looking into the non-profit sector: back to kling and hanson
We’ve discussed non-profits a bit around here. Arnold Kling and Robin Hanson take skeptical views of the non-profit world. This lead to an argument with Robin about why non-profits need to provide services. My point is that there are multiple issues regarding commitment, ideology, and profitableness.
The Nonprofit Finance Fund, for example, released a survey of non-profit groups. The break down from 1,935 responding organizations:
- Human services (I think this is what we’d call social welfare) (35%)
- Arts, Culture, Humanities (19%)
- Education (14%)
- Health (9%)
- Public/Societal benefit (9%)
- Animals/Environment (4%)
- Other 10% (includes voluntary associations, houses of worship, others)
So what do we learn? A big chunk of the non-profit sector addresses people who can’t fend for themselves (human services, animals). That’s about 2 out of 5 organizations. Another big chunk, arts (19%), provides something cultural for people who aren’t paying for it. I’m assuming arts organizations are either museums, artist support, or fund for public art (statues, installation, theater). These are situations were market demand is weak or hard to capture (e.g., we might enjoy a statue on the street, but capturing income from that might be hard). In my accounting, about 60% of the surveyed organizations do things that are hard to replicate in a for profit format.
Then we have two big categories where health and education, which account for about a quarter (23%) of the surveyed population. Here, you can make an argument that maybe non-profits should outsource. In some cases, they do. For example, many educational organizations are philanthropies that hand out college scholarships, which are simply vouchers for higher education. But still, overall, this is a sector that would be open to the sorts of criticisms made by Kling and Hanson.
Then finally, we get to two remaining chunks. I am not sure what public/societal benefit is, but it’s probably the classic “philanthropy” category where the point is to give away money to a wide range of causes. I am not sure how a for-profit format would be compatible with giving money away.
We also have to remember that the nonprofit sector is sometimes used as a way to avoid paying taxes by people who get very rich in the for-profit format think of foundations like Ford foundation, Rockefeller, and Gates or those even more conservative like Coors or Scaife). Do these ever get discussed as potential inefficiencies or “externalties” created by market actors using the nonprofit sector? Think of the Gates foundation and its effect on the U.S. educational system. Now, don’t get me wrong, they do a lot of great work, but it also depends on how you define “great.”
It’s not as simple as comparing the nonprofit sector to the for-profit sector. They work together, compete with one another, and sometimes even duplicate one another’s efforts. There is no way to bottom-line it in the way that Kling and Hanson are hoping to.
One more thing, when it comes to revenue in the nonprofit sector, higher education and hospitals dominate.
Scott Dolan
July 11, 2011 at 7:04 pm
I don’t want to get into the whole profit vs. nonprofit thing–the discussion as it stands makes me a bit uncomfortable because of the difficulty of disentangling from the left-right political dimension.
But I have a quick question: from your discussion above, it seems like you are not counting Columbia University, the Roman Catholic Church, and various local nonprofit hospitals in your “nonprofit” category.
I recognize these distinctions aren’t so clear. For example, lots of people hate Ivy League colleges. Sometimes people put us down by saying we’re not nonprofit at all, we’re actually profit-making institutions that spend our profits on fancy gyms, faculty salaries, etc. From the other direction, people say that we’re really an unofficial branch of the government (that certainly describes the funding flow in my own research group) and that we’re not private at all, One could similarly ask if Halliburton, Goldman Sachs, etc., are private or public.
I guess what I’m saying is, it’s difficult to have this sort of discussion without clarifying what’s in the category and what’s not.
Andrew Gelman
July 12, 2011 at 2:35 am
Andrew: A lot of our readers are organization/management scholars, so we rely on the definitions that are common in those areas. Usually, non-profit denotes private organizations that are either a legal category (e.g., 501(c) ) or an organizational form that lacks owners who get profits from the operation of the organization. This is in contrast to firm, whose purpose is profit generation, or government, which is neither profit driven or private.
And yes, the general category of non-profits, as used by org scholars, is huge. It includes everything from the local soup kitchen to Ivy League universities. It is also a category without sharp boundaries. You quickly learn about hybrid forms and organizations that are ambiguous in goal or structure.
That’s why criticisms, like Kling or Hanson’s, often miss the big picture. Given the enormous scope of non-profit activity and its diversity, it’s hard to write it all off as signalling, tax evasion, or whatever.
fabiorojas
July 12, 2011 at 3:58 am
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voluntary associations in the U.S. « orgtheory.net
July 12, 2011 at 2:38 pm
Fabio:
I also think criticisms such as Kling’s and Hanson’s are coming from a conservative direction politically, which makes me suspect that they’d be more sympathetic to nonprofit organizations that are either staffed by conservatives or have conservative goals. In the old days these would include Ivy League colleges, now not so much. I’d guess that the nonprofit organizations favored by conservatives would private schools in Republican-leaning suburbs (but not in Democratic-leaning cities such as NYC or LA), churches, and military or veterans’ organizations, for example.
Andrew Gelman
July 12, 2011 at 5:45 pm
Andrew, you raise a good point. There is an inherent tension within many conservative/libertarian critiques of non-profits. Intellectuals often praise voluntary action – but aren’t non-profits a great example of that? is anything that isn’t driven by profit motive automatically suspect? People providing goods and services with little state support – isn’t that the version of the safety net promoted.I think the only major conservative figure to openly and wildly embrace non-profits is Charles Murray. I am sure there are others, but it’s not a big element of their thought.
fabiorojas
July 12, 2011 at 6:07 pm
Fabio and Andrew – Check out my book review of Clemens’s and Guthrie’s volume. Several of the pieces in that book focus on how conservatives embraced and used nonprofits to help advance their cause. Nonprofit foundations and voluntary associations have become an integral part of the conservative elite’s agenda to redirect state resources and to spread a conservative ideology. That’s why I find it so strange that Hanson and Kling act as if nonprofits don’t serve a distinct purpose. If you could just as easily get things done with for-profits, then why not get rid of all of the churches and replace them with for-profit theological services? If you don’t trust nonprofit motives, then why would you see conservative think tanks as an effective tool for promoting conservative views.
Their argument is really short-sighted and seems to me to be more of an attack on a very particular kind of nonprofit, e.g., hospitals, than it is on the nonprofit organizational form.
brayden king
July 12, 2011 at 6:27 pm
I think conservatives are typically in favor of certain elements of the nonprofit sector, especially when they are being used as alternatives to the state, at least the federal government. Many conservatives have pushed for the devolution of power away from the federal government to the local (some might say this is part of the Right Turn in American politics brought on with the election of Reagan). I think conservatives have typically backed models where nonprofits are called to play an important role in the delivery of services, think of the voucher systems that have been tossed out there, or the advent of school choice and charter schools. Or even think of George Bush’s “thousand points of light” or as fabio mentioned his son’s faith-based initiatives (though Obama has proposed similar initiatives). Generally, nonprofits are thought to be particularly “nimble” and “flexible,” and can be called upon to fill the unique needs of the locality, in ways that more central government system cannot. Though, this may not be wrong, and can/should be empirically tested.
And again, conservatives have used the nonprofit sector to their advantage in pushing for some of these reforms, too. The Right Turn in American politics has been heavily financed and backed by conservative foundations and policy planning organizations (i.e. Coors, Scaife, Olin on the foundation side and American Enterprise Institute, Hoover, Heritage, on the policy planning side).
I should also note that there are plenty of disagreements about whether such a Right Turn actually occurred in the United States, or why it has occurred. And ‘dem Dems might be equally culpable in helping to bring about this shift, think Clinton’s PRWORA and I would even argue Johnson’s Great Society, which emphasized an important role for nonprofits in the delivery of services.
The point is, conservatives like some nonprofits and not others. Andrew is right to point this out. Part of what I was trying to do in my dissertation was to look at the connections of elites across the market, state, and government to see where the general allegiances lie.
Scott Dolan
July 12, 2011 at 6:30 pm
Brayden:
I haven’t followed all the discussion but my guess is that the political conservatives in this debate are not knocking nonprofit hospitals so much as putting down (a) organizations that are staffed by political liberals (in the U.S. sense) and (b) the more general idea that “do-gooding” is a good thing. Of course this argument can easily get tied up in knots (for example, if Wal-Mart indeed has done more good for middle-class America than all the nonprofits put together, then doesn’t that make Sam Walton a do-gooder, which in turn makes him suspect? etc.), but I think it’s still worth trying to explore the interactions between the social-science arguments and the gut-level ideology.
Andrew Gelman
July 12, 2011 at 7:26 pm
[...] organization distinction, with some spirited discussion in the comments. Click here, here, and here to read the posts and comments. In addition, orgtheory blogger Brayden King has posted a review of [...]
What do other organizational researchers and economists know about nonprofit organizations and voluntary associations vs. forprofit organizations? « CGAP online
July 13, 2011 at 2:08 pm
Richard Steinberg gives a nice overview and critique of the main economic theories of the non-profit sector. He basically makes the same arguments that Fabio makes–i.e., non-profits provide collective goods that for-profits and governments do a poor job of providing. (“Economic Theories of Nonprofit Organizations,” google it for a quick pdf draft version, and the citation.)
Also, though I’ve only skimmed the comments, I’d suggest the conservative-liberal distinction is too thin for this discussion, since there’s a strong communitarian bent to many of the pro non-profit arguments being suggested (here, and in the literature).
robert couch
September 27, 2011 at 10:56 pm