The notion of capital formation and accumulation led me to wonder whether the formation or accumulation of capital in non-profit organizations was the same as it is in regular businesses. In order even to start to understand the non-profit organization, one must realize that there are different types. There are some that function like a business, taking money for services from those who use the organization, such as colleges and most hospitals. But there are some who give their services to those from whom they expect no contribution, such as the St. Vincent de Paul Society, and those who rely on mere donations, as opposed to payment, from those who use their services, such as churches.
The complexity discovered in this initial search led to the perusal of some of the standard literature on the subject of non-profit organizations. The results can be summarized as follows:
a. Many sources see the purposes of non-profits as taking up the slack from either market failure or government failure, thus revealing a pro-statist, anti-market bias.
b. The rest of the studies tend to cram the non-profit organization into the neo-classical paradigm. These studies, assuming the “maximization of profit” rationale, also assume that the non-profit organization must be maximizing something. Thomas Carroll of Memphis State writes: “One [allegedly] fruitful approach is to view not-for-profit producers [notice the term producers] as professional syndicates, whose members try to maximize the sum of income and amenities. This sometimes leads to tensions between the ‘professionals’ and the ‘staff’ of such institutions.” One example he gives is that of well-heeled physicians wanting more money and exploiting underpaid nurses, an example that is irrelevant in that the physicians are usually independent operators, and the examples he gives really do not say much about the organization itself.1
c. There is, in the neo-classical analysis, both of non-profit organizations and of business in general, too much orientation to heavy industry, reflecting the era in which most of the terms and concepts were developed. The Austrians are also influenced in this way, though to a lesser extent.
d. The “standard” Austrians have virtually nothing to say regarding non-profits, even though non-profits comprise 2–3 percent of GDP.
What this means, of course, is that my desire to discuss capital accumulation in non-profits is now subordinated to a study of the real nature and behavior of non-profits.
By far the best study that I came across on non-profit organizations was done by the Austrian management expert Peter Drucker, in Managing the Non-profit Organization: Principles and Practices2. While he is not primarily an economist, somewhere I read that Drucker says that he has been heavily influenced by the Austrian economists. In point of fact, as is typical of an Austrian analysis, we recognize real human beings in Drucker’s analysis, and not in the neo-classical analysis. For example, instead of maximization of the utility of the managers or workers of the non-profit organization, Drucker says that the purpose of the non-profit organization is to produce a “changed human being”3. In these organizations, the people, including the board, are “deeply committed”, and this explains the high level of volunteers, unpaid staff and low-paid professors at certain private religious colleges.
Returning to the problem of capital accumulation in non-profits, since non-profits do not produce anything, it cannot be said that the production of the capital they do acquire is stimulated by a perceived market demand as it is in a real business. Major exceptions to this might be medical equipment and the scholarly publishing industry, with all that these imply, but I doubt that these are non-profit. But then it comes to mind that the source of most funds gotten by most non-profit organizations are contributions. Every non-profit has a list of regular contributors, and acquires lists of potential contributors. Since the contributors are not usually the beneficiaries of the services of the organization, they are not the customers, although they are the source of funds. Are the contributors the capital?
My recommendations are as follows:
a. To follow Aristotle’s advice in book II of the Politics, and adapt the methodology of the study to the requirements of the subject at hand. Certainly, the current concentration on “production” and “maximization” and “profit” has led to a dead end in not only in the current economy but in the non-profit segment as well.
b. A completely new study of non-profit organizations is necessary, being sure to separate them by types. The category “non-profit” is too broad for a (shall we say) “profitable” analysis.
c. It needs to be asked whether some organizations, because they were run by the Church and religious orders in the middle ages for free, should still be non-profit. Would it not be more efficient for the non-profit organizations that get money from those who use their services to be for-profit organizations? There are already some examples. Some technical colleges and hospitals are for-profit. Are there any studies of these organizations comparing them to their non-profit counterparts?
1Thomas M. Carroll, Microeconomic Theory: Concepts and Applications (New York: St. Martin’s Press, 1983), 314.
2(New York: HarperBusiness, 1992).
3Drucker, xiv. His emphasis.