Monday, December 8, 2014

Upon Further Review: Transparency in Non-profits

The politically framed face of the non-profit, the mantra as it were, is that being non-profit means: Warm and fuzzy ventures (vs. for-profit). To some very limited scope, that is true, such as The Salvation Army. However, the warm and fuzzy, more times than not, refers to how the non-profit internally rewards executives of the non-profit in warm and fuzzy ways.

Meaning, "non-profit" is a politically hijacked term. True do-gooders, those that have a passion to help particular groups, their idea of all contributions passing through to the afflicted group by use of a non-profit, is a commendable position. However, non-profits can clearly be used where very little passes through to the afflicted group.

In essence, the butcher, baker and candlestick maker, those evil for-profit concerns, under the microscope of public scrutiny and opinion, who produce benefits to others that was not their intention (the invisible hand of Adam Smith), might well be more warm and fuzzy than a great deal of non-profits. (1)

Non-profits that hide behind/cloak themselves behind the politically framed warm and fuzzy of "non-profit" perpetuate the idea that the microscope of public scrutiny and opinion is disallowed. Disallowed in that warm and fuzzy non-profits could only be of positive value and hence scrutiny is unneeded. That their intention is to produce benefits and hence to question their intentions is just rude.

Returning to the do-gooders and their original position of helping a particular group, their idea of all contributions passing through to the afflicted group by use of a non-profit; that idea is further morphed in the good cop/bad cop scenario by many proponents of non-profits. A stratagem to further deflect scrutiny. How so?

First one has to examine the politically framed idea of the evil for-profit concerns aka the evil corporation. That particular argument is based on decoupling the abstract corporation from the flesh and blood people that work at the corporation. That is, firms are no more than collections of owner households, management households, labor households and supplier households. To attack the people that actually make up the firm will produce backlash for the debater using the evil corporation tag line. Hence decouple and frame the abstract, the corporation, as a living breathing entity then attack the abstract as if it were real. (2)

Once the evil corporation position is established through political slight of hand, an additional argument is engaged upon that by merely being non-profit the evil corporation argument is rectified and all is put right in Mudville. Hence establish the evil and arrive as the white knight to vanquish the evil.

Self-interest is a very normal human trait. Why would self-interest be different between the organizers/power purveyors of a for-profit and the organizers/power purveyors of a non-profit? Yes, exceptions exist. But how is it, in the main, that by merely being non-profit somehow means the self-interest of organizers/power purveyors is different than the self interest of organizers/power purveyors of for-profit ventures? Stated alternatively, if self-interest is framed as greed, as in the evil for-profit, can one merely be extremely self-interested, or extremely greedy (if you like), by using a non-profit as a vehicle to deflect scrutiny?

“Maybe for-profit companies pay too much attention to stock prices. But non-profits can go on inefficiently forever, with no stockholders to complain. The whole point of a non-profit is to pursue goals other than economic efficiency.” (3)



(1) An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776

(2) From Economic Man to Economic System: Essays on Human Behavior and the Institutions of Capitalism, Harold Demsetz, 2011

(3) After the ACA: Freeing the market for health care, John H. Cochrane, June, 2014, pg. 9