Demand

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Video on the
Nonprofit Sector
http://www.youtube.com/watch?v=
0myNj8BHt_4
Nonprofit Force
 MA ranks 9 in the country for number of active
th
registered nonprofits in the state

As of 2008, there were 22,344 registered nonprofits
 Nonprofits employ more people than the entire public
sector—federal, state and local government
combined— in Massachusetts – 14% or one in 7 of us.
Why do nonprofits exist?
 "market failure"
 there are desired services or collective "goods" that do not have
sufficient potential for profit to attract business providers –
homeless people represent a need for housing, but not an
economic demand for same.
 there are public services that the for-profit sector will not
provide for reasons that may include the cost or the limited
constituency that desires the service
Economic Impact
 With more than $100 billion in revenues, $207 billion in
assets, and close to 467,000 workers, the Massachusetts
nonprofit sector emerged as a major economic force.
 Nonprofits hold state government contracts worth more than
$2.5 billion, delivering social services on behalf of the
Commonwealth to thousands of Massachusetts residents
- Mass. Inc, 2005
Unique Characteristics of Nonprofits
 Financial:
greater multiplier
- less outsourcing
- The three E’s:
-Efficient – do more with less – necessity & volunteerism
- Effective – do good, but also do it well – transcendent motivation
- Essential – not just nice, but necessary - critical to the other two sectors
-
Measuring Impacts


“how do you measure a smile, a life saved, a full belly?”
“funders such as foundations, governmental departments, and
international aid agencies are better positioned than most nonprofits to
measure impacts because so many of the benefits nonprofits provide
come in the form of positive externalities.
Responsibilities of Government
Provide for:
 Infrastructure
 Public safety
 Health and human services
 Education and Culture
Protect: civil rights and equal opportunity
 Note: All involve creating positive externalities or reducing
negative externalities,) or they should not be performed by
government .
 Are provided directly and/or through contracted for-profit
and/or nonprofit entities.
 Note: All three use resources and create surplus value
Polls find only 1 in 10
Americans believes that
charities are ethical in
their use of donated
funds, reports
NBC News.
"The fundamental difference between nonprofit
organizations and their profit-making
counterparts is that nonprofits tend to take a
greater portion of their compensation from
easier working conditions, more time off, favors
and under-the-table payments. Profit-making
organizations take a greater portion of their
compensation in cash, except those that are
highly regulated. In the profit-making world,
there is much greater monitoring of the
behavior of people who act for the organization.
Profit-making organizations have a financial
bottom line they must meet, or sooner or later,
heads will roll. Not so with nonprofits, which
have no bottom line to meet. On top of that,
incompetence for nonprofits means bigger
budgets, higher pay and less oversight.“- Walter
Williams -
“Three Legs of the Stool”
Effects of a
Recession
Externalities
Taxes
*Employees in each
sector pay most of
the taxes
Government
For- Profit
Non-Profit
Revenue  Demand
Spending cuts
Revenue
Demand
Revenue Demand 
No taxing power
Never a good time to raise
taxes
Has to cover fixed costs,
not variable
Most hard hit during
recession
Receiver of the public
good pays for the benefit
through taxation. Forprofit market will not
supply the public good no excludability and can
not price.
Ex. paved roads, fireworks
• Provides less than it
receives (profit)
•Taxation of profit is its
way of addressing positive
and negative externalities.
Serves a target population
and provides an externality.
Taxing power*
Taxed*
Tax- Exempt*
Ex. Childhood health care,
aesthetically improving parks
Gives more service than
receives.
Challenges for Governor in Privatizing
Is it good policy:
-savings?
- efficiency ?
- effectiveness – long and short term?
-flexibility – better targeting an local applicability?
Effects on employees – From whence the “savings” ?
Does the capacity exist or does it have to be created?
Is there a transition strategy?
- public research
- nonprofit/for-profit exploitation – bringing to scale
Political/ Risks/Rewards?
- can it be done? key stakeholders? (eg. early childhood education)
- potential and penalties of long term thinking
Go DuBois’ slides
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