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Chapter 3: Philanthropy and Public Policy

Sector Failure and Interaction

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A major strength for a nation is robust interaction among the four sectors: business, government, nonprofit, and family. Strong families, effective government, profitable commerce, and efficient voluntary service lead to individual and national success (one might argue – world success).

Because humans populate each of these social areas, the systems are inherently flawed; sometimes things go wrong. The problems might be small, such as an individual embezzlement in a local charity that results in its closure. Or they might be huge, such as the Great Depression. When things go wrong in one of these four arenas, it’s referred to as sector failure. When sector failure occurs, the problems are “inherited” by the nonprofit sector. For example, the issue of homelessness in a community is the result of multiple sector failures. It is a business sector failure because businesses cannot make money creating housing for the poorest of the poor. It is a government sector failure, for government at all levels does a poor job of providing community mental health services – and the mentally ill make up a large proportion of the homeless. It is a family sector failure because the size and scope of the problem is simply too enormous for individual families to handle. Thus, the sector failure of homelessness lands in the lap of nonprofit organizations.

VideoVideo:  Watch leaders discuss the relationship between the private, public, and nonprofit sectors of society.

[videocluster tag="sector-interaction"]
The idea of sector failure is a point of view proposed by Salamon, Weisbrod, and Hansmann in The Study of Nonprofit Enterprise: Theories and Approaches, edited by Helmut K. Anheier and Avner Ben-Ner, New York, Kluwer Academic/Plenum Publishers, 2003. In this discussion, the argument is made that the preferred mechanism for meeting public needs is through the voluntary sector and it is voluntary sector failure that requires government to step in.
The social, political, environmental, economic, and health issues of the times also buffet these sectors. War, rapid technological advancement, pandemics, success in solving a social or health challenge, or changes in political leadership require a state or nation to respond to pressures not of their own making. Finally, the size of the United States (both in terms of geography and population), its capitalist economic system, democratic political system, and the diversity of sub-cultures within its borders leads to great disparities in expectations and beliefs regarding the appropriate role for each of these sectors. When one sector fails, other sectors “step in” to help put the nation back on a strong course. For example, during the Great Depression – starting in 1929 with the collapse of the U.S. corporate sector – first, families; then nonprofit organizations; and finally government at all levels “stepped-in” to provide assistance. Today, even in rural areas where government presence and business interests are sparse, individuals come together to form cooperative businesses such as credit unions, food co-ops, and community energy companies. Adapting to changing conditions occurs in each of the sectors individually, and across society as a whole. Entrepreneurs innovate with new technologies. Some are operating for profit through a business; some are working for the general community in a not-for-profit. The business sector wants to be the first to use a new tool or idea to make money. Nonprofits want to be the first to solve a community problem.

VideoVideo:  Watch leaders discuss the value of an entrepreneurial spirit in philanthropy.

[videocluster tag="entrepreneurs"] As the novel idea, tool, or resource proves its worth, general adoption of the “new” and “different” spreads. Rather than citizens who resist change, or tyrants who demand change, new approaches and technologies are accepted through exposure and adaptation in each of the sectors as pragmatic solutions to problems. The United States is variously described as a “melting pot” or a “nation of immigrants.” Many analogies can be used to capture this facet of the country’s reality. The U.S. is made up of many sub-groups, each with their own ideas and desired policies for the nation. To add to the complexity, each person might belong to several sub-cultures at the same time – ethnic, racial, gender, geographic, age, marital status, ability, or hobby interests, for example. The four sectors (government, business, family, and nonprofit) provide opportunities for the resulting tensions to be dispersed and resolved. In the four-sector society, the nonprofit sector plays a vital role. This sector provides human and financial resources when business, government, and/or families fail. The nonprofit sector generates its own new ideas, adapts the ideas of others, and applies technologies to the solution of human and social problems that benefit the whole community. The nonprofit sector provides a place for competing ideas and interests to find their voice, to advocate for their points of view, and to take action to educate and convince the greater society about the rightness of their cause.

VideoVideo:  Watch Craig Ruff discuss advocacy in nonprofit organizations.

[videocluster tag="advocacy"] This vital role includes advancing public policies through government actions that help to improve the human condition. Public policy – the body of laws and regulations that define the formal operation of our civil society – is the province of the government sector. All three of the other sectors seek to affect its formation and operation. The business sector, with its highly organized structures and ability to create great wealth, has the greatest means for affecting the formation and operation of public policy. The family sector, with its millions of decentralized small units and its relative scarcity of financial resources, has the smallest means for affecting public policy. This means that the nonprofit sector plays a key role in public policy formation, representing not only its own organizational interests, but also the interests of families and individuals across the nation. For example, if regulation of toxic emissions from coal-fired power plants is under consideration, the business sector as a whole is likely to be indifferent to the need for stronger regulation. At the same time, some subsectors (such as power utilities) could be adamantly opposed to regulation. Although families could have a vital stake in the matter, this sector is too decentralized and cash-poor to have a significant impact upon the policy debate. The interests of children, the elderly, and those with respiratory diseases, therefore, can only be served by nonprofit organizations participating in the formation and operation of both laws and regulations.

VideoVideo:  Watch leaders discuss public policy in the nonprofit sector.

[videocluster tag="public-policy"] Overall, the four sectors interact in various ways to create a common living space for all individuals, affecting the network of public policy laws which govern us. Nonprofits, or the “third” sector, serve a unique role as an advocating voice for minority groups who may be overlooked by the business, public, or family sectors. The nonprofit sector serves as a catalyst for social change, stepping in when other sectors fail to generate solutions to social problems.

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