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Non-profit organizations and their role in the society

There has been a recent splash in interest in human institutions that are focused not on state, or commercial activity. This sector, which is called “noncommercial”, “voluntary”, "third" or “independent”, unites in itself a set of various types of organizations, such as hospitals, educational institutions, clubs, professional, ecological, human rights organizations, training centers, etc. All these organizations have a number of similar characteristics: they are separated from the state, are self-governed, meaning that they have full independence when making decisions in all questions associated with their activity; participation in them isn't obligatory, activity is carried out due to donations (e.g. monetary, time, etc.); staff and the management of this type of organizations have no right of distributing any of the profit in their own favor.

It is safe to say that in the modern society there is an “explosion” of organized volunteering activity. Partially it is because of the growth of the personality self-determination in the modern society –  the information revolution has led to increase of number of people from the middle class who are not satisfied with the existing self-expression opportunities in economic and political sectors. On the other hand, the third sector organizations managed to draw attention to the public to their performance mostly because of the “crisis of the state” – the phenomenon that has developed in the last decade virtually in all parts of the world. This crisis manifests itself first of all in many major complaints about the traditional state system of social protection of the population in the developed countries of the North; in the low efficiency of the economic development coordinated by the state in the countries of the developing South; in the collapse of the social protection system in a former communist block of the Central and Eastern Europe. Additionally, the population's concern about the state of the environment and the sprouting threat to health and safety of the people keeps increasing.

Non-profit organizations began to constitute strategically important partners while searching for “the middle path” between relying solely on the market, or just on the state, due to their unique position outside of the state and commercial sector, smaller sizes, connection with the population, and flexibility. The third sector represents not only the institute that meets the people's immediate needs, but also the powerful growing economic force which has an impact on all spheres of the public life. At the same time, it is impossible to speak of the same level of development of the non-profit sector in all countries. In some countries, it is equated with the state and commercial sectors. However, in the majority of the countries it is not considered to be on the same level with the state or commercial sectors, and its future remains in question.

Social and economic bases of non-profit organizations development

According to the definition given on the United States Government web-site, a non-profit organization is “an organization that performs some type of public or community benefit, without the purpose of making a profit” . The term “the third sector” is a generally accepted in the world practice definition of noncommercial, charitable initiatives (the first sector - the state, the second sector - private). In this research, the organizations that seek to solve various social issues, protect and advance the public interests, are considered as the organizations belonging to the third sector.

The state is interested in engaging with the third sector for the following reasons:

1. Most of the non-profit organizations are established to address the same problems and issues with which the public authorities have to deal on the daily basis. It includes taking care of low-income, sick, marginalized citizens; fostering and educating children and teenagers; preserving and developing culture; actual protection of the rights and freedoms guaranteed by the Constitution of the United States, and many other issues that cannot be provided on purely commercial, market basis. Existence of the third sector is caused, mainly, by the fact that the most active members of the society seek to make their own contribution in the search for the solution of the problems the society is facing, not just by carrying out the direct duties assigned by the state to all its citizens, but also doing something above their responsibilities, voluntarily. In this regard need of consolidation and coordination of efforts is obvious.

2. In some cases, the third sector works more successfully and more cost-effectively than some public institutions. It is shown by various researches conducted in many countries. As a result, it is quite often more lucrative for the state to transfer funds to different independent non-profit organizations, certainly, in exchange for accurate, concrete and controlled obligations from their party, than to establish additional organizations. Thus, in the USA in the 80ies, more than a third of all the expenses on welfare needs, including more than a half of all federal expenses on social relief aid, culture, science and the humanitarian purposes went to the third sector. A specific analysis would show that benefits of the budgetary financing of independent non-profit organizations are especially high when at least one of the following two conditions is present: when there is an opportunity to employ volunteers and when the addressed task is not standard, so that an unconventional approach to this specific category of the service recipients is required. Thus, cooperation of the state and local governments with the organizations of the third sector is capable to serve as an important factor of increasing the efficiency of use of the funds allocated for social needs.

3. Strengthening of the democratic state per se and development of local government decisively depends on the development of the modern civil society. It is about various forms of civilized interaction of citizens, their voluntarily participation in different public affairs. The third sector's organizations act as the cornerstones of the civil society. The closer and more fruitful are the contacts of the state with this sector, the better is the mutual understanding of the authorities and the society, while their reciprocal alienation becomes less probable.

At the same time the third sector needs moral and financial support from the state and local governments. A rather typical example would be when volunteers are ready to combine efforts and means for the help persons of any category in need, but it is difficult for them to pay rent for the room that is needed work, due to the rates established for the commercial organizations and to pay taxes. Granting them benefits can help them achieve their goal for which otherwise they would spend more money from the regional or city budget.

Equally important is the interest of the original organizations of the third sector in the effective control from the public and municipal authorities. Such control guarantees the lack of abuse that could interfere with the performance of the functions undertaken by non-profit organizations and would reduce their prestige.

It is possible to allocate the following form of support and cooperation of the public authorities with the organizations of the third sector:

 granting tax benefits to independent non-profit organizations;

 granting tax benefits to the individuals providing material support to the organizations of the third sector;

 granting privileges of non-tax character to independent, non-profit organizations;

 information and assistance, and other forms of support.

Nonprofit organizations, being based on private form of ownership, act in the interests of public, provide access to universal values, defend the principle of pluralism and equal opportunities for all members of the society.

In the social market economy functions that had been performed traditionally by the state are now performed by nonprofit structures. It becomes possible due to special functional purposes of such organizations in the market economy, specifics of using their profit.  As a result, nonprofit organizations satisfy, first of all, the needs for public goods. They express not only personal, but also the interests of society in general. At the same time, they follow laws of the market to a larger extent, than the state organizations. It is expressed in fast reaction to demand, intention to represent quality products, to save costs of production, to conduct active development of new activities, etc.

Functioning of nonprofit organizations is directed not to replace the economic benefits created by private business and the state. On the contrary, their performance expands structure of social needs, creates opportunities for additional alternative granting products to consumers. From this point of view nonprofit organizations promote strengthening of the competition between various sectors of economy, economic socialization that positively affects socio-economic development of the society.

The successful performance of nonprofit organizations in the United States confirms it. Particularly active work of nonprofit organizations in the USA can be observed in the human services sector (1,306 organizations in 2014), education (688 organizations in 2014), religion related (496 organizations in 2014), health (395 organizations in 2014).

According to the data, gathered by the Urban Institute for the fiscal years 1994-2014, the number of the nonprofit organizations in Atlanta area, GA, was steadily increasing from 1994-1995 to 2011-2012 (from 1,301 organizations to 4,815 organizations). In the fiscal year 2012-2013 the total number of organizations in that area had reached its peak (4,815 organizations) and then it started decreasing (rather rapidly from 2012-2013 with a number of 4,660 to 4,027 organizations in 2013-2014) (see Chart 1. Growth of Nonprofits in Atlanta area, 1994-2014).

Chart 1. Growth of Nonprofits in Atlanta area, GA (1994-2014)

Non-governmental organizations may be made up only of volunteers, or of staff members and volunteers. The size of an organization is another important indicator of public activity of the population, even though the overall performance of a nonprofit organization does not always depend on number of its members.

Practice shows that for the countries with transitioning economy functioning of nonprofit organizations is even more important, than for the developed market economies. It is explained by underdevelopment of the market relations, extremely limited amount of the state resources, complexity of socio-economic problems of a transition period. As a result, in these countries nonprofit organizations have to solve the problems that usually are supposed to be resolved by belong to the state in market economy.

Механизм хозяйствования некоммерческих организаций

The performance of the organizations of the non-profit sector differs from the performance of the for-profit organizations. In comparison with the for-profit organizations the performance of non-profit organizations includes two levels: primary and business activities.

Primary activity of a non-profit organization is the activity consistent with the goals for the sake of which this organization was created and which is related to obligations under the instrument. A non-profit organization can carry out one or several kinds of activities.

Conducting the primary activity is the main function of a non-profit organization, the purpose for the sake of which it was created. This activity of a non-profit organization is supported and stimulated by the state by the means of granting tax privileges, etc. Non-profit organizations receive such privileges from the state in exchange for obligating the non-profit organization to carry out their primary activity which in most cases comes down to implementation of the major social programs.

It should be noted that the fact that non-profit organizations aimed at conducting their primary activities does not mean that the outcomes have to be presented to consumers free of charge or at subsidized rates. Nowadays many non-profit organizations, especially in health sector, education, culture, provide to consumers production (at market prices) which is the outcome of their primary activity.

In the countries of market economy non-profit organizations are allowed to be engaged not only into the primary activity but also the business activity. By the latter non-profit organizations have an opportunity to earn additional money which cannot be provided at the present moment by their founders, participants of the organization. At the same time business activity is somewhat limited.

If raison d'être of the commercial organizations is to bring income to its owners, then for noncommercial organizations making profit is not the goal in itself, but a means for realization of a certain mission (such as preserving cultural heritage, enhancing affordable education, medicine, etc.). The non-profit organizations can carry out the business activity only because it helps achieving the goals for the sake of which it was created. The main task is that a non-profit organization, being engaged in business activity, would not deviate from performing its primary activity, but direct all the possible profit to performance of the statutory objectives.

When forming their budget non-profit organizations have the right to use such sources of financing as entrance and membership fees, voluntary contributions and donations, earmarked contributions from a person or entity, etc.

The question of financing is a question on which the future of nonprofits directly depends on. Unsatisfactory financial security is the most painful problem for the voluntary organizations today. The lack of money is in most cases a hindrance in their activity. The most widespread source of income is donations from different enterprises, firms, organizations. Nearly every second public organization receives certain funding from the second sector of economy. Such social partnership where each party invests in its own way in the solution of socially useful and socially significant tasks: one party financially, and the other voluntary work.

Another source would be membership fees. As many public organizations have no fixed membership, the question of membership fees for ensuring activity for such associations of citizens becomes irrelevant. As a rule, sponsors support one-time or short-term events. Practice of non-monetary donations is very common, for example, purchase and transfer of special equipment, food, medicine, etc. Non-profit organizations can be relatively confident in their nearest future only by their own performance, therefore sooner or later all voluntary organizations face the need to learn how to earn. It is characteristic of public organizations that they have several sources of financing.


When forming their request to a foundation, nonprofits try to show the need for financing of the direct activities (the staff's salaries, acquisition of supplies, medicine, equipment, books, rent, etc.). These issues are most often to be seen among organizations' issues and expenses which leaders of nonprofits would like to resolve if they were to receive some money. Funds prefer to finance educational and human rights activities, creating non-profit networks and everything that is connected to their organizational development, issuing brochures, grants. The similar policy naturally limits a range of organizations – potential recipients of financing. When applying for a grant there is mostly no direct personal communication; it is just submitting a good them application. There is no immediate contact with people representing a foundation, due to what a lack of live feedback about what and how the organization is performing. Probably, such a distance is embedded in the idea of a foundation itself, since it helps them to keep their distance and it is easier to maintain their own policy and build relationships with those receiving grants.

When receiving the state grants the initiative of public associations is maximum as in this case the state, since it possesses the resources for the solution of social needs and defines their priority, can allocate a part of these resources for resolving certain problems, for example care about lonely aged, or fight against homelessness, or humanization of prisons. They can also declare to the society that they are ready to spend this money for programs which will be developed and carried out by voluntary or public associations. At the same time, public associations, while creating their applications, suggest what needs to be done in this sphere, how much money is needed and what would be the expected outcome. All the public authorities will need to do is to compare and choose from the submitted applications.

As for grants, the essence of this concept is universal and can be defined as a gift donated by a foundation, a government agency or a philanthropic organization given by a donor to the grantee to implement specific programs with a report on their use. The important aspect of a grant is that the grantee has no direct material interests in the outcome, as they only act in behalf of the third parties or an unlimited circle of people (e.g., patients, children, the homeless, young talents, etc.). At the same time, using money of the donor who entrusted them with the implementation of this program, the recipient of a grant implements the will of the donor, in a sense that they are acting on his/her (the donors') behalf.

In this regard, it is necessary to talk a little more on such a concept as fundraising. Fundraising is raising money and donations on projects of the non-profit and charitable organizations. It is based on definition of non-profits' needs and their satisfaction. As a result of fundraising one can consider money, volunteering time, goods, services, reduction of prices of goods and services.

Sources for fundraising are donations from private and state businesses; the grants distributed by different funds; financing from the state budget; income from own commercial activities; income from holding charitable events; donations from individuals; income from collecting membership fees. Essentially, fundraising is the part of non-profit activity that includes raising finances for carrying out their activities. The general organizational fundraising implies aiming of all activities of a non-profit and its personnel at achieving the desired fundraising results.

The main subjects of charities are non-profit organizations. What is their drive force? As for subjects of the economic relations, this topic was discussed by a plethora of famous philosophers long before the emergence of the international corporations. So, fundamentals of ethics of their behavior have been formulated by Immanuel Kant who said that for the actions of economic subjects in their personal interest took into account legitimate interests of people around (especially those who are “weak” and “poor”), they have to be limited to moral standards . This is the so-called dualistic approach that indicates existence of two requirements for each economic action (economic interest and moral requirements). In general, the dilemma between following one's own benefit and ensuring public interests is the main problem from the point of view of social business responsibility, as well as the performance of non-profit organizations. According to the classical economic theory, any social problem that is not a part of a business field, does not fall within the scope of powers and the interests of the business. And the so-called “invisible hand” of the market has to take care of redistribution of resources and ensuring social wellbeing of the society. In other words, this is referred to the third sector.

However, what are the means, that non-profits can use, are comprised of? These are donations of the citizens and donations of subjects of economic activity, i.e. the commercial organizations. The concept of social responsibility of business is connected with the performance of the commercial organizations in the charity sector and the solution of various social problems. This is because in the 1960-70 the public discontent towards negative consequences of the growth in production began to increase. In the USA, for example, this period of time was marked by student disturbances and racial riots. The responsibility for the social instability was left mainly to the business that is from intended to solve problems of social and economic adaptation of the most unprotected segments of the society, thus, providing favorable conditions for their performance. It is interesting that in the United States during this period of time the government made an attempt to undertake a reform of social protection and to increase its the role in education, social care, and health care. In this regard, large companies took the initiative to commit themselves to certain obligations, firstly in the spheres of art and education, so that they would not allow the government to expand its influence on the country's economic and civic life .

Definition of business' social responsibility comes from a postulate of inevitable interdependence of the company and the society. Socially responsible business may act as:

- responsible employer and producer;

- responsible business partner;

- responsible citizen (as a subject of regulatory frameworks, or as a participant of the civil society).

In this research paper the focus is on socially responsible business in its last form – the company as the citizen and the participant of the civil society. Legal responsibility of business is not enough in order to call it socially responsible. Along with an individual as a proactive citizen, a company can not only fulfill the assigned obligations in a legislative order but also undertake some additional responsibilities. When speaking about the company as the responsible citizen – the participant of civil society – it is possible to allocate two main components:

 the company as the citizen of a certain territory, local community. In this capacity, socially responsible company seeks to provide safe socio-economic conditions in the surrounding community. This can be referred to measures for protection surrounding the environment in the region where the company located, improvement of the surrounding territory, development of programs of employees' support, development of social infrastructure;

 the company as the citizen of the nation, the country, and even the world community. Here the company acts not just as a citizen, but as a public figure that is one of the highest manifestations of social responsibility. The large companies with an active position, especially in the conditions of globalization, can exert considerable impact on socio-economic development of the country, region, etc. at the institutional level. For example, companies can provide substantial assistance to the society, having made minor changes to its policy in the field of business. Examples of similar practice exist around the world. In the United States of America some firms have some special programs of support of suppliers that encourage cooperation with the companies belonging to representatives of various ethnic minorities and women. Thus, they support the national policy on eliminating discrimination against these groups of the population. Other example: McDonald's helping to form a network of local suppliers of products and services for its restaurants. Through purchases of raw materials at the local level (from South Africa, Philippines, Georgia, etc.) the company promotes the development of specific regions.

A socially responsible company carries out its own corporate policy of support of the community and participation in building its wellbeing. As well as a citizen who has an active citizenship, advocates the interests of the society in general and at the same time protecting his/her personal rights and freedoms, the company as a participant of the civil society not only provides the benefits for others, but also its own wellbeing. In other words, participation of the company in the solution of problems of surrounding community is not just an act of mercy. It can be related to the business and marketing purposes (e.g., insurance companies financing tobacco control programs and encouraging a healthy lifestyle, hence increasing their profits).

A company can carry out its voluntary participation in the civil society and in ensuring its social stability and wellbeing in various forms. The most traditional form of a company's contribution to social wellbeing of the community is charity. However, new forms of involvement of the companies in the solution of social problems, such as strategic charity, investment into the social sector, participation in programs of economic development, etc. gained ground today. A more general term that allows to unite all variety of participation of business in ensuring wellbeing of surrounding community is participation of business in the social sector. Characteristic features of such business: 1) a reference point on achievement of the socially useful objectives or objectives related to the solution of different social problems, and 2) gratuitous or preferential granting by a business of resources for achieving the specified socially useful objectives.

The main mechanism of participation of business in the social sector are social and charity programs and projects.

Let us review in more details the nature and possible forms of participation of business in the social sector as a member of civil society since participation in the solution of the social problems of surrounding community that does not fall directly within the scope of the company's interests. This is, perhaps, the most important and, the most noticeable component of socially responsible activity of business. Inclusion of social and charitable projects in the company's strategy can substantially promote realization of the set business objective. On the other hand, means of non-profit organizations mainly consist of donations of participants of business. Thus, participation in realization of charity and social programs for the benefit of surrounding community through non-profit organizations or directly, allows the company to improve the favorable relations with the authorities and administrative structures and to strengthen relations with local communities by assisting in solving their regional problems. Thus, for example, the Just Desserts company (a bakery based in San Francisco) always took active part in implementation of social programs in the city. Among the most known projects of the company there was the Garden project aimed for rehabilitation of the former prisoners and also a program directed to support of local high schools. According to the CEO of the company, Eliot Hoffman, Just Desserts was well-known in the city as a socially responsible company. In 1990 Just Desserts was supported by the city community and 18 other companies when it appeared in the press with a protest against the war in the Persian Gulf. In response to such actions the leader of one of the most popular radio stations in the city severely criticized the companies and asked the citizens to boycott the company's production. However, instead of experiencing a drop in sales Just Desserts received a huge number of letters from citizens in support of their activity .

The IBM company within the large-scale project of support of school education developed and installed in one of schools of Philadelphia a training system based on the voice recognition technology and allowing to work with not English-speaking children in their native tongue. Similar achievement has allowed IBM to develop a series of new products for voice recognition that immediately attracted broad commercial interest .

The company's management often is a peculiar personified epitome of the company, its image, values and social responsibility. It is not a coincidence that the top management of the company receives the most part of addresses and requests for assistance. Also, not a coincidence that according to popular wisdom of corporate charity the support from the top management is one of the major guarantors of the successful charitable and socially oriented business activity. The management is the final instance approving the budget on social and charity and having control over its outcomes. If the top management does not divide the value and the importance of participation in the social sector, charity and social programs of the company risk to appear on the periphery of corporate activity with the budget subjected to numerous changes due to any changes of financial and administrative order. The lack of support from the top management can also entail unwillingness to use innovative approaches towards organizing socially responsible activity and aspiration in every possible way to reduce financial and labor costs. The history shows that in many companies known as pioneers of social responsibility and social participation, their top management was their main ideologists. For example, the Body Shop company is the conventional leader in the field of social responsibility and business charity. Such leadership of Body Shop is inseparably linked with the identity of its founder – Margaret Meade – who right after the foundation of the company, set up Body Shop charity foundation and always participated in social initiatives – various protection of nature projects, programs of local trade support and protection of human rights - in the main priorities of the business .

However, the practice of realization of social and charity programs of business showed that even though support from the top management is important, it is not a sufficient factor of forming a successful socially responsible company. Emergence of one more important principle of the organization of social and charity programs of business turned out to be consequence of it .

Even the most successful companies rarely have all the necessary means for implementation of large-scale social initiatives. It is not only about the shortage of material resources though social and charitable budgets of the companies are always more than limited, but also about the lack of the skills in the company, contacts and knowledge that are necessary for implementation of social programs. The solution of similar problems is promoted by cooperation of the company with other organizations and public institutes interested in the implementation of the project. Among potential company partners for the realization of social and charity programs can be non-profit organizations, local government, other public and municipal authorities, as well as other companies.

While choosing potential partners, those unique resources, or competitive advantages that they would be able to bring for successful implementation of the program, are taken into consideration (as a rule). Thus, non-profit organizations can be an important source of information on needs of the community and they can also take the function of administrating the program. Government bodies can provide the program with necessary political support, legitimacy, etc. The partnership that have successfully proved themselves at realization of joint social and charitable initiatives can develop further and into cooperation directly on business matters.

While choosing partners it is important to consider not only those organizations that initially have common goals with the initiating company. According to O'Brien, it is necessary to pay attention to those organizations and public institutes whose purposes and interests can initially contradict and even to clash with the interests of the company. When forming strategy of participation in the social sector it is especially important to pay attention to those who can experience negative consequences in regard to the activity of the company. Taking into account the company's interests and attracting them to cooperate in social initiatives, can help the company to avoid serious conflicts and public scandals. This technique is being used for a long time by the tobacco companies that annually allocate considerable sums to research institutions and other organizations of health sector for carrying out researches on fight against cancer .

The solution of problems of social rehabilitation and prevention of social problems, cultural development, assistance to innovations in education is reached in the following ways:

- support and stimulation of the organizations and citizens whose activity answers the purpose of social policy;

- creation of the general favorable conditions (information, legal, material infrastructure) for various socially important kinds of activity.

Summing up the result of these observations, it is possible to say that the goal of non-profit organizations is, first of all, making an initiative from below go up the socially beneficial path. It also creates a unique possibility of smooth, painless association of general state interests and private interests, individual – through a form of interest of certain public groups – within the balanced, not conflicting civil society.

Thus, non-profit organizations are equally needed for both the state and the business as they supplement, humanize and counterbalance them, creating and keeping social balance. The competent, effectively working and provided with resources non-profit organizations are necessary to the society, so that the arising problems and requirements could be solved by forces of citizens' initiative, without having to wait for the allocation of means from the state budget on these purposes.

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