The Economic Impact of Nonprofit Organizations (Part Two)

Nonprofit organizations undeniably play a very important role in the American economy. The nearly 1.6 million non-profit organizations located in the United States account for about $1 trillion in economic activity each year. Obviously, any industry of this size will have a huge impact on the nation’s economic well-being.

Historical data reveals that the role of non-profit organizations has been steadily growing every decade, and typically, this growth is remarkably greater than the growth rates experienced by the overall economy. This means that as time goes on, greater portions of economic activity are being devoted to non-profits, and thus the role of non-profits is becoming increasingly important.

In addition to fighting for a good cause, many non-profit organizations have experienced strong growth even in the face of economic stagnation.

Why is the role of nonprofit organizations expected to grow?

When compared to data from five years ago, ten years ago, and twenty years ago, it becomes apparent that there are more nonprofit organizations operating today than ever before. But not only are there more organizations—the industry as a whole has been composing a substantially greater portion of the American economy.

General interest in the nonprofit sector has increased for a wide variety of reasons. Investing in non-profit organizations is appealing because these organizations are able to avoid a number of potentially devastating taxes, they are able to provide public goods where private industries and governments have not, and they are able to produce something that seems as if it will remain in perpetual demand.

While all of these things explain why the non-profit sector has grown to the size it is today, the main reason it is expected to continue growing is the positive externalities it produces. Though some corporations will be willing to invest in a charitable cause simply because they believe it is the right thing to do, many more will invest if it also helps the corporation itself.

As consumers become more engaged, they expect corporations to do something good for society.

Corporate Social Responsibility is an important principle that has attracted increased attention in recent decades. This principle suggests that corporations not only have a financial obligation to satisfy the expectations of their shareholders, but additionally, they have a moral obligation to create something good for the society that enables their very existence to begin with.

Corporations will inevitably need to focus on their bottom-line (profits), but it seems there has been a major change in paradigm in which their focus is demanded elsewhere as well. The public, generally, now has increased expectations for the corporations they buy from; consumers are now actively choosing to demand that corporations and businesses produce some social good more than ever before.

The increase in consumer activism and demand for corporate social responsibility is a likely consequence of increased exposure via social media, increased consumer awareness, and a general increase in consumer choice across multiple industries. Large corporations are now expected to partner with non-profit organizations in order to continually be generating business, and consequently it seems producing social good is no longer a simple act of charity, rather, it is a financial necessity.

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What is the future role of nonprofit organizations in the United States?

While for most of the twentieth century, a corporation’s choice between staying in business and doing something positive for society was a mutually exclusive one, in the twenty-first century, things have changed. If a corporation wants to stay in business, it will have to prove that by having consumers purchase its goods and services, they are doing something that will also benefit their society. Though there are of course numerous exceptions to this generalization, most economic sectors are indeed at least heading in this direction.

With the right sort of tax-codes, regulations, consumer activism, and innovation, the pending partnership between corporations and non-profit organizations may be able to solve for a tremendous number of society’s woes. Once the gap between making a profit and doing what is right can be eliminated—and instead, we shift to a world where making a profit demands doing what is right—we will no longer be forced to make the difficult choice between social and economic progress.

Though this idealistic world is indeed a great distance away in the future, it is something we can at least be moving towards. Nonprofit organizations are one of many essential stepping stones between where we are now and where we want to someday be.

If corporations can continue to gain positive externalities from their partnerships with nonprofits, then they will inevitably want to continue giving. If nonprofit organizations can continue creating something that will benefit their greater society, then their good works will continue to be demanded. Under the right conditions, things can keep moving in the right direction. The potential generosity of humankind seems to know no bounds.

Ultimately, nonprofit organizations, for-profit organizations, and individual consumers have many common interests in mind. If these interests can be united—and able to progress without diminishing the well-being of the others—then there is indeed a lot of progress that can be made. In fact, if we look at the status quo, it is easy to see that a lot of progress already has been made. In regards to nonprofit organizations, things are generally moving in the right direction.

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