Why does the nonprofit sector exist? Why is it necessary, if it is? Why does it perform certain roles? Why should we support it as an element of a civilized society?

These fundamental questions have been nagging scholars who attempt to define and study the sector. For example, just look at the sector’s varying names: nonprofit, not-for-profit, voluntary, third or independent sector, and the commons. Examined closely, each has a subtly different meaning and underlying assumptions about its constituent parts and behaviours.

“Nonprofit” tends to be the nomenclature of the economists, most of whom have attempted to define this sector and its activity within the theoretical framework of market economies. Their assumption is that market behaviour motivates all human action, supply and demand, labour and capital. The market governs all productive activity, and government’s economic role is to create favourable conditions for market growth and to act as a kind of minimalist traffic cop over what ensues. A nonprofit sector exists only because of market failure or aberrant market behaviour. If these imperfections or failures in the market could be “fixed”, such sectoral activity would not occur because it would not be needed.

This view of the nonprofit sector as a residual in an imperfect world has been a dominant scholarly view during the 1970s and 1980s, and it is not surprising that it finds fertile ground among neo-conservative politicians.

“Not-for-profit sector” is really a further refinement of the economists’ work. The term has been employed chiefly by lawyers and accountants seeking to differentiate between mutual-benefit associations, like the Alliance of Manufacturers and Exporters or the Chambers of Commerce, and “other-oriented” charities. For them, “nonprofit” describes an eleemosynary form of governance, in which the directors of the limited corporation are subject to a nondistribution constraint, but the activities of the association may directly benefit its members as a result of lobbying, provisions of services, etc.

“Not-for-profit” describes a similar form of governance, but with the intention of providing benefit to those who are not directors or members, to achieve a more general public good.

“Voluntary sector” comes from the language of the sociologists, for whom the central defining characteristics of what we are generally calling the nonprofit sector is that participation in it is not coercive, even though it depends, to a greater or lesser extent, on the provision of volunteer labour to accomplish its purposes.

“Third sector” or “Independent sector”, is a term principally used by political scientists, several of whom have read too many economists. This view accepts that there are three sectors: the private/business/commercial sector, the public/government sector and the nonprofit/third-independent sector. This latter sector, as a defining characteristic, operates “independently” of the market and of government.

“The commons” is the newest addition to the vocabulary of this sector. Crafted by Roger Lohmann, it represents an effort to move away from residual theory. He is not concerned with all nonprofit organizations, or with any legal category but, rather, with donative associations, organizations and groups engaged in unproductive (to use Adam Smith’s term) or voluntary labour, whether or not they are incorporated, recognized by the state, tabulated in national data or made up of paid employees. Commons are social spaces outside the home, away from family and independent of political states and economic markets. They depend upon voluntary labour for common goods, created through self-interest and altruistic pro-social behaviours, which may be philanthropic, charitable or mutual in nature.

Roles of the nonprofit sector

Perhaps the best known role of the formal nonprofit sector is that of provision of services. Whether as a contractor to government, or in their own right, nonprofits have long delivered both tangible and intangible products to their clients: food, shelter, healthcare, counselling, education, opportunities for collective worship, etc. This has been both the sector’s glory and its bane. On the one hand, it is altruism and/or mutual aid at its best. On the other hand, much of this service deliverance activity has been seen as economically unproductive. If it doesn’t create new wealth, of what possible value is it?

A second role played by the nonprofit sector is that of advocacy, broadly defined. This may take the form of public education about AIDS or an environmental concern. Or it may be direct advocacy to improve the economic or social conditions of a particular disadvantaged group, or to change the practices or laws that are seen to be unjust or in contravention of the public good.

A third role is mediation. Through associations, individuals come together to work through issues and develop consensus on issues of common concern.

These three roles of the nonprofit sector are not, of course, mutually exclusive. Many organizations are involved in all three types of role activity; others have performed more than one sequentially.

The relationship between the state and voluntary activity

There is an interactive relationship between political ideology and voluntary action. For example, voluntary associations, particularly those concerned with self-help and service volunteering, proliferate when the dominant ideological component of the public philosophy is pluralism. In Canada, the number of registered charities increased by nearly 50 per cent during the 1980s, with growth concentrated in the first five or six years of that decade.

Anecdotal evidence suggests the rate of group formation was higher during the financially heady late 1960s and early 1970s. Once formed, these organizations acted as the political ideological value base expected of them. They have been competitive, sometimes duplicative, and sought media attention to assist in their task of mediating between constituents and legislators. Their organizational structures over time became increasingly centralized and bureaucratized to rationalize competing internal interests and to mobilize resources for “efficient” action. They focused upon acceptable socio-political goals the promoted enhanced freedom for their constituencies through broadened accessibility and equality of opportunity.

The neo-conservative political ideology characterizing the Reagan and Mulroney years provides a case in point. A principal goal of both men was to reduce federal contributions to social programs. Indeed, the most common voluntary association response in Canada and the US to the neo-conservative shift was to attempt to reflect the values inherent in the revised public philosophy.

Acting like entrepreneurs

Nonprofit managers crowded university and private-sector management training programs. “Marketing” became an acceptable term, and agencies hired fundraising and development consultants, entered “co-marketing” arrangements with the business sector, merged with other nonprofits or diversified their services, developed fee-for-service products targeted to the middle class and those able to pay. In short, nonprofit and voluntary associations increasingly began to act like private-sector entrepreneurs.

All of this led to what Ferris and Graddy have described as “fading distinctions” among the nonprofit, government and for-profit sectors. Voluntary activity becomes less politically significant in the neo-corporatist or neo-conservative state. Ralph Kramer was prescient in stating that voluntary agencies in the 1990s were likely to be viewed by government as little more than substitute service providers or public agents, according them little or no policy-participation role.

How to spur participation at the local level

But Canadians are no longer “buying” the neo-conservative vision in its entirety. Yes, they want unity and order, but they also place strong values on access and active participation, and have deep distrust of elites and large institutions. Yes, there is a pluralistic recognition of individual rights and competing interests among groups, but there is evidence we also value community rights and responsibilities. Yes, there is support for a social safety net and equality of opportunity for the disadvantaged, but with a strong value on localized determination of community good and individual responsibility for participation in civic life. Canadians recognize that large institutions, especially large corporations, are an integral part of our existence, as is the globalization of practically everything. But some new means must be found to spur participation at the local, operational level of daily life, and to shape public-policy decisions.

Such a new public philosophy of the state, closest, perhaps, to the communitarian view of the world, would value a nonprofit sector as a place for common talk, decision and work, to achieve creative consensus within the social economy. A communitarian philosophy of the state acknowledges the importance of values and actively determined ideas of the common good. If, in a socially fragmented society, a need remains for legal and organizational mechanisms that enable us to accommodate the needs of strangers, the organization entity of the “charity” retains its utility.

The nonprofit sector is not residual. It is an important component of a total social system, especially in a democracy. It is interdependent with other sectors and organizations, and has proved in pluralist and neo-conservative eras to have been an adaptive mechanism for responding to change. As we move forward toward a changing future – not one grounded in the fortunes of the nation-state – its local, regional and global role will become more important still, though differently lived.

Canadian Policy Research Networks (CPRN), Ottawa, is a national nonprofit organization designed to create knowledge and lead public debate on social and economic issues important to the well-being of Canadians. This excerpt is from a report given by Jacquelyn Thayer Scott, president and vice-chancellor of the University of Cape Breton, at a recent CPRN roundtable discussion on the nonprofit sector.

Reprinted with permission from Association, February/March, 1997. 200-388 The Esplanade, Toronto, Ontario M5A 1J2. Phone (416) 867-1042.