The Strange Economics of the Nonprofit Sector

Mar 3, 2014

The business of America is business said Calvin Coolidge, and of course it’s true. But not having gone to business school myself I have never been able to figure out how entrepreneurs like Donald Trump and Bill Gates make so much money out of enterprises that are, in every sense, very tricky. If I understand the rules of the game correctly, the object is to buy or manufacture something – say a skyscraper or a piece of software – and then sell it for much more than it cost. The margin is called profit or, if you are one of the last half dozen followers of Karl Marx, surplus value. If there’s no profit everyone involved feels that they are wasting their time and the whole enterprise collapses.

There are complications of course – shareholders, stock markets and so on – but the essential business principle is as I have described it. My lifelong problem is I can never persuade anyone to buy anything from me for much more than it cost. They argue, they bargain, and they just walk away. I don’t even do well with garage sales, when I’m trying to sell stuff for less than it cost. I have whatever is the opposite of the Midas Touch.

Many years ago I was involved in the management of several small businesses connected with publishing. They went bankrupt one after the other, almost as soon as I got my hands on them. After this, I decided that I wasn't cut out for business enterprise, and looked around for an occupation where profit would never be a problem. Naturally I became a writer. Some people have suggested that a freelance writer is  a businessman of a sort. This is true only in a very notional way - the way His Excellency Mr. Hamid  Karzai is ruler of Afghanistan.

To supplement my negative cash flow as a writer I've worked in non-profit organizations - in fact I think I can say that I have worked in two of the most spectacularly non-profit making organizations in the known universe - education and public radio.

The world seems to be divided into people who can make a profit and people who can’t. Those of us who work in the non-profit sector – and there are about twenty million of us – regard successful businesspeople with a mixture of awe and envy. Sometimes we may tempted to feel a bit superior, as if teaching or charitable work or public broadcasting is a higher calling. But this illusion doesn’t stand up to close examination. Non-profits can’t exist without the money and equipment created by business and industry. In radio, for example, every piece of equipment including the microphone I’m using now, was created by a profit-making business. So it’s a creative and necessary partnership that allows us all to do what we do best, and perhaps do some good in the world at the same time.

The biggest economic difference between business and the non-profit sector is the idea of the voluntary contribution. When you use the resources of a nonprofit, payment is usually optional. Just try that at your local supermarket or car dealership. So in order for this creative partnership to work it must have three sides and not just two: business, nonprofits, and the generous, farsighted individuals who choose to support non-profits. Of course this means you.

Copyright: David Bouchier