The Nonprofit Sector: An Economic Engine
Nonprofits represent $1.1 trillion in annual economic spending, the third-largest portion of the economy after the wholesale and the retail trades. Nonprofits of all types represent about 10 percent of national employment, a portion that rises to 17.6 percent in the District of Columbia, 16.5 percent in Vermont, and even 15.6 percent in New York. Indeed, through 2006, nonprofit employment grew faster than overall employment in 46 of the 50 states.
Excerpted from: Nonprofit Finance for Hard Times: Leadership Strategies When Economies Falter
Although no comprehensive data are available nationally, a number of states and communities have examined the full economic effect of their public charitable sectors. Most of this work focuses on education and health care because these service areas represent the largest nonprofit institutions in terms of employment, revenue, and assets.
Several examples suffice to illustrate the degree to which public charities are no longer simply recipients of donations for the poor and needy. They are important sources of jobs, investment, goods, and services.
The arts in the United States generate an estimated $134 billion in economic activity each year, supporting 4.9 million jobs, of which only 2 million are the artists. The Sundance Film Festival produces $60 million in annual revenue for Park City, Utah, fueling jobs throughout the local economy. Hospitals represent a quarter of a trillion dollars in annual wages in the U.S. economy, with rates of increase more than double those in the economy overall. Colleges and universities play a similar outsized economic role. Every campus job is estimated to create 1.6 jobs in the surrounding community, and every dollar spent by an institution of higher education is estimated to generate $1.38 of additional expenditures.
The economic role is not just one of spending and jobs, however. In 2007—admittedly before the market crisis of 2008–2009—the 785 U.S. universities regularly sampled by the Chronicle of Higher Education had endowments valued at $411 billion. Between 1995 and 2005, the total assets of public charities rose from $843 billion to $1.98 trillion, an inflation adjusted increase of 84 percent. The assets of public charities represent two-thirds of the assets of all types of nonprofits combined. The nonprofit sector is not just a spender of money; it is an aggregator of capital.
Thus, the health of the nonprofit sector is important to the health of the overall economy. And the health of the economy impacts nonprofits in more ways than simply in the level of the contributions they receive from private citizens and philanthropists. Nonprofits as economic entities must develop revenue strategies for economic decline that integrate philanthropy and fund-raising into broader strategies.
Nonprofits as Masters of Their Own Fate in Economic Turmoil
The charitable sector in the United States has grown from its original roots as a matter of religious commitment to the poor to an $800 billion economic engine. This book examines the role of public charities in the economy, the structure of the revenues and assets that undergirds their operations, and the fate of public charities when the economy, national and local, falls on its regular cyclical hard times.
When economic crisis hits—as it has with a vengeance in the 2008–2009 recessionary period—there is much concern for the health of the nation’s nonprofits. That concern is warranted because the nonprofit sector continues to provide much of the safety net for the disadvantaged. But to see nonprofits as simply passive victims is a misperception. Public charities are not victims of economics. They are part of the nation’s economic structure. They are (or ought to be) masters of their own destiny, vibrant economic actors with a wide range of revenue options and strategies. Even with robust plans and clear preparation, nonprofits, as economic actors, will not necessarily suffer less than other parts of a stressed economy. But they need not suffer more.
About the Author
Susan U. Raymond, Ph.D. is Executive Vice President of Changing Our World, Inc., a leading philanthropic services consulting firm, and author of the newly released book Nonprofit Finance for Hard Times: Leadership Strategies When Economies Falter (Wiley) from which this column is excerpted. She can be reached at firstname.lastname@example.org.