Week 5: Why do nonprofits exist, and should they?
Sep 21 & 23 · M3. Failure theories, Hansmann's trust argument, and social capital.
This week’s big question
Why does a nonprofit (not a business or the city) end up providing something? And should it? We use economic theory as practical lenses (market, government, contract, and voluntary failure, plus Hansmann’s trust test) and add the sociology of why people organize. Module 3 · builds LO3 (three sectors), LO5 (theory as a lens) · thread: both.
Readings
| Reading | Focus & purpose |
|---|---|
| Core (Mon) · Curtis Child, “An Overview of Nonprofit Sector Theories”, ch. 2 of Reimagining Nonprofits (Cambridge, 2024). Read the whole chapter (pp. 17–37), with the failure theories on pp. 21–25 hardest for Monday; Wednesday picks up the last three theories on pp. 30–33. 20 pp. | Ten answers to “why nonprofits?”, each built on a gap in the one before: Weisbrod (market and government failure), Hansmann (contract failure), Salamon (voluntary failure, then interdependence), and on through the commons, mediating structures, and Tocqueville’s schools of democracy. Table 2.1 at the end is the map to keep. |
| Current (Wed) - CNN, “Food Banks, Nonprofits Face a ‘Perfect Storm’ of Surging Demand as Shutdown Drags On” (Oct 2025) · archived copy. 2 pp. - The Economist’s interview with Elon Musk, Musk: zero people died because of USAID cuts | Government failure made vivid, and then, in the food banks’ own words, its limits: “The food bank is supposed to be the safety net underneath SNAP … It’s not supposed to replace that.” That is Salamon’s voluntary failure, said by a food-bank CEO. |
| Optional · NPQ, “Beyond More: The Transformative Potential of Mutual Aid”. | A living test of where trust actually sits. |
| Optional · Robert Putnam, “Bowling Alone” (1995) · archived copy, read with the U.S. Surgeon General’s “Our Epidemic of Loneliness and Isolation” (2023) · archived excerpt. | Thirty years apart, largely the same worry. |
Session 1 · Mon Sep 21: Lens lab
The four failure theories in twenty minutes, then a lens lab: every team gets the same three real Monroe County 501(c)(3)s on the handout, with each one’s revenue mix already pulled from its latest Form 990 (a fee-funded daycare, the Bloomington Developmental Learning Center; a donation-funded food bank, Hoosier Hills; and WFHB, the community radio station), and diagnoses which failure best explains why each is a nonprofit, using Hansmann’s trust test (“would you trust a for-profit to run this?”). Row four is your own site-visit org, from memory. Teams that disagree argue it out in a report-out round. Then the Rail B studio: turn the indicators you gathered into your team’s evidenced need statement on the studio sheet, which is that session’s in-class work.
Session 2 · Wed Sep 23: Data meets theory
The CNN article read through three lenses (government failure, voluntary failure, interdependence) to see why “which theory” is rarely the question. Then you do Monday’s diagnosis on your own site-visit org with the real filing: pull Part VIII of its 990 (contributions, government grants, program-service fees, total), cite each line to its part, line, and page, swap with a neighbour to check the citations, and argue which failure theory the money pattern supports. It is a rehearsal for two rows of the A3 990 comparison. We close with why people organize at all (mediating structures, Tocqueville’s schools of democracy, Putnam’s social capital) and a social-capital quick-write: name one association in your life and say what it bonds or bridges. Both terms are defined in the session, so the optional Putnam reading is depth rather than a prerequisite.
What’s due / prep
- Monday’s studio builds your team’s Need Statement, the first plank of the B1 Concept brief (5 pts, due Sun Oct 4). Bring the three indicators you gathered, each with source, year, and geography. Studio work is that session’s in-class work, so be there with it.
- Bring your site-visit org’s Form 990 to Wednesday, the PDF open on a laptop or phone (you pulled it for A1; it must be a full 990 or a 990-EZ, which is why A1 asked for one). Wednesday’s in-class work is the Part VIII sheet you fill from it.
- Rail B: draft your team Mission from the need statement, for Wednesday Sep 30’s theory-of-change studio (W6).
- Keep your site visit moving: the window closes Fri Oct 2. See Site Visit & Analysis.
Looking ahead
- Two Sunday uploads close out next week (Oct 4): A2 Visit evidence and the B1 Concept brief. Next week (W6) is an application week; bring your visit notes to Monday’s clinic.