Could Nonprofits Be the Solution to 21st Century Woes?

Some 25 years ago while living and working in Germany, I distinctly remember a conversation I had with my language teacher. Looking to improve my German language skills by meeting and conversing with more locals, I asked her about finding a nonprofit in town where I could volunteer. She twisted up her face in a question. “Nonprofits? I think that’s more an American thing.”

Indeed it is.

According to Charities Aid Foundation’s (CAF) 10th Edition of the World Giving Index, the US is the most charitable country of 143 countries representing 95% of the world’s population. In a study spanning 10 years Americans (closely followed by Myanmar and New Zealand) ranked highest or near the top in 1) donating money, 2) helping a stranger and 3) volunteering their time. CAF found that high levels of philanthropy are not determined by GDP, religion or politics, among other things. Might the US’s first place rank in philanthropy, coupled with its lead in innovation help push a new model to address the world’s most pressing economic, civil and environmental challenges?

Seatte-based Scarecrow Video: video store-turned-nonprofit bringing film arts and film literacy to the community.

Jennifer Hinton of the Stockholm Resilience Center described such an economy in her article published February 2019 in Nonprofit Quarterly titled “Envisioning a Not-for-Profit World for a Sustainable Future”. Hinton proposed a nonprofit market model to deliver social and environmental benefits efficiently and equitably. In this nonprofit market economy income is maximized for the good of society and not to enrich shareholders or owners. The necessary ingredients for a nonprofit “business” are: 1) fulfill a social or ecological mission, 2) direct all financial surplus toward that mission, 3) have no shareholders or owners, and 4) be financially self-sufficient by selling goods or services (as long as revenue is tied to the mission). US hospitals and private schools have traditionally adopted this model but Hinton’s research across the globe has, surprisingly, found nonprofit businesses in almost every sector, including real estate, banking, grocery stores, pharmaceuticals, funeral homes and agriculture. And the trend toward nonprofit businesses continues. Take Scarecrow Video, a Seattle-based video store-turned-nonprofit, dedicated to bringing film arts and literacy to the community. Many believe the growth in nonprofit businesses is based on an increase in people seeking purpose-oriented work with a concurrent reduction in government support for social and environmental programs.

While Hinton seems to dismiss capitalism and Adam Smith’s “invisible hand”, I’m not totally convinced. We cannot ignore examples of for-profit enterprises that brought great innovation and efficiency to the world, which surely contributed positively to society. The light bulb, the steam engine, the automobile and refrigeration, to name but a few, were all inventions driven by profit-seeking motives that fundamentally changed the world for the better. Yes, capitalism is not without its drawbacks: economic inequality, environmental devastation, inefficiencies and waste caused by for-profit markets are widely known. In fact, Esther Duflo, Abhijit Banerjee and Michael Kremer, winners of the 2019 Nobel Prize in economics, have shown in real-world trials that economic incentives are not as effective at solving socioeconomic problems as traditionally believed.

Perhaps now is the time to recognize the value of both nonprofit and for-profit incentives to address the unique social and environmental struggles of the 21st century. Is it time to look at more business ventures through a nonprofit lens?

Talk to the financial experts at Fairlight Advisors to learn more about managing your nonprofit’s investments. Schedule a free consultation today!