Non-Profits and Capitalism?

[Craig Laughlin]

I was listening to a story about a particular area in which the author was pretty clearly a capitalist but was arguing that in this area (I'll not share it because that would sidetrack the real issue) that non-profits did a better job.

What I am interested in understanding is the larger philosophical place of non-profits in a capitalists economic structure? Is there a place?

No agenda just trying to understand.

[Dan Henderson]

A more accurate term is Non-Tax Paying Entity. All organizations, including churches must earn a profit to thrive, not to mention, survive. So my BLUF (Bottom Line Up Front) is that in a pure capitalist society, organizations such as this would develop right along side capitalistic ventures. Not necessarily for altruistic purposes.

The general rationale under capitalism for a Non-Tax Paying Entity, is that the goods or services provided by that organization outweigh or are at least equal to the benefit of the whole (society, industry) as the taxes they would pay. Even if a local church only cared for the poor in their own congregation, in the form of a closed system, they are providing a benefit to society and to industry that is at least equal to what their contributions to the tax base would be. If a church is taking care of its poor, then no one else has to, thus it is a cost avoidance for industry and government. Churches, civic organization, and other 501(c)3 types. fall into this category. I won't discuss political organizations because that is a different issue.

In industry, taxes pay for infrastructure that individual corporations normally would not pay for. A good example is roads. Roads are a mutually beneficial commodity provided by taxes that benefit industries as a whole. The whole game in tax accounting is to do your best to insure that your competitor contributes more to the common infrastructure than you do.

There is an economic theory, which I remember vaguely, but cannot find in my notes, that considers that portion of the potential workforce that is basically unemployable. I think for discussion purposes its considered about 10% of the population. These are potential workers who, if employed, would actualy contribute negatively to the bottom line. It might cost you $5K to employ them for a month but they generate nothing for the company. The economic theory suggests that it is better for industry to keep this group of people out of the work force. The idea is to pay someone to not work, in order to increase profits in the company. Industry would rather pay taxes (and/or) let another organization not pay taxes, to keep this group out of the workforce. I didn't post this in another thread because this is a different type of poor than what is being discussed on another thread. This group can't help it, they are basically unemployable, for whatever reason, through no fault of their own. There is a different group of poor who are poor because of their own decisions.

Its this group that industry would want to pay for things such as unemployment tax, 1/2 of social security and medicare and other such expenses. It is quite possibly cheaper than providing jobs for this group. No capitalist wants to pay for people who refuse to work. On the other had, I know plenty who are willing to pay for (help)people who cannot or should not work if for no other reason than to keep them out of the work force.

[John Reilly]

Craig, interesting thread.

Capitalism needs not for profit entities to perform services that simply must be done but would not be profitable for a company seeking profit for goods or services. My down syndrome cousin lives in an adult group home. Our family has been involved in the management of this group home. We tried a "For profit" private sector company to provide the services needed for the group home. However the private sector company was no more efficient than the public sector. The Massachusetts State Law allows some flexibility in the allocation of state funds towards managing such services as group homes.

So capitalism needs the public sector often subsidized by government tax revenue to provide some functions that would just not be attractive to "For profit" private sector entities.

A quote from Dan, "The general rationale under capitalism for a Non-Tax Paying Entity, is that the goods or services provided by that organization outweigh or are at least equal to the benefit of the whole (society, industry) as the taxes they would pay." In accounting a term used is "Goodwill" which refers to the contribute of a company to the community. So tax paying for profit corporations often allocate money for "Goodwill" to the community. Non profit entities also offer "goodwill" to a community such as a church that will contribute to the betterment of the community through service projects or simply through lifestyle enhancements.

[Ryan Scott]

A more accurate term is Non-Tax Paying Entity. All organizations, including churches must earn a profit to thrive, not to mention, survive.

That's just not true. Most every venture needs to have an income of some kind, but that's very different than earning a profit. Profits come from net revenues, not gross.

[Ryan Pugh]

That's just not true. Most every venture needs to have an income of some kind, but that's very different than earning a profit. Profits come from net revenues, not gross.

I know of a house church (and I'm sure there are more that I don't know about) who gives away 100% of their income/gatherings to the poor. So I don't even know that we can really say every venture needs an income (surely not profit), unless you want to say that the church would stop being the church if they didn't collect resources so that there would be nobody in need.

[Ryan Scott]

I know of a house church (and I'm sure there are more that I don't know about) who gives away 100% of their income/gatherings to the poor. So I don't even know that we can really say every venture needs an income (surely not profit), unless you want to say that the church would stop being the church if they didn't collect resources so that there would be nobody in need.

I didn't say "every;" I said "most every" for that very reason.

[Ryan Pugh]

I didn't say "every;" I said "most every" for that very reason.

Good call. Need to read closer.

[Wilson Deaton]

A more accurate term is Non-Tax Paying Entity. All organizations, including churches must earn a profit to thrive, not to mention, survive.

A Wikipedia definition: A nonprofit organization (NPO) is an organization that uses surplus revenues to achieve its goals rather than to distribute them as profit or dividends.

Wilson

[Dan Henderson]

That's just not true. Most every venture needs to have an income of some kind, but that's very different than earning a profit. Profits come from net revenues, not gross.

Ryan and Ryan, you are in my lane right now. It is true, it is true enough to be considered a principal. This is my profession. The house church is only able to give from its gain. The only way it can give away 100% is if it has no (0%) operating expenses.

[Ryan Pugh]

The house church is only able to give from its gain. The only way it can give away 100% is if it has no (0%) operating expenses.

I think that's kinda the point.

[Craig Laughlin]

So is the primary paradigm non-profit or non-tax paying? - Those seem to me to be functionally related but philosophically very different. I'm not sure I understand at all the philosophical issues associated with the idea of a non-tax paying paradigm.

So I think the idea of a non-profit's purpose to do those things which are not attractive to for profit mechanisms. I think I get that idea and function but I wonder how that fits into the theory? Isn't the whole motivation of capitalism profit? I don't mean greed. I mean the underlying theory is that people do things for profit. Why, given that theory would anyone create a non-profit?

For those of you that are experts on economic theory did any of the great writers address this?

[Ryan Scott]

I've always looked at it as a difference in motivation - at least in the way corporations are conceived of in the US. A for-profit entity has the motivation of profit: they exist to make money. A non-profit entity has some other purpose in mind, usually associated with social service.

I'd almost like to separate the idea of a non-profit from tax-free status. We have so many organizations these days which are clearly profit motivated, but also non-profit corporations; their goal is simply to make profit for someone else. I'd classify most every political group in this category, probably those organizations designed for facilitating business connections as well.

[Craig Laughlin]

I've always looked at it as a difference in motivation - at least in the way corporations are conceived of in the US. A for-profit entity has the motivation of profit: they exist to make money. A non-profit entity has some other purpose in mind, usually associated with social service.

I'd almost like to separate the idea of a non-profit from tax-free status. We have so many organizations these days which are clearly profit motivated, but also non-profit corporations; their goal is simply to make profit for someone else. I'd classify most every political group in this category, probably those organizations designed for facilitating business connections as well.

That is an interesting nuance I had not thought about and sheds light on the idea of Non-tax paying. If one has created a not for profit with the purpose being to create profitable relationships then the idea of profit is still a part so the next best explanation is that it is non-tax paying.

Good thought.

[Dan Henderson]

I think that's kinda the point.

The house church has expenses. Those expenses are being hidden from the group. Therefore it only appears that they are giving away 100%. The individuals who are giving as a group are each giving from their GAIN (from their net income). In the house church, someone is paying for the house. So even though they don't have a set of books that reflect income and expenses, they have in effect, income and expenses.

[Billy Cox]

I know of a house church (and I'm sure there are more that I don't know about) who gives away 100% of their income/gatherings to the poor. So I don't even know that we can really say every venture needs an income (surely not profit), unless you want to say that the church would stop being the church if they didn't collect resources so that there would be nobody in need.

A house church can give 100% of its offerings (or receive no offerings to start with), because it typically has no employees and the owner of the 'house' absorbs overhead costs, such as mortgage and utilities. Likewise, the house church could show zero incoming revenue, but practically speaking the amount of the mortgage and utilities - or some portion thereof - could be thought of as income.

[Ryan Scott]

A house church can give 100% of its offerings (or receive no offerings to start with), because it typically has no employees and the owner of the 'house' absorbs overhead costs, such as mortgage and utilities. Likewise, the house church could show zero incoming revenue, but practically speaking the amount of the mortgage and utilities - or some portion thereof - could be thought of as income.

Your employer doesn't count the cost of maintaining and fueling the vehicle you get to work in as income. Why is this different?

[Dan Henderson]

Your employer doesn't count the cost of maintaining and fueling the vehicle you get to work in as income. Why is this different?

I actually know the answer to that question, go figure. Its your responsiblity to get to work. So that is your expense, not the organizations. It would become the organization's responsibility if you traveled from work-site A to work site B and so on. It would not be the company's responsibility to track expenses from your final work site to home.

So getting to work and getting home from work is on you, its your expense. Traveling between work sites is the company's responsibility. So much so that if your employer does not or cannot reimburse you, tax law allows you to claim it (I can't remember right now if its a deduction or a credit) on your income taxes as a work related expense.

Someone else asked about different types of non-profits. I'm not going to go there, mainly because I don't want to. I'm only interested in talking about the 501(c)3 qualified organizations. And specifically, the ones that are formed to address a specific group need.

You can used different terms for Income and Expense, such as Revenues and Expenditures in Gov't accounting. The words change based on the type of organization but the underlying principals don't change. You still have to spend less (or at least no more) than you bring in. If you don't, the organization does not survive (unless you can print your own money, but as I said, I won't go there).

[Jim Chabot]

A Wikipedia definition: A nonprofit organization (NPO) is an organization that uses surplus revenues to achieve its goals rather than to distribute them as profit or dividends.

Wilson

A good definition, however the internal structuring of some "non profits" tell a different tale.

For instance. In our State a popular congressman had decided to retire from politics and once again resume the helm of his non profit corporation.

The name of the non profit is Citizens Energy Corp. they are providers of free or discount heating oil for those who cannot afford it, they provide a good social service. Are they non profit, well yes they are, however it was revealed at the time of his departure that Joe Kennedy's salary at Citizens Energy was in excess of $600,000. Whereby the company makes no profit, it could be said that it's leader does profit.

I like Dan's observation that they are non tax paying entities. While many non profits do provide humanitarian services, there remains a workaround for the prohibition of retained earnings, as salaried employees can reap the profits through their compensation.

[Ryan Scott]

I like Dan's observation that they are non tax paying entities. While many non profits do provide humanitarian services, there remains a workaround for the prohibition of retained earnings, as salaried employees can reap the profits through their compensation.

This is why I made the distinction above about the real purpose of the organization. You really can't compare a foundation, whose CEO likely makes more than million dollars a year, so a community center where the CEO is lucky to make $30,000 grand. The government classifies them all as non-tax paying entities, but there are some true non-profit social service providers out there.

[Billy Cox]

Your employer doesn't count the cost of maintaining and fueling the vehicle you get to work in as income. Why is this different?

That's not the point. The owner of the house where a house church meets is contributing something of monetary value that makes the purchase/rental of a meeting space unnecessary. Maybe it's not income, but it certainly has value.

[Ryan Scott]

That's not the point. The owner of the house where a house church meets is contributing something of monetary value that makes the purchase/rental of a meeting space unnecessary. Maybe it's not income, but it certainly has value.

Not if renting a meeting space is option - as in this scenario. A house church ceases to be once it rents a place to meet. This is a relatively pointless exchange, but it does illustrate the attempt to put everything into an economic/capitalist model - which is sort of where the thread began anyway.

[Jim Chabot]

That's not the point. The owner of the house where a house church meets is contributing something of monetary value that makes the purchase/rental of a meeting space unnecessary. Maybe it's not income, but it certainly has value.

Exactly right, an in kind contribution has monetary value. Thus it is income.

Since the definition of a non profit organization is given by the tax code and all of these organizations function accordingly, everything fits properly into an economic/capitalist model.

[Dave McClung]

I've always looked at it as a difference in motivation - at least in the way corporations are conceived of in the US. A for-profit entity has the motivation of profit: they exist to make money. A non-profit entity has some other purpose in mind, usually associated with social service.

I'd almost like to separate the idea of a non-profit from tax-free status. We have so many organizations these days which are clearly profit motivated, but also non-profit corporations; their goal is simply to make profit for someone else. I'd classify most every political group in this category, probably those organizations designed for facilitating business connections as well.

Ryan, pehaps my experience has given me a different perspective. I have served as attorney and as a board member of quite a few non-profit organizations. In my view they are some of the most "profit motivated" organizations around.

The difference between a "for profit" and a "non profit" organization is simply to whom the organizations executives owe their fiduciary obligations. In a "for profit" organization, the executives report to a board of directors who are elected by the shareholders. The lines of fiduciary obligation are clear. The organization operates for the benefit of the shareholders. That is the law and the way it should be.

In a "nonprofit" organzation, the executives report to a board; however, the way the board is elected varies greatly from one organization to another. Most "nonprofits" are agenda oriented. In theory, they operate to support some charitable purpose, but in many instances they use their non-tax paying position to compete with businesses. Let me give an example. In our community, we had a number of thriving health clubs. They provided jobs and paid taxes. The YMCA came to town and built a large facility. They pay no taxes and put all the health clubs out of business because they offered a better facility at a lower cost. The YMCA started as the "Young Men's Christian Association", an organization with a religious purpose. The recently changed their name to "The Y." If you click on "about us" on their web site you will see that they are "the nation’s leading nonprofit committed to helping people and communities to learn, grow and thrive.." There is nothing about Christ in their purpose. In my humble opinion, the only differenc between the Y and a health club is they don't pay taxes. Somehow, that doesn't seem right to me.

[Dave McClung]

Let me mention one more example of how "nonproft organizations" can abuse the system. A few years ago a church approached Linda and me for a donation. A building near the church had become available at a "below market" price. The church wanted to buy the building to open a "thrift shop" to benefit the poor of the community. We helped them buy the building. They opened the Thrift Shop and operated it for several years. After a couple of years, I asked for an accounting of how much the Thrift Shop had provided to the community. I learned that no attempt had been made to generate a "profit." They had received donated goods and sold them for just enough to pay the people who operated the shop. Nothing was generated to give to the poor.

Bottom line -- I wish I had given our donaton directly to the poor. It would have done a lot more good than supporting the nonprofit thrift shop.

[Dave McClung]

That is an interesting nuance I had not thought about and sheds light on the idea of Non-tax paying. If one has created a not for profit with the purpose being to create profitable relationships then the idea of profit is still a part so the next best explanation is that it is non-tax paying.

Good thought.

Craig, while you are thinking about these issues, it helps to follow the cash flow. Most "non-profit" organizations operate on donations. Some donations are in the form of labor and some are in the form money.

Where do the chairitable donations come from? Some of it comes from people who donate part of their profits, but most come from the earnings of people who are employed by businesses. If it were not for "for profit" businesses which employ most people, the nonprofit organizations wouldn't have the donations.

[Ryan Pugh]

The YMCA started as the "Young Men's Christian Association", an organization with a religious purpose. The recently changed their name to "The Y."

This doesn't necessarily affect your post as a whole, but just to clarify, the Y didn't change their name, just the way they are doing their branding. Their branding now reflects what people commonly refer to them as: "The Y", which is explained on their website. They are still the "YMCA", even having YMCA as part of their new logo.

If you click on "about us" on their web site you will see that they are "the nation’s leading nonprofit committed to helping people and communities to learn, grow and thrive.." There is nothing about Christ in their purpose. In my humble opinion, the only differenc between the Y and a health club is they don't pay taxes. Somehow, that doesn't seem right to me.

I found this on their About page:

With a mission to put Christian principles into practice through programs that build a healthy spirit, mind and body for all...

And at the bottom of their website is the official stuff:

Copyright © 2012 YMCA of the USA. All rights reserved.
The YMCA is a nonprofit organization whose mission is to put Christian principles into practice through programs that build healthy spirit, mind and body for all.

[Dave McClung]

This doesn't necessarily affect your post as a whole, but just to clarify, the Y didn't change their name, just the way they are doing their branding. Their branding now reflects what people commonly refer to them as: "The Y", which is explained on their website. They are still the "YMCA", even having YMCA as part of their new logo.



I found this on their About page:



And at the bottom of their website is the official stuff:

Ryan, I apologize for not looking hard enough to find the fine print. I allowed my pet peeve about the name and logo change to blur the point I was trying to make -- Nonprofit organizations fill an important role in our society, but they should not be allowed to use their nonprofit status to unfairly compete against tax paying businesses.

[Dan Henderson]

Let me mention one more example of how "nonproft organizations" can abuse the system. A few years ago a church approached Linda and me for a donation. A building near the church had become available at a "below market" price. The church wanted to buy the building to open a "thrift shop" to benefit the poor of the community. We helped them buy the building. They opened the Thrift Shop and operated it for several years. After a couple of years, I asked for an accounting of how much the Thrift Shop had provided to the community. I learned that no attempt had been made to generate a "profit." They had received donated goods and sold them for just enough to pay the people who operated the shop. Nothing was generated to give to the poor.

Bottom line -- I wish I had given our donaton directly to the poor. It would have done a lot more good than supporting the nonprofit thrift shop.

Dave, commenting on only the part of the story you provided. I see management issues as the primary issue for small non-profits. Its a great idea, poorly implemented. Its one of the reasons I have spent so much of my education time, and volunteeer time whenever possible, on business concepts. Even my now abandoned PhD in Poly Sci included specific coursework and practicums concerning non-profit management. There is no doubt that the larger foundations and non-profits can pay thier executives 6-figures. It has always been my dream to provide that type of talent to a group that could not afford it. I'm not suggesting that I am C-suite material, just that I have spent every opportunity available to me to make myself so. I cannot yet afford to work at that level for little or no pay, one can do well in the military, but you can't "make bank,", so I will have to work at corporate salaries for a few years after I retire in order to get into that position.

Someone told me that finance guys should be worth 10 times their salary, I said, I thought that was a rather lowball expectation. He thought I was cocky, so be it.

[Ryan Pugh]

Ryan, I apologize for not looking hard enough to find the fine print. I allowed my pet peeve about the name and logo change to blur the point I was trying to make -- Nonprofit organizations fill an important role in our society, but they should not be allowed to use their nonprofit status to unfairly compete against tax paying businesses.

No need to apologize, just thought I'd point out what I found. I think I agree with you on the whole. I think. I'm wondering how we would go about defining what is fair and unfair in what a non-profit can do.

[Dave McClung]

No need to apologize, just thought I'd point out what I found. I think I agree with you on the whole. I think. I'm wondering how we would go about defining what is fair and unfair in what a non-profit can do.

I want to make it clear that I am not of the opinion that the government should police nonprofits. If those of us who are donors to nonprofit organizations would insist that they belong to organizations alike ECFA that establish guidelines for financial intregrity, the playing field would be more level. My criticisms are not directed at nonprofits generally. My criticism is of nonprofit organizations that stray from the purpose for which they were founded.

Incidentally, anyone who is interested in reading about the issues related to nonprofit organizations should visit http://www.ecfa.org

[Craig Laughlin]

Ryan, pehaps my experience has given me a different perspective. I have served as attorney and as a board member of quite a few non-profit organizations. In my view they are some of the most "profit motivated" organizations around.

The difference between a "for profit" and a "non profit" organization is simply to whom the organizations executives owe their fiduciary obligations. In a "for profit" organization, the executives report to a board of directors who are elected by the shareholders. The lines of fiduciary obligation are clear. The organization operates for the benefit of the shareholders. That is the law and the way it should be.

In a "nonprofit" organzation, the executives report to a board; however, the way the board is elected varies greatly from one organization to another. Most "nonprofits" are agenda oriented. In theory, they operate to support some charitable purpose, but in many instances they use their non-tax paying position to compete with businesses. Let me give an example. In our community, we had a number of thriving health clubs. They provided jobs and paid taxes. The YMCA came to town and built a large facility. They pay no taxes and put all the health clubs out of business because they offered a better facility at a lower cost. The YMCA started as the "Young Men's Christian Association", an organization with a religious purpose. The recently changed their name to "The Y." If you click on "about us" on their web site you will see that they are "the nation’s leading nonprofit committed to helping people and communities to learn, grow and thrive.." There is nothing about Christ in their purpose. In my humble opinion, the only differenc between the Y and a health club is they don't pay taxes. Somehow, that doesn't seem right to me.

This post brings up a fascinating nuance that would be worth exploring. (Well at least for me ) For the most part my experience is with non-profits that make almost all their income from donations rather than the delivery of some a good or service. (Churches, compassionate ministry centers etc)

I have never heard the Y asking for donation. (Maybe they do I just haven't heard it) I suspect that their primary source of income is selling services (memberships). It seems to me that this is a very different kind of nonprofit more akin to a for profit business. It would be hard to see how a donation nonprofit would compete with a for profit business.

As I was writing this it occurred to me that I am mistaken about my experience... - Both my parents worked for a nonprofit hospital during my early years and my dad did that all his life. - Turns out almost all my life has been supported by nonprofits... Hmmm. Not sure what that means.

[Dave McClung]

This post brings up a fascinating nuance that would be worth exploring. (Well at least for me ) For the most part my experience is with non-profits that make almost all their income from donations rather than the delivery of some a good or service. (Churches, compassionate ministry centers etc)

I have never heard the Y asking for donation. (Maybe they do I just haven't heard it) I suspect that their primary source of income is selling services (memberships). It seems to me that this is a very different kind of nonprofit more akin to a for profit business. It would be hard to see how a donation nonprofit would compete with a for profit business.

As I was writing this it occurred to me that I am mistaken about my experience... - Both my parents worked for a nonprofit hospital during my early years and my dad did that all his life. - Turns out almost all my life has been supported by nonprofits... Hmmm. Not sure what that means.

Would you be surprised to learn that there is a "nonprofit" listed among the Fortune 500 Companies? USAA is one of the top rated insurance companies in the world. It has "members" rather than "shareholders." It wouldn't think of asking for donations. In fact, it distributed more than $1 billion to its members last year. In addition, it paid $661,000,000 in taxes last year (all nonprofits pay income tax on their "unrelated business income").

In some of the prior posts, "nonprofit" has been equated to "tax exempt." That isn't exactly true. Quite a few "nonprofit" organizations do not qualify for expemption from income tax. Whether or not an organization is "nonprofit" is determined by state laws. Whether or not it is exempt from federal income tax is a matter of federal law. Although they frequently go together, they are not necessarily the same.

Coops, Mutual Companies, Home Owner Associations, and some other organizations that engage in commerce without having shareholders are technically "Nonprofit", but they are not necessarily tax exempt. Does that complicate things even more?

[John Kennedy]

Would you be surprised to learn that there is a "nonprofit" listed among the Fortune 500 Companies? USAA is one of the top rated insurance companies in the world. It has "members" rather than "shareholders." It wouldn't think of asking for donations. In fact, it distributed more than $1 billion to its members last year. In addition, it paid $661,000,000 in taxes last year (all nonprofits pay income tax on their "unrelated business income").

In some of the prior posts, "nonprofit" has been equated to "tax exempt." That isn't exactly true. Quite a few "nonprofit" organizations do not qualify for expemption from income tax. Whether or not an organization is "nonprofit" is determined by state laws. Whether or not it is exempt from federal income tax is a matter of federal law. Although they frequently go together, they are not necessarily the same.

Coops, Mutual Companies, Home Owner Associations, and some other organizations that engage in commerce without having shareholders are technically "Nonprofit", but they are not necessarily tax exempt. Does that complicate things even more?

Well, if you can't 'complicate things even more', why would you have wasted all those years in law school?

Seriously, although I don't necessarily share all your conclusions, you do raise some interesting questions.

[Craig Laughlin]

Would you be surprised to learn that there is a "nonprofit" listed among the Fortune 500 Companies? USAA is one of the top rated insurance companies in the world. It has "members" rather than "shareholders." It wouldn't think of asking for donations. In fact, it distributed more than $1 billion to its members last year. In addition, it paid $661,000,000 in taxes last year (all nonprofits pay income tax on their "unrelated business income").

In some of the prior posts, "nonprofit" has been equated to "tax exempt." That isn't exactly true. Quite a few "nonprofit" organizations do not qualify for expemption from income tax. Whether or not an organization is "nonprofit" is determined by state laws. Whether or not it is exempt from federal income tax is a matter of federal law. Although they frequently go together, they are not necessarily the same.

Coops, Mutual Companies, Home Owner Associations, and some other organizations that engage in commerce without having shareholders are technically "Nonprofit", but they are not necessarily tax exempt. Does that complicate things even more?

Yes it complicates it but in a good way. - Learning is exactly what I am looking for.

Yes, such a nonprofit surprises me as well. Do you mind sharing what nonprofit this is? - What is the advantage to this company?

[Dan Henderson]

Would you be surprised to learn that there is a "nonprofit" listed among the Fortune 500 Companies? USAA is one of the top rated insurance companies in the world. It has "members" rather than "shareholders." It wouldn't think of asking for donations. In fact, it distributed more than $1 billion to its members last year. In addition, it paid $661,000,000 in taxes last year (all nonprofits pay income tax on their "unrelated business income").
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I made the distinction to demonstrate that all entities need to turn a profit of some type in order to thrive. I did not portray "non-tax paying entity" as a legal term but as a descriptor to highlight the concept of profit.

USAA proper is an inter-insurance exchange. It was formed by a group of Army officers who decided to self-insure. I think they were tired of getting short-rated by the insurance companies.

At any rate, there are a number of organizations that cater directly to the military. From my experience, USAA is the only organization that actually works on behalf of the military members (most others are preditors). It is the only organization that I have ever joined to which I have not always been eligible and probably the only one I will.

Leave it to a group of Army officer's to put together a Fortune 500 company that not only takes care of its target market, aparently better than most other organizations, but pays taxes to boot.

[Dave McClung]

I made the distinction to demonstrate that all entities need to turn a profit of some type in order to thrive. I did not portray "non-tax paying entity" as a legal term but as a descriptor to highlight the concept of profit.

USAA proper is an inter-insurance exchange. It was formed by a group of Army officers who decided to self-insure. I think they were tired of getting short-rated by the insurance companies.

At any rate, there are a number of organizations that cater directly to the military. From my experience, USAA is the only organization that actually works on behalf of the military members (most others are preditors). It is the only organization that I have ever joined to which I have not always been eligible and probably the only one I will.

Leave it to a group of Army officer's to put together a Fortune 500 company that not only takes care of its target market, aparently better than most other organizations, but pays taxes to boot.

I have been a member of USAA for more than 40 years. I have always been impressed with how USAA has been run primarily by retired military officers who understand their members well. When I was in Officer Training School, my commander told all of us, "One of the benefits of becoming an officer is that you will be elgible to join USAA." Since then I have allowed other insurance companies to give me a quote on my insurance business. When their representative sees that I am insured by USAA, they decline to give me a quote.

I now use the USAA Bank as my only bank and USAA Brokerage has my IRA and my investment account.

[Craig Laughlin]

Oops. Sorry, I missed that you had given the name.

So... USAA seems to be competing directly with for profit companies but you use them. I'm not sure how this is different from the Y? - Not trying to make a point, this is all new to me. I started out asking how nonprofits fit into economic theory, this would seem to be a great example of a nonprofit carving out a fairly large place in our for profit world.

[Dan Henderson]

Oops. Sorry, I missed that you had given the name.

So... USAA seems to be competing directly with for profit companies but you use them. I'm not sure how this is different from the Y? - Not trying to make a point, this is all new to me. I started out asking how nonprofits fit into economic theory, this would seem to be a great example of a nonprofit carving out a fairly large place in our for profit world.

The "Y" is a service organization, USAA is not. It might be something akin to a cooperative. As far as banking goes, I haven't used a bank directly since an extremely not satisfying encounter with a string of banks.

I have a different perspective. I think the Y didn't beat out anybody, they commercial gyms beat themselves by taking too much profit. USAA was formed because the insurance companies were and are taking too much profit. Insurance companies were always giving me the short-rate just because I was military. I think now they pretty much give everyone the short-rate. I nearly did a back-flip when USAA started accepting enlisted people as customers. The less I have to deal with Chase, All-State, and the like, the happier I am.

No, I don't know what "too much" is. I know that your return on investment in business should be larger than whatever else your money could be doing. But, i'm not going to try to define too much. The original USAA officers decided what was too much and decided to self-insure. I'm glad they did.

GEICO used to be the same way, but they are just a general insurance company now. They were almost as good as USAA until they expanded into the general market, or rather when they were taken over in 1996, the same year USAA decided to offer services to enlisted people.

[Craig Laughlin]

The "Y" is a service organization, USAA is not. It might be something akin to a cooperative. As far as banking goes, I haven't used a bank directly since an extremely not satisfying encounter with a string of banks.

I have a different perspective. I think the Y didn't beat out anybody, they commercial gyms beat themselves by taking too much profit. USAA was formed because the insurance companies were and are taking too much profit. Insurance companies were always giving me the short-rate just because I was military. I think now they pretty much give everyone the short-rate. I nearly did a back-flip when USAA started accepting enlisted people as customers. The less I have to deal with Chase, All-State, and the like, the happier I am.

No, I don't know what "too much" is. I know that your return on investment in business should be larger than whatever else your money could be doing. But, i'm not going to try to define too much. The original USAA officers decided what was too much and decided to self-insure. I'm glad they did.

GEICO used to be the same way, but they are just a general insurance company now. They were almost as good as USAA until they expanded into the general market.

This was my initial thought. Again my original question was about economic philosophy. It seems to me that non-profits that make money by delivering a good or service are legit competitors on the capitalist field of battle. That being said, more than once I have discovered that my economic opinions are not as well informed as I had hoped. I have learned a certain caution.

Nonprofits whose income comes from donations so that the organization will deliver a good or service to someone else seems to me to be a completely different thing and I really have no idea how they fit into capitalist theory. (I have two degrees and they are both in theology. What can I say, they don't cover this in Seminary. )

[Dan Henderson]

Craig, I actually learned that USAA was a non-profit, tax paying entity from Dave's post. I did not know that. I just know that they get me. I have dealt with many issues to include accidents, creditcard fraud, and other things. Anytime I've had an issue ... one phone call ... "Thank you for your service Maj Henderson, we'll take care of it from here." One phone call is tremendously important to a deployed person. Most time I'm on the receiving end of that one phone call: Maj Henderson, we noticed ..., did you authorize this?" It is really re-assuring to get that type of phone call, especially when the follow-up statement is, "no problem, we'll take care of it."

With that kind of service, I really don't look much into their goverrnace. As I said, the closest, before that was GEICO and they don't hold a candle.