Economic and Societal Impacts of Fraternal Benefit Societies

Phillip L. Swagel

McDonough School of Business

Georgetown University

September 20, 2010

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Executive Summary

With federal and state governments facing severe budget deficits as far as the eye

can see, budget decision-makers are looking carefully for ways to curb spending and raise

revenue. In making these difficult decisions, policymakers must balance fiscal concerns

against the important returns to American families and the U.S. economy from public

investments.

Substantial economic and social returns are delivered from government investment

in the fraternal benefit society model. These not-for-profit mutual aid organizations, created

more than a century ago to serve the financial and social needs of communities around the

nation, yield some $3.4 billion in annual returns to the country.

This return on investment occurs through the direct impact of fraternal benefit

organizations’ charitable and volunteer activities, and through the value of the indirect

positive impacts they make by building social capital that strengthens local communities

around the country.

Compared to the national investment of $50 million or so annually in all the nation’s

70 fraternal benefit societies combined, the U.S. government sees a benefit of $3.4 billion

each year – a 68-fold annual return on its investment in the fraternal benefit system. To

generate this conclusion, this study focuses on the largest U.S. fraternal benefit societies, the

Knights of Columbus and Thrivent Financial for Lutherans with 1.3 million and 2.6 million

nationwide members, respectively.

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Like other fraternal benefit societies, the Knights and Thrivent are organized around

a “common bond.” The two societies operate as social and charitable organizations whose

missions are to provide financial security for their members as well as help their members

give back to society through charitable giving and volunteerism. Fraternal benefit

organizations such as the Knights and Thrivent operate through community-based member

networks, making them uniquely positioned to identify and effectively respond to pressing

local needs.

Fraternal benefit societies are perhaps a lesser-known, but highly effective private

sector economic and social support system. Fraternal benefit organizations contribute to

society in a wide range of ways, from acting as a first-response network in the face of natural

disasters to providing the largest non-governmental source of funding for Habitat for

Humanity; and, from assisting families struggling with medical bills to improving financial

literacy at the local level. As the fraternal benefit system could not be easily replicated by

government entities, support for the successful fraternal benefit society model is all the

more important today – and the significant contributions it yields by strengthening

communities across the United States – is all the more important in light of today’s fragile

economy.

As the analysis which follows demonstrates, it is also worth noting that:

• Thrivent Financial for Lutherans and the Knights of Columbus alone generate $1.8

billion in direct value of volunteering and charitable contributions (including nearly

70 million in volunteer hours) and $1.6 billion in indirect value of improved social

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capital brought about through the activities of fraternal benefit society members –

for a total of $3.4 billion annually.

o The federal tax exemption under which fraternal benefit societies have long

operated sustains the fraternal benefit model and the societies’ community

activities.

o Government could not afford the costs of filling the needs currently met by

the Knights, Thrivent and the fraternal benefit system. Thus, it is important

now more than ever to ensure fraternal benefit societies exist to help address

these growing gaps.

• Fraternal benefit societies, like the Thrivent and the Knights, have served their

original purpose for over a century, and today they continue to serve modern

communities and create social capital in a way that is relevant to the evolving needs

of families throughout the nation.

o Despite reports of a decline in social and civic engagement in America,

fraternal benefit societies represent a successful, modern-day model which

builds social capital, an important community asset resulting from individuals

with a common bond coming together for a common purpose to serve the

greater good.

o A wide range of economic research on social capital shows that social

networks that give rise to increased trust and group cohesion are associated

with better economic outcomes such as higher incomes, increased personal

satisfaction, and lower incidence of social ills such as criminal activity

throughout the communities they serve.

§ This positive societal multiplier effect reflects the leveraging impact of

the community-based networks created by fraternal benefit societies.

• Fraternal benefit societies and their members are already on the ground in

communities across the nation, uniquely positioned to have impact.

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o The economic and social contributions of fraternal benefit societies are made

possible by the unique mix of local energy and knowledge with national

infrastructure and resources – a combination with compounding benefits that

could not be replaced by government programs at any level.

o Governments can provide money (less so in the current deficit environment)

but are not as effective at providing energy and volunteers. Moreover, any

government would take years to be able to build the same intricate

infrastructure of local member groups (i.e., chapters, councils or lodges) that

ensures that fraternal benefit societies’ charitable activities are targeted to

pressing needs of local communities.

o By leveraging the time and contributions of their members, and through

mobilizing their community-based member networks, fraternal benefit

societies such as Thrivent and the Knights make a much bigger – and

qualitatively different – impact than a typical corporate donation to a

charitable cause. The charitable and voluntary activities of these benefit

societies are precisely the core of their fraternal mission.

Fraternal benefit societies are a model that works to sustain and strengthen

communities and enrich the lives of millions of Americans. Societies such as the Knights of

Columbus and Thrivent Financial for Lutherans bring together like-minded members for the

good of all. This study shows that a federal commitment of $50 million through a tax

provision leads to a $3.4 billion annual return, with benefits for communities across the

United States that would be difficult to replicate.

Overview

Lodge-based “fraternal benefit societies” such as Thrivent Financial for Lutherans and

the Knights of Columbus are part of the fabric of American life, with a long and distinguished

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history dating back to mutual aid societies formed in the 1800’s.1 More than a century later,

fraternal benefit societies remain a vital part of our economy, with the charitable and

volunteer efforts of millions of lodge members making significant positive impacts in local

communities across the country. These efforts address unmet needs in ways that are

possible only because of the structure of fraternal societies, in which activities initiated by

members of local lodges are backed by the organizing power and financial resources of

national fraternal benefit societies. This unique and well-established arrangement leverages

the charitable and community-oriented interests of lodge members throughout the United

States to generate a greater contribution to society than would be possible with members’

individual efforts alone. At a time in which government resources face increasing

constraints, the system of fraternal benefit societies provide well-targeted and effective help

for people and communities in need.

This study describes and quantifies the

economic and social contributions of fraternal

benefit societies. The results of this study indicate

that the two largest fraternal benefit societies

alone generate an economic benefit to the United States of $3.4 billion each year from

their charitable, volunteer, and other community activities. This compares with a $50

1 Thrivent Financial for Lutherans and Knights of Columbus are fraternal benefit societies, defined in the Internal Revenue Code and state law as a not-for-profit mutual aid organization that, (1) insures members and their families against death, disease, disability, and (2) operates under a lodge system. Thrivent is organized under Wisconsin laws governing fraternal organizations, and Knights of Columbus was chartered by an act of the Connecticut legislature.

The two largest fraternal benefit societies alone generate an

economic benefit to the United States of $3.4 billion each year

from their charitable, volunteer, and other community activities.

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million annual cost to the U.S. Treasury to support the fraternal model (JCT 2005). This

contribution of fraternal benefit societies is made possible by the unique mix of local energy

and knowledge with national infrastructure and resources—a combination that could not be

replaced by government programs at any level. Fraternal benefit societies engage and

leverage the enthusiasm of their members with resources from both the local and national

levels supporting, activities developed and carried out in each community. This model

provides substantial leverage, since local members define the critical needs and drive the

lodge-based volunteer activities. Without the activities of fraternal benefit societies, a range

of needs would go unmet and worthwhile programs would not be undertaken.

A crucial asset of fraternal benefit societies is that they provide an organizational

“backbone” or infrastructure that fosters the many charitable and community-oriented

endeavors of society members. To be sure, the people who join the societies are likely

charitable by their nature, but the common bond of mutual affection that brings people

together in fraternal societies and the structure and organizational resources provided by

the societies leads to a compounding of these private efforts to benefit local communities,

regions, and the nation as a whole. Members of fraternal benefit societies volunteer tens of

millions of hours of their time and contribute hundreds of millions of dollars annually. But,

the societies do more than this. Fraternal benefit societies support the development and

deepening of our nation’s social capital—the web of bonds between people that join them in

a community for the benefit of all. In this way, Thrivent Financial for Lutherans (referred to

below as Thrivent), the Knights of Columbus (referred to below as the Knights), and many

other fraternal societies contribute to both the personal development of their members and

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to society as a whole. In providing organizational resources and a national framework that

helps to develop and enhance local efforts, the national fraternal benefit societies make the

whole of their members’ efforts far greater than the sum of their parts.

The economic and social benefits created by the system of lodge-based fraternal

benefit societies include both direct economic impacts through volunteer activities and

charitable giving, and indirect benefits provided

by fraternal societies in supporting stronger and

more cohesive communities. These latter

benefits are related to the sociological and

economic literature on social capital. A broad

range of research shows that activities that

enliven and deepen communities help to develop social capital, with important and

quantifiable benefits for society as a whole beyond the direct impacts on the individuals

involved. Increased social capital means a better educated population, stronger and

healthier families, a stronger economy, and a more prosperous nation. This translates

directly into greater material well-being and lower societal ills such as the incidence of crime

and youth delinquency. Social capital is a societal asset just the same way as a skilled work

force or a built physical infrastructure is a societal asset. Government policies and private

sector institutions can promote or diminish social capital as they can affect the accumulation

of other assets such as physical and financial capital.

Fraternal benefit societies are not-for-profit mutual aid organizations that bring

Fraternal benefit societies support the development and

deepening of our nation’s social capital—the web of bonds

between people that join them into a community for the

benefit of all.

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together members with a common bond and provide them with opportunities to make

meaningful contributions to their local communities and to society (NFCA 2010). The

societies are organized through local lodges, which are in turn supported by national

fraternal organizations such as Thrivent and the Knights. Membership in both organizations,

as with all fraternals, is limited to people of certain backgrounds or ‘common bonds’ (in

these cases, Lutheran-affiliated or practical Catholics). This inherently promotes social

capital by bringing together people with shared interests—fostering what sociologists call

“bonding capital.” Indeed, the primary purposes for the formation of the Knights of

Columbus were to help Catholic immigrants defend against anti-Catholic animus in the

broader society, and to enable members to aid one another through insurance and other

welfare programs. Likewise, the precursor organizations to Thrivent were formed to enable

Lutheran immigrants to aid one another and their families through life insurance. These

groups further advance social capital through their work in aiding Lutheran and Catholic

churches, schools, and other institutions as well as their surrounding communities. Local

members of fraternal benefit societies provide energy, time, knowledge, and their personal

charitable donations, and are assisted in turn by the organizational and financial resources of

the national fraternal societies. These charitable efforts are supported by the sale of life

insurance and other financial services products to their members, an activity mandated by

federal and state laws. Fraternal benefit societies operate as not-for-profit, tax-exempt

entities under Section 501(c)(8) of the federal Internal Revenue Code and under the statutes

of all 50 states. With this structure, fraternal benefit societies make contributions to their

communities by supporting a myriad of charitable and voluntary efforts guided by the

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energy and local knowledge of members. This is a unique aspect of fraternal benefit

societies: their mix of local involvement and national support brings together people with

like-minded interests and beliefs in support of their local communities. National support is

vital for helping local volunteers translate their energy and ideas into actions that directly

touch the lives of thousands of communities and families across the country.

This study finds that the benefits created by the tax-exempt status of fraternal

benefit societies outweigh the cost of providing a tax exemption to fraternal operations.

This positive societal multiplier effect reflects the leveraging impact of the networks created

by fraternal benefit societies as these organizations bring together like-minded people and

help them fulfill their desires to help others and give back to their communities.

When the lodge-based members of fraternal benefit societies volunteer their time,

donate financial resources to support activities through their lodge, and join together with

other fraternal members to help the community, they fill unmet needs in communities and

help build social capital. Americans benefit as a society through positive spillovers of

improved economic productivity, increased wages and incomes, and lower social ills that go

beyond the direct positive impact of the value of the time and financial resources provided.

Fraternal benefit societies represent a successful model under which individuals come

together to provide these socially beneficial activities. Among these are activities that

deepen the social safety net in ways that would be extremely expensive for a government to

replace, because it would be exceedingly difficult to replicate the dedicated energies of

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legions of member- volunteers made more powerful and effective by the organizational

capacities of national fraternal benefit societies.

The hours worked, dollars donated, and the additional indirect benefits that result

from fraternal activities are benefits to society as a whole, but they also correspond to fiscal

savings for governments as societal needs are met without requiring an outlay of public

funds. Again, it is the structure of fraternal benefit societies that creates these fiscal savings

(and other tangible benefits to society), with the activities of local lodges supported by the

national fraternal benefit societies. This in turn is made possible by the legal structure of

fraternal benefit societies and their tax exemption received by the societies that directly

fosters the infrastructure of the national organizations to support the activities of local

lodges.

The results of this study indicate that the two largest fraternal benefit societies

alone generate an economic benefit of $3.4 billion each year from their charitable,

volunteer, and other community activities. This figure reflects the sum of the direct impact

of $1.8 billion per year in charitable contributions

and hours of volunteer service donated by fraternal

members, and the indirect impact of $1.6 billion

per year in social capital value added through the

activities of the members of Thrivent and the

Knights. The economic impacts of fraternal benefit

societies are substantial both in absolute terms and relative to the size of the federal tax

Fraternal benefit societies thus appear to deliver returns far

greater than Congress imagined in achieving the public goal of

supporting important and needed activities in a well-targeted and highly cost-

effective manner.

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benefit of $50 million per year that makes possible the activities, structure, and good works

of the societies and their members. The fiscal burden on government would be far greater

than $50 million if it was necessary for public sector agencies to fill the needs that are

currently being met by the activities of fraternal benefit societies. The tax expenditure thus

appears to deliver returns far greater than Congress imagined in achieving the public goal of

supporting important and needed activities in a well-targeted and highly cost-effective

manner.

Leveraging Positive Deeds through the Structure of Fraternal Benefit Societies

Fraternal benefit societies provide an array of benefits to their members and to

society at large by bringing together like-minded people for a common purpose. Their

unique organizational structure takes advantage of lodge members’ deep connections in

their communities: members initiate activities based on their direct knowledge of the needs

of their communities, with activities supported at both the local level and by substantial

resources from national organizations. The impact of these intricate networks of cross-

leveraged charitable and volunteer activities would be difficult, if not impossible, for a

government or corporate endeavor to replicate—the common bonds that underpin fraternal

benefit societies provide a unique motivating factor and sense of trust and communal spirit.

In examining the impact of fraternal benefit societies, this report focuses on the

operations and activities of the two largest fraternal benefit societies in the United States—

Thrivent Financial for Lutherans and the Knights of Columbus. In addition to Thrivent and

the Knights, there are dozens of other mid-size and smaller fraternal benefit societies

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throughout the United States, with over nine million total members across all societies. Each

fraternal benefit society has its own history and

common bond linking together its members, but all

share the basic structure of a lodge-based system

in which the organizational contribution of the

national society supports the positive contributions of members. Adding the further efforts

of other fraternal benefit societies would reflect even greater contributions beyond the $3.4

billion impact of Thrivent and the Knights.

Thrivent and the Knights, as well as dozens of other fraternal benefit societies, have

served as reservoirs and generators of social capital for over a century. Their operations and

organizational structure enable ordinary people to take on leadership roles, work and

socialize with fellow citizens, and, most importantly, carry out good deeds for society and

meet vital unaddressed needs in local communities. The activities and organizational

structures of fraternal benefit societies have evolved over time and differ somewhat across

organizations. In some fraternals, lodges are tied to local parishes or towns, while in others,

lodges are organized on a county-wide or regional basis covering broad geographic areas.

Since fraternals are required by law to be made up of people with a common bond, some

societies have a particularly strong presence in areas of their historical membership.

Thrivent lodges bring together people across Lutheran denominations for common

charitable purposes, so it is not surprising that the national lodge system and membership of

Thrivent has an especially strong presence in Midwestern states with large Lutheran

There are over nine million members across all fraternal

benefit societies.

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populations. Councils of the Knights are found across the United States (and in several other

countries), and vary considerably in their size and geographic coverage.

That said, Thrivent and the Knights share certain elements in their organizing

structure. Both have a national leadership that oversees local chapters or councils, and in

both societies, resources from the national society support and amplify the impact of locally-

driven activities and charitable endeavors. This structure enables the organizations to

leverage members’ energy and enthusiasm, such as when resources from the national

society match fund-raising carried out at the local level. Thus, a single dollar donation or a

single hour of volunteer service can be leveraged and multiplied many times over. The

precise structure of the two groups’ local lodges differs in certain ways, as do their activities,

and the dozens of other fraternal benefit societies each add value to their communities in

unique ways. Some of the activities of Thrivent and the Knights are discussed below.

Fraternal benefit societies bring out the best in their members and enable them to

give back to their communities. The charitable and other volunteer work of fraternal benefit

societies springs from the grass roots, as lodges bring together members to identify and

address local needs, rather than waiting for the

government or someone else to come along.

Furthermore, and of critical importance, these

organizations provide training and opportunities for

community leaders to emerge and lead others to do good for society. Local initiatives in

turn engage the fraternal benefit society infrastructure; a charitable or volunteering activity

A single dollar donation or a single hour of volunteer service can be leveraged and multiplied

many times over.

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can be carried out by a single lodge, by regional groups of lodges, or even by the national

organization, all while receiving financial and logistical support from the national society.

By leveraging the time and contributions of their members, and through mobilizing

their local chapters and councils, fraternal benefit societies such as Thrivent and the Knights

make a much bigger – and qualitatively different – impact than a typical corporate donation

to a charitable cause. The charitable and voluntary activities of the benefit societies are

precisely the core of their fraternal mission. Unlike a corporation, the local lodges have no

agenda other than service; their initiatives are not meant to foster corporate goodwill or

boost visibility for a corporate entity or individual. Fraternal benefit societies do good deeds

because their members join the societies to do them; good deeds are the fraternals’ mission.

In contrast, corporate charitable activities might be driven by the interests of senior

executives or as an arm of corporate marketing or brand-building. Giving back to society is

at times a marketing tool for a corporation, while it is the core activity and central mission of

fraternal benefit societies.

Charitable, Benevolent, and Service Activities of Fraternal Benefit Societies

Fraternal benefit societies provide an array of benefits to their members, and

through the actions of their members, to broader society. Their mix of national organization

and local membership is a unique characteristic that enables many of their positive

contributions of the fraternal benefit societies, notably through projects with a national

scope but significant direction and involvement at the local levels.

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Thrivent Financial for Lutherans

Thrivent Financial for Lutherans is a not-for-profit fraternal benefit society organized

under Wisconsin state law. Thrivent was formed on January 1, 2002, by the merger of two

pre-existing Lutheran fraternal benefit societies, Aid Association for Lutherans (formed in

1902) and Lutheran Brotherhood (formed in 1917). These predecessor organizations were

founded to enable Lutheran Americans to aid fellow Lutheran families whose breadwinner

had died. Aid Association for Lutherans was formed in Appleton, Wisconsin, and for many

years limited its activities to Lutherans who belonged to the Synodical Conference, an

alliance of theologically like-minded Lutheran church bodies which were primarily comprised

of German-Americans. Lutheran Brotherhood was formed in St. Paul, Minnesota, originally

under the name Luther Union. It originated as an aid society for members of the Norwegian

Lutheran Church of America. Over time, the membership and geographical coverage of the

two organizations encompassed a considerable overlap and the societies merged to foster a

stronger single entity serving all Lutherans.

More than 100 years later, Thrivent maintains the same organizational purpose and

structure as the Aid Association for Lutherans and the Lutheran Brotherhood. Thrivent’s

mission is to bring together Lutherans and their families and persons associated with

Lutherans or Lutheran organizations, to enable them to aid themselves and others with

programs of insurance, fraternal and benevolent activities in local branches; and to provide

assistance to Lutheran congregations and institutions. Thrivent today has nearly 2.6 million

members in 1,360 local chapters organized into 28 geographic regions. The geographic size

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of the regions varies depending on the number of members and chapters. For example,

seven different regions make up Minnesota and Wisconsin, the states with the largest

groups of Thrivent members given their large Lutheran populations, while some states with

fewer Lutherans are combined into a single region. Each chapter elects its own leaders, with

nearly 12,000 members in various leadership positions. Thrivent itself is governed by a

board composed of Thrivent members, with at least two-thirds of the directors directly

elected by the national membership. Over 168,000 members voted in the 2008 directorship

election.

Each year, Thrivent and its chapters sponsor thousands of programs and service

activities for the benefit of members and their communities, and provide opportunities for

members to give back to their communities and take on leadership positions. For example,

in 2008 alone:

• Thrivent Financial for Lutherans directly contributed $126.2 million to needy

individuals, families, communities, congregations, and nonprofit organizations.

• Thrivent members raised and donated an

additional $183.6 million for these

causes, demonstrating the powerful

leveraging effect of Thrivent’s

organizational membership structure and

illustrating the degree to which members

of local lodges act in concert with the

national organization.

In 2008 alone, Thrivent and its nearly 2.6 million members

contributed $309.8 million, and 21.3 million volunteer hours to

help individuals and communities in need.

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• Thrivent members gave 21.3 million hours of their time to help others and

participate in chapter, congregational, and local activities.

• Members formed 15,583 service teams (consisting of at least six members, each

from a different household) to perform community service projects supported by

Thrivent.

Members of local chapters can obtain financial backing from the national fraternal

benefit society for these projects, often as matching funds to boost local efforts. In this way,

the national organization provides both incentive and direct assistance to foster local efforts

to meet community needs. For example, Thrivent and its members funded and built 533

homes in 2008 through Thrivent’s affiliation with Habitat for Humanity. This project,

described in detail later, is possible because of the common structures of Thrivent and

Habitat for Humanity, both of which have national programs that rely on local chapters to

identify needy recipients for housing and then bring together groups of like-minded

volunteers grounded in faith and a desire to give back to the community and serve others.

Programs such as this illustrate the way that the national presence of fraternal benefit

societies allows local members to take on large projects with deep impact.

Thrivent has also undertaken service programs that reflect its expertise as a provider

of financial services products that provide members with insurance and help them save for

retirement. Thrivent worked with Lutheran social service organizations and local banking

and credit union partners to create three community savings centers, two in the Twin Cities

and one in Chicago, that provide financial education and counseling to individuals of low or

modest means, as well as access to affordable financial products such as checking accounts.

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The community savings centers further offer matched savings accounts for qualifying low-

income earners. Participants in these programs open Individual Development Accounts in

which they receive matching contributions from Thrivent and the federal government that

encourage them to save for life-changing purposes such as the purchase of a first home,

post-secondary education, or the development of a small business. For each dollar saved by

a program participant, another two to four dollars are contributed by Thrivent and the

federal government into the individual’s savings account. Financial education classes are a

required part of the program. Thrivent has provided more than $5 million in support of

these community savings centers.

Through their activities, Thrivent members touch many people and improve many

lives. In 2008, Thrivent members volunteered more than 21 million hours of their time and

contributed $183.6 million for charitable purposes; this was supplemented by $126.2 million

in giving by the national fraternal benefit society. These statistics alone, however, do not tell

the full story of the contributions by Thrivent and its members. The following examples,

selected from a multitude of activities, illustrate the wide variety of community service

activities and the many lives affected by them. These examples also demonstrate the key

role of local chapters in meeting needs within their communities, making clear the

importance of the lodge-based system as a structure through which people come together

to help others:

• Yellowstone County Chapter 125 in Montana helped organize a tribute concert to

a local music teacher who was no longer able to get around his house due to the

progression of Lou Gehrig’s disease. With 125 local singers and musicians

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performing, the event drew more than 900 attendees and raised funds to help

remodel the man’s home to accommodate his condition. The event involved

2,252 volunteer hours and raised $45,227.

• Each Earth Day, Thrivent members help collect hazardous waste across northern

Michigan. Thrivent has also provided $95,000 to date for this project, making the

organization the only non-governmental entity which contributes financial

support to this effort. This project, which has drawn recognition by many

organizations, including the U.S. EPA, has involved 153 Thrivent volunteers

providing nearly 2,000 hours of volunteer service.

• Food banks in rural areas often cannot get fresh food to those in need due to a

lack of refrigerated storage capacity or volunteers. In Idaho, Thrivent donated

two refrigerated trucks worth $210,000, and hundreds of Thrivent volunteers

gave their time and energy to distribute fresh food. Working with America’s

Second Harvest food banks, 378,255 pounds of food was distributed to feed

15,919 Idaho residents via these trucks in 2009. Thrivent members provided

7,400 volunteer hours and the value of the food provided was $567,383.

• In South Dakota, a fifteen year-old boy suffered a traumatic brain injury from a

bicycle accident, requiring extensive hospitalization and physical therapy. A

Thrivent member, who was also a family friend, coordinated more than 800

fellow members, friends and family in a day of fund-raising activities, including a

burger bash and fun walk/run. Thrivent members provided 3,065 volunteer

hours and $40,521 was raised to help the family.

• In Lima, Ohio, Thrivent members organized a benefit concert to raise money for

local food banks. The members hoped to raise $6,500, but when 1,000 people

attended, they ultimately raised over $18,000 to feed the hungry.

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• In Kansas City, Missouri, Thrivent volunteers, teamed up with a professional

football player, and built a much-needed new playground in an inner-city

neighborhood. Hundreds of Thrivent volunteers spent 3,500 hours on the

project, and a total of $60,000 was raised and donated.

• Thrivent members from the Polk and Hardin County, Iowa, chapters hosted a

benefit for a local father of eight children diagnosed with leukemia. More than

600 people attended the benefit, with featured supper, auctions and musical

entertainment. Thrivent members provided 1,000 volunteer hours and raised

$48,257.

• A United States Navy sailor was partially paralyzed following an attack on his

naval battalion. To welcome him home after almost a year of therapy, Thrivent

members of the Gainesville, Florida chapter volunteered to help make the

necessary changes to the man’s home to accommodate a wheelchair. Over 60

volunteers devoted 2,992 hours and donated $10,000 to add ramps, decking, and

a new driveway.

The Knights of Columbus

The Knights of Columbus was founded in 1882 in New Haven, Connecticut, by Father

Michael J. McGivney, an Irish-American Catholic priest and the son of Irish-American

immigrants. From his own experience, Father McGivney learned the impact on a family

when it loses its breadwinner. Father McGivney was a seminary student when his father

died. He had to leave his studies temporarily to take care of his siblings. It was Father

McGivney’s vision to create a fraternal organization that would allow Catholics to provide for

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one another’s mutual aid, to serve their communities, and to provide them with fellowship

at a time when anti-Catholic prejudice was widespread.

In 1882, the Connecticut legislature granted a corporate charter to the Knights of

Columbus. According to its charter, the purposes of the Knights are:

• “rendering pecuniary aid to its members, their families and beneficiaries of members

and their families”;

• “rendering mutual aid and assistance to its sick, disabled and needy members and

their families”;

• “promoting social and intellectual intercourse among its members and their

families”; and

• “promoting and conducting educational, charitable, religious, social welfare, war

relief and welfare, and public relief work.”

Members of the Knights of Columbus share the common religious bond of being

practical Catholics in union with the Holy See. The Knights of Columbus bring together men

over the age of 18 to accomplish common goals of

charitable, religious, and service activities. There

are approximately 1.3 million members in the

United States, and another 500,000 Knights in

other countries including Canada, Mexico, the

Philippines, and Poland. The Columbian Squires youth group encompasses over 5,000

Columbian Squire circles, each supervised by a council or an assembly. These youth circles

In 2008 alone, the Knights of Columbus contributed $120.2

million and 47.4 million volunteer hours to help communities

throughout the United States.

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provide a connection between charitable activities undertaken across generations while

deepening the bonds within families.

Members join one of 13,700 councils based on where they live. The members of

each council elect their officers, and local councils are then organized into a state-level

Council, which in turn is governed by the overall Supreme Council. As with other fraternal

benefit societies, this organizational structure ensures that local members drive action and

that council activities reflect local needs and priorities. Members join the Knights to have

the opportunity to contribute to their community; as described above, the fraternal benefit

society provides an organizing framework and supportive resources that make possible the

vibrancy of activities at the local level and leverages the activities of local councils and the

interests of local members.

The Knights of Columbus and Knights councils sponsor numerous programs and

activities for the benefit of Knights and their communities, and provide opportunities for

members to give back to their communities and take on leadership positions. In 2008:

• Knights of Columbus Supreme Council made $27.4 million in charitable and

benevolent contributions.

• Knights of Columbus Supreme Council Foundation made $4.9 million in charitable

and benevolent contributions.

• U.S. State councils, local councils, assemblies, and circles made $87.9 million in

charitable and benevolent contributions, with another $30 million donated by

Canadian and other foreign members. These donations supported $44.7 million

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for church activities; $55.4 million for community activities; and $17.7 million for

youth activities.

• 6,569,096 hours of fraternal service were contributed by U.S. members

(10,077,310 hours including foreign Knights).

• 156,295 hours were donated to working Habitat for Humanity projects (137,611

by United States members).

• 68,783,653 hours of volunteer service were contributed (47,440,089 by United

States members).

• Over 150,000 Knights in the United States hold leadership positions.

Among many significant projects undertaken by the Knights were efforts to assist the

physically and intellectually disabled, organize blood drives, and provide support for

members and veterans of the armed forces. These are examples of ways in which the

organizational structure of the Knights of Columbus as a fraternal benefit society helps

members come together for a common purpose and to serve a greater good. Examples of

the programs and activities of the Knights of Columbus in 2008 include:

• Working with the Wheelchair Foundation, Knights of Columbus has provided

more than 15,000 wheelchairs to people in need since 2003, including

distributing more than 2,000 to U.S. military veterans.

• The Knights of Columbus have provided considerable support to members of the

U.S. military through more than 60 military councils throughout the world. There

are also roundtables in Iraq and Afghanistan supported by councils in Florida,

Colorado and Pennsylvania. Since 2003, Knights of Columbus has provided over

400,000 military prayer books to the Washington headquarters of the

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Archdiocese for the Military Services, USA. Knights have also taken other

measures to ensure that Catholics serving in the United States armed forces have

access to Catholic ministry.

• The Knights donated $1 million and provided an additional $3.4 million in funding

to support the construction of a new headquarters for the Military Archdiocese in

Washington, DC., and donated $521,000 to help construct the World War II

memorial in Washington, D.C.

• The Knights serve those who have served the United States, with hundreds of

Knights working regularly as volunteers in 128 VA hospitals. In 2008, Knights

provided over 91,000 hours of volunteer service at VA hospitals.

Individual councils decide on which activities to support, resulting in an effective

application of local knowledge to meet local

needs. Below are some examples of projects and

activities undertaken by Knights of Columbus

within their communities. These one-at-a-time

projects add up to a significant aggregate number

of volunteer hours, and millions of dollars raised at the council level.

• Council 6267 in Pembroke, Massachusetts, with the assistance of five other local

councils, a Fourth Degree assembly, and the Massachusetts state council, organized a

prom for 75 special needs students. Most of the 75 students attended the Cardinal

Cushing Center in Hanover, Massachusetts, but when parents from other schools

called to ask whether their special needs children could participate, they were invited

to attend as well. 125 members of the council devoted more than 3,500 hours to

organize the dance, arranging for free prom dresses and tuxedos for those who could

Individual councils decide on which activities to support,

resulting in an effective application of local knowledge to

meet local needs.

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not afford them, and obtaining donations of invitations, decorations, limousine

services and gifts for the attendees, and providing DJ and photography services. The

Knights also arranged for a separate dinner for the parents.

• Council 12845 in Gardnerville, Idaho, assisted 718 people by providing over $130,000

of loaned, used, or surplus medical equipment, such as wheelchairs, walkers and

therapeutic beds.

• Council 5164 in Birmingham, Alabama, holds an annual Knights of Columbus Run,

which in 2008 also included a special 5K Run for younger children, to raise money for

people with intellectual disabilities. In 2008, 250 people participated and the council

raised almost $9,000.

• Council 3078 in Lincoln Park, Michigan, began building wheelchair ramps for people

with physical disabilities. Since 1990, the council has built over 360 ramps, including

35 in 2008.

• Council 12263 in Bluffton, South Carolina, cared for a dying Knight. A member of the

council diagnosed with Lou Gehrig’s disease had the wish to spend his remaining

time in his own home. For more than a year and a half, every day of the week,

council members would arrive at his home at eight a.m. and again in the evening to

help his wife care for him. The council members put in more than 2,000 hours caring

for their brother Knight up until the time of his death.

• Council 11927 in Indianapolis, Indiana, helped a needy family in their community (a

single mother and three daughters) by helping to repair and renovate their house.

Seventeen Knights worked more than 440 hours on the project, which included

plumbing and electrical repairs, painting, and removal of mold. The family members

assisted with the work.

• Council 11874 in Rock Falls, Illinois, sent toys and school supplies to a Knight serving

in the armed forces in Afghanistan for him to distribute to children in need there.

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• Council 5759 in Oklahoma City, Oklahoma, constructed a wheelchair ramp at the

home of a Knight in their council who was diagnosed with cancer and was no longer

able to walk the steps leading to his home.

Supporting Large-Scale Nationwide Efforts

An important benefit of the national scope and substantial resources of Thrivent and

the Knights, as with many other fraternal benefit societies, is their ability to foster large-

scale programs in which their members can meet common needs in local communities

across the United States. The partnerships of Thrivent with Habitat for Humanity, and of the

Knights with the Special Olympics, are examples of national projects with immense local and

national impact that would not be possible without the organizational and financial

resources of the national fraternal benefit societies and the revenues from their tax-exempt

operations. In both of these partnerships, action is taken from the ground up, with local

members deciding on the particular activities and communities to serve. As described next,

these two partnerships give members of local lodges support to help the homeless and

people with special needs, but the energy and time commitment comes from local

members. These large-scale projects are prime examples of the way in which the national

fraternal system leverages the desires of people looking to serve others and the resources of

the organization itself, and produces a far greater result than possible through disconnected

individual charitable or community acts without the benefit of such a powerful structure.

Thrivent Builds with Habitat for Humanity

In 2005, following many years during which their members participated in a wide

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array of home-building projects for disadvantaged families, Thrivent launched a new and

expanded alliance with Habitat for Humanity. Thrivent sponsors the construction of Habitat

for Humanity homes throughout the United States, combining the efforts of Thrivent

members, Lutheran institutions, and Habitat for Humanity affiliates. Thrivent has committed

in excess of $125 million to this alliance, as well as

thousands of volunteer hours and the energy of its

membership. Thrivent members and other

volunteers have worked over two million service

hours through the “Thrivent Builds with Habitat for

Humanity” alliance, participating with hundreds of Habitat for Humanity affiliates, to help

build over 1,300 homes in the United States and hundreds more internationally since 2006.

In 2008, Thrivent provided an additional $28.9 million for this alliance. These commitments

have made Thrivent Habitat’s largest non-governmental sponsor, and responsible for ten

percent of Habitat’s U.S. home production since 2006.

Thrivent provides 65 percent of the funding for each Thrivent-sponsored home,

prompting the remaining funding to be generated locally by member-volunteer groups in

Thrivent chapters, Habitat affiliates, and other volunteers from the community. In 2008,

over 75 percent of the total funding for each home built under this program was contributed

by Thrivent, its members, and local chapters. Thrivent also provides information to its

members about Thrivent-sponsored Habitat projects in their communities to enable

members to volunteer more readily. In 2008 alone, 90,332 volunteers worked 590,523

Thrivent is Habitat’s largest non-governmental sponsor and responsible for ten percent of

Habitat’s U.S. home production since 2006.

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hours on homes built through this alliance, with $3,724,157 raised by local chapters and

backed by $23,285,815 in direct contributions from Thrivent Financial for Lutherans.

Thrivent contributed an additional $2.5 million to Habitat for Humanity of the

Mississippi Gulf Coast in 2008 to build 40 homes in the Biloxi community devastated by

Hurricanes Katrina and Rita. Thrivent has also made grants of $1 million each in Milwaukee,

Wisconsin, and Des Moines, Iowa, to construct or renovate homes, and fund other

neighborhood improvement projects. These grants prompted and facilitated a huge volume

of local giving, demonstrating the leveraging impact of Thrivent’s fraternal benefit structure.

Special Olympics

The Knights of Columbus has a close and long relationship with the Special Olympics

movement. In fact, the Knights were active volunteers at the first Special Olympics in 1968

in Chicago. Since then, the Knights have actively assisted Sargent Shriver (himself a Knight)

and the late Eunice Kennedy Shriver in building Special Olympics into an important

worldwide movement that has changed

attitudes toward the disabled and given them

tremendous new opportunities. Since 1980,

Knights of Columbus has provided more than

$48 million to Special Olympics, and more than $375 million overall to help people with

physical and intellectual disabilities. Local and state councils have developed close

relationships with Special Olympics, and have provided volunteers to work with the athletes

and help plan and conduct the local and state games and other programs. In 2008 alone, the

In 2008 alone, the Knights provided 177,651 volunteer

hours and over $2.2 million in support of the Special Olympics.

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Knights provided 177,651 volunteer hours and over $2.2 million in support of the Special

Olympics. Again, the existence of the Knights’ fraternal system and the web of human and

economic resources provided by local councils make it possible for the Knights to have a

deep and beneficial impact for people with disabilities whose lives are enriched by the

Special Olympics.

Responding to Urgent Local Needs

The structure of the fraternal benefit societies further lends itself to filling large and

small unmet needs in the event of urgent local situations. Fraternals are already on the

ground in communities, positioned to have impact. In the face of tragedies such as floods

and hurricanes, members of local lodges can combine their on-the-ground knowledge with

the resources of the national society to respond in a targeted and effective way. Some of

the many recent examples of what was made possible by the unique structure and

adaptability of fraternal benefit societies include:

• In response to devastating flooding in Iowa in 2008, local Thrivent chapters organized

to provide first response relief to victims, and were supported with matching

contributions from the national society. More than 2,100 Thrivent members raised

and donated $268,929, which was supplemented by a contribution from the national

fraternal benefit society to reach a total of $421,049 in financial assistance. Thrivent

members and others working with local Thrivent chapters volunteered 25,711 hours

to help with the clean-up effort.

• Following the 9/11 terrorist attacks, the Knights of Columbus established a “Heroes

Fund” to provide immediate assistance to the families of emergency personnel who

lost their lives in the rescue efforts. The Supreme Council created the fund with a

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$500,000 donation which was matched by councils throughout the world. Within

days, the Knights of Columbus provided $3,000 checks to the families of police

officers, firefighters, and emergency medical technicians who died. In most cases, it

was the first financial assistance they received from any source.

• Following Hurricanes Katrina and Rita, the Knights of Columbus was one of many

fraternals to respond. In this case, the Knights set up a Gulf States Disaster Relief

Fund that collected $10 million. The Supreme Council contributed $2.5 million

immediately; and state and local councils raised nearly $5.4 million from nearly

55,000 sources (including $3.2 million

from 50,000 members and $1.8 million

from 2,045 local councils and 51 state

councils); the Supreme Council matched

the funds raised by state and local

councils with an additional $2.1 million. The $10 million raised was distributed to

Catholic Charities of Baton Rouge and Memphis for immediate community aid; as

scholarship aid to inner-city Catholic schools so that classes could resume; as gift

cards for clothing, food and medicine for affected Knights in the Gulf Coast; to

Knights who lost their homes; and, to various dioceses in the Gulf Coast to help

rebuild the Catholic infrastructure. Beyond the financial contributions, local and

state councils and member Knights provided volunteer services. Councils in Louisiana

and Mississippi helped rescue neighbors, opened meeting halls to house those

displaced by the storms and flooding, staffed soup kitchens, collected clothes,

furniture and school supplies, and volunteered at emergency shelters. Immediately

after the hurricane struck, the Knights convened daily conference calls with every

state deputy in North America to learn what the Knights in Louisiana, Mississippi,

Alabama and Texas needed. In response, councils from every state in the United

States and every Canadian province raised funds and sent truckloads of supplies.

Fraternals are already on the ground in communities,

positioned to have impact.

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These projects illustrate both the mission at the core of the fraternal benefit society,

and the power of a national organization made up of passionate and compassionate local

individuals and networks. It is this combination that allows Thrivent, the Knights, and the

nation’s other fraternal benefit societies to join together with others to serve communities

and to meet the needs of society on an extraordinary scale and in a way that cannot be

easily replicated.

Social Capital Contributions of Fraternal Benefit Societies

Beyond their contributions of time and financial resources, fraternal benefit societies

make vital positive impacts in strengthening the social bonds within their communities.

They do so by helping to build social capital. In his groundbreaking work, Bowling Alone,

Harvard University Professor Robert D. Putnam describes social capital as “the connections

among individuals – social networks and the norms of reciprocity and trustworthiness that

arise from them (2000, 19).” Communities with higher levels of social capital, i.e., networks

and relationships among individuals that foster trust and cooperation, enjoy more economic

prosperity, better health, and more overall happiness.

Putnam identifies five mechanisms by which social capital benefits individuals and

communities. First, social capital allows people to solve collective problems more easily and

efficiently. There are many scenarios in which people would be better off if everyone

cooperated toward accomplishing a common objective, but there are numerous difficulties

in achieving the necessary levels of cooperation. Social norms that encourage cooperation,

and networks that promote those norms, are mechanisms to overcome collective action

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dilemmas. Thrivent and Knights of Columbus represent social networks that allow their

members to act collectively. As discussed above, fraternal benefit societies mobilize large

numbers of volunteers to address unmet needs in their communities or to respond to acute

crises such as natural disasters. Without these organizations attracting like-minded people,

individuals would forego working on many projects that would be too difficult or too costly

for them to tackle alone. Moreover, Thrivent and Knights of Columbus both develop

community leaders who can take on the challenge of organizing large numbers of individuals

to address problems requiring collective action.

The second mechanism for positive impacts of social capital is through the additional

time and money saved when individuals in a society are both trustworthy and trusting, and

can be confident that others will uphold their end of a social or business arrangement.

Thrivent and the Knights of Columbus promote both trustworthy behavior and trusting

feelings. They provide settings in which members and their family members can feel secure

in their interactions with fellow members. Furthermore, their models of compassion and

responsibility provide a standard for, and thus impact on broader society.

Third, social capital widens one’s awareness of the needs of other people, an

awareness that can be absent from people who lack active and trusting networks to others.

People who join together “become more tolerant, less cynical, and more empathetic to the

misfortunes of others (Putnam 2000, 288).” Thrivent and Knights of Columbus represent

social networks that enable individuals to interact and gain exposure to others and to the

wider world.

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Fourth, the networks built through social capital lead to an effective exchange of

information that promotes economic well-being and personal happiness. Properly flowing

information can help potential employers and workers find each other; many Americans, for

example, find their jobs through personal connections. Thrivent and the Knights of

Columbus are conduits for information, through official channels such as their magazines

and web sites, and through informal means such as chapter or council gatherings.

Fifth, people working to improve the lives of others are more fulfilled and more

productive members of society, and are better able to respond to challenges in their

communities and in their own lives. There can be

no doubt that millions of people are happier, and

their lives improved, thanks to the social networks

created by Thrivent and Knights of Columbus that

provide benefits to members, their families, and

their communities.

Thrivent and the Knights of Columbus very much serve their original purpose: they

create and constitute social capital, in a modern way, while serving current needs. They are

national and local social networks through which individuals can undertake joint community

service projects, socialize, and provide (and receive) crucial support in times of need.

Fraternals bring people together for the common good in a way that cannot be easily

replicated, since they rely on the energy and enthusiasm of volunteers sharing a common

bond. Putnam’s research suggests that social and civic engagement has declined for many

Thrivent and the Knights of Columbus serve their original

purpose: they create and constitute social capital in a modern way, while serving

current needs.

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Americans since the 1960’s across a number of dimensions, including political, civic, and

religious participation, and the formation of workplace and other informal networks.

Fraternal benefit societies have withstood these changes— indeed, they are bulwarks of

social and civic engagement for the common good.

Economic Analysis of Social Capital

The activities of fraternals in building social capital have meaningful positive impacts

for the United States. The economic literature on social capital analyzes the specific ways in

which social capital is formed and the processes by which it benefits individuals and

communities. Economists have used a variety of statistical tools to quantify the impacts of

activities that give rise to increased social capital. This research makes it possible to carry

out an empirical analysis of the contributions of activities such as those of lodge-based

fraternal benefit societies.

In understanding the mechanisms by which social interactions combine to strengthen

interpersonal bonds for the good of communities and individuals, economists identify

positive spillovers that occur through the development of social capital. The existence of

such spillovers means that activities that generate social capital provide benefits not just for

the individuals directly involved, but also indirectly for communities and for society at large.

These indirect benefits are known as “positive externalities,” and come about when the

actions of some people have a beneficial effect on others in a way that is not captured in an

immediate economic transaction.

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This can be understood through an example of the volunteer activities of members of

a lodge-based fraternal benefit society. Fraternal members provide direct benefits to

particular families such as the value of the homes built by Thrivent members, or the value of

the time volunteered by the Knights in coming together for a project. And yet, building a

home does more than simply provide a family with the direct monetary value of the shelter.

The project improves the lives of the recipient family members in indirect ways that

contribute to a better society. Homeownership builds a sense of community and provides

incentives for residents to invest in their neighborhood; not surprisingly, crime is lower in

areas with a strong sense of community. This is a benefit for all who live in the area served

by the volunteer activities, not just those who live in the house (Glaeser 2000).2 Homes can

be built by corporations or by the public sector, but a corporation or government agency

cannot bring people together in the same way as the volunteers in a fraternal benefit society

who effectively target their efforts at challenges they see directly in their communities.

Similarly, activities that foster stronger communities and improve the lives of

individuals give rise to other forms of positive externalities. Education is a crucial pathway

through which social capital is formed and the benefits of education extend not just to the

individuals involved but to society as a whole. Economic research has found a positive peer

effect in which children in the same social group as well-educated children themselves have

2 Glaeser, Laibson, and Sacerdote (2000) find, for example, “significant connections between homeownership and a rich variety of social capital and citizenship variables.”

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improved educational outcomes.3 Volunteers who improve the life of one child thus provide

benefits for that child’s peers. Another positive externality is that more education is

associated with lower rates of criminal activities and other social woes and with greater

involvement in civic affairs, as people with more education are better-informed voters.

Similar mechanisms apply to other activities that build communities—the social capital

formed through such action creates benefits for society as a whole and not just the

individuals directly involved.

The process by which communal activities lead to mutual gains is a central aspect of

the creation of social capital. As discussed by Durlauf and Fafchamps (2004), there are

benefits to individuals and to society when people trust and understand each other.

Children learn better in settings in which learning is the norm and not something to be

3 A variety of research finds that peer effects matter for educational outcomes. This comes about both in the school setting through peer effects under which strong students lead to improved educational outcomes for others, and in the workplace, in which wages are higher for people working in areas that have relatively highly-skilled workforces. This latter impact is above and beyond the direct impact of one’s own education, and is most salient for those with less education, who benefit the most from being employed in an area with substantial numbers of highly-educated workers. Burke and Sass (2008) find substantial evidence for the impact of classroom peers on student performance in Florida public schools in grades 3-10 over a five year period. The magnitude of the peer effects depend on both the ability of the student and of his or her peers—weaker students are more influenced by weak peers while strong students benefit from strong peers. This is consistent with the results of Carrell, Fullerton, and West (2008), who find strong evidence of peer effects among college students in which students with higher achieving peers tend to do better on grades themselves even after controlling for other influences and abilities. Imberman, Kugler, and Sacerdote (2009) likewise find statistical evidence of peer effects in the impact of the influx of evacuees from Hurricanes Katrina and Rita in 2005 leading to reduced math test scores in Houston elementary schools that received displaced students. The authors found that the impact works in both directions, with a positive benefit for all students from having strong students as peers, and a negative impact for all students from having weak students as peers. They also find evidence that the influx of misbehaving evacuees in some schools led to worse outcomes for native students, including greater absenteeism and increased disciplinary problems. These indirect impacts would all be in addition to the direct effect that the evacuee students themselves had negative impacts as a result of their dislocation and misbehavior and the attendant negative consequences for their own education. Mas and Moretti (2006) show that peer effects matter at work as well as at school, with social norms, social pressures, and learning from peers leading to a positive productivity spillover from the introduction of highly productive workers into a shift of grocery checkers at a large grocery chain.

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ashamed about. Communities are safer when neighbors look out for one another. And on a

large scale, economies function better and grow faster when people in a nation trust in each

other and share common goals.

Social capital is formed from the informal associations that enhance trust and

together lead to activities that are beneficial to individuals and society. This trust then helps

people work more fruitfully together and

overcome what may otherwise have proven to

be difficulties in joining together for a common

good. As discussed by Costa and Kahn (2002),

areas in which residents tend to have common

bonds and backgrounds tend to exhibit greater community participation in civic activities,

higher trust, more volunteerism, and increased willingness to undertake public expenditures

that benefit a community as a whole. This is not to say that diversity is a bad thing—only

that there are broad community benefits to groups of like-minded people who come

together for a common good. This makes clear the positive role of lodge-based fraternal

benefit societies in providing an organizational framework that helps like-minded individuals

come together for a common purpose. The formation of social capital through the activities

of fraternal benefit societies leads to manifest benefits for societies.

The challenge from the perspective of public policy is whether and how the social

structures that generate beneficial social capital can be encouraged, and the extent to which

structures that bolster social capital provide benefits for society. This latter question is

Social capital is formed from the informal associations that

enhance trust and together lead to activities that are beneficial to

individuals and society.

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crucial, since any such public policy aimed at improving communities, or otherwise fostering

social capital, must pass a cost-benefit analysis the same way in which a decision to devote

public resources to building more courts or hiring more police or school teachers. This

highlights the importance of measuring the impact of social capital on economic outcomes,

which is the subject of the next section. The activities of fraternal benefit societies appear to

easily pass this test, with the direct and indirect positive impacts far exceeding the relatively

modest cost of the public support these organizations receive through their tax-exempt legal

status.

Measuring the Amount and Impact of Social Capital

A wide range of economic research shows that social networks that give rise to

increased trust and group cohesion are associated with better economic outcomes, including

higher incomes, increased personal satisfaction, and lower incidence of social ills such as

criminal activity. These findings are used in the next section to quantify the impact of the

activities of lodge-based fraternal benefit societies.

The result that social capital matters is found across a wide range of settings, from

the schoolhouse to the neighborhood, and in some studies, up to the level of the nation. In

spite of its tremendous societal economic value, it can be difficult to directly measure the

amount of social capital. Thus, research has focused on evaluating whether causal links exist

between activities that would be expected to give rise to social capital and beneficial

outcomes—that is, economists evaluate the extent to which good things happen in

circumstances where social capital would be expected to develop (such as when children

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receive education). Studies looking at the United States and other advanced economies

typically focus on social capital developed locally, through interactions within the family,

school, neighborhood, or workplace. These settings closely mirror the dynamic engagement

that takes place within lodge-based fraternal benefit societies, in which lodge members are

in close and frequent social contact with one another, and thus have opportunities to

develop trust and behavioral norms even beyond the initial common bond that brought

them together in the fraternal organization in the first place.

Building Social Capital in Neighborhoods

The impact of social capital can be seen in studies that find that people who live in

neighborhoods marked by stronger cohesion have better economic and social outcomes

along a number of dimensions, both economic (such as increased earnings) and social (such

as lower rates of criminal activity). A considerable amount of research on the impact of

neighborhoods involves “Moving to Opportunity” projects, under which selected families

received resources to move out of neighborhoods with predominantly low-income residents

while other families received either limited or no financial support.4 As noted by Del Conte

and Kling (2001) and by Petit and McLanahan (2001), a move to a better neighborhood tends

4 Selected families received vouchers that could be used to move to only particular neighborhoods—those with generally higher-income residents. Researchers looked at outcomes for these families compared with others that received traditional vouchers without a geographic restriction (i.e., that could be used in high-poverty areas such as inner cities), and compared with other families that did not receive housing vouchers. It turned out that the restrictiveness of the voucher mattered, with more recipients of the special vouchers did in fact move to better areas than families with traditional vouchers that could be used for housing within lower-income neighborhoods.

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to improve the selected families’ access to higher quality social capital in the form of a more

stable family setting, better schools and role models, and more educated peers.

There is also a good deal of research on the role of education in the development of

social capital, which Glaeser, Laibson, and Sacerdote (2000) label as “one of the most robust

empirical regularities in the social capital literature.” Oreopoulos and Salvanes (2009)

discuss a wide variety of channels through which education improves well-being.

Oreopoulos and Salvanes find that these non-pecuniary benefits make up fully three-

quarters of the impact of education on self-reported measures of life satisfaction, while the

remaining one-quarter is accounted for by direct-effects, namely, increased income that

results from increased education. The consensus reported by Moretti (2003) is that “all else

equal, individuals with an extra year of schooling earn 8-12% more per year.” Moreover,

research demonstrates that there are tangible, additional impacts of education on social

capital that bolster overall returns to a community. Moretti discusses three sources of

externalities from education: 1) productivity spillovers in which educated workers make

others more productive (a peer effect); 2) the impact of education in reducing the

prevalence of negative activities such as crime;5 and 3) the impact of education in leading to

better-informed societal decisions.

5Social capital generation reduces negative behaviors as well. Lochner and Moretti (2004) show that increased social capital from education has a causal impact in reducing criminal activity as measured by the probability of incarceration, with a particularly large impact in reducing murders, assaults, and auto theft. The statistical techniques used in this research are able to separate out the impact of committing crimes on reducing educational opportunities from the impact of education on criminal activity in order to focus in on the causal connection from education to crime. As Moretti (2005) notes, an implication of the research is that the gains to society from lower criminal activity range between $1,170 to $2,100 per additional high school graduate,

(Continued)

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Moretti (2002) similarly finds that the total amount of educated human capital in a

city has a positive impact on productivity in manufacturing plants, with higher output in

plants in cities with better overall education levels—not just plants with the better-educated

workers. Wage levels rise commensurately with increased productivity, meaning that

improved social capital garnered through increased education in a community leads to

higher incomes and wages for other workers beyond those receiving the education.

Looking even more broadly, Milligan, Moretti, and Oreopoulos (2004) confirm that

increased education improves civic participation as indicated by voting. This is another way

in which education is linked to increased social capital— and again, similar positive

outcomes would be expected from other activities that build social capital. This is the

subject of the next section, which quantifies the gains to society from the activities of

members of lodge-based fraternal benefit societies.

Quantifying the Contribution of Fraternal Benefit Societies

This section uses the findings of the previous section to compute the positive

economic impact of the charitable and volunteer activities of members of Thrivent and the

Knights of Columbus. The value of time and resources contributed by Thrivent and the

Knights of Columbus is first used to compute the direct impact of the two organizations. The

second step is to measure the indirect contribution made by the organizations in building

(Continued)

meaning that increasing the high school graduation rate for men aged 20 to 60 years old would have benefits of up to $1.4 billion per year from reduced criminal activity alone.

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social capital and positively impacting families,

communities, and the nation as a whole. This

indirect impact is especially important to

quantify, because the efforts of Thrivent and the

Knights cannot be replicated easily, and the

positive impacts are made greater by the way in

which these organizations leverage their

national infrastructure and the common bonds of local members.

The indirect impact is measured by an analogy to the economic research on social

capital. Just as education has an indirect impact in building social capital, so too do the

charitable, educational, social, and religious activities of Thrivent and the Knights. The direct

impacts of volunteering and of education are not easily comparable, but the indirect impacts

derive from similar contributions to society of increased social capital—volunteering

strengthens the bonds of society just as with education through creating a more involved

and trustworthy population. The indirect benefit of volunteer activities can thus be

calculated using results from the indirect benefits of education—the empirical link is through

the amount of social capital contributed to society.

This calculation involves several numerical steps that translate from hours of

volunteer effort to an equivalent contribution to society in terms of dollars, which is then

added to the direct contributions for a total impact of Thrivent and the Knights of Columbus.

In carrying out each of these steps, the impacts of social capital is judged cautiously, so that

the final estimate is a conservative one—a minimum bound of the potential impact on

The efforts of Thrivent and the Knights cannot be replicated

easily, and the positive impacts are made greater by the way in

which these organizations leverage their national

infrastructure and the common bonds of local members.

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society. This is done intentionally so as to avoid inadvertently overstating the impact of

added social capital.

Direct Impact of Thrivent and Knights: Dollars of Charity and Hours of Service

The direct impact of the charitable and volunteer activities of Thrivent members and

the Knights of Columbus is $1.8 billion per year. This is calculated as the sum of $430

million in annual charitable donations noted in section two (Thrivent gave $126.2 million,

while Thrivent members contributed another $183.6 million; the Knights gave $32.3 million,

and local members gave another $87.9 million within the United States), plus the value of

the nearly 70 million hours of volunteer effort put forth by both groups’ members, through

Thrivent and Knights activities and programs.

The Independent Sector estimates that

volunteer time was valued at $20.25 per hour

in 2008 (Cramer 2010). The 68.4 million hours

of U.S. volunteer work between the two

organizations (21.3 million hours by Thrivent members, and 47.4 million by Knights

members) at $20.25 per hour thus equals $1.38 billion per year. Adding the $430 million in

direct monetary contributions to the value of volunteer labor and community work gives us

a total direct impact of $1.8 billion. The next step is to calculate the indirect impact that

Adding $430 million in direct monetary contributions to the value of volunteer labor and

community work gives a total direct impact of $1.8 billion.

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comes about as the activities of Thrivent members and the Knights of Columbus build social

capital in their communities.6

Indirect Impact of Social Capital Fostered by Thrivent and the Knights of Columbus

Calculating the indirect impact of the efforts of Thrivent and the Knights requires first

translating their members’ volunteer hours into a measure of the amount of social capital

yielded, and then computing the cumulative economic return of those efforts. The rich set

of quantitative results that relate education to the production of social capital are used to

compute the impact of the volunteer efforts of the two lodge-based fraternal organizations.

It must be stressed that the calculation here relates to the indirect impacts in terms

of social capital —there is no assumption that the direct impact of volunteerism is analogous

to the direct impact of education. Instead, the non-pecuniary benefits are taken as similar:

the hours of volunteering by members of fraternal benefit societies are activities that build a

community and foster increased social capital just as education leads to social capital

through increased trust and communal interdependence. This is along the lines of the

finding of Oreopolous and Salvanes (2009) that the indirect benefits of education (the

benefits beyond the direct impact of raising future incomes) are quite large in terms of

measures of personal satisfaction.

6 In addition to these positive impacts of their charitable activities, fraternal benefit societies such as Thrivent and the Knights make important contributions to societies through their role as employers and providers of financial services. These additional positive impacts are not considered in this report since they result from the organizations’ business activities such as providing insurance that make possible the charitable and philanthropic engagement of both the national organizations and local fraternal lodges.

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To compute an estimate of the social capital generated by fraternal volunteer

service, the 68.4 million hours of volunteerism are first converted into equivalents of

education-years, because the overall benefit to individuals and communities where fraternal

activities occur clearly has parallel effects. The average primary and secondary student in

the United States receives a total of 1,206 hours per year of schooling (U.S. Department of

Education 2002). The 68.4 million hours of volunteer work can thus be translated into the

annual equivalent of 56,716 additional children receiving a year of education in terms of the

impact on the accumulation of social capital and the resulting positive externalities for

society. This is an extremely cautious estimate of the generation of social capital by Thrivent

members and Knights of Columbus since it counts only the hours of volunteer service, and

not the other activities performed under the rubric of the lodges themselves which generate

social capital within the community of fraternal membership. That is, this counts only the

externally-focused activities of the lodges—what they do for the rest of society, and not the

social benefits enjoyed by members of the lodges themselves. Moreover, each hour in a

formal school framework typically consists of one or two teachers and multiple children. No

such “multiplication effect” is assumed here; each volunteer hour is taken as equivalent to

the social capital generated by educating a single child, and not a full classroom. These

choices are made intentionally to provide a lower bound for the amount of social capital

generated through the volunteer efforts of the fraternal benefit societies.

A year of U.S. education boosts a person’s lifetime earnings by ten percent over an

entire working life. To again be cautious and not overstate the impact of volunteerism in

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fostering social capital, the focus will be on the benefits to those who do not complete a high

school education, and thus have relatively low earnings.

The Census Bureau’s 2008 American Community Survey (2008, S2001) reports

median earnings for people 25 years and older

who do not graduate from high school of

$20,268 per year—this compares to overall U.S.

median earnings of $29,868 for all adults 25

years and older. A ten percent increase in

earnings is thus worth $2,026 per year for each year of a less-educated person’s working

lifetime. Over an average 40 years of a working life, this has a present value of $28,901 per

child.7

Over the equivalent of 56,716 additional years of education, a $28,901 annual benefit

per individual gives a total indirect impact of the volunteering efforts of Thrivent and Knights

members of $1.64 billion per year. This is the annual indirect return to U.S. society of these

fraternal activities – the dollar impact of the social capital generated by the volunteering

efforts of the two lodge-based fraternal benefit societies.

7 This uses a discount rate of seven percent to translate future dollars into present value. This discount rate is again chosen cautiously to translate into today’s dollars the value of future income gains. A higher discount rate reduces the contribution in today’s dollars because future incomes are worth less when discounted into current dollars. Interest rates on 30-year mortgages available as of mid- 2010 are around five percent, so a seven percent discount rate is a considerably higher figure than the interest rate that a typical person investing in a home for 30 years might face—and thus the seven percent discount rate provides a cautious estimate of the value of future income gains that come about because of the increased social capital built by the volunteer activities of Thrivent members and the Knights of Columbus.

The total indirect impact of social capital generated by the volunteering efforts of Thrivent

and Knights members is $1.64 billion a year.

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Adding together the indirect impact and the direct impact of the charitable,

community, and volunteer activities of Thrivent and the Knights of Columbus gives a

cumulative return to the nation of $3.4 billion per year.

This $3.4 billion figure is large but calculated in an exceedingly conservative way.

Indeed, to illustrate the degree to which this figure of $3.4 billion represents a lower bound

for the contributions of the charitable and volunteer activities of Thrivent members and the

Knights of Columbus, consider the impact of changing some of the cautious calculations used

above. In particular, two changes are made for this alternate calculation: overall median

earnings of $29,868 per person (again from the Census Bureau’s 2008 American Community

Survey) are used for the people who benefit from the social capital fostered by the 68.4

million hours of volunteering, and a six percent discount rate is used instead of seven

percent to compute the current value of the 40 years of higher earnings. These two changes

together yield a much higher indirect benefit of increased social capital of $47,637 per

person per year. Over the 56,176 additional person-years of education, this comes to an

indirect benefit to society of $2.7 billion, which would bring the total direct plus indirect

benefit to nearly $4.5 billion. This point is made not to assert that the gains to society from

the activities of Thrivent and the Knights of Columbus are precisely $4.5 billion or precisely

$3.4 billion, but instead to demonstrate that they are large and socially meaningful under

both very cautious assumptions and more “middle-of-the-road” parameters for the impact

of the fraternal activities in fostering social capital.

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While Thrivent and the Knights are the nation’s largest fraternals, they are not the

country’s only fraternals. From the Polish National Alliance to the Woodmen of the World,

fraternal benefit societies as a whole and their members give even more directly and

indirectly to the nations’ many needs and interests than stated above—as they have done

since 1909, when the Congress acted to exempt fraternal benefit societies from the federal

income tax. As such, the estimate of the value of what Thrivent and the Knights do alone is

only part of the entirety of the value from fraternal benefit societies nationwide.

Putting Societal Benefits in Context

The benefits to society from the financial contributions and volunteer hours of

Thrivent members and the Knights of Columbus result from the combination of the

generosity and enthusiasm of the members of the organizations matched with the structure

and resources provided by the lodge-based fraternal system. This structure in turn is

enabled by the tax-exempt status accorded to fraternal benefit societies under federal and

state laws, which allows the societies to amass added resources to support local activities.

These resources reflect the organizational structures of Thrivent and the Knights of

Columbus; where the local lodge is the hub of activity and the central focus around which

members organize and come together with others, with whom they share a common bond,

and receive substantial assistance from the national and regional level offices of the two

fraternal benefit societies. As discussed in detail above, this assistance includes both

organizational assistance and programmatic help, such as with educational literature, as well

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as important financial resources, such as matching funds that make it possible for lodges to

support vital local initiatives.

The financial capacity to build these resources and make them available derives from

the tax-exempt status of lodge-based fraternal benefit societies such as Thrivent Financial

for Lutherans and the Knights of Columbus under section 501(c)(8) of the Internal Revenue

Code. In examining the not-for-profit activities of fraternal benefit societies, the United

States Treasury in a 1993 report found that the societies “do not appear to compete unfairly

with taxable insurance companies” (1993). That is, the Treasury found that fraternal benefit

societies were not using their tax status to undercut the pricing or other competitive aspects

of other providers of insurance. This conclusion is backed up by the fact that fraternal

insurance in recent years accounts for less than two percent (A.M. Best 2009) of the U.S. life

insurance market.8 The tax-exempt status accorded to fraternal benefit societies does not

appear to provide any “unfair advantage” for the sale of their life insurance products. The

resources of fraternal benefit societies from sales of these products support the activities of

the fraternal membership, including the full range of religious, social, educational, and

charitable functions carried out by members acting within their lodges.

The Joint Committee on Taxation of the United States Congress has estimated that

repealing the tax exemption for all fraternal benefit societies (not just Thrivent and the

Knights of Columbus) would raise $50 million in revenue per year – i.e., taxes that fraternals 8 It is worth noting as well that fraternal insurers tend to have conservative and stable investment results. They have not relied on public funds for assistance over the course of the recent financial crisis and their activities do not pose a systemic risk to the financial system or to the economy.

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would need to pay on the sales of their insurance products. To evaluate the net benefits to

society provided by fraternal benefit societies such as Thrivent and the Knights of Columbus

requires comparing this $50 million per year (the taxpayers’ cost of the tax-exemption)

against the benefits to society that come about because of the tax exemption.

This exercise yields a clear answer: taking away the $50 million annual federal cost

of fraternals’ tax-exempt status would put at risk at least $3.4 billion in annual benefits

that Thrivent and the Knights provide to society through direct charitable and volunteer

contributions and the indirect value created by the activities of Thrivent members and the

Knights of Columbus in improving the social capital of their communities for the benefit of

all. Looking only at the direct benefits and leaving aside the contribution of fraternal benefit

societies to building social capital, the comparison still puts $50 million in U.S. investment

against an annual return of $1.8 billion of volunteering and charitable contributions from

Thrivent and the Knights alone, not counting the impact of dozens of other fraternal benefit

societies operating on a smaller scale in communities throughout the nation.

To be sure, many Thrivent members or Knights of Columbus would donate time and

money without the existence of the two organizations. In making the cost-benefit analysis

above, then, it is appropriate to consider as a benefit of the tax exemption only those

charitable activities that would not happen if fraternal benefit societies did not exist. As

noted above, the Bureau of Labor Statistics (2009) reports that 26.4 percent of Americans

volunteer their time. If the remaining 74.6 percent of the benefits provided to society by

Thrivent and the Knights of Columbus are counted (meaning that 26.4 percent of the

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contributions would occur anyway), this still leaves a net return of $2.5 billion annually that

is attributable to the existence of these two organizations. One might reasonably suspect

that people who join fraternal societies are more likely than the average person to volunteer

and donate to charity—after all, an important motivation for joining is often the ability to

carry out these worthwhile activities. Yet even if fully half of the contributions by members

are assumed to occur in the absence of Thrivent and the Knights, this still leaves an annual

contribution to society of $1.7 billion—more than 30 times the $50 million annual cost of the

tax exemption for all U.S. fraternals.

The lodge-based system is essential in bringing about these benefits, since it is at the

level of the lodge that members come together to act. Thrivent and the Knights of

Columbus are both marked by strong systems of lodges that meet regularly and act

effectively toward their social, religious, educational and charitable purposes.9

Replacement Cost

Another way of looking at the national cost-benefit analysis is to consider the cost

to the government of trying to replace even a fraction of the charitable and volunteer

activities carried out by members of Thrivent and the Knights of Columbus. The direct cost

in terms of hours and dollars would be comparable to the direct impact (donations and

9 It should be kept in mind that the calculations in this paper for the societal benefits include only the time spent on activities aimed at society. The figures for the benefits created by the two organizations do not include the time that members devote to religious activities. These are certainly worthwhile, but they do not fall cleanly under the rubric of benefits to broader society and are thus not included in the calculations in this paper.

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volunteer labor) of $1.8 billion per year calculated above. This in itself is enormously

costly—in a time of tight budgets and constrained government resources, it would be a

strain for many state or local governments to come up with these resources. Beyond these

direct impacts of dollars and hours, it is not clear that any government program could

operate with the same level of enthusiasm and effectiveness as that of the civic-minded

volunteers of the fraternal benefit societies. Governments can provide money, but are not

as effective at providing energy and volunteers. Moreover, any government would take

years to be able to build the same intricate national infrastructure of lodges that ensures

that fraternals’ charitable activities are targeted to the greatest needs of local communities.

It is hard to imagine that a comparable government-run endeavor could be pulled together –

certainly not one with the same impact. As President Obama stated at an October 16, 2009

joint appearance with our 41st President, George H.W. Bush, "The need for action always

exceeds the limits of government. There's a lot that government can't and shouldn't do, and

that's where active and engaged citizens come in" (2009). This is exactly where the

members of Thrivent and the Knights of Columbus come in.

Other private sector organizations certainly provide charitable donations and

organize their employees to carry out good deeds. This reflects well upon these firms and

upon a civic-minded culture among many corporations. At heart, however, such activities

are often an extension of corporate communications. Firms do well for themselves and their

shareholders and management when they are recognized as doing good things for their

communities. There is nothing wrong with this—indeed, there is everything in it to

celebrate and be thankful for. But this is substantially different from the activities of the

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members of lodge-based fraternal benefit societies, whose very mission is to provide, direct,

and orchestrate vital support and resources where they are most needed, and for whose

members the charitable and volunteer activities are at the heart of why they come together.

There are doubtless many models of corporate citizenship that work, and as a society we

rightfully encourage a diversity of means by which people can participate in helping others

and contributing to their communities. The point here is that the model of lodge-based

fraternal benefit societies is a particularly strong one for providing the organizational and

financial assistance that allows lodge members to act upon their inherent good impulses and

thereby contribute to society in ways that reflect the interests of local members and the

needs of local communities. This differs considerably from activities supported by

foundations and corporations, where the motivating factor might reflect the interests of the

businesses and charities and the individuals who run them rather than the needs of local

communities.

Summary and Conclusion

Lodge-based fraternal benefit societies such as Thrivent Financial for Lutherans and

the Knights of Columbus leverage the enthusiasm and civic-mindedness of their members for

the benefit of others in their communities. Thrivent and the Knights of Columbus provide a

unique organizational structure and deep financial resources so that members can come

together to carry out good works in support of their communities and their neighbors. This

is made possible by the tax-exempt status of the societies. The $50 million annual cost of

this exemption is amply returned by the contribution of fraternal benefit society members:

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for Thrivent and the Knights alone, $1.8 billion in direct value of volunteering and charitable

contributions, plus the $1.6 billion of indirect value created by the improved social capital

brought about through the activities of their members. In total, the return on this $50

million tax “investment” is $3.4 billion in annual societal benefits, including a myriad of

contributions that would be difficult and costly for government to perform without the

dedicated volunteers and network made possible by the common bond of the fraternal

benefit society.

In carrying out these good deeds, the modern members of these two fraternal

benefit societies echo the reasons their predecessors founded the societies over 100 years

ago—to care for others in their community, and to create a sense of community among like-

minded people. But in a very modern sense, by meeting the evolving needs of communities

everywhere, the activities of Thrivent members and the Knights improve lives and make the

world a better place.

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About the author:

Phillip Swagel is a visiting professor at the McDonough School of Business at

Georgetown University. He was previously Assistant Secretary for Economic Policy at the

United States Treasury Department (2006-2009), where he was responsible for economic

analysis of macroeconomic developments and a range of microeconomic issues including

pensions, housing, financial markets, energy, environment, patent reform, and

transportation. He also served as Chief of Staff (2002-2005) and Senior Economist (2000-

2001) for the White House Council of Economic Advisers and as an economist at the Federal

Reserve Board and the International Monetary Fund. He is also currently a visiting scholar at

the American Enterprise Institute and has taught at Northwestern University and at the

University of Chicago’s Booth School of Business. He holds a Ph.D. in economics from

Harvard University.

The author is grateful to Jesse Witten for extensive help with this project. The study

was supported by Thrivent Financial for Lutherans and the Knights of Columbus. The

opinions expressed here are those of the author alone.