Chapter 2
Understanding non-profit sector and non-profit organizations
There continues to be no unified theory to explain the existence of the nonprofit sector.
Moreover, some theories are at odd with others, and each theory has its advocates as well as
critics.
Historians: explain the existence of America’s nonprofit sector as largely a result of
historical forces and events. The nation was founded in rebellion against the authority of
British monarch and skepticism toward government is deeply felt in American political
attitudes. Moreover, many American towns and cities developed before local gov.s and
voluntary associations including volunteer fire departments, libraries, schools, and hospitals,
so people came together to meet common needs and provide for the poor, their voluntarism
often reflecting religious convictions, often provided vital services. As the nation grew due
to urbanization, industrialization, and immigration, the need for the nonprofit sector
increased. The evolution of US law began to support this sector by its laws, as Congress
approved tax deductibility for gifts to certain nonprofit four years later. In sum, those
developments shaped today’s nonprofit sector, and it is consequence of America’s unique
past.
Sociologists: describe how involvement in nonprofits helps to socialize individuals,
reinforce norms and values, and how to develop social capital, creating interpersonal
bonds of trust and cooperation and contracting loneliness and isolation. Theorists discuss
nonprofits as mediating structures, operating as buffers between individuals and larger
institutions of government and business.
Political scientists: looked at nonprofits with respect to their role in supporting democratic
traditions and in terms of power relationships between citizens and government. Four
key functions that nonprofit org.s perform in relation to government:
Accommodate diversity: Nonprofits give voice to groups with differing values,
beliefs, and practices that cannot be fully accommodated within government,
with its obligation to treat all citizens the same.
Undertake experimentation: Nonprofits can undertake research and development for
social programs. In other words, nonprofits can begin new programs on a smaller
scale and undertake greater risk than government can with public funds.
Provide freedom from bureaucracy: Nonprofits may be able to respond more
efficiently and quickly to new needs because they do not have the large bureau.s that
characterize government,
Attention to minority needs: Government’s priorities must be consistent with those of
the majority voters. There may not be political support for programs to meet the
needs of minority groups that do not possess sufficient political power. Nonprofits
fill such gaps created by political realities.
Economists: have made significant contributions to theories of the nonprofit, but nonprofits
provide an interesting challenge for the mainstream economic theory. Economists analyze the
working market according to supply and demand; how can they explain labor markets in
which people work without compensation or the seemingly irrational act of giving away
one’s money.
, The failure Theories
The key concepts to define the economic theories of nonprofit sector include private goods
(that you buy and its all yours until you decide to lend it to somebody), public goods (that
governments ensures), externalities (negative or positive influence of other’s consumption)
and free riders (benefit from expenditure at no cost to them).
To sum it up, if the purchaser is able to capture all the externalities, it makes sense to have a
product provided though the free market to treat it as a private good. But if the externalities
are so great that the good also will benefit many others who do not pay, the free riders, then
the market is unlikely to provide it and it should be provided as a public good.
Market and gov. failure
Because of information asymmetry market may fail. Like in the case of for example,
parents pay tuition fees, children who pay parents’ nursing home care may not have full info
about the service. Or market may not work well on poor and discriminated groups. In the
situations that market does not perform well govern. fill the gaps. But it can fail as well,
means gov. is not incompetent but rather there are some political, structural systematic
reasons that may prevent gov. to fill them. For example, gov. can be busy to respond the
needs of the majority (voter desire).
Bureaucracy also undermines the ability of the government, means incomplete info on local
problems, and their size is difficult to take quick action. Thus, limiting give’s ability to meet
needs and leaving gaps that are undressed by either the market or gov. Who can fill such
gaps?
Nonprofits as gap fillers
In the concept of the failures, nonprofit organizations are essentially gap-fillers they fill the
gaps left by market failure and give. failure, providing the goods and services that the other
two sectors for whatever reasons could not.
For example, children may prefer to entrust their parents’ care to a church sponsored nursing
home rather than one operated by a for profit company. They may do so because they believe
non-distribution constraint removes the motive to exploit consumers because they believe
that nonprofit leaders are driven more by altruistic motivation than for profit managers or
because they do not trust for profit providers for some other reasons. This thinking is known
as “TRUST THEORY” of nonprofits.
As it is noted, sometimes gov. is simply too constrained by its size and complexity to respond
quickly, especially in thrones that may affect only a small group of people. For example, state
and federal gov. may respond to only major disasters but nonprofit like Red Cross may be
nimbler in responding to the needs of the victims of house fire or local flooding.
Just as the terms of nonprofit connotes what such organizations are not, the failure theories
explain their role by what others do not do, that is nonprofits serve needs that the private
market and gov. for various reasons do not meet. But how do we explain industries in which
both nonprofits and gov. provide services?
Understanding non-profit sector and non-profit organizations
There continues to be no unified theory to explain the existence of the nonprofit sector.
Moreover, some theories are at odd with others, and each theory has its advocates as well as
critics.
Historians: explain the existence of America’s nonprofit sector as largely a result of
historical forces and events. The nation was founded in rebellion against the authority of
British monarch and skepticism toward government is deeply felt in American political
attitudes. Moreover, many American towns and cities developed before local gov.s and
voluntary associations including volunteer fire departments, libraries, schools, and hospitals,
so people came together to meet common needs and provide for the poor, their voluntarism
often reflecting religious convictions, often provided vital services. As the nation grew due
to urbanization, industrialization, and immigration, the need for the nonprofit sector
increased. The evolution of US law began to support this sector by its laws, as Congress
approved tax deductibility for gifts to certain nonprofit four years later. In sum, those
developments shaped today’s nonprofit sector, and it is consequence of America’s unique
past.
Sociologists: describe how involvement in nonprofits helps to socialize individuals,
reinforce norms and values, and how to develop social capital, creating interpersonal
bonds of trust and cooperation and contracting loneliness and isolation. Theorists discuss
nonprofits as mediating structures, operating as buffers between individuals and larger
institutions of government and business.
Political scientists: looked at nonprofits with respect to their role in supporting democratic
traditions and in terms of power relationships between citizens and government. Four
key functions that nonprofit org.s perform in relation to government:
Accommodate diversity: Nonprofits give voice to groups with differing values,
beliefs, and practices that cannot be fully accommodated within government,
with its obligation to treat all citizens the same.
Undertake experimentation: Nonprofits can undertake research and development for
social programs. In other words, nonprofits can begin new programs on a smaller
scale and undertake greater risk than government can with public funds.
Provide freedom from bureaucracy: Nonprofits may be able to respond more
efficiently and quickly to new needs because they do not have the large bureau.s that
characterize government,
Attention to minority needs: Government’s priorities must be consistent with those of
the majority voters. There may not be political support for programs to meet the
needs of minority groups that do not possess sufficient political power. Nonprofits
fill such gaps created by political realities.
Economists: have made significant contributions to theories of the nonprofit, but nonprofits
provide an interesting challenge for the mainstream economic theory. Economists analyze the
working market according to supply and demand; how can they explain labor markets in
which people work without compensation or the seemingly irrational act of giving away
one’s money.
, The failure Theories
The key concepts to define the economic theories of nonprofit sector include private goods
(that you buy and its all yours until you decide to lend it to somebody), public goods (that
governments ensures), externalities (negative or positive influence of other’s consumption)
and free riders (benefit from expenditure at no cost to them).
To sum it up, if the purchaser is able to capture all the externalities, it makes sense to have a
product provided though the free market to treat it as a private good. But if the externalities
are so great that the good also will benefit many others who do not pay, the free riders, then
the market is unlikely to provide it and it should be provided as a public good.
Market and gov. failure
Because of information asymmetry market may fail. Like in the case of for example,
parents pay tuition fees, children who pay parents’ nursing home care may not have full info
about the service. Or market may not work well on poor and discriminated groups. In the
situations that market does not perform well govern. fill the gaps. But it can fail as well,
means gov. is not incompetent but rather there are some political, structural systematic
reasons that may prevent gov. to fill them. For example, gov. can be busy to respond the
needs of the majority (voter desire).
Bureaucracy also undermines the ability of the government, means incomplete info on local
problems, and their size is difficult to take quick action. Thus, limiting give’s ability to meet
needs and leaving gaps that are undressed by either the market or gov. Who can fill such
gaps?
Nonprofits as gap fillers
In the concept of the failures, nonprofit organizations are essentially gap-fillers they fill the
gaps left by market failure and give. failure, providing the goods and services that the other
two sectors for whatever reasons could not.
For example, children may prefer to entrust their parents’ care to a church sponsored nursing
home rather than one operated by a for profit company. They may do so because they believe
non-distribution constraint removes the motive to exploit consumers because they believe
that nonprofit leaders are driven more by altruistic motivation than for profit managers or
because they do not trust for profit providers for some other reasons. This thinking is known
as “TRUST THEORY” of nonprofits.
As it is noted, sometimes gov. is simply too constrained by its size and complexity to respond
quickly, especially in thrones that may affect only a small group of people. For example, state
and federal gov. may respond to only major disasters but nonprofit like Red Cross may be
nimbler in responding to the needs of the victims of house fire or local flooding.
Just as the terms of nonprofit connotes what such organizations are not, the failure theories
explain their role by what others do not do, that is nonprofits serve needs that the private
market and gov. for various reasons do not meet. But how do we explain industries in which
both nonprofits and gov. provide services?
