Nonprofits for hire: the welfare state in the age of contracting

Few Americans realize that over half the revenues of the voluntary service organizations in this country come from federal and state governments. The image of the voluntary agency as neighbor helping neighbor - a thousand small independent points of light - is deceptive, for it masks the increasing dependence of nonprofit service organizations on government funding. In recent years, government's primary response to the growing problems of homelessness, hunger, child abuse, health care, and AIDS has been generated through nonprofit agencies funded by taxpayer money. As part of the widespread movement for privatization, these agencies represent revolutionary changes in the welfare state. Steven Smith and Michael Lipsky demonstrate that this transformation of providing social services through nonprofit agencies has benefits and drawbacks. As government funding of nonprofit groups increases, their management, staffing, clientele, and policies often change significantly. They may no longer be primarily responsive to their communities of origin but instead reflect government priorities. Although the appeal of contracting lies in the possibility of lower costs and greater efficiency, present contracting policies, the authors show, may actually increase overall costs in the long run and encourage instability among service agencies. Smith and Lipsky conclude that for the potential salutary effects of contracting to be realized, governments must reform current contracting procedures and invest in the operational and capital needs of both nonprofit and public agencies. Given the breadth of government funding of nonprofit agencies, this first study of the social, political, and organizationaleffects of this service strategy is an essential contribution to the current debate on the future of the welfare state.