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PHILANTHROPY 2173 - A practical and existential challenge to nonprofits
Lucy Bernholz

May, 2014

PHILANTHROPY 2173 - A practical and existential challenge to nonprofits


Thanks to those who chimed in on my post about Digital Data and Blurring Boundaries. To summarize - I note that digital data don't naturally respect boundaries between public, private and independent sectors, and that nonprofits/philanthropy and other civil society organization need to think hard about how they treat digital data as a resource/asset. I raise a possibility that I've been thinking about for a long time - that civil society organizations will need to encode into their structures (i.e. new corporate requirements) how they will use digital data as a private resource for public benefit in an analogous manner to the existing non-distribution and non-ownership regulations that define nonprofits and nongovermental organizations. 

In particular, I want to pick up on a theme that Pete Manzo articulated most clearly of those who commented - in his own words: 

"On the encoding question, I wonder if the coding of the rules should be done with regard to the type of information and its purposes, rather than by the type of entity that holds it (so, not encoded in the tax rules governing nonprofit status). You've probably seen Alastair Croll's suggestion that we should "link what the data is with how it can be used. I might, for example, say that my musical tastes should be used for song recommendation, but not for banking decisions." Not sure how to do that, but it sounds like a good place to start."

With regard to digital data, this is an interesting proposition. It's much harder than it sounds, because data collected for one purpose but stored on the internet in an accessible fashion immediately subjects it to the very forces that make "big data" big - it can be copied, repurposed, and connected to other data sources in ways that stray far from any original purpose. 

But Pete's comment reminded me of another issue that I've been thinking about for a long time that has not so much to do with digital data as with the nature of hybrid enterprise forms and the new social economy

Simply put that question is this - in an age when commercial social enterprises, nonprofits, hybrid organizations, informal networks and other structures all claim to be using private resources for public benefit, why are the regulatory incentives for doing so still linked to the organizational structure and not to specific activities

This is a huge challenge for all of us - we're used to these equations: 
Private resources for public benefit (PR4PB) = Nonprofit
Tax exemptions + tax deductible revenue provide incentives for PR4PB
But today the first equation actually reads: 
Private resources for public benefit = nonprofit, social enterprise, impact investing,         hybrid enterprises, some informal networks....
 So why are tax incentives not = to all PR4PB?
But if its the activities that turn the private resources into public benefit, and those activities are the purview of many types of organizational structures, than why are the incentives aligned only with one type of enterprise? It's not hard to imagine a world in which regulatory or tax incentives are not "attached" to the organization type but to the "activities" - much as Peter suggested might be done in encoding certain values into the uses of digital data, not into the enterprise form. This, my friends, is an interesting - and very real - slippery slope. 

This is the existential, and increasingly practical, challenge facing nonprofits in the social economy - what is their unique value that makes them privy to the tax incentives they enjoy

It's an existential question because it goes to the heart of why we need civil society, why we provide regulatory incentives for these actors in our democracies (OK, philosophical at least, if not existential). It's a practical challenge because of the very real need these alternatives present for nonprofits to be able to show their unique value. 


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