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.
What the public is less apt to conceive of though, is that nonprofits, along with government and business, comprise three distinct, yet interdependent, sectors of our nation’s economy. Indeed, the need for or role that nonprofits play essentially grows out of the limitations of the other two sectors (Weisbrod 1988).
Government vs. Nonprofit: Because government responds to the needs of the political majority, the supply of collective goods will inevitably vary over time. Yet, “as government’s role contracts, or remains constant, society’s needs do no contract automatically. In fact, the opposite occurs” (Berman 2002). Nonprofit organizations are essentially the means by which citizens who want more of some collective good or service can supply that need (Weisbrod).
According to the National Philanthropic Trust, there were approximately 1.5 million registered charitable nonprofits in the U.S. in 2015. Human services groups - such as food banks, homeless shelters, and youth services – are the largest category, making up roughly one-third (35.5 percent) of the total. This statistic is telling - it shows the extent to which nonprofits have emerged in the 21st century to take on some of the country’s social welfare needs.
The government provision of social welfare services emerged in the 1930’s depression era, at a time when the public consensus was that the government’s role must expand, to become not only a social welfare safety net, but also the engine for economic recovery (Berman). However, “the social welfare needs and opportunities of a complex, growing society always will be expanding, outstripping available public resources” (Berman). In other words, the opportunities to do “good” are infinite, but government resources are not (Berman).
Business vs. Nonprofit: While nonprofits raise money to maximize their efforts, business is focused on maximizing economic return, to make as much money as possible over the long term for their owners. Consider though, that as businesses prosper, so do owners and employees, who then have the ability to support nonprofits through charitable donations. Indeed, in 2015, the largest source of charitable giving came from individuals at $268.28 billion, or 71% of total giving, according to the National Philanthropic Trust.
While the main nexus between the nonprofit and business sectors is the individual, it would be a mistake to assume that business does not realize the “value and importance of accepting and fulfilling a responsibility to their communities” (Berman). Forward-looking business leaders embrace the economic rationale for “corporate responsibility”, including support for the nonprofit sector which provides important community services (Berman).
In conclusion, in our economic system, society will not flourish without the robust performance of all three sectors – government, business, and nonprofit (Berman). Moreover, if governed effectively, nonprofits are not only the catalysts that enable the other sectors to focus on their principal purposes, but their historic and continued role in serving those in need, puts them at the heart of the emerging 21st century social structure and economy (Berman).
Berman, Howard. Doing “Good” vs. Doing “Well”: The Role of Nonprofits in Society. Inquiry/Volume 39, pgs. 5-11, (Spring 2002).
Weisbrod, Burton. 1988. The Nonprofit Economy. Harvard University Press. Retrieved from: http://www.irp.wisc.edu/publications/focus/pdfs/foc112f.pdf