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Trevor Neilson

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What Roubini Just Said and Why Those Who Work in Philanthropy Should Listen

Posted: 07/11/2012 2:00 pm

When Nouriel Roubini talks, leaders in philanthropy and the nonprofit world should listen.

Why? Well, Roubini was one of the few who predicted the collapse of the United States housing market and the worldwide recession which started in 2008. On July 9, calmly and specifically, he said something that should have those of us who work in philanthropy readying for what could be the "perfect storm."

In an interview with Bloomberg, Roubini predicted that 2013 could bring us a worse financial collapse than we saw in 2008.

Among his specific predictions:

"By 2013, the ability of policy makers to kick the can down the road is going to run out of steam"

"In the Euro-zone the slow-motion train-wreck could become a faster-motion train wreck"

"The U.S. looks close to stall-speed and a recession, given the latest economic data"

"The landing of China is becoming harder rather than softer"

"The other emerging markets are all sharply slowing down in terms of growth--the BRICs, China, Russia, India, Brazil, and also Mexico, Turkey. Partly it's because there's a recession in the Eurozone and U.K., partly it's because they're not doing their reforms."

"And finally there is the time bomb of a potential war between Israel and the U.S. and Iran. Negotiations have failed. The sanctions will fail. Obama doesn't want a war before the election, but after the election, regardless of whether it is Obama elected or Romney, chances are the U.S. is going to decide to go and attack Iran and then you'll have a doubling in global oil prices overnight."

"So, it's the perfect storm. You could have a collapse of the Eurozone, a U.S. double-dip, hard-landing of China, hard-landing of emerging markets, and a war in the Middle East. Next year could be a global perfect storm."

What does that all mean for an organization in the US working to improve local schools, help the homeless or provide food for the hungry?

The most vulnerable people in America are suffering in a horrible way, and millions are teetering on the edge of poverty.

Three years after the official end of the recession the official unemployment rate is 8.2 percent. But the terrible reality is that if you count all of the people who have stopped looking for work we have a "real" unemployment rate of almost 15 percent.

The national foreclosure crisis remains near an all time high, with 4.12 percent of all active mortgages in or near foreclosure.

The United States now has the second-highest rate of childhood poverty in the developed world, according to a new report from the United Nations Children's Fund (UNICEF).

And at the very same time, in response to the financial crisis, decreased tax revenues and massive budget deficits, social services are under siege.

Two examples:

In California, if voters reject Governor Brown's proposed tax increase, Funding for K-12 education will be cut $5.5 billion. A shortened school year will mean that half of California's 6 million school kids will need care or activities at that minimum cost, $750 for three weeks. That's a $2.25 billion increase in costs for families. Include the school week that was already cut in 2010, the cost grows to $3 billion.

In Florida, the number of food stamp recipients increased by 1 percent last month with 3.47 million Floridians now getting food stamps. Currently Republicans in Congress are proposing cutting the federal food stamp program by $16 billion.

These examples stand out, but no matter where you look, social services are being cut at the very moment they are needed the most. These cuts are aftershocks of the 2008 crisis. But now, if what Roubini predicts comes to pass, the nonprofit world will have a catastrophe on top of a crisis.

So what should non-profits do? There are no easy answers, but based on our experience there are a few things we recommend:

1) Think different about fundraising. Non-profits need to embrace the Apple slogan and add new and innovative fundraising strategies to their current approach. The goal is to increase the number and quality of donors by reaching new audiences with new messages. Crowd-funding, cause related marketing and other new areas in philanthropy should also be aggressively explored. Far too many organizations just hope that their existing donors will sustain them. If what Roubini predicts occurs...they won't.

2) Decide what not to do. For far too many non-profits, programs get created and continue to exist until they run out of funding, with little or no effort made to improve them or engage customers in any kind of real dialogue about what they want and need. This creates terrible waste. A helpful approach is one Eric Ries describes in The Lean Start Up: the concept of Minimum Viable Product. At its core, this concept recommends that organizations put the minimum amount of time necessary into the design of their products or services before they are launched, instead focusing large amounts of time understanding the consumers reaction to those products, using that reaction to quickly adapt and improve. Non-profits who adopt this approach will better meet the needs of the people they are working to serve, and will do so more efficiently.

3) Value performance over passion. Everyone who works in the non-profit world knows there is a performance problem, but no one wants to talk about it. The absence of clear systems of measurement have contributed to a "we are doing our best" culture that sometimes absolves managers of real responsibility. This is coupled with a startling lack of board oversight at many organizations when it comes to the performance of management. While passion is important, results are what create real world change. Strong management teams can adapt and survive. Weak management teams will have a hard time weathering the storm.

Let's all hope that Roubini is wrong. But while we hope for the best, let's prepare for the worst.

 

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