Nonprofits Are Businesses

One of the most bizarre criticisms of the Giving Pledge is the idea that it will hurt the economy.

For example Forbes columnist John Tamny writes:

“But while it’s exciting to contemplate the giving nature of Gates and Buffett, if their true desire is to help their fellow man, they should hoard every penny of their significant wealth…

Some will no doubt benefit in the near term, but the removal of limited capital from the productive parts of the economy will ultimately reduce our standard of living, drive up unemployment and make individuals more–as opposed to less–needful of charity.

Conversely, money saved and invested constitutes capital offered to today’s and tomorrow’s businesses. When individuals save, they’re by definition providing capital to entrepreneurs, and the capital formation that results from saving naturally stimulates job creation. Considered in this light, savers and investors are conferring the ultimate benefit on others by virtue of their financial means supporting individuals eager to work.”

Tamny’s underlying assumption is that nonprofits are not productive, that they don’t stimulate job creation and do not enhance the standard of living.

Tamny’s understanding of the nonprofit sector is so misinformed that it is difficult to understand how Forbes editors published his column. It isn’t that Tamny’s opinion isn’t valid, certainly there could be an argument that for-profits produce more value than nonprofits, it is that Tamny seems unaware of the fact that nonprofits are businesses.

Nonprofits employ people, nonprofits buy goods and services from for-profits, nonprofits are an important economic engine of the US economy. In fact, nonprofits are a bigger portion of the economy than many other industries.

Today, I’m happy to share an outstanding video that highlights just how significant the nonprofit economy is. Not many sectors of the economy book over a trillion dollars in revenue and employ 10% of all US workers!

Click here to see the video if you are viewing this post within an email. The video was produced by Philanthropy Reports


  1. Ang says:

    I am *stunned* by the implication that nonprofits aren’t productive! Really, Forbes?! Nearly my entire career has been in the nonprofit sector – specifically, development/grantwriting. I believe that efforts like the Giving Pledge have far-reaching positive implications for the future. Also, thanks for posting the excellent video; I will share it with my staff.

  2. Preach it, brother!

    It’s worth noting that similar arguments can be made about the public sector. You might be interested to read this recent post by Michael Rushton that makes that case quite eloquently:

  3. Ang,

    I’m with you on sentiment, but I am not stunned. Unfortunately, I heard this kind of talk all too often at business school … and my business school was significantly more nonprofit-friendly than most. I’m normally of the opinion that names don’t matter, but in contexts like this I am led to wonder if the “nonprofit” moniker is indeed damaging to the cause. For those who have never gone near the nonprofit sector, it’s all too easy to make assumptions and ascribe to stereotypes about it. We have a lot of educating to do.

  4. Kevin Hodgkins says:

    This is an absolutely baseless column. A simple amount of research will show the effects of “nonprofits” on the productive economy; as primary researchers, capital aggregators, and human capital development machines!

    My grad thesis research provided example after example of how commercial businesses have learned from, leaned on, and benefited from nonprofit businesses – forget the fact that nonprofits do produce real products and services demanded by consumers.

    I agree with Sean that I cannot believe Forbes published this piece as ill-founded its assertions are.

  5. Nonprofits make an incredible contribution to our local economy. Just talk to the folks at the Alabama Association of Nonprofits, who are working hard to educate people about just this issue.

  6. Certainly, for all the reasons mentioned in your post, nonprofits contribute to and benefit the economy of our nation and our individual communities.

    But, in relation to the Gates-Buffett pledge, there’s another “dirty little secret” of why the Forbes readers (assumed captains of industry) should support philanthropy of this scale: Endowments.

    Of the money pledged by the 40+ billionaires, most of it will not be heading directly to our community service organizations; it will be sitting in foundation endowments, being granted out at a rate of 5% each year.

    With that 5% barely being the earnings on the endowment, where’s the principal of that endowment going? It’s being invested. It’s purchasing stocks and shares of mutual funds. It’s in long-term bank accounts, giving banks the capital to loan to small businesses.

    If John Tamny is sincere when he says that “money saved and invested constitutes capital… and… capital formation… naturally stimulates job creation” then he should be encouraging more billionaires to tie up their wealth in foundation endowments.

  7. Thanks for the post and sharing the video. It will make many like Tamny aware of the fact that nonprofits are businesses and nonprofits contribute a large portion to benefit the economy of our nation and our individual communities.

    • Harriet Ivey says:

      I seem to recall that in the 1980s and 90sWarren Bufffet had a similar response when asked what he was going to do with his fortune. He said that he believed that continuing to invest his personal capital during his lifetime would be more beneficial to society in the long run than giving away his money to charity. Obviously, over time Bill Gates, Jr. and Melinda Gates had a major influence on his thinking, leading up to Mr. Buffet’s incredible pledge to the Gates Foundation.