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August 2025

Welcome to the August edition of The American Enterprise. This month, we are featuring pieces from Daniel Stid on the future of federal funding for nonprofits, Yvonne Chiu on why the US should defend Taiwan, and Mark J. Warshawsky on how better digital tools can help cut down on illegal immigration and reduce controversial raids.

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The New Era for Nonprofits <[link removed]>
By Daniel Stid

For six decades, the federal government has both funded and relied on nonprofit service providers to implement a range of policies and programs passed by Congress. But now, this system is collapsing.

The government supports many nonprofits directly, through federal grants and contracts, and indirectly, through funding streams that pass through state and local government. However, the second Trump administration now routinely expresses hostility toward nonprofits and has declared <[link removed]> it will “stop funding NGOs that undermine the national interest.”

The administration has made good on this
vow with grant reviews <[link removed]> and cancellations, spending freezes, impoundments, and recissions. Tens of thousands <[link removed]> of nonprofit employees have already lost their jobs. The spending cuts enacted in the One Big Beautiful Bill passed by MAGA Republicans will further crimp federal funding for nonprofits <[link removed]>—even as it increases demand for their services.

However, the hybrid system’s demise is not something we can attribute only to
the administrative tornado that is the second Trump administration. Tracing the system’s historical evolution indicates that its sudden toppling resulted from mounting contradictions that, like so many termites, ate away at its foundations and legitimacy for decades. In light of these accumulated problems, we should not try to salvage the old hybrid system. But we can reimagine it—and now have little choice but to do otherwise.

The Rise of the Hybrid System

The public-private hybrid system of service provision originated with liberal reformers in the early 1960s. The Ford Foundation piloted several programs that used community-based nonprofits to deliver services and benefits to urban residents. Democratic Presidents John Kennedy and then especially Lyndon Johnson picked up on and sought to embed these approaches into federal policies. They formed the backbone of Johnson’s War on Poverty and his expansive push for a Great Society through initiatives like Head Start, VISTA, Job Corps, and community action programs.

It was not only liberals and Democrats who favored the federal government’s growing reliance on nonprofits to deliver its domestic policies and programs. In 1977, conservative scholars at the American Enterprise Institute published a report titled To Empower People: From State to Civil Society <[link removed]> on how the federal government could and should implement its policies via voluntary groups and congregations. These ideas gave Ronald Reagan and George H. W. Bush a template to reduce the government's bureaucratic footprint by turning instead to what Bush later termed “a thousand points of light” in civil society.

The ongoing development of the public-private hybrid system featured prominently in subsequent administrations across both parties. It was embodied in Bill Clinton and Al Gore’s quest to reinvent government <[link removed]>, George W. Bush’s initial push for compassionate conservatism <[link removed]>, and Barack Obama’s efforts to spur social innovation and fund “what works <[link removed]>.” It has been, up until recently, a bipartisan endeavor.

This approach has led nonprofit service providers to become increasingly dependent on government policy and funding streams. A recent Urban Institute <[link removed]> survey of nonprofits highlights this dynamic, finding that “in 2022, 68 percent of nonprofits received government grants or contracts and 29 percent of nonprofits’ revenue came
from government agencies.” Thirty-eight percent of the responding institutions had directly sought federal grants in 2022, and 27 percent had received them. Ten percent reported that they had received federal contracts.

The Fall of the Social Services Industrial Complex

From the outset, critics of using the hybrid system for delivering social services flagged its inherent risks. Liberals like Democratic Senator Daniel Patrick Moynihan and Independent Sector President Brian O’Connell warned that nonprofits’ growing reliance on government funding threatened their ability to serve as agents of pluralism and countervailing power. As O’Connell put it <[link removed]>, “My experience tells me that long-term government support of an agency or complex of agencies creates a quasi-governmental entity with decreasing value as an independent force.”

In Nonprofits for Hire: The Welfare State in the Age of Contracting <[link removed]>, an important 1993 scholarly study, political scientists Stephen Rathgeb Smith and Michael Lipsky validated these concerns. They also documented how the hybrid system had led nonprofits to become less voluntary and responsive and more professionalized and bureaucratized. Under its auspices, more and more nonprofits functioned as agents of state authority with the people and communities they served, an ambiguous role that risked muddling the legitimacy of government and nonprofits alike.

Meanwhile, many of the same conservatives who back in the mid-1970s had welcomed the public-private hybrid as a way of empowering people realized two decades later
that they had underestimated the threat of government co-option. Under the hybrid system, Peter L. Berger and Richard John Neuhaus <[link removed]> observed, “the very vitality that originally distinguished the [nonprofit] institutions from government agencies is destroyed. Indeed they become government agencies under another name. This is not just an eventuality. It has already happened, across the board.”

Reform-minded leaders and civil servants in the Clinton, George W. Bush, and Obama administrations sought in different ways to fix the hybrid system by reining in bureaucracy and using data and evidence to fund policies, programs, and nonprofits that delivered better results. However, these efforts did little to stem the massive flow of federal funds to and through federal agencies, programs, and nonprofit service providers that formed what I called in 2012 “the social services industrial complex <[link removed]>.”

Collectively, participants in this
complex managed to resist efforts to recast the system by presidents and reformers who saw the pressing need for improvements. Ultimately, however, the complex resisted change at its own peril. Its self-defense mechanisms have shown themselves to be brittle indeed in the face of political leaders and appointees determined to “deconstruct the administrative state” and the hybrid system of social service provision that has, over six decades, emerged as an integral part of it.

Where Do We Go from Here?

Transforming the hybrid system
would have taken a sustained bipartisan commitment over multiple administrations, with each building on earlier reform efforts. In a parallel universe, where Jeb Bush won the 2016 election, spent two terms implementing a blend of compassionate conservatism coupled with social innovation, and handed over the keys of the federal government to a newly elected President Josh Shapiro, this transformation may yet take root. But here in reality, where Donald Trump won the 2016 election, and then in 2024 was reelected to a second term by Americans who had witnessed his first, the prospect for an inside-the-system transformation has been obliterated.

So long as the MAGA faction remains dominant in the GOP, the consensus needed at the federal level to reconstruct the hybrid system is a nonstarter. Moreover, with the fiscal imbalances facing the federal government—mounting interest payments on huge deficits as far as we can see, and looming shortfalls in funding for Social Security and Medicare—the resources for any such renewal would be increasingly scarce. And given all problems with the hybrid system, we should not attempt one.

Accepting the demise of the hybrid system does not mean we should sit on our hands. The individuals, families, and communities the system was meant to help are no less in need, and many face ever more troubled circumstances. Those of us who seek more effective, sustainable, and legitimate ways of helping them have a lot of work to do. We can begin by anticipating the elements that could comprise a better alternative....

Read the full piece here > <[link removed]>
KEEP READING
Better Tools, Fewer Raids: The Digital Solution to Illegal Immigration <[link removed]>
Mark J. Warshawsky
The Dire Strait <[link removed]>_____________________
Yvonne Chiu
THANKS FOR READING!
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