Time to Restructure the ‘Nonprofit Sector’

Tax-exempt status has helped create the more general philanthropic or “non-profit” sector. This includes those above, legally designated 501(c)3 organizations, as well as civic groups or advocacy organizations (501(c)4), labor organizations (501(c)6) and 26 – 26! – other varieties of tax-exempt organizations. Yet the idea of a coherent nonprofit sector is more recent still: It was not until the 1970s, Peter Dobkin Hall notes, that the idea of a nonprofit “sector” came into existence. In other words, the existence of the nonprofit sector as we currently understand it is a distinctly modern phenomenon – and unfortunately one that has negative consequences.

The more modern conception is that of three distinct sectors: the public sector (the government), the private sector (for-profit businesses), and the voluntary or third sector (nonprofits). We differentiate between private sector and voluntary sector based on whether the organization is trying to make and distribute a profit. Yet this distinction does not work; as noted above, nonprofit organizations are making and distributing a profit in nearly every sense of the word, both businesses and charities are conceived of through public charter, and the agglomeration of infinitely varied organizations into one “third” sector causes this type of distinction to lose much of its meaning.

In today’s discourse, this split has another problematic side effect. By emphasizing a distinction based on “profit,” we implicitly condone the theory of “shareholder value” and the economic problems that come with it. The distinguishing feature of business corporations is indeed their ability to make profits, but this has metastasized into the defining feature with disastrous effects. The separation suggests that those in the private sector have or ought to have a different primary end goal from those in the other two sectors. This claim, I would argue, has had very negative impacts on the trajectory of the American economy and American society. If we want to return to a more socially minded corporate role in the economy – which given the power of corporations is probably a worthwhile goal – we would be well-served to eliminate the non-profit / for-profit split.

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Source: Forbes