Wolf (1999) notes that a nonprofit organization is neither in the profit sector nor in the public sector but sits somewhere between the two. This position allows the nonprofit great flexibility in its operation but requires great skill in its management. Nonprofit organizations have characteristics of profit and public organizations. Wolf defines nonprofit organizations as “those legally constituted, nongovernmental entities incorporated under state law as charitable or not-for-profit corporations that have been set up to serve some public purpose and are tax exempt.” All nonprofit organizations must have the following characteristics:

• They must have a public service mission-their main goal must be to serve others, not themselves.

• They must be organized as a not-for-profit or charitable corporation-they must formally claim to be non-profit.

• Their governance structure must preclude self interest and private financial gain-this goes back to the first characteristic in that the organization’s main goal is to serve people.

• They must be exempt from paying federal tax.

• They must possess the special legal status that stipulates gifts made to them are tax-deductible.

It is obvious that the nonprofit sector has expanded dramatically over the past few years, so has public scrutiny over the sector. Governance is needed to ensure that the organization is providing services that are permitted within the legal system and the bylaws and to ensure that the organization does not permit fraud, potential abuse, and violations of the expectations of the public. Governance of a nonprofit can be defined as the ultimate authority, accountability, and responsibility for an organization (Ott 2001). Leadership, such as the board, is important in the nonprofit sector because it is governed through a complex set of functional roles and procedures that are defined in laws and tax codes that differ from those for the public and for-profit sector. The board is responsible for policies, procedures, financial outcomes, and ensuring that the mission of the organization is being implemented and accomplished to the best of the organization’s ability to serve its target population or general public.

There are some challenges that nonprofit organizations face in our modern societies. The first major challenge for a nonprofit organization is articulating a clear public service mission. A nonprofit organization is required by law to limit its activities to those articulated in the mission statement, so the mission statement must be broad enough to cover all possible activities. The mission statement must also guide the direction of the organization’s programs, services, and activities. In addition, a mission statement may require review and revision over time. For example, an arts council can begin with a mission to develop, foster, and promote the arts, and then develop a stronger mission statement that provides detailed plans for programs and activities, such as working with the school district to develop art education programs, and seeking funds from state, federal, and private sources.

The second major challenge is risk/survival analysis: the search for the proper balance between organizational extension and risk-taking, and organizational security. Engaging in risk/survival analysis means having an understanding of what should and should never be compromised, always being cognizant of the mission and whether or not daily activities or decisions are in harmony with that mission. This challenge identifies a great dilemma for nonprofit organizations: whether it is more important to ensure survival of the organization or to stay true to the mission. There is no easy answer. To meet this challenge, the organization must continually plan, analyze future options (both practical and idealistic), and debate the pros and cons of each option.

The third major challenge facing a nonprofit organization is constituency identification and involvement. Identifying and involving the constituency entails having a working knowledge of the clientele you desire to serve. This must not be too narrow or too broad. The nonprofit organization must establish a concise identification of its constituency in order to avoid problems in this area. The organization must identify the group that it seeks to serve, and then must create a structure that supports a commitment to that group. To meet this challenge, the organization must have a well-defined understanding of its constituency, seek to involve the constituency at all levels of the organization (particularly at the trustee level), and provide programs and activities that reflect a commitment to the constituency.

The fourth major challenge is testing for organized abandonment: that is, disbanding that is the result of careful deliberation, rather than unplanned events, such as financial crisis or management problems. In order to meet this challenge, the organization must have a clearly defined mission, establish criteria for evaluation of the mission, and have a formal system to determine whether or not the mission is relevant and effective. The organization must examine whether or not its mission is obsolete or if other organizations are more effective in achieving its mission.

In conclusion, nonprofit organizations go where other organizations fear to tread. Nonprofits eagerly work with the most disadvantaged members of society-the homeless, the hungry, the ill, and the befuddled. Nonprofits fill the gaps in society-consider the thousands of charter schools that have sprung up to provide a genuine alternative, most frequently for students from disadvantaged backgrounds. Nonprofits extend and even function as government service-providers: how would most governmental social service agencies function if not by contracting out to tens of thousands of nonprofit service providers. Think too of the thousands of neighborhood associations that knit together their communities, and sometimes act indistinguishably from chartered governments. Nonprofits help people find meaning-both through quiet worship and organizing millions of people to do “good deeds.” People who want to “do something, to give back to society” sometimes do so through governments, but most do so through nonprofits. Millions of volunteers contribute and share in the nonprofit sector. Finally, unlike the other sectors, the nonprofit sector does not start out by asking how much money can be made, or where the money is going to come from; no, the nonprofit sector asks what the need is and how to fulfill the need. Only then does it seek strategies to support the social needs it discovers. Although by nature humble, it is the nonprofit sector that makes our complex and frequently materialistic and even selfish society, humane, purposeful, and cohesive. The private sector may provide the engine of growth and a quality of life; the public sector may organize us and keep the private sector in line; but it is the nonprofit sector that is our heart, our soul, and our spirit as a society.

References

• Ott, J. Steven (ed.), Understanding Nonprofit Organizations: Governance, Leadership, and Management, Westview Press, Boulder, CO: 2001.
• Wolf, Thomas, Managing a Nonprofit Organization in the Twenty-First Century, Simon & Schuster, New York: 1999.

Social capital has a long intellectual history in the social sciences. In this paper, social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society’s social interactions. Social capital is not just the sum of the institutions underpinning a society; rather, it is the glue that holds them together.

Lyda Hanifan, a West Virginia school reformer (1916), was the first to use the term social capital. Jane Jacobs reinvented it during the late 1960s, Glenn Loury elaborated upon it during the late 1970s, and James Coleman used it to examine Chicago schools in the 1980s. Coleman and Loury prefer to view social capital as a bottom-up phenomenon that is not directly amenable to public policy intervention. French sociologist Pierre Bourdieu developed a contemporary approach, though Anglo-American scholars remained unaware of it until the late 1980s.

The major momentum for scholarship on social capital, however, came with Robert Putnam’s seminal work on democratic governance in contemporary Italy (1993) and his subsequent challenging thesis that late twentieth-century Americans were bowling alone, by which he meant that they were becoming increasingly disengaged from active participation in public life, a trend with disconcerting implications for active democratic participation. He developed his thesis with his bowling alone article (1995), which led to scores of active research projects around the world on social capital.

Organizational-level social capital cannot be measured merely as an aggregation of individual networks, for attention has to be given to inter-organizational networks as well as to the study of this network’s nature. Community-level social capital resides in groups and in the networks among these organizations/groups. Strong society-/community-level social capital creates a civic infrastructure that supports formal and informal processes of decision-making and public involvement. The idea of social capital has coalesced around several fields: families and youth behavior problems, schooling and education, community life, work and organizations, democratic governance, collective action problems, and economic development. Building and maintaining networks is not a natural given; rather, it requires investments that yield a return.

Since Putnam’s identification of the social capital in regional governance and economic development in Italy (1993) and his latest suggestion in the U.S. (1995, 2000), a virtual industry of interest and action has been created around the implications of his findings for the development of low-income communities. Putnam attributes a significant portion of differences in government effectiveness, economic health, and community well-being to the presence (versus absence) of social capital. Stated simply, he considers the main elements of social capital to be trust and cooperation. Social capital consists of networks and norms that enable participants to act together effectively to pursue shared objectives. There is a strong collective aspect of social capital, as the social and economic system as a whole functions better because of the ties among the actors that make it up.

State-Nonprofit Partnerships

Government partnership includes partnering with for-profit corporations and nonprofit organizations, such as social service agencies, cultural groups, neighborhood organizations, hospitals, and health organizations. Alexis de Tocqueville, while touring America in 1831-32, noticed how different Americans were from Europeans in their enthusiasm for banding together to support a good cause. We see the result of this cultural characteristic today, for America did not follow the model of a European welfare state. American policymakers used taxes and direct subsidies to deliver services. America has created a welfare state through nonprofit organizations, the vast majority created since 1959.

State-nonprofit collaborations involve nonprofit organizations addressing local, state, and national problems through negotiated efforts or partnerships with business, government, colleges and universities, or other public or social institutions. Public organizations should look for opportunities to work with other nonprofit organizations-even with their competitors-in solving growing public problems in a timely and efficient manner. These efforts encompass several categories: governments often seek to execute their efforts via structures of interagency collaboration; the role of not-for-profit organizations is large and growing; and the frequency and variety of links with for-profit firms is impressive and government contracting remains a growth industry.

Generating social capital

Putnam (2000) states that civic engagement and social connectedness are practical preconditions for better schools, safer streets, faster economic growth, more effective government, and even healthier and longer lives. Without an adequate supply of social capital, meaning civic engagement, healthy community institutions, norms of mutual reciprocity, and trust, social institutions falter.

The value creation process of public and nonprofit partnerships generates incremental social capital to the partners, members, and to society as a whole. Benefits generated by an effective partnership often exceed the partnership’s purpose and enable the social mission to be accomplished more effectively. Public-nonprofit partnerships focused on social problems can also serve as motivating informative models for others to follow. As a partnership evolves, the value of the benefits can erode. Skills acquired by one partner from another, for example, may no longer be a transferable benefit. Relationships are dynamic and subject to alteration due to changes in the external environment. Also, partners’ need and priorities can change.

Public-nonprofit partnerships can be seen as vehicles for generating social capital by creating and strengthen organizations and collaborations within the community. For example, they enable community members to participate in those aspects of community life that concern them by setting priorities, developing programs, and participating in them. Creative action by public organizations can foster social capital, and linking mobilized nonprofit organizations and citizens can enhance governmental efficacy.

The role of nonprofits

According to Putnam: By almost every measure, Americans’ direct engagement in politics and government has fallen steadily and sharply over the last generation, despite the fact that average levels of education-the best individual-level predictor of political participation-have risen sharply throughout this period. At the same time, membership in and the number of nonprofits has increased (although there has been increased competition among nonprofits for this membership). This would seem to contradict de Tocqueville’s thesis. But, as Putnam points out, contributing to a nonprofit organization or joining an association and reading its newsletter does not necessarily translate into greater civic participation.

Nonprofit organizations play a vital role in creating and sustaining social capital, namely, those bonds of trust and reciprocity that seem to be pivotal for a democratic society and market economy to function effectively. But one would expect American individualism to make it difficult to sustain such organizations. De Tocqueville understood this point well when he wrote in Democracy in America in 1835: Feelings and opinions are recruited, the heart is enlarged, and the human mind is developed, only by the reciprocal influence of men upon one another these influences are almost null in democratic countries; they must therefore be artificially created and this can only be accomplished by associations.

Thus the perpetuation of a vital nonprofit sector is essential to developing and sustaining a sense of community, which is required to uphold contracts and enable both a market system and a democratic policy to operate.

Investing in social capital by attempting to increase civic participation therefore will strengthen democracy. Since nonprofits reach so many people, and because some nonprofits are powerful secondary associations, we are targeting nonprofits. They are an important source, if not the main source, for discussing critical public policy issues. Thus, nonprofits may play a unique intermediary role in helping to stimulate civic participation through a series of actions aimed at public education, research, advocacy, mobilizing, and so on. Public-nonprofit partnerships have emerged as an important institutional arrangement for addressing important societal concerns through the collaborative efforts and, as a result, the combined strengths of organizations from the public, private, and non-profit sectors.

Education is a very important field in which states can have a direct influence upon the generation of social capital. Educational institutions do not simply contribute human capital; they also contribute to social capital in the form of social rules and norms. States can foster the formation and creation of social capital directly or indirectly by providing public goods and public safety. They also can hinder its formation and creation by undertaking activities that are better left to nonprofits. If the state organizes everything, people will become dependent and lose their interest in and ability to work together. If states cannot contribute directly to the creation of social capital, they should create an environment in which nonprofits can do so.

References

• Briggs, S. Brown Kids in White Suburbs: Housing Mobility and the Many Faces of Social Capital. Housing Policy Debate. volume 9, no. 1 (1998): 177-221.
• Coleman, James. Foundations of Social Theory. Cambridge, MA: Harvard University Press, 1990.
• De Tocqueville, A. Democracy in America. Edited by J. P. Mater. Garden City, NY: Anchor Books, 1994.
• Evans, P. Government Action, Social Capital and Development: Reviewing the Evidence on Synergy. World Development 24, no. 6 (1996): 1119-32.
• Hall, P. Historical Perspective on Nonprofit Organizations. In The Jossey-Bass Handbook of Nonprofit Leadership and Management, edited by Robert D. Herman. San Francisco: Jossey-Bass Publishers, 1994.
• Huntoon, L. Government Use of Nonprofit Organizations To Build Social Capital. Journal of Socio-Economics 30 (2001).
• Kanter, R. Collaborative Advantage: The Art of Alliances. Harvard Business Review (Jul.-Aug. 1994): 96-108.
• Light, P. Making Nonprofits Work: A Report on the Tides of Nonprofit Management Reform. Washington, DC: The Aspen Institute, Brookings Institution Press, 2000.
• Putnam, R. Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster, 2000.
• Salamon, L. America’s Nonprofit Sector: A Primer. New York: The Foundation Center, 1999.
• Young, D. Complementary, Supplementary, or Adversarial? A Theoretical and Historical Examination of Nonprofit-Government Relations in the United States. In Nonprofits and Government: Collaboration and Conflict, edited by Elisabeth T Boris and C. Eugene Steuerle. Washington, DC: The Urban Institute Press, 1999.