Design Economics Podcast with Vinny Tafuro

To demystify, you know, what a fiscal sponsor is beyond kind of my my very general description of it, it's a nonprofit that that operates I'll use this metaphor like a condominium, if you will, tower, where the condominium might have lots of certainly would would have lots of individual residents with their own apartments and and they they have autonomy within their apartments to decorate and express themselves and live the way they wanna live. But they share certain infrastructure. They share hallways. They show elevators. They share a front desk and other pieces of infrastructure.

A fiscal sponsor is kind of like that, but for nonprofit.

Hello, and welcome to season one episode six of the design economics podcast, where we explore how design thinking driven by data is revolutionizing economics for the twenty first century. My name is Vinny Tafiro, a futurist, economist, and your host for this episode. Today, I will be talking with Thaddeus Squire, chief comment steward at Social Impact Comments for a conversation about fiscal sponsorship in the social sector. Thaddeus has more than twenty five years of experience in the nonprofit management field, and today, we will discuss the evolution of fiscal sponsorship. Thaddeus and his organization have coined the term management commons to better illustrate the nuance and breadth of what fiscal sponsorship can do beyond the transactional.

So with that, I hope you enjoy this conversation with Thaddeus Squire.

Thanks so much, Minnie. It's a pleasure to be here.

So perhaps you could start by going into an introduction of what you do at the Social Impact Commons and what the mission of the organization is.

Sure. I would consider myself a designer, a infrastructure designer for social justice if I were to name kind of what my practice is. And my work for the last decade plus has been in the area of nonprofit resource and infrastructure sharing. And in keeping with that, Social Impact Commons, my current organization, is a field builder and capacity builder for the fiscal sponsorship ecosystem in The United States. And as of more recently, stretching beyond The US to fiscal hosting work outside our country as well.

And fiscal sponsors are a type of nonprofit that essentially share either all or elements of their core infrastructure and capacity with other independent missions and visions that are working in the charitable sector. So it is one of the core models of infrastructure sharing that the nonprofit sector has, and socialimp.com supports organizations that do that work, both through direct services and technical support as well as through research and advocacy.

So how did you maybe now a little bit about yourself, Thaddeus. How your career has brought you to this place of fiscal sponsorship involvement and infrastructure?

It's really been a journey of solving successive problems. I I I'm a serial founder, tinkerer in the space. So I've only ever had one job for an organization I didn't start. I'm on, I think, number five at this point.

I understand.

But there's a theme to that. And I would say my DNA, I was originally interested in the hard sciences growing up. I was very much a collector and I think very taxonomically, that's kind of the way my mind is hardwired. And I was gonna be a physicist and then I became a musician and composer, conductor and then nonprofit administrator, manager. And in all those cases, was really fascinated with the systems and how we build the scaffolding to support work as much as the work itself, whether that's the arts or anything else.

Having begun my career working as a curator, producer at several arts organizations, I felt that there had to be a better way to do this. The sort of life of quiet desperation of small nonprofits seemed to be a really grim way to kind of support an otherwise very hopeful area of work. I kind of got a crisis point with being a program person and being a curator and producer, and instead turned my attention to the infrastructure that supports people who do that work. And that led me to fiscal sponsorship as a field in the mid two thousands or the odds, and started a fiscal sponsor for arts and culture in Philly and grew that to a certain size and encountered some barriers and challenges at that size for which there weren't ready solutions. Lack of understanding and philanthropy, lack of embrace of the model in in in philanthropy, as well as challenges to kind of gather and build knowledge and know how has to about how how to kind of improve the model and the system.

And so that moved me from starting a fiscal sponsor to starting Impact Commons, which is a supporting org for fiscal sponsors. So in many ways, I started out being a producer, then founding an organization that supports producers, and now I run an organization that supports the supporting of producers of programming. So it's been one of abstraction, I guess, along the way. But at each step, it's been about solving a successive systems level problem for the field that I'm in.

I appreciate that journey. I was always did consulting and and experimented in the nonprofit and social sector. And, you know, one of the things I recognized a number of years ago was we had economies of scale in the market sector. But in the private sector, because it was donations and philanthropies, everybody's name had to be on it. And there was one nonprofit here in Central Florida at the time that was childhood cancer.

And I can't think of a more personal challenging foundation to start. A group of, I think, about four or five families that had lost their children found the ability to combine forces, remove their children's names from their foundations, and become beat neuroblastoma, beat NB, and and vying the economies of scale. So I was like, you know what? If if parents that lost their children to cancer can find economies of scale in the nonprofit sector, there's gotta be some other way that other organizations can do this. And so being introduced to you and finding your work is is just there there's a closeness to me going, how how do we make the nonprofit social sector better?

And I I really love what you're doing. I'd like to go a little bit into design economics in our tenants, you know, that this idea of paradigm change. And it seems your own career trajectory was, hey. Wait. This is how you do it.

It's not working. I gotta change. I gotta change. And that's really this act abstraction you just described. So maybe a little bit on on how fiscal sponsorship is designed, how these system you know, some things that have changed historically with it from when you did yours to where you guys are trying to go now.

Sure. The history of the field, and I would say the term fiscal sponsorship is relatively newer historically. It was coined and established by attorney Gregory Colvin in the early nineties when the field was really starting to form and define itself. As I said, it's fundamentally a form of nonprofit resource sharing, but it's not regulated or it doesn't sit in its own category of compliance needs. It is something that any garden variety 501c3 nonprofit can do, and many do indeed do it.

Some do it, they don't even know they're doing it. Some do it and call it a different name. In many ways, field remains very inchoate because it's not defined by a particular regulatory or compliance paradigm. It's more of a business practice, if you will, and a term of art. But it does date back to the mid twentieth century, the late 1950s, '19 '50 '9, third sector New England, which still exists now under the acronym TSNE.

And Boston is credited with being the first comprehensive sponsor. And it started out as a healthcare organization and was really about bringing together, similar to the example you just gave a number of efforts in the local healthcare infrastructure. A lot of fiscal sponsorship traces its roots in health and human services and related fields. The other current in its history from that same time, fifties, sixties, is really civil rights and social justice. There are several of the oldest fiscal sponsors that were born out of a need to facilitate getting resources to disinvested communities, largely urban communities, largely black and brown communities.

And in particular, the focus was government funding. How can we get more government support? Keep in mind, this is coming out of the end of the new deal and moving into kind of the great society era in The US in the 1960s being this huge moment of creating all of this government infrastructure. The National Arts Councils, most of the major agencies that are unfortunately in the headlines today that are under attack were invented in the 1960s. Fiscal sponsorship, think was There's not been a lot of history done on it, but I think not accidentally was born of that same moment when there was a need to figure out systems to distribute government funding more equitably and evenly across the country.

It has its roots in these crucibles of innovation and scientific work as well as social justice. It's evolved, I would say, we're in the fourth era of its evolution. First being very organic up to the 1980s when people started to get concerned about is this thing we're calling fiscal sponsorship that we're doing, might it be challenged legally? Greg Colvin, an Exempt Dort's attorney, wrote the first and still only major book on the field, Sponsorship Six Ways to Do It Right, first published in 1993. And that was really an effort to give it legal and legislative legitimacy.

I will note though that all the structures and practices that constitute fiscal sponsorship are naturally occurring and endemic to the nonprofit sector. There's nothing exotic about them. In fact, a lot of the work that Greg did was really more optical to say this isn't something that's exotic and untested, but really something that's a core tenant of the field. It's just being used in a particular way to advance missions and share resources. So to demystify what a fiscal sponsor is beyond my very general description of it, it's a nonprofit that operates, I'll use this metaphor, like a condominium, if you will, tower, where the condominium certainly would have lots of individual residents with their own apartments and they have autonomy within their apartments to decorate and express themselves and live the way they wanna live.

But they share certain infrastructure. They share hallways, they show elevators, they share a front desk and other pieces of infrastructure. A fiscal sponsor is kind of like that, but for nonprofit. So the nonprofits that operate under a comprehensive sponsor are essentially sub programs of that sponsor, but they retain independence and autonomy of their identity, a lot of their decision making and agency over over their mission and how they fulfill it. And to the outside world, they look like a standalone organization.

But behind the curtain, they are plugged into one nonprofit. So you essentially have a hundred or 200 nonprofit sharing one entity, one tax EIN, and one sort of compliance process as well. And along with that, they're sharing a lot of the core back office staff, finance, HR, legal, all those kinds of things. In the for profit world, it would be something roughly akin to a holding company like Berkshire Hathaway, where you've got one giant conglomerate that holds many, many, many sub companies that the outside world look independent, but in that case, ownership. In the nonprofit sense, there are all these independent nonprofits that share common exempt backbone organization.

That's what fiscal sponsorship is, and it has grown precipitously, particularly since February, as a way for the sector to both manage its own growth, which has been great over the latter twentieth century and early twenty first centuries, but also think very differently about how infrastructure in the sector, writ large, is built overall. And so we're seeing a real what I would hope to to be the beginnings of a transformation of how we think about nonprofit work in The US and how we structure it. And and the fundament for that change, you know, I see as as fiscal sponsorship.

I love the analogy and and kind of the comparison. You know, the holding company side, I've I've I've used that kind of an that that kind of thought process, but the condominium tower and, like, that ownership and decorate expression side of it makes sense too quite a bit. I guess, could you give some numbers? I you know, one of the articles I read that you had written, you know, like 1,900,000 nonprofits and counting. You know, of the things that that came to mind with me with this is the fragility of the system.

You know, when you have all of these little nonprofit, you take, you know, local theater company or community organization or whatnot. It's a lot of I I've created three nonprofits as well as for profit companies. And the nonprofit, it's not an easy process. So could you give me a little bit on the numbers, the fragility of the system, and and what that kinda means for where we are today?

Not unlike the private sector. We have about 30 some 33,000,000 small businesses out there, right, on the for profit side. So just to place this number in context, it's not this kind of profile isn't necessarily unique to the nonprofit sector, but there's some reasons that the profile of the way the sector lays out in its numbers and figures contributes to a certain degree of fertility. The sector is about 1,900,000 nonprofits. Roughly 90% of those operate below half half million dollars a year.

70 some percent of those organizations operate below $25,000 a year. So it's extremely tiny and are likely at that scale, essentially all volunteer organizations like your your local friends of your pocket park in your neighborhood that might just be all volunteer and they raise a few dollars every year to have a picnic. We have thousands and thousands of those types of organizations. So most of the sector is small. A lot of it is is centered also around urban areas and particularly coastal areas.

We have a we have a lot of deficits of of nonprofit infrastructure in in rural and extremely rural areas of the country. So it follows a lot of the patterns of innovation and social organization as well that we've long experienced since the industrial revolution in America. What's challenging though, is that at that scale, there's nothing essentially wrong with that many organizations, but there are significant challenges in obtaining resources and the finance and the money to do that work, particularly at small scale, as well as manage those entities. To your point, there's a lot of work in just maintaining a corporation in a corporate form. An entity, you have to file tax compliance every year.

You have got to insure it. You have to do its books. You have to do various reporting to funders and donors. So there's a lot of administrative labor and management that goes in. And most people going into the nonprofit sector, and I would say this is true of a lot of small business owners as well, they go into it because there's a thing they do or there's a mission or purpose that they care about.

And they may have very specific relationships or know how or skills that allow them to either start that business or that nonprofit, they don't go into it to do the admin and the infrastructure side. That's kind of a necessary Right? And I would say that that, you know, that's something that probably the small business community and this and the nonprofit community share. Right? The the big difference, though, between the two, you know, the on the on the for profit side, you are you are taking kind of a private risk and private interest in your business.

You know? You're there to to make money, to grow value. Maybe you wanna sell it. Along the way, you're doing something hopefully you enjoy. On the nonprofit side, you're also doing something hopefully you believe in and enjoy, but the purpose is different.

It's not to earn profit. It's not to build a private asset. Everything in the nonprofit community is all the assets are public trust. They enjoy fundamentally different status than private assets and private resources. They, as a result, have available to them a lot more government funding and they also have this thing we call philanthropy as a major source of finance available to them.

Both of those sources of funding require a lot of labor to engage and obtain, And the care and maintenance of those 1,900,000 nonprofit corporations remain substantial. In the private sector, there is an interest to enclose assets and resources. If you're a private owner, you essentially wanna put a wall around your assets and say, These are mine. These belong to me and I'm building and maintaining. I own these things.

In the nonprofit sector, all of the resources are public trusts. They are technically for the purpose or benefit of the general public if you're a five zero one c three. And legally, what that means is they're practically the the property of the people of the state in which you're doing your work. It's it's kind of almost close to a socialist or communist notion of ownership. Only in so far as that that the assets you're stewarding, you don't I would argue that nonprofits don't own, they steward.

That's why that that I use that term in our title. Stewardship. Yes. But it's a stewardship process because we are basically stewards of resources on behalf of the people that we serve with those resources. That's what we do.

If you if you accept that those assets are fundamentally different from private assets, then it suggests that the infrastructure to manage them should be very different.

That makes sense. That makes a lot of sense. I wanna go back to you'd mentioned the difference between, you know, with obviously, there's a different level of philanthropic organizations and and and nonprofit organizations in coastal or more urban populated areas. Is fiscal sponsorship potentially a way for rural communities to engage their populations more to start something? Because can a regional community foundation or regional fiscal sponsor organization potentially have a role in that?

Is that happening already? Is that part of the outcome? What is the long term vision for where fiscal sponsorship might be if if if that is if if the organization could wave a magic wand and go, this is where we'll be in ten years. What does that look like? Does the rural aspect of that have something to play?

Yes. And I'll address the kind of rural question as the kind of period on this this next sentence. Jumping off from where from my last statement about sort of we need different infrastructure for public trust assets versus private, that infrastructure in my view is is more shared infrastructure. So if the assets are not held by one person or one group of people, but really to benefit all the people in a state or bit writ large in the country, then we don't need all these little tiny entities and and corporations to enclose and manage those assets. We could be sharing a lot more infrastructure more easily, more readily.

That's really the paradigm shift as asset based that I'm interested in. And if you follow that logic to its extreme, what we should have is many, many more fiscal sponsors that are locally, regionally, or mission specific or identity specific. Fiscal sponsors can be organized around lots of different things. Often it's geography, often it's a particular mission focus like environmental conservation or arts and culture. And increasingly, it's also often has an identity overlay.

This organization is a fiscal sponsor for black and brown artists in this particular area. Getting very specific about the intentional community that's being supported and being brought together is certainly a hallmark of the practice in more recent years. We see that trend of specialization and localization continuing. Instead of 1,900,000 tiny nonprofits living those lives of quiet desperation out there. I would rather see 10,000 fiscal sponsors stewarding all of those various missions across the country in every mission, in every kind of village and county and locale.

By the way, I think that number 10,000 is an accidental or just completely invented. There is a bit of a math behind it. I think we could probably defragment the nonprofit sector substantially through something in the order of 10 to 20,000 such fiscal sponsors operating at a high level and with strong practices and all the things. But that would be sort of my proposition for essentially radically reorganizing the infrastructure of our sector, moving it from 1.9 tiny little fragment million tiny little fragments up to much more regionally and locally organized systems of nonprofit infrastructure sharing and fiscal sponsorship being the kind of, core practice in plumbing for that shared infrastructure. So that's the big of hairy audacious vision that that we hold for the sector.

And we would we hypothesize that if that were possible, we'd have much more resilient and and and kind of anti fragile systems underpinning some of the most critical areas of civil society and social benefit work out there. So that's that's that's the vision. And and I actually think that kind of infrastructure and organization is much more, I would say, native or endemic to the legal and financial and economic underpinnings of what the nonprofit sector is meant to be than the way we've built it so far, which is largely modeled on the private sector. That's why I was making that comparison earlier that we essentially took the private sector's infrastructure because it's something we knew and we adapted it to the nonprofit sector. I think that was fundamentally a morbid adaptation.

I think we went down a bad path in making that assumption. If we have this landscape of say 10,000 fiscal sponsors operating across The United States and touching every corner, we've built essentially a different financial set of highways and byways through which philanthropy and other resources can move. Because along with the deserts and infrastructure comes also deserts and actual money and philanthropic funds. So not surprisingly, philanthropy in The US is currently very concentrated around at the edges of the country. There's a bunch in the oil rich South and some in the Midwest around Chicago.

Then otherwise it's a very urban and to a great degree coastal concentration where all the money sits. While some of that money is national in its scope and reach, most philanthropy is very local. That means rural communities not only lack infrastructure, but they have very little money to play with or access even if they had the infrastructure. And so one solution to that is to essentially like, we've stitched the electric grid together and telecommunications together, in mid twentieth century with AT and T and that moment of monopoly that AT and T had. Without getting into monopolistic practices, I think this network of fiscal sponsors across the country would allow essentially money that sits in urban areas to directly subsidize infrastructure and capacity that sits in rural areas.

So if you're a nonprofit leader in, let's let's let's say a poor county in Western Massachusetts, Massachusetts has some fabulous wealth on the coast, but also some real poverty in some of its inner counties. And if you're sitting there, even if you could build a nonprofit, you might not have access to the money to power it. But you were fiscally sponsored by an organization that operated across the Commonwealth of Massachusetts and held a lot of project activity that was seated in Boston where most of the philanthropy is. The cost allocation, so fiscal sponsorship is is predicated on essentially almost like a tax model. It's a percent of income that pays for the shared service, so it's like a cooperative.

If you've got folks who are tapping philanthropy in urban areas, some of their money is paying for the infrastructure that's supporting your work in your rural county. And so it's creating ways of moving subsidy around the country that the philanthropy itself may not be willing or interested to do, but the infrastructure carries that water and allows that to happen. I do like it to the electric grid for nonprofits. That's a way to address a lot of these various levels of desertification that we see in rural parts of the country.

That makes a lot of sense. And I think, you know, as we look at ways to reinvigorate rural communities to bring back innovation in those communities, I think this this system or the fiscal sponsorship definitely feels like a a way to help, as you said, bring, you know, water bring water to those regions, in the form of funding. So from there, how do we get there? This is, you know, kind of we need creative thinking. Obviously, you know, the the second tenant of design economics is to embrace creativity and kinda get out of the orthodoxy.

And the nonprofit sector and philanthropic sector can be very orthodoxy. I mean, there there is a lot of rigidity in that system. So how do you envision changing these things, and is there a strength that's gonna come out of this as well and where we're at today?

Yeah. I I I think we can change it. You know, I'm a big David Graebarite, you know, and one of one of my, favorite aspects of his thinking, which he constantly reminds us of throughout his writings is that all this stuff that we confront today as many of us think as illnesses, income disparity, all these injustices. Yes, they've existed throughout history, but a lot of the economic and infrastructure assumptions we make today are very new. It wasn't always this way.

And moreover, it could be entirely different fifty years from now, one hundred years from now. So we have to engage in, lift ourselves up out of the myopia that we tend to settle into and really think much expansively, and I think we can. While I would not wish the manner in which change is happening currently on any society, There is the possibility that the extreme stress of this current political and economic moment could yield some interesting disruption and destruction of some of these orthodox systems, really are holding us back. Our problem, I think, is is fundamentally ontological. It's about changing assumptions and attitudes around how the or the world can be organized.

I think that's our biggest barrier. I don't see the change from where we are now to what I just described as being predominantly a technical problem or even a capital problem. Those are

The money's there.

The money's there. The technical like, we we know how to run the wires. We know, you know, how to how to build the plumbing and and how to frame the house. Like, those are all technical things. What we don't have is wide subscription and understanding awareness of this possible future, both on the side of philanthropy and part of the capital equation, But also in the nonprofit sector itself, we live in a overwhelm I mean, is an obvious statement, but overwhelmingly dominant free market capitalist in in the last forty years, deeply neoliberal culture.

Yes.

Our assumption is that if you have a new idea for innovation to take hold, have to start The first thing is we start a new company and we form a new legal entity and we go from there. Be that for profit or nonprofit. Fundamental starting assumption that I just named is something we have to jettison if we're going to imagine this new world. For example, what if when you wanted to start a nonprofit, it was legally required that you started a fiscal sponsor and only spin out onto your own if necessary or under certain circumstances. It's not the current legal way that we've written the tax code.

That's not what a CPA will tell you if you roll up to them saying, I wanna start a nonprofit. It's not what your average lawyer will tell you. Those are, by the way, where most people land when they want to start something, either with an accountant or an attorney. They'll say, Well, first you got to start an entity, you've got to form it at the state, and then you've got to take it through federal exemption. Right?

That that's the the path. That's the path that we need to undo. And to my mind, that is a narrative shifting, ontology shifting, and movement building exercise that includes not just the folks that start and populate nonprofits, but also the adjacent industries of law accountancy. And I think ultimately it may even require legislative changes to how we the fundamental assumptions around how we form and generate the sector. I even have even more outlandish visions that we could build the sector around a type of individual person, which is how I actually see the sector.

I don't see the nonprofit sector as populated by entities or organizations. I see it populated by a particular type of human who wants to do this, is very mission driven, is not predominantly or fundamentally profit or private asset building driven. That's not their They wanna live a good life. They need to pay their bills. They need to support their family.

Goes without saying, but their interest in the world is something other than those things. I often wonder whether we completely jettison this idea of the world being organized around legal entities and instead civil society work becomes some almost guild like structure where you become an accredited valorized member of a community of people that do this work. And you gain that accreditation through your acts, not through your education or your social or socioeconomic pedigree. Those who might be concerned about equity in in that consider. I I think those are also problems.

We have a overly white and overly educated nonprofit workforce, and I I don't think that's necessarily a good thing at all. But if you are a proven trusted broker in a community of social benefit work, that should be the standard. To me that feels a little bit more like a giant guild than a collection of nonprofit organizations. I think we actually have placed the emphasis on what we're supporting and nurturing and valorizing entirely in the wrong place, namely the inhuman thing of an entity when it's-

The entity itself as opposed to the person who wants to do the work.

That's Think about it. Nonprofit tax status attaches to an inanimate entity, not the humans that do it. There's something deeply, deeply illogical about that.

That makes a lot of sense. In the in the way it's currently set up with you setting up a business. It's it's compared to the private sector. It makes sense in that capacity. But when it comes down to what usually motivates people to wanna do something, I wanna start an art collective.

I wanna start cleaning up my beaches. I want to clean this pocket park. Whatever it may be, it really is an individual that that starts it or maybe a few of them. And and and so there's still an entity ish nature to it or a partnership nature. But that's, I guess, the guild side of it is people guiding and shepherding, stewarding people.

But then being funded through infrastructure and having this that side of it.

I mean, that that's where it comes back more to a kind of if you go back to the original tenants of commoning and sort of commoning work the way, say, Eleanor Ostrom or some of the key thinkers in that field talk about it, that there's there do need to be rules, there need to be structures. It can't be completely lawless and without some order and structure. I believe structure is good, but the question is what structure and where is the center of that structure located? I think that's one of the fundamental questions we have to ask ourselves today. If you look at a lot of the narratives that are out, particularly in the press and in the political discourse today, that the nonprofit sector is being demonized as being somehow bloated or corrupt or even more corrupt accomplice to government.

And if you look at the history of nonprofit regulation, going back to the first chartered philanthropy of substance in The United States, the Rockefeller Foundation, nineteen thirteen, our relationship to trusting people with charitable funds has always been one that starts with distrust. And that that's the the beginning of the nonprofit history in The United States was one of distrust. So just to expand on that, when Rockefeller when Standard Oil was busted up in 1911 by Roosevelt, ironically, Rockefeller's net worth skyrocketed because he had been suppressing the value

of the company.

Famously. He went And he had already been investing in medical, some of the first modern medical infrastructure and research hospitals and things. But that was when he said, Okay, I'm gonna start the first national foundation. He went to Congress with that and Congress looked at that and said, This sounds like a horrible idea. And they said no, which sent him back to New York state and New York state legislature gave him the charter.

That point, corporations had to ask for legislative permission. It's not like the way it is done today.

He had to do that in multiple states then, didn't he? It's been a little while, but I did read a bio on him and it was mostly about his foundation work and that starting of that process because it wasn't national at first.

Yeah. It it it it had actually started before that moment. I mean, he was already doing a lot of essentially charitable work. Yeah. And it wasn't long after that, nineteen sixteen, seventeen that we got the charitable tax deduction and really sort of the modern nonprofit sector was born.

But I just find it interesting that our first encounter with the notion of charity coming out of a private sectoral notion was a hard no. That was like and and it was one of mistrust. I mean, congress was also asking how can you guarantee that your descendants, when all of us are dead and gone, are going to continue to do good with this money? These are not illegitimate questions, we have to think about how much of the sector starts from this position of distrust. Now we have this movement in philanthropy of trust based philanthropy that finally now after a hundred years is recognized that most philanthropic relationships start from a position of distrust.

And a lot of the infrastructure we've built, entities, their jurisdiction under the state's attorney general and compliance processes and all this stuff is coming from a fundamental place of assuming that there's fraudulent intent. And I think it's somewhat ironic that this whole sector that's largely populated with people who are notoriously uninterested in personal profit, often to their detriment, is so distrusted. Now, as we sit here, I believe the nonprofit sector still holds greater trust than government and other institutional areas, including private, big business in terms of the American, some of the recent surveys. While the sector gets vilified in the press for being brife with fraud, of course, the reality is that's not true. And I think actually fraud in the sector is vanishingly small even compared to the for profit sector.

If we accept that reality and we indulge in a little bit more social trust, we may not need all of these layers of infrastructure and bureaucracy just to ensure that there isn't misuse. I'm just about finished with Ezra Klein's new book on abundance. This is one of his thesis that we've built all of this bureaucracy much to our detriment.

What worked before has now become detrimental. I just finished the book this week as well.

Yeah, I found a lot of resonance in what he's saying about sort of innovation and private versus government investment be very deeply resonant with what I see to be problems in the nonprofit sector as well.

So one of the things, talking about this kind of paradigm change and creativity, one of the things I stumbled on earlier when we founded the Institute for Economic Evolution was the fact that the field of economics is only concerned about GDP driven transactional monetary markets. And so there is no economics for the social sector. And Yeah. It's kinda as we're talking here, you really get it was started as an entity by a a philanthropist. And so it's no wonder we still center the social sector on the philanthropist as opposed to centering it on the people that it's serving.

Yep.

And so I wonder as we move into our third tenant and and in building economic literacy and and adding to the vernac this is where the work we're trying to do with the institute with this podcast of bringing ideas so that people stop thinking of economics as this ivory tower that nobody has the concept of because the math is too difficult. No. Economics is what dry what or economics we see as an observation of how society is running and can run as opposed to a straight jacket. Yep. And so one of the things we see here is how is the dialogue changing around fiscal sponsorship and around organizations talking about this?

Because as the dialogue changes, that helps the creative change happen within organizations.

Yeah. It it is it is one education awareness and and quite literally language and and and dialogue as well. We have been advocating for a shift in the term around the field. Fiscal sponsorship, as I said, was coined by an attorney, and has very specific legal rationales behind those why those two terms were chosen for the the name of the practice. But as I said, they're not, you know, ensconced in law or or regulation, they are a term of art and and they could evolve and change as as much as any language does.

And we've introduced or proposed a term management commons, which I started to test out when I was running the arts and culture fiscal sponsor I started in Philly, largely because the term fiscal sponsor really, it it either said nothing to people. They they looked at them and said, what is that? That sounds really wonky. I I don't understand what that is. Mhmm.

Or at best, it said something negative to them. Like, that sounds like something I don't wanna be involved in. It's one of those terms that just kind of has a a little wonky, slightly paternalistic overly

centers on the fiscal as well and not the rest of the infrastructure.

Totally. So it it it was proving not terribly wieldy in talking about what we were doing. And so he said, well, what if we just started, you know, saying what it does on the box? You know? That this is a nonprofit that that essentially commonized or cooperatized its infrastructure.

When you come into join our community with your with your organization, you are essentially becoming a shareholder in our in our management co op or our management comments. We coined this term management comments as a little bit more friendly and descriptive and hopefully evocative term for what this is. Along with that though, comes some very significant attitudinal and I would say ontological shifts. Some of the hardcore thinkers in the commoning world like David Bollier and Silke Helfrich talk about the concept of OntoShift, that's their term. A kind of acute way of saying that we need to change the very way we think in order to understand new horizons of organization.

Started not using the word Fiscal sponsors historically talked about fees and they've constructed the practice as basically like a service. So you come in, we do your bookkeeping, we do your legal, we do all the back of house stuff and you pay us a fee. That frames it entirely in a commercial transactional way. When you frame what you're doing in that way, you get the behaviors that go along with that. You get unhappy customers or customers with specific expectations.

It's a very transactional relationship. All those things that baggage comes with it. We said, well, we're not charging you a fee. You allocate a portion of your costs. We started talking about cost allocations because this is a co op.

You

carry a share of our bookkeeper and all the infrastructure you share, you have a little proportion of that. That's a percent. That's a proportion to your overall size. You're paying your fair share, but it's allocation. We stopped talking about the folks, the sponsees as customers or clients or any of that language, we called them members or affiliates.

And more and more sponsors are doing that. And it's it it it it's you know, it's not overnight, but that starts to change the way people behave with each other. We also started asking people coming in, not what do you need from us, like a service provider, what's the service you need? We also asked that we were interested in that, but we also asked them what can you contribute to this community and to us? It was a mutual conversation from the beginning.

So all of those kinds of predicates start to change culture, change the way people relate to each other, and that's the hard work of ontological shift. I mean, it's one thing to say that as a conceptual move, but the work happens at the intersection of language, intentionality, values, and trust. All those things have to come together to create a different culture. The business sector for decades now has been talking about culture. Maybe thanks to Peter Drucker and the folks of his generation that really introduced that into management thinking.

We are talking about a fundamental cultural shift. That to me is almost synonymous with ontological shift and how we think about our relationship to each other, how we get work done, and most importantly, how we can share more of this infrastructure instead of duplicating it and and laboring under its its yoke. You know? That's a just a little bit of an example of how, you know, some of some of that intersection and how we're seeing that show up in the evolution of the field.

Makes sense. That the fiscal the the language around that because I was on a the the first charitable board I was on that wasn't a trade association or young professional group. We were a an advisory board and we were fiscally sponsored by an education organization and it was very much our advisory board always talked about it very transactionally. Oh, they take 10%. They take 10%.

They take 10% and there's always a conversation. Should we start our own? Should we start our own? And I think it's, you know, just in that reframe of cost allocation. Okay.

There, you know, it's 10% of of revenue is going to this cost, but it would be 20 or 30%, or your revenue would be x amount lower because of the pressures of of doing it all on your own. So I I think that change is good. It I wanna dive into a little bit on the culture within the social sector because I think this is something to in changing the vernacular and getting the the grassroots, the the professionals throughout the field to start talking about their own sector in a different way, in a more uplifting way. Because I think what's happened too is so much of the management practice of the for profit sector of doing more with fewer people. You end up with, you know, fundraising teams and event planning teams and organizations and, you know, staff and museums that are doing so much more than they should be.

And how can you be a human centered mission driven organization if your own workers are so unhappy and and is disengaged? And does this new way of looking at things maybe impact that as we go forward to change the kind of face of the social sector?

I think so. I mean, I I think there's there's an attitudinal a and a kind of system shift that is is in part happening. I'm not saying it's not happening, but it it's it's very nascent, very tiny compared to what would be required to really have a sector that feels very different from the way it does today. I I think the first attitudinal shift or I mean, this you know, go back to that kind of fly under the rubric of ontology as well is moving from an ownership paradigm to a stewardship paradigm. You know, I still feel that boards, nonprofit managers, founders still approach everything from an overwhelmingly ownership oriented Yes.

Perspective, where their job is is preservation of the firm at any and all cost. It is one of, you know, Enclosure and and and Enclosure's relationship to traditional notions of economic ownership to this other paradigm we've touched on several times about being sort of a steward of public assets that are for public benefit or common's benefit. That's one mental shift that we need to make. To the economics and efficiency side of things, much of what the nonprofit sector does suffers from the classic challenges of Baumol's cost disease. That there isn't necessarily in all cases, there isn't a technological trajectory for what is being done that will create human efficiency.

I mean, the the arts are actually a classic case for this. If you you want to play a symphony, you still need just as many people to put that symphony orchestra on the stage as you did two hundred years ago today. Yeah. Right? There has been no technological advancement that has made that more efficient inherently as a as a thing, as an activity.

And you could say the same for a lot of human services. You could say the same for, you know, a a a vast amount of what happens under the the the charitable sector's guise. Within that, though, there are opportunities for removing as much of that cost disease as possible, I e, through taking advantage of what is largely mission agnostic and the kind of core back end plumbing. You know, that's where I see the most opportunity there. So those not only just the back office staff, but the nonprofit sector is is is tremendously behind and technologically fragmented.

It has it does not leverage current advancements in technology, you know, not just AI, but others, the degree to the degrees it it it can and should. But along with that goes, you know, sharing more of the human know how, you know, to operate those systems and and care for those systems and make sure they they are optimized and efficient. Fiscal sponsors are kind of and the fiscal sponsorship practice is a way to start to aggregate and share those kinds of systems at far greater scale. Does everybody really need their own CRM system and a $200,000 implementation fee from a Salesforce consultant and $25,000 a year in licensing fees? Duplicated 1,900,000 times.

Of course not. I mean, that would be absurd. But we kinda have something close to that, and it is absurd. It's it's a phenomenal you know, if there's waste in the system at all, I I would say it's that. You know?

And so there are certain aspects of the infrastructure and systems that we can definitely ratchet up the efficiency of enormously without necessarily losing on the pluralistic side of things as well as on just the parts of of nonprofit work where there is no technological scaling solution. I'm sorry to the folks in Silicon Valley, I believe that there are just human limits and certain activities like art, culture, and various intentional community type missions, religion and faith, etcetera, that have nothing to do with technological scale. They rest on it, they utilize technology. That's not a Luddite argument, but we will always need an army of people to get a lot of this work done. We just need to think we need to think differently about some of those fundamental support structures that can be scaled a lot better than they are today.

Yeah. I agree with you on the Silicon Valley part because it really is. We should be using technology to free us up to do higher level human things.

Yep. I mean, that's where I would I would hard agree with those the Silicon Valley folks. Right? But I also think that not everything can be appified or just put up on the cloud and that's our solution. That's where we need to think more holistically about the infrastructure.

It's not just technology, but it's also our legal frameworks, our management theories, our ways of organizing and relating to work. All those things have to conspire to create a more efficient future. Yeah.

So how does one, whether it's an organization individual, go about evaluating this in their own organization or in their community? How do they find out more about Social Impact Commons and your organization? What's the best route for people to go to do that?

Well, there's our organization and website, and we have a now growing but relatively new advocacy menu and blog where we do some regular writing. That's sigilimp.commons.org. There's also the National Network of Fiscal Sponsors, which is our only peer. They put on a conference once a year and they're at fiscalsponsors.org where there's more information. I also do some of my own writing from time to time under a substack called the Under Sector, which you can find under my name or that title.

It is currently free. There's no paywall. But I think beyond that, some of the resources in the commoning world, the work of Eleanor Ostrom, the work of David Bollier, I think in particular is very powerful. He has his own website and set of resources. There's a lot of great thinking there.

And I would say that my intellectual progenitors in thinking about economics or the political economy of the sector really are David Graeber, Michael Hudson, and some of the folks that revolve in their circles. Those are, I would say, additional resources for further reading in how we can think differently. I was particularly impressed by David's, I guess, last book. I think it's his last book called Free, Fair and Alive, which is kind of his summon on the commoning world. And it's a great, great book.

A lot of the ideas that we've adapted have have been adapted by from that work.

I will drop all those in the show note web page as well. I have what does the social impact comment? So is there a way to engage with the organization? Like, to do this, how does how does the organization support people? Like, right now, somebody in x community decides to reach out?

So we are a member based nonprofit. So we're what's called a supporting organization, which means that we're member governed. So true to our our our beliefs and what we espouse, we we wanted to walk our own talk. And you become as an organization, a member, if you're a nonprofit or a philanthropy, we actually also have a membership for adjacent for profits. If you're a consultant or an accountant or a lawyer, you can also join the community.

But first you choose one of our membership paths, there are two of them. And with that, you can engage in regular conversations that we curate. We have a library of tools and then we do direct technical assistance and support to build these structures. So if you're a nonprofit and you wanna build a program like this or do this work in the community, we can help you build it. We do that through direct one on one work.

And finally, engage in both research and advocacy on the sector and publish things like the field scan you mentioned and other studies of what's happening currently in practice. So those are the ways to engage.

Well, Thaddeus, this has been a wonderful conversation. I appreciate having gotten to know you and bringing bringing this to our listeners as well. So thank you for being here today.

You're very welcome. It's a pleasure.

We hope you enjoyed this episode of the design economics podcast. We will be back next month with another engaging conversation. You can find the design economics podcast wherever you listen to podcasts. Please check out our show notes on our website, designeconomics.io. The design economics podcast is produced by the Institute for Economic Evolution, and I am your host, Vinny Tafiro.

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