Efficiency of nonprofit vs. government agencies

Efficiency of nonprofit vs. government agencies

As individuals, we often feel the need to know we are being protected, we need safety and security. As children, these roles are taken on by our parents, but simultaneously, they are being protected by the federal institutions. These normally ensure the equality and freedom of all citizens and regulate multiple sectors, such as education, politics or the environment. More recently however, other institutions have begun to emerge and their purpose is also to support the freedom and development of several members of the society. These are called nonprofit organizations, and however they generically serve the same clients as the government, they do share some differences.

Nonprofit Organizations

The nonprofit organization is a legal entity constituted with the special purpose of engaging in social actions destined for the benefit of public or private individuals or groups of individuals. It could be defined as “a trust, company or other association of persons: (a) established for a public purpose, and (b) the income and property of which are not distributable to its members or office bearers except as reasonable compensation for services rendered” (Department of Social Development, 2005)

In a first instance, the question that’s being raised refers to a potential difference between the concepts of nonprofit and not-for-profit organization. From this particular instance, most replies state that the two refer to one and the same idea, sharing no differences; the thought is supported by the legal statuses, which present the two as synonyms. But this is only in theory; in practice however, the IRS has divided the two entities. According to their understanding, the idea of not-for-profit refers to an activity, a hobby, such as going to the movies; whereas the concept of nonprofit reveals a particular organization, established not for the objective of registering profit. A specification must be made here in the meaning that the definition does not state that the aim of the nonprofit organization is to engage in charitable events (Alvarado, 1998). However, these are generally the primary types of activities conducted by the nonprofit organizations. The charity efforts generically include “relieving the poor or distressed or the underprivileged; advancing religion, education or science; lessening the burdens of government; beautifying and maintaining a community; preserving natural beauty; promoting health, social welfare, environmental conservancy, arts or patriotism; caring for orphans or animals; promoting, advancing and sponsoring amateur sports; and maintaining public confidence in the legal system” (Hopkins, 2005)

And despite the general belief that unlike for-profit organizations, NPOs do not make a profit, they in fact do. The simplest explanation for this is that they need to operate, cover their expenses, and that no organization can function without a profit. The distinction between NPO and for-profit entities is then given by the destination of the registered income. In this particular instance, nonprofits use their incomes to further advance, develop and implement their social programs, whereas for-profits distribute it to their shareholders.

Once the distinction between NPO and other organization types has been made, it can be stated that the nonprofit organizations are highly different amongst themselves. Generally, there is an increased competition between them, as all try to raise as many funds as possible, but do it in different manners, using various peoples with similar and different skills. “Not only are there good and bad, ethical and unethical fundraisers, there are good ones with important subspecialties” (Hopkins, 2005)

Another issues related to NPOs is their registration. No tax is perceived for the registration of a nonprofit organization and the entity representatives must go to the NPO Directorate with a Complete Application Form and two copies of the entity’s founding document. The registration of a NPO is not compulsory but it is generally done as it presents several benefits. For instance, since the NPO will account to a public office, its credibility will be increased. Then, the appurtenance to a legal organization will allow it to get tax benefits, access to funding resources and other incentives. Finally, the registration helps better organize the sector (Department of Social Development, 2005).

All in all, the nonprofit organization is an entity established with the purpose of social support, generally materialized in charitable events, but also in other activities that support the social and professional development of communities and their members. It is generally different from not-for-profit and for-profit organizations, due to the type of activity conducted and the distribution of the income realized.

3. Governmental Institutions

The United States is by far the undisputed leader, if one may say so, in the sector of nonprofit organizations. And the state officials support their operations and often grant them subsidies and tax exemptions, without which the NPOs would find it difficult to operate. The reason why this is relevant in the section for governmental institutions is given by the fact that, due to the impressive importance and role played by the nonprofit organization, they often seem to interfere with the operations implemented by the American government. “The U.S. national and state governments are often limited by the activities of nonprofit organizations, but that is a prime mark of a free and otherwise democratic society” (Hopkins, 2005). But as it will later on be revealed, there exists a direct relationship between the governmental institutions and the nonprofit organizations; foremost, it would be in the best interest of the U.S. citizen for the state agency to support the growth and development of the NPOs.

However the concept of government institution may seem quite formal and with tremendous implications, it basically refers to the state agencies which offer support to the population. The most relevant examples could include housing agencies, hospitals, schools or roads and bridges organizations. They generally offer public goods to all legal inhabitants of a country who pay their taxes, but they also spend impressive amounts of money offering support to the illegal immigrants and their children. The primary services available to the illegals and their children are education, emergency healthcare and imprisonment. The legal citizens have access to all services offered by the federal powers.

The primary characteristic of the governmental institutions refers to the criticism they often receive from the U.S. citizens, which find the services insufficient. This is the most common complaint and it is generally due to insufficient funds. Taking one step back, the funds have never been sufficient to completely satisfy the needs of the population, but the problem seems to be deepening today, as the federal deficit increases to record high values (it would take about three generations of income payers to pay the entire national debt, mostly so high to due to impressive security and military expenses) and the economic stability is being threatened by the weakening of the dollar against the strengthening of the euro. Also, the growing practices of outsourcing and immigration within the United States of unskilled and cheap working individuals, materialized in increasing unemployment rates, alongside with the international oil crisis and the continually increasing price of oil, have only further jeopardized the American economy. All these then culminate with fewer funds to be distributed to the institutions supporting the population; ergo the general dissatisfaction with governmental agencies.

A satisfaction felt however by the American citizens is given by the increased access to the government aid and services. In this order of ideas, the state officials have made significant efforts not only to improve the quality of the services delivered, but also to include more individuals within their programs as to ensure an easier access. A most relevant and modern example in this sense is the constant maintenance and improvement of governmental websites (such as (www.usa.gov),as to reduce the efforts of individuals. “As the U.S. government’s official web portal, USA.gov makes it easy for the public to get U.S. government information and services on the web. USA.gov also serves as the catalyst for a growing electronic government” (Official Website of the U.S.A. Government, 2008). With the aid of modern technology, the U.S. citizens are now able to go online and find out any information they need.

In all, the governmental organizations are state owned entities which function for the benefit of all individuals within the United States (including aliens, but also Americans living abroad); they operate on various levels, such as education, religion, culture, roads, healthcare, economy and finance, family and communities, human rights and so on.

4. NPOs vs. Governmental Organizations

Until the recent past, a clear distinction between governmental institutions and nonprofit organization was barely perceptible to the general public. This was basically because the two offer similar services, all for the support of the population. “Like government agencies, nonprofit organizations exist to market failures that result in under provision or nonprovision of services by the private sector or seek to achieve distributive goals neglected in a private market. Governments and nonprofits rely on different mechanisms to ways to address these objectives” (Feiock and Andrew).

But despite this, the two are highly different. In this order of ideas, a specification is made with the establishment of a nonprofit organization which stipulates that a NPO can only be registered if it is not part of a state government (Department of Social Development, 2005).

Then, a second major difference resides in the sources used to retrieve the necessary funds. The nonprofit organizations do indeed get the support of the federal budget in the meaning that they are often exempt from tax payment; but they have to raise the funds by themselves without any additional help or interference. They do this through the organization of various events, such as concerts, dinner parties or theatre plays, during which wealthy members of the community donate money to the causes promoted by the NPOs. In the case of governmental institutions however, the funds come directly from the state officials. The money is initially collected from the general public in the form of taxes, fines or other transfers to the state budget, and then redistributed to the state agencies.

A third difference also deals with the financial nature of the organizational activities, but is somewhat different from the previous one. In this order of ideas, since the governmental institutions retrieve their funds from the state budget, they are likely to fluctuate in direct proportion with the national economy. To better explain, were the country to encounter economic stagnation or worse, recession, they would dispose of fewer resources. Therefore, the governmental institutions would be only limitedly able to help the population. On the other hand, since the nonprofit organizations retrieve their funds from wealthy individuals through charitable events, they would depend less on the general economic status. A specification must be made here in that even for the wealthy individuals donating to NPOs, a generally downhill economic performance would not have a positive outcome, and through losing money, they would donate less, affecting as such the funds of the nonprofit entities. But even so, these donors often conduct operations at international scale, protecting themselves against the incurring risks and ensuring as such their profits. All in all, however both types of social development entities depend upon the national economic status and stability, the degrees are different.

It has already been established that both nonprofit and governmental institutions strive to offer high quality services to the U.S. citizens. But since the success of the first is significantly increasing, against the financial constraints of the latter, the government has become more and more centred on collaborating with NPOs. Foremost, the nonprofits often seek the collaboration of state agencies, as they have more power and can even influence the legislation to the benefit of the clients deserved with such high interest by the NPOs. However, the role of the nonprofits remains quite limited, or at least limitedly recognized. They can be formed at local level, but also on national level, and the two types of entities (NFO and state owned) can be collaborators, fierce adversaries or can complete each other (Feiock and Andrew).

The most important statement to be made in regard to the relationship between the two types of entities is that it can be collaborative, adversary and complementary. And this is the single most important sentence to reveal the comparative efficiencies of both nonprofit entities and governmental agencies. To better explain, regardless of the general results retrieved by the organizations, fact remains that in most cases they come to be influenced one by the other. Foremost, this then means that the efficiencies vary and the results are given by the relationship. In a simpler formulation based on the three direction relationship:

when NPOs come to complement the services offered by the governmental institutions, then the latter has registered a reduced efficiency and has been unable to fully satisfy the needs of the individuals; the same is valid vice versa when the two types of organizations choose to collaborate, however this is in the best interest of the population, it could easily mean that they are unable to successfully organize their operations by themselves finally, when the two compete, it means that their efficiencies are balanced and similar; and generally competition is good for the client, as the entities will implement various strategies to increase their satisfaction; however, there is the risk that the organizations become too focused on the organizational battle and fail to properly address the clients’ needs

The collaboration between the two types of entities is generally beneficial for the population, and foremost, the state officials could further support the NPOs as to leverage the efficiency of the latter. In this order of ideas, the following measures could be taken:

the government should exempt all NPOs from tax payments, not just some of them, as they do now the federal organization should also grant the NPOs other subsidies, both financial and non-financial the government should become the primary endorser of the nonprofit organizations; this would become extremely beneficial as most NPOs possess limited resources and therefore encounter difficulties with retaining the staff members or the buildings they need; if the government becomes the endorser, the NPOs would get increased access to bank loans or other funding sources also, to increase the on the job satisfaction, the quality of the services, the client satisfaction and eventually the efficiencies of the processes, the government should help create and sustain an employment campaign within the NPOs; they could even offer wage subsidies, for instance the employees in NPOs would not have their hole salaries taxed

5. Efficiencies of Nonprofit Organizations

With more and more problems and even disasters affecting the global population, there is an increasing need for organizations that help the population recover from the tremendous effects of the unfortunate event. But natural calamities are not the sole reason why the existence of such entities is vital. In the dynamic environment in which we live today, change occurs on daily basis and the people who fail to adapt to it will lose the most; these people need help. Probably the most significant example in this sense is given by the increasing poverty, in the background of higher unemployment rate and as such, an increasing dependency on social programs, coming from either government or nonprofits.

But as the need for such organizations increased, so did their numbers – the number of nonprofit organizations has increased from 12,000 in 1940 to more than 1.5 million in 2000 (Frumkin and Kim, 2000). The possibility to attract funds has generated increased competition between these organizations. And the question being posed here is do these entities actually help the population, or do they use most of the money to pursue their personal agenda? In order to answer this question, one should analyze the efficiencies of each type of entity.

The ultimate efficiency of the nonprofit sector depends on the skills and capabilities of each individual organization. This basically refers to their ability to attract and serve clients. The entities are highly competitive and however this is generally in the best interest of the population, they may at times get lost in the competitive strategies and place reduced emphasis on the interest of the served individuals and groups.

Despite the relatively high interest in the efficiencies and results of nonprofit organizations, studies conducted are “surprisingly sparse. […] One reason for this is the limited data available on nonprofit institutions in existing data sources. Estimates of key dimensions of this sector therefore remain dependent on highly imperfect projections from dated information or on data sources whose accuracy and reliability remain highly suspect. In some respects, in fact, the data sources have deteriorated in recent years” (Salamon and Sokolowski, 2005). But in spite the relatively reduced empirical evidence, fact remains that the nonprofit organizations have to work close with state owned entities. “In some cases, nonprofits may be seen as partners in the government’s design or delivery of public services though joint planning and program development” (Feiock and Andrew).

There is a general tendency for the results of nonprofit organizations to be measured in the same terms as those of for-profit entities. But despite their common interests (generically, both types of companies are interested in the well-being of their stakeholders and place increased emphasis on making profits – NFOs continue the implementation of their programs whereas profit organizations distribute the income), the results and efficiencies of the entities cannot be measured in the same terms.

A way in which nonprofits can assess their efficiencies is through retrieving feedback from their clients. In this particular instance, organizations that only worked with highly specialized and experienced volunteers retrieved the most of praises and revealed as such high efficiencies. These agencies have a quite strict recruitment process, in the meaning that the volunteers are asked to participate to an interview, where a psychologist is also present. Given that they are selected, the volunteers will commence a nine-month training program; and only at the end of this program will they be able to interact with clients. They do this not only for the full satisfaction of the individuals deserved, but also as they are aware that a successful outcome is the guarantee for future contracts.

A specification that must be made relative to the results registered by nonprofit organizations is that most of them prefer quality over efficiency. In other words, they prefer to have to job done well, rather that have the job done in large quantities, but at poor qualities. In comparison to profit organizations then, it could be said that high quality standards are the most common marketing strategy implemented by NFOS. “An example of this […] is the fact that a large number of calls are answered does not mean that the organization has done a better job. It could just as well mean that the calls have not been long enough to give the best help possible” (Steingruber and Larsson, 2006).

In a nutshell, the efficiency of the nonprofit sector varies based on the capabilities of each entity in the sector. The increased competition is generally a positive factor for improving the quality of the services offered to the clients. Also, it is exactly this high quality that is promoted by the NPOs, who see it as the most suitable marketing strategy and as an actual means of efficiency, rather than profits, shareholder value or any other criteria assessed by the for-profit organizations. As such, the results basically indicate that, despite the different criteria used to measure efficiencies, these are quite similar to other organizations and vary based on numerous forces. In addition, the nonprofit organizations are currently turning their desire for increased efficiency into an organizational goal, which will materialise in increased numbers of social gatherings with the purpose of raising money, which would then be used to complete various charity cases.

6. Efficiencies of Governmental Institutions

However the role of the nonprofit organizations has grown significantly during the past recent years, the governmental institutions remain the primary care giver for the American population. The actions implemented by the U.S. government are regulated by the Constitution, and they basically revolve around offering easy access to the federal services to all individuals inhabiting the U.S. soil. Also, these institutions have some power to become internationally engaged. The primary aims of these institutions is to offer similar opportunities and access to resources to the U.S. citizens, but they are also centred on fairly and equality treating all individuals, while protecting their innate rights. All in all, the purpose of the government is to ensure and protect a good governance. “Good governance prevails when government officials manage public institutions in an efficient, transparent manner that is responsive to citizens’ concerns. It also requires that citizens work collaboratively with officials in the pursuit of common social, political, economic and cultural goals” (IFES, 2008).

The actual number of U.S. governmental agencies is quite difficult to establish, but it could easily be around 1,000 state institutions. All of these belong to various domains, including benefits and grants; consumer guides; defense and international; environment, energy and agriculture; family, home and community; health and nutrition; history, arts and culture; jobs and education; money and taxes; public safety and laws; science and technology, travel and recreation and finally, voting and elections (Official Website of the U.S. Government, 2008).

Just like with nonprofits, the governmental institutions measure their efficiencies in different terms than the for-profit organizations. However, unlike the nonprofit organizations, the state owned agencies place more emphasis on quantity, rather than quality. In other words, the primary target of the federal institutions is to offer a wide coverage of their services, but since this is often too wide for the capabilities of the institutions, the quality standards tend to decrease. For instance, the federal government has recently been accused of reduced efficiency in conducting their research operations. “A new report from the National Research Council recommends changes in how the government evaluates the efficiency of research at EPA and other agencies. Efficiency should be considered only one part of evaluating a program’s quality, relevance, and effectiveness, the report says. Evaluations of “process efficiency” should focus on research inputs and outputs, while assessments of “investment efficiency” should gauge how well R&D fits into an agency’s strategic plan” (National Academy of Sciences, 2008).

Currently, the efficiencies of the U.S. government are quite limited, mostly due to the financial shortage, generated by the large federal deficit, the devaluing dollar in the background of increasing petrol prices, all to culminate with a general economic instability. In this particular sense, and with the limitations imposed by the direct dependence upon the national economy, the efficiency of the federal institutions has been decreasing.

Aside from the economic forces, there are also social ones which make the tasks of the government institutions difficult to complete. For instance, due to extensive outsourcing processes, when the American multinationals fired the native born employees to contract cheaper foreign workforce, the American workers found themselves out of jobs. This significantly increased the overall unemployment rate, increased poverty rates and meant fewer contributions to the state budget, but more requests and more people to be served.

But the causes of poor efficiencies are not only found in the external environment, they also come from within state owned entities. In this particular instance, since the jobs are quite poorly paid, the federal offices are most often short-staffed. And the employees who do work there are poorly trained and motivated; ergo, they registered reduced performances. Then, the tasks they perform are generally tedious, requesting large amounts of work, resulting in only limited results, and most importantly, carried out with reduced resources. The insufficient resources are found at almost every level, but they are quite impending in the technological department, where most of the tasks are still manually handled, slowing and hardening the jobs of the clerks.

In order to improve the efficiencies of their institutions, the government has contracted numerous companies specialized on administration and efficiency. One of these companies is IFES, whose aim is to increase the management, independence and professionalism standards of the public institutions in order to increase the transparency and efficiency of these institutions, all to the benefit of the U.S. citizens. The strategy adopted in this sense is centred on four primary strategies, revolving around:

fostering dialogue among government agencies, political parties and civil society organizations;

designing programs to increase public participation in the decision-making process;

offering government institutions research-based public policy guidelines;

promoting responsive, transparent and accountable governance at the national, regional and local levels” (IFES, 2008)

Another collaborator of the U.S. Government in increasing operational efficiency is Kronos, and their strategic approach is based on the following:

reduce administrative burden by automating manual processes mitigate risk and make better decisions with more accurate employee information increase payroll accuracy and accountability through automatically handling complex federal pay and work rules solidify the link between human resources and finance systems improve employee satisfaction and reduce operational costs with employee self-service enhance interagency collaboration through simplified data sharing” (Kronos, 2003-2008)

7. Conclusions

The specialized literature is rather limited on the topic of governmental and nonprofit efficiencies. The nonprofit seldom disclose their information and as a consequence, it is difficult to assess their results. The governmental institutions on the other hand, are extremely tediously analyzed, due to their large numbers and presence in most all domains of live; foremost, the efficiencies of governmental institutions as a hole have seldom been studied. As a general conclusion however, the two previously separate institutions are now coming to work together, to complete each other or even compete one against the other, with efficiency as a primary criteria for success.


Alvarado, E.I., 1998, Is there a Difference between ‘Nonprofit’ and ‘Not-for-profit’?, Idealist, http://www.idealist.org/if/idealist/en/FAQ/QuestionViewer/default?section=01&item=09last accessed on June 19, 2008

Feiock, R.C., Andrew, S.A., Understanding the Relationships Between Nonprofit Organizations and Local Governments, Florida State University, Retrieved at http://www.fsu.edu/~spap/feiock/papers/Nonprofits_&_Public_Services.pdfon June 19, 2008

Frumkin, P., Kim, M.T., 2000, Strategic Positioning and the Financing of Nonprofit Organizations: Is Efficiency Rewarded in the Contributions Markeplace?, the Hauser Center for Nonprofit Organizations and the Kennedy School of Government, Harvard University, Retrieved at http://www.ksghauser.harvard.edu/PDF_XLS/workingpapers/workingpaper_2.pdfon June 19, 2008

Hopkins, B.R., 2005, Starting and Managing a Nonprofit Organization: A Legal Guide, Wiley

Salamon, L.M., Sokolowski, S.W., 2005, Nonprofit Organizations: New Insights from QCEW Data the BLS Quarterly Census of Employment and Wages Data Set Has Enormous Promise as a Source of Timely Information on Private Nonprofit Sector; New Discoveries Challenge a Variety of Conventional Theories about these Organizations, Monthly Labor Review, Volume 128

Steingruber, H., Larsson, K., 2006, Efficiency in Non-Profit Organizations – How do aid organizations estimate external and internal efficiency and how is it communicated?, Goteborg University, School of Business Economics and Law, Retrieved at http://gupea.ub.gu.se/dspace/handle/2077/3139on June 19, 2008

2003-2008, Federal Government Solutions, Kronos, http://www.kronos.com/FYO/FedGov.html. Ast accessed on June 20, 2008

2005, Non-Profit Organizations (NPOs), Department of Social Development, http://www.welfare.gov.za/npo/npo.html. Ast accessed on June 19, 2008

2008, Federal Government Should Improve Assessment of Research Efficiency, National Academy of Science, http://www.nationalacademies.org/morenews/20080131.htmllast accessed on June 20, 2008

2008, Governance, IFES, http://www.ifes.org/governance.htmllast accessed on June 20, 2008

2008, Official Website of the U.S.A. Government, last accessed on June 19, 2008

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