History and evolution of nonprofit organizations

¶ … Evolution of Non-Profits

An organization can essentially be defined as non-profit if it is not under the obligation to distribute any financial surplus to the individuals that are responsible for controlling the use of the assets for the organization. The most typical categories for non-profit organizations are arts, advocacy, civic, education, cultural, health, and human or social service, and these organizations range in size and scope.

Non-profits are described by the Internal Revenue Service as organizations that serve religious, charitable, scientific, or educational purposes, of which the income does not benefit anyone associated with the administration or execution of services offered by the organization. According to section 501(c)(1), there are several types of non-profits, including social welfare organizations, voluntary employee beneficiary associations, credit unions, labor unions and agriculture, and mutual insurance companies to name a few. However, the impact that non-profits have is widespread and all segments of society are affected by the work and services offered by non-profit organizations. For example, most people are at some time affected by the services offered by non-profit organizations such as hospitals, day care services, universities, religious institutions, arts and cultural activities, recreation programs, and nursing homes that operate as non-profits.

Non-profit organizations vary in complexity from simple, informal groups of individuals that are organized together to achieve a similar aim, to large, complex world-wide organizations. In order for a non-profit to transition from being informal to more formal, it is necessary that the organization incorporates. Incorporation acts to allow the nonprofit organization to be considered as a separate legal entity, which has the benefit of allowing the organization to file for tax exemption. The most commonly found type of non-profit organization classified by the IRS is the designation of charitable non-profit. One common type of non-profit organization is a foundation, which commonly provides funding to charitable organizations. There are two types of foundations, private and public. Private foundations are generally endowed by one of three entities: a founding person, a family, or a corporation, and they typically function to provide funding to public charities, give out scholarships, provide support for government activities, or act similarly to public charities.

Public foundations, on the other hand are non-profit organizations without ties to government that receive funding from various, diverse sources. Continuing to receive funding from different sources is necessary for public foundations in order for them to continue to operate as charitable organizations. Public foundations are operated and managed by directors and trustees, and often are primarily focused on the provision of grant programs for other organizations and individuals. Types of public foundations are numerous, including community foundations, women's foundations, and health funding foundations to name a few.

Essentially, non-profit organizations are responsible for providing services such as higher education, hospital care, social services, advocacy, and cultural services. Religious congregations are also generally non-profit organizations. There are two primary categories of non-profit organizations, member serving and public serving. These categories are different in that member serving organizations serve only members and do not provide service to the public. On the contrary, public serving organizations provide services for the public and not exclusively their members.

The most primary, important role for non-profit organizations is advocacy. Non-profit organizations play a crucial light in identifying and bringing into awareness problems in the public sphere that may have not been attended to in the past. Furthermore, non-profit organizations effectively bring awareness and attention to political, ethnic, social, community and human rights issues. Moreover, the core functions of non-profit organizations include the service role they play, role of advocacy, community building role, as well as guardians of value.

Recent history since the last quarter of the twentieth century has seen the non-profit sector in the United States grow twice the amount of the remainder of the American economy, and a greater number of non-profit organizations were formed every year in comparison to the number of businesses. The development and evolution of non-profit organizations are deeply rooted in history. For instance, the survival of Pilgrims to the United States in 1620 could be largely attributed to the charity offered by Native Americans, which could be considered as an early form of an informal charitable non-profit. Interestingly, the tax-exempt non-profit sector in the United States is rooted in times prior to the formation of the republic in response to the service needs of early settlers. Voluntary hospitals, orphanages, fire departments, etc., were established by early settlers in order to effectively meet and address issues. The organizations initiated by these early settlers pioneered American traditions of citizen initiatives and promotion of public welfare by individual members of society.

The idea or inception of non-profit organizations has its roots in ancient history, dating back as far as primitive clans organizing in order to meet collective needs. There is evidence of non-profit types of organizations in the times of the Old Testament, where there is documented tax exemption for the temple and its priests. Charitable action is also demonstrated in ancient history through documented Jewish, Roman, and Greek traditions.

Early Christianity saw the beginnings of charitable donations and organizations. Not only were the wealthy expected to contribute to charity. All people were expected to perform individual almsgiving as a self-less gesture of penance. This selflessness was apparent in early times, but it developed and transitioned into a more self-serving practice as the upper class, clergy, and bishops began to use philanthropic actions to serve their own needs.

The most critical, prominent role of the church throughout the middle ages was a non-profit organization that provided a hub for education, social welfare, culture, and art in society, often providing service mostly to the poor. However, the development of the Church of England brought with it a shift in perspective in European society with regard to the poor, The poor began to be viewed not as victims of misfortune, but instead as being directly responsible for the hardships they endured, and were often deemed as not worthy of any charity. This perspective shift resulted in the emergence of the provision of welfare from institutional entities rather than individuals due to economical advantages, as well as increased effectiveness for the development of social welfare systems.

The origins of non-profit law are found in England, where the widespread issue of poverty was addressed through the development of two laws. These two laws were important for the emergence and development of American non-profits. The first law was the 1601 Statute of Charitable Uses. This law was the basis for all Anglo-American philanthropy law. The second law developed by England in 1601 was the Elizabeth Poor Law, which provided the backbone for relief of public poor in both England and America.

The 1601 Statute of Charitable Uses was essentially developed to outline how funds could be appropriately allocated to charity, and it was based in the premise that the institution of the church should receive support through tax money, and that social services and education should remain under the exclusive control of the church. This law also determined the role that the state played in the monitoring of activities of non-profit organizations. The leading institutional body stated in this law was the Church of England, which caused some dissent from other religious sects in England as well as among many people in the American Colonies. In America, the clause of having the Church of England as the ruling body was dismissed after the Revolution.

The second law established in 1601 was the Elizabeth Poor Law, which was developed in order to identify those individuals that could be classified as the worthy poor. This law was established in response to major changes happening in England at the time, including a rapidly increasing population resulting in exponential growth of towns and cities. There were several principles upon which the Elizabeth Poor Law was based. It was expected that individuals would take care of themselves and the responsibility of care was placed as an expectation on the family. For those individuals who were unable to care for themselves, were deemed as worthy poor, and were without family, the responsibility of care was placed upon the local parish.

This law also had substantial influence on the development of non-profit law in America, as the principles that grounded the law were fundamental to the developing culture within the American Colonies. For instance, 1630 saw the suggestion of a "Model of Christian Charity," which essentially stated that it was the responsibility and holy duty of the wealthy to provide care to the poor. This suggestion came from the first governor of Massachusetts, John Winthrop, who was also a Puritan Leader. This began the active involvement of religion in charitable action in America, and religious leaders began encouraging church parishioners to be actively involved in and donate to charitable activities operated by the church. This influence and involvement of religion in philanthropy is still very much present and evident in the charitable activities offered by various religious organizations throughout the world.

Voluntarism is an important, integral component to the activities, functions, and effectiveness of non-profit organizations. The roots of voluntary action in the United States can be traced back to Benjamin Franklin. It is with Franklin that the personification of voluntary spirit can be found, as he was not a wealthy individual, but he emerged into public prominence mostly through the organization of voluntary actions. In particular, Benjamin Franklin directed his efforts towards the improvement of communities by empowering individuals to take responsibility for themselves. Some of the non-profit activities Franklin was responsible for initiating were Freemasonry in America, volunteer fire companies, a militia, the University of Pennsylvania, the Pennsylvania Hospital, as well as the Philadelphia Public Library. Moreover, Franklin believed that civic purposes could be advanced and community self-help initiatives could be supported through the support of private institutions with a combination of both private contributions and public subsidies.

The American Revolution introduced vast change to the conception and operation of non-profits in America. This was largely due to resulting limits to governmental action brought about by the cessation of support of the Church of England among American people. This essentially resulted in the separation of the church and state in America.

The separation of the Church and State in America had important implications for the non-profit sector. The most prominent and influential development came with the First Amendment to the constitution, which states that government cannot set any laws or rules governing the establishment or practice of religion. This disestablishment of the church resulted in a shift in governance regarding where the public would access services such as health care, education, social welfare services, and the arts. Poverty was no longer addressed exclusively by the church, but instead was transferred as a responsibility onto local governments, and voluntary associations were governed by state government agencies.

The American public then increasingly relied on associations in order to confront economic and social challenges that were once handled by the church. The prominence of associations as the driving force behind the non-profit sector in the United States was heavily influenced by Tocqueville in the 1820s. Through observance of Americans operating and functioning effectively in associations, Tocqueville remarked that Americans of all social and economic classes and conditions n band together not only to attain industrial and commercial goals, but also for moral and religious reasons. Overall, Tocqueville admired how Americans were able to organize themselves in order to work towards a common aim, very often through voluntary action. This sparked rapid growth of the non-profit sector through the development and growth of charitable organizations, schools, hospitals, colleges, etc.

There was steady and constant growth of the non-profit sector in the United States throughout the nineteenth century, which gave rise to differences in non-profits between the North and South. The North saw increased growth in non-profit organizations and schools that were church-based, while non-profit organizations were quite widely discouraged in the South. The reasoning for this lack of support of non-profit organizations in the South was continual effort to maintain slavery, which later transitioned into segregation. Slavery and the non-profit sector reciprocally impacted each other and influenced change within each movement. Non-profits were impacted through the development and growth of local organizations as well as social reforms on several issues based in national efforts. However, the outcomes of the growth of non-profits in the South were not all positive. An example of a negative development to emerge out of the joint influence experienced between slavery and the non-profit sector was the Ku Klux Klan. This was essentially a Southern-based reaction to the quickly and dramatically changing social conditions of the time.

However, the vast majority of non-profit developments to emerge in the nineteenth century was positive in nature, and generally aimed towards improving social welfare, education, healthcare, etc. For all of society. It was at this time that the government started the provision of funds for non-profits, although limited and resulted in reduced enthusiasm for government among the people. Voters were generally in opposition to any suggestions or proposals made by the government to establish new taxes. It was at this time that the disenfranchised sections of society began to finding voices through involvement in non-profit organizations. Examples of these organizations include the Settlement House Movement, Women's Christian Temperance Union, and Women's Suffrage Movement. Many non-profit organizations that have minority rights as their primary aim are deeply rooted in this time in American History.

Trades unions find their historical roots as far back as 1794, when shoemakers in Philadelphia set up an organization to represent themselves and strive for fairness. The actual emergence of small local unions occurred in the nineteenth century, which eventually transformed into the birth of national unions, including the American Federation of Labor, which was founded in 1887. It was around this time that non-profits began operating more similarly to corporations, with organizational structures that essentially resulted in increased flexibility in comparison to charitable trusts. With this change came changes in styles of governance, with operations being managed successfully by Boards of Directors instead of trustees.

The first modern foundation was established by George Peabody in 1867, and was named the Peabody Fund. This foundation was focused on the administration of funds towards the education of all students, regardless of color, in the South. Moreover, the primary aim of the fund was to direct funds toward the establishment and maintenance of free schools through state-run systems.

Private foundations emerged in the early twentieth century with the Russell Sage Foundation. The primary aim of this foundation was to improve living and social conditions for people throughout the United States. Private family foundations saw their beginnings with the Rockefellers, who invested large sums of money into establishing and maintaining the well-being of mankind. Next to emerge were community foundations, which found their roots in a foundation created by Frederick Goff in Cleveland. Community foundations acted for public welfare through means such as public reform, research, and problem solving in order to determine root causes of social ills such as hunger, disease, and poverty. At this time, scientific investigation was seen as having the ability to resolve all of humanity's problems. Modern American foundations are heavily influenced in their rationale by this scientific philanthropy. Corporate foundations emerged in 1935, when American law resolved the concept of funding and donations by businesses. The 1940s saw a rapid growth of corporate foundations due to widespread high profits as well as high tax rates. Overall, foundations aided the transformation of the non-profit sector in ways that mirrored changes occurring in the corporate sector, and there was great importance placed on the concepts of efficiency, scientific progress, and universality.

The 1960s saw expansion of the non-profit sector into widespread service of several broad segments of the population, and non-profit organizations were seen at their strongest in the North East and Great Lakes regions of the United States. The most prominent non-profit developments were seen in the 1960s in organizations pertaining to women's rights, civil rights, Medicare, Medicaid, and disability rights. This time-period also marked the establishment of non-profit organizations such as the National Science Foundation, National Institute of Health, and the National Endowment for Arts and Humanities. This is the time-period that saw the emergence and establishment of government non-profit organizations.