This is my most recent column for the Chronicle of Philanthropy. You will find a full archive of my columns here.
In the Down Economy, Let’s Not Ignore the Value of Creating Nonprofit Jobs
By Sean Stannard-Stockton | Chronicle of Philanthropy
Carlos Slim, the Mexican businessman who is the richest person in the world, recently derided his fellow billionaires’ “Giving Pledge,” saying that charity does not solve anything. Instead, Mr. Slim said that increasing the number of jobs in the economy is the only path to ending poverty. Mr. Slim’s comments show a stark ignorance of the important role that nonprofit groups play in creating jobs.
While the role of business in promoting social change is now attracting the spotlight, it is equally important that our society recognize the financial value created by nonprofits.
The nonprofit world collectively generates $1.9-trillion in revenue each year, which means that nonprofit organizations represent roughly 13 percent of the United States economy.
Nonprofits are businesses. They simply receive preferential tax treatment due to their commitment to reinvest all financial surpluses back into their organization and to operate in service of a charitable mission. Like all businesses, nonprofits employ people.
A lot of people.
Nonprofits are responsible for employing one out of 10 American workers. It should be of particular interest to Mr. Slim that at least in the United States, nonprofits have been responsible for a faster rate of job creation than their for-profit counterparts.
According to research from John Hopkins University, nonprofit employment grew by 2.4 percent a year from 1990 to 2006, while for-profit businesses increased the size of their work forces by just 1 percent a year.
During the recessions of 1990-91 and 2001-02, nonprofits actually increased their number of employees by 2.38 percent a year while for-profit jobs declined at an annualized rate of 2.2 percent. So not only has the nonprofit world been a faster growth engine than the for-profit world but nonprofits have also been steadier creators of jobs in good times and bad.
Preliminary analysis of the 2008-09 recession shows similar results. The John Hopkins Center for Civil Society Studies’ initial analysis of data on 21 states shows that nonprofit employment grew by 2.5 percent per year between the second quarter of 2007 and the second quarter of 2009, the worst part of the recent recession. By contrast, for-profit employment in these states fell during this same period by an average of 3.3 percent per year. And that pattern held for every state examined.
Nonprofit jobs are important, valuable jobs. Nonprofits employ scientists, nurses, Web developers, computer engineers, teachers, lawyers, executives, and tireless direct-service workers who deliver aid to the neediest among us.
None of this is meant to suggest that the best path to widespread employment is through nonprofit jobs. Instead, it is critical that we recognize that both nonprofits and for-profits create both financial value and social value. The idea that we must make a choice between philanthropy and creating jobs is categorically false.
When a for-profit company operates, it creates financial value by spending its financial resources to employ people and acquire goods and services from other companies. This financial value helps expand the economy and advance our standard of living. Any financial surplus generated by the firm is either reinvested into the company or distributed to the company’s owners.
When a nonprofit operates, it creates financial value in a very similar way. It also employs people and acquires goods and services from other companies. This financial value adds to economic growth and advances standards of living in an identical manner to for-profit activity. The only significant difference is that nonprofits reinvest all of their financial surplus back into their organizations.
For-profits and nonprofits produce both social value and financial value. They are both economic entities that create jobs, help grow our economy, and increase our standard of living.
There are important distinctions between for-profits and nonprofits. However, the idea that there is an inherent tradeoff between making charitable contributions and supporting job creation and the economy is simply wrong.
Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.
Hurrah! Well-reasoned and much needed response to this particular argument against giving to nonprofits. Thanks for it,
I read your articles all the time, Sean, and I respect your opinions but I don’t always agree. This is the first article that you’ve written for COF that I whole-heartedly and passionately agree with 100%. Thank you for writing it. I hope it gets picked up in publications outside of the philanthropy field.
Not COF, obviously – CoP.
The nonprofit sector provides about 1/2 million jobs in New York City alone, according to the city’s Management Innovation Program, which aims to make contracting with the city easier for those nonprofits. It was very nice to have Mayor Bloomberg notice the sector. Nonprofit jobs range from entry level to highly skilled professionals and, best of all, they are often leveraged: one nonprofit charter school teacher can help 30 children become productive members of society.
Thanks so much for sharing this piece — I linked to it over on our blog this morning! It’s so important to emphasize that non-profit jobs not only are jobs, but valuable and essential ones in these times.
Thanks so much Brigid, Julia, Geri and sjlam. I glad you all liked the article!
You wrote: “None of this is meant to suggest that the best path to widespread employment is through nonprofit jobs.” I hope not, but that might end up being the case. In his book The End of Work, Jeremy Rifkin makes a strong case that the community benefit sector might be one of the few remaining places where a large number of jobs still exist — with fewer jobs that can be automated or outsourced overseas.
In thinking about how this country needs to reinvest to ensure that families have jobs that sustain them, jobs in this sector need to part of the public conservation.
Yes, I agree Gayle. I think that a strong, vibrant economy should generate jobs across the public, private and nonprofit sector. I included that sentence because without it, it might have looked like I was arguing that nonprofit jobs were somehow better for the economy than private sector jobs.
Solving problems is a great goal, but in many cases we must care for people or situations while a true solutions is in the works. Both are important. When a man is having a heart attack he does not care about health care reform theory, but he does care that the local hospital foundation has bought the best defibrillator for the ambulance.
And I do get Slim’s point. Ultimately broad-based prosperity raises more from poverty than programs alone. However the two are not exclusive and can often stimulate one another.