Last month, Non-Profit Quarterly reprinted a piece by Paul Hogan that explored the basic differences between for- and non-profit organizations that are not clearly understood and often lead to the “should be run like a business” statements.
Hogan says that companies that focus on the well-being of their employees and are dedicated to stewardship of the environment and other causes still have more in common with other for-profits than non-profits, despite their worthy intentions.
Higher fixed costs lead to lower net profits. But consider that in this way, the profits aren’t lost at all: They are simply allocated differently, to the greater benefit of employees or the community in which the business operates. Regardless, the for-profit enterprise still is fundamentally extractive, transactional, and profit-driven.
In comparison,
Nonprofit enterprises, on the other hand, are relational and restorative, or generative. The basis of activity in the nonprofit enterprise is personal and interactive, and seeks to restore or help generate whatever people need to improve their lives, or the life of the community in which they live.
[…]
It could be argued that even this exchange is transactional, no different from a for-profit interaction. But there is a critical difference: The person to whom the service is being provided is not usually the source of the payment for the service. I don’t pay my doctor or my dentist or my phlebotomist. Someone else does, and generally, I have no idea what amount is actually paid. So, the nonprofit person-to-person interaction is not zero-sum or about money or profit at all; it’s about the relationship that is established. And it is this disconnect of the cost of service from the third-party reimbursement for that service that destabilizes the nonprofit sector in ways that the for-profit sector does not deal with or need to understand.
And specifically in relation to the arts:
This isn’t restricted to healthcare or human services, either. The amount you pay for a ticket to many of the arts organizations you attend is subsidized, sometimes heavily, by outside public or private funders. If most arts organizations had to charge the full amount they needed in order to operate, most of us wouldn’t be able to afford to attend. That’s important because the health of people and communities depends as much on arts and culture as it does on all other nonprofit work, and arts must be as accessible as healthcare and education.
I apologize for the long series of quotes from the article, but I wanted to highlight his logic in contrasting for- and non-profit businesses and how he related insurance payments with fundraising.
I was especially interested in the way he compared insurance payments by a third party with third party funding of the arts (or any non-profit org). The idea that you need insurance because you might not otherwise be able to pay a medical bill is widely understood. That context provides a smoother segue to discussing why most of those non-profits serve couldn’t afford access to the services provided without a third party subsidizing their operations.
Of course, health insurance and healthcare costs being a hot button issue, you have to quickly insert assurances that there pretty much aren’t any heavily inflated costs related to the work you are doing.
I have a little trouble with Hogan’s statement “But there is a critical difference: The person to whom the service is being provided is not usually the source of the payment for the service. I don’t pay my doctor or my dentist or my phlebotomist. Someone else does, and generally, I have no idea what amount is actually paid.”
It is true that health and dental service for many of us has secret and unfathomable pricing, but we do pay for it, mainly through insurance payments that average the cost over many people (while skimming off a substantial profit for the insurers).
The funding of the arts is also unfathomable (few of us believe that we can afford original artwork, because of pricing it as a luxury good), but there is little sharing of the cost. Instead there is patronage by a relatively few wealthy individuals and foundations keeping the price down for the rest, particularly in the performing arts. New donation models, like Patreon and Kickstarter are beginning to supplement the older big donation/big grant system, but they have not yet begun to supply a substantial fraction of the needed revenue for most organizations.
Yes, the analogy is not completely parallel. However, it isn’t just the patronage of a few wealthy donors which subsidize the arts. Support also comes from city, state and federal sources to which many people pay taxes. To a degree, it is similar to your insurance payment. You pay a small amount and a larger amount is given to the arts org.