In HA, Chapter XV, Section 9
- Are NonProfits capable of servicing consumers?
- Lets say there is a non-profit and profit oriented business both offering identical service. Which business is going to serve consumers the most.
Nonprofits usually come in one of two forms: charities or some form of association (like a chamber of commerce). They serve either those in the association or those who “need help” (whomever or whatever may be). Sometimes, they may serve the consumer by serving the association, such as something like Underwriter’s Laboratory.
Does that answer your questions?
Kind of. I have a friend who insists that non-profits will always offer a cheaper product to the consumer.
My issue with his comment is that a non-profit may not have the same insentives to grow, expand, and improve capital investment. They also may not have the insentive to reach as many consumers. Though the model seems to work ok for credit unions.
My other concern is due to ideological reasons I see alot of non-profits going into what I would consider risky business. Areas that profit business’s don’t seem to touch, I assume due to their risks. One example is Micro-lending. I know a few non-profits that offer micro-loans, though their entire sustenance comes from donation. This tells me that many of their loans probably never get repaid. In other words it makes me think the business is operating in the red, and stays solvent only because of ignorant doners. It seems anti-economical and more or less just a redistrubtion of wealth, through market means.
I have nothing against it really, I just wonder if it’s effective. Perhaps thats not a flaw of non-profits but a flaw of the ideology that tends to start non-profits.
What do you think?
Depends on what you’re trying to do with the non-profit. Of course, that means non-money profit, but there’s also the psychic profit which Rothbard talks about. That’s certainly useful for libraries and animal shelters, for example.
This may or may not answer your question. I think the term “non-profit” is misleading. They may not operate for monetary profit, but they do profit. They do gain more utility, even if its just the sense of being happy because you feel as if you are helping those which otherwise would not have access to whatever service you are providing them. As a result, they do respond to profit and loss. Their profit, however, may materialize as something other than monetary profit.
But does emotional profit insentiivise them to upgrade their capital, expand operations, and reach more consumers?
Look if someone wants to feel good about th emselves they can walk out and hand 1 homeless guy a donut each morning for the rest of their life. It seems to me that the volume of people helped is extremely slow.
Contrast that with heavy profit based companies like Microsoft who have impacted the technological wellbeing of the entire world, and improved quality of living for the globe.
(not to say microsoft is an angel)
Marginal utility applies as much to emotional utility as it does to any type of tangible (monetary) utility. If the marginal utility of each new customer reached, or product produced, is great enough then it will provide incentive to invest. There are large charity networks, even before the advent of the large web of welfare created during after the Great Depression, and so it’s clear that they do respond to some type of profit and loss, even if the profit is not monetary in nature.
Of course, utility has always been subjective.
yes, but in the case of not-for-profits the consumers ‘with the sovereignty’ are the participants and patrons and not those ‘consumers’ who receive the charitable goods.
NirgrahamUK can you expand on this in laymen’s terms? I need a little extra explanation!
He means the ones who donate or volunteer are the sovereigns.
the role of a profit making business is to allocate scarce resources so as to provide for the highest felt wants of consumers (who buy the products)
the role of a non-profit enterprise is to allocate scarce resources so as to provide for highest felt wants of of consumers (that create and distribute the products).
example of consumer sovereignty vis ‘for profits’ . a business faces declining demand as consumers drift away from its old-hat fax machines in favour of the competition, new e-mail ready computers. end result faxes stop being produced, computers of a certain kind are produced in larger quantities , those formerly employed in fax machine production, and the owners of fax producing enterprises go on to do other work that better serves consumers.
example of consumer sovereignty vis ‘non-profits’. the ‘fax machines for everyone group’ persist in making fax machines and giving them away. they are following the dictates of the consumers. the consumers in this case are the ‘fax machines for everyone group’ and donors.
I get it, in both cases its the party paying thats sovereign, not necessarily the party receiving the service/good. Thanks Nir and KoB.
This may be a bit off topic, but I use to be involved with Food Not Bombs (before I couldn’t attend due to work). Every Sunday we’d feed homeless at this mission where the conditions kinda sucked, bluntly put. Everything we used was donated, and we made a lot of food out of bagels donated by a local shop. A socialist (who supported FNB, but never attended) said to me one day that FNB is anti-capitalist (because the idea behind it is not profit seeking) and I shouldn’t involve myself with such groups if I’m a capitalist. I guess he’s never heard of non-profit groups/organizations, or maybe that all capitalist only involve themselves in greed ridden profit machines.
I think this is an important point Bert. One we can point out to socialist opponents. Profit is just one single possibility in capitalism. As described by KoB and Jonathan above, profits aren’t necessarily measured in monetary terms.
Not to mention that capitalism isn’t specifically about profitism but quiet simply an economic system based on the private ownership of capital. What owners do with that capital is up to them. Taking your socialist friends argument all profit oriented business’s that did not return a profit would also then be anti-capitalistic.
Nonprofits can work but only because there is a functional price system in the economy. The entire economy, on the other hand, cannot be a nonprofit. Either way, the goods and services produced by the nonprofit are still automatically under-valued when they come onto the market place, the phenomenon of time preference doesn’t just go away. Also, do nonprofits actually produce stuff? I wasn’t aware that they serve actual economic functions.
A non-profit organization can be quite efficient.
I´m a member of a mixed martial arts club here in Iceland that was founded five years ago as a nonprofit organization by nine committed MMA enthusiasts to help foster the growth of the sport in the country. The founders brought to the table their own skills in the various martial arts, paid membership dues just the same as everyone who came to train with them even though they were teaching, not being taught, and every cent that came in was put back into the club.
Result: Five years later MMA and Brazilian Jiu-Jitsu is probably the fastest growing sport on the island, the club has over 350 members paying dues, a 550 square meter facility with all the latest equipment, and a lot of very happy athletes that have medalled at national, european and world levels. This is the kind of growth you can obtain when you forego consuming any of the output of your enterprise and invest all of it back into the buisness.
I don’t think the fact that none of the owners of the club obtain any financial dividends or rewards from their enterprise negatively impacts their incentives - the pricing of the membership dues of course follows the laws of supply and demand, and the club is constantly adding new features to attract more buisness.
However, the lack of economic calculation does have some impact. Like NigramUK said, the services offered by the club are dictated not by consumer sovereignity but the whims of the clubs members. Market research might indicate that more customers(and thus more money) might be had by offering Ninjitsu classes rather than MMA classes, but that’s not gonna happen just because of that - the “prime directive” of the club is to foster a certain sport, chosen in accordance with the preference of those who operate the club, not to maximise returns.
This might leave the Ninjitsu-market undersupplied and a lot of consumers unsatisfied, but that is not the problem of those who operate the MMA club.
Can you elaborate a bit?
You’ll have to excuse my ignorance. Why are they under-valued? Is it because, were they of value a profit based system be more likely in its place?
Hmm are credit unions not-for-profit? I know of a few micro-lending firms also. That seems like a valid economic service, just one thats too risky that a normal profit based business would avoid.
I could but I don’t want to get into the socialist calculation debate at the moment. I’m a little lazy.
Profit is an independent economic phenomenon which is the result of time preference. When you bring a good to the market, people with time preferences will offer a price above the cost of production. To be more accurate, you pay future prices for inputs, and receive current prices for output, which are valued more because of time preference.
Not sure, but there’s a difference between economic activity and charity. I can offer my friend $100 for x amount of time and not receive interest, or I could just give my stuff away. But charity isn’t enough to make the world go round.
Your response on this (and the private ownership of capital) makes me want to ellaborate on this more.
We cooked and prepared the food at a different location, and had it ready in different serving trays and buckets in the back of a pickup truck that we served out of. The mission didn’t like us, and neither did the amazing City of Norfolk who eventually tried to “ban” us. We served out of a truck infront of the mission on the public road (or parking lot if possible) and other areas of property that either we didn’t own, or the city did. Eventually with the cops called too many times, the health inspectors trying to find a problem (which they couldn’t since we made sure everything was full proof), and meetings with the city we couldn’t serve healthy food to homeless, and a lot of it stems down to us giving food away (for free) to people on city streets. If I remember correctly one of the officials said something along the lines of it being a risk with us serving them food (she said it would be different if they were invited into our own homes instead of on public owned property). With that implied: city believes less risk is involved in eating out of trash cans compared to freshly cooked food.