In the Spotlight

News & Features
Make Change, Not Money
Part 3: More Like Big Business
By American RadioWorks
September 3, 1998

THE 1990s IS AN ERA OF POWERFUL MARKETS and smaller government. Perhaps that's why so little attention is paid to the growing economic heft of the nonprofit sector. But it is big and it deserves notice. The number of nonprofits more than quadrupled to 1.5 million over the past three decades. From 1977 to '94, paid employment in nonprofits rose at nearly twice the rate of national employment.

The nonprofit sector is now marked by many of the trappings of big business. Take advertising. Just like Nike and Budweiser, nonprofits are creating glitzy, persuasive ads.

(SFX: Montage of public service announcements.)
Ad 1: Michael Jordan for Shriner's hospital. "You know, there are a lot advantages to living in Chicago ... "
Ad 2: Fact. Lead poisoning is one of the leading health risks to American children.
Ad 3: This year, plant trees for America. Write the national Arbor Day Foundation, Nebraska City, Nebraska.
In addition to running TV spots, nonprofits are also hiring business school graduates and sending their top talent to executive grooming seminars. Executive salaries are rising well into six, and even seven, figures.

Why is the nonprofit sector growing? For one thing, services dominate the American economy, and nonprofits are often leading edge players.

For instance, half of all hospitals are nonprofits. Nearly a third of all nursing homes are, too. About half of all colleges and universities are nonprofits, and so are most libraries and information centers.

Another factor driving growth is a lack of faith in government programs. Karl Stauber, president of the Northwest Area Foundation, says that as government retreats from many of society's most pressing problems, such as getting people off welfare and into a job, nonprofits become more important.

Stauber: When Bill Clinton started his second term, the size of the federal civilian workforce was down to the size when John F. Kennedy was president. But if you look at the dollar figures, they haven't contracted as much. So where has the shift occurred? The shift has occurred in transferring activities partially to the nonprofit sector.
At the same time, government support of nonprofits is waning. So many organizations launch new and sometimes controversial commercial ventures to make money.

In most cases, going to the zoo used to be free. But not anymore. About 40 percent of the nonprofit sector's revenue comes from dues, fees, and charges. And zoos have been among the most innovative money-makers. For example, the monkey chow that this gibbon howls for each morning is paid for, in part, by money the nonprofit zoo makes from a for-profit movie theater. Social entrepreneurship is flourishing and the payoff can be huge.

For instance, when the Minnesota Communications Group, the parent company of Minnesota Public Radio, sold its for-profit catalogue company, MPR's endowment swelled to some $110 million — the largest endowment in public broadcasting. MPR's gain also stirred some controversy. The sale netted the organization's two top executives some $4 million from the equivalent of stock options. Meanwhile, nonprofit hospitals are opening for-profit health clubs and just about every university has forged lucrative alliances with high-tech companies over the past decade.

The pacesetters, whether they're hospitals or universities or even public radio stations, have become large, complex enterprises with considerable expertise to staff them. And that's partly why you are seeing this professionalization.

University of Indiana philanthropy professor Leslie Lenskowsky says this commercial revolution in the philanthropic world is exciting. But the trend also raises troubling questions.

Lenskowsky: The danger, I think, is that organizations can become so dependent on fees for their activities that they can lose sight of their charitable missions. In other words, they can become so businesslike that they forget they're not really a business.