Different sides of the very same coin

To Profit or Not to Profit
May 14, 1999

How can we explain the existence of organisations such as charities and voluntary agencies, which deliberately eschew profit-making? Burton Weisbrod has been in the forefront of the (mainly North American) debate on this question, arguing that a combination of market failure and government failure in the provision of jointly consumed goods gives rise to a residual demand that can be met efficiently by the "third sector".

In this book, Weisbrod focuses on the growing phenomenon, in the US at least, of non-profit sector "commercialisation" - increasing reliance on sales revenues rather than donations or government grants. The trend raises new puzzles not only for economic theory but for public policy.

The contributors to this volume were able to develop and discuss their papers in the course of two working conferences. This interactive process, combined with firm editorial direction, has resulted in a book with a coherence and consistency of approach rare in edited collections. At the same time, the chapters reflect well the intellectual excitement and tentativeness that are a concomitant of tackling cutting-edge questions.

The first part of the book offers six chapters on "basic issues" - several co-authored by Weisbrod and including contributions from other well-known non-profit scholars such as Howard Tuckman and Richard Steinberg. These chapters present a range of perspectives on commercialisation, including the impact on non-profits of increased competition and changes in pricing, taxation, donative revenues and legal constraints. The second part of the book provides case studies of how commercialisation is playing out in different "industries" within the US non-profit sector, including hospitals, universities, social service associations, zoos, museums and public broadcasting.

In the penultimate chapter, World Bank economist Estelle James, who did not participate in the working conferences that gave rise to the book, comments on the volume. She offers not only a review, but also an alternative approach to the commercialisation phenomenon. Weisbrod and his colleagues, she says, "depict non-profit organisations as having different and more altruistic objective functions than for-profits, which lead them to engage in commercial activities marginally and reluctantly, in order to cross-subsidise their preferred non-commercial activities". Thus, the rising commercialism within the non-profit sector is explained by the growing scarcity of preferred forms of revenue such as donations and grants. James argues that the case studies included in the book suggest a different hypothesis: that constraints and opportunities rather than altruism and cross-subsidisation are key factors in non-profit behaviour. "When constraints are removed and large new opportunities for profit-making present themselves, non-profits may behave very much like for-profits."

The puzzles about non-profit behaviour are not just matters for economists. The role of the third sector is very much a matter for public-policy debate and political decision-making. Nor should concern about these issues be confined to North America. The new Labour government, like previous Conservative governments, has high expectations of the voluntary sector. This book reminds us that pressures on the sector to expand its role can ultimately damage the very features that have made it so attractive to politicians in the first place - its ability to respond efficiently to the needs of society's most vulnerable and excluded members.

Margaret Harris is professor of voluntary sector organisation, Business School, Aston University.

To Profit or Not to Profit

Editor - Burton A. Weisbrod
ISBN - 0 521 63180 7
Publisher - Cambridge University Press
Price - £45.00
Pages - 340

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