Having taken a look at many non-profit charities to see how they are perceived by the American public, watched the oft-referenced TED talk from Dan Pallotta, and witnessed a lot of rhetoric about, "This charity is bad / This charity is good," I wanted to know more about how the concept of a non-profit charitable organization came into being in the first place, and how that has evolved since then.
For instance, Pallotta claims that charities were created as a function of Puritan culture, wherein people performed charity in order to make up for their profit-making sins, and that this "for-profit to make money" vs. "non-profit to save your soul" dichotomy has persisted to this day. This seems simplistic, and he certainly doesn't cite historical sources.
How accurate is that statement? How did charities become a concept, how did our methods of evaluating them evolve, and how have those concepts changed throughout the years / decades / centuries? (millennia?)
Please bear with me: this is my first time actually posting in this subreddit. I am getting my masters of public affairs and concentrating on nonprofit management in the US. Throughout my classes, the history of philanthropy and nonprofits has been touched upon. Here is what I learned:
The books cited below never spoke of this puritian kind of charity as a starting point for American philanthropy or nonprofits. Also, many nonprofits are non-religious, so saying that nonprofits exist to save souls is absurd.
The "market failure theory" is often cited for the reason of why nonprofits exist (tl;dr version: if the government or business sector is not filling a social need, the nonprofit sector will find a way to meet the need, and so on) - obviously not everyone agrees with that theory, but it is the accepted standard.
Charitable giving has been around as long as people have given to others in need or provided a needed service to the community, but the first recorded act was in 347 b.c. source I'm not sure of the actual date of when 501(c)3 nonprofits came to be in the tax code, but one of the first social service agencies recognized as such was run by Jane Addams and began serving residents in the 1890's in a poor area of Chicago. Here is her autobiography.
The question about evaluating nonprofits:
disclaimer: each nonprofit has different mission, so evaluating all nonprofits the same is very difficult.
It used to be enough for nonprofits to give outputs to their donors in order to receive funding (for example, "last year, we served X amount of meals to homeless individuals"). Within the past 10 years, the trend has become for nonprofits to provide outcomes as well (example: because we fed x amount of people, they are better off, and we can prove that by less trips to the emergency room due to malnutrition, etc). This could be due to the fact that the individuals who allocate the money to many nonprofits are business people who are often used to seeing hard numbers to make the most informed decision. Obviously, this proves difficult for many small nonprofits, who may not have the skill or manpower to develop such evaluations.
The best way to tell if a nonprofit is 'good' is to see if they are achieving their mission statement in the best way possible. Are they making a difference? Are they using their money to the best of their abilities? (staff and overhead costs are NOT a good indicator of how well an agency spends its money.)
These things only apply to agencies that get public funding. If Joe Blo is loaded and wants to start his own nonprofit with his own money, he does not have to prove anything to anyone. There are nonprofits in America that are worthless and do no good, but if they are privately funded, they can do that.
I'm sorry if this is a bit all over the place. Feel free to ask questions if I didn't explain something thoroughly.
Sources: The Nonprofit Sector: A Research Handbook, Second Edition (Yale University press); Charity, Philanthropy, and Civility in American History (Cambridge press)
The charitable or "eleemosynary" corporation was recognized in English common law, described in Coke on Littleton, and then Blackstone's Commentaries on the Laws of England, evidently dated to fourteenth century or earlier. Colleges at Oxford and CAmbridge were classic examples. Nothing to do with Puritan "culture," whatever that might be. The rationale given for modern US tax exemption for donations to charitable organizations as usually stated is that they perform functions that otherwise would devolve on government. State and local governments generally have an obligation to provide free public education, subsistence, and health care, so organizations that provide these services are eligible for 501(3) classification, although that has broadened considerably, especially in definition of "education." State law usually follows the federal. Section 501(c)(3) does not govern whether the organization itself pays taxes; for-profit schools, hospitals, publishers etc. pay taxes like any business. If the organization is organized as a not-for-profit enterprise, the 501(c)3) classification allows people who make donations to these organizations to deduct them from their own income taxes. This has nothing to do with religion, just distinguishes investments from contributions.