The challenges of the 21st century, including worsening inequality and ecological degradation, make clear the need for an economic system that can deliver widespread human well-being within the ecological limits of the planet. We need an economy that serves people and planet, not the other way around. What might an economic system that meets the needs and challenges of globally connected, ecologically threatened communities look like?
Imagine a market in which all businesses exist only to ensure social and ecological well-being. Money circulates only when it is creating social benefit. This is an economy in which people feel a deep sense of purpose in their daily work, as it contributes to the health of their communities. You can buy bread from a bakery, knowing that it was made in the best possible way for your health and for the planet. Any financial surplus generated by the bakery goes back into ensuring that their products are as healthy, sustainable, and affordable as possible. You can sleep well at night knowing that your bank uses all of its profits to make its services more accessible to the community (rather than to make owners rich). The bank also does the important job of investing in the community through the loans it gives to help other socially oriented businesses better meet the needs of the community. In fact, all banks do (at least in this ideal economy).
Because businesses are oriented towards making their products and services affordable, accessible, and sustainable, the market is very efficient in meeting everyone’s material needs. There’s no relentless pressure and manipulation from advertising to consume more goods and services just to make more profit for companies. So, people buy less stuff. That means there is less work to do. Working hours are reduced and people have more leisure time. With less pressure to consume and a shorter working week, people are fulfilling most of their needs outside of the market, by spending more time with loved ones, spending time in nature, participating in sports, creating music and art, and just doing the things they love to do. This economy leaves more space for the immaterial pleasures that really make life worth living.
This is a glimpse into the Not-for-Profit World. But in order to truly appreciate how different this kind of economy is, and how crucial it might be for navigating the 21st century, we must first take a closer look at the for-profit world that we currently inhabit.
Capitalism: The For-Profit Economy
Capitalist economies primarily consist of privately owned businesses that exist to deliver profit to their owners. The capitalist logic tells us that an entrepreneur or investor will only start a company if there is the promise of a return on investment. In other words, they start businesses in order to get more money out of it than they put into it. In such an economy, it is often taken for granted that the only kind of business is a for-profit business. And for-profit firms seeking financial surplus is the engine of capitalist economies.
However, this seeking of profits requires that they constantly sell more products and cut costs as much as possible (and even cut corners where necessary). The extraction of profits to owners’ hands and the incentive to maximize profits leads to inequality. The mandate to constantly sell more leads to overconsumption of resources and the release of pollutants into the planet’s ecosystems. Now, at a time when the threats of environmental devastation have become a global phenomenon and inequality is threatening social stability around the world, we can no longer ignore these consequences of the for-profit economic system.
Economic institutions and behavior are oriented towards the pursuit of money, based on the outdated idea that human nature is mostly greedy and competitive so the best way to motivate economic activity is via the profit motive. No matter where you are in the world, you need not look very far to find the exploitation of people and planet in the name of profit. Such exploitation seems to come quite naturally when the accumulation of money is a primary goal, and success is measured by income, profit, and GDP (gross domestic product).
Yet, the for-profit story of Homo economicus—that is, the story that humans seek to maximize consumption over all other values—is a false one. (See the work of Bowles, Gintis, Rand & Nowak, listed in references below, for example.) It’s just a story. So, we can choose to base our economic institutions on a different story, one that puts the ends and means in their proper place.
Introducing Not-for-Profit Business for a Sustainable Economy
What could a more sustainable economy look like? What kind of system could be as healthy as the one described in the beginning of this article? Fortunately, we are already seeing the emergence of what could provide the foundations of a much more sustainable economic paradigm. My colleague, Donnie Maclurcan, executive director of the Post-Growth Institute, and I have discovered one potential seed of a healthier economy in the rapid emergence of a relatively new economic player: not-for-profit (NFP) business.
There are three main legal attributes that distinguish NFP businesses from for-profit businesses: 1) they must have a core social or ecological mission; 2) they must use all of their profit for their mission (no profit can be privately distributed); and 3) they can have no private owners, or shareholders. (We mean “ownership” in the sense of appropriation rights—the right to take profit or assets. Some not-for-profits use the word “owners” to refer to their members, but these “owners” do not have appropriation rights.)
Here, we use the word “profit” to refer to the financial surplus that remains after operating expenses have been paid out—including rent, wages, debt payments, and production costs. In this sense—i.e., profit as surplus—nonprofits too earn “profits.” But unlike for-profit businesses, they see profit only as a means to achieving deeper ends: community benefit. Profit is not seen as an end goal in itself.
The point is not new. As Douglas Rushkoff noted in an interview with NPQ two years ago:
I think that the nonprofit sector in particular is perfectly situated to help us transition to a different economic landscape. You know, most nonprofits think of themselves as doing something good, but what I want to try to make them more aware of is that the nonprofit structure itself, the way the business is actually structured, may be doing more good than whatever their particular business is.
And that’s sort of my basic premise—while the public looks at nonprofits as do-gooders, I’m looking at the structure of nonprofits and not-for-profit corporations as business entities. Because they’re not for sale, because they’re not shareholder- or share value–maximizing companies, what they end up doing is promoting revenue and the exchange of value and the circulation of money, which revives a whole economy rather than enriching the few.
Not all nonprofits, however, seek to be economically self-sufficient, independent of donations. So, we use the term “nonprofit business” more narrowly to mean those nonprofit enterprises that seek to be financially self-sufficient through the sale of goods and services (thus, the term business).
At first glance, it might seem that we could use another common term, social enterprise. However, depending on where you are in the world, social enterprises can be for-profit or not-for-profit (in legal terms), just like many other business models commonly referred to in discussions about sustainability (like “ethical business,” “green business,” “local business,” and “cooperative”). So, terms like “social enterprise” do not tell us 1) what the main purpose of the company is; 2) what it does with its profit; or 3) whether it has private owners. As seen in the previous section, these are increasingly important questions. “Not-for-profit” is a legal framework that answers all of those questions.
In our research, we have found examples of not-for-profit businesses in a large diversity of forms, in every sector of the economy, and in communities all around the world. BRAC (originally, Bangladesh Rural Advancement Committee) in Bangladesh, for example, serves its social mission of making healthcare and education accessible to rural people by running retail shops, a dairy, and a bank. Glas Cymru, a not-for-profit company in Wales, was able to raise £1.9 billion (about $2.5 billion) through the sale of community bonds in order to buy the local waterworks from a for-profit corporation. The YMCA, with over 10,000 locations in nearly 120 countries around the world, has offered communities a place to exercise and play sports for over 100 years. One of the most widely known grocery store chains in northern Europe is a not-for-profit cooperative aptly named Coop. In Australia, we found NFP businesses in such diverse sectors as real estate (Common Ground Real Estate) and funeral services (Tender Funerals). Not to mention the countless banks, credit unions, mutual insurance companies, restaurants, healthcare providers, daycares, education centers, waste management firms, land trusts, and community-supported agriculture schemes. All of this diversity shows that an entirely not-for-profit economy really could be possible.
Although NFP businesses are interesting in their own right, it is because they offer the potential of a transformation to a new sustainable economic era that they deserve to be acknowledged as a separate category of their own. And this comes down to how they differ from traditional nonprofits.
Although there is no legal difference between NFP business and traditional nonprofits, it is worth making a distinction when we’re thinking about institutions for a more sustainable economy. It is no secret that, in the current economy, many charity-dependent nonprofits are simply an extension of for-profit interests. Professional associations that lobby on behalf of very profitable corporations are a clear example of this. That is why, from a systemic level, it is very important that NFP businesses seek to be financially self-sufficient. It means that they don’t have to be part of a for-profit economy. They could indeed constitute a totally different kind of economy—a not-for-profit market economy.
Envisioning a Not-for-Profit World
Based on this simple, yet profound shift in purpose and rules, we can imagine that a market economy dominated by NFP business would operate very differently from the way capitalist markets perform.
A not-for-profit economy would have distribution built into it, via the NFP businesses themselves, using their resources to address social and environmental issues. This means there would not be as much inequality, or as much need to re-distribute wealth, as in the for-profit economy. In the NFP World, banks are important nodes of distribution and circulation of money in the economy. This contrasts starkly with for-profit banks, which are notorious as hubs of accumulation and concentration of wealth and power. And, of course, more circulation means more equality.
Moreover, a not-for-profit market would not need to constantly expand. This is because NFP businesses do not have a mandate to pursue profit, so they don’t have to pressure people into buying things they don’t need. They don’t have to sell more and more. In this way, the NFP World allows for the fulfillment of needs with low levels of material consumption, and a shift away from the culture of consumerism.
Of course, we are all familiar with examples of not-for-profit businesses—think Harvard University or a large nonprofit hospital chain—that, while they certainly would qualify as NFP businesses, do not reflect the values stated here.
But today these large institutions, even if not-for-profit, operate within the social and culturally norms of a for-profit economy. Such institutions might operate very differently in an economy where the nonprofit way of doing business was not the exception, but the rule. (At the very least, even within the context of our current for-profit dominated economy, these nonprofit examples do not contribute as much to inequality as their for-profit counterparts do via dividends to owners.) Transitioning to an NFP economy requires a shift in the social norms of the market.
In short, we would finally at least have a chance of reaching a mature, post-growth economy. This would be a market economy beyond consumerism, economic growth, and capitalism. And a post-growth economy with distribution built into it is exactly what we need if we are going to be able to provide for human flourishing in harmony with the planet’s biosphere in the 21st century.
The Potential for Transformation
It takes a social movement to make such a transformation happen. Fortunately, there are already some signs that such a movement is starting to emerge. Alongside the growing protests against inequality and increased mistrust of for-profit corporations, we also see the rise of a more purpose-oriented workforce, ethical consumption, relocalization efforts, sharing networks, peer-to-peer lending, and open-source manufacturing, just to name a few. Entrepreneurs are starting up businesses using nonprofit legal frameworks and nonprofits are increasingly going into business. There are even NFP business incubators like Sweden-based Green White Space and the Post-Growth Institute’s Not-for-Profit Way.
Of course, a shift to NFP business on its own does not ensure the ideal economy imagined above. We would also need more concrete ways of guiding NFP businesses to consider their ecological impact and to think in more holistic, interconnected terms. It is not necessarily a more democratic system. However, better socio-economic equality and ecological stewardship would be so much easier to achieve with a market of NFP businesses, whose only mandate is to achieve their social benefit missions, than with a market of for-profit businesses, whose primary mandate is to make their owners wealthier. Their profit-seeking interests lead them to lobby against regulations and taxes that would harm their bottom line and to lobby for tax cuts and subsidies that lead to an even greater concentration of wealth and power in the hands of a few.
Thus, the transition away from for-profit business structures to NFP business structures is best thought of as necessary, but not sufficient, for creating a sustainable economy.
In identifying the legal business framework as a key leverage point for changing the economy, this vision goes beyond blaming bad CEOs or ‘corporate greed’. It advocates a fundamental change to the economic system that goes beyond the dichotomy of market and state. It might even offer the chance to take us beyond the political divisions that are rapidly growing around the world, which can be seen as stemming, at least in part, from the inequality and ecological damage created by for-profit system.
The growing prevalence of NFP business allows us to re-envision what the market can be. It allows us to imagine a not-for-profit market working with a partner state to deliver the best outcomes possible for human flourishing.
ABCUL (2014) “US credit unions serve 100 million members,” Association of British Credit Unions Limited, August 27, 2014.
Belloc, F. (2013) “Innovation in state-owned enterprises: Reconsidering the conventional wisdom,” MPRA Paper No. 54748.
Borzaga, C. and L. Solari (2001) “Management challenges for social enterprises,” in C. Borzaga, and J. Defourny (eds.) The emergence of social enterprise. London: Routledge.
Sign up for our free newsletter
Subscribe to the NPQ newsletter to have our top stories delivered directly to your inbox.
Botsman, R. (2010) What’s mine is yours: How collaborative consumption is changing the way we live. New York: Harper Business.
Bowles, S. and H. Gintis (2013) A cooperative species: Human reciprocity and its evolution. Princeton, NJ: Princeton University Press.
Fuentes-Nieva, R. and N. Galasso (2014) Working for the few: Political capture and economic inequality. Oxford, UK: Oxfam GB.
Gintis, H. (2000) “Beyond Homo economicus: Evidence from experimental economics’, Ecological Economics, 35(3): 311-322.
Glaeser, E. (2003) The governance of not-for-profit organizations. Chicago, IL: University of Chicago Press.
Godfrey, C. (2014) Business among friends: Why corporate tax dodgers are not yet losing sleep over global tax reform. Oxford, UK: Oxfam GB.
Heinberg, R. (2011) The end of growth: Adapting to our new economic reality. Gabriola Island, BC: New Society Publishers.
Hinton, J. and D. Maclurcan (2016) How on Earth: Flourishing in a not-for-profit world (working draft). Ashland, OR: Post Growth Publishing
Hungerford, T.L. (2011) ‘Changes in income inequality among U.S. tax filers between 1991 and 2006: The role of wages, capital income’. Washington, D.C.: Congressional Research Service.
International Center for Not-for-Profit Law. (2013) “Frequently Asked Questions.”
ICMIF (2014) “Global mutual and cooperative market infographic 2014,” International Cooperative and Mutual Insurance Federation.
Jackson, T. (2011) Prosperity without growth: Economics for a finite planet. Oxford, UK: Routledge.
James, E. and S. Rose-Ackerman (2013) The non-profit enterprise in market economics. Oxford, UK: Taylor and Francis.
Lakdawalla, D. and T. Philipson (2006) “The non-profit sector and industry performance,” Journal of Public Economics, 90(8-9): 1681-1698.
Laszlo, K. (2001) “The evolution of business,” paper presented at the 45th Annual Conference of The International Society for the Systems Sciences (ISSS), Asilomar, California, July 8–13, 2001.
Long, M.A. and D.L. Murray (2014) ‘Consumer convergence and collective motivations for purchasing ethical products’, in D.H. Constance, M.C. Renard and M.G. Rivera-Ferre (eds.) Alternative agrifood movements: Patterns of convergence and divergence (Research in Rural Sociology and Development, Volume 21). Bingley, UK: Emerald Group Publishing Limited.
Luviene, N., A. Stitely and L. Hoyt (2010) Sustainable economic democracy: Worker cooperatives for the 21st Century. Cambridge, MA: MIT CoLab.
Massarsky, C. and S. Beinhacker (2002) Enterprising nonprofits: Revenue generation in the nonprofit sector. Englewood Cliffs, NJ: Yale School of Management and The Goldman Sachs Foundation Partnership on Nonprofit Ventures.
Morath, E. (2014) ‘Want a stable job with steadier raises? Try working for a nonprofit’, The Wall Street Journal, 14 October.
National Coop Grocers (2012) Healthy foods, healthy communities: Measuring the social and economic impact of food co-ops. Iowa City, IA: NCG.
OECD (2011) Divided we stand: Why inequality keeps rising. Paris, France: OECD Publishing.
Ostrom, E. (2009) “Beyond markets and states: Polycentric governance of complex economic systems,” Nobel Prize Lecture, Stockholm, Sweden, December 8, 2009.
Piketty, T. (2014) Capital in the 21st century. Cambridge, MA: Belknap Press.
Pink, D.H. (2009) Drive: The surprising truth about what motivates us. New York: Riverhead Books.
Rand, D.G. and M.A. Nowak (2013) ‘Human cooperation’, Trends in Cognitive Sciences, 17(8): 413-425.
Rifkin, J. (2014) The zero marginal cost society: The internet of things, the collaborative commons, and the eclipse of capitalism. London, UK: Palgrave Macmillan.
Roeger, K., A. Blackwood, and S. Pettijohn (2012) Nonprofit almanac 2012. Washington, D.C.: Urban Institute Press.
Salamon, L.M. and H.K. Anheier (1997) Defining the nonprofit sector: A cross-national Analysis. Manchester, UK: Manchester University Press.
Salamon, L., W. Sokolowski, M. Haddock and H. Tice (2013) “The state of global civil society and volunteering: Latest findings from the implementation of the UN nonprofit handbook.” Baltimore, MD: Johns Hopkins Center for Civil Society Studies.
Sesana, L. (2014) “Why nonprofits are the most profitable hospitals in the US,” Arbiter News, April 8, 2014.
Smillie, I. (2009) Freedom from Want: The Remarkable Success Story of BRAC, The Global Organization That’s Winning the Fight Against Poverty. Sterling, VA: Kumarian Press.
Utting, P., N. van Dijk, and M-A. Matheï (2014) “Social and solidarity economy: Is there a new economy in the making?,” United Nations Research Institute for Social Development Occasional Paper 10.
Yong, L. and C.B. Weinberg (2004) ‘Are nonprofits unfair competitors for businesses? An analytical approach’, Journal of Public Policy and Marketing, 23(1): 65-79.