Have we learned the lessons of the last recession? Are we ready for the next one?

We’ve learned certain lessons well. A Madoff-style scam is more unlikely today, both because people remember the trauma and because organizations have enacted policies to prevent the same thing happening. In other ways, however, the American Jewish philanthropic field is insufficiently prepared. We need to manage endowments more conservatively; in bullish markets, it’s tempting to lean hard into volatile investments on their way up, in order to maximize returns. But when volatility turns sharply down, we realize the value of more stable assets, which trade volatile rewards for protection from volatile losses. Relatedly, we need more viewpoint diversity in our executive teams and boardrooms so that institutions don’t succumb to groupthink. It wasn’t popular in the booming 2007 market to suggest investing conservatively or getting out of the bubble before it bursts. A culture that welcomes dissent will be better prepared for a crisis.

But here’s the most important point: If we want to be prepared for the next recession, we need a new definition of efficiency.

During and after the Great Recession, organizations became more “efficient,” doing more with less money and staffing. But if that kind of efficiency saves money, it comes with its own price. According to Leading Edge’s 2018 Employee Experience Survey, only 37 percent of Jewish communal professionals feel that “there are enough people to do the work we need to do.” Many report burnout among the factors driving them to want to leave the field. This puts Jewish organizations at risk of sizeable turnover costs, loss of institutional memory and top skills, and productivity costs spawned by low morale.

Another risk of idolizing efficiency is that it leaves no “fat” to trim from budgets in a crisis. Take a Jewish day school, for example, whose funders and leaders pursue efficiency: to keep tuitions to a minimum, scholarships to a maximum, and to serve more students. But under standard peak efficiency, a crisis will invariably create more demand for tuition support as families suffer, and a hyper-efficient school budget will have no wiggle room to accommodate that increased demand. In this situation, the extreme efficiency will become a “shock amplifier.”

This kind of “efficiency” only helps in the short term; long-term efficiency is best served by resilient institutions. And while organizations can take on too much risk by chasing short-term efficiency, community-level inefficiencies can consume resources that could be better used making the system more resilient.

Read the full article about redefining efficiency by Andrés Spokoiny at Stanford Social Innovation Review.