The nonprofit industrial complex

University of Virginia government professor Gerard Alexander is brilliant, contrarian and good humored. His highly informative Weekly Standard feature article on the “non-profit industrial complex” displays all these qualities. Professor Alexander raises concerns about the growth of the nonprofit sector and then begins to allay them:

America’s economy is so dynamic that it can humble even huge endowments. In only a decade of public trading, the Apollo Group has achieved a market capitalization of $7.54 billion, more than a quarter the value of Harvard’s endowment. The combined market capitalization of the seven for-profit higher-education companies listed earlier currently stands at $22 billion, more than Princeton and MIT’s endowments put together. And this doesn’t include billions more in value in a privately held firm like Education Management Corporation. In other words, America’s most venerable nonprofits are being given a serious run for their endowment money by a for-profit sector that virtually no one saw coming just 15 years ago.
The combination of economic growth and proliferating new nonprofit groups means that the weight even of the very largest nonprofits is very limited and can easily decline over time. For example, the Ford Foundation’s annual giving hasn’t risen but instead fallen as a share of America’s gross domestic product, to about one-third of what it was in 1960, and around two-fifths of what it was in 1968, when Ford was at the height of its supposed culture-subverting power.
Of course, the story is very different in developing countries…

My Dartmouth classmate and friend Leon Black is the founder of Apollo and its affiliates. Leon himself is of course active and generous in many parts of the nonprofit sector, serving (to take only one example) as a Dartmouth trustee and funding the Dartmouth English Department’s Leon D. Black chair in Shakespeare studies. Do such entrepreneurs have a special role to play in making nonprofits a genuine force for good? It’s a question that is slightly beyond the scope of Professor Alexander’s article, but he makes a related point:

[M]oney made in the marketplace is constantly creating new nonprofits. The Foundation Center reports that of the foundations that either had assets of at least $1 million or gave away at least $100,000 in 2004, a fifth were launched in the 1980s and fully half created since 1990. This includes some behemoths. The Gates Foundation was created only in 2000, and its annual giving–even before Buffett’s massive contribution–is already beginning to rival Sweden’s annual foreign aid. Yet the United States “is such a charitable country that even with Buffett’s billions, the Gates Foundation will still account for only 1 percent of American charitable giving,” points out Adam Meyerson, president of the Philanthropy Roundtable. This leads Meyerson to venture the prediction that “20 years from now, Gates will not be America’s largest foundation.” The point is that not even the best-endowed foundations have guaranteed influence or status. We can’t foresee the content of the coming American philanthropic wave, any more than we’ve been able to predict the direction of America’s innovative economy.

Professor Alexander seems to have had a hand in the author tag at the conclusion of his article:

Gerard Alexander is a consultant to the Searle Freedom Trust (a nonprofit under Internal Revenue Code section 501(c)(3)), associate professor of politics at the University of Virginia (a 501(c)(3) subsection 170(b)(1)(A)(ii)), and a visiting scholar at the American Enterprise Institute (a 501(c)(3) subsection 170(b)(1)(A)(vi)).

UPDATE: Ed Lasky commends entrepreneur/philanthropist Peter Ackerman — like Leon Black, an alumnus of the late Drexel Burnham school of business that Rudy Giuliani laid to rest — to our attention via Franklin Foer’s April 2005 New Republic article. If the New Republic link doesn’t work, Foer’s article is also accessible here.
CORRECTION: In my comment above, I confused the publicly traded Apollo Group (ticker APOL) referered to in Professor Alexander’s article with the privately owned Apollo Advisors and its affiliates run by my college classmate and friend Leon Black. I regret the error.
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