The difference between for-profit, nonprofit, and government organizations isn’t as big as many think.

Soccer player Tesho Akindele tweeted this curious thought earlier today:

Public transportation doesn’t need to be profitable

Nobody demands that public schools, libraries, or fire departments are profitable

We understand that these things are an investment in the well-being of our society

Public transportation is an investment, not a cost

This phrasing is common, but the language is implicitly spun.  No organization operates for long if it is not “profitable.”  The questions are only who profits and in what way.

Like businesses, government agencies and nonprofits have employees and managers, who are often very well compensated.  The differences come with customers and stockholders.  Unlike most business activities, the customers of government and nonprofits often are distinct from the people paying for the products and services.

The other difference is that government and nonprofits aren’t expected to generate money as their residual value (that is, payments to stockholders).  They are, however, expected produce some beneficial effect on behalf of taxpayers and voters.

A lack of clarity on these points often leads us to build incentives around and manage government and nonprofit institutions poorly.  It also makes it too easy for those who do profit financially (those employees, managers, and non-paying customers) to obscure the need to provide social value.

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