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Poverty industrial complex

The poverty industrial complex refers to private organizations taking over social services functions that were formerly provided by government agencies. Over time, the U.S. federal government has reduced its role in providing social services and has come to rely on private organizations to carry out these tasks. Researchers explain the partnership component of this arrangement by stating: “Governments…retain responsibility for financing and payment and outsource service provision to the private and/or non-profit sectors.” While this trend has occurred in many different sectors including criminal justice, education, and environmental protection, the poverty industrial complex specifically refers to the outsourcing of government programs related to poverty alleviation and social services.

The poverty industrial complex has also been called The Charitable-Industrial Complex, the social services industrial complex, the Aid Industrial Complex, and the Non-Profit Industrial Complex. It is further related to concepts such as The White-Savior Industrial Complex, The Homeless Industrial Complex, and the Hunger Industrial Complex.

President Dwight D. Eisenhower

The term industrial complex originated with former President Dwight D. Eisenhower in his last speech before leaving the White House. Eisenhower, a former five-star military general, warned against a threat to democratic government that he named the military industrial complex. Eisenhower stated:

"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist."

Eisenhower was worried about the increasing cost of a military arms race with Russia. The military industrial complex was described as “a formidable union of defense contractors and the armed forces." In this case, the “complex” arises from the conflict of interest between military contractors’ desire for increased profits and the government’s overall theoretical goal of stability and peace.

The term industrial complex more generally has come to refer to “a conflict of interest between an institution's purported socio-political purpose and the financial interests of the businesses and government agencies that profit from the pursuit of such purpose, when achieving the stated purpose would result in a financial loss for those businesses.” The term poverty industrial complex similarly describes a potential conflict of interest between private organizations who have been contracted to provide social services that were formerly provided by the government. These private organizations have a vested interest in profit, and it is thus debated whether the practice of privatizing social services is hurtful to society, in particular for the often low-income or otherwise vulnerable individuals for whom services are provided.

History

President Lyndon B. Johnson 1965 State of the Union address

In 1964, former U.S. President Lyndon B. Johnson introduced legislation aimed at combating poverty in the United States. In his State of the Union address, he launched a War on Poverty, stating “Our aim is not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it.” He introduced significant anti-poverty legislation in the 1960s including the Economic Opportunity Act of 1964, which created the Office of Economic Opportunity (OEO), Job Corps, Volunteers in Service to America (VISTA), and Head Start. In 1965, he passed the Medicaid and Medicare Act, establishing health insurance programs for people over age 65 and people with low income. Following President Johnson’s War on Poverty legislation, the percent of people living in poverty in the United States quickly dropped from 19% in 1964 to 12.8% in 1968.

While official poverty rates have ebbed and flowed since then, there has been no significant progress in reducing poverty rates for children or families in the United States since 1968. In the U.S., the percent of people living below the poverty threshold was 11.1 in 1973. In 2022, the percent of people living below the poverty threshold was very similar, if slightly higher, at 11.5. Further, income inequality is growing.

President Bill Clinton signs the PRWORA

Shortly following the War on Poverty in the 1970s, many government agencies began contracting out service delivery programs for poor families to private organizations, mainly nonprofits. The largest growth in the privatization of public services, however, occurred in 1996 after former U.S. President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). The PRWORA is most known for terminating the Aid to Families with Dependent Children program (AFDC) and replacing it with Temporary Assistance to Needy Families (TANF). One of the major revisions of the PRWORA, however, was a “charitable choice provision,” which allowed government agencies to contract out their entire welfare programs, including TANF, Medicaid, Supplemental Security Income (SSI), and food stamps to charitable, religious, or private organizations. Further, it stipulated that religious organizations must be allowed the same opportunity to receive government funding to carry out government social services as other private organizations. In addition, one of the major goals of the PRWORA was to get recipients off of welfare and into the workforce. As a result, the government introduced new metrics that required any agencies that delivered TANF to report back metrics related to how well they accomplished this goal.

501(c)3 nonprofit organizations growth over time (IRS data)

Following these changes, nonprofits increased dramatically. Although the poverty industrial complex refers to the privatization of public services to any private organization, many government service contracts go to nonprofit organizations. As the privatization of government services increased, the number of registered nonprofit organizations increased as well. For example, 501(c)3 nonprofits refer to charitable organizations, churches and religious organizations, and private foundations that are granted tax exempt status by the IRS because they operated for the benefit of the public rather than private interests. 501(c)3 nonprofits grew from 574,762 in 1995 to 1,179,564 in 2015, a growth of more than 105%. Since 2015, 501(c)3 nonprofits have continued to rise. In 2022, there were more than 1.48 million 501(c)3 nonprofits registered with the IRS. The actual number of nonprofit organizations is even higher, because religious organizations with less than $5,000 in gross revenue per year are not required to register with the IRS, although some do. Although nonprofits address a wide variety of needs in the United States, one of the top five largest categories of nonprofits is human services organizations. Despite the significant increase in nonprofit organizations over the last three decades, little has been accomplished regarding poverty reduction in the United States, leading one to question whether human services nonprofit organizations are achieving their goals.

Examples

Temporary Assistance to Needy Families (TANF)

Temporary Assistance to Need Families (TANF) is a cash-assistance program that provides time-limited assistance to low-income families living in poverty. TANF was enacted by former President Bill Clinton through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 to replace Aid to Families with Dependent Children (AFDC). The shift from AFDC to TANF was a major change for the establishment of public-private partnerships. Prior to TANF, very few AFDC services were contracted to private companies. When TANF was established, the federal government ended the federal entitlement program under AFDC and in its place, created a block grant so that states could run their own programs. Another major change under PRWORA was that states could now contract out their entire TANF program, rather than just a few services. Since then, almost every state has privatized their TANF services to some extent. While there is limited recent data on how much states spend on TANF each year, a U.S. General Accounting Office report from 2001 found that state and local governments combined paid an estimated $1.5 billion to nongovernmental agencies for TANF administration and services.

The percent of annual revenue each company earns from performance outcome payments.

Further, a study out of Wisconsin shows that private welfare providers can earn a significant amount of money through incentives the government provides to get TANF recipients off of welfare and into a job. The study found that private companies can earn $2,000 for every participant who gets a job that lasts 30 days or more and another $2,000 if the participant stays in that job for at least three months. Companies can make $2,000 for helping participants earn a high school degree or completing a vocational training program. The amount of money each company receives for each incentive varies as these prices are negotiated through the company’s contract with the government each year, however, the study shows that incentive payments make up a significant portion of their earnings, ranging from 20-30%.

While supporters of work-requirements argue that these incentives are beneficial to help families get an education and gain employment, opponents question whether these incentives are actually lifting people out of poverty or simply getting people off of welfare. In the case of Wisconsin, companies have helped reduce the TANF caseload from 24,000 participants in 2016 to 13,230 in 2021. Despite this drop of 45%, the number of people living under the poverty threshold in Wisconsin dropped only 13% in the same period. This discrepancy indicates that rather than helping get people out of poverty, a large percent of people living in poverty who qualify for TANF aren’t getting it. Nationally, a research study found that only 21% of eligible families living in poverty received TANF in 2020. Therefore, opponents argue that rather than helping lift families out of poverty, performance payments incentivize companies to earn more money by getting participants off of welfare by any means possible.

Another research study from Florida shows that the state significantly increased the number of for-profit and non-profit private companies that provide TANF from 2000-2005. In this report, the author found that “Throughout both the state-level and multi-level estimations, for-profit welfare administration seldom improves the outcomes of TANF clients, while non-profit administration is found to more frequently, yet still inconsistently, predict superior program results.” In fact, in 2001, states that had the largest share of TANF dollars contracted with for-profit companies resulted in an overall lower amount of full-time employment for TANF participants. In contrast, states that contracted a larger share of TANF dollars to non-profit organizations, had more clients participating in work-related or work preparation activities, perhaps indicating that the type of organization matters when it comes to privatization of services.

Job Corps

Job Corps Logo

Job Corps was created in 1964 as part of the Economic Opportunity Act, another program that was part of former President Lyndon B. Johnson’s War on Poverty. The program seeks to help primarily low-income young people aged 16-24 years old get the academic and vocational skills they need to secure employment. The Job Corps program has helped more than 2,000,000 young people since it was enacted. While Job Corps is overseen and administered by the federal government, the program is carried out by local contractors across the United States. Most contractors that provide employment and training services are nonprofit or public entities such as community colleges or vocational schools. However, in some places, small and large for-profit companies have also been contracted to provide these services. One report from 2011 found that 77% of Job Corps in the United States were run at that time by just four for-profit companies: Career Systems Development Corporation, Management and Training Corporation, MINACT and Res-Care.

Job Corps has been evaluated to be one of the most effective training and employment programs, particularly because of the public-private partnership model it uses. One evaluation found that the success of these partnerships relies on oversight and monitoring by the federal government as well as clear performance metrics. Another report showed that the U.S. Department of Labor frequently reviews Job Corps contractors for their compliance with federal labor laws such as Service Contract Act (SCA), which requires contractors to pay minimum wage and “bona fide” fringe benefits to all covered workers. Contractors who do not comply with the SCA can be suspended or excluded from future contracts. These evaluations indicate that privatization can be a successful tool with the proper management. Although, the Job Corps program as a whole has been critiqued by conservatives as a waste of money. The Heritage Foundation, a conservative think tank, has argued that the program produces few results for the amount of money it spends. In FY22, the Job Corps program received $1.755 billion in the federal budget.

Child Welfare

The child welfare system in the United States is described as a group of services designed to promote the health, safety, and wellbeing of children. Child welfare services in the U.S. are run by state governments, although the federal government plays an important role establishing policies, providing funding, and supporting state programs. While states provide many services including prevention efforts, the child welfare systems is most well-known for responding to allegations of child abuse and neglect and removing children from a home that they deem is unsafe. In 2021, 203,770 chil­dren across the U.S. entered into the foster care system for a total of 391,641 youth living in foster care that year.

U.S. Department of Health & Human Services logo

Since the 1970s, state governments have utilized private agencies, especially nonprofits, to perform their child welfare services including investigating allegations, finding alternative living situations such as foster homes and group care, and providing therapeutic services to children involved. This practice increased in the 1990s as state and local governments sought to improve performance and reduce child welfare costs. In fact, to assist this process and how additional states in their privatization efforts, the U.S. Department of Health and Human Services (HHS) launched the Child Welfare Privatization Initiatives Project (CWPI) in 2006. This initiative gathered information from state and local governments who had successfully privatized their child welfare services to provide a series of instructional papers to help additional states make this transition. As a result, from 1997 to 2008, 47 initiatives were introduced across 29 states to privatize child welfare services. By 2008, 23% of states had transitioned some child welfare services to private organizations, while 13% transitioned a large portion of services to private agencies. In 2012, several states had completely transitioned all child welfare services to the private sector including Kansas, Texas, and Florida.

The legislators in Kansas and Florida have argued that privatization can reduce costs and improve the quality of services. However, research on the outcomes of public versus private service provision is mixed. One research study on the effects of privatization on safety outcomes found that private providers did worse than public providers in preventing additional instances of maltreatment within six months, but better in preventing maltreatment from occurring while in foster care. Additional research studies have found that private providers are not more effective than public providers when it comes to safety measures.

Furthermore, a host of negative media coverage has called into question the safety of private providers that operate with very little oversight. For example, a Buzzfeed investigation into a for-profit company called National Mentor Holdings found that in 2015 they oversaw 3,800 children and teenagers in foster homes in 15 states. From 2005 to 2015, 86 children died in foster homes under Mentor’s care. The company only conducted an internal investigation into 13 of those deaths. According to Buzzfeed's investigation, “Many former workers say they believe the pressure to squeeze profits out of foster care is part of the problem.”

In Michigan, a 16-year-old boy named Cornelius Frederick died in 2020 after six staff members at a congregate care group home called Lakeside Academy restrained him until he lost consciousness. A for-profit behavioral health company called Sequel Youth and Family Services ran Lakeside as well as programs in 19 states for vulnerable youth including foster children. The company had previously had multiple allegations of abuse and neglect, including the improper use of restraints. An NBC investigation into the company in 2020 found that Sequel used marketing to secure state funding for congregate care facilities despite receiving flags for violations from investigators. In 2015, Sequel’s co-founder, Jay Ripley spoke to the University of Baltimore’s business school. He said, “if we can execute great programs you are going to have more clients than you can possibly think of. It’s really like drinking from a fire hose.” Ripley reported that Sequel brought in $200 million in revenue in 2015, making approximately $30-32 million in gross profit. Following Frederick’s death in 2020, Lakeside Academy closed permanently and three states including Michigan, California, and Washington completely severed ties with the company.

In 2022, the Private Equity Stakeholder Project’s released an investigative report entitled “The Kids Are Not Alright: How Private Equity Profits Off of Behavioral Health Services for Vulnerable and At-Risk Youth.” Their investigation focused on youth behavioral and psychiatric facilities that are often used for children in the foster care system or congregate care facilities. The report states:

“Private equity’s track record for investing in youth behavioral services is troubling. A pattern of harmful conditions, often related to insufficient staffing and other cuts to expenses, suggests that private equity firms’ focus on maximizing profit over short periods of time may come at the cost of children’s and teens’ safety and well-being. Despite horrific conditions at some youth behavioral health companies, their private equity owners have in some cases reaped massive profits.”

When it comes to costs, the Children’s Bureau reviews state child welfare expenditures in an Annual Report of State Child Welfare Expenditures. In 2022, the report shows that combined, states spent a total of $32.6 billion on child welfare services. Most states do not publicly report the amounts they pay private agencies for child welfare providers. One investigation in Florida, however, found that over a 20-year period, 839 agencies received $3.9 billion in state dollars and $3.4 billion in federal dollars. The investigation further found that two child welfare organizations violated state law for providing their CEOs with excessive compensation. Eckerd Connects paid their chief of community-based care $237,600 while Family Support Services of North Florida paid their former CEO $224,028 in 2017. A report from Texas, meanwhile, indicates that the state government budget for 2021 would pay contractors $83 a day per child in the child welfare system. Opponents to the poverty industrial complex would ask what motivations do private agencies have to reduce their caseload if they are paid per child?

Child Support

Child Support program guide

Child support in the United States are payments made by noncustodial parents to help a custodial parent financially provide for a child or children. Child support payments can be made voluntarily, or they can be required by a court order. The official Child Support Enforcement (CSE) and Paternity Establishment Program began in 1975 when Congress added part D to Title IV of the Social Security Act, which allowed federal matching funds to be used to enforce child support requirements “by locating nonresident parents, establishing paternity, establishing child support awards, and collecting child support payments.” The federal government gave responsibility to the states to manage child support programs, but provide oversight and funding for the program.

In 1996, the PRWORA made significant changes to the Child Support Enforcement (CSE) program, requiring all 50 states to establish a CSE in order to receive TANF funding, and implementing significant changes that required states to be more aggressive in their pursuit of child support payments. As a result of these new requirements, many states decided to turn to private companies for their support finding noncustodial parents and collecting and tracking child support payments. By 1996, a Government Accountability Office report found that at least 15 states and more local governments had turned over their entire CSE program to private companies, while many additional states outsourced at least part of the their CSE programs, especially cases where it was hard to locate a noncustodial parent.

Through these government contracts, private companies profited significantly from child support payments. The same GAO report found that companies typically kept between 8-24% of the child support payment as profit, although a more recent article reported it as high at 25-35% of payments. The GAO reported that in 1994 and 1995, private companies in nine states collected approximately $60,000,000 and kept $6,000,000 in profits. A small portion of the remaining money that is collected is kept by the government, while the rest goes to the custodial parent, unless they are on TANF, in which case, the government keeps all of the child support payments collected as reimbursement for their TANF payments.

Supplemental Nutrition Assistance Program (SNAP)

A paper food stamp coupon from 1939

State EBT cards

It is not only nonprofit organizations that make money through the privatization of government services. The Supplemental Nutrition Assistance Program (SNAP) reduces food insecurity by providing low-income families with money to purchase food. Originally known as food stamps, the 2008 Farm Bill (The Food, Conservation, and Energy Act of 2008) renamed the program to SNAP in an effort to combat stigma associated with the program. Historically, food stamps were given to participants in the form of paper stamps they could use grocery stores and other food providers. In 1996, the PRWORA required that all states move away from paper coupons and implement electronic benefits transfer (EBT) by 2002. This change had benefits for the government, which saved significantly by reducing costs associated with printing benefits as well as for food stamp recipients, who felt that EBT was more convenient, more secure, and reduced stigma.

The change to EBT also has a significant benefit for banks, however. Private banks compete to win contracts with the federal and state governments to provide EBT cards and services to SNAP recipients. The federal government does not require private banks who they contract with to provide low-cost service to low-income SNAP recipients, allowing them to effectively make significant money charging EBT users transaction fees, card-replacement fees, and balance-inquiry fees.

Private banks “impose stiff fees on these low-income users, thereby effectively skimming off tax dollars intended for use by the poor.” For example, one study found that J.P. Morgan chase earned more than $500,000,000 from 2004-2012 through the EBT contracts they held in 21 states, Guam, and the U.S. Virgin Islands. In New York alone, the company had a nine-year contract with the State Office of Temporary and Disability Services worth $177,000,000. In addition, J.P. Morgan Electronic Financial Services charged low-income SNAP recipients $5 to replace a lost EBT card, $0.40 for a balance inquiry, and $0.50 if their card was declined for insufficient funds.

Economics

Government Spending

The United States government spends billions of dollars on social services every year. In FY23, the federal government will spend a total of approximately $6.3 billion. The largest three areas of spending include Social Security ($1.4 trillion), Health Insurance ($1.5 trillion), and Defense ($806 billion). Approximately 8% of the total budget goes toward providing social services (other than Social Security and health insurance programs like Medicaid and CHIP) for families facing economic hardship. This totals more than $522 billion and includes programs such as the Earned Income Tax Credit (EITC) and Child Tax Credit, unemployment insurance, Supplemental Security Income, Supplemental Nutrition Assistance Program, and many others. In FY21, the federal government also spent $16.5 billion in block grants to states to administer Temporary Aid to Needy Families (TANF), while state governments spent a total of $13.8 billion in maintenance-of-effort (MOE) matching funds for TANF.

Meanwhile, state and local governments altogether spent an estimated $791 billion on public welfare in FY20. However, 66% of state and local government spending for social welfare services was funded by the federal government that year. When excluding funds from the federal government, state and local government spending on public welfare makes up the second largest portion of their budget, following only spending on elementary and secondary education. In FY20, 97% of state and local government spending on public welfare went to operational costs, “including payments to Medicaid providers, payments to nonprofits or other private providers of public services for low-income beneficiaries, and program administration.” Only 3% went directly to cash assistance for low-income beneficiaries of programs such as TANF and SSI.

From 1977 to 2020, state and local government spending on public welfare increased dramatically from $147 billion to $791 billion, an increase of 437%. A large portion of this growth was driven by increased federal funding for the Medicaid program. As a result, spending for public welfare saw the largest increase of any expenditure over this time period.

State and local government spending on public welfare varies significantly depending on government policies as well as the size and make up of each state population. On average, however, state and local governments spend $2,387 on public welfare in FY20 per person nationally. Again, this amount varied by state, with Connecticut spending $1,093 on public welfare per person and New York spending $4,119 per person in FY20. If, however, you consider how much each state spends based on its population of low-income residents, spending looks different. In 2019, Massachusetts spent $17,734 per low-income resident, while Georgia spent the least amount of money, with only $4,038 per low-income resident.

Nonprofit Sector

Although it is impossible to know exactly how much the federal, state, and local governments spend to outsource social services to private organizations each year, the growth of the nonprofit sector provides insight into how much organizations can make through the poverty industrial complex. While the government has outsourced social services to many different types of organizations, including for-profit organizations and private companies, it often relies on nonprofit organizations to carry out many of its services for low-income program recipients. As previously stated, the nonprofit sector in the United States has grown significantly in the last three decades as a result. The increase in nonprofit revenue matches the growth of the nonprofit sector over the same time period.

In 2019, the IRS reported that 501(c)3 nonprofit organizations earned a combined total of $2,416,857,568. Together they reported $2,275,792,004 in expenses, for a net revenue of $141,065,563. Further, all 501(c)3 nonprofit organizations reported more than $4.7 billion in total assets. In comparison, these organizations reported $58,599,328 in total net revenue in 1995, indicating a growth of 41.5% in 24 years. In 2016, the nonprofit sector alone contributed $1.047.2 trillion to the U.S. economy, making up 5.6% of the U.S. gross-domestic product (GDP).

While nonprofits are often associated with individual and corporate donations, research shows that they receive more funding from federal and state governments than donations. According to research conducted by the Nonprofit Quarterly, 501(c)3 nonprofits earned a combined total of $491 billion from the federal government and an additional $187 billion from state governments in 2015. Combined, federal and state government funding made up the second largest funding source for nonprofits, only following the money they earn for program fees from private sources. A large portion of federal funding goes toward Medicare and Medicaid costs, followed by funding for social services. For state and local governments, 33% of funding supports social services. The privatization of U.S. government social services therefore is an extremely lucrative source of revenue for nonprofit social service providers.

Global Poverty Industrial Complex

While the term “industrial complex” has origins in the United States, the poverty industrial complex has global implications. According to the World Bank, 700 million people around the world live in extreme poverty, living on less than $2.15 a day. Almost half of the world's population lives in poverty, subsisting on less than $6.85 a day. While global poverty was declining over the last three decades, the COVID-19 pandemic and resulting economic crises saw global poverty increase again from 2020-2022.

According to the U.S. Foreign Aid Dashboard, the U.S. federal government spent $45.4 billion in foreign aid in 2022, down from $49.6 billion in foreign aid in 2015. The largest portion of foreign assistance goes to humanitarian aid for a total of $17.3 billion, followed by health ($15 billion), peace and security ($12.6 billion), and economic development ($12.5 billion). Of this aid, 21% went to foreign governments, 20% went to nonprofit organizations, and 34% went to multilateral organizations in 2018. The remaining 25% went “elsewhere.” Although incentives for the global poverty industrial complex are high, a Brookings Research Center report indicates that oversight of U.S. foreign aid is particularly stringent, requiring regular reporting and investigations into misuse by the U.S. inspector general.

US foreign aid by country 2022

However, the global poverty industrial complex has still received criticism. Mark Weber is one of the filmmakers of the documentary Poverty Inc. In a Q&A, Weber stated:

“The whole vision and the whole framework or paradigm of how we think about the poor—the assumptions, the beliefs, the institutions—have developed into a multibillion-dollar industry. Like any industry, the industry wants to keep itself in business. Whatever the good intentions of individuals working in the industry, the incentive structures of the industry itself is such that helping people actually create their own prosperity for their communities takes a back seat to the activities of the industry itself.”

World Vision logo

As an example, Weber provides information on the global charity World Vision, whose mission is to “to follow our Lord and Savior Jesus Christ in working with the poor and oppressed to promote human transformation, seek justice, and bear witness to the good news of the Kingdom of God.” They accomplish their mission by supporting disaster relief efforts, providing small loans and business training, helping provide access to clean drinking water, distributing food, and sponsoring children.

Cover of World Vision Magazine 2005

According to Weber, however, there are several reasons that the organization is identified in his documentary as part of the poverty industrial complex. First are foremost, Weber points out that in 2012, World Vision received $175 million in funding from the U.S. federal government. Second, World Vision often uses negative poverty imagery in their fundraising and awareness-raising materials, including imagery of children with flies on their faces. Weber believes this objectifies the children pictured and adds that their child sponsor program ignores the fact that the children featured have parents. In addition, in 2012, World Vision made $198 million in revenue through a process known as monetization, in which nonprofits receive surplus agricultural food products and then sell those products under market value for cash in developing nations. Weber claims this practice is problematic because it undermines the economic market in developing nations, leading to an increase in unemployment and a decrease in purchasing power. Finally, Weber claims that World Vision is one of the largest nonprofit organizations that provides free and subsidized goods around the world. This can be problematic if it overwhelms developing countries with donated goods and products they don’t need or causes local providers to go out of business. For example, for 15 years, World Vision partnered with the NFL to send 100,000 Superbowl t-shirts from the losing team to Africa, which resulted in textile layoffs for local clothing providers.

Additionally, opponents of the global poverty industrial complex argue that global aid institutions often impose Western beliefs about what makes a successful government and economic system, upholding systems of colonial oppression.

Criticism & Support

Support

Those who support the privatization of government services cite several important reasons. First, they point out that many nonprofits take the form of local community agencies, who are more accessible than government programs. As a result, they can play a useful role in helping families navigate complex government programs. This can also be beneficial in reaching underserved populations through local organizations or community centers that are able to form relationships with and provide services to specific cultural groups that government agencies may not be able to. Additionally, some argue that in contrast to large, bureaucratic government agencies, the smaller scale of private organizations allows them more flexibility, which has led to important innovation in social service delivery. Along the same lines, supporters say that privatization can introduce competition, and prevent monopolization. As a result, competition between serve providers can increase efficiency, improve the quality of services, and reduce costs.

Criticism

Opponents to the poverty industrial complex argue that private organizations have competing interests that prevent them from providing the best services to clients. Because private organizations rely on government contracts for profits, what motivations do they have to reduce the number of people who use their services?

Further, some opponents to the nonprofit industrial complex believe that nonprofits that rely on government funds have become enforcers of government rules and priorities. They point out that government contracts do not come without strings attached. As a result, nonprofits may be forced to adjust their mission or change their services to fulfil government requirements and meet specific metrics. For example, research has shown that when private agencies receive government contracts, they are usually required to obtain more information about the people they serve and report it back to the government agency than they normally would have.

As a result, opponents argue that they become government agents, rather than independent organizations, perpetuating unfair judgments of deservingness and accountability. Siliunas and colleagues state:

“Relegating service provision to nonprofits has been described as part of the general retrenchment of the welfare state, wherein the US federal government has gradually reduced its direct involvement in support for the poor. Nonetheless, this relegation has not necessarily resulted in less government involvement in their lives. In fact, the provision of resources has been a vehicle for substantial intrusion into the lives of the poor, and nonprofits have become crucial brokers in the process.”

Opponents argue that this gives too much power to private organizations. Specifically, it allows private organizations, particularly nonprofits, to use government resources to hold recipients accountable and judge whether or not they are worthy and deserving of assistance. They argue that this can lead to substantial intrusions into the lives of nonprofit recipients. Siliunas and colleagues point out several forms of intrusion that can occur including: “intrusions into their privacy (by disclosing sensitive information), their self-protection (by renouncing legal rights), their identity (by avowing a particular self-understanding), or their self-mastery (by relinquishing authority over daily routines).” As a result, these intrusions into the lives of the needy can cause people who need assistance not to use it. Long applications requesting a great deal of information about oneself can increase the stigma related to social services receipt and cause potential recipients to avoid it.

Conclusion

Despite arguments on both sides, a systematic review of the literature conducted in 1997 that compared public to private service results concluded that one is not better than the other. In a report for the Urban Institute, Nightingale and Pindus state:

“The little empirical analysis comparing the effectiveness of public versus private service delivery shows no clear evidence that private service delivery is inherently more effective or less effective than public service delivery, although the public, private, and nonprofit sectors each have their own relative strengths and weaknesses. There are examples of success and failure in both sectors. Most of the research suggests that the key factor is whether there is clear accountability for results, clear criteria in contracts, and clear public objectives.”

Media

Books

The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens (2016)

Daniel Hatcher describes the practice of for-profit companies taking over government social service functions as a huge "poverty industrial complex.” According to Hatcher, state governments and private companies profit every year, often illegally, from federal aid that is meant to help disadvantaged Americans. He explains how “the poverty industry is stealing billions in federal aid and other funds from impoverished families, abused and neglected children, and the disabled and elderly poor.” Hatcher goes on to recommend policies and reforms to correct these practices and ensure that federal aid gets to those it is intended to help.

The Revolution Will Not Be Funded: Beyond the Non-Profit Industrial Complex (2017)

This book describes the nonprofit industrial complex, like the poverty industrial complex, as a system of partnerships between the state, foundations, the owning classes, and nonprofit social service organizations. In the book, the authors describe a situation that took place in 2004 when their nonprofit organization received a $100,000 grant from the Ford Foundation. After committing the grant money to two significant projects their organizations had underway, the Ford Foundation suddenly removed their grant funding because of the organization’s comments supporting Palestine liberation. In the book, the authors claim that nonprofits and NGOs are state actors that are used to uphold the current social system and radical change will not be funded by private organizations such as nonprofits and foundations. The authors make claim that “the state uses non-profits to:

• Monitor and control social justice movements;
• Divert public monies into private hands through foundations;
• Manage and control dissent in order to make the world safe for capitalism;
• Redirect activist energies into career-based modes of organizing instead of mass-based organizing capable of actually transforming society;
• Allow corporations to mask their exploitative and colonial work practices through “philanthropic” work;
• Encourage social movements to model themselves after capitalist structures rather than to challenge them.”

Other notable books exploring the poverty industrial complex:

• Jacob S. Hacker: The Divided Welfare State (2002) – describes the employer-based private welfare state
• Steven Rathgeb Smith & Michael Lipsky: Nonprofits for Hire (1993) - explains the evolution of nonprofit service organizations
• Joe Soss, Richard C. Fording, & Sanford F. Schram: Disciplining the Poor (2011) - discusses the perils inherent in neoliberal paternalism

Movies & Documentaries

Poverty, Inc. (2010)

In this documentary, Director Michael Matheson Miller explores the poverty industrial complex by questioning nonprofit organization’s effectiveness in alleviating world poverty. Matheson Miller draws on over 200 interviews with participants located across 20 countries to investigate the global poverty industry. Poverty, Inc. “walks the audience through the pitfalls of generosity enacted on a mass continuous scale. From President Clinton’s 2010 remarks regarding his foreign-aid errors to a critique of Bono’s efforts, the concepts of paternalism vs. partnerships and the cyclical effects of foreign aid are explored.” Specifically, the film points out that despite positive intentions, global charities can produce more harm than good if they lack knowledge on the local community they are seeking to support. The documentary was produced by the Acton Institute, a free market think tank.

The Trials of Gabriel Fernandez (2020)

The term “the poverty industrial complex” was mentioned in the 2020 Netflix series The Trials of Gabriel Fernandez, which portrays the failure of social services and law enforcement to rescue an eight-year-old boy from an abusive home. Gabriel Fernandez's mother and boyfriend repeatedly abused and tortured him. Teachers, his grandparents, and a security-guard made complaints to the Los Angeles County Department of Health & Human Services, and child welfare agents and police officers visited the boy’s home several times but failed to remove the child. Fernandez’s mother and boyfriend eventually beat the boy to death. The Netflix documentary gained widespread attention for its critique of the child welfare system in the United States. Specifically, the documentary discusses the for-profit company Maximus, which was contracted at the time to provide social service functions formerly handled by government agencies in Los Angeles County. When a security-guard contacted social services regarding Fernandez’s abuse, a Maximus employee allegedly was told by her supervisor not to follow up because the company would not pay for overtime work.

Zo Reken (2021)

Zo Reken movie poster

Zo Reken is a Canadian film directed by Emanuel Licha that centers on the global poverty industrial complex. The film focuses on the aftermath of the 2010 earthquake in Haiti and the influx of aid organizations, many of which still have a presence in the country to this day. The director aimed to "blur the lines," and demonstrate how international aid can be a vital source of assistance while simultaneously upholding colonial systems of oppression. The name of the film comes from the Haitian nickname for a Toyota Land Cruiser, a vehicle that is commonly used by aid organizations in the country. The film won the Best Feature Documentary award at the 2021 Hot Docs Canadian International Documentary Festival. Those who granted the award to the film stated: “Emanuel Licha uses cinematic metaphor to evoke the dignity of a people and the human trap that is the international aid industrial complex."

Related Concepts

Fiscal federalism – an economic theory that seeks to understand what government functions are best handled at the federal level and what functions are best handled through a variety of decentralized levels such as state or local governments or privatized agencies. The theory is based on the idea that the federal government’s financial power is executed most effectively through state and local governments who are better able to tailor services to local needs.

Philanthropic Colonialism - the idea that wealthy people believe they can solve a problem in a community that they know nothing about. This can lead to unexpected consequences because the donor does not truly understand the situation.

Activist Teju Cole

White Savior Industrial Complex – term was coined by Teju Cole. The idea that white people, from a position of privilege, attempt to rescue or “save” people of color in order to justify their own position of superiority and feel good about themselves. As a result, they often do more harm than good. ““The White Savior Industrial Complex is not about justice,” Cole wrote in a viral Twitter thread, which he then expanded on in The Atlantic. “It is about having a big emotional experience that validates privilege.”

See Also

• Industrial Complex
• List of industrial complexes
• Military Industrial Complex
• Nonprofit organization
• Poverty, Inc.
• Poverty industry
• Privatization
• Social Services