The Playgoer: "Has the nonprofit business model outlived its usefulness?"

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Friday, May 05, 2006

"Has the nonprofit business model outlived its usefulness?"

The provocative question posed--albeit from the "free-market" perspective--by a piece in the Seattle-based "Stranger."

Nonprofit America is serious business: There are currently over 1.3 million nonprofit corporations in America, employing 11 million people with 5.7 million more working as volunteers. One in 10 working Americans works for a nonprofit. Nonprofits account for roughly 10 percent of the GNP, with over 100 universities and colleges offering nonprofit-management degrees and certificates—University of Washington, Seattle University, and Seattle Central Community College to name a few locally.

However, the size of the nonprofit sector is no indication of its health. In fact, nonprofits are in trouble. The federal government is talking about how the system is broken; international funding agencies are talking about how it's broken. Nonprofit journals and the nonprofits themselves are talking about how it's broken. And because it's broken, but it's continuing to run like it isn't, the teeth are grinding off the gears and flying everywhere.

This is important because the nonprofit structure is the structure we've got for doing the type of work they do—nonprofits clothe the naked and feed the hungry, they heal the sick and protect the planet, they drive contemporary culture and preserve the past. Trouble for nonprofits directly equals trouble for the constituencies they serve. And if you believe that there should be organizations in the world doing this work and driven to do it by mission, not margin, then yes, this is important.

In the arts at least, it's clearer than ever that the "culture of philanthropy" in the US is essentially a band-aid. Give us a dose of art untainted (supposedly) by commercialism without the serious commitment and responsibility entailed by a true "Ministry of Culture." In the theatre we have ended up with something not quite showbiz and certainly not charity. Instead we're left with the worst of both worlds.

Talk among yourselves.


PeonInChief said...

I'll have more comments on this later, of course, but the social entrepeneurship model was popular in the early/mid-1990s, and was a complete flop.

freespeechlover said...

yes, i have to agree with you playgoer, and i'm afraid this is infecting universities as well. i agree that the social entrepreneurship model was a flop, but why? maybe the progressive community is too individualistic? should we, those of us who can, not give a certain amount of our income toward the arts or is there another model out there?

PeonInChief said...

What's most indicative of what's wrong with Matthew Richter's ideas are the examples he gives (and I'm not even going to discuss why the heritage of lemonade is not one of the central issues of our time). Leaving aside the potential for tax-dodging, the nonprofit projects he proposes are tiny, and I can't see how a major project could be funded with the leavings of some profit-making enterprise.

For example, real estate developers are often required to include an affordable housing component in their ever-uglier tract projects--usually 10-15% of the units. But this does little to solve the housing problems of the 60% of the population that is either underhoused or overpaying. Solving that problem would cost billions.

And no one disputes that having a bunch of careerists on your board is a bad idea, no matter how much money they tell you they can raise. The collapse of the Pacifica board is only the best example.

However, this problem has existed since the 1980s. One board I know of started raiding the monies of the projects for which it was grant recipient, "borrowing" the money to become a political player. The grantees had to report them to the IRS to stop them. In another case the board tried to break the employee union, eventually bankrupting the organization.

The social entrepeneurship model failed because the organizations it tried to fund needed far more money than could be raised internally. Arts organizations have the capacity to raise some money through ticket sales, the gift shop etc. But social service/social justice groups generally serve populations with only tiny internal fundraising capapcity. In other words, it was like trying to squeeze blood from turnips.

And some of Richter's reporting is just sloppy. Just because you have a lot of nonprofits doesn't mean that all your social ills will be addressed. The local symphony does not address the problems of homelessness or battered women. He simply counted up all the nonprofits without distinguishing as to mission.

Second nonprofits are more like small businesses than corporations. They incorporate for the tax status; other corporations are often already profitable businesses before they incorporate. (I've done nonprofit incorporation for groups that had to troll the board for the 1023 filing fee.) So their failure rate should be compared to small business, not profit-making corporations.

And I'm unnerved by anyone who suggests that just because the federal government thinks contracting with profit-making enterprises is a good idea, that it is a good idea. Hey, they thought invading Iraq was a good idea too.

Playgoer said...

Much thanks, "Peon" for the balancing view. I was well aware of Richeter's bias in posting, but thanks for elucidating further.

I figured he's worth reading anyway, since you don't come across many other comprehensive critiques of the non-profit model these days in the press, especially from the left. So it's somewhere to start at least.

What I do take away from his argument, though, is how much our corporate friends trying to help the arts have bungled even their ideal of making a good business out of it.

PeonInChief said...

You're quite welcome, Playgoer. I did like what Richter said about the careerism (and frankly, incompetence) of business-oriented nonprofit boards. They don't do good art, and they can't make their business model work either.

And the reason for that is: the work done by nonprofits doesn't lend itself to making a profit. If it made a profit, some capitalist would have set up a business to do it long since.

I didn't talk about profit-making enterprises getting goverment funding to do work that nonprofits have traditionally done (childcare is one of Richter's examples), as I thought I'd already gone on so long that people would ask you to shut me up. But the reason for that has much more to do with Republican fundraising than with the efficacy of the profit-making childcare center. What we have now are a bunch of little Halliburtons all feeding at the public trough and, incidentally, making campaign contributions to the local Republican candidates. Merely coincidental, of course.

Worse than that, these enterprises often low-ball for market share, drive the competition out of business, and then raise their rates, all the while doing a lousy job.