Determinants of the size of the nonprofit sector.

• Author: Pryor, Frederic L.

1. Introduction

   What are nonprofit institutions (NPIs)? Salamon and Anheier (1999) define them according to the following characteristics: The NPIs have an institutional presence and structure; they are institutionally separate from the state; they do not distribute their profits to any person or organization; they are self-governing; their membership is voluntary; and their financing is non-compulsory and comes from grants, fees, and gifts. These institutions may render charitable benefits (either goods, services, or money) to others; or provide health, education, or other services for a fee; or act to benefit those financing the nonprofit as a group of individuals as does, for example, a cooperative seed agency, a trade association, or a sports club.

   This short essay explores the major determinants of the size of the nonprofit sector in 25 nations. I measure the size of this sector both by the ratio of NPI expenditures to GDP and also the ratio of the volunteers to these organizations to the total labor force. Such an exercise raises a number of problems.

   Up to recently, many nations only reported data in their national accounts on nonprofit institutions serving households (NPISH). Such institutions represent only a narrow range of NPIs and few nations have implemented the proposed auxiliary accounts that would provide a more complete survey. As a result, published official data on other types of NPIs vary greatly in quantity, quality, and definition and are, therefore, difficult to compare. (1) Valuing volunteer services for the NPIs raises additional problems.

   Classification of the NPIs is not standardized and they can be classified in a variety of ways, by their major sources of finance, such as fees, government, or philanthropy; by the beneficiaries of their activities, such as charities; advocacy and/or political organizations (such as the American Civil Liberties Union or environmental groups) and mutual benefit organizations (such as churches, labor unions, trade organizations, fraternal and membership organizations, or cooperatives). They can also be classified by the focus of their activities, such as social service, culture, education, religion, or international; or by the NPI's relationship to the government (adversarial, complementary, or supplementary) (Young, 2004); or whether these organizations are tax exempt of not.

   In section 2 I explore some of the proposed determinants of the size of the nonprofit sector and in the following section I test them. Section 4 briefly explores the relationship between the non-profit sector and altruism by comparing my measures of the NPI with recent estimates of 'charitable giving' by the Charities Aid Foundation. A final section discusses some of the implications of the results.

2. Conjectures about the Determinants of the Size of the Nonprofit Sector

   Numerous scholars have attempted to identify the determinants of the size of the nonprofit sector, for example, Weisbrod (1977, 1988); Salamon (1987), and various authors in Powell and Steinberg (2006). With the notable exception of Salamon and Anheimer (1987) and Ben-Nur and Van Hoomissen (1992) (2), most authors have focused primarily on determinants at a micro level, and, unfortunately, without considerable modification few of these hypotheses proved suitable for the macro-level analysis carried out below. I will briefly summarizes the approaches that appear most promising to me for explaining on a macro-level the size of the nonprofit sector.

   2.1 The Level of Economic Development

   Due to difficulties in organizing, communicating, and traveling, the institutional complexity and density of economic institutions is limited in agricultural societies, we can expect that formal nonprofit institutions will be limited also. Of course, some NPIs may develop, such as informal cooperative ventures, but they are seldom surveyed in a manner to determine their quantitative importance. As the level of economic development rises and the institutional structure of the economy becomes more complex and heterogeneous, it becomes easier to form nonprofit organizations, and, moreover, more resources are available to sustain them. From this supply-side viewpoint, therefore, we would predict that the relative size of the nonprofit sector would increase as per capita GDP rises.

   For the analysis below I use the average per capita GDP from 1995 through 2002, estimated in terms of 2000 U.S. dollars (World Bank, accessed December 2011), as the measure of level of economic development. Empirical experimentation reveals that a higher explanatory value is obtained when the per capita GDP is transformed into its logarithm. This conjecture received considerable confirmation in the analysis below.

   2.2 Large-scale poverty

   On a worldwide basis roughly two-thirds of employment in the nonprofit sector is concentrated in organizations focusing on education, health, and social services/welfare (Salamon and Anheier, 1999, pp. 6-7), even though only about 30 percent of the clients of human service organizations in the U.S. numbered among the poor (Salamon, 1987, 40). Although none of the sources that I consulted mention national poverty as a possible determinant of NPI activities, a causal linkage seems intuitively and the regressions reported below confirm it in some cases.

   Since common measures of income distribution cover both the rich and the poor, I chose to look only at the share of the households (weighted by their size) with incomes less than 50 percent of the median income. Comparable data are calculated by the Luxembourg Income Study (accessed January 2012).

   2.3 Past Interrelations between State and Society

   Salamon and his colleagues (1988; 2000) have argued that the type of state and its interaction with various societal institutions have been critical determinants of the size and structure of the nonprofit sector. Strong states or those with a corporatist tradition have carried out many of the activities currently undertaken by nonprofits in other countries. We might therefore expect that such countries should have smaller nonprofit sectors; and, conversely, countries with a market-oriented or liberal state should have larger nonprofit sectors.

   Following Esping-Andersen (1990), I designate each nation's government as liberal, social democratic, or corporatist/statist, representing each with a dummy variable. (3) Then I look for correlation between the type of state and the size of its nonprofit sector. As shown below, this approach has explanatory power.

   2.4. Complementarity to Governmental Actions

   Salamon (1987) argues that the nonprofit...