Nonprofits – the third sector of the American Economy

Nonprofits – the third sector of the American Economy

I admit it, this blog started out as an angry Facebook post in response to the recently proposed federal budget from the White House. I’ve been working hard to manage my anxiety by leveraging my information literacy skills and focusing attention on reporting that relates the facts without making a call to anger and frustration. Not freaking out makes sense to me for the time being for two reasons: the first is that it is just a proposed budget at this point which means there is still time and second because I don’t tolerate Xanax very well.

I took a different approach in my response but not because I don’t share others’ shock and devastation at the idea that funding might be removed that supports vital human services, the arts and libraries (among other valuable categories that I’m leaving out). Many don’t understand the concept of the three sectors of the American economy made up of government, corporate business and nonprofit organizations. I was not aware that this design was intentional or how it was mechanized when I applied for a doctoral program in this field. And I wanted to know! Imagine how little people who don’t want to know, know? So once again, I find myself impassioned to get this information out particularly at a time like this where ignorance is being counted on to take away valuable programs.

Nonprofits are the third sector in the American economy. They are not supposed to make NO profit. They are here to balance the mission of corporate business (to make money for shareholders) and the government. The only thing that is different between nonprofit organizations and corporate organizations is that nonprofits don’t pay their board members with their profits. Nonprofits are expected to invest their earnings into their mission, and because of that they can offer a tax deduction for anyone who gives them donations. They are in place to do the kind of business that falls through the cracks because it doesn’t make the kind of money that corporations can make by responding to the desires of the majority. Nonprofits are there for the minority and for services and programs that don’t bring in high financial returns.

Here’s a shocker – 80% of funding for nonprofits comes from the government. This includes all corners of the nonprofit sector – including cultural organizations, higher education and hospitals. While it is the only sector concerned with the poor, it serves the entire population including many services the wealthy enjoy and programs administered through institutions we all use regularly.

Anyone who reads my writing knows that I’m passionate about private philanthropy – and that I define philanthropy broadly. I believe that in order to not only protect the nonprofit sector but help release it from the control of those who want to run it like a corporate business (missing the whole point of their existence) or shift their funding to politically-motivated projects, we have to help them shore up the strength to support themselves. This is definitely through raising private money but also by leveraging the support of voters to ensure government funding. The nonprofit sector is doing the work of government in many ways. Politicians hide behind the sector by paying for a lot of services through them in order to make it look like the government has a small role in people’s lives. That funding is really good and for many organizations (especially health and human services) it is nearly their entire budget. But dependence on government funds and a lack of voter clarity regarding the relationship with government put them at the kind of risk we are seeing threatened right now. It’s a slippery slope, and true safety for vital services administered through the sector is only going to happen by leveraging the support of private citizens.

Does this mean that private citizens need to foot the bill? Sure, for some of it. Philanthropy is happening all over the nonprofit sector. But knowledge is also power, and understanding the interconnection of the three sectors (meaning they all get a value from the different relationships) may encourage voters to take measures to ensure that the relationships stay in proper balance.