out by the seventeenth century New England Puritans in a twisted effort to ameliorate the terrible reality of their self interest. It said that on this side of a line we can make a profit and on this other, which we shall call "charity," we will deny ourselves. Thus the carpenters and farmers of the world got free-market capitalism, and the needy got a religion -- charity -- in which everything that worked in commerce was banished.

By and large, it is still what the needy have today. We let people make a fortune doing any number of things that will harm the poor, but want to crucify anyone who wants to make money helping them. This sends the top talent coming out of the nation's best business schools directly into the for-profit sector and gives our youth mutually exclusive choices between making a difference and making money. This we call altruism. We let Apple and Coca-Cola plaster our billboards and television sets with advertising, but we don't want important causes "wasting" money on paid advertising. So the voices of our great causes are muted and consumer products get lopsided access to our attention, twenty-four hours a day. This we call frugality. Amazon could forego investor returns for six years to build market dominance. But if a charity embarks on a long-term plan with no return for the needy for six years we expect a crucifixion. This we call caring. We aren't upset when Paramount makes a $200 million movie that flops, but if a $5 million charity walk doesn't make a 75% profit in year one we want the attorney general to investigate. So charities are petrified of exploring new revenue-generating methods and can't develop the powerful learning curves the for-profit sector can. This we call prudence. We let for-profit companies raise massive capital in the stock market by offering investment returns, but we forbid the payment of a financial return ("profit") in charity. The result? The for-profit sector monopolizes the capital markets while charities are left to beg for donations. This we call philanthropy.

All of these rules are policed by a deadly question that horribly over-simplifies reality and that the media has trained the public to idolize: "What percentage of my donation goes to the cause?" Experts agree it is the worst possible question we could be asking, and that the answer to it is 100% useless. Why? First, it tells you nothing about the quality of a charity's services, so a sub-standard soup kitchen can hide behind the statement that 90% of your money goes to the cause and you'll never find out they're serving rancid soup. Second, charities who account aggressively and broaden their internal definition of "the cause" can give you any number you want to hear, simply by calling everything, including the kitchen sink, part of "the cause." And this is widely practiced. The more things they label part of "the cause," the higher the percentage of your dollar they can tell you is going to "the cause." That number is then used to tell the public they are more "efficient" than another charity that's actually doing better work, but that uses far more conservative accounting. Third, it discriminates against lesser-known causes for which it is much more expensive to raise a dollar. Fourth, it ignores the volume of dollars being raised, creating the ridiculous notion that a $500 bake sale that sends 100% to the cause. i.e., $500, is better than the $20 million walk-a-thon that "only sends" 60% to the cause, i.e., $12 million. Last, it perpetuates a fictional demon called "overhead" -- to be avoided at all costs, we are told -- when in fact "overhead" is what's required to build the infrastructures we'll need if we ever really want to solve the huge social problems that confront us.

It is time to give charity the big-league freedoms we really give to business -- the freedom to get the best people and pay them whatever it costs for the value they can produce, freedom to buy ads on the Superbowl -- yes, at a cost of $2.6 million a pop -- to start building market demand, freedom to take big risks, and to fail big if that's what it takes to learn, and the freedom to start attracting capital in a stock market by paying investors a financial return. It's time to stop obsessing about overhead and start focusing on progress. Change charity, and charity can change the world. Find a cure for cancer? Yes it can. End homelessness in our cities? Yes it can. Eradicate AIDS and malaria? Yes it can. And what about us who have held it back? Can we change our thinking? Can we give charity the permission to let loose its full potential? Yes, we can.