profit vs. non-profit: responding to kling

Arnold Kling has a post questioning the profit/non-profit distinction.  The whole post:

I am curious about the intuition that people have about non-profit work. The standard intuition is that going to work for a profitable company means that you are not serving people, only the profits of the company. On the other hand, working for a non-profit means serving the community. Do I have that right?

Of course, I think that profit-seeking enterprises serve the community, also. In fact, they do it in a way that is more sustainable and more accountable. It is more sustainable, in that the value of what they produce is greater than the cost of the resources (including labor) that they use. Otherwise, they would not make a profit. However, a non-profit can very well use more resources than the value of what it produces. A profit-seeking enterprise is more accountable, in that a profit-seeking business must satisfy consumers or else go out of business. Hence, it must provide something of value to its customers. On the other hand, if a non-profit fails to provide any benefit to its customers, it still might be able to obtain grants from the government or from donors.

Is my perspective valid? If so, why is the conventional intuition so pervasive?

A few responses:

1. Arnold is right in thinking that for profit firms can have positive benefits. Doctors, grocers, and all others kinds of people provide enormously important services in a for-profit format, and thankfully so. Some for-profit forms, such as shopping malls, seem to thrive precisely when they provide free services to other people. Arnold is also right  that the common “man on the street” view is that for-profits are for the benefits of owners, not the wider community.
2. However, I think Arnold is mistaken on the real profit/non-profit distinction. Non-profits provide services that are not sustainable in a for-profit format. This does not mean that the non-profit is waste, or that it is a subsidy for some wealthy person’s vanity project, though some non-profits do reflect that desire. Rather, the customers simply can’t pay for what might benefit them and “we” (the donors) have decided that these people need the service. The non-profit format is a way to handle donations to third parties in an organized and semi-public fashion.
3. There are many examples. The family is essentially a non-profit designed to channel resources to children. Parents do not make their money back! Other examples include services to poor children (e.g., Boys and Girls Clubs), women (e.g., battered women’s shelters) and immigrants (e.g., many religious groups donate time and services to poor immigrants).  My intuition is that it would be hard for a profit oriented institution to help battered women or poor children.

It might be tempting to say that non-profits only exist because of tax breaks, or as Kling implies, because of clueless donors or gov’t grants. Non-profit charities have existed for centuries, which suggests that the organizational form has something going for it. My hunch is that it’s signalling. Not only in the Hanson “I do this because I care” sense, but as a commiment to a specific issue. The people who run  the local church organization for recent Mexican migrants have to show that they won’t bail in order to give shareholders a slightly higher return. Rather, by making their organization non-profit, they show an allegiance to a specific type of person, not their wallet.