Nonprofit Organizations and the Institutionalist Approach

By Chasse, J. Dennis | Journal of Economic Issues, June 1995 | Go to article overview

Nonprofit Organizations and the Institutionalist Approach


Chasse, J. Dennis, Journal of Economic Issues


In the 1980s, questions and misgivings about nonprofit organizations prompted an avalanche of social science research that destroyed myths and raised questions that should interest contemporary institutionalists. The new evidence and the models emerging from these current research efforts are interesting by themselves, but they also support the contention that research in the institutionalist tradition could make a substantial contribution to the dialogue about the role of nonprofit organizations in a democratic society.

This paper first sketches a traditional institutionalist perspective. Next it outlines the model developing out of current economic research on nonprofits. Then it summarizes the main conclusions of other social scientists. The potential contribution of institutionalists emerges from both the strengths and omissions of the current research agenda.

The Institutionalist Tradition

The institutionalist refusal to separate the economic from the other spheres of society and the related insistence on judging economic activity in the light of broad social values both imply a position an organizations that do not primarily seek profits. Such a position appears implicitly in the writings of Thorstein Veblen, explicitly in the writings of John R. Commons, and sporadically in the writings of their successors.

Veblen, the first founder of institutionalism, approached nonprofits with concerns about both the distribution of power and the effect of pecuniary values on broad social goals. Concerns about the distribution of power grounded his accusation, made in the spirit of Adam Smith, that some voluntary associations, like the commercial clubs, were "organs of collusion" for "substantial citizens" [Veblen 1964b, 291]. His concerns about the effects of pecuniary value led him to imply the need for organizations whose major goals were not pecuniary profit but "idle curiosity," "the parental bent," and "the instinct of workmanship" [Veblen 1964c, 27-281 eeHeHHh He spelled out these implications most concretely in The Higher Learning in America and in his proposal for a Pacific League [Veblen 1965; 1964, 361-382].

Commons was more interested than Veblen in a theoretical structure that would support practical policies for dealing with inequalities of power. Commons pictured economic society as a "changing complexity of personalities, principles and organizations" [Commons 1961, 751]. Within that "changing complexity," he specified three organizational types, identifying each with its own kind of power: the state with physical power, which he defined as coercion by threat of physical violence; business firms and unions with economic power, or coercion by threat of withholding from people what they need; and voluntary associations with moral power, or control, not by threats or by coercion, but by persuasion [Commons 1974,145; 1961, 749]. The identifications were not rigid. Moral power can guide a business firm , and coercion can terrorize a voluntary association. Moral power can also deceive and mislead.

According to Commons, only when economic and political power are equalized and only when moral power 's ability to deceive is controlled, would the role of intelligence be increased in public decisions. Then investigations can seek out solutions to policy problems that have been developed by leaders and tested by "experiments in collective action."

Leaders are those who triumph by moral power alone in the political struggles that characterize all organizations. Under such leaders, medieval guilds invented mutual security societies to protect their members against the threat of illness [Commons and Andrews 1967, 257]. Under similar leaders, lawyers organized legal aid societies when they realized that a single worker could not afford to sue a large corporation [Commons and Andrews 1967, 363]. Successful policy analysis adapts to new situations the solutions discovered by leaders and proved feasible by experiments in collective action. …

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