Exploring the origins, ethics and future of changemaking

Beyond economic growth: pluralism vs a non-profit world

In Economics on November 24, 2012 at 1:19 pm

I often get tired of the not-for-profit vs for-profit debate as it too often is simplistically argued. The other night I was at an event on social enterprise, and the keynote speaker starts by saying how much he hates not-for-profits. His background was in small business, and he seemed to think that this was the only answer. If only not-for-profits could operate according to his worldview, everything would be fine.

Over the past four years or so I have followed the work of Donnie Maclurcan who has been involved with founding initiatives such as Project Australia(En)Rich List, Post Growth Institute and even more (or perhaps less) daring pursuits like running across Australia. Donnie is an ethicist, researcher and passionate changemaker. He has taken on the task of understanding the not-for-profit paradigm, and holds a vision that the world be a non-profit world by 2050. You can check out Donnie’s vision in a talk he gave recently at Net Balance. Here is a guy that is trying to go beyond simplistic judgements of the non-profit world to remind us of their powerful possibilities.


Non-profit vs for-benefit: what are we talking about?

First, let’s define what we are talking about. Non-profit does not mean that these organisations cannot make a surplus (or profit). It means that the profits need to be reinvested into the organisation. In this sense, it would be more accurate to call them ‘not-for-distributable-profit’ or ‘not-for-the-purpose-of-profit’ organisations.

There has been a trend over the past ten years or so to re-brand the non-profit. If only we referred to this space as ‘for-benefit’ or ‘for-purpose’, we could avoid the negative focus of what these organisations are not. Donnie argues that this avoids a very powerful aspect of the not-for-profit model – and namely that by keeping the focus on the profit dimension of these organisations keeps the focus very clean.

The issue at stake for Donnie and others goes far beyond language; this is a macroeconomic issue with big cultural, economic and legislative imperatives.

The argument for plurality

In 2012 The Cooperatives Sector in the UK through The Ownership Commission released a report on Plurality, Stewardship and Engagement, basically arguing for the need for greater plurality in the UK economy (and arguably beyond). Capitalism has supposedly gone wrong because there is a decided lack of pluralism in business models and amongst certain industries. There is nothing inherently wrong with pluralism, and in our post-modern world it is a very easy argument to win. At the same time, arguing for pluralism avoids the very real issue that some business paradigms simply have inbuilt ethical flaws. The great pluralism debate stops people from taking a stand to say that some operating principles are simply not right or good. Pluralism in this sense is used as a smoke screen for some more fundamental issues that lie beyond the capitalist model.

The Ownership Commission report also suggests that through better engagement and stewardship, the ethical and economic flaws of these traditional capitalist model could also be addressed. I do not want to underplay the importance of The Ownership Commission and its report as a clever strategy to broadening debate, raising awareness and outlining clear legislative actions that could give rise to greater success in the cooperatives sector, improved employee and investor engagement and more long-term thinking in approaches. Of course as not-for-profit organisations imply ‘no ownership’, this part of the economy was not examined as part of the scope of this commission, even though not-for-profits make a far greater contribution to GDP than many of the sub-sectors that the report analysed. On top of that, improving not-for-profit sector requires legislative and investment solutions at the scale treated by this report. Despite all of this, the gap for me still lies in getting to the underpinning societal issues that have got us here.

Deeper problems – greed, attachment and vanity

What I do like about Donnie’s talk is that he is trying to get to the heart of some of the underlying spiritual and cultural problems that underpin the current economic paradigm – status envy and the insatiable need to consume more. Donnie argues that no matter which way we try to present it, the fact is that our ultra-consumption culture has limits, and we are not actually being driven by wise economic thinking, but rather by moral over-association with greed, attachment and vanity. No matter how we reframe or re-legislate private profit structures, their very nature encourages the kind of consumption and growth that is in most cases unnecessary and unsustainable.

Still more to learn

I’m not yet necessarily convinced by the non-profit world vision that Donnie is passionately advocating. I still wonder if an element of pluralism is ideal (it certainly is our reality right now). What I do like about this work however, and am looking forward to reading more, is Donnie’s willingness to challenge the deeper assumptions of how and why our modern economic world doesn’t work. I’m interested to know how the cooperative space fits into a greater vision. As Donnie suggests, there is much more to effective non-profit organisations than the profit dimension. I think that The Ownership Commission probably raises some good questions to explore beyond the profit dimension.

The whole talk is worth it, especially if you like your views challenged. There is a nice little anecdote waiting for you at the end if you make it all the way through….if you have had enough 😉

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  1. Thanks so much for your wonderful reflections Benny!

    I particularly like the way you’ve explored how support for pluralist economics can be used as a smokescreen for fundamental challenges at the heart of capitalist models.

    This takes me to the main clarification I’d like to make: my vision is not for ‘a non-profit world by 2050’, but for a ‘not-for-profit world by 2050’; a subtle, yet more-than-semantics difference. Distinguishing between non-profit and not-for-profit in use of language is particularly important for two reasons: Firstly, because of the way the game is set up in the U.S. where not-for-profit entities are often called ‘non-profits’ and that these generally represent the old-school model of grant-dependent organisations rather than functioning enterprises. Secondly because of the hermeneutics – In my experience, when people are presented with the words ‘non-profit’ they understandably think ‘no-profits’. When I say ‘not-for-profit’, there seems much more leeway to understand the ability to make profit, just for it to not be privatised profit. In this sense you’re right: ‘not-for-distributable-profit’ or ‘not-for-the-purpose-of-profit’ would be better ways to describe such groups. That said, non-profit will always remain too (as an important sub-division of a not-for-profit world)! Not everything in the not-for-profit umbrella will involve enterprise. Think of a protest rally, for example, where there are no fees for participation and no donations are taken. This can still build social capital but is actually a non-profit activity and, if it were in Australia and the organising committee for the rally has any recorded minutes, then the entity could actually be considered an unincorporated association (i.e. a not-for-profit that is non-profit!).

    I believe profit will remain an important driver in any economy moving forward – not because of the payoffs in terms of big salaries and bonuses, but in terms of sustainable business and what this means for the support of full employment, livelihoods and service provision. That is, profit will always remain an important indicator, for many not-for-profit businesses, of their viability and sustainability. The beauty here is that, for people who think small business is “the only answer”, they can take heart in many not-for-profit start-ups thinking more ‘small-business-like’!

    Also, when you say: “Non-profit does not mean that these organisations cannot make a surplus (or profit). It means that the profits need to be reinvested into the organisation”, my understanding is somewhat different, at least in the Australian context. In a not-for-profit organisation, profits need to be reinvested as per the organisations’ objectives. This could mean investing in other organisations, as is common with not-for-profit credit unions, for example.

    Regarding how the co-operative space fits into a greater vision, I recently attended the International Year of Co-operatives National Conference in Australia. After a number of the plenaries were framed solely in terms of the benefits for-profit co-operatives bring, I mentioned the value of producer and consumer not-for-profit co-operatives. Interestingly, after the sessions, people kept coming up to me saying ‘thank you, I’m from a not-for-profit co-op and felt like my value and reason for being here was being ignored!’ I’d be interested to see the statistics, worldwide, but my guess is that the majority of the world’s co-operatives are not-for-profit and, hence, fit beautifully in a not-for-profit world vision, with for-profit co-operatives offering an important stepping stone towards this framework, especially given their grounding in the wonderful 7 Co-operative Principles: http://usa2012.coop/about-co-ops/7-cooperative-principles.

    Donnie

  2. Thanks so much for your wonderful reflections Benny!

    I particularly like the way you’ve explored how support for pluralist economics can be used as a smokescreen for fundamental challenges at the heart of capitalist models.

    This takes me to the main clarification I’d like to make: my vision is not for ‘a non-profit world by 2050’, but for a ‘not-for-profit world by 2050’; a subtle, yet more-than-semantics difference. Distinguishing between non-profit and not-for-profit in use of language is particularly important for two reasons: Firstly, because of the way the game is set up in the U.S. where not-for-profit entities are often called ‘non-profits’ and that these generally represent the old-school model of grant-dependent organisations rather than functioning enterprises. Secondly because of the hermeneutics – In my experience, when people are presented with the words ‘non-profit’ they understandably think ‘no-profits’. When I say ‘not-for-profit’, there seems much more leeway to understand the ability to make profit, just for it to not be privatised profit. In this sense you’re right: ‘not-for-distributable-profit’ or ‘not-for-the-purpose-of-profit’ would be better ways to describe such groups. That said, non-profit will always remain too (as an important sub-division of a not-for-profit world)! Not everything in the not-for-profit umbrella will involve enterprise. Think of a protest rally, for example, where there are no fees for participation and no donations are taken. This can still build social capital but is actually a non-profit activity and, if it were in Australia and the organising committee for the rally has any recorded minutes, then the entity could actually be considered an unincorporated association (i.e. a not-for-profit that is non-profit!).

    I believe profit will remain an important driver in any economy moving forward – not because of the payoffs in terms of big salaries and bonuses, but in terms of sustainable business and what this means for the support of full employment, livelihoods and service provision. That is, profit will always remain an important indicator, for many not-for-profit businesses, of their viability and sustainability. The beauty here is that, for people who think small business is “the only answer”, they can take heart in many not-for-profit start-ups thinking more ‘small-business-like’!

    Also, when you say: “Non-profit does not mean that these organisations cannot make a surplus (or profit). It means that the profits need to be reinvested into the organisation”, my understanding is somewhat different, at least in the Australian context. In a not-for-profit organisation, profits need to be reinvested as per the organisations’ objectives. This could mean investing in other organisations, as is common with not-for-profit credit unions, for example.

    Regarding how the co-operative space fits into a greater vision, I recently attended the International Year of Co-operatives National Conference in Australia. After a number of the plenaries were framed solely in terms of the benefits for-profit co-operatives bring, I mentioned the value of producer and consumer not-for-profit co-operatives. Interestingly, after the sessions, people kept coming up to me saying ‘thank you, I’m from a not-for-profit co-op and felt like my value and reason for being here was being ignored!’ I’d be interested to see the statistics, worldwide, but my guess is that the majority of the world’s co-operatives are not-for-profit and, hence, fit beautifully in a not-for-profit world vision, with for-profit co-operatives offering an important stepping stone towards this framework, especially given their grounding in the wonderful 7 Co-operative Principles: http://usa2012.coop/about-co-ops/7-cooperative-principles.

    Donnie

    • Thanks for your comments Donnie, and especially further clarifying your arguments.

      I think semantics are vitally important, so good to get clear on these. It is still an aspect of this entire debate the I am figuring out the best approach to. Many suggest that we need to move away from the self-referential and deficit language that the term ‘non-profit’ and ‘not-for-profit’ encompasses. While generally I like to frame things in the affirmative, I see real value and clarity in using this language. If the profit dimension or profit-distribution dimension is an important feature, then explicitly talking about it is important. Otherwise using terms like ‘for purpose’ or ‘for benefit’ avoid address the most critical features. You talked explicitly about this in your talk. The danger is that many ‘for-private-profit’ multinational businesses would argue that they are actually ‘for purpose’ or ‘for benefit’.
      Perhaps there are other terms out there that are yet to emerge, and I am looking forward to discovering those if they do. Or maybe it is getting beyond simplistic terms to develop principles like the Cooperatives Movement did.

      I do like the Cooperative Principles, so thanks for sharing those in this thread. I wonder if you were to create 7 Principles of Not-for-Profits, what would they include?
      I would love to brainstorm these with you. Let me know what you think.

      Be well
      Benny

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