How many non-profits are too many? Is there a point of diminishing returns in the number of non-profit firms created? Do all non-profits benefit the public well enough to warrant treatment as tax exempt organizations? Are non-profits competing with each other for scarce dollars? What are the metrics for non-profit organization performance? Do non-profit firms take personnel and resources away from the private sector?
Non-profit corporations have grown at an astounding rate; there are now twice as many non-profit US corporations as there were as recently as 2005, and the number is now approaching two million. At first it would seem that the non-profit public sector would be taking jobs away from the private sector, and that there would be a direct, correlating drop in income from the for-profit sector; but the growth of non-profits does not directly correlate with a decline in productivity.
Why not?
The enormous growth in the service sector offers an explanation for the negligible effect of non-profits on the economy. Nearly all non-profits find their employees and founders in the service sector, and it is an exceedingly rare event for a person to come from the manufacturing sector to join or create a non-profit. Instead, it is usually a person coming from the field of consulting, a service sector activity, that joins or creates a non-profit firm.
Consulting over time has morphed into something very different from the post-war efforts of the RAND corporation and McKinsey and Company. The logic has been that if these large firms are profitable by selling human talent, then shouldn’t every small firm and individual have an equal opportunity to do the same? These smaller firms are definably small business, and as we tell ourselves endlessly, most jobs are created by small business.
Now, every unemployed college graduate likes to describe him or herself as a consultant, using consulting to dignify under-employment and unemployment. Underlying this phenomenon is the move to a service sector economy, and an inability to gauge when we have reached a saturation point in that portion of the economy. It is a very short journey from being a consultant to becoming a non-profit firm. It would seem, in fact that a significant reason that we see so little measureable effect from the efforts of the non-profits is that the damage to the economy has already occurred with the expansion of the service sector.
Non-profits have a clear and compelling role in our society, championing many worthy causes that are in the public interest. The question in our minds should be how many no-profits firms are too many.
And here is why:
At their present rate of growth, all firms will be non-profit firms - in less than 20 years.
