Sunday, February 1, 2009

The Nonprofit New York Times

Last week, the New York Times published an interesting op-ed piece regarding the notions that print media's remaining hopes of survival are found in the sector's reorganization as endowed nonprofit institutions.  Professor Colombo discussed this idea in a blog post last November.  Whether the idea is a good one or not may soon become a question overcome by events; the declining patronage of print media will eventually remove the profit motive and make the transformation necessary as a matter of basic economics.  Here is a brief excerpt from the op-ed piece. 

By endowing our most valued sources of news we would free them from the strictures of an obsolete business model and offer them a permanent place in society, like that of America’s colleges and universities. Endowments would transform newspapers into unshakable fixtures of American life, with greater stability and enhanced independence that would allow them to serve the public good more effectively.  As educational and literary organizations devoted to the “promotion of social welfare,” endowed newspapers would benefit from Section 501(c)(3) of the I.R.S. code, which provides exemption from taxes on income and allows tax deductions for people who make contributions to eligible organizations. One constraint on an endowed institution is the prohibition in the same law against trying to “influence legislation” or “participate in any campaign activity for or against political candidates.” While endowed newspapers would need to refrain from endorsing candidates for public office, they would still be free to participate forcefully in the debate over issues of public importance. The loss of endorsements seems minor in the context of the opinion-heavy Web. Aside from providing stability, an endowment would promote journalistic independence. The best-run news organizations insulate reporters from pressures to produce profits or to placate advertisers. But endowed news organizations would be in an ideal situation — with no pressure from stockholders or advertisers at all.

In his earlier post, Professor Colombo stated "while we may not soon see the New York Times, Chicago Tribune, Washington Post or L.A. Times adopt nonprofit form, it is clear that this is becoming a significant trend in the news-gathering and reporting world. The trend, moreover, lends some credence to the "market failure" theories of nonprofits and tax-exemption espoused by Henry Hansmann and yours truly: as the market becomes incapable of providing a service, nonprofits funded by donations step in to fill the hole."  That the op-ed piece appeared in one of the very newspapers thought most immune to the idea suggests that the "trend" may be more of a tidal wave, for the move centered in the middle of a vast [information] ocean but soon to be unmistakably felt by coastal dwellers and after that even those residing more inland [like the New York Times, the Washington Post] and other continents of media.

If indeed the emerging trend becomes the norm, it will no doubt provoke a reaxamination of the unexplained notion that charity and politics don't mix.  The excerpt above notes that nonprofit newspapers would have to forego campaign endorsements under present law.  On the other hand, the prohibition on campaign intervention and the less drastic discouragement of lobbying activities really has no logical relationship to the market failure theories the legal economist view as the sort of "creationist" explanation for nonprofit organizations.  Nor does the theory have any relevance to the altruistic notions explaining nonprofit organizations. 


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Quite amazing that once great monopolies of profit are now challenged to the point where they want to change their structures so dramatically.

Posted by: Steve | Feb 2, 2009 6:52:30 AM

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