Thursday, June 4, 2015

The Social Justice Role of Nonprofit Organizations in Capitalist Societies

Neoclassic thinkers describe nonprofit organizations in terms of "nondistribution constraint" and "market failure."  I beg to differ; nonprofits are better described in terms of distributive justice.  In various other places, I have tried to develop the idea that profit-seekers are amoral, at best, in the sense that profit seekers indulge the highest bidder without regard to anything else.  Profit cares nothing for social welfare, only exploitation.  Capitalist reject the label and resulting assertion.  They even more vigorously defend against being labeled "immoral" by arguing that "greed is good" essentially; that the search for profit makes life better for everybody who participates.  It is only the lazy -- defined as those who will not get up in the morning and go hunting for profit; in other words those who do not participate -- who get hurt in a capitalist system. 

There is no amorality or immorality in that because the lazy have only themselves to blame. But capitalism necessarily presupposes winners.  There can be no winners without losers.  There is something immoral, or at least amoral, about a system that demands that someone loses.  That's what underlies Rawlsian theory regarding optimal laws, which are laws we would adopt if we knew we would be losers in an ostensibly fair game.  If we economic actors knew ahead of time we were going to lose in a fair game, we would probably insist upon marxism over capitalism even if we also knew that societies would be worse off in the aggregate. 

Americans are taught that the Marxist creed -- "from each according to his ability, to each according to his need"-- embodies the real immorality since communism and socialism invariably stifle the human instinct for the responsible individual pursuit of "mo' better" (more and better) upon which the aggregate is dependent for advancement towards Utopia.  In the Capitalists' moral view, nonprofits' Marxists/Socialists tendencies are indulged only to ameliorate whatever lesser immorality (relative to the immorality in Marxists Socialists societies) exists in the capitalists "winner take all" societies requiring the presence of losers.  Remember, nobody can be rich unless someone is poor.  We create the poor by indulging the rich.  We offer riches to stimulate the individual pursuit of profit upon which the aggregate benefits.  Capitalists admit, in other words, that not only are the lazy hurt in a capitalist society; because of flaws (inherited wealth, fraud, cheating, discrimination, for example) which belie the idea of perfect competition, good faith participants are often wronged just like the lazy in a capitalists system.    Nonprofits exist to ameliorate the lesser moral failures inherent in a capitalists system operated by fallible human beings.  By providing "to each according to his need' but not demanding "from each according to his ability" nonprofits ignore but do not override the profit motive as the dominate driver of our existence.  They serve as recognition that the profit motive is morally superior to the sharing motive only to the extent that flaws in human behavior upon which the capitalist system operate can be eliminated.  Those flaws cannot be eliminated.  They can be punished or regulated by laws, but not eliminated. 

Three German economist are about to publish an article entitled "Nonprofit Organizations, Instutitional Economics, and Systems Thinking" in the journal, Economic Systems.  Here is part of the argument which seems to support the foregoing discussion: 

The relation between the societal effects of corporate power and the role of nonprofit organizations requires more elaboration, and indeed presents the key theme of this paper. The inspiration for this argument stems from both Galbraith's work and Kenneth Boulding's (1984) inquiry into “the ethics of economic organization”. Galbraith (1967) provided a rich and nuanced analysis of the degrading effects of corporate domination of society. In addition to undermining consumer sovereignty, these effects include neglect of the higher dimensions of life, such as social welfare, aesthetics and freedom. Stanfield and Stanfield (2011, p. 141) explain “the social predicament of the new industrial state” as follows: “industrial society embodies core tendencies that chronically undermine the quality of human life and threaten to acutely diminish it in a flash of military or ecological bedlam”. The contribution of Boulding lies in calling attention to a further important effect, namely the tendency of corporations to lower the relative status of certain social groups, most prominently workers and farmers. Boulding noted that the role of some nonprofits, such as labor unions and farmer organizations, is to improve the status of precisely these social groups. Put together, the arguments of Galbraith and Boulding suggest that the role of nonprofits can be more generally seen in compensating for the degrading effects of corporate domination of society. This view of nonprofits clearly differs from the neoclassical market failure approach and is free from the latter's limitations identified by Steinberg (2006, p. 129). The justification of this view will be the main aim of the present paper.


The paper's strategy is to embed the suggested institutional economics perspective on nonprofit organizations into a recent strand of the general systems theory associated with the voluminous work of the German sociologist Niklas Luhmann. Analyzing the regime of functional differentiation as a key attribute of modernity, Luhmann pointed out that the functional systems, such as the economy, law, and politics, tend to develop so much internal complexity that their continued self-reproduction (i.e., autopoiesis) in their respective environment becomes precarious. The present paper will show that Luhmann's ideas about the precarious relation between complexity and sustainability of social systems shed considerable light on the complementary societal effects of profit-seeking corporations and nonprofit organizations. In Luhmannian terms, the degrading effects of corporate domination of society exemplify the tendency of the functional system of the economy to overstrain the carrying capacity of the societal environment; the role of nonprofits is to improve the societal sustainability of this system. The following section summarizes the main thrust of the Luhmannian vision of complexity and sustainability of social systems. The rest of the paper builds on the institutional economics literature, particularly on Galbraith and Boulding, in order to apply the Luhmannian argument to the relation between profit-seeking corporations and nonprofit organizations.

The article is a fascinating read, I think.  It argues that profit-seekers simultaneously depend upon and destroy the dignity of [wo]man for the exact successes that lead to a better aggregate society.   Nonprofits help redeem that dignity and by doing so support the tracks upon which rats race to the betterment of society -- if one believes that profit may not be entirely "good" but is at least better than wholesale sharing; that is if one believes that capitalism is morally superior to Marxism. 


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