Dear reader, as part of a special report for Shelterforce I sat down with the heads of four of the largest community development intermediaries in the country and asked a simple question: Are you still relevant?
This six part series looks at the evolution of their role in the community development sector and their strategies for the future.
To binge-read the full report, click here.
Part III – The Inefficiency of Scale
“Scale,” “sustainability,” and “efficiency” are all watchwords and code words: watchwords because they define the leading edge of building capacity and longevity; code words because they typify new pressures to reduce service delivery costs while increasing and diversifying income streams. More and more these effects are achieved by the growing class of supra-nonprofits. Yet while it’s so very tempting to rely on a larger, regional provider that can build the project or deliver the service and simply get the job done, “we shouldn’t fetishize scalability,” as Antony Bugg-Levine puts it.
And there are two darn good reasons we shouldn’t.
The first and most obvious is that once the job is done the development capacity itself doesn’t remain behind. Supra-CDCs move on to the next project or distressed geography. Meanwhile, intermediaries haven’t been able to ply their craft and local CDCs haven’t grown, leaving the community with a shiny new project but no long-term increase in capacity.
The second reason is more insidious: quite simply, we can’t scale our way out of addressing entrenched social problems. Bugg-Levine told me a story of working with 40 of the largest domestic violence shelter providers in California. Given state budget cuts, “even becoming more and more efficient is not going to ensure they can avoid going bankrupt,” he concluded. Delivering social services is not like delivering pizzas: to go where there is demand is to go the opposite direction of the market
I’ve argued before that capital markets are designed to generate wealth and concentrate capital. The populations and communities we serve exist at the margins of capital markets, where profits are fragmented, inefficient, and weak, assuming they exist at all. That’s why we focus on social benefits: our goal has never been to generate profits, but to reduce suffering and improve human dignity.
I know, I know—them’s real pretty words. But it is true. And the financial implication of this is that the best we can hope to achieve is a reduction in cost in delivering our services, or a more clever way of offsetting those costs by cross-subsidizing revenues. And then there are those places—the Texas border towns, the downtrodden second ring Detroit suburbs—where scale can’t really exist. Sometimes, that little domestic violence shelter with seven beds is really the best way to get things done.
The trouble is that it’s difficult to tell when trying to achieve scale runs counter to succeeding in a social purpose. Bugg-Levine says: “We need to be clearer about which organizations require subsidy because they are (1) inefficient, (2) sub-scale but could break even if scaled enough, or (3) public good providers that will always require subsidy because what they do is essential but cannot pay for itself.” Confusion reigns. Many stakeholders may irrationally hope that a No. 3 is a No. 2, or cut off a No. 2 because they think it’s a No. 1.
Intermediaries these days are playing a larger role in developing the tools to identify an organization’s true capacity. What’s more, they are increasingly tasked with providing the resources needed to either move that CDC toward greater self-sufficiency or make the case for it remaining financially inefficient in order to serve a larger need.
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Stay tuned – your Man About Town is publishing all six parts of this series over the next week.
Up Next: Part IV – The Capital Behind the Capital