July 26, 2007 | Read Time: 4 minutes
Nonprofit should be nonexistent — the term, not the type of organization. The time is right to insist on a term that focuses on the investment, risk taking, and entrepreneurial imagination that have always been so essential to organizations that serve the social good. “Social-profit organizations” is a term that can better capture the contribution made by entities that have too long been known as charities or nonprofit groups.
Such a term would also give us a new way to name the people who support organizations that promote the public good: social investors, a term that better reflects this generation of hands-on donors who are willing and able to extend this nation’s great tradition of American generosity. Today’s social investors seek and expect a return on their efforts, in the form of an increase in the greater good.
Getting rid of the term “nonprofit” in favor of “social profit” is not an effort to curry favor with the financial world. It is not a proposal to turn social-service organizations into heartless, PowerPoint-driven bureaucracies. It is simply an opportunity to recognize our great national tradition of philanthropy for what it is and has always been: investment in human, physical, and intellectual capital.
All investors rightly expect a return on their investment. Otherwise the very ideas of change, growth, optimism, and progress are meaningless. Social investors are no different. They are profit seekers of the very best kind, those who believe in a better future for the arts, medical research, the environment, and countless other areas of social-profit focus.
Like companies, social-profit groups raise and invest money, hire and direct staffs, and achieve specific goals. Their presidents report to boards. Profit flows, not in cash to employees and investors, but to society, which benefits from the work of these organizations.
In fact, this kind of profit is so prized that government encourages citizens to invest in social-profit-creating institutions by offering taxpayers a deduction for their investments.
The U.S. government recognized, perhaps earlier than any other democratic country, that social profit was essential to economic and political growth. Social profit supported the entrepreneurialism, comity, stability, and innovation that America has used to prosper over time.
Taxes on income and commercial institutions are one form of redistribution of assets. The work of social-profit organizations provides the other major opportunity to redistribute assets, but as a voluntary investment. When social-profit organizations succeed, they have achieved the same redistribution as taxes on businesses. That is why social-profit organizations are tax-exempt.
The name “social profit” brings another advantage too.
When chief executives and fund raisers speak with donors about investing in social-profit ventures, they can talk about risk and return.
Thanks to the work of a social-profit organization called the Cowles Foundation (which developed the field of econometrics and offered fellowships to researchers who shaped most of the theory and practices of portfolio management and stock markets) we live in a world where investors understand the benefits of diversifying their investments across a range of asset classes. They understand the correlation of higher risk with higher returns on their investments. Social-profit leaders can and should discuss exactly these issues with investors. Greater social profit inevitably requires greater risk taking.
A scholarship given to an Ivy League university is a relatively low-risk social investment. While there are no guarantees that the recipient will become a productive member of society, the odds are very good.
College scholarships promised to sixth-grade students from low-income families are more risky. Ask Eugene Lang and his I Have a Dream Foundation, which has persuaded dozens of donors to support such students. That is a greater risk, to be sure, but a phenomenal payoff when it works.
Social-profit organizations offer great opportunities to donors. Leaders of these organizations need to speak about investments in them, some less risky than others, in a way that reflects an awareness of donors’ desire to turn a profit — a social profit from joining with an important cause to strive for change.
People who work in the social-profit world need to have the courage and clarity to take the first steps by abandoning the term “nonprofit” altogether. They need to feel comfortable describing the risks and the possibilities, like any venture.
After all, what could be more profitable than the organizations that have brought the world polio vaccines, commercial aviation, radar, penicillin, and private higher education? What has created more growth in America’s economy over the past three centuries than the millions of private scholarships that have educated generations of sons and daughters of the less-than-wealthy?
To continue to pursue these vital missions, these organizations need to remain creative and entrepreneurial, and that means changing their outlook and America’s perception of their role. To continue calling such organizations “nonprofit” is nonsense.
Claire Gaudiani is a clinical professor at the George H. Heyman Jr. Center for Philanthropy and Fundraising at New York University, where she directs the graduate program in philanthropic studies. She recently wrote The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism (Times Books/Henry Holt).
