Special Treatment for the Emerging "Fourth Sector?"

4_sector.jpg Stephanie Strom wrote an interesting article in the Business section of the New York Times on Sunday, 6 May, called “Make Money, Save the World.” One could summarize it a number of ways, but the main idea I would draw out is the idea of hybrid organizations - sometimes called the Fourth Sector, or B Organizations - that would not qualify as traditional nonprofits, but that their supporters would argue should receive some of the same regulatory treatment. Strom calls it the “emerging convergence of for-profit money making and nonprofit mission.”

One way to talk about this convergence is to draw the old, stereotypical battle lines between the nonprofit die-hards who would hate the idea that a money-making venture might get to wear the altruistic mantle of the nonprofit mission, and the market lovers who wouldn’t understand how anyone could dislike the idea of granting nonprofit mission status to something for-profit. Truth be told, if forced into the argument, I personally would fall a little more to the die-hard side than the market-lover’s side. There is a legitimate match between organizations that have public constituencies and public accountability and their role in solving public problems. I don’t think it is good for the resolution of those public problems, or for the functioning of democracy, to crowd out that space too much, let alone entirely, with market solutions and market firms.

That being said, as the presence and awareness of this “convergence” increases, it would help to pose a more thoughtful set of considerations. I have listened in to some discussions among nonprofit experts on this subject, and would like to offer a few such considerations based on what I learned from them. First, we are dealing with a continuum. It runs from purely nonprofit on one end to purely for-profit on the other. Organizations with a social mission do not exist exclusively on the nonprofit side of that continuum. They never have, and they never will.

Second, it is not obvious that Fourth Sector organizations should receive special regulatory treatment, and it is not obvious that they should not. Those building such ventures clearly would argue that this assertion is wrong. But they have yet to address a range of arguments. Is the problem the state of the current regulations, or the way in which they are enforced? Is it definitely the case that these organizations need to be for-profit in order to be effective? If it is the case, why should they receive special subsidies or support? If it is not the case, what is the difference between them and really effective nonprofits?

Finally, we cannot consider the question of Fourth Sector organizations without a companion discussion about the government itself. Sometimes, arguments for hybrid organizations, or for-profit ventures with a strong social mission, are based on a tacit belief that government is not and cannot be effective in solving public problems. Therefore, its job is to empower and support the other sectors in doing so. I’m not ready to surrender the government’s place, and would like to see how the need for these new approaches shakes out if considered against a government in which there is strong investment and a talented, motivated and well-supported workforce.

In the end, we might go through all of these considerations and decide that the world really does need these new market approaches. If so, so be it. But we’d be better off for thinking systematically about it first.

Tiziana Dearing

Posted at 6:59 AM, May 23, 2007 in Cross-Sectoral Strategies | Permalink | Comment