History and theory of the nonprofit sector

# History and theory of the nonprofit sector

**January 18, 2022**

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# Plan for today

.box-8.sp-after-half[.medium[Why do nonprofits even exist?] .small[Theory part]]

.box-3.sp-after-half[.medium[Why do nonprofits even exist?] .small[History part]]

---

layout: false
name: theory
class: center middle section-title section-title-8 animated fadeIn

# Why do nonprofits even exist? .smaller[(Theory part)]

---

.center[
<figure>
 <img src="img/03/cards.png" alt="Playing cards" title="Playing cards" width="80%">
</figure>
]

???

Who contributed a red card at the beginning? Why?

Who contributed a red card at the beginning but then started to change their minds? Why?

Did anyone not contribute any red cards? Why?

> If we're thinking of the group, everyone can do better by turning in their red cards; but each individual can earn more money by keeping their red cards and still earning money from the red cards others turn in.

*Introduce public goods*

How does turning in a red card make a contribution to a public good?

*Make sure that they understand that EVERYONE receives a dollar from the public good, whether there are 10 people in the class or 200 people in the class: the more people there are, the greater the benefits that can be enjoyed. They should also point out that everyone receives a dollar, even those that don't contribute to it.*

What it is about the characteristics of a public good that give people an incentive to free-ride?

- Earnings for each person if no one contributes to the public good. Answer: Money is only earned from cards kept, since nothing is turned in. So earnings are $4 × 2 red cards kept = $8.

- Earnings for each person if everyone turns in both red cards (no cards are kept by anyone). Answer (assume for this example there are 30 people in the class): Money is only earned from cards turned in, since none are kept. Since each person has 2 cards, 30 × 2 = 60 cards are turned in, which earn $1 each to every person. So each person earns 60 x $1 = $60.

- Earnings for a person if he or she keeps both red cards but everyone else turns in both red cards. Answer (assume for this example there are 30 people in the class). In this case, the person earns $4 × 2 = $8 for the two red cards kept. If the other 29 people turn in both red cards, there are 29×2 = 58 red cards turned in. So everyone earns 58 x $1 = $58 from red cards turned in. So the person who keeps both red cards earns $8 + $58 = $66 (and the others in the class only earn $58).

How did communication help? *Higher initial levels of contributions, followed by a decline. Why? Hard to sustain cooperation.*

How do you sustain cooperation? How do you increase contributions toward public goods?

What if you could create institutions to enforce cooperation?

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# Public goods

.box-inv-8.medium[Non-excludable]

.box-8.small.sp-after[Not possible to stop others from using the good or service]

.box-inv-8.medium[Non-rivalrous]

.box-8.small[One person using the good or service doesn't prevent anyone else from using it]

---

# Types of goods

&nbsp;

.center[
<table>
 <tr>
 <th></th>
 <th>Excludable</th>
 <th>&ensp;Not excludable&ensp;</th>
 </tr>
 <tr>
 <td>Rival</td>
 <td>&nbsp; &nbsp;</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
 <tr>
 <td>Not rival</td>
 <td>&nbsp; &nbsp;</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
</table>
]

---

# Types of goods

&nbsp;

.center[
<table>
 <tr>
 <th></th>
 <th>Excludable</th>
 <th>&ensp;Not excludable&ensp;</th>
 </tr>
 <tr>
 <td>Rival</td>
 <td>Private goods</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
 <tr>
 <td>Not rival</td>
 <td>&nbsp; &nbsp;</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
</table>
]

---

# Types of goods

&nbsp;

.center[
<table>
 <tr>
 <th></th>
 <th>Excludable</th>
 <th>&ensp;Not excludable&ensp;</th>
 </tr>
 <tr>
 <td>Rival</td>
 <td>Private goods</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
 <tr>
 <td>Not rival</td>
 <td>Club goods</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
</table>
]

---

# Types of goods

&nbsp;

.center[
<table>
 <tr>
 <th></th>
 <th>Excludable</th>
 <th>&ensp;Not excludable&ensp;</th>
 </tr>
 <tr>
 <td>Rival</td>
 <td>Private goods</td>
 <td>Common pool resources</td>
 </tr>
 <tr>
 <td>Not rival</td>
 <td>Club goods</td>
 <td>&nbsp; &nbsp;</td>
 </tr>
</table>
]

---

# Types of goods

&nbsp;

---

# Rivalry and excludability

.float-left.center[.box-8[*Hamilton* tickets]&ensp;.box-8[A public park]]

---

---

# Government failure

.box-inv-8.less-medium[The government doesn't provide public goods or services like it should]

.box-8.medium.sp-after[Nonprofits can fill those gaps]

.box-8.small[How to recognize if a nonprofit is fixing this: ask "could the government do that instead?"]

.box-8.small[Examples?]

---

# Market failure

.box-inv-8.less-medium[The private sector doesn't provide goods or services because there's no incentive]

.box-8.medium.sp-after[Nonprofits can fill those gaps]

.box-8.small[How to recognize if a nonprofit is fixing this: ask "Could/should the private sector do that instead? Why aren't they?"]

.box-8.small[Examples?]

---

# Transaction costs

.box-inv-8.less-medium[Fixing public goods issues is expensive!]

.box-inv-8.small[Time, effort, money, resources]

.box-8[Nonprofits can work more quickly and have more connections to communities, making it easier and cheaper to provide services]

???

A nonprofit providing a forum for communicating in that game - private sector won't do it

---

# Externalities

.box-inv-8.less-medium[A cost or benefit to someone who did not choose that cost or benefit]

.float-left.center[.box-inv-8.small[Pollution]&ensp;.box-inv-8.small[Vaccinations]&ensp;.box-inv-8.small[Cell phones and driving]]

.float-left.center[.box-inv-8.small[Internet bandwidth]&ensp;.box-inv-8.small[Research]&ensp;.box-inv-8.small[Education]]

.box-8.sp-before[Nonprofits can help mitigate negative ones and promote positive ones]

---

# Contract failure

.box-inv-8.small[Good or service too complex for consumer to understand]

.box-inv-8.small[Consumer not competent to understand]

.box-inv-8.small.sp-after[Purchaser not ultimate consumer]

.box-8[Nonprofits have inherent trust, or "halo" effect; no assumption that organization is trying to exploit the consumer]

???

- Too complex: Healthcare, higher education
- Not competent: Dementia patients
- Purchaser not ultimate consumer: Assisted living center

---

# Pluralistic theory

.box-inv-8.sp-after[Even if government is competent and can provide public goods, nonprofits are seen as less bureaucratic and more responsive]

.box-8.small[…encourage individual action for the public good]

.box-8.small[…create stronger societies]

.box-8.small[…respond better to the needs of diverse societies]

---

.box-8.medium[In small groups, think of two different nonprofits]

---

.box-8.small[Why do these organizations exist?]

.box-8.small[What are the differences and similarities of these organizations?]

.box-8.small[What need do these organizations fill? Government failure? Market failure? Something else?]

.box-8.small[Would the work be more efficient if done by the government or private companies? Or are nonprofits the best route?]

.box-8.small[Do people trust these nonprofits? Can they reach out to diverse groups better or worse than the government or private companies?]

.box-8.small[What would happen if the nonprofit failed?]

---

layout: false
name: history
class: center middle section-title section-title-3 animated fadeIn

# Why do nonprofits even exist? .smaller[(History part)]

---

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# Six characteristics of nonprofits

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# British Colonies

.center[
<figure>
 <img src="img/03/statute.png" alt="Elizabethan Statute of Charitable Uses" title="Elizabethan Statute of Charitable Uses" width="80%">
</figure>
]

???

<https://www.cambridge.org/core/books/abs/history-of-the-law-of-charity-15321827/charitable-uses-act-1601-43-elizabeth-i-c-4/666B786DC8A8242B0BCBACF708EE7C18>

---

# British Colonies

.center[
<figure>
 <img src="img/03/statute-highlighted.png" alt="Elizabethan Statute of Charitable Uses" title="Elizabethan Statute of Charitable Uses" width="80%">
</figure>
]

---

# British Colonies

.center[
<table class="cell-left">
 <tr>
 <td>Formal organization&emsp;</td>
 <td>Mostly in churches</td>
 </tr>
 <tr>
 <td>Private</td>
 <td>Government control</td>
 </tr>
 <tr>
 <td>Income sources</td>
 <td>Mostly tax supported</td>
 </tr>
 <tr>
 <td>Self-governing</td>
 <td>Government control</td>
 </tr>
 <tr>
 <td>Voluntary</td>
 <td>Yes</td>
 </tr>
 <tr>
 <td>Public benefit</td>
 <td>Poverty and education</td>
 </tr>
</table>
]

---

# New Republic (1787+)

.box-inv-3.sp-after[Two big changes]

.box-3.sp-after[First amendment right of association]

???

Supreme Court's first great civil liberties case - issue of government control of nonpublic sector - Dartmouth chartered by NH state government - board expanded, NH wanted to appoint the trustees - but, this conflicted with some donor stipulation that said the board would stay the same size - Daniel Webster argued for Dartmouth (brought the audience to tears) - SC told state government to step out of the way—it didn't have ownership or control over nonprofits like Dartmouth

---

# New Republic (1787+)

.center[
<table class="cell-left">
 <tr>
 <td>Formal organization&emsp;</td>
 <td>Corporations</td>
 </tr>
 <tr>
 <td>Private</td>
 <td>Arbitrary state charter</td>
 </tr>
 <tr>
 <td>Income sources</td>
 <td>Private sponsorship</td>
 </tr>
 <tr>
 <td>Self-governing</td>
 <td>Boards</td>
 </tr>
 <tr>
 <td>Voluntary</td>
 <td>Yes</td>
 </tr>
 <tr>
 <td>Public benefit</td>
 <td>Poverty and education</td>
 </tr>
</table>
]

---

# 19th Century

.pull-left.center[
<figure>
 <img src="img/03/james-smithson.jpg" alt="James Smithson" title="James Smithson" width="70%">
 <figcaption>James Smithson</figcaption>
</figure>
]

???

On his death, Smithson's will left his fortune to his nephew, son of his half-brother, but stipulated that if that nephew died without children (legitimate or illegitimate), the money should go "to the United States of America” to found at Washington, an establishment for the increase and diffusion of knowledge among men"

<https://www.si.edu/about/history>

---

# 19th Century

.pull-left.center[
<figure>
 <img src="img/03/de-tocqueville.jpg" alt="Alexis de Tocqueville" title="Alexis de Tocqueville" width="65%">
 <figcaption>Alexis de Tocqueville</figcaption>
</figure>
]

.pull-right[
.box-inv-3.float-left.SMALL["I have seen Americans make great and real sacrifices to the public welfare and have noticed a hundred instances in which they hardly ever failed to lend faithful support to one another."]
]

???

<https://en.wikipedia.org/wiki/Alexis_de_Tocqueville#/media/File:Alexis_de_Tocqueville_(Th%C3%A9odore_Chass%C3%A9riau_-_Versailles).jpg>

---

# 19th Century

.center[
<table class="cell-left">
 <tr>
 <td>Formal organization&emsp;</td>
 <td>Religious resurgence</td>
 </tr>
 <tr>
 <td>Private</td>
 <td>Arbitrary state charter</td>
 </tr>
 <tr>
 <td>Income sources</td>
 <td>Donations and earned income</td>
 </tr>
 <tr>
 <td>Self-governing</td>
 <td>Boards</td>
 </tr>
 <tr>
 <td>Voluntary</td>
 <td>Yes</td>
 </tr>
 <tr>
 <td>Public benefit</td>
 <td>Add arts and museums</td>
 </tr>
</table>
]

---

# 1900–1960

.box-inv-3.sp-after[Two big changes]

.float-left.center[.box-inv-3.small[Tax exemption for nonprofits (1913)]&ensp;.box-inv-3.small.sp-after[Tax deduction for donations (1917)]]

---

# 1900–1960

.center[
<table class="cell-left">
 <tr>
 <td>Formal organization&emsp;</td>
 <td>Corporations and trusts</td>
 </tr>
 <tr>
 <td>Private</td>
 <td>Broad state charter</td>
 </tr>
 <tr>
 <td>Income sources</td>
 <td>Donations and earned income</td>
 </tr>
 <tr>
 <td>Self-governing</td>
 <td>Boards</td>
 </tr>
 <tr>
 <td>Voluntary</td>
 <td>Yes</td>
 </tr>
 <tr>
 <td>Public benefit</td>
 <td>Add scientific research</td>
 </tr>
</table>
]

---

# 1960–2000

.box-3.small[Increased federal funding]
]

.box-3.small[Explosive growth & professionalization]
]

.box-3.small[Increase in non-religious nonprofits]
]

???

<https://www.washingtonpost.com/news/wonk/wp/2014/01/08/everything-you-need-to-know-about-the-war-on-poverty/>

<https://en.wikipedia.org/wiki/File:President_Ronald_Reagan_addresses_the_nation_from_the_Oval_Office_on_tax_reduction_legislation.jpg>

---

# 1960–2000

.center[
<table class="cell-left">
 <tr>
 <td>Formal organization&emsp;</td>
 <td>Corporations</td>
 </tr>
 <tr>
 <td>Private</td>
 <td>Simple charter</td>
 </tr>
 <tr>
 <td>Income sources</td>
 <td>Mostly earned income</td>
 </tr>
 <tr>
 <td>Self-governing</td>
 <td>Boards</td>
 </tr>
 <tr>
 <td>Voluntary</td>
 <td>Yes</td>
 </tr>
 <tr>
 <td>Public benefit</td>
 <td>IRS categories</td>
 </tr>
</table>
]

---

# 2000–today

.box-inv-3.less-medium[Social entrepreneurship and sector blending]

.center[
<figure>
 <img src="img/03/b-corps.png" alt="B Corps" title="B Corps" width="70%">
</figure>
]

???

<https://usca.bcorporation.net/>

---

# 2000–today

.center[
<table class="cell-left">
 <tr>
 <td>Formal organization&emsp;</td>
 <td>Sector blending</td>
 </tr>
 <tr>
 <td>Private</td>
 <td>Simple charter</td>
 </tr>
 <tr>
 <td>Income sources</td>
 <td>Mostly earned income</td>
 </tr>
 <tr>
 <td>Self-governing</td>
 <td>Boards</td>
 </tr>
 <tr>
 <td>Voluntary</td>
 <td>Yes</td>
 </tr>
 <tr>
 <td>Public benefit</td>
 <td>IRS categories</td>
 </tr>
</table>
]

---

# Questions

.box-3.SMALL[Are the roles of nonprofits and government properly balanced?]

.box-3.SMALL[What does the religious history of nonprofits mean to us today?]

.box-3.SMALL[Why is the corporation so important to nonprofit history?]

.box-3.SMALL[Should "charitable purpose" be broader or narrower?]

.box-3.SMALL[Why do we feel a need to treat nonprofit money differently?]