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ASU Lodestar Center Blog

Research Friday: Really, is the Nonprofit Sector Becoming More Commercialized?

Welcome to Research Friday! As part of a continuing weekly series, each Friday we invite a nonprofit expert from our academic faculty to highlight a research report or study and discuss how it can inform and improve day-to-day nonprofit practice. We welcome your comments and feedback.

Near the end of the past semester, my class discussed one of the chestnuts of the nonprofit sector. Our text, Peter Frumkin's On Being Nonprofit makes some strong statements about the place of earned revenues in nonprofit organizations. "Earned" revenues are those that come from sales and contracts, not from the donated revenues that so many people associate with nonprofits. Some people really hate the idea of earned revenues, believing that commerciality makes nonprofits look and act more like businesses, which can erode their special character. On the other hand, proponents of social enterprise have a lot of good things to say about earned income strategies, especially in lean times when grants and contributions are hard to come by.

However, the particular chestnut we talked about in class isn't whether commerciality is good or bad. The topic was prominent statements about how much commerciality has crept into the sector over the past couple decades. A great recent article by Curtis Child points to statements by Frumkin and others about this alleged explosion in commerciality, which he refers to as the "commercial turn." Weisbrod refers to massive changes characterized as a pattern of growing commercialization of nonprofit organizations. Backman and Smith have called commercialization a major trend with potentially portentous consequences for civil society. Young and Salamon suggest that new commercial orientations are perhaps the dominant force shaping the nonprofit sector, following from Young's strong claims about rapidly growing commerciality in the late 1990s. Austin and colleagues reiterate the commercial turn thesis, as does Dees. The claim of increased commerciality starts feeling rather official when Tuckman and Chang proclaim it in Chapter 27 of the well-regarded Research Handbook and Anheier alerts students to significantly growing marketization and reliance on fee income on page 211 of his textbook.

Those, friends, are big names. Surely they must be right, and commerciality and marketization have been noticeably on the uptick over the last few decades? Enter Curtis Child, whose research on the topic was published last year in Social Forces, a reputable journal in the social sciences. In short, Child not only notices that the Emperor has no clothes, but is willing to point it out. "Whither the turn?" asks Child. He just doesn't see it.

The article is pretty convincing. Child looks at three sources of data, each of which have been the basis for the claims advanced by some of those luminaries noted above. First, Child looks at unrelated business income, which is expressly commercial and part of the newish philosophy of social enterprise. In On Being Nonprofit, Frumkin's Figure 5.2 shows a substantial increase in unrelated business income reported by nonprofits through much of the 1990s. Well, total aggregate unrelated business income has grown in the sector over the last few decades, but so has the number of nonprofit organizations. Child shows that unrelated business income has steadily hovered around half of one percent of total sector income from 1990 to 2004. In other words — no evidence of a commercial turn when it comes to unrelated business income.

Next up is information from the Nonprofit Almanac published by Independent Sector and the Urban Institute, which is the basis for Salamon's claims about burgeoning commerciality in the nonprofit sector. However, when Child reviews the relevant tables in the Almanac, he is puzzled. In 1977, income from dues, fees, and charges for services were responsible for 37.5 percent of sector resources. In 1997, again, these sources represented precisely 37.5 percent of sector resources. The sector grew a lot over the next two decades, but Child makes the point that we would expect in 1977 that these "private sector payments" would make up 37.5 percent of sector growth. As it turns out, from 1977 to 1997, these commercial sources constituted 37.4 percent of the growth. On its face, the Almanac data provide no evidence of a commercial turn. In fact, given the changes in the sector over that period, reliance on commercial income is startlingly consistent.

Thirdly, Child digs into the Form 990 microdata in the Statistics of Income datafiles available from the National Center for Charitable Statistics. With this information, he can see what's happening with the average organization. If we have experienced a turn toward marketization and commercialization, then that should show up as an increased reliance on commercial revenues over time for the average nonprofit. In an effort to be fair, Child looks at a couple different measures. One is simply the program service revenue reported on one line of Form 990. A second, called "commercial revenue," starts with program service revenue, but then adds the "market-like" sources of dues and assessments, income from sale of inventory, and revenue from special events. The result? The lines are virtually flat from 1986 to 2004:

Source: Child, p. 152

Results like that make it hard to defend the "commercial turn" thesis, despite its prominence in the academic discussions. So, how do those chestnuts take hold in the first place? I suggested to my students that it goes all the way back to our high school composition classes, where we're taught to justify our topics by saying how big they are or how big they are becoming. I fear that sector scholars simply fell into that trap, setting up their discussions of commerciality by asserting that it is growing. It should be enough to point to the fact that commercial income is already a big part of sector revenues, and has been for a long time, but maybe that's not as interesting. Somehow, saying that something is growing attracts more attention than saying that something is merely important. And once a prominent Somebody Important says something, it's easy for others to jump on the bandwagon.

So, is the nonprofit sector in the United States becoming more commercialized? Curtis Child gives a pretty convincing argument that nonprofit commercial revenues haven't changed much in the last few decades. Or, as he says, if there really has been a commercial turn, then it falls to sector scholars to actually document the turn rather than just assert it over and over again.


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