By Todd Roth, Grants for Growth Consultant
I find it cathartic to go back to basics. It reminds me why something is important. It centers me. So, let’s explore the question: Why does the nonprofit sector in the United States look the way it does?
First, a little clarification on what it means to be a nonprofit. A nonprofit organization is one that is organized for the purpose of improving public welfare. A nonprofit is run much the same way as a for-profit. The term “nonprofit‡” refers to how the organization handles its excess revenue. Instead of being distributed among executives or shareholders (as in a for-profit business), profits are reinvested into the organization. This could mean expanding programs to serve more clients, buying new equipment or supplies, creating an operating reserve, or any other method of improving its positive impact on society. So: a nonprofit serves the public good and uses any extra money to further its mission.
The idea of helping others and giving back to society has existed as long as recorded history. In the United States, Andrew Carnegie helped lay the groundwork for modern charitable giving when he published Gospel of Wealth in 1889. Carnegie promoted the idea of everyone owing a duty to society and encouraged those with means to donate to social causes. During World War I and World War II, Americans began conserving resources and sending funds and supplies overseas—collective impact by and for the masses. The Vietnam War proliferated organization around specific causes/foci and, in 1969, congress established 501c3 status in the IRS Code. This enabled donors to receive tax exemptions, creating a massive wave of new NPOs. Today, charitable giving is engrained into our culture and can be done through countless vehicles from cash donations to charitable remainder trusts.
America is the undisputed leader in the nonprofit sector, with more than 1.5 million registered NPOs. Americans donated $485 billion in 2021 alone. The industry employs about 1 in 10 Americans, from frontline folks (those actually running the soup kitchens or teaching financial literacy, for example) to an array of support staff like accountants, HR professionals, or IT staff. The nonprofit industry is the third largest industry in the nation, after retail and manufacturing.
So why does the U.S. have such a large nonprofit sector? It’s a matter of perceived efficiencies. It costs a lot of time and money to take on society’s ills. Rather than paying higher taxes for a robust social safety net run primarily by the government, nonprofits step in to provide vital services and to augment what the government is able provide.
Whether you agree with the sentiment or not, America has long had an aversion to what is currently known as “socialism.” In many other highly developed countries, government programs fill the role of nonprofits in the U.S. Think areas like job training, homelessness, domestic violence, education, poverty, physical and mental health, environmental sustainability, and so on. There is evidence that NPOs can address social needs more efficiently than government entities.
For-profit businesses don’t typically fill the role of nonprofits either, because addressing these causes isn’t profitable—at least, not without using business models that most would find objectionable at best.
Charitable giving in the U.S. is, at its core, a way for all of us to contribute to the social contract. We look out for one another. We want to collectively improve society and the world. I personally give to leave the world in better shape better than I found it.
A final question to ponder: why do you give? Take a moment to think about it AND to pat yourself on the back for your role in helping to make the world a better place.
Questions about nonprofit organizations or the ways in which you want to give back? Contact Let’s Build Hope at (314) 716-2496 or LetsBuildHope@lbh-stl.com.
#LBH #LetsBuildHope #GlimmersOfHope #NonprofitHistory #LookOutForOneAnother #ImproveSociety #LeaveTheWorldInBetterShapeThanWeFoundIt #WhyDoYouGiveBack?
‡Fun Fact: “Nonprofit” and “not-for-profit” aren’t synonymous. Like NPOs, not-for-profits can collect donations, don’t pay out profits, and can even be tax exempt in certain cases. But where NPOs are required by law to serve the common good, not-for-profit organizations instead serve the goals of group members. Examples include labor organizations, college alumni clubs, and chambers of commerce.
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