The balance of For- and Non-profits

I am skimming a book by David Bornstien called "How to Change the World: Social Entrepreneurs and the Power of New Ideas". Somehow I have managed to get past the incredibly modest title and short introduction yet still have no idea what a Social Entrepreneur actually is... but we can come back to that
in a later blog.

The book begins with a discussion of the explosive expansion of the Non-profit (NGO) sector in recent years. Both the number of organizations and the amount of money invested in the non-profit sector have increased greatly since 1960. This "explosion" of non-profits is something that you can't ignore living in Malawi (especially when you travel to Lilongwe, the capital city) ... non-profits are everywhere. There is an acronym and organization for every type of social cause you can imagine, even the ones you could never have imagined. The only one i havent seen is an NGO to help other struggling NGOs. But i am sure its on the way.

I feel a little overwhelmed by non-profits at the moment. So, I am trying my hardest to keep a positive view of the effectiveness of non-profit endeavors. There are simply so many... pulling in so many
different directions... so many that fail... or come for a short time and then vanish. Long term success stories in non-profit work in Malawi are hard to come by.

The amount of non-profit money in the Malawian economy is astounding... "development" work is an industry if not THE industry in Malawi. While I agree with Bornstien that NGOs serve an important role in societies because they can fill needs that could not be filled adequately by market economies, I have a hunch that one of the biggest hindrances of economic growth here in Malawi is an unhealthy balance between the non-profit and for-profit sectors of the economy. I did some very quick research in the CIA world fact book and found:

  • GDP of the Malawian economy in 2005 was about $1.2 billion dollars
  • Foreign aide investment (Governments, World Bank, IMF) was about $0.45 billion dollars

According to my rough estimate it seems about the public non-profit sector donations\loans are equal to about 1/3 the total GDP of the country. I was not able to locate figures for private foundation donations to Malawi, but my guess is that these figures are large as well. If we were to include private non-profit donation into the figure, I imagine we would be very safe to assume that, "donations" make up a dollar amount equal to at least one half of the "production" within the Malawian economy. And that's being conservative.

To me this looks like an unhealthy balance for an economy.

Here is an example of what I am talking about: When my mom was visiting she ask Marissa and myself a very insightful question - "What types of job opportunities are available to Malawians once they graduate from secondary school (high school)?". I had no quick reply. It's hard to imagine for foreigners, but there is not much industry here. Paying jobs are few and far in between. The biggest "industry" I could think of that is providing people jobs is what I will call the "development industry". The foreign funded government or non-profit groups (NGOs) that come to Malawi to try to "help". Its true, some of the best jobs that Malawians can aspire to obtain are jobs at foreign funded NGOs. They usually pay very well when compared to local industry pay.

My thought is that foreign funded non-profits actually hold a sort of monopoly on the Malawian labor force. Because they can pay so much more in salaries they are able to hire the most qualified Malawians for their work. Local industry, which cannot match the high salaries, must settle for less qualified employees. I wonder if it wouldn't be better if more of Malawi's most talented professionals where working within “production” sector of the economy as entrepreneurs and managers in the for-profit sector?

Again, I have not been able to do extensive research, these are quick estimates. I am not a professional economist, but I pose this idea for all of you out there to ponder and debate, and tell me where I am wrong. This is, simply a hunch; something that I would look into if I were a better economist and had more time.

If its true that, in certain cases, non-profits are able to fill certain societal needs better than for-profit companies; then it must also be true that there are other societal needs that are much better filled by for-profit "production" endeavors than non-profit "donation" ones.

More balance between the two sectors might be a very good thing for Malawi.