Originally posted on Rethink the Block, September 8, 2013
When presented with the notion of a nonprofit organization, the first critique that often comes to mind stems from its unique character as a part of capitalist society. The very nature of the non-profit’s economic condition of being the anti-profit, positions the sector as directly tied to for-profit sector; without it, it would not exist. In our neoliberal capitalist world, the market drives the goods and services it provides and only the profitable one’s success. Nonprofits are therefore necessary to fill in specific niches that either the market or the government fail to provide, hence Weisbrod’s “three failure theory.” Essentially these organizations are treating symptoms of a greater problem of our neoliberal economic system. As more organizations treat an every growing number of systems, the strength and reliance on the nonprofit sector grows and it become increasingly difficult to see the original systemic issue and more difficult to change it, even as the reliance on donations from individuals and corporations as well as subsidized funding from the government call to question the sustainability of the sector its efficiency at providing the good of their mission. Frumkin, in the chapter, “Civic and Political Engagement,” in On Being Nonprofit, calls attention to the neoliberal nature of nonprofits, ““Tocqueville’s central point is that by putting all citizens on equal footing, America’s social and political system created a situation in which individuals could—in unprecedented numbers—from associations and take charge of their own communities.” (Frumkin, 37) And, “by teaching organizational skills and by building a sense of community, associates cans challenge the state’s claim to power;” (Frumkin, 32) and as the freeing of markets in neoliberalism is meant to make it easier for individuals to be on equal footing and to take charge of their own lives, when failure happens, people must find a way to use the same ideology to make up for the failure. I would also argue that failure of the government is not necessarily on the same playing field as the failure of the market, as the government if often a reflection of ideology of a particular time and tailored to suit the needs of the economic system. Politicians are elected based on the current political climate, and in poor economic conditions, leaders who advocate deregulation and privatization to reduce tax expenditures often win, with the support and endorsement of powerful business lobbies, over the idea of big government. Thus, a government failure is a market failure.
As new developments in technology as a result of market competition, and the resulting changing cultural habits from the use of this technology pushes out older methods and products, often sacrificing perceived quality in favor marketability and profitability. Here is where the notion of altruism become very important. Not all niches are filled by non-profit organizations. Take for instance the nostalgia for old-fashioned bakeries, which became unprofitable with the advent of new technologies of mass production and preservation, supermarkets, etc. While the products may be perceived as better quality, people are generally happy with the cost and convenience of the modern methods baking and delivery. A non-profit bakery could fill the niche, however they are not likely to receive donations because the disappearance of fresh bread is not cause célèbre, as fresh bread is not considered an entitlement. In order to fill the niche, fresh bread must become a luxury product and differentiated by marketing towards the nostalgia by considering it “artisan.” The role of technology is particularly important, as the segment of the population that are likely purchasers of artisan bread is likely to be much smaller than the reverse, the communication technology, mainly the internet and social media, have made it possible to reach a broader audience at a cheaper rate and smaller scale. Prices can then be raised to point of profitability at the smaller the scale of production. As far as ‘nonprofits filling a niche’ is concerned, the key element to consider is the idea of entitlement, or rather the “social value” described in the Valentinov article.
This is why I thought about Powell and Steinberg’s presentation of Hansmann’s four-way categorization of non-profit firms to be particularly interesting. At the cross section of donative types and commercial types we have both mutual organizations as well as entrepreneurial organizations. Entrepreneurial organizations are about what is typically seen as a providing for a ‘right’ or rather a good or service that society deems as an entitlement for its members. Housing, education and healthcare fall into this category, often at the cross section of commercial. These are causes which society deems that everyone has a right to and are so important that people will make the donation of time and resources to them; for instance in the form of tax dollars for public housing authorities and public schools, or volunteering to sponsor extracurricular activities. Other organizations such as private schools and hospitals which would normally be deemed as commercial and for-profit cannot be for profit because people feel as though profiting off these basic rights is unethical. But still there are for-profit hospitals and schools, but are regarded as luxury products and usually offer services which are considered by general society to be privilege rather than right. Donative groups such as historical organizations, and museums, etc. often fulfill a niche of maintaining some unprofitable method or product, such older styles of architecture or art forms like opera, and classical painting, but are regarded as a necessary part of well-rounded society. Museums usually curate famous works, where a private buyer would be seen as selfish if they purchased the work to display in their own home. The problem with these types of organizations is they are at the mercy of what is deemed cause célèbre at any given moment. Recent controversy over the government funding of media groups like PBS and NPR are a good example of the changing attitudes of what is entitled and what isn’t. In this case, conservatives believe that new technology such as the Internet has allowed for individual or private access to the type product that they provide and the social value to society has thus diminished. Thus the argument of the social value becomes revolved around their curated content rather than the notion of their existence. Mutual groups come together for a common cause around a private interest and provide a specialized good or service that is only of interest to a select few. The examples given were the National Audubon Society as donative and the AAA as commercial. Both organizations only have a demonstrated benefit to bird watchers and car owners respectively, thus fulfill the interest of a specific niche, and can be considered ‘private’ for this very reason and can be seen as more desirable from a neoliberal perspective. These groups also have the greatest potential to become the competitive with the government and for citizens to take control over their destinies. Housing cooperatives and homeowners associations are good examples of united to provide a certain level of service or exclusion that affect only the members involved. They set their own rules for membership and members can be punished in the form of fees or exclusion from the group if they fail to comply with the rules.
In short, it seems as though market failure results in the exclusion of the masses from goods or services that are deemed an entitlement by society. The government sets policies to either make up for the shortfall or employ nonprofit organizations to do it for them. At any rate, the systemic problem is exclusion. It would be interesting to see in place of this system, smaller vertically integrated organizations that can provide, housing, employment, food and goods and services to the masses in an inclusionary way rather than an exclusionary way.
Walter W. Powell and Richard Steinberg. Chapter 5, “Economic Theories of Nonprofit Organizations.” The Non Profit Sector: A Research Handbook. Yale University Press: New Haven and London, 2006.
Peter Frumkin. Chapter 2: “Civic and Political Engagement.” On Being Nonprofit.
First Harvard University Press: United States of America, 2005.
David Horton Smith. Chapter 7: “The Impact of the Voluntary Sector on Society.” from The Nature of the Nonprofit Sector. J. Steven Ott. Westview Press: Boulder, CO, 2001.
Valentinov, V. “Explaining Nonprofit Organization; the social value approach.” Journal of Cooperative Studies, Vol. 38 (2), pp. 22-36. 2005.