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More on the “New Normal”

I’ve been talking to a lot of people about my last blog on the “new normal”—a term that suggests we may be in for a new economic paradigm for our country and the nonprofit sector.

The “new normal” phrase in today’s economic context is generally attributed to Bill Gross of PIMCO, a man of strong opinions. In his July 2009 column he describes the new normal as a time “where growth is slower, profit margins are narrower, and asset returns are smaller than in decades past based upon the delevering and reregulating of the global economy, which in turn should substantially inhibit the ‘gorging’ of goods and services that we grew used to in decades past.” He predicts this trend will continue for a “generation at a minimum.”

I’m not foolish (or smart) enough to predict the future of the economy, but daily news coverage certainly is offering a steady drumbeat of interesting economic news. Thursday’s (July 16) Washington Post reports that “living in a battered economy has forced many newly penny-pinching Americans to no longer outsource chores.” For the first time in many years, people are cutting their own grass, ironing their own shirts, and cleaning their own houses. The article quotes trend forecaster A.J. Riedel, who “says 55 percent of respondents to a recent poll said they would not go back to old spending habits should the economy perk up.” Thursday’s Wall Street Journal has another article on the possibility of a “jobless recovery,” where the economy picks up but employment continues to hover near 10 percent. The blog “The Economist’s View” argues that the economic downturn marks a significant change in consumer thrift and households are likely to remain credit constrained.”

What could these projections mean for the nonprofit sector? First, I think we need to come to grips with the fact that it will take many years for foundation assets, and, therefore, foundation grantmaking, to return to 2007 levels. A financial planner I know told me he is advising his clients to “get over” the fact their retirement assets will never be the same. Yes, new foundations will be created to cover some of this reduction, but not all of it. As for individual giving, it could spring back quicker, but we still need to see things like unemployment decline and continued stock market increases before individual confidence returns.

What will this reduced revenue mean for nonprofit organizations? This week’s Nonprofit Quarterly observes that most nonprofits are small businesses and small businesses are not doing very well in this economy, citing a recent New York Times article that reports that businesses with fewer than 20 employees have accounted for 53 percent of all job losses in the private sector—even though those companies employ only 20 percent of the employees. NPQ includes Paul Light’s potential scenario of an “arbitrary winnowing” that would “result in a rebalancing [of] the sector towards larger, richer and fewer [nonprofit] organizations.”

An experienced nonprofit leader I spoke to last week took the long view, suggesting that as certain sectors decline, causing momentary discomfort for some (cars), as others have in previous decades (railroads and steel), others will grow (computers and biomedicine). He predicted the economy will hit some nonprofits differently than others, with some regions and sectors doing OK and others suffering deep decline. I like this more granular perspective, reflecting a variety of results and opportunities for different types of nonprofits.

Having less money—or living with a slower rate of growth—may in fact be an opportunity, forcing us to re-think what we do and how we do it. Is it time to focus more of our energies on our core mission and outsource more of the activities that others can do better? Does the “new normal” mean more collaboration rather than trying to do everything on our own? Could this be the beginning of a new period of ingenuity and creativity? It would be a tragically wasted opportunity if the new normal slowly drifts back into the normal we’ve always known.

Topics: Economy