Friday, February 22, 2008

Financial Times Analyzes Pitfalls of Nonprofit-For Profit Joint Ventures in Wake of One Laptop Per Child Debacle

The Financial Times has published an interesting story regarding the problems and concerns attendant to joint ventures between for-profit and nonprofit entities.

For companies, such partnerships are a chance to boost their citizenship credentials by tackling social and environmental issues. However, both parties need to agree on ways to share the commercial benefits that result from their joint initiatives.  “There will soon come a time when people become more sceptical of companies entering partnerships, and that’s the last thing you want,” says Sonila Cook, partner at Dalberg Global Development Advisors.  Ms Cook believes that mechanisms are needed “by which NGOs are reassured that the companies they’re working with are not in it purely for commercial reasons but because they also want to make a difference”.

Balderdash, madam!  Of course companies are in it for purely commercial reasons.  The whole point of the dadgum joint venture is to harness the greedy motives of capitalists for the public good of society.  And dadgummit, the U.S. IRS is far too restrictive in its approach to joint ventures.  See, Revenue Ruling 98-15.  Note in the quote above, the implicit and quite sensible assumption that there are inevitable commercial benefits to any "mixed race" joint venture.  That's no reason to prohibit the lot of them.  Adam Smith pointed out a long long time ago that private profit is the best provider of the public good.  And there are some goods for which there is insufficient hope of private profit to stimulate the occurence of that good.  Tax subsidies are necessary not only to remedy that "market failure," they are also economically efficient as intended substitutes for the hope of private profit.  It cost less to allow an affordable housing joint venture between for-profit and nonprofit even if a few people become conspicuously wealthy than it cost to build and maintain a public housing project, for example.  The real problem with the whole joint venture analysis under U.S. law is that it is being developed in context of health care involving joint ventures between what are essentially two for-profit entities, notwithstanding the nominal grant of tax exemption to one of those joint venturers.  Bad facts make very bad law and hashing out the law of joint ventures in the context of health care is "bad facts."  Dadgummit!

dkj

http://lawprofessors.typepad.com/nonprofit/2008/02/financial-times.html

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