Government, private enterprise, nonprofit — what’s the difference?

By James Shaffer, Special to the BDN
Posted June 10, 2011, at 3:19 p.m.

In an effort to find solutions for the painful, ongoing recession, Maine’s governor and some national politicians are seeking to run government by the methods of for-profit businesses.

This raises an interesting issue, because the values and purposes inherent in government and the private sector are different, yet both entities contribute to the overall health and wealth of a state or nation. Actually there are three sectors:  Private, public, and nonprofit.

The methods of private enterprise have traditionally been really good at one thing: maximizing the wealth of the owners. Fortunately, the means to this end usually require identifying, developing and satisfying customers. The incentives inherent in this system drive businesspeople to serve customer needs for a profit while minimizing owners’ risks. Thus, fear and greed are motivators and mankind the beneficiary — or losers, as with the recent mortgage debacle — as society’s needs are addressed in the pursuit of profit. Many point out with pride that the capitalist system drives human progress. With capitalism, the energy comes from one faction: the owners.

Government, on the other hand, has a messy problem: multiple constituencies and conflicting goals.

While business is focused by fear and greed, government is forced to muddle through with compromises and trade-offs that often leave few satisfied and many bewildered. Worse, sometimes government is called upon to limit the excesses or oversights of capitalism through regulation or incentives — taxes, subsidies, etc. Since government, forced to do business through compromises and trade-offs, often does a muddling job of “adjusting” capitalism, this gives rise to accusations that an ineffective system — government — is impeding the action of an effective one — private enterprise. And, governments change with elections, sometimes creating disruption as different solutions from a new government are instituted to solve problems. But government by the people is at least good at reflecting the collective compromises of the people, at the moment. The energy of government comes from a compact of collective compromise.

Like private enterprise, nonprofits can also be highly focused. However, instead of generating wealth, the focus is typically on solving a problem or meeting a need that is not served by the private or public sectors. In other words, nonprofits fill the gaps left by the other two sectors, in proportion to peoples’ passions about the various issues. Causes from arts to zoos have their advocates.

Interestingly, Maine has a relatively large nonprofit sector compared to other states. This is partly because of the weakness of Maine’s private sector, but it also might reflect something special about the values of Mainers. In any case, the energy and funding of nonprofits comes from peoples’ commitment to a mission.

Each sector’s methods have shortcomings. Private enterprise typically makes the assumption that a dollar in the future is not as valuable as a dollar in the present, so the math and metrics of business planning often give short shrift to long-term consequences. Government — that is, the compromises of the people — is often driven by values that don’t relate to economic reality. For example, I wrote earlier explaining why Maine’s health insurance regulations, while well-intended, were broken and needed to be fixed. Another example would be Maine’s support of state universities in lightly populated areas. And the nonprofit sector is often driven by issues of the heart which lack economic support. There is an infinite queue of worthy causes begging for limited philanthropic resources, and supporters back those causes most important to them.

The values and methods of the three sectors work together to contribute in different ways to the overall health and wealth of a state or nation. What happens when the values and assumptions of one sector are applied to another? This is the topic of my next column. In short, good things may happen if the sectors learn from each other, but harm could result from ideological extremes.

James Shaffer is dean of the University of Southern Maine’s College of Management and Human Service. He is a former media executive who served as the chief financial officer of the Los Angeles Times before coming to Maine in 1991 to be CEO of Guy Gannett Communications, which was based in Portland, and had TV, newspaper and other media properties in seven states.

 

http://bangordailynews.com/2011/06/10/business/government-private-enterprise-nonprofit-%e2%80%94-what%e2%80%99s-the-difference/ printed on September 17, 2014