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Next Economy: Flourishing in a Not-for-Profit World?

For-profits are so over, say authors. Part of a Tyee series on capitalism’s crisis.

By Justin Ritchie 26 Aug 2016 | TheTyee.ca

Justin Ritchie often thinks about the meaning of “business as usual” as a PhD candidate at the University of British Columbia’s Institute for Resources, Environment and Sustainability. When not writing academic tomes, he is part of the Extraenvironmentalist podcast that interviews authors and thinkers about their vision of the future.

[Editor's note: Business as usual may be replaced by automated job scarcity, digital-powered sharing economies, yawning wealth imbalances, post-carbon energy, explosive innovation, capitalism rebooted or scrapped. This Tyee occasional series interviews experts with differing visions of what lies ahead.]

Jennifer Hinton and her co-author Donnie Maclurcan foresee an emerging economic alternative to state socialism and corporate capitalism: not-for-profit enterprise as the primary mode of business. Though many instinctively equate not-for-profits with charitable “nonprofits,” Hinton and Maclurcan argue any business can operate successfully without external shareholders.

In their view, big global trends favour not-for-profit enterprises. Is it likely that not-for-profit businesses will increasingly outcompete for-profit companies in the coming decades? Could a world dominated by not-for-profit business truly result in less inequality and a better life for every citizen?

The Tyee sat down with Hinton to dive into why they see this happening, and what it could mean for the global economy. You can read more about their thesis in Hinton and Maclurcan’s coming book, How on Earth: Flourishing in a Not-for-Profit World by 2050, available for pre-order here.

The Tyee: Why do you think not-for-profit businesses will increasingly outcompete for-profit businesses over the coming decades? Why would for-profit companies lose their competitive edge?

Jennifer Hinton: The system built on for-profit businesses is falling in on itself because it requires constant growth. Businesses need growth to compensate for the extraction of profits by investors. The need to generate ongoing financial surplus requires the broader economy to grow.

However, the world is experiencing slower growth from the inequality created by the for-profit system. The goal of this system is to accumulate as much wealth as possible for capitalists. It has been successful in achieving that goal. But this has resulted in enormous inequality.

The working classes in many countries are struggling just to make ends meet, and they certainly can’t sustain the sort of consumption necessary for economic growth that’s fast enough to provide the financial surplus capitalists expect. That’s why this system is faltering. However, alongside this systemic stagnation, we see more demand for ethical business.

A lot of that demand is coming from workers. The next generation really wants purpose-driven work with more meaning. This demand is also coming from consumers who are more aware of social and environmental issues. Consumers want companies providing ethical services and products. Supply and demand is starting to shift the market in a direction that benefits not-for-profit enterprises. Over time, this will create a stronger competitive edge for truly ethical companies: we see that trend continuing.

How do more traditionally minded for-profit business owners react to your ideas?

A lot of for-profit business leaders really get it. We’re talking about a switch from the mindset of profit maximization, into thinking about how to become a successful company that can still generate profit.

Profit can be more generative when it’s kept within the company, and when it’s all used to further the mission of a company. That message resonates with everybody, especially successful business leaders. To them, it makes sense as a lean business model that’s efficient. A successful not-for-profit enterprise includes paying employees, managers and CEOs fair salaries. This idea is not a sacrificial business model.

There are many emerging ideas in the world of social enterprises that work at what you discuss. In British Columbia, we have something called a Community Contribution Company (C3) which builds on the concept of Benefit (B) corps. Each of these new legal structures for companies are attempting to reframe business around solving social and environmental problems, while reducing the impact of profit on everyday operating decisions.

Why would not-for-profit enterprises improve on the for-profit, mission-driven models in the social enterprise world?

That’s a question we get a lot: why don’t you just advocate for social enterprise or for Benefit (B) corps? We think those business terms don’t tell us about what happens to the profit, and they don’t tell us about the ownership of the company.

These are essential questions going forward in the 21st century with the crises we’re facing: Is the profit being extracted from companies? Is it contributing to the ongoing removal of financial surplus from the economy to the hands of a few individuals? Are the shareholders still distracting from the purpose of these very well meaning, less for-profit business models?

Social enterprises still have shareholders. If they have private owners that expect dividends or some portion of the profit at the end of the year, that still puts pressure on the staff. When certain tough decisions are needed between generating profit, and the mission of the company, this is going to weigh on the decision. B corps and C3 companies are steps in the right direction, but we think not-for-profit enterprises will have even more success in the long run. Not-for-profits can be purely purpose driven, and not distracted by any need to maximize profit.

If you had an entrepreneur here who was thinking about starting a company, what advice would you have for them? Why should they consider a not-for-profit enterprise rather than seeking investment from the traditional routes as a for-profit company, which raises funds through issuing equity shares?

I would definitely encourage them to go the not-for-profit route because they would have a greater ability to innovate. As a not-for-profit, you’ll have way more freedom to innovate the way you want to.

There’s a not-for-profit company called Wikispeed, started by Joe Justice. He wanted to make the most fuel-efficient car in the U.S. and after a few years of work, this car got 100 miles to the gallon.

He started attracting a lot of attention from venture capitalists. Joe felt totally uncomfortable with their terms and with signing over the intellectual property rights. He ended up registering Wikispeed as a not-for-profit company to have the freedom to innovate the way he wanted. He didn’t want venture capitalists hovering over him, constantly trying to increase profit margin so he went in the not-for-profit direction specifically for innovation.

That’s an interesting story because in the world of media, there are many technologies making what we do more efficient. Now we can start an organization with technologies like Google Docs or apps that cost a fraction of what similar functions would have required decades ago – the kind of costs that would have pushed us to seek investment just so we could get basic equipment. Is this not-for-profit revolution you discuss influenced by the state of modern technology?

Absolutely. We often frame this by discussing the way the internet and mobile technology opens up a space for not-for-profits to enter the market. Startup costs and operating costs are dramatically falling thanks to the internet. You can get so much done for free or cheap online now.

The internet has also enabled new ways of raising capital that didn’t exist before. Crowdfunding has become a popular way for not-for-profit projects to raise capital, like Ocean Cleanup based in the Netherlands. This young man named Boyan Slat came up with an idea for a machine to clean up the ocean. His TED Talk garnered him a lot of attention and he was likely approached by a lot of venture capitalists. However, he decided to take his work in a not-for-profit direction. They did a crowdfunding campaign and raised $2 million to start Ocean Cleanup as a not-for-profit business. They’ve got a solid business model behind it, and they’re going to recycle and sell the materials they bring back from the ocean.

You might be able to raise a lot more capital by using internet tools. And most of these are cheap to use, so it’s really changed the game and opened up the market for not-for-profit businesses.

Let’s say in a few decades, 40 or 50 per cent of all businesses are not-for-profit. What would that do to governments and the tax system? Would governments resist that kind of structure for business because of tax revenue losses?

Most of us probably think governments get a lot more tax revenue from for-profit businesses than they actually do. There’s so much tax evasion, tax cuts and subsidies for large for-profit corporations.

We’re arguing that with the not-for-profit world, tax revenue probably would decrease, but many not-for-profit businesses might still need to pay taxes because they would have less of a socially oriented mission, or have a for-profit subsidiary like a lot of not-for-profits do now.

But even though tax revenue could fall, the need for tax revenue can also decline. If most of the market was not-for-profit businesses that have social missions, then part of the burden of the social safety net could fall on the market. We’ve relied on the government to provide a safety net that balances out corporate greed, but what if the market formed a bit of a safety net itself? This could reduce the pressure from the government.

We think a not-for-profit world would create more wellbeing and equality. A population that’s a lot healthier, psychologically and physically, can also create less pressure on the government.

We also hope to see the government become more entrepreneurial, just like we see with traditional nonprofits, which have formerly been dependent on philanthropy through grants and donations. They are starting to move more into business. It is the same thing that will happen with governments, out of necessity. If this trend continues, governments will be a little bit more entrepreneurial so they won’t have to be as dependent on tax revenue.

What do you think our economy would look like if your model were to be implemented over the next 30 or 40 years? What would the global economy look like in 2050 as a not-for-profit world?

We foresee a dramatic increase in levels of wellbeing, because a not-for-profit world would create the space to reduce or remove a lot of the pressures we feel right now from the for-profit world. Many of us may not be fully aware of how these pressures of profit generation guide our lives. The ubiquitous marketing and the culture of consumerism are core pieces of the for-profit system because for-profit companies have to grow every year.

This pressure leads industries to always work at creating new markets and new needs. We see a broader trend of “manufacturing needs” through marketing, convincing us that we’re not good enough and that we need to buy more. In a world of mostly not-for-profit companies, all businesses would be purpose driven and wouldn’t have the same pressure to constantly expand their bottom line to compensate for extracted value.

With a reduction in for-profit pressures, people would be able to work less. The total size of the market could actually shrink. A not-for-profit world could create the space for us to acknowledge that human needs are complex, and that not all of them are best met by a marketplace driven by for-profit corporations. Rather than relying on the market to figure out how to meet those needs all the time, a not-for-profit world creates space for us to meet the portion of our needs outside of the market through more free time, stronger communities, more personal connection and generally higher levels of well being.

We’re really at a very exciting time in history because we’re at the end of one economic era. There is fantastic potential to have a more generative time ahead.

This interview was lightly edited for readability.  [Tyee]

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