The "other" private sector

While it tends to get short shrift, the "other" private sector - that is to say, the non-profit sector - is a significant component of economic activity in many countries. It is also probably an important component of development overall, if we are to believe theories of social capital such as those found in Robert Putnam's Making Democracy Work or Francis Fukuyama's Trust.

However, non-profits are often overlooked because most non-profit activity is not incorporated into the system of national accounts that govern reporting of economic activity. Some fellows at Johns Hopkins University have been clamoring for change. The Johns Hopkins Center for Civil Society Studies released a publication called Measuring Civil Society and Volunteering that argues that non-profit activity should be added to measures of gross domestic product. According to data they have collected on eight OECD countries:

[Nonprofit institutions] account for an average of 5 percent of Gross Domestic Product...[and] outdistances [the contribution] of the utilities industry and is on a par with that of the contruction and finance industries.

The scholars at the Center for Civil Society Studies also dispel another myth in their report. The nonprofit sector is not primarily dependent on philanthropic revenue - about 38 percent of its revenue comes from fees and charges and 35 percent from philanthropy.

Of course, the picture in OECD countries may look quite different from that in developing countries. While the data available for developing countries is limited, it suggests there are some important differences. A study from the Center put out in 1997 came to the following conclusion:

Compared to 4 or 5 percent of the labor force in the developed countries...nonprofit organizations in the developing world generally employ fewer than 2 percent of the workforce.

Given that non-profits often focus on providing social services that may have particular benefit to the poor, perhaps non-profits deserve more attention as part of the "private" sector that requires development.