Understanding the Sectors: Is it Important?
July 7, 2009
It’s application season for graduate school and exciting new developments in the SF social enterprise scene around The Hub and the Social Enterprise Alliance are keeping things interesting around here. As a result, I’m reducing my time at work to 50% this month to keep up and to also spend some time working on a paper with Ian David Moss over at createquity that we’ve been thinking about on understanding the comparative advantage of nonprofits, for-profits, and social enterprise in value creation (my undergraduate honors thesis was my first academic attempt in trying to frame the issue; recently, I wrote a more normative post that looks at the argument in favor of business approaches).
In the past several years, it seems that the lines between public and private, nonprofit and for-profit, and commerce and charity are dissolving at an accelerated pace – and increasingly, there is a growing need by social entrepreneurs, philanthropy, and policy to understand the comparative advantage of each sector. As Greg Baldwin, the CEO of VolunteerMatch, commented on Tactical Philanthropy:
I think to get underneath the questions you need a clear vision for how government and the nonprofit sector differ. What are their unique roles in society? With that you can begin a discussion of how can they work together.
So here’s a question I have for readers of this blog: Do we need a clear vision of how all the sectors should work together – dividing up who does what and when to collaborate? Is this a question that’s relevant to your work or simply an academic concern? I’d love to hear everyone’s thoughts on this – with enough interest, Ian and I want to test some new models for (philanthropy) research and liveblog the process as we dive deeper in our research and look to the community for guidance and feedback. :)
July 8, 2009 at 5:01 am
I repeated Greg’s comment on my blog when I spoke at the National Conference on Service & Volunteering. I went on to make the point that I believe the “blurring” of sectors that everyone talks about isn’t really occurring. We are just becoming aware of the blended value (social and financial) that all the sectors have always created.
My broader point was that we need to understand the value and role of each sector so that we can more completely understand their relative value in different circumstances. Why should an organization be a for-profit vs a nonprofit when both create social and financial value. If we have a clear understanding of this issue, understanding how the sectors should work together gets much easier.
July 8, 2009 at 9:07 am
Thanks Sean for commenting. You raise an interesting point – have the sectors always been blurred or has recent activity increased the blur between them? Perhaps there’s been a good deal of both – Congressional records show that there has always been tension between the nonprofit and for-profit sectors – but the increased attention and activity in social enterprises, mission investing, and hybrid organizations also points to more blur being created.
To your broader point, I couldn’t agree more – and hopefully others agree too and we’re not in the minority here. Ian and I are thinking that the insight might be in revisiting the fundamental differences in tax and governance structures (i.e. the existence of the charitable deduction, the non-distribution constraint, and prohibitions on private inurement and excessive compensation) – a topic for another blog post.
July 8, 2009 at 9:17 am
I’d suggest you read Philanthropy Reconsidered by George McCully as part of your research.
July 8, 2009 at 12:17 pm
The primary difference between the sectors is the funding source/model, but the goal of effecting positive social change is common between them (taking for-profit here to refer specifically to businesses that prioritize this goal on an equal or higher level than generating profit). I think there is a greater need for a focus on facilitating collaboration than on a clear division of roles. Your June 30th post on “new models for (philanthropy) research” posits good ideas and action steps in this direction. I strongly agree with your statement that “there is incredible opportunity for dialogue in philanthropy” and I think the dialogue can occur across the sectors. I would like to see that dialogue include and emphasize two particular areas: 1) effectiveness measurements (subjective or objective) and 2) “quality of process”. By “quality of process”, I mean the values that are embodied in the way an organization conducts itself, i.e. how it’s done matters. This would include considerations such as ensuring that people are treated with respect, impact to the environment, etc.
Perhaps the newly announced Social Innovation Fund will be a step in the direction of this kind of dialogue between the sectors.
I am an AmeriCorps VISTA member in my third year of service and, while I certainly don’t claim extensive experience in philanthropy, I have been involved with and observed efforts of various shapes and sizes, so this is just my two cents worth.
July 8, 2009 at 12:26 pm
I wrote a blog post on Monday about this subject, focusing a bit more on detail–each sector’s need to understand the “languages” of the others.
To speak to your first question, it’s absolutely an issue relevant to the work. You’ll see first-hand in my post that the inability to see the critical impact that government and private sectors have on non-profit work is downright debilitating. We simply must learn the motivations and offerings of each sector — then build them into our projections — in order to create worthwhile programs.
July 8, 2009 at 4:42 pm
Thanks Cindy and Betsy for commenting! Cindy, it’s interesting that you point to the funding source as the primary difference between sectors. While it’s true that most nonprofits receive most of their funding from grants, donations, and government contracts while for-profits most do not, in certain industries, such as philanthropy consulting, even though there are a good mix of nonprofits and for-profits in the industry, the funding source isn’t always the key difference that differentiates the sectors. As you point out, both sectors have always been involved in some form of value creation – and how they go about creating that value and the fundamental differences between the two might help us understand what their respective roles in creating value are. It’s true that collaboration is important and understanding the roles of each sector may not be critically important for collaboration, but the questions of what role does each sector play and whether a nonprofit or for-profit solution should be funded necessarily depend on such an understanding – something Ian and I will be elaborating in an upcoming post.
Betsy, thanks for sharing your blog post. What I took away after reading the post is the need to understand the incentives of each sector – and the individuals in each of those sectors. Expanding on your example of health care, some of the questions I’m thinking about are: When should health care services be provided by a nonprofit instead of a for-profit and vice versa? Is philanthropy’s role to support nonprofits, for-profits, or should it be agnostic? And the government’s role? Interesting questions that I hope we’ll find answers to in the upcoming weeks.