Program on Philanthropy and Social Innovation (PSI)
Program on Philanthropy and Social Innovation (PSI)
Commercialization, Social Ventures, and For-Profit Competition
| Dennis R. Young, Ph.D., is Professor of Nonprofit Management and Economics at Case Western Reserve University and CEO of the National Center on Nonprofit Enterprise in Arlington, Virginia. Formerly, he was President of the Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA), Director of the Mandel Center for Nonprofit Organizations, and Professor at the W. Averell Harriman School for Public Policy and Management at the University at Stony Brook. Young has written many articles and books, including co-authoring Corporate Philanthropy at the Crossroads, and Economics for Nonprofit Managers. He is founding editor of the journal Nonprofit Management & Leadership, which he edited from 1990 through 2000. Young holds a Ph.D. in Engineering-Economic Systems from Stanford University.
Lester M. Salamon is a Professor at Johns Hopkins University and director of the Johns Hopkins Center for Civil Society Studies. Dr. Salamon was a pioneer in the empirical study of the nonprofit sector in the United States and, more recently, throughout the world. His 1982 book, The Federal Budget and the Nonprofit Sector, was the first to document the scale of the American nonprofit sector and the extent of government support to it. His book Partners in Public Service: Government-Nonprofit Relations in the Modern Welfare State (Johns Hopkins University Press, 1995), which examines government-nonprofit relations in the United States, won the 1996 ARNOVA Book Award. As director of the Johns Hopkins Comparative Nonprofit Sector Project, Dr. Salamon has extended this analysis to the international sphere, producing the first comparative empirical assessment of the size, structure, financing, and role of the nonprofit sector at the global level. His recent book on this work, Global Civil Society: Dimensions of the Nonprofit Sector, won the Virginia Hodgkinson Award from Independent Sector in 2001. Dr. Salamon serves on the Boards of the Maryland Association of Nonprofit Organizations and the Chesapeake Community Foundation, on the Editorial Boards of Voluntas, Administration and Society, Society, Public Administration Review, and Nonprofit and Voluntary Sector Quarterly, and on the Social Science Research Councils Committee on Nonprofits and Philanthropy. Dr. Salamon received his B.A. degree in Economics and Policy Studies from Princeton University and his Ph.D. in Government from Harvard University. |
Chapter Summary
Dennis R. Young and Lester M. Salamon
Perhaps the dominant force shaping the nonprofit sector at the present time is the widespread commercialization or "marketization" of social and economic life. While commercialization is nothing new to the nonprofit sector, in recent years the sector has not only reacted to the market but also embraced it on a scale not previously seen, integrating market impulses into nonprofit operations in often creative ways, though with consequences that are not completely clear. In this chapter, Dennis R. Young and Lester M. Salamon examine this marketization process within the nonprofit sector and assess both the pros and the cons it has brought with it.
This analysis is part of a broader assessment of Americas nonprofit sector coordinated by Dr. Lester M. Salamon of the Johns Hopkins University and published by the Brookings Institution Press in collaboration with the Aspen Institute in a book entitled The State of Nonprofit America.
Sources of Market Pressures. As Young and Salamon make clear, the pressures propelling nonprofit organizations towards greater engagement with the prevailing market system are multiple. They include declining government financial support, slow growth in private giving, increased service demands from widely disparate population groups, growing competition from for-profit and nonprofit organizations, increased accountability demands, and the increasing presence of potential corporate partners.
Growth of Fee Income. In response to this combination of push and pull factors, many more nonprofit organizations seem to be reaching out to the market, and on a much broader front. Perhaps the most obvious evidence of this is the growth of nonprofit reliance on fees for service charges. As of 1997, the most recent year for which figures are available, 49 percent of nonprofit revenue, including that of religious congregations, came from commercial sources compared to 31 percent from government and less than 20 percent from charitable contributions. Most of this came from mission-related services, such as tuition for education institutions and box office receipts for theaters. But nonprofits are also deriving money from the sales of ancillary goods and services, such as merchandise in museum gift shops and facility rentals by religious congregations.
Social Purpose Enterprises. Nonprofits are also integrating the market more directly into the pursuit of their social missions through the formation of "social purpose enterprises," or "social ventures." These hybrid organizations use market means to pursue nonprofit objectivese.g. by forming a catering business through which to train former drug addicts. Here the market is not simply a source of revenue but a preferred vehicle through which to achieve a social purpose.
Corporate Partnerships. Nonprofits are being drawn further into the commercial orbit by alliances with the corporate world. Businesses have found that teaming up with nonprofits adds respectability and trust to their images while cultivating new markets, new sources of employees, and new pools of research and expertise. In exchange, corporations donate money, form employee volunteer programs, sponsor events, loan out executives, and provide equipment, space and contacts.
Incorporation of the Market Culture. As they have come to operate in an increasingly competitive, market-oriented environment, nonprofits have also increasingly absorbed the culture and manner of the market into their internal structures and operations. Nonprofits are no longer bashful about aggressively advertising their services or competing for charitable contributions. Indeed, they have become increasingly "entrepreneurial," worrying about their "market niche" and engaging in "strategic planning." Agencies are increasingly adopting performance measurement techniques, adopting smaller, corporate-style boards, and building more elaborate organizational structures.
A New Enterprising Social Sector. Emerging from these various developments is a new picture of the "social sector," a picture of a self-propelled set of organizations loosened from their original moorings in charity or as a passive agent of government and much more closely connected to the market system, while still somehow tied, however tenuously, to the pursuit of public benefit. Unquestionably, the nonprofit sector has gained many advantages from this closer association with the market. Marketization has offered the nonprofit sector access not only to an enlarged resource base but also to the energy and creativity that the market system has long represented. Armed with earned income, nonprofits may become more fully independent than either government support or private charity has made possible. Engagement with the market also opens possibilities for leveraging enormous private resources and talents for social purposes, and for erasing widespread images of nonprofit ineffectiveness, establishing instead the image of a set of organizations that has learned how to bring the most efficient means to the service of the most valued ends.
But if the potential advantages of the nonprofit sectors embrace of the market are considerable, so too are the risks. Market pressures can undermine nonprofits commitments to their core values, to doing what is right as opposed to what is popular or commercially viable. They can also threaten the sectors public support if efforts are not made to keep the public engaged and informed.
The solution to these problems may not lie either in restricting the commercial involvement of the nonprofit sector or in relying blindly on the restriction on distribution of profits to ensure appropriate nonprofit performance. Rather, more direct mechanisms of control may be desirableperformance measurements and mechanisms that empower key stakeholders, such as donors or the users of nonprofit services. Under any circumstances, while it is essential to keep the challenges posed by the market clearly in view, it would be foolhardy to let the opportunities it presents to the nonprofit sector go unexplored.
