Profit, Puritans, and iPads: Reflections on the Bastard Cousins of Capitalism

This is the first of two part series. The views expressed in this article, unless otherwise stated, are my own.

By: Matthew Koop-Pearce

Published February 24, 2011 at socialinnovationmb.tumblr.com

I began my conversation with Brendan Reimer of the Community Economic Development Network of Canada by throwing out some ideas that have been floating around in my head about the drivers of innovation in the private sector vs. the non-profit sector, and invited Brendan to respond.

I presented a view of the private sector as being “wildly successful” at innovating and wondered out loud why this was so. I cited the private sector’s massive investments in R&D, the emphasis placed on exponential growth and novelty in product and service creation, and the culture of competition that a market system creates, all as drivers of innovation. I argued that the private sector in some ways was “naturally disposed” to being innovative for these reasons. I followed this up by reflecting on what it might look like to see civil society organizations making similar investments in R&D geared towards social transformation, and presented the argument (not my own conviction) that perhaps non-profits and other civil society bodies should become more “business-like” and savvy in their approach to innovation.

Brendan observed that for private sector enterprises it is considered best practice to strive to run the highest profit margin possible. It is no secret that running profit margins affords business significant room to invest in R&D, prototype new products and services, but most importantly profits allow businesses a margin of freedom, experimentation and security when investing in risky ventures. Contrast this to the non-profit sector, where it is not only best practice but the law itself that dictates any profit or surplus in capital that is accrued in the course of operations must be plugged back into the fulfillment of the organization’s mandate. Illustrating this difference, Brendan’s intention was not to endorse one model as inherently better or worse than the other (indeed both models present challenges and advantages to the organizations operating under them), but to illustrate that there is a fundamental moral disagreement between these systems with regards to how and why money is generated and spent.

Drawing on the arguments made by Dan Pallotta in his recent book Uncharitable, Brendan shared some thoughts with me about the historic origins of this moral divide. In Uncharitable, Pallotta argues that the not-for-profit model emerged most fully in the American colonies as an essentially Puritan moral compromise to offset anxieties about the depravity and sinfulness of profit-driven industrial and proto-capitalist ventures. The Puritan cosmological view, much like the Protestant world view from which it derives, regarded humanity as a bizarre mix of hard-working, industrial and entrepreneurial on the one hand, but also as fundamentally prone to sinful temptation, “worldliness” and corruption on the other. American Puritanism contained the most severe strains of this duality, and with the birth of a new nation and a seemingly boundless continent before them, the emergent capitalists required a mechanism to allow for their continued unrestrained growth while also providing atonement of sins. So the industrial class of the day instituted formalized charity as a penance for the gross accumulation of wealth. If capitalism was about turning a profit, some parallel institution would have to be about not making a profit. If industrial enterprise was about accumulation of wealth and worldly goods, the non-profit enterprise would have to be its opposite. Investment in worldly and morally corrupt enterprises could be offset by charitable donations to organizations who were mandated to operate without profit.

A key component of Pollatta’s work is not just to trace the historic origins of the not-for-profit model and the underlying moral framework that lead to its formation, but also to illustrate that this framework is essentially a social construct. The notion that civil society organizations should operate without profit has long been a corner stone of our social and institutional thinking, but Pallotta challenges the reader to reconsider the merits of this social construct and to imagine otherwise. Pallotta invites the reader to ask a simple but potentially transformative (and certainly controversial) question: why shouldn’t civil society organizations aspire to generate a profit?

Pallotta’s question forces us to revisit and reconsider our (often calcified and unsubstantiated) value sets about what we think is good and right and what is wrong. It is not enough to accept that simply because something has long been one way that it is inherently right and best. Is it charitable of us as a society to invest non-profits, NGO’s and other organs of our civil society with such an enormous task—the maintenance of common well-being and the public good—while at the same time immobilizing their best efforts to do meaningful work by putting extreme limits on their ability to generate and make use of resources?

As a society we seem to have no problem accommodating notions of entrepreneurship and rewarding private enterprise. In fact we celebrate the notion of the enterprising self-made individual and reward their achievements in the market (however unethical, unsustainable, or environmentally unsound they might be) with unfathomable wealth. To what end? Is our society best served by this arrangement, where innovations in the private sector (Apple’s iPad, for example) are rewarded with a flood of capital, but where innovations that address the greatest social ills we face go uncelebrated, unnoticed, and unfunded?

And what of the Puritan notion of profit as inherently morally deprave? This moral and cosmological world view certainly didn’t stop our enterprising forebears from setting America on a collision course to full-blown neo-liberal capitalism. It would seem the foundation upon which the system is based was at its very inception shown to be compromised and morally and spiritually bankrupt, hence the creation of institutionalized charity and the not-for-profit model. And yet here we are, several hundred years later—a so called modern society—and our institutions and systems still resemble those of a bygone era. With the onset of the 2008 global economic recession, and an emerging awareness for the need to reevaluate capitalism and the merit of unbridled and unsustainable economic growth, perhaps it is also time to reevaluate the merits and function of capitalism’s apparent bastard cousin, the non-profit.

More importantly, perhaps it is time to reevaluate our ideas about what profit is, how it is generated, and what ends it should serve. The Puritan notion of profit as inherently morally deprave is not only antiquated it is a logical fallacy that conflates means with ends and leaves neither properly defined or understood. Indeed profit is a cornerstone of not only capitalist society, but of civilization itself. The cultivation of surplus goods and capital, be it the stock piling of harvests, or money in the bank, is one tool civilizations throughout history have used to enable security of person and place and to sustain confidence in long term settlement and survival. How these civilizations have chosen to invest surplus resources has defined the moral character of that civilization and ultimately determined its fate. With history as our guide, it would appear that civilizations have consistently failed to find sustainable ways to invest surplus wealth, writing the story of their own undoing with irresponsible investments.

Can we imagine a place for profit or surplus capital in our civilization (currently on the brink) that is guided by enlightened, long-term, and sustainable principals? Imagine! Likewise, can we imagine a place for profit or surplus capital in our civil society organizations that is also guided by enlightened, long-term, and sustainable principals?

The Natural Innovator’s Breakfast Club, or How I Learned to Stop Worrying and Love the System

This is the second post in a two part series. The views expressed in this article, unless otherwise stated, are my own.

By: Matthew Koop-Pearce

Published February 26, 2011 at socialinnovationmb.tumblr.com

Can we imagine a place for profit or surplus capital in our civil society organizations that is also guided by enlightened, long-term, and sustainable principals?

I concluded my last post with this question, echoing Dan Pollatta’s invitation to rethink our assumptions about the uses and potential of profit for civil society organizations tackling complex social problems. I suggested that blanket criticisms of profit as inherently morally suspect were not only logically unsound and historically antiquated, but also dangerously regressive for our purposes.

If innovation comes out of thinking on the margins, of navigating the space between what is possible and impossible, transforming those variables we think are outside of our realm of control into possibilities that are within our grasp, it is absolutely essential that we allow a diversity of perspectives and conflicting ideas to inspire our thinking. Sometimes this means challenging our long held assumptions and asking controversial questions.

Resisting the temptation to turn this blog post into any more of a diatribe than it may already be, I’m going to leave the hypothetical discussion about the place of profit in civil society alone for now and return to a summary and reflection of my conversation with Brendan.

Heady with the transgressive ideas of Dan Pallotta in our minds, Brendan directed our conversation to consider a second important dimension of the “innovation puzzle,” the idea of risk. Once again Brendan observed a distinct difference in overall attitude and regard for risk-taking between the private and civil society sectors. He observed that in some ways for-profit enterprises regard risk as a necessary dimension of the operational game. Business is expected to take risks—investment is by its nature risky. But the share holder expects and welcomes this risk, because although with every new venture there is the potential for failure and loss, there is also the potential for huge payout. In contrast, Brendan observed that on whole there is a distinct culture of risk-aversion within non-profits. This is especially the case at the board level where the role of the executive is (often but not always, and not exclusively) considered to be that of a sworn guardian or steady hand on the ship, interested in the long term survival of the organization rather than the short term gain. Once again, I should emphasize that Brendan’s intention was not to hold one model above or below the other, but simply to illustrate (in general terms) a difference in organizational culture and attitude towards risk.

I am using the term “culture” decisively here to describe both the private and civil society sector’s relationship to risk because in many ways the attitudes and assumptions that guide a sector’s approach to risk are formed in reaction to the conditional circumstances in which they operate. It is no wonder that non-profits are on whole “risk-averse” when we consider the increasingly restrictive culture in which they are expected flourish.

Brendan cited a number of the so called cultural challenges that non-profits face, such as the loss of long term vision-driven funding and the rise of short-term project-oriented funding. I have also discussed these

cultural challenges at some length in previous posts here and here. The point to be made is that like the private sector, financial resources provide a means to bring vision to fruition. A cultural milieux that is flexible and open to experimentation and not rigidly defined by policies that are out of touch or driven by political opportunism, are the conditions most conducive to thriving non-profits and the only culture in which innovations can thrive.

It was at this point that I recognized that the initial argument I presented at the beginning of our conversation, that private sector enterprises might somehow be “naturally disposed” to innovate, was in fact dead wrong. Brendan was emphatic in his view that it is in fact the non-profits who are the natural innovators. Brendan lamented the prevalence of arguments that state nonprofits need to learn to be more efficient with their resources. “If you’re trying to solve poverty in Winnipeg on shoe strings,” he said, “you are efficient, and you will need to be innovative to succeed.”

Non-profits are the natural innovators because they operate in a culture or climate that requires they do more with less. In the course of my research for this project, time and again I have encountered the idea that limits are sometimes the very best conditions in which creativity can flourish. In an upcoming post I will be reflecting on the conversation and ideas I shared with Kyle Romaniuk from Cocoon Branding on this very subject. Kyle’s experience as a designer, working with clients and within the limitations set by very specific design briefs, has taught him that creativity and innovation often thrives in that space between internal and external variables, between what can be managed and what cannot.

Building on this idea, Brendan also introduced the idea that non-profts tend to be natural innovators because they fundamentally approach problems as complex systems rather than simple formulas. “Nonprofits do more on complex issues, with less, than any other structure in this world. Business models are dealing with formulas: input, output, profit. Squeeze labour, raise prices, pay less for your product, and grow profit—hopefully. It’s a formula.” But the problems that non-profits and other civil society organizations are tasked with solving are complex problems. Take the issue of low-graduation rates or youth involvement in gangs, for example. These are complex problems which must be addressed by looking at the whole system—poverty, housing, family health, mental health, and social enfranchisement—and not just isolated inputs. Brendan describes this way of solving problems as “systems thinking” and observes that innovative organizations are fundamentally systems thinkers.

Complex problems cannot be solved with formulaic strategies. This is a given, or should be a given. But here again we encounter the challenge of limits: while those of us working in the sector and on the front lines of the complex issues understand this principal, our funding regimes do not match and do not support our outlook. More often then not, non-profits are required to align their programming to models (formulas) which have no baring on lived experience, or which treat complex problems with formulaic techniques and short sighted programs.

It is here that Brendan sees the value of community economic development (CED) as an innovative way of trying to solve complex problems. “If you’re going to innovate, to me it’s often about… well, sometimes it’s just about being creative, but more often innovation comes out of system analysis, where you start to look at what works and what doesn’t… and you realize that charity doesn’t work.” The idea that Brendan is expressing here is not that charity is wrong, or has no place in supporting the work of civil society organizations, it is that charity alone is not the solution. The truth of the matter is that what we have today with the setup of our non-profit sector is essentially a glorified charitable model: it is organizations with very limited means of generating their own resources, appealing on bended-knee to elite funders, who in turn dictate programming that is out of touch and ineffective. This is not a sustainable model. This is not an efficient use of resources, to use the language of economics that is so prevalent today.

Charity is an effective tool for alleviating immediate and short term needs: food today, shelter this month, resources now. We cannot hope for charity to solve complex problems which require a systems thinking or holistic strategy. Brendan believes that the community economic development model takes this systems approach. Brendan sites local CED initiatives like BUILD and their approach to job-creation for individuals with barriers to employment as innovative for its regards for the person as a whole being and not just an individual with an isolated issue or problem. The individual’s employment challenge is connected to a whole cluster of related socio-economic circumstances, and BUILD’s programming is developed to address these complex needs. BUILD does not just provide employment, it helps individuals get their driver’s license, provides financial planning and management supports, invites employers to connect with traditional culture and healing by including elders on the job site and bringing employees out to sweats.

Brendan cautioned me that when it comes to looking for and identifying innovation, it is not enough to just highlight specific programs or projects as an instance of innovation. The real innovation is in the systems approach an organization takes in recognizing and addressing the complexity of the issue in a holistic way. And yet, while this holistic approach may be considered innovative to some, for many First Nations community based organizations who bring a traditional world view and way of thinking to their work, it is a way of approaching life and work that simply makes sense. I am talking here about the philosophy of the medicine wheel. First Nations community groups in Manitoba are using their traditional teachings about the medicine wheel to inform all the dimensions of work they do, from community consultation, strategic planning, to program development and evaluation. Increasingly, the model is being recognized as a powerful tool for social transformation and healing and is being embraced outside of Manitoba. In the coming weeks we will be profiling stories from Manitoba organizations that make use of the medicine wheel framework. Please leave your comments and questions below!