Monday, October 8, 2007

Do you ever wonder why more conflicts seem to flare between charities and businesses? Just last year, the Senate Finance Committee and the House Ways and Means Committee began investigating questions ranging from whether nonprofit hospitals were really charitable to whether corporate-size salaries for some foundation board members and charitable officers were excessive. In the District, fights continue over the pending sale of Greater Southeast Community Hospital -- initially a nonprofit, now owned by a money-losing for-profit and seeking to sell itself to another for-profit. The deal depends on millions in local government subsidies.

Yet, charities and businesses also collaborate like never before. We've all seen credit cards bearing a charity's good name, donations of business staff time for pro bono work, and corporate logos associated with nonprofit and public events. (Washington area universities conduct athletic events in venues like the Charles E. Smith Athletic Center, Verizon Center, and Chevy Chase Bank Field at Byrd Stadium.)

These business-charity collaborations and conflicts -- and the consequent legislative attempts to ensure that charities really are "charitable" -- can be tricky. But before attempting to judge all these attractions and repulsions between the two sectors, let's hold our peace and ask what is fostering these new relationships in the first place.

Put simply, Americans are becoming more charitable. More and more of our industries produce goods and services that can serve charitable purposes. And more adults are engaged in activities and occupations that can be either charitable or profitable.

This isn't fairy dust descending from the jet stream. Our economy's growth is mainly in health care, information services and research; while information science and nursing rank among the fastest-growing professions.

Professor Joseph Cordes of George Washington University and I have studied data on output by industry and employment by occupation to figure out just how much charities and profit-making businesses are beginning to look alike. Industries involving businesses that could organize as charities and pass the charitable purpose test are predicted to grow by almost 3.5 percent a year through 2014, compared with about 1 percent for other industries.

A typical "do-gooder" 100 years ago might have been someone who worked in a steel mill or grain elevator by day and looked in on shut-ins at night. That person's counterpart today might be a computer scientist or lawyer who works for a profit-making firm but e-mails advice throughout the day and evening to community nonprofit organizations.

If such trends persist, in a few decades we'll find that most people will produce services and products that could be produced as easily in the nonprofit sector as in the profit-making one. Some cities like the District are harbingers of that new reality. It's not just that nonprofits employ 25 percent of private-sector workers in the city and more than 10 percent in the region, according to a report of the Nonprofit Roundtable of Greater Washington. Roughly half of the area's private-sector workers are in fields related to information and health care. Add in government workers, and these fields dominate.

In this new system, charities, government, and charitable watchdog groups inevitably will see opportunities and tensions proliferate. And as service and innovation incubate together, the never-bright line between what is charitable and what isn't -- determined in part by "charitable purpose" so health care and research qualify but manufacturing and entertainment don't -- will blur even further.

Meanwhile, competition will increase. Profit-making institutions will continue entering fields once left to nonprofits as rising fees and government payments make these forays more lucrative. The reverse is also true. Even if charitable contributions continue to stay fairly constant as a percentage of national income, charities will attract private and government fees in diverse arenas. Thus, Noblis, a nonprofit science, technology and strategy organization in Falls Church, competes directly with profit-making corporations for government engineering and technology business.

With all this in mind, think about the recent evolution of hospitals as a test case. With the significant expansion of health spending, it's easy to understand how nonprofit hospital output has grown rapidly even while the share of hospital work supported by charitable giving has declined and competition from for-profit medical service providers has intensified. The nonprofit Inova Health System merged with Loudoun Hospital partly because of the arrival of HCA, a large for-profit hospital chain. Meanwhile, local nonprofit hospitals make dozens of contracts with profit-making organizations and occasionally pay some executives seven-figure salaries.

So here's the rub -- and the opportunity. These forces are probably unstoppable, but they must be channeled to maximize the public good. Tax laws governing charitable giving and charitable status must continually be reexamined, and consumer protection and tax laws must help protect the charitable purpose of our contributions in this polyglot of joint and competing ventures. As businesses and charities increasingly cooperate and compete to meet both public and private demand, we will spend more of our time providing and receiving services once defined as primarily charitable. Whether all these changes beget greater generosity is an open question.

Eugene Steuerle is a senior fellow at the Urban Institute and the co-editor of Nonprofits and Business (forthcoming) and Nonprofits and Government. Contact him atfeedback@ui.urban.org.