Wednesday, May 8, 2013

The Other Economy

By Neil W. Bohnert, FACHE, CAE

Almost lost in recent reports ranking the area’s major employers is a story that begs attention.  The list of the top ten employers in the area shows an impressive total of 23, 336 employees.[1]  But it is a tale of two economies.

  • Seven of the top ten employers are nonprofit organizations, together comprising three-quarters of the total employment for the top ten.[2]
  • The top two employers, both nonprofits, constitute nearly one-half of the total employment of the ten.[3]
Add to these major employers the churches, colleges, human services agencies, foundations, military and fraternal organizations, trade associations, and dozens of other nonprofit organizations and we come to the inescapable realization that nonprofit organizations are a major contributor to the economy of the Greater Lynchburg Area. These patterns are not unique to Lynchburg.  They are so typical of most cities in America.

So What?

The growth of nonprofits is often met with dismissal or even disdain as if these organizations do not “produce” anything and escape taxation.  While these organizations do not return profits to investors, they do, indeed, contribute to the economy.  In fact, private nonprofits number more than 1.8 million in the United States, not including government entities and certain religious organizations, and account for about 9% of the GDP.  Most are small, but the sector also includes some giants; AARP, National Geographic Society, American Red Cross, World Wildlife Fund, Goodwill, National Public Radio, Habitat for Humanity, and some very-well-endowed foundations.

Again, So What?

Two points are clear.  One, this segment contributes to the local economy in several significant ways.

  • Employment; 17,236 in just the top ten employers in the Greater Lynchburg Region.
  • Consumer spending; by these employees and the multiplier effect on the local market.
  • Payroll, property, and other taxes; not all nonprofits are tax-exempt
  • Purchases of goods and services.  Nonprofits use energy, supplies, professional services, and all the goods and services of a for-profit business.
  • And, unlike large companies owned by out-of-town investors, the income and any surpluses remain in the local community.
The second point is, we are all “investors” in this sector, including volunteer service on boards and in the work of the organizations and we should expect a good return.  Nonprofit management has changed markedly in recent years as a result of litigation and scandals and simply because the generations who are assuming leadership will not accept “the way it has always been.”  To borrow a popular phrase, “It’s not your father’s nonprofit.”  Volunteers and community leaders have choices in how they spend their time and talents and they’re not willing to squander either.  Continuing to act as we always have is not enough to sustain a vital segment of the economy.

Getting Ahead of the Competition

That’s right, nonprofits compete.  And if organizations are to attract the best volunteer leadership, they must be ahead of the competition. Who is the competition?  Other nonprofits.  Active citizens may be involved with many organizations  Perhaps a church, school, the Y’s, scouting and youth organizations, sporting and recreation organizations, foundations, service clubs, alumni and professional associations, and others, all vying for time and attention—not to mention financial support.  And often one questions if his or her time and expertise are being well spent?

Just as businesses need to stay ahead of the productivity curve, so, too, do nonprofits.  But running a successful business is not the same as running a successful nonprofit. Nonprofits are unique and they require unique leadership skills.  Leaders need the understanding and tools that can be applied to advancing the nonprofit’s mission. 

Two Questions

We need to ask ourselves two questions.  Are we investing in the “other economy” with the same vigor we commit to building our business sector?  Are we getting the best return on our investment in our local nonprofits?  What we answer and what we do with the answers, is vital to a robust local economy.

[1]Sources: Region 2000; City of Lynchburg Office of Economic Development; Employers.
[2] Total  number of employees of nonprofits; 17,236, including about 4,300 in three school systems.
[3] CentraHealth and Liberty University; combined, 10,462

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