Since the end of World War II, the nonprofit sector has consumed an increasing share of the United States economy. Health care, which is dominated by nonprofit hospitals, now hogs an 18% share. The growth of higher education, an overwhelmingly nonprofit industry, continues to outpace the general economy. Millionaires and billionaires are converting wealth into non-taxable foundations on an unprecedented scale, supporting the proliferation of tax-exempt foundations and nonprofit enterprises.
There are now some 1.6 million nonprofit institutions in the U.S. employing 11.4 million people and comprising the third largest employer in the country after retail and manufacturing, according to the Independent Sector website. In 2016 the PHP Staffing Group reported that employment over the previous 10 years had grown 20% for non-profits compared to 2% to 3% for the for-profit sector.
Americans typically think of the U.S. economy as divided between the government sector and the private sector. But that view grossly oversimplifies the modern American economy. The nonprofit sector, which comprises 10% of the economy, belongs in category by itself. Nonprofit entities are private in the sense that they are not government organizations. But they behave very differently from for-profit enterprises. Most importantly, they aren’t accountable to the public in the same way that government and corporations are.
Americans have a U.S. Constitution and 50 state constitutions with checks and balances. We hold elections to throw out politicians we don’t like. We have the right to attend public meetings and to petition the government. We have transparency rules governing access to information. We have a fourth estate which, though diminished in size and capacity, views its central mission as acting as a watchdog over government. Governance leaves much to be desired — gerrymandering is a travesty of democracy — but the public is acutely aware of the inadequacies, and people are working to fix them.
We have a different set of mechanisms to hold corporations accountable. Executives of U.S. corporations answer to boards of directors, to equity investors, to bond holders, to banks and other financiers, and, most dramatically, to the marketplace. Unlike failed governments, failed corporations go out of business. Their corporate DNA exits the economic gene pool. Government functions as an additional backstop against corporate abuses against the public health and safety.
To whom do nonprofits answer in exchange for the massive benefit of being exempt from taxes? Nonprofits do have boards of directors (or trustees) but they don’t have investors capable of overthrowing them in a shareholder revolt or otherwise enforcing accountability. Most nonprofit boards are docile; they rubber stamp management’s vision for institutional advancement. While nonprofits aren’t as immune to catastrophic failure as governments are, they don’t pay the same price that corporations do for failure. Indeed, nonprofits with large endowments can be immune to outside pressure. Not that anyone notices. Transparency standards are minimal compared to those for government and publicly traded companies. Billions of dollars of so-called “dark money” slosh through the nonprofit system with almost no oversight and accountability. Except when scandals erupt, the fourth estate considers nonprofit activities of secondary interest.
The political economy of nonprofits. Nonprofit entities have fundamentally changed the nature of American society, the economy. and the political system. Americans have been astonishingly sanguine about the creation of a new set of winners and losers.
Who are the winners? There are two sets of clear-cut winners — the millionaires and billionaires who get to shelter their wealth, and the nonprofit managerial class that gets to administer it. Insofar as the nonprofit managerial class is comprised of university-educated progressives who prioritize social justice issues, poor people and minorities are intended beneficiaries. However, insofar as the therapeutic ministrations of social-justice minions are counter-productive — a point I have argued repeatedly on this blog — the poor and minorities may be in actuality more victims than beneficiaries.
Whatever may be the case in that particular regard, the priorities of millionaires, billionaires and nonprofit administrators rarely extend to the well-being of working-class and middle-class Americans — especially the alienated, white Trump-voting segment of the electorate whom some have labeled the Trumpenproletariat.
These biases are most clearly visible in the higher education sector. The number one goal of the managerial class at colleges and universities is institutional advancement: building edifices, programs, and bureaucratic empires that maximize the prestige of the institution. In the pursuit of this goal, the managerial class is responsive to two main constituencies: (1) affluent alumni and their offspring (commonly referred to as legacies) whose good will they cultivate for gifts and benefactions, and (2) lower-income and minority Americans in alignment with the leftist, politically correct value system of academe. The Trumpenproletariat, representing some 40% or so of the nation’s population, has zero influence.
Similar biases are evident in health care, although hospitals are not consumed with politically correct thinking to the same degree. The number one priority of hospital administrators is advancing their own careers by means of institutional advancement, leavened by the desire to win gifts and benefactions from philanthropists. Providing value for the health care dollar — quality medical outcomes at a lower price — is not on the radar screen. Hospital managers may say it is, but their actions over decades tell a different story. Again, the Trumpenproletariat exercises nearly zero power or influence in this realm.
Finally, there are the do-gooder entities that feed upon public donations and the benefactions of the wealthy. Some groups are community based, but an extraordinary number are supported almost entirely by foundations endowed by America’s millionaires and billionaires (both dead and alive). As a generality, the foundations created by dead rich white men (Carnegie, Rockefeller, Ford, etc.) have been captured by the liberal progressive nonprofit managerial class, which has successfully imposed its own obsessions such as climate change and social justice. The foundations set up by living white men (Bill Gates, Warren Buffett, George Soros, the Koch brothers, etc.) still reflect the politics of their founders. But that, too, is problematic.
When you are a multibillionaire, there are only so many houses you can live in, so many private yachts and jets to own, so many bottles of rare, expensive wine to imbibe, and so many fantasy vacations to check off your bucket list. You literally can’t spend the interest on your income fast enough to diminish your estate. You probably would be hard pressed to spend the interest on your interest. But you do want to establish a legacy reflecting your values. Thanks to the generosity of the U.S. tax code, you get to structure your legacy as a giant tax shelter.
Now, Bill Gates is a fine man. I think he’s doing some good thinks like trying to stamp our malaria and reform the U.S. educational system. But it’s safe to say that his preoccupations are not the preoccupations of the Trumpenproletariat. Far more dangerous than Gates are the billionaires who want transform society in their own image. While everyone should be free to do what they wish with -their wealth, one can legitimately ask if such activity should be showered with tax breaks and cloaked in secrecy.
I have come around to thinking that the unaccountability and opacity of the nonprofit sector is an unappreciated bane of our society — at least of those whose interests are not served by the privileged tax treatment. I will continue to give the matter close attention here on Bacon’s Rebellion.
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