Building a faux revolution: How unrestrained nonprofits won’t fix all our problems

Dan Pallotta

Manitoba, like the rest of Canada, boasts an array of nonprofit organizations. They run the gamut from curling associations to cancer research hubs. Some raise awareness on specific issues, others deliver specific services, and others do both. Some are registered as charities, which constrains them under Canada’s legal definition of charity (ie. limited ability to advocate), but allows them certain tax exemptions. In 2008, Dan Pallotta wrote what has become a manifesto for many in the nonprofit sector. This is my take on why it shouldn’t be.  

In Uncharitable: How Restraints On Nonprofits Undermine Their Potential, Pallotta argues that large scale social problems are not properly addressed because those organizations that address them – nonprofits – work in a broken system. The system is broken because nonprofits are restrained through legal frameworks and cultural norms from raising enough funds to effectively tackle their causes, whether these are homelessness or leukemia. The solution to this, Pallotta suggests, is giving nonprofits “equal rights with the rest of the economic world and allowing it to use the same system everyone else uses to get things done – free-market capitalism” (xii, 2008).

Pallotta begins his argument by tracing how the Puritan conception of charity has survived in the United States from the early 17th century to the present.  He suggests that this conception evolved out of a conservative Christian context that strived to negate the self. This idea, he argues, is instrumental in inhibiting any explicit returns coming from ‘good doing.’ Such cultural inhibition denies nonprofits the ability to capitalize on their causes, which in turn limits their ability to truly tackle them.

Pallotta then moves on to explore an array of ‘errors’ that characterize the system within which nonprofits work. These errors revolve around the perverse incentives the system creates, such as extreme risk aversion or the ‘institutionalization of suffering.’ The argument here is that free market capitalism would correct such incentives– it would reward risk and so minimize aversion to it, and it would encourage long term planning over demonstrating immediate results in helping a particular cause, which would stop the ‘institutionalization of suffering.’ Finally, Pallotta interrogates the so-called ‘efficiency measures’ projected onto nonprofits and suggests a way forward for these organizations that relies first on changing the way society thinks about them, and then changing their regulatory context.

Three prominent reviews of Pallotta’s work provide it with a – mind the pun – charitable assessment by proclaiming that, whatever its faults and shortcomings, his is an important discussion to have (Irvin 2009; Filipovitch 2010; Germak 2011). My thoughts depart from such a trend by lifting two concerns that should diminish the legitimacy Pallotta’s argument is given. The first concern focuses on the internal logic of Pallotta’s work. While he spends much energy on freeing nonprofits to raise funds as they wish, he spends far less in explaining how such funds will translate into concrete policy outcomes. Richer nonprofits within themselves do not necessarily yield socially optimal outcomes. This is where Pallotta’s uncritical assessment of market mechanisms undermine his argument- there are perhaps very good reasons why a thriving Wall Street does not mean reduced homelessness, domestic abuse, or cancer rates (more on this later).

Pallotta also conflates nonprofits and charities. He strangely dismisses the relevance of his work to academia (xv, 2008), as if a potentially revolutionary call to change cannot be relevant to those whose job it is to study human beings (or perhaps he is seeking to preempt any criticism from this front), but a peek into the work that distinguishes nonprofits and charity would have brought clarity to his argument.

Finally, Pallotta’s work is laced with paragraphs and quotes that describe his perspective as a struggling minority voice in a world bent on silencing it with “fundamentalism and oppression” (xv, 2008). Any potential arguments against Pallotta are characterized as being a part of the “underlying religion” against his perspective, and he aligns the evolution of his ideas to the Civil Rights movement (182, 2008). Despite arguing for ‘reason and truth’ throughout the book, he concludes by rejecting strategic plans in favour of a “courage” that will “suffer the moral judgment of the establishment” and “endure the pain of being misunderstood” (182, 2008). Such martyrdom rhetoric undermines Pallotta’s argument because it reads as a weakly veiled attempt to preempt any vigorous criticism by characterizing such criticism as dogmatic before it has even been lifted. The irony here is that it is dogmas themselves that are so good at proclaiming any perspective to the contrary as necessarily dogmatic.

A further irony is that the writer of the quote Pallotta uses to open his introduction – “All successful revolutions are the kicking in of a rotten door” – would hardly be a willing recruit to Pallotta’s cause. John Kenneth Galbraith has spent much of his career lamenting American tax cuts and the state’s diminishing role in addressing the very problems Pallotta leaves to the nonprofit sector (Galbraith 1983; Galbraith 1992).

The second concern is that the state’s historical role in addressing large-scale social problems is largely absent from Pallotta’s book. The crux of his argument is that the nonprofit system is broken, and so the way to “alleviate suffering on earth” is to use the market (xiv, 2008). This quick intellectual move forgets another alternative: working directly through government. The absence of seriously addressing this alternative belies two problems about Pallotta’s argument.

First, despite claims to solving suffering on all of ‘earth,’ his is a curiously United States-centric perspective. The role of government in his book is largely seen as legal and regulatory, and such legal and regulatory frameworks are largely seen as things ‘to deal with,’ versus instruments to employ. This suggests an implicit understanding of the state as a coordinating body, one that merely sets the broad parameters for the forces of society to move within. Pallotta stresses that people should not be afraid to “dream” of an ‘end to homelessness’ or the “eradication of AIDS” (184, 2008), but an argument could be launched that is rooted in the idea that without the state such results are just that; dreams.

In countries with a far lower homelessness rate than the United States, and a corresponding lower level of income inequality, such relegation of the state to the sidelines may seem strange. Such positive policy outcomes in Scandinavian countries, and even in liberal democracies such as Canada, have not come about through a deregulated nonprofit sector that organically solved all the structural problems that create income inequality and homelessness. The state played a crucial role.

The second problem that is illuminated by Pallotta not seriously addressing the role of the state is his uncritical assessment of market mechanisms for equitably allocating goods. The nonprofit sector (historically, not as Pallotta envisions it) has been a check on the market. When markets fail (another key point Pallotta does not seem to internalize– markets do fail), there are social costs, and charities within the nonprofit sector attempt to remedy these costs even if or precisely because there is no market to do so.

Furthermore, nonprofits themselves are not immune from market forces, and may struggle to deliver services during recessions. This is where the state is far more insulated than nonprofits, and where they can – as they did during the 1930s and post-2008 – fuse resources into areas where the market has failed. This suggests that a.) nonprofits are a valuable counterbalance to the sometimes volatile failure of markets, b.) even nonprofits may fail to counterbalance should those failures be extreme, which in turn means c.) the state can play a crucial role in minimizing heavy social costs.

Pallotta, however, sees this situation very differently: he would move nonprofits into the free market and relegate the state to a mere coordinating body. This unveils a belief in the market’s ability to not only allocate goods efficiently, but justly, which in turn represents a totalizing enthusiasm for the market that would not be embraced by an array of prominent economists (Roubini and Mihm 2010; Chinn and Frieden 2011; Frydman and Goldberg 2011).

Pallotta’s work, then, is most obviously about changing the nonprofit sector, but at a fundamental level it is simply an extension of the old and relatively tired debate about the ability of the market to solve public problems. In this respect Pallotta brings nothing particularly new to the table. Before he gets into his argument he asks “What if a system that allows people to satisfy their own self-interest as well as the interests of others turns out to be a much more effective way of helping those in need?” (xii, 2008). This question is essentially Adam Smith’s ‘invisible hand’ in a nutshell; it anticipates the answer that individual actors rationally following their self-interest will organically ensure the collective’s need. The microeconomic response to this uses principles of supply and demand to demonstrate the existence of ‘positive externalities,’ situations where the actual demand for a particular good or service – such as healthcare – outstrips the supply in a free market (McConnell, Brue, Flynn and Barbiero 2010).

The debate continues on from there along narratives that would be relatively familiar to anyone who paid attention to the recent healthcare debate in the United States or the 2008 recession. When Pallotta’s work is boiled down to its bare bones, then, it becomes a fairly conventional argument for free market capitalism couched in the specific context of the American nonprofit sector. Hardly the radical revolution Pallotta claims it to be.


Chinn, Menzie D., and Jeffry A. Frieden. Lost Decades: The Making of America’s Debt Crisis and the Long Recovery. New York: W.W. Norton & Company, 2011. Print.

Filipovitch, Anthony J. “Review of Uncharitable: How Restraints On Nonprofits Undermine Their Potential.” Nonprofit and Voluntary Sector Quarterly. 39.371 (2010). Print.

Frydman, Roman, and Michael D. Goldberg. Beyond Mechanical Markets: Asset Price Swings, Risk, and the Role of the State. Princeton: Princeton University Press, 2011. Print.

Galbraith, John K. The Anatomy of Power. Boston: Houghton Mifflin, 1983. Print.

Galbraith, John K. The Culture of Contentment. Boston: Houghton Mifflin Co, 1992. Print.

Germak, Andrew J. “Review of Uncharitable: How Restraints On Nonprofits Undermine Their Potential.” Administration in Social Work. 35.4 (2011): 449 – 450. Print.  

Irvin, Renee. “The Double Standard– Uncharitable: How Restraints on Nonprofits Undermine Their Potential by Dan Pallotta.”Stanford Social Innovation Review. Spring 2009.

McConnell, Campbell, and Stanley L. Brue, Sean M. Flynn and Thomas P. Barbiero. 2010. Microeconomics. China: McGraw-Hill Ryerson.

Pallotta, Dan. Uncharitable: How Restraints On Nonprofits Undermine Their Potential. Medford, Massachusetts: Tufts University Press, 2008. Print.


Johanu Botha is a student of public policy and political philosophy. His hobbies include the mandolin and intermittent bouts of existential angst. You can reach him at