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Nonprofits

Nonprofits Aren’t More Commercial

A new study finds that nonprofits are not becoming more commercialized.

 

You may welcome the efficiency that market forces increasingly bring to the nonprofit sector. Or you may fear that growing commercialization threatens the sector’s integrity. Either way, you’re probably wrong. Amid impassioned debate over the implications of nonprofits’ commercial turn, a fresh look at the data shows that perhaps there actually isn’t one. The evidence “is kind of like a Rorschach blot—you can see in it what you want, but there’s no clear trend,” says Curtis Child, a doctoral candidate in sociology at Indiana University. “Nonprofits just aren’t, as a whole, becoming more commercialized.”

Child returned to the same data others cite when they make the case that nonprofits are relying more and more heavily on earned income over donations or grants. One incriminating indicator, “unrelated business income,” is the money a museum makes from selling Empire State Building snow globes (which presumably don’t bring fine art to the people) but not from reprints of Vincent van Gogh paintings (which do). Although unrelated business income did increase by more than 250 percent in the nonprofit sector between 1991 and 1997, so did total revenue; snow globe peddling as a proportion of aggregate total revenue has remained steady since the early 1990s at about one half of 1 percent.

The Nonprofit Almanac’s data go back farther, to the 1970s. It’s true that nearly half the growth in total revenue from 1977 to 1997 came from fees and charges. But it’s also exactly what we should expect, says Child: In 1977, fees and charges already accounted for nearly half the revenue in the sector. Looking at program service revenue or commercial revenue data from the Urban Institute’s National Center for Charitable Statistics doesn’t change this picture; the proportion remained constant from 1986 to 2004. If growing commercialization means increased reliance on earned income, it looks very much like commercialization is not growing.

Burton Weisbrod, professor of economics at Northwestern University and editor of To Profit or Not to Profit: The Commercial Transformation of the Nonprofit Sector, objects to defining it so narrowly. “To talk about the effect of commercial forces is not the same thing as to say what fraction of revenue is coming from user fees,” he says. “Those are rather different questions.” Commercial interests especially permeate higher education and hospitals in ways that don’t show up in Child’s statistics. When the pharmaceutical company Novartis gave the University of California, Berkeley, $25 million—and got two seats on the five-person committee that decided which research projects the money would support—that counted as a “donation.” There is also a time horizon problem, Weisbrod says. The extremely high percentage of commercial revenue in hospitals began with the creation of Medicare, which predates the available data by a dozen years.

So to what extent do market forces enhance or corrupt nonprofits? Child, for his part, isn’t taking sides yet. He recommends simply “tempering the debate about whether commercialization is good or bad for the sector, and just answering the empirical question first.”

Curtis Child, “Whither the Turn? The Ambiguous Nature of Nonprofits’ Commercial Revenue,” Social Forces 89, 2010.

 
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