The nonprofit sector is built upon the concept of ‘market failure’ or the inefficient allocation of resources in a free market. The business sector exists to provide goods and services to those who can pay for it, and they do so at a market rate.  Government exists to provide goods and services designed to serve mass society at the cost of the public (taxes). Finally, the goods and services needed by those outside mass society – and that cannot make money in the business sector – are provided by the nonprofit (3rd) sector for little/no cost, subsidized by donations and contributions from the other sectors.

(Ha. Never thought I’d use that ‘civil society’ grad school course? Check.)

All that is to say that when the government makes large-scale funding decisions, they (ideally) look at the impact of government programs and the cost of the activity via its often laborious and bureaucratic reporting structures.  The private sector tracks profits, loss and fluctuation of value through boards, shareholder reports and, for publicly traded companies, the stock market.

So when it’s time to make decisions on how much and where to invest in the nonprofit sector, we look to…Annual Reports? Glossy brochures and websites? Pictures of smiling kids or commercials with lonely puppies and sad music?

It’s time for a Social Stock Market, and it’s not as hard as it sounds.

How?

If organizations match up their assessment results with their budget, they should (in theory) be able to put some figures together that share what it costs to do what. For example, an org in Utah can get an abandoned dog the medical attention, shots and updates, it needs for $100.  That same $100 could buy new sets of school uniforms for a homeless kid in Florida or plant 10 trees in upstate New York.  With a social stock market, you choose the change you want to make, be it 6 ft wide or  6 ft deep. Use your donation to plant trees, save puppies, provide job placement for ex-cons, place public art, all on a local, national or even global level.  Like the return you saw? Do it again, or invest more.  Not impressed? Invest elsewhere and try another cause addressing the issue or another issue altogether.

Why?

A social stock market helps people see what their dollar can do and understand the depth and breadth of issues – but more so, facilitates their philanthropy towards effective efforts where they feel confident about their choices.  It’s a giant database that sorts your giving options by amount, issue or type of change you’re looking to make.  It’s intuitively designed, with on-demand info, bright colors and trackable impact. It’s Mint, meets iTunes for choosing charities, meets Guidestar.

In addition to providing access to thousands of causes and organizations – it fast-tracks the growing competitive nonprofit marketplace.  It requires organizations to take a hard look at their efficiency, identify EXACTLY what they are in existence to accomplish and put some real metrics behind measuring their effectiveness against those goals.

Why not?

I know, I know – the most common argument against proper assessment is that ‘not everything can be measured’.  The problem is, that’s not going to fly any more.  Foundations and savy philanthropists alike are asking for more assessment and expecting data-driven management.  We know there’s been a dramatic increase in nonprofits (73% increase from ’98 – ’08) competing for a philanthropic pie that hasn’t grown (approx 2% GDP since…forever).  And – to continue our economics theme – competition breeds better products and there are regularly casualties of the marketplace.  Sad to say, but we’ll soon reach market saturation and inefficient nonprofits, or those relying on immeasurable warm fuzzy feelings as ‘results’, will dramatically shrivel and die.  With the recent recession, it’s already started.

A social stock market’s success, of course, relies on transparency in record keeping.  It means that the ginormous international cleft-palette organization – that spends $140 million on marketing and administration but calls $130 million of it ‘educational materials’ in order to significantly drop their overhead costs and look more efficient – would have to be better monitored.  But in theory, it creates a competitive marketplace so people see what types and how much change they can make for their money.

More of the ‘why’

It rewards efficiency and effectiveness, makes organizations focus on assessment and true results. It educates people on what it takes to reverse or even end some of the worlds most pressing social problems.  Most importantly, it lets the donors decide what kind of ‘difference’ is more important to them – and have a positive giving experience – so they return to do it again and again, with more vigor and with more resources than we’ve ever seen before.

It facilitates philanthropy in a way that it too cool not to share, to powerful not to do more of and so transforming that we don’t need it forever and we can all celebrate when the best solution is found and used to end a social problem.  Then we can move on to the next one together.

Do you think it’d work? Where would you start? Share your thoughts in the comments…