Non-Profit Capitalism Essay Sample
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Non-Profit Capitalism Essay Sample
1. Executive Summary
This report defines, examines and promotes a non-profit capitalistic business model. The model endorses enterprises which compete in the free market, but eschews profits in favor of social benefits. This entails an increased workforce with benefits and wages on par with current standards. This increased employee pool works under a staggered shift structure so that each employee only works a 3-day (24 hour) workweek. Labor is scheduled in such a way that there is necessary labor coverage for the firm to function and compete over a traditional 5-day business week.
Special attention is given to the prospects of utilizing such a system as a method to increase industry and innovation in the Northeast Ohio region. Northeast Ohio is the default regional example for applicable sections of the report.
Financial evidence is provided to show where the opportunities for this system currently exist. The system is analyzed to define the following aspects: Problems addressed by the system, benefits of the system, competitive advantages inherent to the system, challenges in implementing such a system, and overall supply chain effects of the system. The expected performance of the system is compared with current for-profit and traditional non-profit enterprises. Potential approaches to the system’s application are addressed. The potential economic effects of such a system are also discussed.
The report concludes that a non-profit capitalist system is both viable and beneficial. It makes short-term recommendation for the implementation of such a system including: the building of support, exploration of options, definition of scope, and execution. Long term recommendation include: focusing on stability before growth, spotlighting the employee, and pursuing growth as both a business and an ideal.
2. Table of Contents
1. Executive Summary1
Despite having nearly double the Gross Domestic Product of any other country in the world, the United States consistently ranks outside the top ten in statistics dealing with happiness and quality of life. In recent years, several social and economic problems have gained attention in the public sphere. Many of these problems have significant overlap with business conditions in the Northeast Ohio region. (World Bank, 2012; Helliwell, Layard and Sachs, 2012, p 31-55, Economist, 2005)
In this chapter I will give an overview of a group of socio-economic problems which may be relieved by transition to the system of non-profit capitalism proposed in this report. I will also address the specific issue of attracting industry and innovation to the Northeast Ohio region. This will be addressed as a functional example of the system’s regional implementation model.
As of March, 2013 the U.S. National Unemployment rate was 7.6%. A total of 11.7 million people were reported as unemployed by the Bureau of Labor Statistics. This rate is improved from the height of the recent recession, where the statistic floated around 9%, but it is still not the usual 3-4% figure we are used to seeing in regular market conditions. (bls.gov, US, 2013)
These figures are uncomfortably high as represented, however, they do not tell the entire story. The actual unemployment rate, including discouraged workers and other omitted classes was estimated as high as 14.7% nationally in 2012. (bls.gov, Alt, 2013)
Regional figures reveal a comparable rate for Northeast Ohio. The unemployment rate for Akron, Ohio was reported at 7.3% in February, 2013. This translates to 27,100 unemployed in this single major Northeast Ohio city. (bls.gov, Akron, 2013)
The current rate of employment can be viewed from many perspectives. The cause may be a simple effect of the business cycle, corrected by the expected economic recovery. Some analysts, such as Andrew McAfee, present evidence that we are beginning to see the more permanent effects of Keynes’ predicted Technological Unemployment. This type of unemployment is caused by the growing trend of automation replacing human work hours. McAfee argues that this trend is only just beginning to gain momentum. He uses the following graph to evidence this trend. Notice that job growth for the 2000s was stagnate even prior to the recession. (Frank, 2012)
It is also important to note that the jobs created in the “Recovery” period in the late 2000s, continuing into the early 2010s, have been of significantly lower quality than those they replace. 58% of these jobs are categorized as low wage jobs, 22% as medium wage, and 20% as high wage. Whereas 60% of jobs lost in the recession were medium wage, 21% low wage, and 19% high wage. (Luhby, 2012)
These are the types of indicators that can be expected from the emerging prevalence of technological unemployment. Increased unemployment forces the demand for jobs higher, lowering the wages. Inside of a business, simple finance dictates that automation be applied to the higher wage jobs first, providing faster and more significant return on investment.
The effects of these trends have significant negative effects on society as a whole, and will need to be addressed. Government programs, the traditional response to poor employment conditions are already stretched thin, as evidenced by the ongoing “fiscal cliff” debate and the political battle over 2013’s “sequester.” An alternative plan must be found.
b. Wealth Disparity
Like the issue of unemployment, wealth disparity has recently emerged as a focal issue in US economics. Earlier this year a video which displayed the current state of this issue went viral on the internet. The video highlighted the difference between the typical American’s perceptions of wealth disparity and the actual state of the issue using animated info-graphics. The narrator concluded the video by pointing out that 92% of Americans would prefer a smoother distribution of wealth. (Kamenetz, 2013)
The preference for a more even distribution of wealth is an established trend in the United States. Gallop polls from 1985 to the present show consistent support for more even distribution of wealth with percentages of the population in favor of the notion between 68% and 56%. There is consistent disagreement on the issue, however when it comes to the government’s role in facilitating wealth distribution. From 1999 to present, the population has been almost evenly divided on whether or not the government should actively redistribute wealth in the form of taxes. (Newport, 2013)
The following selection of graphs further illustrates the aforementioned trends of wealth disparity in the United States:
(Gilson and Perot, 2011)
(Gilson and Perot, 2011)
It is clear that some action must be undertaken towards correcting the severe wealth disparity in the United States. Government involvement through taxes and other forms of redistributed wealth, however, may cause undesirable economic and socio-political effects. Historically, capitalism has proven to be the most productive economic system. It is likely that guided innovations within the system of capitalism may prove significantly more effective in correcting the problem of wealth disparity than government pressure or socialistic measures.
c. Work-Life Balance
There is an ongoing debate on the topic of work-life balance: what it is supposed to entail, how subjective the concept must be, if it even exists at all. Opinions on the topic vary wildly. Though few would debate that there is validity in the age-old adage “All work and no play make Jack a dull boy,” the ratio of this equation is hard to quantify. Beyond the simple issue of play, there are other extraneous factors such as family and health that our proverbial “Jack” needs to manage in the modern world.
A 2010 study by the Society of Human Resource Management revealed that 89% of Americans site work-life balance as a problem in the United States. 54% of these Americans rate the problem as “significant.” 37% of those who admitted to having insufficient work-life balance said that family is the first thing to suffer. Personal time spent reading or relaxing was the second –rated casualty at 22%. (Gurchiek, 2010)
The health effects of work are just beginning to be examined. Recent studies on the correlation between work and health have linked increased work hours to a wide variety of health effects including depression, cardiovascular disease and dementia. In addition to these direct effects, a slew of health hazards have been shown to be work-related through associated behaviors such as sleep deprivation, excessive sitting, eye strain and work-related stress. (Chan, Klein & Schocker, 2012; Berniell, 2012)
Having a strong work ethic is a traditional American value. A culture that values hard work and free market capitalism is an asset that has grown the United States to a position of global economic and political dominance. The conditions that supported this culture, however, have changed. In 1940, 60% of families had a traditional structure, with the father working outside the home, and the mother looking after the housework and children. This number was down to 13% by 1997 and has hovered around that percentage to the present. (PBS, 1998; bls.gov, Family, 2013)
Taking the recent findings on health and work, and the documented changes in America’s working social demographics into account; it may be time for society to reevaluate the traditional work structure. d. Attracting Innovation and Industry to Northeast Ohio
The Northeast Ohio region is fighting an uphill battle to foster and preserve economic growth. Historically reliant on the industrial and manufacturing sectors, the region’s economic health has deteriorated past the second half of the 20th century.
Akron, Ohio is one of the largest cities in this region, and its progress is a reasonable representation of the area as a whole. The city was once the hub of the US rubber industry, and experienced a boom in the early 1900s as a result. From 1910 to 1920 Akron’s population swelled from 69,000 to 210,000. This boom reached its peak in the mid-1920s when it breached 300,000 citizens. This boom, which provided prosperity and helped to build the area’s infrastructure, was not sustainable.
Competition soon forced the rubber companies to relocate their manufacturing facilities closer to the source of their raw materials, tropical climates where the rubber trees grew. Akron’s economy quickly stagnated, and the population began to dwindle. Recent population statistics show the continuation of this slow decline. In 2010, the population passed beneath the 200,000 mark. As Akron has gone, so has much of the surrounding region. Many of smaller towns which relied on similar industries have grown stagnant, and struggle to compete. (akronohio.gov, 2013; US Census Bureau, 2013)
As a region, Northeast Ohio does not boast enough differentiating characteristics to attract new industry. The region’s natural resources are not abundant enough, or rare enough to become a source of growth. The seasons in this region allow for watersports in the summer and snow-sports in the winter; but the transitional seasons, where neither recreation is available, collectively occupy half of the year.
Individuals seeking a particular amenity are likely to find it somewhere in the Northeast Ohio region, but they are also likely to find it more abundantly somewhere else. The industries in the region are not particularly prestigious or specialized. If Northeast Ohio can boast any advantage to other regions in the US, it is the relatively low cost of living. The problem with this sort of advantage is that it is a result of demand. The cost of living is low in Northeast Ohio because there is not much demand to live there.
Creating industry and innovation in Northeast Ohio is not an easy task. Options are limited. Most viable solutions are easily imitated by similar regions, as well as the more popular and prestigious locations. In order to make a significant difference in this region, a true cultural change will need to be adopted.
4. Capitalism beyond Profit
There is a powerful solution to the above problems. It requires a simple modification to the mechanism of capitalism. In a pure capitalistic system profit is king. The pursuit of profit is the driving force of competition in business, which in-turn, powers the economy, bringing higher standards of living to society as a whole. For this system to continue to function at high efficiency there needs to be a viable customer base. Capitalism in its most basic form does not consider social issues like work-life balance, or adequate employment.
Ultimately, capitalism is only a tool. To date, the most popular uses of this tool are to amass profit and accumulate wealth. Yet, if we wish to address the above issues in our society, and if we wish to protect capitalism from its own exploitative demise; we must begin to transform the simple output of profit to labor and then redistribute this larger pool of labor to the greater good of society.
What I am proposing, in simple terms, is the creation of more jobs which require fewer working hours per job. This net job creation must come at the expense of profit. Consider the following illustrative example: Exxon Mobil is one of the largest and most profitable companies on the planet. This makes the casework very simple, and produces results that are so favorable that they are a bit on the ridiculous side. I will use this example only to illustrate the basic premise, and then follow with a less biased cross-industry sampling.
From 2010 through 2012 Exxon Mobil averaged an annual net profit of $38.8 billion dollars. Over this same time the corporation averaged an employee base of 80,867. This equates to a profit of approximately $480,000 per employee. This means that Exxon could double its employment base to 161,734 employees at a cost of $100,000 per new employee and still net $189,900 per employee, not adjusted for the profit increase due to smaller income tax. In the extreme, this example can be extended to hiring 4 employees at $100,000 for every current employee, and still turning a profit of around $6.4 billion dollars. This would translate to each employee working a single day a week (excluding weekends) to cover the work of the original 5-day week of the starting employee base. This extreme example would create 323,468 new, 1-day work-week jobs with pay and benefits equivalent to $100,000 per new worker. (Exxon, 2013, p.40-43)
The 1-day work-week of Exxon Mobil is an extreme example, and impractical on many levels; however, it provides a powerful example of the base idea I am proposing. The following table represents a mixed survey of company profiles. Each of these companies is color-coded by its Earnings-per- Employee statistic. Those in green could afford to at least double their employee base at a total cost of $60,091.20, which is the average private sector employee total cost of $28.89 per hour, times a 40 hour work week, times 52 weeks per year. Those highlighted in yellow could afford to hire an additional half of their current workforce at this cost. Those in red are not currently candidates for this sort of program, and those in blue (major retailers) require more information as to the ratio of their full-time to part-time workers before they could be considered for reduced work week employment. (bls.gov, employee cost, 2013)
(Chart Sources, 2012-2013)
From this chart we can clearly see that Exxon is an outlier in its ability to hire employees for a single-day work-week. We can also see that all industries are not able to support a significantly reduced workweek. However, six out of the ten businesses sampled would be able to support a 1.5 times increase in workforce, which would equate to a reduction from the standard 40-hour work week to 27 hours, or three 9-hour working days. In fact, all but IBM of the viable companies could afford to move to a 3 day, standard 8-hour work week. Even IBM may be able to make this stretch depending on the amount of its employees that are outsourced at a lower cost, and therefore at a lower inferred average cost. IBM has been criticized for refusing to disclose these outsourcing statistics. (Thibodeau, 2010)
On the evidence of this analysis, I am proposing a completely non-profit business model which focuses on increasing employment, while decreasing the work-hours of the firm’s employees to a 24 hour workweek. The pay and benefits from such a model should equal those of the old standard 40-hour workweek.
Firms adopting this model will compete alongside the other for-profit firms in their respective industries, and function as purely capitalistic organisms. Any earnings beyond the added wage costs should be funneled into growth, acquisitions toward the purpose of this model of employment, or charitable sharing. The long-term purpose of this model is to transition the national social norm of a work-centric culture to one that places more value on family, community, creativity and personal pursuits. The successful institution of this model will imbed these aspects of family, community, creativity and personal pursuits into the corporate culture.
It should be noted that the prescription for a shorter work week is not an entirely new phenomenon. Great Britain’s New Economics Foundation released a report in 2010 urging the British government to institute a nationwide 21-hour work week. Many of the motivations for this recommendation are similar to those cited in this paper. There are, however, major differences between the NEF plan and non-profit capitalism. Non-profit capitalism does not advocate any sort of government mandate or intervention.
Capitalism has proven to be the most effective system for economic prosperity and it is an adaption of this system that is prescribed herein. Non-profit capitalism seeks change through gradual and unforced means. And, finally, non-profit capitalism prescribes the forfeit of corporate profit to keep employee’s earnings and benefits equal to present levels; whereas the NEF assumes constant wages through the transition, effectively funding the shorter workweek on the employee’s wage reduction. (Coote, Franklin, & Simms, 2010)
The most immediate and obvious benefit of this business model is the addition of jobs. A simple transition from a standard 40-hour workweek to a 24-hour workweek in this manner results in a 60% increase in jobs. This percentage increases if work that was traditionally addressed with overtime is also replaced with additional new workers.
This benefit directly addresses the previously stated problem of unemployment, and applies evenly across the scale from local to global application. It may be argued that such an institution could put stress on areas where there is an insufficient labor market. However, the nature of the 3-day work week should allow businesses to address their labor deficiencies through part-time hiring. Indeed, since the proposed model includes benefits for its workers, this may provide cheaper part-time labor to nearby businesses which would not need to include benefit expenses for moonlighting part-time workers.
Time is another obvious benefit of this business model. There are many ways that the employed and newly employed may choose to spend their expanded free-time. Not all of the options are positive, but the following possible applications of employee’s free time are certainly beneficial and should be encouraged in the corporate culture.
The importance of time spent with family cannot be understated. The child-parent bond is an essential developmental building block. Availability is equally important in family relationships with young children as they develop, as it is in care-relationships with aging parents. By 2050 the ratio of parents who need support from their parents is expected to triple. Families working 3-day workweeks will have more time to provide care. (PBS, 1998)
Whether it is simply more time spent enjoying a local park, talking with neighbors, or actively volunteering in community programs; more time in spent in a neighborhood equates to a stronger community bond. Employees may decide to engage their communities in any number of ways. Support from the company culture, paired with the additional time allowed by a 3-day workweek, increased local employment and investment can be the impetus for strengthening our communities, local to global.
The strong work ethic that characterizes our national culture is not likely to subside by the availability of a shortened work-week. The mix of additional free time and a stable income provides the opportunity for less-risky entrepreneurial endeavors. Non-profit capitalistic firms should promote these sorts of behaviors. Entrepreneurship entails innovation, and employees that use their additional free time to create new businesses will
bring these skills back into the company. New local businesses will further strengthen the communities, and innovations spawned from extra time in home workshops have the potential to someday change the world.
iv. Creative Endeavors
Art and literature are the fabric of culture. Some employees may choose to pursue artistic and creative endeavors with the extra time a 3-day workweek allows. This sort of creativity adds value to the community culture as well as the company culture. Encouragement of these positive endeavors, regardless of their potential for profit or fame, contributes to employee and customer loyalty.
It is important to remember that the proposed business model needs to compete as a viable business in order to succeed. Unlike a traditional non-profit which relies on charity for subsistence, the non-profit capitalistic model must not only continue to earn enough to pay its increased work-force, it must also earn to grow and flourish. Employees from top-to-bottom must understand that they will defend their livelihood through productivity and efficiency, and that they have an obligation to pass their opportunities forward to new employees by fostering growth.
That said, this form of business model has inherent competitive advantages that can be developed to help the firm achieve.
a. Tax Exemption
U.S. non-profit organizations may apply for exemption from three sources of taxation: Federal Income Tax, State Income Tax, and Local Taxes. The legal specifics of this status should be investigated and instituted by an astute legal team, as competitors may attempt to attack this issue through litigation. Successfully installed, tax-exempt status reduces costs and increases the contributions of earnings in excess of wages which can contribute to growth.
b. Societal Goodwill
All of the benefits discussed in the earlier section carry value in their contributions to society at large. It is reasonable to expect that these contributions will garner societal goodwill which can be cultivated through marketing to increase revenues and develop customer loyalty. There is no reason to conclude that a non-profit of this type would not be able to provide product, service and quality on par with its rivals; therefore the added benefit of societal goodwill should give the entity a decisive advantage.
c. Employee Satisfaction
Working fewer hours for a company that stresses the well-being of its employees over profit is certain to generate a premium in the area of employee satisfaction.
i. Customer Satisfaction
The link between employee satisfaction and customer satisfaction is well-documented. It is through customer satisfaction that employee satisfaction is translated to profits. This relationship exists through the nature of the interactions that happy, motivated employees have with their customers. (Bulgarella, 2005) To fully cultivate this competitive advantage, the business must not rest simply on the laurels of its reduced work hours. Organizational and supervisory support must be extended to the employees. Customer participation must be encouraged. These factors must be combined with the favorable working advantages of a reduced workweek to grow a culture of excellent employee and customer satisfaction. (Bulgarella, 2005)
ii. Inverse Effects on Competition
Studies have shown that perceived employee satisfaction is equally as important to customer satisfaction and profits. Therefore, the positive effects of a non-profit reduced workweek on a company’s employees should translate to a negative effect on the employees of rivals. All other aspects being equal, a competitor’s employee morale may be undermined when it is known that their counterparts are being paid equally or possibly more, while working fewer hours. This perceived injustice is likely to correlate to a decrease in competitors’ employee satisfaction; though their respective work conditions have not changed. (Bulgarella 2005)
d. Talent Attraction
The lure of a 3-day workweek can be utilized as a powerful recruiting tool. Combined with the people and community-oriented mission of the proposed business model; this set of benefits has an advantage over virtually any competitor in talent attraction. Competitors may be forced to adopt a similar program, or to over-pay to retain and attract talent. For many businesses, the forfeiture of profits may make a similar program too unattractive to adopt; while adopting a higher pay scale will similarly harm their bottom line.
This competitive advantage will be particularly effective in recruiting employees with family commitments, and those who carry ideals which stress the same values that this business model proposes. Employees who foster entrepreneurial ambitions may forego competitors’ high-wage offers for the opportunity to earn profits through moonlighting in their own business during their extra free time. In all cases, there is an inherent advantage in attracting these types of employees.
e. Economy of Scale in Benefits
A larger workforce may translate into reduced per-employee costs when bargaining for benefits providers. This sort of cost benefit provides value to both the business, which pays a certain percentage of these benefits, and to the employees who pay the remaining balance. Furthermore, as studies show the relationship between adverse health effects and work hours, it may be possible to negotiate these rates even lower, in much the same way discounts are commonly offered to smoke-free workplaces.
We can quantify the performance advantages of nonprofit capitalism in comparison with for-profit industry and traditional non-profit models by using the Gehani-method performance evaluation matrix:
Scores in this model are somewhat subjective given the broad industrial scope of the comparison. Both non-profit systems scored a zero in the category of profit, where for-profit enterprise received the maximum grade. These scores are based on the idea that the differences in profit and non-profit enterprise literally define both extremes on this scale. The justification for non-profit capitalism’s lead in the area of productivity and efficiency is based on the principle that a shorter work week results in more well-rested and focused employees. Aside from this difference, non-profit capitalism is subjected to the same market pressures that drive this metric in for-profit enterprises; and is not restricted in the use of any of the tools that for-profit enterprises use towards this end. Traditional non-profits lag in this category because their reliance on charity and government assistance shields them from the greater competitive pressures that force productivity metrics in the other enterprises.
Non-profit capitalism’s advantages related to employee satisfaction have already been touched upon. The fact that these employees are working less hours, and that this work model is focused on positive ideals instead of profits gives a clear advantage over both of the other models. Traditional non-profit’s advantage over for-profit enterprise is awarded with the understanding that given identical work hours, a non-profit employee may perceive more value in the pursuit of idealism over profit. In customer satisfaction, non-profit capitalism has the advantage that its model provides a hybridized benefit to the consumer. By buying a product or service from this type of enterprise the customer gets the utility of the product or service on par with that provided by a for-profit competitor; and also gets the satisfaction of supporting a pro-employment, pro-community cause at no additional cost.
Traditional non-profits outperform for-profit enterprise in this category based on the voluntary nature of their service. Where some consumer goods and services are necessary purchases, all charitable donations are compulsory. The growth challenges faced by non-profit capitalism will be discussed in the next section. For-profit enterprises receive the highest grade in this category for the growth and innovation incentives required by market competition, and because of the advantage a streamlined workforce provides in budgeting for these pursuits. Non-profit capitalism lags because of budget constraints, and traditional non-profits are graded lowest for their lack of innovation and growth pressures. Traditional non-profits lead the metric of Social, Ethical and Environmental Responsibility.
This category is the sole purpose of the traditional non-profit. In that non-profit capitalism’s growth is a hybridized form of social responsibility, it is also awarded a strong score in this category. Finally, in for-profit enterprises, social, ethical and environmental responsibilities usually only receive tangential attention. This performance analysis concludes that the proposed non-profit capitalist business model is superior to both for-profit and traditional non-profit enterprises when all aspects of performance are taken into account. It is important to consider that results may change if weights are applied to particular metrics, with the nature of the analyst’s subjective view, and under the circumstances that the various models are applied in the actual marketplace.
a. Initial Funding
The most obvious difficulty with implementing a non-profit capitalistic business plan is raising capital. There is little incentive for private investment in such a system as all profits are translated into labor and growth. For this reason, initial funding options are limited.
Charity is an option. A coordinated charitable donations drive may provide the seed money for either a start-up or acquisitions implementation model. This sort of funding will rely heavily on the amount of accredited support and publicity that can be generated for the project. Reliance on charity for funding, however, eliminates the possibility of hybridization of the system. The enterprise will be expected to adhere to strictly non-profit operations. This disallows the future possibility of performance-based investment should net profits ever exceed the additional labor and growth costs.
The power of charity should not be underestimated. In 2011 Americans donated more than $290 billion. The bulk of this came from individual donations:
(National Parks Service, 2012)
In order to put this figure into perspective we can revert to the earlier, ridiculous Exxon-Mobil case example in which it was determined that Exxon, as a business, could support 5 times its current employee base on a 1-day standard workweek at a flat cost of $100,000 per each additional worker. If we can inject another outrageous notion, that all charitable spending could be aligned for the year of 2011 towards the single cause of purchasing Exxon and enacting the fore-mentioned plan; we would discover that this single year’s US charitable donations more than cover the entire cost of the company’s $172 billion equity. (Exxon, 2013)
This example is absurd, of course, but it does illustrate the potential of charity as a source of funding. With this in mind, the idea of charity funding a start-up or smaller acquisition for conversion becomes a clear possibility.
This business model may also be undertaken through the usual sort of funding that fuels new start-ups. In this case the business would have to begin as a for-profit enterprise. It would be able to boast the aspirations of non-profit capitalism, but function as a for-profit entity until the earnings provide enough leverage to pay back original investors and make the transformation to a non-profit system. This could be done as a gradual transition, where more employees are hired and work hours are shortened as original debt is reduced, or it could be done as a sudden transition once the enterprise is clear of its obligations.
Clever marketing may help this sort of funding along by advertising profits, goals and milestones. Advertising how each sale advances the enterprise towards an increase in jobs and community health can involve the consumer as a part of the process. This may begin as a single site initiative, where the goals include the hiring of a new employee at certain levels of debt reduction; and then, once the original site is fully functioning as a non-profit organization, this campaign can be continued to show profit points at which new locations may be opened. The goal of this system is to encourage customer participation, customer satisfaction and employee satisfaction.
iii. Crowd funding
The potential of crowd funding is only beginning to be understood. In 2012, the crowd funding site Kickstarter raised $320 million dollars to successfully fund over 18,000 unique projects. When an individual pledges funding to one of these projects, they are given different levels of products, perks and rewards. For instance, if a custom run of playing cards is funded, a $10 contributor may receive two decks of these cards, while a $1000 contributor may receive a custom poker chip set, a case of cards and an autographed lithograph. There may be many other levels of contribution and rewards in between. (Yen, 2013)
This sort of funding may be applied to a non-profit capitalism business project. Low-level contributors may be awarded discounts, product or service credits, or name recognition on a plaque or certificate; whereas the larger donations may translate into actual management decisions in the company’s founding. For instance, a high-level contributor could be offered a position within the company, earning the opportunity for a salary and reduced work week. They may choose to forego this position themselves, but opt to hire someone in their stead. The contract would have to be fashioned so that the position was properly staffed, and the employee would be held to their responsibilities; but in this way, the investors would effectively be paying themselves to work.
b. Maintaining Growth
Growth is an area of concern for a business of the proposed model. In certain situations the financial strain of maintaining a larger-than-usual work force may cut into the funds necessary to keep growth competitive.
In the best cases, the competitive advantages stated in the previous section, coupled with the absence of stock dividends and other forms of profit distribution may offset the additional wage expenditures. However, in other circumstances, the business may only be able to maintain its work force at the expense of growth.
When growth is scarce the enterprise may need to innovate. It may need to consider tapping the original source of its capital. By demonstrating sustainability, the organization may be able to garner more support from charity or crowd funding. Or, it may be wise to grow through entrepreneurship, using the sustainability of the original enterprise as a growth goal.
Simple sustainability can be a form of growth if it inspires other enterprises to adopt similar policies. As a non-profit undertaking, any company that is not a direct rival in your market may become an ally simply by translating its profits into jobs and more favorable working hours. Since your company’s growth will not translate into profits under a strict non-profit system, unrelated expansion of the ideals of this system has the same net effect as your own enterprise’s expansion: more jobs, fewer hours, and a higher level of social responsibility.
c. Maintaining Target Employment
As a non-profit organization competing under free market conditions, the usual pitfalls of market trends, business cycles and other financial disasters apply to your business. If market conditions become unfavorable, a business in this model has the disadvantage of extra wage expenses. Even the best businesses experience years where there is negative profit.
Under the worst circumstances, where the sustainability of the business is jeopardized, drastic measures may need to be examined. With the exception of entrepreneurship, the solutions that apply to the issue of sustaining growth also apply to maintaining employment. Beyond this, the market must be examined: Is a rebound likely? If so, debt may be a temporary solution.
Ultimately, the best defense against these dire circumstances is diversification. If the growth of this business model can be spread into enough industries, then the shortfalls of one industry at any time may be supported from the excess earnings of its peers.
d. Retaining Executive-Level Employees
A 2013 survey of CEOs of 327 of the nation’s biggest companies revealed an average compensation of approximately 350 times the typical worker’s pay. These heavily incentivized salaries may not mesh well with the ideals of non-profit capitalism. It is hard to justify such disparity in a system which is intended to achieve maximum employment. (Zeiler, 2013)
For this reason, many of the top-ranked business elite will be unlikely to accept a position leading a company of this type. If the company is acquired for transformation to non-profit capitalism, the challenge becomes retaining the executive staff.
Incentives for the executive team will have to be adjusted to reflect the focus on employment and growth, since profit is no-longer a valid measurement. The focus on a shortened work week may appeal to certain business leader demographics, such that a team of previously retired or family-oriented business executives may be assembled to manage the enterprise on a shared basis, taking advantage of the reduced workweek. Idealists and innovation-friendly executives may also be attracted to the unique challenges and rewards that this form of business has to offer.
e. Shift Transition and Training
From a supply chain management perspective, both the increase in employees and the formulation of a 3-day workweek are areas of potential problems. Training will need to be developed to facilitate smooth transition of tasks and information from one shift to another. Schedules will have to adapt to the uneven nature of the reduced work hours such that coverage is appropriate and even. The solutions to these scheduling problems will vary depending on the nature of the industry, and their relative need to conform to consumer, supplier and distribution schedules.
Fairness will be a key issue in managing scheduling and training issues that result from the non-traditional work model. Extensive cross-training may help to alleviate pressures of a more varied work-force. It is expected that the human resources department grow along with the rest of the work-force to cope with the new labor volume, while also inheriting the work-life benefits inherent to this business model.
A significant labor-facing challenge in instituting a reduced work week is dealing with employees who wish to exploit the system for excessive gains. Within a single organization the practice of “double-dipping” or working a 6-day workweek for double earnings should be strictly prohibited. The basis for this mandate should be spelled out plainly in the business’s mission statement. Increased employment and improved work-life balance are primary objectives for the enterprise. An individual trying to increase pay by increasing hours is in direct contention with these goals.
Should the 3-day workweek become a social standard, this practice will be harder to combat. An employee may seek to acquire an additional “full time” position at another firm. In this case it will be up to the individual institution to seek a solution. It may be best not to act, depending on how receptive the legal climate is to contract-based restrictions on outside work. If excessive employment can be valued as a form of entrepreneurship, then the practice may somewhat align with the goals of the system.
8. Overall Supply Chain Effects
The benefits and challenges associated with the adoption of a non-profit capitalism business model are spread unequally across the supply chain. The system is meant to be instated in all twelve value-adding segments of the supply chain, with the appropriate percentages of new hires and the appropriate pay scales set for each position. In this way the inherent benefit of a reduced workweek is assumed across the board. The special circumstances that constitute benefits and challenges beyond this enterprise-wide positive change are highlighted below in the Gehani System’s Thinking Supply Chain model. Areas that experience a positive effect are indicated in green, those that are negatively impacted are indicated in red:
The Leadership Segment will be negatively impacted by the challenges of hiring and retaining top talent. Finance and Accounting will have to manage budgets stressed by the additional labor costs. Human Relations will have more employees to keep track of. Though the HR department will be staffed with more employees, the department’s total work hours should not increase; therefore the increase in work will have a net negative effect.
Proprietary Research and Development should experience a positive effect. Though the total work hours for this department will remain the same, it will have the benefit of additional employees for perspective and idea generation. The Production Segment should see increased efficiency from having a well-rested and more satisfied work force. The Marketing Department will see a positive effect from the opportunity to market the social responsibility inherent to this new business model.
The simplest approach to institution of a non-profit capitalism system is to begin an entirely new enterprise based in an industry that has proven earnings capable of sustaining an expanded work-force. This method has the most manageable scope and requires the least funding. However, this sort of endeavor cannot be undertaken lightly. The failure rates for new businesses in the first four years of operation range by industry from 42% in finance, insurance and real estate to 63% in the field of information. When these failure rates are considered without the costs of supporting an additional workforce, the task becomes even more daunting. (statisticbrain.com, 2012)
As discussed in the section on funding, the business may start as a traditional 5-day workweek model with aspirations to the non-profit capitalism transition. This weakens the strength of marketing the firm’s social responsibility, but allows for the use of goal-oriented customer involvement.
The keys to successfully creating a non-profit capitalism start-up business are going to be experience, support and publicity. It is recommended that the management team for the enterprise have deep direct experience within the industry that the start-up is entering. In a best case scenario, a well-known former CEO would be recruited to head the venture. This sort of recruitment not only brings the necessary managerial experience, it also garners publicity in the business world. With a proven leadership team, financial support will be easier to solicit.
A successful start-up approach will require more time to achieve growth than an acquisitions model, but it sidesteps the transitional pains that an acquired company would have to go through in conforming to the non-profit capitalist model.
The acquisition approach to creating a non-profit capitalist firm has the advantages of less risk and a more immediate impact than the start-up model. Unfortunately, this approach requires a larger scope, more initial funding and it is subject to transitional disruptions.
Using this approach an existing business is targeted for acquisition based on its profit-to-employee ratio. The usual considerations of growth, sustainability, industry, size and culture also apply. Funding from one or several previously mentioned sources must be attained, and then a deal must be reached to acquire the firm.
The inherent social responsibility of the non-profit capitalist system can be used as an asset during the acquisitions negotiations. By promising higher overall employment, increased employee satisfaction and the other advantages of this model; the acquisition may be looked upon as a favorable situation by the acquired company. It is also important to note that there is no need to depose the acquired company’s current executive staff. Negotiations around bonus structuring and the necessary changes in metrics may require some deliberation, but if a common ground can be reached, both the acquired and the acquiring entities can find benefit in the process.
The regional approach is characterized by concerted transition to non-profit capitalism in a particular area. This transition may include both of the fore mentioned start-up and acquisition approaches. It may be undertaken at the behest of a single controlling organization, such as a foundation or charitable association; or it may be adopted by a willing coalition of area businesses as a communal means to improve the economy.
Northeast Ohio will be used as the primary example in dissecting the advantages of a regional approach to the institution of non-profit capitalism. The topics discussed in this example should apply universally to any regions wishing to adopt such an approach.
i. Northeast Ohio
As previously discussed, Northeast Ohio has a primary economic problem in its inability to differentiate itself as a potential candidate for increased industry and innovation. Adopting a regional approach to non-profit capitalism can potentially solve this problem. The keys to success in this sort of venture are community support and the advantage of becoming a first-mover in the field.
If Northeast Ohio can garner enough financial and community support to begin building a culture around non-profit capitalism before the practice becomes common, it can utilize the system’s advantages to attract people, industry and innovation to the region. An increase in job opportunities is a standard positive attribute for any community, but when this increase is coupled with the benefit of an attractive 3-day workweek, Northeast Ohio will have an advantage that rivals the prestige of the larger coastal cities.
Utilized correctly, non-profit capitalism can provide the region an immediate population influx. This increase in population, influenced by the values of community and innovation championed by non-profit capitalism, can be leveraged to begin a regional cultural revolution. By being the first to adopt such a radical and important change, Northeast Ohio can internalize and retain these cultural benefits to sustain a long term advantage.
The national approach to adoption of non-profit capitalism is the most impactful in terms of the systems benefits. It is also the largest in terms of scope and necessary funding. In this approach a consortium of foundations, charitable organizations, and other potential sources of funding, would pull their resources to acquire a nationwide company to transition to non-profit capitalism. For conceptualization purposes consider the original Exxon Mobil example. This company would be immediately transitioned to the non-profit capitalism system: increased employment, 3-day workweek, emphasis on the system’s values. The excess profits from this company would be donated back to the founding organization which would use them to acquire an additional national company towards the same purpose.
This sort of approach has the potential to completely change the US economic landscape within a decade, as well as having significant global impact.
10. Economic Effects
a. Strengthening Middle Class
Non-profit Capitalism has the potential to rebuild America’s disappearing middle class by offering more living-wage employment and the promotion of community values. This effect is equally relevant in the regional and national arenas.
b. Increased Consumption
The increase in employment provided by non-profit capitalism, coupled with the increased hours to pursue additional part-time employment, translates to an increase in overall consumption through the availability of additional income.
c. Competitive Pressure on Wage Rates
The availability of more desirable non-profit capitalism jobs will apply pressure on for-profit firms to attract employees. Unpopular, low-paying jobs may need to be incentivized or restructured to attract an empowered work force.
d. Combating Financial Sector Influence
As non-profit capitalism spreads, the economic effects of Wall Street swings will become less influential on the overall economy. Non-profit capitalist companies are not reliant on public shareholders for investment. Any region with a large concentration of these sorts of enterprises will be shielded from recession. The companies rely directly on the consumers for continued prosperity, and the consumers rely on these companies for employment. A dramatic swing in stock prices may still affect the investments of these entities, but the immediate cash cycle of wages and revenues will be significantly insulated from these negative effects.
e. Decreasing Wealth Inequality
The benefits of non-profit capitalism attack the low end of the wealth distribution scale by offering more living-wage and higher-wage jobs to more people. It also has the potential to curb earnings at the top-end of the scale. If the system is able to spread to the most profitable companies, the potential earnings of these companies are translated back to the lower end of the wealth distribution scale in the form of labor. This increases the difficulty of successfully managing high-return financial investments, dampening the earning power of the independently wealthy.
a. Short Term
i. Build Support
Cultivating support and excitement around the potential of non-profit capitalism is the first crucial step towards its implementation. This support should begin in the academic community, where the system’s principles, effects and viability can be more accurately measured. From a solid base of academic approval, the support of potential contributors can be assessed.
Eventually the media’s support and that of the general public must be engaged. This critical support step should be delayed, however, until the program’s options have been explored and its scope defined. The support of the media and general public should be used as a strategic tool, carefully timed and implemented to have the most impact on the program’s execution.
ii. Explore Options
Careful analysis must be performed on potential industries and businesses to identify which opportunities provide the greatest chances of success. This should be undertaken in parallel with the efforts to build the support of potential contributors, and with the efforts in defining scope. These three aspects of available support, business and industry analysis, and scope definition must come to compatible solutions before the project can move to action.
iii. Define Scope
The scope of the project must be decided upon and strictly defined. The project’s initial limitations must be understood, as well as its immediate goals.
iv. Develop Strategy and Execute
Once there is a concrete understanding of your project’s resources, conclusive analysis of the existing conditions and future possibilities, and an established scope, it will be possible to devise an implementation strategy. Decisions will need to be made on which approaches make the most sense for your goals and resources.
Successful execution will require alignment of your standing support with media and public engagement. Resources will need to be engaged efficiently and correctly to attain the desired results. Ideals, values and the expected benefits of the endeavor must be effectively communicated, regionally or nationally.
b. Long Term
i. Stability First
Though much emphasis has been put on growth of the non-profit capitalistic system, it is important to maintain stability and sustainability of such an enterprise before moving forward. In this sort of business the currency of success is employment. Mismanagement primarily affects the lives of your employees, rather than the earnings of stockholders. As the foundation of the enterprise, their trust must not be damaged by lay-offs or wage reductions.
Growth is important, but it must be managed in a way that shields the existing business from potential harm.
ii. Spotlight Your Employees
Employees are the greatest resource for a non-profit capitalism enterprise. The benefits of the system are geared directly towards them, and through them the customer and community is engaged. The benefits of increased employment and increased free time can be communicated to the public at large through the individual endeavors of your employees. Contributions to family and community, to business through entrepreneurship, and to culture through creative endeavors, should be spotlighted and supported by the business. Encourage participation, and integrate your employees’ private pursuits into the company’s advertising campaigns. Explain that the benefits your enterprise is providing to its employees can be expanded to others through similar endeavors.
iii. Grow in Tandem
Non-profit capitalism is a system based on ideals and values. It is also a business model. In order for this system to grow to its greatest potential, both the business and the ideal must spread. Communicate the benefits of this business model and illustrate them with success. Grow your own enterprise and cheer on the growth and adoption of this system by other enterprises. Compete within your market and cooperate beyond it to promote the greater good.
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