Moving Beyond Profits and Market Failures

Today, as we launch our new identity as Impact Organizations of Nova Scotia (IONS), it’s important to reflect on why we need to distinguish and celebrate the Community Impact Sector for all its diversity and uniqueness. Going forward, we see “impact organizations” as the nonprofits, charities and voluntary organizations who are driven by social, cultural or environmental change. In other words, they seek to enhance our collective wellbeing and ensure healthy, vibrant futures for all communities, people, the land and living beings. 

Impact organizations play a critical role in our province but are often invisible and undervalued. While they share some operational characteristics with businesses, they are a unique pillar of society standing alongside the private and public sectors. 

More than a Business Mindset 

My personal journey to this sector was an indirect and unpredictable one: two business degrees, time in the corporate world, government, and back to academia for yet another management degree. Finally, I landed in the world of community impact which has fueled me ever since. Lately I’ve been thinking about the myriad of skills needed to address the problems we’re facing, and why we need to rethink how we educate and develop leadership for social change. 

While signs of progress are emerging, business schools are inherently designed to feed aspirations of perpetual growth based on increasing shareholder returns. I remember teaching a business strategy course one summer and asking the students to share their career goals. I probably could have counted on one hand those who didn’t respond with a version of working on Wall Street or Bay Street. In a society where wealth is a condition of success, it often generates these automatic responses with little consideration of what that work will compromise. 

Recently, I came across Hildy Gottlieb’s article “How Nonprofits Can Truly Advance Change.” She notes the need for structural change across the sector to realize its potential to advance systemic social change. She lists reforms that have been tried with limited success: Enhancing board effectiveness, better fundraising, social entrepreneurship (running an organization like a business), following funders’ preferences, and spending efficiencies – like limiting overhead. Many of these are operational, modeled after business practices. So perhaps it’s not surprising that they’ve fallen short. 

We invited Hildy to join a conversation we hosted with a group of sector leaders. In a preparatory discussion, she casually mentioned the absurdity of how we educate leaders in our sector. Nonprofit Leadership programs tend to be housed within business and management schools, primarily focusing on operational skills like human resources, financial management, and marketing. While these are important for operating a sustainable enterprise, they’re arguably a far cry from the skills needed to affect systems change – and they perpetuate the “Nonprofits are a sub-form of businesses” mindset.

More than Market Failures

I was introduced to the concepts of market failures and externalities in business school, but it wasn’t until I was working on climate change policy in Ottawa that I began to grasp their meaning. Put simply, a negative externality is a cost to a bystander or third party due to the firm’s activities – like pollution and environmental racism which affects communities near production and disposal sites, leading to health issues and negative wellbeing. Unless the company pays for the cost on their bottom line, it goes unnoticed or cared about. Externalities are a type of market failure. 

Another type of market failure happens when companies can’t restrict access to the use of a service or good, as some consumers can opt not to pay. For example, a fireworks display can be enjoyed by anyone in the area, regardless of whether they paid. Even if the demand is high, a business may choose not to produce. This type of market failure is referred to as public goods. Access to clean air and drinking water, research, public education, and healthcare are examples of public goods – and illustrates the lack of incentive for businesses to create products and services that widely benefit under-resourced communities.  As a result, the responsibility for public goods is often deferred to government. From there, service delivery is largely handed to impact organizations, who then hold a critical role in the supplying the demand for public goods.   

The market failures outlined here are inherently inequitable and those experiencing systemic barriers are left with the consequences. Motivated by collective outcomes, impact organizations often advocate against negative externalities and support the communities disproportionately affected. Rather than framing the sector’s work as “filling gaps” or addressing market failures, we need to ask why there are gaps in the first place.

 
Creating Space for Impact Organizations 

The point is not to position one type of organization or sector above another, but to challenge us to think about the costs associated with our consumption and the implications of valuing profits over people and the planet.  

As we shift to IONS, we are consciously rejecting the comparison of impact organizations to businesses. We are more than the poor inverse of profits (aka “nonprofits”). We are more than a response to market failures. We are driven by passionate people with a vision of a just, equitable society where the pursuit of sustainability and wellbeing are more valuable than financial gain.

Organizing for Impact 

Burnout and fatigue are prominent in our sector, especially following two years of living through a pandemic. Healthy workplace cultures, inclusive leadership, and commitments to justice, equity, decolonization, diversity and inclusion (JEDDI) are critical in the context of “The Great Resignation.” For too long, sector organizations have modeled themselves against their profit-generating counterparts. Funders and boards have perpetuated the prioritization of financial efficiency, risk mitigation, and productivity. This often results in competing goals where community needs and organizational sustainability are at odds.  

Some organizations only need to operate and survive to achieve their intended impact. But for many, especially those providing social services, their ultimate goal extends beyond their day-to-day activities. People working to address food insecurity are not aiming to feed more mouths (even if it is more “productive”), they’re aiming to ensure systems are in place so that no one goes hungry. A similar lens can be applied to those addressing the housing crisis, poverty, loneliness, etc. Yet, without sustainable resources, leaders’ attention is often focused on acquiring the next grant, dealing with staff turnover, and reporting to the board – leaving little energy beyond the day-to-day to drive systems change.  

In the fall of 2021, we released a series of articles unpacking some of the systemic challenges facing the Community Impact Sector (see resource list below). Current funding and governance models are creating a holding pattern of organizing for administration, maintaining greater focus on keeping the wheels turning and the doors open rather than on achieving the mission. We need to move toward organizing for impact.  

Toward Sector Transformation 

In our discussion, Hildy also emphasized why it’s important to think about structural change in our sector. We are in a period of great upheaval – climate change, COVID-19, the collective awakening to white supremacy and racism, and intensifying political polarization. While this upheaval is contributing to trauma, anxiety and burnout, it also creates an opportunity for change. We are collectively reconsidering who we are, what we value, and how we exist together. We are challenging our perceptions of the world around us and not accepting the dominant ideologies that have shaped our views and our work. We are experiencing post-traumatic growth, caring and innovating because of the challenges experienced.     

For us, sunsetting the Community Sector Council of Nova Scotia and introducing IONS represents more than a fresh, new brand. It is a first step in reframing the narrative of the organizations we serve, setting the stage for new ideas and growth.