The End of Definitions

My final class for my final semester before I graduate is "Social Entrepreneurship." The course is about applying the tools of business entrepreneurship to organizations with a social mission above and beyond maximizing financial profits and increasing shareholder value. But the distinction between for-profit and non-profit organizations, between purely "self-interested" firms and firms with a "social mission" is not at all clear or easy to define:

Google.org will be a “foundation” that will invest in (and expect to make a return on) social problems. It fully expects to pay taxes, and asks no forgiveness from the American taxpayer. First up will be ultra fuel efficient plug-in automobiles.

But wait. There is actually a market for automobiles. There is also a market for clean technology for automobiles. How is Google.org a philanthropy? How is General Motors not a philanthropy? Making matters worse, GM is NOT making money and Google.org will (or it assumes it will). So, is GM a “nonprofit” and Google.org not?. ...

When nonprofits become the agents of government (as major contractors providing services that the government had previously provided), how are they the private expression of private voluntary effort to address social problems held in common? Are they not contractors like any other contractor? Does it matter if one privatizes prisons to a nonprofit or a for-profit entity? After all, the only real difference between the two as contractors is whether or not the net resources at the end of a fiscal year are distributed to shareholders or are held to be applied to next year’s budget. ...

The premise behind [Whole Foods' and Starbucks'] products, indeed behind their existence, is far beyond the product itself. The product reflects a relationship to some non-commercial value or mission. For Whole Foods, for instance, it is the premise that what is fresh and organic is good for the environment and good for the health of people. That it also makes money is an expression of the market (and a fortunate one at that) but it is not the purpose of the endeavor. Are these corporations not also on the social commons? Do they not address a problem (e.g., public health) that supposedly is not sufficiently in the interests of any one person or organization to address and therefore requires nonprofits and philanthropy? ...

If obesity is a public health problem, how is Gold’s Gym not classified as a nonprofit and the YMCA is? Apart from distributing profits to shareholders and paying taxes, of course. If Gold’s Gym dedicated itself to the health of America’s youth, but distributed its profits to its shareholders and paid its share of its taxes, is it any less on the social commons than the YMCA? ...

How is this “philanthropy?” The end is socially driven, but the means are the beauty of capitalism carried out largely in the marketplace. ...

The End of Definitions, however, does have immediate and concrete implications. Hundreds of millions of dollars are foregone in the U.S. economy because of the concept of tax-exemption for nonprofit roles. Tens of thousands of organizations are not expected to be transparent or to conform to many aspects of our legal and regulatory framework because they are nonprofit. Tens of thousands of philanthropies are afforded nearly complete freedom in how they allocate resources, and how they account for the utility of those resources, completely outside of the perceptions of taxpayers.

This is all good and has, for many, many decades, served the national interest. We as a nation have been enriched immensely by these policies.

However, if we no longer know what we mean by the term “nonprofit” or “foundation” or “philanthropy,” how will we continue to make these distinctions? When the world of capital and commercial markets blends into the world of the societal commons, when solutions to social problems are to be found not in voluntarism and the stray philanthropic dollar but on the very concrete commercial landscape of capitalism, how shall we define the nonprofit endeavor? Does the distinction even matter any more?

As someone who views the hundreds of millions of dollars forgone because of tax-exemption status, and the absence of government "oversight" and all the red tape that goes along with it, as decidedly Good Things™, I'd rather have for-profit organizations treated under the (largely more liberal) regulatory regime of non-profits, than have non-profit orgs treated under the regulatory regime of for-profits. On the other hand, as the author mentions, non-profits are held to stricter standards than for-profits regarding forced public transparency and, unmentioned, laws restricting explicit political campaigning. So both regulatory regimes are mixed bags.

What say you, readers? Can we say with certainty if either regime is preferable, or is the status quo--where firms get to choose by which regime they are to be judged--about as good as it can get under any system of income taxation and regulatory oversight? Does it matter that these definitional distinctions are becoming increasingly harder to make? Unless we can confidently answer the questions regarding the preferability of differing regulatory regimes, I don't see how the definitions matter that much.

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A nonprofit like Google.org makes investments it would not have otherwise in it purely self-interested form, i.e., Google.org takes risks that Google.com would not, even if the capital invested is likely to disappear.

I realize that to an outside observer, discerning between this definition of nonprofit and for-profit might be impossible, but to those in charge of the nonprofit, it wouldn't be.  On a related note, if I ever become stupendously, insanely, or obscenely wealthy, this is what I plan to do:  invest in high-risk enterprises that have a chance to revolutionize society.  Most types of charity seem to be a big waste of time and resources to me.