Are nonprofit organizations redundant? Can the for-profit sector solve all our problems and usher in a world where poverty, disease and deprivation are things of the past? I read an article on the Forbes website yesterday that argued for dismantling of the nonprofit sector. This piece by Mr. Freedman sought to show, using two elite universities as examples, of how the entire sector is not really contributing to our lives and at best, it is a benefit that the sector does not deserve. I believe that in the U.S. (and many parts of the world) the nonprofit sector plays a key role in society and holds together social bonds, provides opportunities to those who cannot be part of the for-profit sector and finally, offers an opportunity in democratic participation.
Let us look at some of the arguments that are made in the Forbes piece, before we move on to analyze why I think the nonprofit sector is so important to America. While pointing out that most students at Harvard and Stanford, two institutions Mr.Freedman picks for analysis – are rich, isn’t it a total waste of tax payers dollars to subsidize them? He says: “But Harvard’s philanthropy is clearly questionable. Most of Harvard’s students are rich. (For that matter,
all on average four year nonprofit schools skew upward in the wealth distribution, although not as much as many of the most elite).” But it would help to remind Mr.Freedman that most students in America don’t go to Harvard and Stanford. They actually go to community colleges, for a start. As this recent U.S. News article points out, there are over eight million students enrolled in community colleges. And from a recent lecture at Virginia Tech, I learnt that as many as 40% of graduate students have spent some time at a community college, before moving onto graduate level study.
Here are a few arguments, spanning various sectors for why we need the nonprofit sector and how it enriches our lives, in concrete ways.
- Incentivizing community action – As Alexis De Tocqueville, the French Aristocrat keenly observed in Democracy in America, the form of association is key to progress in America. “ In democratic countries, the science of association is the mother of science. The progress of all the rest depends on the progress it has made.” Tocqueville, 1845 :1. Lester Salamon of Johns Hopkins University contextualizes this development in the ideology of voluntary action that existed since the founding of the country. Voluntary action in the 19th century was seen as a middle way between rampant individualism and monarchial tyranny. The arrival of immigrants around this time also led to the development of self-help societies and voluntary groups, that provided crucial services to the newly arrived immigrants, he points out. This continues, to this day and one sees that the nonprofit sector benefits people from across all segments of society – the very poor, the middle class to the rich ( The National Football League (NFL) is an egregious example of a nonprofit that ‘serves’ some very wealthy interests).
At the heart of this associationalism was a distrust of state authority and a belief that people are able to take care of their own needs, if left to their own devises. The legal status that nonprofits enjoy and the tax exemptions that they get is in part incentivization for this sort of associationalism.
2.Community Colleges – The surprisingly large number of students who attend community colleges is not well known. Their crucial role in preparing students for future education or work should not be discounted, nor is their funding mechanism, much of it modelled so that the fees don’t leave a big debt on those attending these institutions. As I have pointed out above, the sheer number of students who attend them is testimony to their continued relevance.
3. Employment in the nonprofit sector – As this recent article points out, millions of people are employed in the nonprofit sector and it contributes roughly five percent of the American GDP, every year. A recent report from the John Hopkins University’s Center on Nonprofits points out that about 10.1% of total America’s workforce is employed in the nonprofit sector. This is third in line, behind retail and manufacturing.
4. Democracy and philanthropy – Anyone familiar with American history will acknowledge the key role that civil society institutions have played in forming American democracy and sustaining it. Payton and Moody further argue that Philanthropy is crucial for Democracy. “The future of a free, vibrant society is linked to vitality of the philanthropic tradition,” they point out. (Payton and Moody, 2008. Pg.88). The advocacy and civic role of philanthropy are clearly essential in democracies, but other activities – helping to meet public needs and responding to human problems, shaping the moral agenda, and expressing cultural values are all part of building a stable democracy, they say. The notion that culturally, Philanthropy fosters democracy is an idea that has persisted since Alexis de Tocqueville pointed this out in his classic work Democracy in America. Payton and Moody build on Tocqueville’s argument in that Democracy needs philanthropy as it is also a cultural value, fostered by civic institutions
5.Cultural argument – One must also remember that individualism and freedom are at the heart of the American character, as Robert Bellah et al have argued in their book Habits of the Heart. In this book, they start off with case studies of four distinct individuals, leading very different lives. But what ties them together is how they make sense of their lives. As they say: “Brian Palmer finds meaning in marriage and family; Margaret in therapy. Thus both of them are primarily concerned with family life. Joe gives his life coherence his active concern for the life of his town; Wayne Bauer finds similar coherence in his involvement in political activism. Whether chiefly concerned with private or public life, all four are involved in caring for others. They are responsible and, in many ways, admirable adults. Yet when each of them uses the moral discourse they share, what we call the first language of individualism, they have difficulty articulating the richness of their commitments. In the language they use, their lives sound more isolated and arbitrary than as we have observed them, they actually are.”
As many keen observers of American society, from Alexis De Tocqueville to Robert Bellah and more currently Robert Wuthnow, have pointed out, civil society and its functioning is crucial for American democracy. The way in which individual agency has shaped American ethos is quite unique and offers all of us – should we choose to, to participate in making our ‘own world’ in our communities, both locally and at the national level; with limited interference from the state apparatus.
The libertarian argument against nonprofits in general is predicated on cutting back on any subsidies to those who ‘do not produce’. This is fallacious, as it defines productivity in a very narrow sense. Are the services of an NGO engaged in employment generation not valuable? What of the local community college or research institution? And I am not even bringing up the soup kitchens and other self-help groups that save lives, provide shelter and provide social services that many welfare states do. How does one quantify the results of some of the intangibles such as community action and mobilization, that several NGOs’ work towards?
Taking a cue from this, the discourse of ‘fixing the world’ through for-profits alone misses out on this sense of commitment, social bonding and cohesion that seems to exist in American society; and much of this exists in the nonprofit sector, where the motive to serve exists, even if in a flawed way. This social capital is the basis of how civil society has evolved in the U.S. Taking this away would mean taking away something at the heart of the American ethos. And unfortunately, much of this social capital is not “for-profit”.