By John Langhorne and Nancy Quellhorst/Tree Full of Owls

Alexis de Tocqueville noted that when several Americans with a common interest came together they often formed an association.

Such organizations are the third portion of the American economic system, along with the private-for-profit and public sectors, and contribute to it in unique ways.

For-profit companies exist to “create wealth” and public sector organizations exist to “protect and serve.”  See a previous column entitled “Mars and Venus” www.corridorbusiness.com/consulting/mars-and-venus-private-and-public-sectors/ to review their functions.

However not-for-profit organizations have a different and useful purpose in our tripartite system:  They exist to “do good.” Furthermore, they come in two major flavors: charitable organizations designed to promote public good works and professional organizations that exist to further the developmental goals of a particular constituency.

Although these organizations cannot pay their owners, they can become very large and have numerous paid staff. In practice, these two versions often blend. For example, many membership groups own a charitable organization to help fund their development goals.

Let us examine the charitable form first. At a lunch before he departed the country, an Irish ex-patriot manager shared his impressions of the United States after a five-year stay in the Midwest. His perception of America had changed 180 degrees from cynicism and dislike to “I’m going to immigrate when I retire.” When asked why, he cited two major structural reasons. The first was the opportunity our economy offers people to be upwardly mobile. America is a meritocracy. Each of us knows a story of someone, often an immigrant, who has bootstrapped themselves to a better life through hard work, skill, knowledge, courage, and honesty. Such Horatio Alger stories are part of the American experience. In the United States, an aphorism about small companies is “shirtsleeves to shirtsleeves in three generations.”

Peter Drucker once noted the American economy is like a hotel where people are moving from floor to floor in both directions.

The second was the generosity of Americans. “As soon as Americans develop some personal wealth, they begin to give it away.” He noted that Europeans try to keep wealth in the family across generations.

This generosity is a remarkable phenomenon. Last year, Americans gave away about $300 billion, two thirds of that from individuals and families. Americans routinely make charitable contributions that exceed the combined gifts of the rest of the world.

In a non-profit organization, a small number of individuals with a shared concern can come together and create a corporation that is designed explicitly to help others. Such organizations are owned by an unpaid board of trustees and have tax-exempt status. Funding may come from charitable contributions, the public sector (taxes), and/or sales. There are more than two million such organizations in the United States.

Philanthropic non-profits come in a huge variety of types and sizes from local centers for the mentally ill, disabled people, or senior citizens to large multi-billion dollar organizations such as the Bill and Melinda Gates Foundation. Because these organizations operate with neither the pressures of profitability nor the limitations of politics they are often able to make extraordinary contributions to our society.

Anyone who has had the experience of visiting a Carnegie library can attest to this.

Non-profits can also be member-serving organizations, which are led by a board of directors and accountable to their members. The member organization must show value and continually reinvent itself to stay relevant.

Examples of such organizations abound. You are probably a member of at least one such organization. Such an organization may serve a middle-aged, manufacturing plant manager, who joined to support their legislative lobbying. His company’s taxes are burdensome. A young business coach could belong to the same organization to network with business people and market her services. The owner of an architectural firm might be a member so his employees can participate in the organization’s skill-building seminars.

Sometimes these organizations are narrowly focused but often member organizations need to balance the needs of diverse companies and individuals.

Member organizations frequently have broad agendas and modest budgets. They extend their financial resources by using older technology and leveraging volunteer assistance.

The higher paying private sector has always provided non-profits with competition for talent. Now, the ability to organize using social media also allows businesses to compete for event revenue, as they communicate directly with their customers and recruit people to their own events.

Non-profits provide jobs with flexibility and intangible benefits by making a difference in the community and the world. We earlier explored the discreet strengths and purposes of the public and private sector. When all three sectors combine to achieve shared goals, a virtuous cycle of mutual benefit emerges. Understanding and appreciating the societal benefits of this three-part economy is an essential element of citizenship and leadership.

Nancy Quellhorst is president and CEO of the Iowa City Area Chamber of Commerce.

 

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Samantha Kollasch currently serves as Chief Digital Officer at the Corridor Business Journal. After graduating from the University of Iowa with a BS in Management Information Systems....