The Role of Nonprofits in American Life

When most people think of nonprofits, they likely think of well-known giants like the United Way or the Red Cross, as compared to more uniquely localized providers such as churches, crisis intervention centers, and civic centers. The notion of a nonprofit may also conjure up thoughts of a “501 (c)(3),” the tax-exempt status under the Internal Revenue Code claimed by “charities” that form to provide “public benefit”, which also happens to apply to many hospitals and universities.

Defining Nonprofits

Defining Nonprofits

Few people realize just how much American society depends on the work of nonprofits. In 2006, there were more than 600,000 charitable organizations, 400,000 religious organizations, and 600,000 non-charitable organizations (ex: advocacy groups, think tanks, etc.) (Hall and Burke, 2006). These organizations provide a wide variety of benefits, ranging from social interaction to religious instruction to human services. Defining “nonprofit” can be difficult since it is an umbrella term covering many organizations. In this article, I will compare and contrast nonprofits with two other sectors, for-profit organizations and government agencies, to define the scope of the nonprofit sector.

Nonprofits: The Backbone of America

Nonprofits: The Backbone of America

The nonprofit sector in America has evolved drastically throughout our nation’s history. Today the term “nonprofit” encompasses a vast scope of diverse organizations that are involved in a myriad of activities. In fact, with all the different nonprofits that currently exist, one might be left wondering what is the exact role these organizations play in our society?

For Profit or Purpose?

Nonprofit organizations are led by a vision. To Write Love on Her Arms, Inc.’s mission statement is “presenting hope and finding help for people struggling with depression, addiction, self-injury, and suicide. TWLOHA exists to encourage, inform, inspire and also to invest directly into treatment and recovery.” Their mission leads their movement. At the core of their different programs, fundraising campaigns, and merchandise sales, they must adhere to that stated purpose. Unlike the business sector, their goal is not solely to make a profit. They are directed by a group of diverse individuals that make up a board of directors. Nonprofits depend on their boards to navigate where they’re going and how they get there.

The Three Musketeers (of the political economy)

The non-profit sector is characterized by its service to the public good, a multi-faceted concept, defined by the current needs of society. The public sector (government), for-profit sector (business), and non-profit sector collectively create the political economy. Examination of the three sectors shows many similarities and differences not only across their respective commodity production, but also participation, finance, governance, and values.

The Three Sectors: A Call for Collaboration

The inauguration of a new president raises uncertainty for all sectors of our economy, namely each sectors role in society.  Generally, the private sector’s role is to meet the demands of consumers who pay for a good or service.  Similarly, the public and nonprofit sectors are accountable to their own “consumers”-tax payers and funders, respectively- to provide quality services with demonstrated outcomes (Renz, 104).  However, the private sector differs dramatically from the public and nonprofit sectors in its defining objective of generating a profit (Renz, 44). 

Meeting the Need Through Partnership and Collaboration

In distinguishing between the three major professional sectors - government, for-profit and non-profit - it may be helpful to apply a lens of unmet societal needs. The government's role as a social safety net and an institution accountable to the neediest members of society has changed over time, as its members have responded to a general, public desire to shrink the government's scope and constrain costs.

The "Washington Concensus" and the Increasing Importance of the Nonprofit Sector

Public sector, non-profit and for-profit organizations each have distinctive roles, but work together to form national and global society. The public sector – or the state – is primarily concerned with governing. The state exists at the point of intersection between its own domestic society and the wider international system of sovereign states. Because of this, the public sector must be mindful of their own material interests as they function alongside other states. The state is Janus-faced and is dually anchored in both the domestic and the international system (Skocpol 1979, 32). The state is accountable to public interests and ought to seek “the good” of its people, while balancing these interests with global demands. Governments enact policy, which can favor the interests of businesses or the interests of services for citizens. The organizations of the for-profit sector are primarily concerned with offering desirable products or services that are profitable. Companies are accountable to stockholders and consumers, and tend to expand their profit as far as the market and policy will allow. Organizations that comprise the non-profit sector generally have ethical underpinnings, taking on work that is considered to be contributing to a public good. These roles are often privatizations of work that had once been undertaken by the state, or new needs that have come into public awareness. Nonprofits are accountable: upward to funding sources and donors, as well as downward to their clients (Ebrahim).

In recent years, there have been significant shifts in the role each sector plays, with the non-profit sector expanding, the for-profit sector manufacturing globally, and the state favoring free trade and for-profit interests. An expanded role of nonprofits – both domestically and globally – took root when states became more reliant upon the nonprofit sector for service delivery, which can be traced to the 1980s Reagan and Thatcher era politics. Many countries in the developing world defaulted on their international loans and faced financial crisis. Washington, DC-based institutions drafted the “Washington Consensus,” which put forward a set of economic policy prescriptions for these developing countries (Williamson, 1993). These prescriptions opened markets to foreign for-profit organizations and limited state interference in trade. Greater conditionalities became attached to new and restructured IMF loans, and indebted governments were required to liberalize their economies, reduce market protections and implement austerity programs. These austerity programs reduced government social service provisions and contributed to increased poverty in these countries.

This resulted in more off-shore production for large companies, which cut their production costs. Production provided manufacturing jobs in developing countries, but also spurred a “race to the bottom” for these countries, with governments offering their citizens’ labor for decreasing wages. Humanitarian non-profits (largely from the global north) began to fill the gaps that arose in service provision, providing education, healthcare and food provision where state services were assessed to be lacking. These organizations were charged with civilizing and democratizing their constituents, combating government corruption, and delivering social services more honestly than state agencies. As a result, there was a boom in the number of nonprofits working in the global south known as NGOization (Dobkin Hall).

Going forward, I think this trend of global manufacturing and increased reliance upon nonprofits for public services – both domestically and internationally – will continue. Since for-profit organizations can reduce production costs by reducing wages, companies will continue to seek cheaper labor as long as government policy permits. Non-profits may achieve their goals more effectively from a bureaucratic standpoint because they are smaller and more specialized in their focus. States can effectually outsource some public service responsibilities to nonprofits, and citizens can fund a public good that may be overlooked or ignored by their state. A major weakness in this model of service provision is that nonprofits have less consistent funding than states, and the insecurity of funding may weaken a nonprofit's responsiveness to their clients needs (Ebrahim). Donors place expectations upon nonprofits and evaluations often focus on metrics of effectiveness that are comparable to the expectations stockholders place on for profit companies.

Dobkin Hall P. “Historical Perspectives on Nonprofit Organizations in the United States.” The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons, 2016. Pg. 3-42.

Ebrahim A. “The Many Faces of Nonprofit Accountability.” The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons, 2016. Pg. 102-124.

Skocpol T. States and Social Revolutions: A Comparative Analysis of France, Russia, and China. New York and Cambridge: Cambridge University Press; 1979.

Williamson J. Democracy and the “Washington consensus”. World Development, Vol. 21, Issue 8. August 1993, Pg. 1329-1336.