Arnold Kling questioned the value of non-profits: A profit-seeking enterprise is more accountable, in that a profit-seeking business must satisfy consumers or else go out of business. Hence, it must provide something of value to its customers. On the other hand, if a non-profit fails to provide any benefit to its customers, it still might be able to obtain grants from the government or from donors.
The customer is the donor. Suppose I am the donor. If I want to pay for a hot meal and a clean place to sleep for a homeless alcoholic, then I'd best give my money to a non-profit providing those services, as giving cash to the homeless alcoholic will not bring him to Motel 6, but rather to a liquor store.
My parents paid some for my college. They wanted to pay for my education, not for my cars or travel/entertainment desires.
I really don't see a puzzle in charities providing what the donors want to provide, not what the recipients want to get.
The key point is that providing a service instead of a voucher screens out those in need.
An example: the value of a kidney transplant is minimal if both your kidneys are functioning. Hence it is pointless to pretend that you kidneys are malfunctioning towards a non-profit that is providing this type of surgery.
Turn to the voucher case. Now there is a third-party, the donor, who can be fooled to giving you a kidney transplant voucher. Either this is not individualized, in which case you can sell it and there is a massive incentive to try and get one disingeniously.
Or it is individualized, but even in this case there is a big incentive to conspire with the for-profit firm. "You say you did a kidney transplant and we share the benefit" (as the voucher will be payed out in money to the hospital; of course this will be done in a much less explicit way).
Hence the voucher situation, or the money-situation, has deprived the charitable organization of a fantastic screening mechanism that is in-kind provision. Now it has to spend much more money on monitoring, and the inevitable corruption will decrease trust in the system.
Note that this is a slightly different argument than just saying provision gives one better information on who is needy. In kind provision makes a lot of dishonest attempts to get help meaningless.
I would phrase it differently, the problem is that money can buy status. Why try to get status by helping poor people and saving the lives of poor people when if you make a lot of money you can buy that status easily.
That is what some corporations and individuals do, they make a lot of money using dubious ethics, then use that money to buy the status that comes with good ethics.
I think this is what Bill Gates is doing. His very large profit at Microsoft was due in large part to the monopolistic practices that he used to obtain and maintain the monopoly. He made a lot of money by having a monopoly on an essential part of the value-added chain of using computers and used that monopoly to extract a disproportionate share of the value added by that value-added chain.
To a more extreme degree, organized crime figures donate to charities and support individuals in the community using the profits they extorted from others. So do drug cartels, so do organizations like the Taliban.
When society has gaps in the fundamental needs that individuals in that society have access too, that opens up a niche for individuals or groups to buy status by providing those needs. Block access to all health care by killing volunteer health care providers (as the Taliban does), then the only health care that is provided is the health care the Taliban has monopoly control over. This same heuristic can be used for any necessity, food, water, access to mates, computer operating systems, health insurance, information, justice.
A monopoly on any necessity can be used to extract status disproportionate to the status-worthiness of the individual with monopoly power. The king had the highest status because he had the power of life and death over everyone else by virtue of being king.
Why do we allow status to be apportioned that way?
Re: "why can’t non-profits give these deserving recipients vouchers for service at for-profit firms? Why do non-profits need to provide the services themselves?"
The "vouchers" are money? Then they would get taxed. The "vouchers" are valuable non-money? Then they would be forged.
The terms non-profit and for-profit are effectively normative. In our culture non-profit is code for pro-social and for-profit is code for anti-social. This is based on a lingering Marxist/Socialist worldview that is no longer appropriate.
As alternative market orientations, non-profit and for-profit could also be described as 'internally oriented' (anti-market or a-market) and 'externally oriented' (pro-market). As I'm not Marxist/Socialist in my worldview, I prefer this terminology.
Not sure if you're serious, but assuming you are, profit is the reason the computer you typed that on exists. It's also almost certainly (based on the people I've run into with that attitude) why you haven't starved to death, unlike the tens if not hundreds of millions who have starved to death in places run by people with that attitude.
The question isn't "couldn't they have done more?"; it's "we're they more effective?" If being more effective is vulgar, I'll take it.
Replying to Dee, universities and hospitals are large bond issuers. (They can usually issue at tax-exempt rates,using procedures too complicated to explain here.) The rates they must pay on their bonds depends on the credit rating of the institution in question. So they do have a cost of capital. And if they spend from their endowments to fund capital costs, they have an opportunity cost equal to their lost earnings on that portion of the endowment.
Besides, when there's profit there are shareholders. Who would own stock in the Red Cross? Would the Red Cross go out of business after a bad year? What's a good year for the Red Cross, a year with hurricanes, or a year with no hurricanes?
A for-profit charity with $100 million profit could have provided $100 million more to the needy. Why would a shareholder buy stock in a for-profit with an incentive to reduce profits? I assume the government would give tax breaks to for-profit charity shareowners.
Many have time to donate, but cannot earn more cash to donate. Many can donate at wholesale rather than retail, and used rather than new. Donations are tax advantaged, allowing much more bang for the buck than any for profit could. Profit is incompatible with donations. Vouchers are an attempt to circumvent this incompatibility, but the donation advantage and tax advantage mean for profits can never be as inexpensive as non profits unless it operates strictly on cash and is so inefficient even taxes (not just on profits, but on returns, wages, and property) don't make a sufficient difference. Why do for profits donate in kind rather than in cash? Even when donating cash equiv it is often in the form of vouchers for themselves so they don't subsidize their competition. .
Personally, I like for-profit, because profit is a good objective indicator of the capability of an enterprise to continue as a going concern (accounting shenanigans aside). The true problem with for-profit occurs when we can no longer focus on profit for enterprise maintenance, and start focusing on profit for profit's sake. If the owners and managers of the enterprise are owners and managers with the hopes of reaping profits, then the drving mechanism of the enterprise can no longer be a mission to improve the economic vibrancy of a population separate from the enterprise--a health company, for example, can no longer focus on improving the health outcomes of a community, but must focus on improving the bottom line--health outcomes be damned.
Thus, non-profits. Unfortunately, non-profits still have owners and managers, and they can similarly be reaped for value in the same way as for-profits, by replacing profit with revenue.
Ultimately, the real issue is that the status gained from owning/managing an enterprise that maximizes economic value for the community remains less than the status gained from owning/managing an enterprise that provides some measure of economic value, but also grants the owner/manager higher personal resources.
"why can’t non-profits give these deserving recipients vouchers for service at for-profit firms? Why do non-profits need to provide the services themselves?"
Because just like voters, purchasers are systematically biased. So their (non-random) errors do not cancel out to zero, leaving the smart choices floating like cream.
You may say that non-profits (and governments) are equally biased in their (collective) choices, but you could say the same about animal breeders. Personally, I'd rather live with Good Dog Carl than a wolf.
I wonder if anyone has tried to look at the incidence of vouchers? What if you give everyone a voucher for medical supplies/schooling/etc and all of a sudden price rise by the amount of the voucher? Perhaps a non-profit is a way to ensure that the supply of the good increases.
This is likely not a concern with food stamps, but maybe foreign aid is different when we talk about distributing aid to entire villages/populations. It may be that privately provided supply is too inelastic to keep up.
"food kitchen" seems to be a conflation of "food bank" and "soup kitchen."
A soup kitchen is serving cooked meals. It is not comparable to a food store. A food bank acquires food for soup kitchens. It usually acquires food for free, such as food that would be thrown out by restaurants. I don't know if it is as efficient as buying food from costco, but it has the additional goal of not wasting food.
A soup kitchen is, effectively, a very cheap restaurant. Maybe if it offered vouchers for 90% of its operating cost, cheaper restaurants would appear, but existing restaurants are probably more expensive.
The customer is the donor. Suppose I am the donor. If I want to pay for a hot meal and a clean place to sleep for a homeless alcoholic, then I'd best give my money to a non-profit providing those services, as giving cash to the homeless alcoholic will not bring him to Motel 6, but rather to a liquor store.
My parents paid some for my college. They wanted to pay for my education, not for my cars or travel/entertainment desires.
I really don't see a puzzle in charities providing what the donors want to provide, not what the recipients want to get.
The key point is that providing a service instead of a voucher screens out those in need.
An example: the value of a kidney transplant is minimal if both your kidneys are functioning. Hence it is pointless to pretend that you kidneys are malfunctioning towards a non-profit that is providing this type of surgery.
Turn to the voucher case. Now there is a third-party, the donor, who can be fooled to giving you a kidney transplant voucher. Either this is not individualized, in which case you can sell it and there is a massive incentive to try and get one disingeniously.
Or it is individualized, but even in this case there is a big incentive to conspire with the for-profit firm. "You say you did a kidney transplant and we share the benefit" (as the voucher will be payed out in money to the hospital; of course this will be done in a much less explicit way).
Hence the voucher situation, or the money-situation, has deprived the charitable organization of a fantastic screening mechanism that is in-kind provision. Now it has to spend much more money on monitoring, and the inevitable corruption will decrease trust in the system.
Note that this is a slightly different argument than just saying provision gives one better information on who is needy. In kind provision makes a lot of dishonest attempts to get help meaningless.
I would phrase it differently, the problem is that money can buy status. Why try to get status by helping poor people and saving the lives of poor people when if you make a lot of money you can buy that status easily.
That is what some corporations and individuals do, they make a lot of money using dubious ethics, then use that money to buy the status that comes with good ethics.
I think this is what Bill Gates is doing. His very large profit at Microsoft was due in large part to the monopolistic practices that he used to obtain and maintain the monopoly. He made a lot of money by having a monopoly on an essential part of the value-added chain of using computers and used that monopoly to extract a disproportionate share of the value added by that value-added chain.
To a more extreme degree, organized crime figures donate to charities and support individuals in the community using the profits they extorted from others. So do drug cartels, so do organizations like the Taliban.
When society has gaps in the fundamental needs that individuals in that society have access too, that opens up a niche for individuals or groups to buy status by providing those needs. Block access to all health care by killing volunteer health care providers (as the Taliban does), then the only health care that is provided is the health care the Taliban has monopoly control over. This same heuristic can be used for any necessity, food, water, access to mates, computer operating systems, health insurance, information, justice.
A monopoly on any necessity can be used to extract status disproportionate to the status-worthiness of the individual with monopoly power. The king had the highest status because he had the power of life and death over everyone else by virtue of being king.
Why do we allow status to be apportioned that way?
Re: "why can’t non-profits give these deserving recipients vouchers for service at for-profit firms? Why do non-profits need to provide the services themselves?"
The "vouchers" are money? Then they would get taxed. The "vouchers" are valuable non-money? Then they would be forged.
The terms non-profit and for-profit are effectively normative. In our culture non-profit is code for pro-social and for-profit is code for anti-social. This is based on a lingering Marxist/Socialist worldview that is no longer appropriate.
As alternative market orientations, non-profit and for-profit could also be described as 'internally oriented' (anti-market or a-market) and 'externally oriented' (pro-market). As I'm not Marxist/Socialist in my worldview, I prefer this terminology.
thus, in the long-run all businesses will be "non-profit"...excellent observation!
you're not missing anything. the for-profiteers are witnessing the exponential growth of the 501(c)(3)
"Profit is vulgar"
Not sure if you're serious, but assuming you are, profit is the reason the computer you typed that on exists. It's also almost certainly (based on the people I've run into with that attitude) why you haven't starved to death, unlike the tens if not hundreds of millions who have starved to death in places run by people with that attitude.
The question isn't "couldn't they have done more?"; it's "we're they more effective?" If being more effective is vulgar, I'll take it.
Animal breeders do not have animal benefit as a goal.
Replying to Dee, universities and hospitals are large bond issuers. (They can usually issue at tax-exempt rates,using procedures too complicated to explain here.) The rates they must pay on their bonds depends on the credit rating of the institution in question. So they do have a cost of capital. And if they spend from their endowments to fund capital costs, they have an opportunity cost equal to their lost earnings on that portion of the endowment.
Profit is vulgar.
Besides, when there's profit there are shareholders. Who would own stock in the Red Cross? Would the Red Cross go out of business after a bad year? What's a good year for the Red Cross, a year with hurricanes, or a year with no hurricanes?
A for-profit charity with $100 million profit could have provided $100 million more to the needy. Why would a shareholder buy stock in a for-profit with an incentive to reduce profits? I assume the government would give tax breaks to for-profit charity shareowners.
Many have time to donate, but cannot earn more cash to donate. Many can donate at wholesale rather than retail, and used rather than new. Donations are tax advantaged, allowing much more bang for the buck than any for profit could. Profit is incompatible with donations. Vouchers are an attempt to circumvent this incompatibility, but the donation advantage and tax advantage mean for profits can never be as inexpensive as non profits unless it operates strictly on cash and is so inefficient even taxes (not just on profits, but on returns, wages, and property) don't make a sufficient difference. Why do for profits donate in kind rather than in cash? Even when donating cash equiv it is often in the form of vouchers for themselves so they don't subsidize their competition. .
Personally, I like for-profit, because profit is a good objective indicator of the capability of an enterprise to continue as a going concern (accounting shenanigans aside). The true problem with for-profit occurs when we can no longer focus on profit for enterprise maintenance, and start focusing on profit for profit's sake. If the owners and managers of the enterprise are owners and managers with the hopes of reaping profits, then the drving mechanism of the enterprise can no longer be a mission to improve the economic vibrancy of a population separate from the enterprise--a health company, for example, can no longer focus on improving the health outcomes of a community, but must focus on improving the bottom line--health outcomes be damned.
Thus, non-profits. Unfortunately, non-profits still have owners and managers, and they can similarly be reaped for value in the same way as for-profits, by replacing profit with revenue.
Ultimately, the real issue is that the status gained from owning/managing an enterprise that maximizes economic value for the community remains less than the status gained from owning/managing an enterprise that provides some measure of economic value, but also grants the owner/manager higher personal resources.
"why can’t non-profits give these deserving recipients vouchers for service at for-profit firms? Why do non-profits need to provide the services themselves?"
Because just like voters, purchasers are systematically biased. So their (non-random) errors do not cancel out to zero, leaving the smart choices floating like cream.
You may say that non-profits (and governments) are equally biased in their (collective) choices, but you could say the same about animal breeders. Personally, I'd rather live with Good Dog Carl than a wolf.
I wonder if anyone has tried to look at the incidence of vouchers? What if you give everyone a voucher for medical supplies/schooling/etc and all of a sudden price rise by the amount of the voucher? Perhaps a non-profit is a way to ensure that the supply of the good increases.
This is likely not a concern with food stamps, but maybe foreign aid is different when we talk about distributing aid to entire villages/populations. It may be that privately provided supply is too inelastic to keep up.
"food kitchen" seems to be a conflation of "food bank" and "soup kitchen."
A soup kitchen is serving cooked meals. It is not comparable to a food store. A food bank acquires food for soup kitchens. It usually acquires food for free, such as food that would be thrown out by restaurants. I don't know if it is as efficient as buying food from costco, but it has the additional goal of not wasting food.
A soup kitchen is, effectively, a very cheap restaurant. Maybe if it offered vouchers for 90% of its operating cost, cheaper restaurants would appear, but existing restaurants are probably more expensive.