Should Effective Charities Prepare for a Recession?

By zdgroff @ 2018-11-29T00:02 (+28)

Cross-posted with slight modifications at zachgroff.com

I asked a number of people at effective altruism global in June a question that came to my mind: how would a recession affect charities aligned with effective altruism? A lot of people seemed to me to have concerns, and many people I talked to seemed to think their organizations did not have a plan for if a recession hits and donations decrease. I think that’s a problem worth some thought.

The effective altruism movement has now been booming for several years. That growth has occurred during the recovery from the Great Recession, a time when financial firms and tech firms, two sources of support for effective altruism, have been expanding.

This expansion will probably not continue indefinitely, and it’s worth thinking about how nonprofits and a movement should prepare for the economic crises that come every so often. In the last recession, charitable giving declined dramatically, by 7% in 2008 and 6.2% in 2009. It has since recovered and continued to grow as it was before the recession, and the good news is that reports of catastrophic collapses of nonprofits were likely exaggerated. Still, charities can better prepare for the financial shocks that recessions bring every so often by planning in advance to put money aside and determine plans for how to adjust costs during a recession.

There are a few ways that EA-aligned organizations differ from other charities that could make a recession better or worse:

• A large part of the growth in funding for EA organizations comes from the Open Philanthropy Project, which donated over $100 million in 2017 and intends to continue expanding as it is not yet at its intended giving level. Presumably, OPP will not be as affected by the acute pangs of a recession as individual donors, although it could still be affected by a financial decline depending on its investments.
• There is some debate over whether the decline in donations during the Great Recession followed directly from donors' financial constraints or from a recession-related decline in altruism. If the latter is the cause, I would expect effective altruism-aligned charities to fare somewhat better than other charities because EA donors’ altruism is probably somewhat more robust and resilient. This is not for sure, as it may be that EA donors are giving closer to their limit and may show a more dramatic decline in the event of a recession. Still, I lean toward thinking that EA is relatively well-positioned here.
• EA donors have a different financial and demographic profile from the general public, particularly higher levels of education. I’m not sure how this would affect donations.
• EA donors are disproportionately affiliated with particular industries, so depending on which industries suffer most from a recession, this could affect EA charities more or less.
• There is some evidence that the types of charities people donate to change during a recession. I expect that this would work against EA organizations, because people will focus on more local and near-term problems, but this is open to interpretation.
• Finally, on top of the economic costs of a recession, it is worth noting that recessions may create particular cases of high-impact philanthropy. If that is the case, it may not only be worth saving money to avoid cutting costs during a recession: organizations may want to be able to actually use more resources in the event of a recession to be able to respond to particular situations in the economy, government, or industry.

In general, I tend to think that EA-aligned organizations are better positioned than the average charity for a recession, but it seems to be cause for concern that in a community that cares about risk and careful planning little thought seems to have been put into this question.