Thursday, January 26, 2017

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?

Most of us are familiar with the role of the government, or public sector as it may be called. The government exists primarily to provide our society with law and order, thereby maximizing social welfare. Protecting human rights, allocating public goods, and providing safety regulations are just a few examples of the role of our government.

 Opposite the government is the for-profit sector. This includes any organization in which the profit is transferred directly to those who are the owners of the organization. A typical example would be a corporation with shareholders. For-profit entities have one primary goal: to earn money. Businesses can still be concerned with community well-being and social issues, however their first and foremost duty is always to earn profit for their owners.

In the middle of the public and for-profit sector exist nonprofits. Unlike for-profits, nonprofit organizations are not allowed to distribute profit to their owners. So what do nonprofits do, and why are there so many of them? Generally speaking, nonprofits arise to fill the gaps left in the social welfare realm by the other two sectors. They are motivated by altruistic reasons rather than the desire to earn money. Despite this common goal they vary significantly in both form and function, ranging from local grassroots organizations to massive universities and hospitals which employ thousands of people. Currently nonprofits play a key role in providing education, healthcare, and social support in the U.S.

Nonprofits share characteristics with both the public and for-profit sector. Similar to the government, nonprofits function for the good of the public. Internally, their structure and hierarchy may bear a striking resemblance to their for-profit counterparts. The one difference here being that nonprofits often rely to some extent on the contribution of unpaid volunteers to forward their mission.

Nonprofits will often compete against for-profits in the same market. An example of this would be seen in the provision of healthcare. Imagine both a for-profit and nonprofit hospital in the same community. While the for-profit hospital’s primary concern is to make money, the nonprofit hospital would focus mainly on providing quality, low-cost care to as wide a range of the population as possible. We would therefore expect the for-profit hospital to avoid serving the costliest and least profitable portions of the population. Research reflects this assumption, showing that the majority of care provided to the low-income and uninsured population comes from for-profit hospitals.

One may ask why not just have the government run the hospital instead? The reason is that a nonprofit can often act much more efficiently than the government can. As anyone who has lived in America knows, the public sector tends to move at a very slow pace. Political processes, partisanship, and many other factors constrain the ability on what the government can do. Nonprofits offer an advantage in that they are not bogged down by these same constraints.


Nonprofits are unique in that they combine various aspects of for-profit businesses with the altruistic motives of the public sector. Their importance to today’s society is unquestionable, and as uncertainty grows over the direction of our nation’s government, it is no doubt that their role will only be magnified in the future.


Sources:

Berman, Howard J. "Doing “Good” vs. Doing “Well”: The Role of Nonprofits in Society." INQUIRY: The Journal of Health Care Organization, Provision, and Financing 39.1 (2002): 5-11.

Garthwaite, Craig. “Who Bears the Cost of the Uninsured? Nonprofit Hospitals.” Kellog School of Management at Northwestern University. Evanston, IL. 2015.

Renz, David O. The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons, 2016.


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