Non-profits, yet again
By Arnold Kling
imagine three axis [axes], one that runs from voluntary to coerced, one that runs from private means to public means, and one that runs from public ends to private ends. Now imagine three spheres: one tends towards voluntary, private means and private ends; one tends towards coerced, public means and public ends; and one tends towards voluntary, private means and private [sic–I am pretty sure he means public] ends. The first of these spheres is exchange, or what Kling seems to intend by for-profit. After all, it is usually the case that for-profit enterprises tend to involve the voluntary of exchange of private resources for private benefit. The second of these is taxation, though that could also be seen as tending towards coerced, private means and public ends. The third of these is philanthropy, in which private means are voluntarily put towards public ends; what I think Kling is gesturing at with his use of ‘non-profit’.
I think he is right to want to draw a different distinction than the one between profit and non-profit. That distinction has not proven to be very satisfying.
He puts the focus on distinguishing private ends from public ends. I think that is the distinction that my hypothetical young idealist would like to make. When I say that the idealist wants to work for a non-profit, I am saying that the idealist wants to work toward public ends, not private ends.
But what is a “public end,” and how does it differ from a private end? We could try borrowing the economic textbook distinction between public goods and private goods. But, honestly, I do not think that is what is driving our idealist.
I submit that the difference between a “public end” and a “private end” is like the difference between a gift and a purchase. You give someone a gift because you think it is something they ought to have. Either they will not or cannot purchase it for themselves. Hence, you give them health insurance, or education, or money to make ends meet. See Robin Hanson on this topic.
From an economic perspective, gift-giving appears to be rather inefficient. But it has some utility. Givers feel good about themselves. There is a greater sense of intimacy or personal connection involved in gift-giving.
I think the error (if indeed it is an error) in thinking that you are more noble working for a non-profit is the same as the error (if indeed it is in error) in thinking that picking out a present for someone else is better than giving them cash. Your motive might be paternalistic–giving the other person what you think they ought to want. Or it might be an attempt to signal intimacy. In any case, you are willing to sacrifice some efficiency in order to satisfy other motives.
Suppose that there are two organizations operating in poor villages in Africa. One provides cell phones and earns a profit. The other provides a school and earns no profit. An economist might wonder, which organization is providing the greatest benefit to the people of the village? It could very well be the cell phone company.
I think that my hypothetical idealist would not ask this question. The idealist would rather work for the school, regardless. Again, the idealist might think that education is what the villagers ought to have. Or the idealist might feel a greater sense of intimacy from “giving” education, as opposed to selling telecommunications.
[UPDATE: A commenter points out, correctly, that Mike Munger and Russ Roberts covered much of this ground in a podcast.
Related: See this post, recommended by George Paci.]