- News & Views
- Solution Providers
The Emerging, Not-for-Profit Economy
September 16th, 2013
Across numerous countries, the economic contribution of the not-for-profit sector has been on the rise since the late 1990s. In Canada, for example, not-for-profit institutions now contribute 8% of the country’s gross domestic product. I believe that, in the coming 30 years, this trend will accelerate to the point that not-for-profit business replaces private enterprise at the center of all domestic economies.
With growing interest in social enterprise, many not-for-profit managers increasingly understand that generating their own income allows them to fund the good work they do (as opposed to traditional approaches that depend on grants and philanthropy). Such a trend has spread to sectors as diverse as construction, manufacturing, banking, hospitality and healthcare. Few people know, for example, that the world’s biggest not-for-profit organization actually employs an enterprise model. Since 1972, BRAC has supported over 100 million people through its social development services, but almost 80% of its revenue reportedly comes from its own commercial enterprises, including a large-scale dairy and a retail chain of handicraft stores, all of which are run according to a holistic vision of sustainable business. In this light, some of the most astounding figures are emerging from the U.K., where earned income constitutes more than half of the income of non-government organizations.
But it is the growing ability for not-for-profit enterprises to out-compete equivalent ‘for-profit’ businesses, that I find most compelling. Consider what arises when combining the following factors:
• not-for-profit enterprises better utilizing the benefits of the communications revolution on reduced organizational costs;
• an increasing awareness of the tax concessions and free support available solely to not-for-profits;
• the trend in consumer markets toward supporting ethical businesses and products; and
• the ability of not-for-profit enterprises to survive and even thrive during years of downturn, given their sustainability does not rely on making profits and that profit margins will continue to get smaller as resource constraints impact business costs.
Whilst the ability for not-for-profits to outcompete for-profit equivalents based on tax-exemptions has already been documented, the broader aspects of this competitive advantage are now being realized in countries such as the UK. For the first time in history, the financial case for shifting a private business to a not-for-profit model is being seriously considered. This trend couldn’t come at a more crucial time. As history shows, no economic system that centralizes wealth and power can ever be socially and ecologically sustainable. On the contrary, the evidence is mounting that innovative, sustainable economies, with high levels of employment, can exist without the private profit motive.