Why Sector Blur Is Bad For Those In Need

Sector blur is among us. It’s got positive potential… but if we’re not careful, it might not be so great.

Why should you be concerned that sector blur is giving for-profits a social mission and giving nonprofits profit-motive management mentalities? It sounds great if you don’t think about it too hard… as if it means for-profits are becoming nicer and nonprofits are growing smarter. But if we aren’t careful, it seems there could be grim consequences for our poorest, sickest, and most in-need.

Yes, nonprofits are corporations that are exempt from paying taxes. These corporations, however, consistently make similar (and seemingly strange) strategic management decisions:

  • Planned Parenthood has spent well over $193 million dollars in attempts to influence policies regarding pro-choice legislation and access to affordable health care. If these policies pass, Planned Parenthood could go out of business due to competition and possible reduction of need.
  • The Nature Conservancy asks communities to reach out to state legislature to protect the land and water in each state.  If we did as they ask, this half-century old organization would shut down.
  • The Serpentine Project, a small organization that I do community engagement contract work for, provides mentorship and financial support to youth who have aged out of foster care and want to attend college. The organization supports policies that extend foster care to age 21 (verses 18), though it would make the organization irrelevant.

This is like McDonalds serving up Big Macs while simultaneously allocating significant resources to making the world population go vegetarian. It’s a good social move (studies find that vegetarians live longer than meat-eaters), but it’s a very, very bad business move. This difference illustrates one of the key ideological divides between nonprofits and for-profits:

If the for-profit sector operates with the economic market, the nonprofit sector attempts to solve market failures. During this time of sector-blur, there is danger in nonprofits putting too much focus on profit-like motives. Similarly, there is danger in for-profits putting too much focus and weight behind social missions.

Here are three reasons why we should not let sector blur completely fuzzy up our vision:

1. For-profits in social change would advocate policies that are bad for us. Think about it: a for-profit women’s health clinic– something perhaps similar to Planned Parenthood– would NOT advocate policies that would make their services more competitive. It would be bad for business. In fact, the company is likely to lobby for policies that make it harder for competition to enter the scene, and thus harder for the general public to have access to affordable health care.  To use an example from William P. Ryan’s article, The New Landscape For Nonprofits, “a juvenile detention center may advocate get-tough juvenile sentencing policies to increase business. Both the juveniles and the communities, however, may fare better with a more community-based approach.” Ryan summarizes this point well: “For-profits are more likely than nonprofits to advocate public policies that favor profitability in the short-term rather than policies that help communities over the long-term.”

2. There’s business incentive for for-profits to skimp, cream, and dump. These are three things that we nonprofiteers are taught not to do early on, as they violate a moral code of public service motivation. But if your bottom line is to make money- you may well be “forced to” do these things:

  • Creaming is when an organization selects beneficiaries based predominantly on which individuals and demographics are most likely to help the organization succeed. For instance, a reading program may only select children with well-educated parents- as those children are already in an environment that values education, thus making the children more likely to succeed and lead the organization to success than children with uneducated parents.
  • Skimping is when an organization allocates fewer resources to individuals or entities that they don’t think will help the organization succeed. Another reading program example would be giving less talented tutors to children for which English is a second language, on the basis that they aren’t likely to succeed in the program anyway.
  • Dumping is flat-out avoiding high-risk individuals or demographics that are most in need of service. If too-much emphasis is placed on profit-motives, there’s a good chance this moral code of-sorts will be left behind. If for-profits find ways to effectively solve social problems, the public must be wary of these practices. Similarly, a nonprofit that puts more emphasis on money than their social mission may take part in these not-so-helpful-to-society practices.

3. The “dumping” would happen on nonprofits. Logically, as for-profits enter the field of social change, they’ll begin by taking up the issues where money can be most easily made, and clients most easily served. This is generally not with high-risk populations. The result? Nonprofits will find themselves with the harder, complex, and more expensive cases left untouched by for-profits. And because for-profits may take up the programs where nonprofits gained surplus revenues, the nonprofits faced with the tough stuff may have significantly fewer resources. Another result? Poorer poor, sicker sick, and generally more people who will be very, very hard to help.

Sector blur, of course, has a lot of great potential. Competition across sectors which may lead to increased efficiency across the board and a global turn toward the importance of social change, to name some examples.

But what we still need is what we’ve always needed: a model (be it grown from the private, nonprofit, or public sector) that can take our poorest, sickest, and least educated and solve these market failures. Even sector blur is going to be a rough road, so let’s get all hands on deck in coming up with something even newer than this new thing.

Posted on by Colleen Dilenschneider in Trends 6 Comments

About the author

Colleen Dilenschneider

MPA. Chief Market Engagement Officer at IMPACTS Research & Development. Nonprofit marketer, Generation Y museum, zoo & aquarium writer/speaker, web engagement geek, data nerd, marathoner, nomad, herbivore

6 Responses to Why Sector Blur Is Bad For Those In Need

  1. Emerritt

    Very interesting, Colleen. I can’t think of any museums that, when they do their work well, talk their ways out of a job. But the rest of it resonates. One could argue for-profit museums cheerfully mount blockbuster exhibits, sell “museum” reproductions, host weddings and events and otherwise skim off museum profit centers while trading on the good public image build by “nonprofits” around the identity of being a “museum.” At the same time, they avoid the unfunded mandates to preserve collections for posterity, fill a larger educational role, conduct research, and subsidize underserved audiences. Agree or disagree?

     
  2. Trina Isakson

    Not a comment on the post, but on all your recent posts in general. LOVE THEM! They get me thinking and philosophizing, which I thoroughly enjoy. They make me want to get together with people and discuss it all over wine. I’m writing a post about how I’m minimizing my online time, and focusing on the good stuff (ie you) and cutting the not so important (ie yet another 10-ways-to-enhance-your-personal-brand-with-Twitter” stuff).

    The next time you’re in Vancouver, let’s have a dinner party.

     
  3. Alex Bowles

    I’ve always been uncomfortable with the term ‘non-profit’ since it suggests – every so subtly – that the organization doesn’t create any benefit – the best it can do is redistribute the assets it’s given. ‘For-profit’, on the other hand, exists – explicitly – to create something (profit).

    Even though the distinction is manifestly baseless, I suspect it still has something to do with the abiding sense of inequality between them.

    But what happens if we acknowledged the obvious? Namely, that *all* well run organizations produce a profit. The real question is to whom that profit primarily accrues?

    If it goes to specific shareholders, then it’s private. If it goes to the undifferentiated public, then it’s public. In other words, we should stop thinking about ‘for-profit’ and ‘non-profit’. Rather, we should see all organizations as profitable, with the primary difference being ‘for public’ or ‘for private’.

    Developing commercially available anti-cancer treatments? That’s done for private profit (and bravo, by the way – it’s far better than doing something awful and anti-social for a living). But how about making these treatments available to those who can’t afford them? That’s done for public profit, since social cohesion is much easier to achieve when people aren’t dying needlessly.

    The important thing to understand is that these are mutually dependent outcomes: neither sector can flourish in the absence of the other. Private profit fuels for-public organizations, which – in turn – sustain beneficial social conditions that private enterprise needs, but cannot supply via commercial markets alone.

    This is not unlike the role played by government. Only here, the actual programs can be exponentially more creative, imaginative, daring, and granular than even the most responsive government agency can hope for.

     
  4. Beth

    Thank you for this! One of the clearer explanations I’ve read of non-profit/profit/sector blur and one that’s definitely got me thinking.

     
  5. fundtimes

    Interesting post indeed! I do, however, think that nonprofits should be on a mission to put themselves out of business. In my opinion, our work in this sector is a privileged one and we shouldn’t put our desires to continue to have a nonprofit business ahead of the needs of those we serve. Otherwise, we’re no worse than those who have created a social institution that perpetuates so-called “market failures.” As you said, nonprofits need to create a sustainable model so that they can effectively work to improve things for the disenfranchised. But the focus should still be on doing all we can (that includes lobbying for fairer policies), while we can to resolve intractable problems…

     
  6. Dan Spock

    I had a conversation with a very conservative board member once as our museum was in the throes of a budget crisis. He said with conviction that we wouldn’t be struggling to the extent that we were if only the museum had been “run more like a business.” I told him he was right because if we had most likely our institution would’ve ceased to exist long ago. Our organization is the oldest continuous entity in our state, older than than any business and older than the state itself. There are many things we do not do well, we do not make a very good living through earned revenue, we are slow and inefficient in many ways and our decisions are rarely made on the basis of whether they will be profitable. But we owe our continuity (which is what we do exceptionally well) by rendering good service sufficent enough to gain public support for our ongoing efforts. Businesses are created around profit motives which are very nearly always speculative and temporary in nature. The public good is only worth considering insofar as it is profitable, but profit gaining needn’t be good for anyone other than a handful of investors which is why so many businesses seem utterly indifferent to the ethical and moral holes in their business models. Nonprofits can earn their way out of existence, if that is the goal, or serve indefinitely if there is the need.

     

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