In a healthy economy, money is constantly circulating. This simple premise forms the basis of the entire economic model outlined in this book. Beneath ideology and political persuasion, this wisdom also sits within the hearts of each and every one of us. This can be seen in a simple experiment we have been conducting with diverse audiences since 2010. 1 In the experiment, we ask audience members to draw a horizontal line across a page. Above the line, they are to draw a symbol, shape or simple image that represents a healthy, sustainable economy. Below the line, they replicate the process, but this time drawing something that represents our present economy. A remarkable pattern always emerges. For a sustainable economy, most people visualize something cyclical and balanced. Circles, the infinity symbol, and wave patterns are the three most common images. For our present economy, most people visualize something hierarchical or unbalanced. Triangles, straight lines, and jagged patterns are the three most common images. Most people carry the inherent wisdom and intuition that a healthy, sustainable economy must be balanced and it must use money and resources in a circular way. This principle of circulation must be built into the very way our economy functions; not as a side-effect, not as an afterthought, but as the way that economic activity naturally flows. What we have now, in contrast, is a linear economy, focused on throughput, with massive amounts of resources going to waste, and money accumulating in the hands of a few. Keeping resources and money circulating in this economy is an afterthought, not an inherent feature of the system. In fact, many of us who are trying to work for a more sustainable economy often feel like we're swimming upstream or fighting a doomed battle against the very rules of the economic system, itself. Luckily, it doesn't have to be that way. The kind of business with which most of us are familiar is not the only kind of business. An entirely different model is sitting right in front of us and has gone mostly unnoticed, despite its increasingly large presence. And it points the way to the kind of healthy, balanced economy that so many of us desire. The economic model that we're introducing in this book has the circulation of money written into its DNA. In our vision of the economy, all players are looked after through fair wages, and any surplus is fed back into the system. After all, when it comes to money, what more does anyone need than a good enough wage to cover today's expenses and to put something aside for the future? This approach is aligned with the principles of ecosystems, in which each animal and each species takes only what it needs and any surplus is passed on or left behind, to be used by other members of the ecosystem. Ecosystems don't have any equivalents of bloated savings accounts or offshore tax havens. The hoarding of wealth would be destructive to the system as a whole. Can you imagine lions in the savannah hunting all day to accumulate as much of a surplus of meat as possible, hiding it in a cave and every once in a while giving some to the vultures and hyenas? It's a laughable scenario. In reality, the lions hunt for as much food as they need, then spend the rest of the day resting and playing. They leave some of their kill behind for other species in the ecosystem to eat. If the lions accumulated more than they need, it would disrupt the entire food chain. They would decimate the species that they prey on. The vultures and hyenas would not have enough to eat and would starting dying off. And the numbers of vultures and hyenas in the savannah would affect the numbers of many other animals through their predatory patterns, which in turn would affect other species. The lions' greed would not only decimate some species and deprive others of vital nutrition, but they might very well find themselves starving in the end, as the whole system breaks down. This is what is happening in our current system. Due to the structure and rules of our economy, a small minority has accumulated most of the money and this concentration is weakening the whole system. The key lies in what happens to the surplus in the economy. The bold hypothesis we present in this book is that businesses that see profit as a means to achieving deeper goals will increasingly outperform those that prioritize profit as a goal in itself. Our main aim in this first chapter is to shed a new light on profit, re-formulate its place and potential in the world, and offer a glimpse of a much healthier economy based on this new perspective. What do you think of when you hear the word 'profit'? What sort of thoughts and feelings arise? Many of us think of a wide range of associated words all the way from 'greed', 'excess', and 'selfishness', to 'business', 'reward', and 'investment'. We all have some sort of feelings about profit because it plays such a central role in society. Indeed, profit seems to make the world go round. We've found that many people feel profit is a very positive thing; it motivates economic activity and keeps the 'invisible hand' 2 of the market going. It is the just reward for working hard and taking the risks of going into business. On the flip side, others feel that profit is inherently evil. It motivates all kinds of destructive behavior and encourages people to act selfishly and hoard wealth. And some of us have very mixed feelings about profit, acknowledging that it has both pros and cons. Whatever feelings you have about profit, no one can deny its relevance. So it's important for us to have a clear understanding of exactly what profit is and what it can be.
Profit is simply the financial surplus generated by business activity, 'the difference between the amount earned and the amount spent in buying, operating, or producing something.' 3 Thus, profit is neither inherently good nor bad. But, as the surplus of economic activity, it is important. And what happens to the surplus in our economy is central to whether we have a healthy or destructive economy. We argue that, in order to determine whether business is generative (contributing to the health of the whole economy) or extractive (taking away from the health of the whole economy), one must ask the question, "Who profits from the profit?" Many people know about the destructive activities that are carried out every day for the sake of maximizing profit. We constantly hear about how companies are profiting from the exploitation of workers in sweatshops, increasing their revenue by overfishing or cutting costs by cutting corners. But relatively few people are aware of the businesses and entrepreneurs all over the world that approach profit in a very different way, in a generative way. One such company sparked the idea for this book, and changed our lives forever. In 2009, a man named Colin Saltmere gave a presentation at a conference in Brisbane, Australia. He described his civil engineering company, Myuma, as having 50 employees and an annual turnover of 17 million Australian dollars. He presented their work, which included the construction of roads in north-west Queensland. Then, Saltmere said five words that changed our lives, "And we're not-for-profit". This was a paradigm-shifting moment for us. How could this company, which does so much work and generates so much revenue, be not-for-profit? Furthermore, if an engineering company could be not-for-profit, then might there be not-for-profit companies in other unlikely sectors of the economy, too? If so, would it be possible to have an entire economy based on not-for-profit business? Could that help us move beyond our current crises? The potential felt enormous. We had to know more. In a follow-up conversation, Saltmere told us that, as an Aboriginal group of engineers, they wanted to do work that would help the community. So they started their engineering firm as a not-for-profit (NFP). This means that Myuma is based on a social mission and that, after it has paid all its expenses, including wages, it must use 100% of its profits to fulfill its social mission. 2 The Invisible Hand is a concept first described by political philosopher Adam Smith in the late 1700s. A central concept in capitalism, it describes how the decisions of self-interested economic actors lead to the fair allocation of resources for all, through the mechanism of supply and demand, almost as if an invisible hand was moving the economy. (The Concise Encyclopedia of Economics: Adam Smith (1723-1790) , http://www.econlib.org/library/Enc/bios/Smith.html -lfHendersonCEE2BIO-084_footnote_nt467) 3 "Profit," Oxford Dictionaries, http://www.oxforddictionaries.com/definition/english/profit Thus the seed was planted that business not only can, but should, be generative for the wider community. And, in fact, the entire economy should be based on generative businesses. With NFPs constantly cycling their surplus back into the real economy, the difference between forprofit and not-for-profit business could be the difference between having a linear, extractive economy and having a circular, generative economy. An economy based on NFP enterprise might be just what we need to move society in a more sustainable direction. It would take us beyond the current, stale debate about whether the market should be more heavily regulated or if it should be allowed to operate more freely, because the functioning of an NFP market economy would be so different from the for-profit market economy. As far as we know, this was a completely new vision of what the market could be. This could offer a realistic alternative to both capitalism and state socialism. Of course, many people had understood the generative nature of more socially-oriented businesses long before we started working on these ideas. People like Nobel Prize recipient, Muhammad Yunus, had been talking about 'social business' for years. However, such visions focused on adding social purpose to business, regardless of the profit-orientation of a company. They hadn't seen the importance of the for-profit/NFP distinction in terms of expressing whether businesses see profit as a means to an end or as an end in itself. To our knowledge, no one had ever gone so far as to imagine that NFP business could stand alone, as the core of the economy. Although we had both been working in the areas of environmentalism, social justice, sustainability and nonprofits for almost a decade, learning about Myuma gave us a new angle for investigation. Inspired by their story and excited about the potential of Myuma's business model to transform the economy, we spent the next five years learning as much as possible about the landscape of NFP enterprise. What we found further fueled our enthusiasm. A significant amount of data had already been collected by the Center for Civil Society Studies at Johns Hopkins University. 4 We were able to see from their work that the foundation for an NFP global economy is already being laid. Not-for-profit businesses are emerging all over the world and in every sector. In order to understand NFP business, we must first understand the most common form of business: for-profit business. It's quite simple. Most businesses have owners, shareholders and investors who expect to make money from the business. They expect what's called a 'return on investment'. This means that they invest in the business expecting to get more money out than they put in. In most cases, they want to gain as much wealth from the company as possible, to 'maximize' their gain. To this end, the majority of businesses are set up in order to maximize profits for their owners, shareholders and investors. This is business, as most of us know it. It seems natural that a business should have shareholders and investors, or at least owners, who receive a portion of the profit.
In legal terms, though, there is a specific name for this type of business. It is aptly called for-profit business. The legal interpretation of a business being for-profit is almost universal. While the way forprofit businesses handle their financial surplus varies, and some of them may never make any profit, all for-profit companies have the ability to privately distribute profits. A company that can distribute profits to individuals (such as owners, shareholders, investors, partners, workers, managers and board directors) is legally for-profit. In such businesses, profit is either the main goal or one of the main goals of doing business. For-profit companies see profit not as a means to an end, but rather as an end itself. But what if there were a business model oriented towards a deeper purpose and used profit as a means to achieving that purpose? What if there were a way of doing business that didn't have any private owners and had to use all of its profit -the surplus left over after paying for all business costs, including wages -for the good of the community rather than distributing it to private owners? Well, that's exactly what not-for-profit business is. Most of us have learned that businesses and nonprofits are two very different creatures. And traditionally, nonprofits and businesses have inhabited quite disparate realms. Businesses generate their own revenue and maximize profits, while nonprofits rely largely on charity and grants in order to do mission-driven work. In fact, the nonprofit world has long been dependent on the business world for financial support, in both direct and indirect ways. Historically, businesses have been the moneymakers, while nonprofits have been the caretakers. However, nonprofits are increasingly going into business to generate their own revenue and the status quo is rapidly changing. These trends are converging to create an entirely new sphere in the economy: the realm of NFP business. Not-for-profit businesses could be thought of as money-making caretakers. Indeed, NFP companies such as Bupa, an international healthcare group, and Mozilla, the world-renowned software developer, have made profits in recent years, cycling 100% of those profits back into their missions. 5,6 As one executive we spoke with put it, "We're not forprofit, but we're not for loss either. 7 This is because profit helps them better meet their mission and deliver their services. The NFP ethos is very different from for-profit companies, which see the provision of goods and services as a way to earn profits, rather than the other way around. The for-profit mindset has put the cart before the horse. Not-for-profit business puts profit back into its proper place in the economy. Thus, we can distinguish between profit-ability (the ability to generate a financial surplus, thereby enhancing a business's sustainability) and profit-maximization (the primary focus on maximizing profits). Companies like Myuma, Bupa and Mozilla illustrate that for-profit is not the only way to run a business. Three points universally distinguish a 'not-for-profit' entity from a 'for-profit' entity. All NFPs have:

1. A social and/or environmental mission and hold it as their top priority; 2. No ability to privately distribute profit or assets; and 3. No individual owners or shareholders. What qualifies as a social or environmental mission? In many countries, the NFP definition allows for a very broad range of purposes. It includes missions that benefit the public at large, like protecting a forest or taking care of a community park. It also includes missions that benefit a marginalized group of people, like impoverished families or people struggling with homelessness. It can also include missions that benefit a select group of people who aren't vulnerable. NFP community centers and credit unions, for instance, exist for the benefit of their members, regardless of whether those members are struggling or not. An NFP's mission can even be as simple as 'providing high quality products'. This gives us a very wide range of groups that can be NFP, which is why companies like Myuma, Bupa and Mozilla can be NFP. However, this can also leave the door open for some organizations to register as NFPs that are actually in business to maximize wealth for private individuals. Some NFPs, such as mutual funds in the U.S., have the mission of providing high quality services to their customers, but their service is to maximize capital gains, which is the antithesis of the NFP legal distinction. As such, we exclude from our interpretation of 'not-for-profit' any organization whose primary service is to maximize capital gains for individuals. Therefore, we could add as a fourth provision that NFPs: 4. Cannot have as their mission the maximization of capital gains for individuals or for-profit companies. Another feature that distinguishes many NFPs is one that further prevents private gain from an NFP: a windup clause (or asset lock) that prohibits any individual gain from company assets in the event that the entity closes down or is dissolved. The asset lock is very important, because an NFP distributing its assets is very similar to an NFP distributing its profits. Legislation that allows NFPs to distribute their assets to individuals blurs the for-profit/NFP distinction. For instance, an NFP golf club should not be able to distribute its assets to individual members when the company dissolves. Instead, all of those assets should be passed on to other NFPs (this is legally required of all 501c(3)s in the U.S. and all Community Interest Companies in the U.K.). Otherwise, individuals can make quite a significant capital gain from the golf club's assets. Distribution of an NFP's assets can also create a litigation nightmare, in terms of who gets what, especially if people have donated to the NFP. On their own, each of the elements above could not transform the economy. But together, the rules that differentiate NFP businesses from for-profit businesses have the power to change the economic game as we know it.
Some readers might wonder if there is a difference between an NFP using financial surplus to increase salaries the next year and a for-profit company distributing its financial surplus to owners at the end of the year. The difference is profound. Not-for-profit employees are paid to do valuable work without which the NFP could not survive. In other words, they earn their salaries by creating value. Furthermore, when the manager of an NFP submits a budget to the NFP's board for review, the board considers this budget in light of both the company's financial position and the efficient allocation of resources needed to achieve its mission. Salaries are generally only raised if doing so will help the NFP better fulfill its purpose. This is in stark contrast with for-profit companies, which are expected to maximize financial surplus in order to deliver dividends to owners, who don't have to work to earn that money. In the for-profit context, purposes other than profit are generally taken into account only if doing so will help the company deliver higher profits. The focus on profit-maximization encourages short-term thinking, speculative behavior, and cutting costs (often reducing wages and lowering the quality of products and services). Good NFP salaries, on the other hand, promote longer-term thinking and further value creation for the company and the community it serves, because profit and wages are in service of a deeper purpose. It's not just the way that NFP enterprises are transforming the business world that changes the game; it's also how they're transforming the world of traditional nonprofits. As more and more NFPs move into business, it also becomes important to distinguish between traditional, charity-dependent nonprofits and NFP businesses. Often the terms 'nonprofit' and 'not-forprofit' are used interchangeably, but we make a distinction in this book. We believe that the mindset and economic role of NFP enterprise is so different from that of traditional nonprofits that it is worth recognizing it as a totally new category, as a new segment of the economy. We have chosen to use the terms 'NFP business', 'NFP enterprise', or simply 'an NFP' to differentiate this new breed of purpose-based businesses from traditional nonprofits, which depend on charity, volunteers and grants. We decided to use these terms because 'nonprofit' tends to evoke more of the 'no-profit' misunderstanding, while 'Not-for-Profit' is more straightforward in describing the mission of the company, or rather, what its mission is not. It's not for-profit. 10 Why define something by what it is not? If all NFP businesses are driven by purpose, why not speak of 'for-benefit' or 'for-purpose' businesses? We intentionally avoid such language, because the words 'benefit' and 'purpose' are too vague to show what happens with a company's surplus. They leave the questions of "who benefits?" and "for what purpose?" unanswered. This is clearly illustrated by the fact that the benefit corporation in the U.S. is actually a for-profit business model and the B Corp certification (B as in benefit) is only available to for-profit companies. 11 Although in most countries there is no legal distinction between traditional nonprofits and NFP enterprises, for the purposes for this book, when we refer to an NFP business or enterprise we include organizations that generate at least 50% 12 of their funding from the sale of goods and services. This means that NFP enterprises can receive ongoing philanthropy and grants, but cannot depend on these for the majority of their revenue. Not-for-profit enterprises are able to use strategic business approaches to generate revenue that go far beyond raising money via grants, donations and other forms of philanthropy. And that's what makes NFPs different from traditional nonprofits: they seek to be financially independent and they generate a significant portion of their revenue through the sale of goods and services. They also generally have different approaches to management, finance, productivity, innovation, service delivery, and worker participation. We will delve further into these distinctions and their nuances in greater detail in the following chapters. For now, the take-away message is that NFP business is mission-oriented and uses all resources, including profit, to achieve social or environmental goals, whereas forprofit business is profit-oriented and can distribute profit to private individuals. We are explaining these distinctions so thoroughly because the NFP framework is so widely misunderstood, and yet it is a necessary ingredient in any recipe for a healthier economy. With NFP businesses largely geared towards the greater good, profit tends to be constructive and generative. This is because NFPs generate surplus with the intention of being better able to achieve their social or environmental goals. With for-profit businesses largely geared towards self-interest, profit tends to be destructive and degenerative. This is because surplus is principally created with the intention of accumulating private wealth and power. That's what the profit motive is all about. 13 Not-for-profit business is not perfect. Such companies face many of the same challenges that for-profit companies experience, such as achieving sustainable streams of revenue. They also face many of the same challenges that traditional nonprofits encounter, such as drifting from their mission. However, an economy built on the NFP framework and ethic is healthier for people and the planet than an economy founded on the for-profit framework and ethic. The for-profit ethic entails an extractive mentality, seeking to pull value out of business into the hands of a few owners and investors; whereas the NFP ethic entails a generative mentality, seeking to use profit to generate value for the wider community. Not-for-profit enterprise is the ideal hybrid between the innovative, efficient aspects of for-profit businesses and the mission-driven nature of traditional nonprofits. It is a business model built for purpose -the purpose of 'meeting needs'. These enterprises don't face the pressure to sacrifice social and environmental wellbeing in the name of profit, which is something that most for-profit businesses confront.
Without obligations to shareholders and with minimal dependency on donors, NFP enterprises have the freedom and ability to get their work done in a way that maximizes social, environmental and economic outcomes. While the traditional nonprofit model may be diminishing in prominence, it's no surprise that the NFP enterprise model is on the rise, 14 with activity across sectors as diverse as telecommunications, retail, manufacturing, software development, construction, healthcare and the food industry. Although we're drawing a line in the sand between for-profit and NFP business, it's important to acknowledge that not all for-profit businesses are created with the same single-minded drive towards profit. Many small, locally-owned businesses do not maintain a singular focus on profit and are often happy to forgo revenue for a cause that helps their community, such as donating goods and services to homeless shelters. In addition to companies that voluntarily act in less profitoriented ways, we also see the emergence of new legal business models that seek to push forprofit business in a more purpose-driven direction. The benefit corporation, for example, is a relatively new for-profit business model introduced in some U.S. states, whose legal structure was designed to enable the profit-orientation of the traditional corporation to exist alongside a social mission. Benefit corporations subscribe to the 'triple bottom line' philosophy; seeking to balance people, planet and profit. Note that profit is still a goal in itself, rather than just a means to help meet the needs of people and planet. Benefit corporations are therefore predisposed to the for-profit ethic. Many people have also heard of social enterprises, which are often either assumed to be all for-profit, or all NFP. In most regions, social enterprises can be either for-profit or NFP. Forprofit social enterprises fall into the triple bottom line category -seeking to balance profit as a goal alongside social or environmental goals. Worker-owned cooperatives are another example of less profit-oriented businesses that are legally for-profit. Owned and managed by the workers themselves, profits of a worker co-op can be distributed to individuals, making worker co-ops 'for-profit'. And, in addition to their wages, workers usually look forward to their dividend from profits. The worker-owned co-op model is still based on the profit motive and the for-profit ethic, but to a much lesser extent than typical for-profit corporations. And, of course, worker co-ops distribute their profit more equitably than companies that only give profit to a narrow group of shareholders and investors. In fact, sometimes worker co-ops even choose to limit the maximum amount that can be paid out in dividends. Benefit corporations, for-profit social enterprises and worker co-ops all represent important steps away from the strictly profit-oriented mentality of corporations traded on the stock market, which prioritize delivering higher quarterly profits for shareholders. They are a move in the NFP direction and play an important part in a larger trend that we're observing. In order to better understand these differences, we can conceive of businesses being situated along two spectrums; one relating to their ownership structure and the other relating to the extent to which they are profit-driven. The graph below illustrates these spectrums with a few examples of the many business models that exist worldwide. On the far-right end of the ownership spectrum is the publicly listed corporation (i.e.businesses that are traded on the stock market), owned by shareholders. You can see from the vertical position on the graph that profit is the number one priority for such companies; they seek to maximize profit. Benefit corporations have private owners and shareholders who don't work for the business, but they have a social purpose in addition to their desire to maximize profit. Many small family-owned companies, also known as 'mom and pop shops', would be near the center, because the owners of these companies usually do a certain amount of work for the business and profit is rarely the singular priority. Towards the middle of the horizontal axis, the members of worker-owned co-ops are the owners and profit is still a priority, but can co-exist with other priorities, including worker wellbeing and other ethical practices. On the left-side of the spectrum, in the ideal 'zone of NFP enterprise', the there is no private ownership, and these businesses can be profitable but profit is never a top priority. Traditional nonprofits are outside of the zone of NFP enterprise, as they don't see profit as much of a priority at all. The vision we're putting forth in this book is one in which most of the economy exists within the zone of NFP enterprise, a Not-for-Profit World. The NFP World economy still has a great amount of diversity. Taking a closer look at what exists in the zone of NFP enterprise, we discover many different forms including: incorporated associations; companies limited by guarantee; non-distributing cooperatives (including some producer co-ops and all consumer co-ops); social enterprises (in many European countries this model is NFP by default); and Muhammad Yunus' Type 1 Social Businesses (the Type 2 Social Business model is for-profit). Various government-owned enterprises can also be considered NFP enterprises, such as motor vehicle departments (which charge fees for the service of providing license plates and driver's licenses), as well as most public transportation and municipal utility companies. The common theme, and what makes an NFP economy so much healthier than the current for-profit economy, is that there are no private owners, which means that the surplus benefits a wider community, not just a few individuals. In coming chapters we will see why keeping the financial surplus of business in the real economy fundamentally changes the entire system. We will also take a closer look at the diversity that exists within the not-for-profit economy. But first, let's look at how we ended up with a for-profit economy. We presently live in a for-profit world. The vast majority of the businesses in our current economic system are for-profit companies. This means an incredible amount of the economy's surplus goes into the pockets of individual investors and business owners.
This might seem well and good, an accepted norm of how things are, but the fact that all of these business models allow for the private distribution of profit and assets does something very damaging to the dynamics of the economy. In a healthy economy, wealth keeps circulating throughout the system, so that we all have enough to meet our needs. We call this the 'Wealth Circulation Pump'. Indeed, this is what happens in our economy. Much like a water circulation pump keeps hot water flowing through the pipes of a house, we take money in the form of wages and send money back out into the flow of the economy by spending it. If the wealth circulation pump is functioning properly, then money keeps flowing naturally around the economy to where it's needed. Theories of capitalism i say that the wealth circulation pump is primed mainly by capitalists investing in businesses. The idea is that the innate urge of investors and business owners to make more money compels them to reinvest their wealth in more business activities and this reinvestment benefits the economy, at large. It creates more jobs, which allows more people to participate in more economic activities. This has been called the Invisible Hand of the market. It is supposed to keep money constantly pumping through the economy It is clear that this is not what's happening in today's economy. So far, the 21 st century has been an age of extreme wealth inequality. 15,16 We can all sense that something is interfering with the Wealth Circulation Pump. What is it? We call it the 'Wealth Extraction Siphon'. This is how it works. For-profit businesses distribute surplus to owners, investors and shareholders. They then use their wealth primarily to invest in more business ownership (equity) to receive more profits and capital gains. They receive more wealth from the returns on their investments and use that new wealth to invest in more equity, and so it continues in a feedback loop. The people who own the most equity in businesses are the wealthiest people in society and their wealth allows them to buy even more equity in businesses (they don't need to go into debt to do this), so they are able to multiply their wealth like no one else. This does contribute to the wealth circulation pump to an extent, as the capitalists' businesses pay wages, allowing their employees to continue to buy the things they need. But their aim is to take out more than they put in and they do that very well. Thus, their activities extract more wealth than they circulate, which is why capitalism has an overall trend towards greater inequality. 17 The little amount of wealth that trickles down from the rich simply cannot compensate for the speed at which wealth is being extracted from the real economy. Recent studies show that the super-rich receive a large portion of their income from the real economy of goods and services, but rather than putting that wealth back into the real economy, they put most of it into the elite economy of luxury goods and services and financial assets. 18,19,20,21 We call this the elite economy because it is a speculative market that only those who have a certain amount of extra money can afford to participate in. As the incomes of the rich continue to rise while the average household income continues to drop, the elite economy becomes even less accessible to the average person. A recent Oxfam report found that the richest 1% of the world's population now own more than the other 99% combined. 22 Although this level of inequality rightly angers many people, it's very important to understand that wealthy people are simply doing what is considered rational in an economy that revolves around profit and the private accumulation of wealth. This is not a phenomenon of a few bad apples acting greedily and intentionally creating their own elite economy, despite economic rules that encourage contributing to the wider community. Instead, it is a natural outcome of a system that holds greed as the primary source of motivation. It's a fundamental feature of the for-profit economy. For-profit business acts as a siphon, sucking the surplus out of the real economy into the elite economy. Some people might ask, "But the wealthy are investing in the stock market. Isn't that part of the pump?" Most of us believe that the stock market serves primarily as a mechanism of investment -that when people buy shares in a company, they are investing in that company and providing it with the capital it needs to grow. However, this is only the case when a company offers shares on what's called the primary market for the first time, through an Initial Public Offering, or via a further stock issuance. The vast majority of stock market transactions happen in the secondary market (like the New York Stock Exchange), and do not give companies any capital or investment funds. 23 Rather this is the domain of pure speculation. When shares are traded after their initial sale, money just bounces between traders, never touching the company's bank account (or the real economy). The for-profit system encourages speculation and short-term thinking; two ingredients that have proven to be extremely destructive on a planet that we must all share and look after for future generations. When you buy stock in a company on Wall Street, you are more or less placing a bet, speculating that your chosen company will generate more profit than last year or, at the very least, it will not lose money. Just as when you bet on a horse or a dog at the racetrack, if the company gains money, so do you, as a speculator. If the company loses money, so do you. It is speculative. It is gambling. Big traders often make gains from the losses of smaller traders, who have less experience and knowledge about the stock market.
24 Because most of the big traders on the stock market are the global elite, the money just sloshes around the elite economy after it's extracted from the real economy. 25 Ironically, the wealth circulation pump seems to be working just fine in the elite economy. Even in the case of companies that aren't traded on the stock exchange, investors and owners are looking to extract as much wealth from the company as possible, with few exceptions. When we need our economy to support both people and planet for the long-term, is it really appropriate for our primary business model to be centered on speculative investment? In a world with for-profit business at its heart, profits are the primary objective. Thus, in our current global economy, profits are generally created in the most cost-efficient ways, regardless of social and ecological consequences. A very clear example of this is how profitmaximization has been driving companies to outsource labor, often moving factories to countries where wages are lower and environmental, health and safety regulations are lax or nonexistent. This is largely done in order to increase shareholder value, deliver higher profits to owners, and stay competitive against other companies that are also trying to maximize profits. Planned obsolescence is also symptomatic of this tendency to maximize profit at all costs. Products are often designed to break down or become obsolete as soon as possible so that consumers will buy more items more frequently. It feels like every year the things we buy are less and less durable and need to be replaced more frequently. Most of us have experienced this when a household item like a printer or vacuum cleaner stops working and we take it to a shop to be repaired, only to be told that it would be cheaper to simply buy a newer version of the product. In part, this is because companies are using cheaper materials and cheaper production methods to maximize profits. 26 But even if products don't physically break down, companies find ways to keep their profit margins high, such as selling software that becomes incompatible with newer applications after a year or two. On the quantity versus quality of products, legendary industrialist Henry Ford said, "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." 27 We have strayed far from that wisdom. The rule for most businesses today could be articulated as, "Make the most profits possible at the lowest cost possible, including paying the lowest wages possible." 24 Long, H., "Who's Getting Rich Off the Stock Market?," The Buzz, CNN Money, September 24, 2014, http://money.cnn.com/2014/09/18/investing/stock-market-investors-get-rich/. 25 Austin, L. & Williams, R. (2015) 'Composition of Income Reported on Tax Returns in 2012', Tax Notes, Tax Policy Center: https://www.taxpolicycenter.org/publications/composition-income-reportedtax-returns-2012/full A growing segment of the population criticizes such destructive business practices, but fails to see that profit-maximization is what most of these companies are set up to do. It's their purpose; their raison d'être. It's in the name: for-profit business. What's more, the social stratification that results from economic inequality in a for-profit system tears communities apart and generates status envy, exacerbating the conditions for a rampant consumer culture that further alienates people and destroys ecosystems. 28 It is a vicious, for-profit cycle. Again, this is not because these business owners, investors and shareholders are awful people. They are all just playing by the rules of the for-profit game. We cannot blame them for winning a game that incentivizes and favors unsavory kinds of behavior. Instead, we must promote different priorities, rules and social norms. To believe that a different set of rules and standards is even possible, it helps to know a little more about how dramatically the approaches to profit and the wider economy have changed over time. In the 1970s, philosopher of science Thomas Kuhn described how paradigm shifts occur in science. A paradigm is simply the most common way of understanding the world around us, a frame of thinking that includes both assumptions and the way information is interpreted. Kuhn claimed that scientific paradigms are constantly developing and evolving but that from time to time, a paradigm shift happens when the old way of doing science no longer seems valid or effective and new ways of seeing the world emerge to explain the phenomena that the old paradigm couldn't. Kuhn noted as an example the famous paradigm shift that happened in the field of astronomy when Galileo was able to use a telescope to show how the Earth revolves around the sun. Before that, most astronomers based all of their calculations and theories on the assumption that the Earth was the center of the universe and the sun, as well as all other planets, revolved around Earth. However, there were things that the geo-centric view couldn't explain. As a result, the existing paradigm faced a crisis and a new paradigm, the helio-centric view, eventually replaced it. Just as there have been paradigm shifts in the way we understand the universe, so have there been shifts in the way we see the economy. The concept of profit is central to these economic paradigm shifts. As our social, political and cultural needs change, so does our idea of what should be done with economic surplus. This means that the way we organize society and politics, as well as the cultural context in which businesses are embedded, influences our understanding of profit and vice versa. These aspects are all constantly co-evolving. The same is true for concepts like 'business', 'ownership', and 'markets'. We inevitably interpret these ideas through our cultural lens or filter. Societies throughout the world and throughout time have treated profit in different ways. From a historical perspective, the profit motive is relatively new and what feels normal to us is just a snap-shot in time.
For the first 100,000 years of human existence, the notion that people should strive to produce and store surplus for private gain was largely irrelevant. Not only was food storage unnecessary and impractical for foragers who moved seasonally through the landscape, but the social organization and cultural values of these kin-based societies also had a different focus entirely. Foragers lived communally, underpinned by the values and practices of kinship, reciprocity and subsistence. 29 Deep connections with the other members of the group and an understanding of ecological interconnections with other species in the region were essential to survival. These foraging bands focused on satisfying human needs, 30 which they saw as limited. 31,32 The forager worldview clearly entails an ethic of enough. While forager economies did not involve surplus production, the peasant communities which were common in ancient civilizations did. These societies typically responded to surplus by institutionalizing wealth-leveling practices that periodically redistributed any marked difference in individual material wealth. Their customs ensured that inevitable differences in productivity and fortune did not disrupt the social stability of the community. Indeed, redistributive practices such as this can still be found across many indigenous cultures. 33 They are powerful reminders that other ways of treating surplus beyond private accumulation have long existed and that the present model of wealth accumulation that dominates our lives is a relatively new development in human history. In socio-economic systems where redistributive practices are institutionalized, people are motivated by cultural goals which can only be achieved by putting the surplus back into social institutions. 34 Surplus becomes simply the vehicle for achieving social respect, and does not lead to differences in access to resources. Such customs are supported by cultural assumptions and worldviews that typically stigmatize greed, over-consumption and hoarding. For example, in the Native American Cree language 'wetiko' 35 refers to a greedy person, a cannibal spirit, or a man-eating monster. Found in many Native American cultures, this concept is used to describe someone who has collected more than they need and is thus considered to have a social disease. 36 For these cultures, greed equates with social disruption because it breaks the bonds needed to sustain society. 29 Sahlins, M., (1974), Stone Age Economics, Aldine Transaction. 30 Bodley, J. H., (2012), Anthropology and Contemporary Human Problems, AltaMira Press, Lanham, MD. 31 Foster, G. M., "Peasant Society and the Image of Limited Good," American Anthropologist 67(2) (1965): 293-315. 32 Service, E. R., (1971), Primitive Social Organization: An Evolutionary Perspective, Random House, New York,. This period of time, when most societies were forager bands or peasant communities and there was little orientation to surplus production, can be seen as the Pre-Profit Era of human history. Today's focus on profit was non-existent. Instead, there was a common understanding of the importance of sharing any surplus with the group for the sake of social stability and overall wellbeing, and this understanding led to cultural norms and rituals that enforced standard practices of wealth circulation. More formal food production systems began to appear at around 11,000 BCE. Intrinsic to this "agricultural revolution" were cultivation practices designed to create the regular surplus needed to support more stratified political institutions. Thus, the Pre-Profit Era gave way to the For-Profit Era. In this paradigm, profit became a goal in itself and it was explicitly used to support an elite class. 37 These early societies had cultural and social institutions that allowed divinely-ordained elites to claim ownership of goods produced by lower-ranking people. 38 Only the elites got to keep surplus and commoners faced accusations of theft if they did so. 39 For most of the For-Profit Era, private accumulation of surplus by commoners remained morally problematic, largely due to cultural narratives that considered the privatization of profit socially unacceptable and, in many cases, damnable under religious teaching. 40 Luca Pacioli, an Italian mathematician that lived in the 15 th century, echoed the Bible's teaching that all wealth belongs to God, 41 a statement that exemplifies the most common attitude towards wealth accumulation and private profit at that time. And, of course, with the advent of Islam in the 6 th century AD, the majority of banks in the Muslim world were forbidden to charge interest under Sharia law. Elites in most societies were also expected to use their wealth to erect lavish public buildings, to fund annual community festivities and to perform ritual functions. 42 European nobility, for example, used their family wealth to erect the palaces, churches and fortresses. Power could only be demonstrated by culturally-appropriate displays of wealth, and noblesse oblige was expected. Starting with the Protestant Reformation (16 th century), during the Enlightenment (17 th -18 th century) and on into the Industrial Revolution (19 th -20 th century), the economy gradually became more focused on profit. This was part of a larger shift towards mercantilism and imperialism, wherein governments controlled trade in order to expand their empires and maximize national gain. Although much of the imperialism and colonialism of those times was justified by spreading European Christianity, there was a corresponding secularization throughout Europe. Life increasingly revolved around economic and political institutions rather than religious ones. This transition away from religious authority facilitated the development of a new worldview that allowed for more self-determination and encouraged the creation of personal wealth and the development of a globalized market economy. But it was Adam Smith's notion of a market economy in the late 1700s, that ultimately cemented the social acceptability of private profit and marked the emergence of capitalism. 43,44 Smith put forth the then radical notion that society would be better off if people were allowed to interact and negotiate in the market as they wanted, letting supply and demand balance out in a way that would govern the nature and quantity of what was traded.
Known as the 'Invisible Hand' of the market economy, Smith's most influential idea 45 was that if each individual acts out of their own self-interest in the marketplace, it will add up to social benefit for all, because everyone will find the best way to meet their own needs. As capitalism took hold through the Industrial Revolution, personal gain acted as the main motivation for conducting and expanding business activity. The profit motive was born. For the first time in history, it became widely accepted that a common person, not related to nobility, royalty or the church, could hope to financially gain from business. 46 Little wonder it became so intoxicating. The co-evolution of the English language with the profit motive clearly illustrates the corresponding shift in cultural values. For instance, the word 'wealth' emerged in the English language in the 14th century and originally meant 'wellbeing, related to health' or bodily well-being. Only later did the term come to be synonymous with material possessions and money. 47 The same goes for 'prosperity', which originally meant 'happiness.' 48 As economies shifted from mercantilism to capitalism, corporations and limited liability companies became popular vehicles for doing business. Before 1819, corporate charters in the U.S. were only issued if it was in the public's interest and they were tightly regulated by the government. 49 Forming a corporation back then usually required a legislative act. All investors generally had an equal say in corporate governance and corporations had to align their activities with the purposes expressed in their charters, which had to be in the public's interest. A corporation's charter could be revoked by the state if the corporation was not acting for the common good and many charters were dissolved as soon as their projects came to an end. 50 , 51 In essence, until 1819, corporations in the U.S. had to be socially-oriented, mission-based and were held accountable for delivering social goods by law. In their earliest forms, corporations were very much like NFP businesses are today. Nowadays, the for-profit system is driving inequality and ecological destruction and it's no surprise that human wellbeing in most countries of the world has stagnated or declined over the last decade. 52 The crises of the for-profit system increasingly appear to be unresolvable from within the for-profit paradigm. Hence, we find ourselves in the transition period between two eras. More effective ways of viewing the economy, business and profit are evolving and ushering in a new age. Although for-profit business has taken center stage since the beginning of the Industrial Revolution, it has not been the only model in the business ecosystem. There were also many formative not-for-profit developments in the 19 th century. This is when cooperatives were first formed in order to unite for the benefit of all members through collective ownership and democratic management of the business, a step in the NFP direction. This is also when the first formal nonprofits emerged as legal vehicles for charity work and philanthropy. Early nonprofit organizations found ways to raise money for their cause, in addition to relying on donations. Some did even raise funds through the sale of goods and services, such as the Goodwill thrift shops started in 1895 by Reverand Edgar J. Helms. 53 These were the first enterprising nonprofits. After the Second World War, we saw the development of welfare states throughout the West, as a manifestation of a new sense of responsibility for taking care of all of the citizens of a nation. This new sense of responsibility coincided with the emergence of not-for-profit enterprise in more or less the same form we see it today, and the momentum behind it has been building up over the past six decades to where it is now. An increasing number of NFP enterprises have emerged all over the world in just the last couple of decades, in almost every sector of the economy. This growing trend is also reflective of a cultural shift in business and in the economy. These businesses have chosen to incorporate as NFPs because it's the ideal framework to ensure they remain 100% dedicated to their social mission and it is the best way of showing their customers and communities that they'll never be tempted to compromise in the name of speculation and greed. The founders of the Mozilla Corporation, for instance, created a nonprofit foundation as its sole shareholder to prevent it from becoming a privately-owned company. 54 'Not-for-profit' is not just a legal status for organizations. The term also expresses an underlying ethic and value system in which one's own individual benefit comes from the benefit of the whole community. It is a wisdom that acknowledges that we are unconditionally interdependent with the communities in which we live. Each individual's level of wellbeing is an indication of the whole community's wellbeing and vice versa. The NFP ethic is an ethic of enough; that is, I will take just enough, so that others in my community can also have enough and we can flourish together. Think again of the lions in the savannah who take just enough. Fortunately, this ethic of sufficiency is currently experiencing a revival. These NFP enterprises also represent a shift in the narratives and beliefs that guide business and economic activity. The profit motive and the image of the selfish, ever-calculating, rational 'economic man' are increasingly questioned in business and academia. There are new understandings which show that the drive for individual gain is not nearly as central to human behavior as previously thought. 55 , 56 , 57 , 58 Recent research in the fields of economics, psychology and cognitive science sheds more light on the complexities of human nature and behavior. Researcher Dan Pink's investigation of drive and motivation, for instance, shows that most of our behavior is motivated by factors other than profit, such as autonomy, mastering new skills, creativity, socializing and contributing to the greater whole.
59 Researchers in the relatively new fields of behavioral economics and social psychology are also finding that people do not act nearly as rationally as most economists have long assumed. 60,61,62 Our brains are not hard-wired to make us act out of narrow self-interest, but are very flexible and are constantly being shaped by the environment in which we find ourselves because we are such a social and empathic species. 63,64,65 Work done in the field of evolutionary biology confirms that cooperation plays just as important a role in evolution as competition. 66,67,68 If this seems hard to believe, think of your body, which is made up of over 30 trillion cells, 90% of which are bacteria. 69,70 Are all of these different cells and bacteria fighting each other and competing for resources? On the contrary, our bodies are evidence of incredible levels of cooperation in evolution. This can also be seen in ecosystems throughout the world. The complexity of the ecosystems we see today on our planet would never have been able to emerge without massive levels of cooperation. All of this new evidence points to something that many of us have intuited for a very long time: human nature is malleable. It is not this or that; it's this and that. Human nature is far from being black and white and is better thought of as existing along gradated spectrums ranging from generous to greedy, from thrifty to gluttonous, from cooperative to competitive, and everything in between. To paraphrase the great Russian novelist Aleksandr Solzhenitsyn: the line separating good from evil runs not between people, but through every human heart. We display different aspects of human nature, depending on social norms as well as the extent to which our fundamental needs are met. Perhaps the best word to describe human nature, then, is 'complex'. If our needs are not being adequately met or if we feel resources are scarce, we tend to express the competitive, greedy aspects of human nature. 71 If our needs are being met in healthy ways, we express the more compassionate, cooperative aspects of human nature. 72 What are the needs that have such a big impact on whether we act from a place of altruism or greed? You might be familiar with Maslow's hierarchy of needs. 73 We find the work of one theorist even more valuable. Based on decades of cross-cultural work, Chilean economist Manfred Max-Neef hypothesized that every human being has nine fundamental needs: subsistence, protection, affection, understanding, participation, leisure, creation, identity and freedom. 74 This framework shows us that the needs of individuals are inexorably tied to the wellbeing of the community, because a person cannot satisfy their need for protection, affection, participation, leisure and identity, without the support of a community. The not-for-profit ethic is based on fulfilling human needs in ways that support individuals, as well as the communities in which individuals are embedded. From a deep sense of purpose, our contributions fulfill the wider community's needs in harmony with our own. Recall the cells in our bodies. Each cell fulfills its own needs and simultaneously contributes to the health of the organ of which it is a part, as well as the whole body. 75 Without contributing to the whole, individual cells would perish. Without fulfilling their own needs, they wouldn't be able to contribute to the whole. This is interdependence. This understanding of interdependence was embedded in many ancient cultures and remains an integral part of many indigenous societies today. Fortunately, this wisdom is re-emerging in different forms all over the world. Movements such as the sharing economy, the solidarity economy, open source innovation, peer-to-peer networks and a growing focus on taking care of the commons all show the eagerness of people to work for the greater good. In fact, a significant portion of the world's trade has always occurred, and continues to occur, without the profit motive. 76 In the country of Mali, for example, 17% of all trade, including education and healthcare delivery, happens within what's often called the 'gift economy.' 77 Goods and services are shared without the expectation of any direct reciprocation. Even in fully industrialized economies, a great amount of economic activity is not profitmotivated. In 1996, economist Duncan Ironmonger estimated that the value of goods and services produced by unpaid workers in Australian households was almost the same as the value of the goods and services that paid workers produced for the Australian market. 78 This is the caring economy; parents, family members, friends and neighbors looking after each other in ways that aren't accounted for by most economists. The caring economy covers the basic needs of billions of people, forming the foundation for all other economic activity. None of us ever got a bill from our parents when we turned 18 years old, tallying up how much it cost to raise us. Instead, we just take for granted that parents do the hard work of raising kids without getting paid because they have a deeper source of motivation. Thus, the purpose motive makes the world go round. While NFP organizations and businesses rely on the purpose motive to achieve their missions, most for-profit companies still rely on the profit motive to maximize financial surplus. The NFP approach is fundamentally different in terms of depth, scope and goals, and it is quickly gaining advantages in the market. In light of the more complex view of human nature, needs and motivation, it only makes sense that purpose-based business is on the rise. What is really exciting is that this healthier mode of doing business is just part of a much larger transformation underway. Consumer behavior is moving in a more ethical direction. People are craving more purpose in their work. The Internet is making it easier to start businesses. People all over the world 75 Sahtouris, E., (2000), Earthdance: Living Systems in Evolution, Metalog Books, Santa Barbara, CA.
76 Heilbroner, R. L., (1999), The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers, Simon and Schuster, New York. increasingly favor access to products over ownership. 79 And technology has made connecting, sharing, swapping, and trading unbelievably easy. All of these transformations in society mean that NFP businesses might soon be outcompeting their for-profit peers due to the serious advantages they hold in the changing marketplace. In a world with rising demand for ethical products and services, organizations that focus on fulfilling human and ecological needs are ahead of the game. Not-for-profit businesses don't have dividends to worry about and can often offer lower prices, primarily because they are NFP. They often receive tax exemptions and the ability to receive tax deductible donations. They more easily draw on the support of passionate volunteers and attract the growing segment of the population that wants their paid work to contribute positively to society. Notfor-profit enterprises' propensity for flatter organizational structures enables exciting prospects for productivity and innovation, as well. Moreover, NFP businesses are freer to truly innovate, due to the absence of owners and shareholders who so often restrict creative energy to only the areas they deem will reap a good financial return. We are collectively stepping out of the profit motive and into the purpose motive and are likely witnessing the beginning of a whole new economic paradigm: the Not-for-Profit Era. It's rooted in a very simple notion: there is enough for us all if we keep the surplus circulating in an economy that promotes value creation, rather than value appropriation, and shared interest, rather than self-interest. And this new economic era has the potential to offer a truly sustainable economy that works for both people and planet. We are not at the end of history. We are somewhere in the larger evolution of human civilization, and the Not-for-Profit Era could very well be the next phase in the evolution of our economy. Our hope is that this book is only the beginning; that it will spark a much larger field of interest, debate, and research into NFP business and galvanize a social movement to realize the potential of a NFP World economy. Imagine waking up and feeling good about going to work, no matter what the nature of your job is. You feel positive and motivated, knowing that your work provides you with a livelihood that also contributes to the wellbeing of the wider community. How might a world look in which every person woke up feeling this way? What would it be like if every business were an NFP? A Not-for-Profit World would still involve a thriving market. Government, banks, money, loans and interest would remain. It is just that within a NFP framework, these things would have vastly different purposes and consequences. For instance, when banks can't privately distribute profits and they have no shareholders or owners that they need to keep happy with dividends, they have no reason to exist other than to provide high-quality financial services to their customers, and they have very little to distract them from this mission. They are built to be more transparent and more efficient. Rather than siphoning wealth away from people and communities who take out loans, all profits are allocated according to the NFP bank's social mission, enabling the generation of real community wealth. Now imagine the entire banking sector being NFP. Imagine the entire retail sector being NFP. Imagine all manufacturing being NFP. Envision a world in which all energy, food, transportation, housing and all other goods and services are provided by NFP companies. In a world with NFP business at its heart, profit is a means by which social and environmental wellbeing is achieved; it is not a goal in itself. With changes in the nature of incentive and ownership in business, the NFP model enables companies to make truly sustainable decisions, in turn promoting a less consumerist society and doing less harm to the natural environment. In fact, many NFP enterprises have a mission to help regenerate ecosystems. The NFP World fosters a more equitable economy because it naturally leads to a more balanced distribution of wealth. The requirement that NFP businesses reinvest all their profit into their mission translates into the constant circulation of wealth throughout the whole economy. Money and other resources go to where they're needed most, as the market is made up of mission-driven businesses. Thus, wealth, power and other benefits are distributed more widely and this is particularly important in light of our current inequality crisis. Not-for-profit business restores the functionality of the wealth circulation pump of the market. In transitioning to an NFP World economy, most people will experience relative increases in wages and salaries, as huge dividend payouts to the world's richest people disappear and companies are able to better value the work their employees do. This would contribute to a lot more equality, on the local, regional and global levels, therein increasing the quality of life for everyone. 80 The NFP World would also be better for the environment due to what we call the Paradox of Enough. In an economy in which wealth concentrates, we consume more but have less, whereas in an economy in which wealth circulates, we consume less but have more. In the for-profit world, we have less social connection, less free time, and less relative wealth. We consume more goods and services in order to compensate for not having enough of the stuff that makes life truly worthwhile. We have too much material wealth and not enough immaterial wealth. But in the NFP World, we have more free time, more cooperation, more dignity, tighter social connections and more equality. Rather than having too much of one kind of wealth and not enough of the other, we have enough of both. And when we have enough, we are better able to meet our needs without the pressure to over-consume.
For the first time in modern history we have the structures, capabilities and impetus to evolve to a Not-for-Profit World, in which the drivers of good business are harnessed for our collective flourishing. Not-for-profit enterprise is the keystone that allows us to bridge to a healthier economy, and it's been hiding in plain sight, waiting for us to have the wisdom to see and pursue it. That is not so say that a transition from the current for-profit economic paradigm to an NFP economic paradigm would be without difficulties. Potential challenges to the development of an NFP World include inertia as well as active resistance from the for-profit world. The forprofit way of thinking about business and the economy is so deeply embedded in social norms throughout the world that it might be very difficult for many people to imagine an economy that doesn't revolve around private accumulation and the profit motive; so many of us have built our lives around these ideas. This is why a transition to an NFP economic paradigm requires a strong social movement, the foundation of which already exists. The NFP World has the potential to resonate with many diverse social and environmental movements all over the world, as a vision worth working towards collectively. This book is about society taking an evolutionary step in the direction of a set of ethics and practices that are healthier for everyone; the planet's ecosystems included. It is not about being against for-profit business models, or governments dictating that business move in a not-for-profit direction. It is about businesses, citizens, consumers, educators, and policymakers working together to build a brighter future. We have glimpsed a not-for-profit world, and it is beautiful! In the early 1970s, just after Bangladesh gained its independence from Pakistan, the Bangladesh Rural Advancement Committee (BRAC) was started by Sir Fazle Hasan Abed and two dozen volunteers. The country had been ravaged by war and genocide and many people were struggling to meet their basic needs. Abed was an executive at Shell Oil at the time, but he quit his job to help build houses, rehabilitate farmland and open healthcare clinics through the organization he founded as BRAC. Over time, Bangladesh recovered and BRAC's mission transformed from disaster relief to long-term development. 81 The organization now has 115,000 employees, making it the largest NFP business in the world in terms of employment. 82 BRAC's social mission is to meet the needs of financially disadvantaged people in Bangladesh. Specifically, they run educational programs and provide healthcare services to rural populations. Rather than depending on donations and philanthropy to fund the good work they do, BRAC runs businesses. They fund their social efforts through many different revenue streams, operating banks, food processing plants, professional print and copy shops, and department stores that sell products made by rural artisans. In 2011, BRAC's revenue was $422,139,409 ii , 80 percent of which was generated through business activities. It is estimated that BRAC positively impacts the lives of 135 million people. 83 BRAC is a shining example of how generative NFP enterprise can be: using strategic business approaches to support a mission that benefits the wider community, seeing profit merely as a tool to make the world a better place, not a goal in itself. The story of BRAC gives us a glimpse into a much larger global trend. Something amazing is happening in the economy. An undercurrent that has gone mostly unnoticed until now has the potential to change our entire global economy for the better. What comes to mind when you hear the words 'not-for-profit'? Many people think of a mixed bag of words like: charity, foundation, bureaucracy, difficult, struggling, inefficient, passionate, relationships, corporate-funded, values-based mission, and volunteers. In our experience, the words 'not-for-profit' and 'nonprofit' conjure up a wide range of feelings in people. We used to have those same mixed feelings about 'not-for-profit' and 'nonprofit' ourselves. So it came as a surprise to us that one of the most exciting transformations happening in the economy right now is taking place in the nonprofit sector. Take these revealing numbers, for example: between the years 2000 and 2010, the for-profit sector in the U.S. experienced a 6% decrease in employment, while the nonprofit sector experienced a 17% increase in employment. During that same time period, wages in the forprofit sector fell by 1%, while wages in the nonprofit sector increased by 29%. 84

These statistics run counter to the story that we've all been told -that the profit motive makes the world go around and rich capitalists keep employment and wages high. These numbers are even more counter-intuitive if you think of what happened during this period of time in the U.S. -the Great Financial Crisis began. The government had less money, consumption dropped, corporate profits fell, and people tended to hoard rather than spend or donate their extra money. This is clearly reflected in the for-profit numbers above, but shouldn't wages and employment have fallen in all sectors of the economy, across the board? What could possibly explain the fact that wages and employment in nonprofits actually rose, while they fell in the for-profit sector? These numbers tell a story about the direction our economy might be heading. The economic crisis of the last eight years has had very different impacts on the for-profit and nonprofit sectors of the economy. As the financial industry experienced big hits that sent shockwaves throughout the global economy, slowing economic growth in most of the 'developed' world, for-profit companies experienced major losses. As a result, they laid off employees and decreased wages in order to cut costs, as the statistics above show. They also had to decrease their sponsorship and philanthropic giving to nonprofits. This meant sink or swim for much of the nonprofit sector.
Instead of falling victim to the decline in grants, donations and philanthropy, many nonprofits recruited volunteers, board members and managers with a background in business and quickly learned how to become more financially self-sufficient through generating their own income; essentially they started going into business. And those 84 Roeger, K., A. Blackwood, and S. Pettijohn (2012) Nonprofit Almanac 2012. Washington, D.C.:

Urban Institute Press. 85 This is our graph based on the numbers provided in the report. The report refers to the nonprofit sector and the private sector, rather than for-profit. And it does not distinguish between traditional nonprofits and NFP businesses. that did so successfully have flourished. 87 In the latter half of the 20th century, nonprofits typically responded to declines in grants and philanthropy by cutting costs, cutting services and trying harder to get donations. Now there is a different approach that many are adopting: shifting to an enterprise model. As a result, nonprofits are steadily moving into the market. These NFP companies are selling goods, offering services on a sliding-scale fee basis, and even leasing their property in strategic ways. Data from all over the world shows that nonprofits are increasingly developing business plans and revenue models that enable financial independence. 888990 This trend has been strengthening in the last few years and the nonprofit sectors of 27 countries are increasingly generating their own income through various forms of self-managed business. 91 In 2013, nonprofits in the U.S. reported over $1.74 trillion in revenue, 72 percent of which came from program fees and contract work. 92 Nonprofit revenues in the U.S. grew at a rate of 41 percent from 2000 to 2010. 93 Forty-five percent of registered charities in the U.K. currently identify themselves as social enterprises and 92% want to increase their earned income. 94 In 2013, earned revenue constituted more than half of the income of civil society organizations in the U.K. (over 75% in some regions). 95 And a recent study in Australia concluded that the country's nonprofit sector is in a state of transition towards a social enterprise model. 96 Whether or not a nonprofit can effectively do business mostly boils down to the organization's culture and mindset. Many organizations still operate from the mindset of being the 'nonprofit sidekick' of the for-profit economy. They see themselves as being the people who require philanthropy and donations to do the 'good work' that business is too busy making money to do. This dependence-mindset is part of these organizations' internal culture. They maintain this dependence by using a great deal of their time and resources to apply for grants and ask for donations and philanthropy. Their train of thought is that they can't charge for the good they're doing for society because the people who benefit from their goods and services can't afford to pay for them, and someone must subsidize this good work. Who? Philanthropists, donors and the government. There's almost the feeling that charging people for goods and services that benefit the community will cheapen their work or twist their ethics. There's a prevailing idea, not just among nonprofits, but throughout society, that business and charity are two very different things that should not be mixed. But shouldn't all businesses be set up to benefit society? Should companies provide goods and services that don't benefit society? Or goods and services that actually harm society, just in order to make money, and then donate a bit of that money to try to compensate for the harm they've caused or the gap that they haven't filled, because it wouldn't make them as much money? Traditional nonprofits that maintain the dependence-mindset aren't asking these important questions. And they aren't doing themselves or society any favors by staying in a position of dependence. Dependence on philanthropy and grants often means that nonprofits must prioritize the funders' goals over their own. This can be detrimental to the nonprofit's mission. Funders usually require goal-setting, monitoring and evaluation to be done within their own financial time horizons, driving short-term thinking in many nonprofits, at the expense of long-term, systemic pursuits. An article published in 2005 in the Harvard Business Review, titled 'Should nonprofits seek profits? ', warned against nonprofits trying to earn their own income. 97 The authors believed that going into business was just too risky for nonprofits, because so many income-earning endeavors fail in the nonprofit space and society cannot afford for nonprofits to fail, as their services are so important in helping the disadvantaged. The article describes how one nonprofit's manager came to see their attempt at earning income through a restaurant-café as the best way to attract grants and philanthropy, even though the restaurant was actually costing more money than it was generating. The author used this example to illustrate that nonprofits simply don't have the right mentality to run a business, as if this is an inherent flaw of being nonprofit. The author is right; that specific organization's failure is probably mostly due to the dependence-mindset being so deeply ingrained that they even saw their business as a way of attracting donors, rather than as a way of generating income to be self-sufficient. A manager with this mindset, who is so focused on the idea of fundraising, will probably not be very good at keeping a business going; if for no reason other than the fact that he or she will constantly be distracted from the business by thinking of ways to get more grants and donors. However, NFP businesses all over the world are proving that this is mindset is not an inbuilt aspect of being NFP. The same amount of time and resources that so many traditional nonprofits spend chasing grants and philanthropy can be better spent creating ways for the organization to become more financially self-sufficient, which also gives them more independence in terms of decision-making. They can become more self-directed by earning their own income and having no obligations to outside funders.
Being financially independent can also contribute to more resilience during economic downturns, as you can adjust your business strategies according to the market's needs, rather than faltering when donations run low. Such independence gives NFPs more self-confidence to get their mission done as well. This is another problem with the dependence-mentality in nonprofits that often goes unarticulated. Being dependent makes them feel that they can only accomplish so much on their own. Just like an individual who is financially dependent on someone else; they feel bound and limited. Being more self-sufficient, on the other hand, gives them a sense of empowerment, although it sometimes takes more work. There's also a different sense of pride in the work one does when it is self-directed. This is just as true for organizations as it is for individuals. Kathleen Buescher, President and CEO of Provident Counseling, Inc., a $5 million family services NFP in St. Louis, summed it up perfectly: "It's my theory that nonprofits in the future will have to fund a lot of their mission this way. We're just not going to have sufficient other money to do it. We'll have to earn it ourselves. And the beauty of making a profit, as we've been able to do during the past 15 years, is that you can do a lot with the money, you can do what you want to do. You can do it how you want to do it for as long as you want to do it and you don't have to make anybody happy except your own board and staff. You don't have to meet anybody else's expectations. That's a very freeing idea, and once you feel it, you don't want to go back to the confines of any other type of funding." 98 An article on the popular website Fast Company tells the story of VolunteerMatch, an American NFP that helps volunteers go to where they're needed most. VolunteerMatch has been reaping the many benefits of doing more business. The organization went from generating 57% of its revenue from service fees in 2006, to generating 87% of its own revenue in 2009. Greg Baldwin, the president of VolunteerMatch, proudly remarked in an interview, "We are almost completely sustainable due to earned revenue." And because of that element of financial viability, Baldwin is optimistic that the company will be able to better serve tens of thousands of nonprofits in coming years, creating even more positive social outcomes. 99 Likewise, the YHA recreation and accommodation provider in the United Kingdom generates 95% of its revenue through the sale of goods and services. In 2015 they enjoyed their best year ever of trading, with over 8% growth and a profit of £1.6 million, which is not a big surprise in light of the fact that they scored a 90% on their customer satisfaction surveys. About 400,000 young people stay with them annually, thousands of which receive direct funding support from the YHA. And they're expanding. Over twenty-two million pounds have been invested in their network since 2011, allowing them to build new hostels in Brighton, Cardiff and the Cornwall. All this from a not-for-profit. 100101 Perhaps the main reason society has traditionally seen charitable work and business as playing separate and distinct roles in society is because we've been wary of people getting rich in the name of social benefit. But while there is a very good chance for socially-oriented for-profit companies to do this, NFP businesses strike just the right balance. This is because no individuals can own them or make a financial gain from their profits and their number one priority is to meet social needs, which they can better achieve by being financially selfsufficient. Shifting from a philanthropically dependent mindset to one with a business plan moves organizations from a deficit-based mentality to an asset-based mentality. In other words, rather than focusing on needs and problems (deficits), NFP businesses are likely more focused on strengths and potentials (assets). This is a hugely empowering shift for the nonprofit sector. Not only is the percentage of self-generated income rising within the nonprofit sector, but NFP companies are also expanding their reach into new areas of business. Markets traditionally dominated by for-profit business, such as construction, manufacturing, software development, food catering and retail, are all arenas for not-for-profit business now. You might be wondering how so many different kinds of businesses can possibly be not-forprofit. Sure, they might not privately distribute profit, but what about their social mission? In most countries, the definition of 'social benefit' or 'charitable purpose' is flexible enough to include any kind of mission, other than generating profit, that has some sort of positive social outcome. Some countries, like the UK, determine this by evaluating whether a business does more good than harm for society. This allows for a very broad range of businesses, not just the usual suspects like education, healthcare and community development. For example, in the retail sector, the Eco-Home Centre is a registered NFP business in Cardiff, Wales, which sells home renovation and construction supplies. Its mission is to "champion sustainable building in Wales" iii . 102 In fashion and design, there are companies like Bombolulu in Kenya, which employs people with various disabilities to produce jewelry, textiles, as well as wood and leather products that are sold worldwide through Fair Trade Organizations. 103 Law firms and real estate companies can also have social missions. The ASU Alumni Law Group, in Arizona, is an NFP legal firm whose mission is to help the community gain access to affordable legal services. 104 Home Ground Real Estate is Australia's first NFP real estate and property management company. They charge regular real estate fees to help people buy and sell homes, but 100% of their profits go to help people who are at risk of homelessness.
105 And there are a plethora of NFP energy companies, like Som Energia, Catalunya's first NFP energy cooperative, whose mission is to generate clean, local energy for the community. In banking and finance, there are examples like the not-for-profit GLS Bank in Germany, which allows members to choose to receive a lower interest rate on their savings in order for the bank to provide loans to charitable projects at a lower cost. 107 Credit unions, a type of NFP co-operative bank found throughout the world, also exist solely to serve the financial needs of their communities. Credit unions gained 10 million members worldwide between 2013 and 2014 and in the U.S., more than 100 million people are members of credit unions. 108,109 There is also a plethora of very successful NFP insurance companies all over the world, including State Farm Insurance in the U.S. and CRISP Insurance and CBHS Health Fund in Australia. All of these insurance companies exist to provide the best, most affordable insurance coverage they can to their customers and all profits are invested back into that mission. You can also find NFPs in the transportation industry. The Independent Transportation Network in the U.S. is dedicated to providing dignified transportation for senior citizens and it has over 4000 members, all of whom are also NFP businesses. 110 There are NFP breweries, like Ex Novo in Portland, Oregon, which has the mission of providing the community with good beer and gives 100% of its profits to charities that help disadvantaged communities. 111 This might sound just like a for-profit brewery that simply donates to charity, but this brewery has no private owners as well as a clear mission that is not related to profit. This means that it won't be tempted to sell as much beer at as a high a price and as low a cost as possible, potentially sacrificing the quality of the product and the working conditions of employees in order to turn a profit for owners and investors. This is the extremely important difference between for-profits and NFPs, regardless of what industry they're in. There's even an NFP dating site. Humanitarian Dating is a website that helps people who are passionate about resolving the world's crises connect with likeminded people. Any profit they receive from paid membership fees goes right back into better serving their members. 112

In fact, there isn't any sector in the real economy in which a business cannot be an NFP and this is why we can envision an entirely NFP world economy. The idea is very simple: every business can and should create positive social and environmental outcomes, and profit should only be seen as way of achieving those outcomes. In the twenty-first century, we can expect that from our economy. These companies measure their success by looking at how well they're fulfilling their purpose, not how well they're maximizing profit. And they see having healthy revenue streams as an integral part of how they achieve their deeper goals. They keep the horse in front of the cart. BRAC proves that NFP enterprise is not restricted to meeting needs that can be 'cashed in on'. Rather they fund their social missions that aren't easily commercialized, like education for the financially disadvantaged, by thinking creatively and doing business in other sectors. Similarly, The Endeavor Foundation in Australia seeks to give people with disabilities employment opportunities. They also provide education, home care, accommodation and assisted holidays to their beneficiaries. In order to support this work, Endeavor offers recycling, packaging, and industrial sewing services. Any profit generated from these business activities goes to making the disability services they provide even more affordable and accessible. 113 Relying more on earned income exposes NFPs to competition in the marketplace, usually resulting in more efficient and effective operations. Increased cash flow means that their beneficiaries benefit even more. In an era when inequality is skyrocketing, a large portion of our planet's ecosystems are facing collapse, and levels of wellbeing all over the world are declining, it's no longer enough for the business world to try to minimize or mitigate its negative impacts. We need companies that generate positive outcomes for the whole living community, not just a handful of wealthy business owners and investors. We need an economy that is generative, not extractive. Fortunately, the kind of generative business model that so many of us have been seeking already exists. Not-for-profit business is better for people and the planet. This is not because all NFP businesses are perfectly eco-friendly and ethical in their activities. Not-for-profit companies are simply much more likely to work for positive social and environmental outcomes than for-profits because they:

• exist for a social or environmental purpose;

• see profit only as a means of achieving a deeper purpose, not as the goal itself;

• have a board to hold the company accountable to that purpose; • are held accountable by the larger public for staying mission-oriented;

• have no private owners or shareholders (so no one gains from cutting ethical corners);

• have a greater ability to be more democratically-run; and • are in a better position to take feedback from the wider community into consideration. NFP is truly a business model built for purpose. It represents economic activity that focuses on meeting social and environmental needs. Because the NFP business model doesn't require constant growth in order to maximize profits, it allows us to acknowledge the fact that some needs are best met outside of the market. Based on the ethic of enough and the 'purpose motive', NFP business is a lot less likely to pressure people to consume for consumption's sake, which is good for all the inhabitants of this planet. Unlike in the for-profit world, where business is fundamentally at odds with ecological limits because companies must constantly grow, NFP enterprises are much more likely to take environmental issues seriously, and to constantly seek to reduce their ecological footprints.
REI, a well-known recreational equipment retail chain, has been an NFP consumer co-op since it opened in 1938. In November of 2015, they decided to give all employees a paid day of leave and keep their doors closed on Black Friday iv in order to encourage people to spend the day outdoors with family and friends, rather than participating in the nation-wide spending splurge. REI was making a statement: that they were willing to sacrifice some revenue in order promote the values of human connection and ecological stewardship on a day when most other retailers promote unfettered consumerism and material accumulation at the expense of social and ecological wellbeing. 114 Not-for-profits are much freer and more able to choose planet over profit. An NFP can much more easily get away with not making a profit year after year in order to be more eco-friendly in its business activities. Due to the different values and greater levels of accountability in the NFP business world, there is also a deeper consideration for consumers' real needs. CarShare in Colorado makes this very clear on their website, which says, "We're committed to helping our members share more than just cars. We want to promote community through a shared sense of purpose. By sharing the costs of car ownership, more resources will be available for the things that truly matter -like clean air, water, and open space instead of parking lots. Shared vehicles, in combination with urban cycling and reliable transit, give our nonprofit model the leverage to partner with virtually unlimited opportunities and offer our members the lowest rates possible." 115 NFP enterprises are also more inclusive. Such businesses have a predisposition toward democratic decision-making, transparency, fairness, and equality, which builds trust and inclusivity. If you think about which companies make a point of employing people with disabilities in your community, names of NFPs will most likely come to mind. Like Food Connect, many innovative NFPs couple social and environmental missions. Blue Star Recyclers in Colorado, whose core mission is "recycling electronics and other materials to create jobs for people with autism and other disAbilities". They are doing excellent work. Since 2009, they have provided 40 local jobs for people with disabilities in four Colorado communities. They have ethically recycled over 12 million pounds (5.4 million kilograms) of electronics. 116 In 2016 they generated the vast majority of their income, about $1.6 million, from recycling and refurbishment sales. 117 This is a business model that can be found all over the U.S. and even all over the world, with Versability Resources in Virginia, Green Vision Inc in New Jersey, Opportunity E-Cycling in Montana, Garten in Oregon, and Abilities Group in New Zealand, just to name a few. Along with being mission-driven rather than profit-driven, NFP businesses also contribute to greater socio-economic equality because they keep their financial surplus in the system (in addition to many NFP businesses who aim to alleviate poverty directly through their services). This keeps the wealth circulation pump going strong. As Wilkinson and Pickett illustrated in their foundational book, The Spirit Level, a more equal society, without extreme poverty and extreme wealth, is better for everyone. 118 While many of us have become accustomed to for-profit companies undertaking very destructive business practices like running sweatshops and dumping toxic waste into rivers, it would be shocking and totally unacceptable for an NFP to do such things. It's almost as if we've accepted that the profit motive naturally leads to these negative consequences, but that it's the only way to do business, therefore for-profit enterprise is a necessary evil. The NFP business model offers a real alternative. It raises the bar, setting a much higher ethical standard for business. As such, we argue that moving beyond for-profit business is not only possible, but it is necessary for a more sustainable world v . In light of the extreme inequality of the 21 st century, one of the most significant aspects of the NFP model is that it invites us to re-imagine business ownership. Ownership of businesses, and of the means of production, is so central to any economy that it has the power to shift an entire economic paradigm. Strictly speaking, no one can own an NFP. Not-for-profit businesses can have managers, boards and CEOs, but no owners or shareholders. Anytime you hear of member-owned NFP co-ops or having a membership share in an NFP, it's purely nominal. Your 'share' is only what you put in; it can't grow and it can't be traded. So, an NFP 'share' is more like a refundable deposit and the so-called 'owners' don't have any equity. Nobody can really own a share of an NFP or hold equity in it, other than another NFP. 119 This is an extremely important point of distinction between NFP and for-profit businesses. Equity in a for-profit business can be a tremendous source of wealth for its owners (think of J.P. Morgan, Bill Gates, Mark Zuckerberg and the Walton family, for instance), whereas NFP ownership is more like custodianship or stewardship; it's more of a caretaking relationship. This caretaking approach demonstrates the 'ethic of enough' inherent in the NFP model. The employees of an NFP are compensated through their salaries and there's generally a limit to how much NFP managers and CEOs can receive. In many parts of the world, this relies on a 'reasonability' test, in which an NFP must prove why a high salary is justified. This is usually done by referring to salaries in peer organizations. Extremely high salaries, like those of many for-profit CEOs, are deemed unacceptable in NFPs by tax agencies and courts of law. Dividends from for-profit companies, on the other hand, have no defined limits. Indeed, most shareholders want their dividends to be as large as possible, and this is a rational and socially acceptable response in light of the prevailing system conditions.
Thus, dividends and private equity represent an ethic of 'never enough', as they can (and should) always be bigger from one year to the next. Dividends and private equity are not allowed in the NFP realm because they violate the 'nondistribution' legal mandate of NFPs (also known as 'no private inurement'). 120 The idea is that no profit or assets should be privately distributed (i.e., distributed to individuals). This is why NFPs also have what is commonly referred to as an 'asset-lock'. When NFPs are dissolved or shut down, their assets are not distributed to owners, as with for-profit companies, because there are no owners. Rather, most countries' laws require that, upon closing down, an NFP's assets must be used to further the organization's mission or given to other NFPs. Thus, the assets and wealth stay in the NFP system -and in the real economy. Just as nobody can get rich from an NFP's profit, no one can get rich from an NFP's assets either. The only area of NFP business in which we've found that the asset-lock is somewhat ambiguous is when it comes to cooperatives. We have not found any legislation that governs what happens to the assets of NFP cooperatives when they shut down. However, in practice, it is basically unheard of for anyone to make a financial gain from assets when an NFP cooperative is dissolved, because it is much easier for the co-op members to decide to donate assets to another co-op than to decide how to divide the assets among a large number of members who all deserve an equal share. In some places, it is considered standard practice for co-ops that are closing down to give all assets to other co-ops, in accordance with the cooperative spirit. Italy has a special national cooperative development fund that promotes the creation of other cooperatives, and when a co-op is dissolved, all remaining assets are transferred to this fund. 121 If an NFP business is dissolving and owes money to a lender, the debt owed can usually be recovered in the form of assets, but that is only to pay off a debt, not for the lender to make a financial gain. An NFP must justify any transfer of assets or money upon winding down and most tax agencies scrutinize this process very thoroughly to ensure that nobody is benefitting, except for other NFPs. In many places, there are provisions for ensuring that individuals cannot even indirectly make a financial gain from an NFP. For instance, in the U.S., NFPs cannot pay contractors above the market rate (called 'excess benefit transactions' by the Internal Revenue Service). This is basically an inbuilt mechanism that reduces corruption and nepotism in the NFP business sector. No one can own an NFP or its assets, but an NFP entity itself can own land and assets. An NFP can also own other businesses and hold equity in them, but because nobody owns the NFP, it acts like a steward or caretaker of the land, assets and businesses it owns. Because nobody can own a not-for-profit business, each NFP is best thought of as owning itself. An important part of this not-for-profit ownership is the ability of NFPs to own other companies (including both for-profit and not-for-profit) and the inability of for-profit companies to own NFPs. In other words, NFPs are legally allowed to have for-profit and NFP subsidiaries, but for-profit companies are not legally allowed to have NFP subsidiaries. For example, Jamie Oliver's gourmet restaurant, Fifteen, in London is owned by the Jamie Oliver Foundation, a charity. 122 All of Fifteen's profits go to the NFP foundation, which uses all of its funds to achieve its stated goal: to shape the health and wellbeing of current and future generations and contribute to a healthier world by providing better access to food education for everyone. 123 All profits go to a social mission, so it doesn't really matter much whether the subsidiary, Fifteen, is registered as a for-profit or not-for-profit. Because it is owned by the foundation, it is in effect an extension of the not-for-private-profit, essentially making it NFP as well. However, if Fifteen, as a for-profit company, was legally able to own the Jamie Oliver Foundation (which it's not legally able to -this is a hypothetical example), it would mean that Fifteen, which can distribute profits to individuals, would be able to siphon money out of the foundation into private pockets. This is why an NFP can own a for-profit, but not the other way around. Similarly, Tait Communications, a global communications company based in New Zealand, is a for-profit subsidiary of an NFP foundation. Tait sells communications devices, such as the portable radio systems used by emergency response teams, and all of Tait's profits go to research and development, educational programs and other charitable purposes through its owner, the foundation, as was the vision of the company's founder, Sir Angus Tait. 124 Likewise, the well-known American food company, Newman's Own, is wholly-owned by the Newman's Own Foundation, which uses the subsidiary's profits to work with disadvantaged people, children with medical conditions and people who struggle with malnutrition, as was actor Paul Newman's vision when he started the company. 125 Starting a subsidiary in order to generate revenue is a popular strategy among NFPs whose cause is difficult to commercialize. It's completely natural for the Eco-Home Centre in Wales to sell building products as part of its mission to support sustainable building. Its business activities are undeniably related to its mission. But it's easier to do this for certain missions than others. For instance, what sort of business activities might be related to offering rehabilitation for substance abuse? What sort of business activities might be related to providing shelter to the homeless? This is where subsidiaries can be extremely helpful for NFPs. An impressive example of this is Housing Works Bookstore Cafe in New York City.
It is a for-profit subsidiary that sells books and serves coffee in order to give all of its profits to Housing Works Group, its NFP owner. Housing Works Group's mission is "to end the dual crises of homelessness and AIDS through relentless advocacy, the provision of lifesaving services, and entrepreneurial businesses that sustain our efforts". 126 Housing Works Group also owns many thrift shop subsidiaries that likewise give all profits to the foundation. One of the most successful examples of this model in the U.S. is the 35-year social enterprise partnership between FEI Behavioral Health, a for-profit workforce resilience and crisis management company, and its single shareholder (i.e. -sole owner), the Alliance for Strong Families and Communities, an NFP family services organization. Since beginning this social enterprise structure in 1979, FEI has provided more than $30 million of financial support to the Alliance, its members, and the communities they serve. 127 A Better Way Ministries in Newnan, Georgia, is a drug rehabilitation and gospel outreach program that employs the men in its care in a number of small, profitable subsidiary companies, including an auto detailing business, a bakery and a moving company. The money generated by these satellite companies allows the parent organization to earn income while helping the program recipients earn a living through engagement in the program. A study by the Yale School of Management and the Goldman Sachs Foundation on enterprising nonprofits, found that having a subsidiary business to fund its social mission has a positive effect on the overall reputation and mindset of the NFP, improving its "reputation, mission, service and program delivery, entrepreneurial culture, self-sufficiency, and its ability to attract and retain donors and staff." 128 A very early example of this is Greyston Bakery, which is a for-profit subsidiary of the Greyston Foundation, in New York City. Greyston's mission is to employ and train people who are commonly perceived as 'unemployable', including former drug addicts, prisoners, and recovering alcoholics. Greyston is widely known for its open hiring policy; that they will hire 'anyone who walks through the door'. Selling 4 million pounds of baked goods to 2,500 customers annually, they have been helping the 'unemployable' earn a living wage through dignified work since 1982 and are still going strong. 129,130 For-profit subsidiaries also serve a very practical function in some countries, as they can keep NFPs from losing their tax exemptions for doing 'unrelated business' -business considered to be disconnected from their mission. For instance, under U.S. law, Housing Works might have a difficult time explaining how selling coffee is related to their mission to help people suffering from AIDS and homelessness. To avoid any problems, they started a subsidiary and, as a for-profit, their subsidiary doesn't have to have a social mission at all. The only risk with for-profit subsidiaries is that they can legally be sold to for-profit companies, so they can technically go from being extensions of NFPs to being extensions of for-profit companies overnight. Many people were outraged when this happened with National Geographic magazine. For all 127 years of the magazine's history, National Geographic Media was a for-profit subsidiary of the National Geographic Society, a well-known nonprofit. In September of 2015, the National Geographic Society sold 73 percent of their ownership of National Geographic Media to 21 st Century Fox, one of the largest for-profit media corporations in the world. 131 Readers far and wide took to social media to protest the buy-out, worried about how it would affect the content of the magazine. Perhaps it would have been better if National Geographic Media were registered as an NFP subsidiary from the start, rather than a for-profit subsidiary, to ensure that a for-profit company could never own it. After all, educating people through the magazine's content is a perfectly acceptable social mission for an NFP to have. As the example of National Geographic illustrates, it is wise for an NFP to start a not-forprofit subsidiary with a different social mission, rather than a for-profit subsidiary, when possible. This enables an NFP to enjoy the advantages that a for-profit subsidiary would offer, without the risk of it one day being privately-owned and operated for private profit. A great example of an NFP subsidiary is Tender Funerals, in New South Wales, Australia. Tender Funerals itself is a not-for-profit, and it is owned and run by another NFP called Our Community Project. 132 It's wonderful to know that nobody is making a financial gain from Tender's funeral services. Instead the company uses any surplus to provide better services to the community. This begs the question: shouldn't every funeral service provider be not-forprofit? 133

Although an NFP has no owners, it must have a board (also called 'committee' in some countries) that holds the business accountable for using its resources to accomplish its mission. For-profit companies often have boards, too, but there are some crucial differences between for-profit and NFP boards. First of all, the mission of for-profits is to maximize profit, so boards hold the company accountable for maximizing profit, or in the case of triple bottom line businesses, balancing profit as a goal with social and environmental concerns. In fact, most corporate boards are primarily tasked with protecting the shareholders' interests. 134,135 An NFP board protects the interests of the community and holds the company accountable for working towards its stated social and environmental goals. It serves as a light house for the organization, helping it steer clear of trouble. Secondly, for-profit board members are usually paid, as part of the for-profit mentality is to reward everything monetarily, while most NFP board members are not paid. 136 The board is a vital part of any NFP, as it helps the organization maintain integrity, accountability and transparency. With the purpose motive driving board participation and decision-making, as opposed to the profit motive, NFP boards are likely to take multiple perspectives into account.
These boards can also encourage a more democratic way of managing the business, as they can break the traditional 'owner -manager -worker' hierarchy that has been so prevalent in business structures for the past few hundred years. Not-for-profit boards can work directly with managers and with workers, to decide what's best for the organization. It might sound like the NFP board adds a layer of bureaucracy that could slow a business down, but boards do not typically make many management decisions. The management team of the NFP takes care of most decisions, just like in a for-profit company. A board might only convene a few times per year, just to check in on the NFP's progress and make sure it is sticking to its commitments. Boards have the duty of approving an NFP's budget and any major changes to the budget and they also play a role in making major decisions that will change the structure of an NFP, such as merging with another NFP or starting a subsidiary company. Although most countries' legislation allows for paid staff members to be on the board, there is also a requirement for a certain percentage of board members to be non-paid and non-staff, in order to maintain a degree of objectivity in decision-making processes. In this regard, there are strict rules about conflicts of interest. Any board member who stands to benefit from a decision must declare their conflict of interest and abstain from voting on the issue at hand. Board members are expected to hold each other accountable for declaring such conflicts of interest. As most NFP board members are volunteering their valuable time for a cause, they tend to take their responsibilities in this position quite seriously. As such, the NFP board means that there's less need for government or outside authorities to act as the conscience of the company or to balance out the self-interest of the owners and managers. That's not to say that a board is immune to corruption, which we'll address later, but the requirement to have a mission-driven board is a critical difference between the for-profit and NFP business models, as it adds a layer of accountability. Since the advent of capitalism, the main way to start or grow a business has been to raise capital from private investors. Investors typically decide whether to invest in a startup business based on how much money they believe they'll get back from it in the form of equity, interest, and dividends. In the business world, this is known as ROI (Return on Investment). This sort of investment is something that the owners and managers of companies can draw on at various stages of the business's development, depending on their needs for greater financial liquidity or their desire for more personal wealth. If they want to grow, they can raise more capital by approaching more investors with a plan for how they will deliver a high return on investment. NFPs can't raise capital in the ways that for-profit businesses traditionally do, and for-profit subsidiaries that are wholly-owned by NFPs can't raise capital in this way either. They don't have shareholders or owners other than maybe an NFP parent organization, so they can't offer equity, shares or dividends in exchange for investment without the NFP parent selling part of its ownership, putting the whole organization at risk of drifting from the social mission. This is why raising capital investment has been a massive advantage that for-profits have traditionally had over NFPs. That is, until recently. The landscape of the economy has changed tremendously over the last couple of decades and NFPs no longer face the same barriers they used to in the market. Only 20 years ago, it would have been quite rare to see businesses starting up as NFPs. However, the Age of Technology has changed everything and NFP startups are on the rise. 137 The internet has not only helped level the playing field in terms of capital-raising, but it has also significantly brought down the costs of starting and running a business, which means that NFPs and for-profits alike no longer have to spend huge amounts of money to start and build a successful business. When planning how to start an NFP, grants, donations, membership fees and volunteers often come to mind. Grants from foundations or government agencies and donations of money, time, and other assets from the community can provide a great financial base on which to build a successful NFP business, as long as there is a plan to generate enough revenue to become financially independent after the startup period. This is similar to a for-profit business that relies on an initial injection of capital, investment and loans, to get started, but seeks to stand on its own two feet as soon as possible. In addition to using donations, grants, membership fees and volunteers to start up, many new NFP businesses take loans from banks and private investors. This is a perfectly acceptable way of raising capital in the NFP world, as there is a cap on how much a private investor will get back on his or her loan -a set interest rate. The interest is considered compensation for the time it takes the company to pay back the loan (like a fee) as well as compensation for the loss of the money's value over time due to inflation (a dollar declines in real purchasing power over time). Interest is best thought of as the price of the loan, and is not a private gain for the lender. Many places even have usury laws that place restrictions on the rate of interest allowed in lending, so that 'price' is not exploitative. In many U.S. states, for instance, it is not legal to give consumer loans with an interest rate of over 10%. 138 Loan repayments (including interest) are considered a business expense, since it is a set amount that is calculated and budgeted at the beginning of the year.
A dividend cannot be calculated and budgeted at the beginning of the year, as it depends on the amount of profit generated by the company vi . That's why a dividend can never be considered a business expense and is instead considered private distribution of profit vii . Because the amount of a dividend may change at any time, there is a speculative aspect to it, and inherent in that is an ethic of 'never enough'. In addition to traditional loans, new forms of capital-raising are increasingly available to NFPs. Instead of a large financial return on investment, NFPs promise a social return on investment (SROI). This means that investors will benefit in social ways from their investment. Their investment will benefit under-served segments of the community and/or the environment, and thus will benefit everyone in the community, as well as the investors themselves. Although much innovation is happening in the sphere of NFP investing, a certain set of principles apply to all NFP investment and capital-raising:

• There can be no private equity (no shares, no stock, no ownership). • No private distribution of profit or assets is allowed. • Repayment of investment must be budgeted for as a business expense, not taken from profits. • The amount an investor receives back is fixed (either by an absolute number or by an interest rate), so it is non-speculative investment. The Internet plays a very important role in opening up new opportunities for NFP startups to access capital from a larger array of sources. Crowdfunding provides a way for people to draw on global networks of support for their cause. A startup NFP can run a crowdfunding campaign to raise money from hundreds, thousands or even millions of 'social investors' (i.e. -those interested in a social return on investment) who will fund the startup, often in return for a reward, also known as a 'perk'. Many startups entice crowdfunders by pre-selling their product or service (the perk) -this is in part how we produced this book you are reading. A consultancy startup might offer a professional consultation for a crowdfunding investment of $150, or a startup café might offer a punch card for ten coffees as a perk for a $50 investment. As an NFP startup, offering your goods or services in exchange for crowdfunding investment can be a great way to pre-sell your products and grow your market reputation from the get-go. There is a much larger aspect of crowdfunding than just taking donations -it is about reciprocity. This is what we experienced with the crowdfunding campaign for the book you're reading right now. We raised nearly $21,000 to fund the research, writing and design of the book, but we also got the moral support of all our investors (i.e., our crowdfunders). They helped spread the word (advertising the book by word of mouth) for the three years between the time of the crowdfunding campaign and our publishing date. It was also very inspiring and motivating for our research and writing team to feel that we had a whole global network of support for our book, even before the first page was written. It's important to note that crowdfunding can be done in a for-profit or an NFP way. There are numerous examples of for-profit startups using crowdfunding to start their company and then the owners reap the profits. This was the case with Oculus Rift virtual reality headsets. Oculus Rift raised $2.4 million of capital investment through a crowdfunding campaign. 139 It rewarded contributors with headsets among other perks. However, , a year and half later, when Facebook bought the company for $2 billion many of Oculus Rift's crowdfunders felt a bit used, as they didn't receive a penny. 140 One calculated that he could have gotten more than $43,000 from the sale to Facebook if he had had equity in the company, but instead he was left with the, by then, obsolete virtual reality headset that was a perk for contributing (Ref: Ibid). This sort of experience has led people to create equity-based crowdfunding, which offers shares or equity in the company in return for contributions. Equity-based crowdfunding is, of course, a form of for-profit investment and does not apply to NFPs. Non-equity based crowdfunding is an ideal tool for NFP startups, though. Companies that are registered as NFPs are often seen as more trustworthy than for-profits, because they are so clearly mission-driven, so they're more likely to appeal to crowdfunders who are looking to put their money into something that makes a positive contribution and aligns with their ethics. Crowdfunders of NFPs can be sure that all of their investment has gone to a mission they believe in, not to lining the pockets of a for-profit's owners. A famous recent example of a successful, large-scale crowdfunding campaign to raise capital for a NFP startup is that of Ocean Clean-up. In 2012, a young man from the Netherlands named Boyan Slat gave a TED Talk about the technology he'd been innovating with others to clean up plastic pollution in the oceans, something that people all over the world are experiencing. Millions of people have been emotionally affected by photos and videos on the Internet of sea animals suffering from eating too much plastic or getting caught in plastic nets and bags, so this was is a very popular innovation. Boyan and his colleagues were able to raise $2 million in capital from their crowdfunding campaign to turn their idea into an NFP business. Some of the perks they offered to their crowdfunders included a movie about plastic in the oceans, a reusable shopping bag, and a children's book about saving the ocean. Ocean Cleanup has a business plan for how to make Ocean Cleanup financially selfsufficient, using revenue gained from selling the plastic they collect from the oceans to fund the good work they're doing. They don't pay the board, and employees are paid a decent, but not extravagant wage.
This is a company that truly embodies the spirit of NFP enterprise: a mission that benefits a very large community, an ethic of enough, and the investing of all surplus back into their mission. That's why they were able to raise so much startup capital for their endeavor. 141 Novel ways of raising capital, like crowdfunding, have allowed a whole new generation of NFP enterprises to emerge, and these young NFPs are in turn coming up with more new ways of raising capital. There is now an incredible amount of creative thinking and social innovation happening in the area of NFP capital-raising. The Internet is increasing accessibility to loans as well. Various online platforms and websites have popped up that enable startup companies and projects to connect with investors who are looking to lend money to socially-oriented projects at a reasonable interest rate viii . This is known as peer-to-peer lending (or P2P lending). Cutting out the 'middle man', like banks and other financial institutions, P2P lending allows loan transactions to happen much more quickly and across much larger geographical distances. An activist in Belgium can go to a P2P lending platform to get funding for a project they want to do, and can connect with an investor halfway around the world, in Sydney. They negotiate the terms of the loan; the interest rate, payment schedule and what should happen in case of late payments or default. And once they reach an agreement, voila, the loan is made, the activist has enough money to start their project and the lender will be receiving loan repayments in a few months with a fair interest rate. As NFP businesses grow in number and strength, so do the organizations that are set up to help NFPs access capital. The Nonprofit Finance Fund is a veteran in this field and continues to lead the way. Since 1980, they have served thousands of NFPs throughout the U.S., by providing over $700 million in loans and access to other forms of finance such as grants, tax credits and capital, in support of $2.3 billion of projects for thousands of organizations across the nation. 142 There is a general trend for NFP businesses to use debt-based capital, whereas for-profits tend to seek equity-based capital. In both forms, the company owes the investor something. In debt-based capital, the business owes the lender the principal amount of the loan or bond until it's paid off, and in equity-based capital, the business actually sells a piece of itself for capital investment. We argue that debt-based capital is healthier, because it allows the company to maintain its focus, values and ethics, without having to take new owners' or shareholders' considerations into account. Debt-based capital is temporary, while equity-based capital is permanent. The community bond, also known as a social impact bond or social benefit bond, is another powerful debt-based capital-raising instrument for NFPs. Community bonds are a lot like small loans ix , but a company gets a lot of these small loans from multiple sources in the community with a low interest rate. A company can sell community bonds to many members of the community for relatively small amounts of money. Then, over time, the company will pay back the principal amount (the original amount the bond was bought for) -say $500plus interest. Community bonds allow a startup business to tap into the support of the community by asking for smaller sums from a large number of people. This contrasts with traditional ways of capital-raising, typically asking for a large sum of money from just a few sources, such as banks or wealthy investors. Glas Cymru, a NFP company in Wales, used community bonds to buy Welsh Water in 2001. Over a period of 18 months, Glas Cymru raised £1.9 billion in bonds, allowing it to acquire the Welsh Water company from Western Power Distribution, a for-profit corporation. They paid down the bonds in 6 years, providing a small financial return and a big social return to their community investors. Some of the successes of the group to date include:

• "some £3 billion invested to improve drinking water quality, environmental protection and customer service -at no cost to the taxpayer • £150 million returned to customers in the form of 'customer dividends' and some £10 million of support for disadvantaged customer groups via social tariffs and an assistance fund, and • lower average customer bills in real terms than in 2000, in part due to the best record in the sector in cost reduction and improved efficiency." 143 It's important to remember that Glas Cymru's investors don't hold equity or shares in the company, as it is an NFP. A bondholder is not the same thing as a shareholder. A shareholder usually does have equity in the company, meaning he or she essentially owns part of the company. A bondholder, like a lender, can be financially compensated for the time they've lent their money away, via interest payments, but the bondholder cannot gain from the company's profits, where shareholders can with shares. The bondholder is paid from the NFP's budget, not from its profits. The fact that dividends depend on the profit made each year or quarter means there is a speculative aspect to the dividends paid out to shareholders. The same goes for owners with equity in a company, who are hoping that the company will be more valuable every year, so that their personal stake in the company is also worth more. The extreme of this speculative tendency in for-profit capital-raising is venture capital. Venture capital is a form of investment in which an investor or a group invests a sum of money into a company, with the explicit expectation to profit as much from the company as possible in as short amount of time as possible. It can be very risky for both the investor and the investee, as both stand to lose a lot of money.
NFPs have lots of options when it comes to raising capital, including loans, crowdfunding, peer-to-peer lending, and community bonds, in addition to more traditional forms of nonprofit finance, like grants, donations and volunteers x . Not-for-profit businesses can use any combination of these different strategies to meet their capital needs.
As more social innovation continues to happen in order to make capital-raising easier and more accessible to these new businesses, further advances in this area are expected. xi

A business can be NFP in almost any sector, anywhere in the world, but it may or may not get tax exemptions. For instance, only about half of all nonprofits in the U.S. are 501(c)3 certified, the most common kind of tax-exempt status in that country. 144 Tax benefits for NFPs come in many forms. They can be exempt from paying corporation taxes, sales and use taxes, payroll taxes, and property taxes, depending on a region's tax laws. Tax exemptions for NFPs can be a tricky thing, depending on local legislation. For instance, in the U.S., if an NFP earns more than 20 percent or so of its revenue from business activities that aren't directly related to its stated social purpose, the NFP might lose its tax-exempt status. 145 In Canada, an NFP risks losing its tax exemptions if it makes a large amount of profit or accumulates a large sum of money, which the Canada Revenue Agency might interpret as being profit-oriented. Instead, Canadian law states that surplus for NFPs is acceptable if it is unintentional and unanticipated. 146 In most cases, even if an organization loses its tax exemptions, it can maintain its legal NFP status, because tax-exemptions are an 'add-on' to NFP legal status. NFPs that engage primarily in social business activities might be happy to be taxed like for-profit businesses, because gaining tax-exempt status might put too many restrictions on how they operate or might even prevent them from engaging in their business activities. 147 In the U.K., NFPs are exempt from taxes on income and gains as long as that money is used for charitable purposes,148 but Canada and Australia have their own unique set of criteria for tax-exemptions. 149150 Is a tax exemption an unfair advantage, since NFPs are starting to compete more in the market with for-profits? Why do NFPs get tax benefits that for-profits don't? And should they really be entitled to these benefits? These questions have a surprisingly simple answer. Not-for-profit companies reduce the need for taxation in the first place, by fulfilling social needs that the government would otherwise have to fund. Blue Star Recyclers, for instance, have calculated that they saved the taxpayers $233,353 in 2015 by employing people with disabilities. 151 Imagine what would happen to the millions of people who are benefitting from the NFPs we mention throughout this chapterpeople struggling with addiction, homelessness, illness, disabilities and financial hardship -if there were no NFPs. Either the whole world would be a lot worse off for it, or taxes would have to be a lot higher so governments could address those peoples' needs. In this light, it only seems fair that NFP businesses should not have to pay the same taxes as for-profit companies, which aim to financially benefit owners and investors through profitmaximization. In contrast, the wider community benefits from the financial surplus of NFPs. Thus, NFPs very much deserve their financial advantage. NFP tax exemptions are even more justifiable considering the enormous subsidies and tax cuts without which most for-profits would be unprofitable. Often called 'corporate welfare', large companies all over the world in the agricultural, banking, finance, shipping and fossil fuel industries receive incredible amounts of government assistance in the form of subsidies and tax breaks. 152 Not only do they enjoy tax cuts and subsidies, they also have the resources to seek advice on exploiting loopholes to avoid paying their fair share of tax. This scenario is not restricted to large for-profit companies. Thirty-four percent of U.S. forprofit banks get a tax advantage through their Subchapter S Status for small businesses. 153 The Credit Union National Association estimates that concessions to small for-profit banks resulted in nearly $1 billion of foregone revenue for the U.S. Treasury in 2016, while privately distributing profits and without providing the substantial member benefits credit unions provide. 154 Not-for-profit tax exemptions can also act as another incentive for NFPs to remain as accessible, effective and transparent as possible. In exchange for these tax exemptions, there is a higher expectation for NFPs to disclose how they use their resources. An NFP owes the public documentation of how it used the income that society forgoes the right to tax. 155 In addition to tax exemptions, some governments offer NFPs other financial benefits. For example, NFPs in Australia get reductions on the annual business registration fee they have to pay. 156 And in the U.S., some states give nonprofit organizations immunity from certain legal liabilities and other states limit NFP liability by enacting a damage cap, so that NFPs aren't as vulnerable as for-profits with regards to certain legal issues. 157

Creating a distinct category for NFP enterprise might make it seem like a homogenous sector. In reality, there is an incredible amount of variety in the NFP business world. In addition to traditional nonprofits trying to become more self-sufficient, we're seeing more people starting businesses and cooperatives as NFPs. Old nonprofit models are shifting and new NFP models are emerging, making for a diverse and exciting new space in the economy. Not-for-profit businesses around the world meet the needs of hundreds of millions of customers and beneficiaries everyday through the wide variety of goods and services they sell. 158 You might be surprised at how many of these businesses you're already familiar with. A world-renowned, older not-for-profit enterprise is the international YMCA, which provides local fitness and leisure centers, as well as childcare and teaching services. The YMCA is global, but YMCA Canada is a great example of how the business model works. "(T)he YMCA provides vital community services that are having a positive impact on some of Canada's most pressing social issues-from chronic disease to unemployment, social isolation, poverty, inequality and more."
In 2014, all 50 member associations of the YMCA in Canada employed over 22,000 people and provided services to over 2.3 million people. Bosch, the world-renowned home appliances company (not to mention, a Fortune 500 company) is 92% owned by the Robert Bosch Stiftung GmbH, a nonprofit foundation in Germany, so it can be seen as 92% NFP. (The rest of the ownership rights are held by the Bosch family and the Bosch corporate managers.) In 2013, the company reported a $3 billion profit,161 the vast majority of which went into better serving its customers and its foundation's social mission of furthering international understanding, welfare, education, the arts and culture, and research and teaching in the humanities, social sciences and natural sciences. 162 There are also smaller, less well-known, but impactful NFP businesses, such as TROSA (Triangle Residential Options for Substance Abusers) in North Carolina, which operates several service-related businesses, including lawn care, a furniture shop and the largest independent moving company in the region. These subsidiary businesses raise funds for its primary mission, which is operating a two-year residential addiction treatment program. The businesses also provide the backdrop for their rehabilitation programs, such as vocational training and mentoring, by employing program participants. 163 In Belgium, De Kringwinkel is a chain of more than 100 second-hand shops which serves the triple purpose of selling quality second-hand products at very reasonable prices, keeping perfectly good items out of landfills, and providing employment to people who might not otherwise be able to work. "Over 80% of the more than 4,500 people working in the organisation are longtime unemployed or have a limited education level. De Kringwinkel invests strongly in its image and communication and evolved from a 'dusty' unpopular image to a hip, young and original image. De Kringwinkel proves that nonprofit can be very cool." 164 Not only can NFPs be found in a very wide variety of sectors, but they can also be found throughout the world, and they are certainly not limited to the global North. Here is a taste of the diversity we found in conducting our research in English (imagine how many more there must be all over the globe, accessible only by other languages!). Grameen Shakti is an excellent example of an NFP renewable energy company in a 'developing' country. Based in Bangladesh, Grameen Shakti has installed more than 1.6 million solar home systems, with all of their services benefiting approximately 18 million people. 165 Established

In addition to traditional nonprofits generating more of their own income, an increasing number of new companies are starting up as NFPs. This is largely a response to worsening socio-economic and environmental conditions, which has spawned an increasing demand among consumers for ethical products and services as well as a growing desire for purposedriven work. People often ask us, "Isn't social enterprise what you're talking about?" It's true that many social enterprises are NFP, but as we've mentioned before, a fair number of social enterprises are for-profit and in some countries the social enterprise landscape is very confusing in terms of differentiating between for-profits and NFPs. It's important to remember that the term 'social enterprise' doesn't tell you if a company sees profit as a goal or if it's allowed to distribute profit to individuals. This distinction is vital when we're talking about whether a business model is truly generative or not. Therefore, we are careful to distinguish NFP social enterprises as being in a class of their own. In the UK, the Community Interest Company (CIC) limited by guarantee is a not-for-profit social enterprise model. CICs in the United Kingdom can be either limited by guarantee (the form that is NFP) or limited by shares (the form that is for-profit because it has shareholders and can distribute profit). Almost 80 percent of CICs have chosen to go the not-for-profit route. 168 Co-Wheels Car Club is one such CIC providing car-sharing services all over England and Wales. It is the largest car club in the UK and its mission is to help its members save money, reduce car ownership and create environmental benefit. 169 Bread Share Community Bakery in Edinburgh, Scotland, is another not-for-profit CIC. Their mission is to enhance their community by providing high-quality, healthy baked goods, as well as a place for social interaction. 170 The number of community interest companies on the public register on the 30 th of November 2013 was 8666 and the Regulator of CICs has said that the number of community interest companies has been growing exponentially. 171 All of these companies are purpose-based, reinvest 100% of their profits into their missions, and have an 'asset-lock', so nobody can personally gain from the assets if they dissolve. Many, but not all, cooperative and mutual businesses are NFP. Cooperatives and mutuals exist to benefit their members. Cooperatives have a special focus on democratic management by members, but in most places, there is no significant legal difference between mutual business models and cooperative models. Some mutuals and cooperatives are owned by members and distribute profit to members, 172 which makes them for-profit. Others are nondistributing and have asset-locks, which makes them NFP. In Australia, for instance, about three-quarters of cooperatives are established as NFPs. 173 Although most other countries don't seem to keep official tabs on whether cooperatives are distributing or non-distributing, we feel comfortable saying that it's likely that most cooperatives in the world are NFP due to the prominence and proliferation of consumer cooperatives. The consumer co-op is an NFP model that is popular all over the world xiii . Most commonly found in the realms of retail, banking, electricity provision, child care, education and medicine, these are businesses run by and for the consumer members.
The members might get a 'patronage dividend' from the profit at the end of the year, proportional to the amount they spent there, but the amount of the 'dividend' will never be more than what the customer has spent at the store during the year, because the 'dividend' is proportional to the amount they spent. For instance, a customer who bought $800 worth of products over the year will get more back than someone who spent $200, but neither of them will ever get anywhere near the amount they put into the co-op; otherwise the co-op would go out of business, losing more money than it makes. If this sounds confusing, think of it this way. Where did the profits come from? The customers paying for the company's services all year. So it's not a dividend, in the traditional Another business model in the sphere of consumer cooperatives is the credit union xv . Credit unions are member-run banks whose mission is to provide financial services to its members. As with all consumer co-ops, 'dividends', rebates and refunds that members might receive from a credit union at the end of the year never exceed the amount of money that the members have put into the credit union. Credit unions have experienced an impressive rise in popularity in recent years, especially in the U.S. where membership growth rates have been higher every year since 2010. 175 In 2015, the U.S. had a total of 104 million credit union members, which is nearly 1/3 of the entire American population, according to the United States Census. 176 This is probably because customers usually get better deals from credit unions than from mainstream banks, which is especially true for lower income members.177 Banks collect 2.5 times more in fees from low-balance checking accounts annually ($218 on average) than on high-balance accounts ($90 on average), while credit unions collect an average of $80 on lowbalance accounts and $42 on high-balance accounts. 178 This is an embodiment of the official motto of the credit union industry, which captures the NFP business ethic perfectly: Not for profit, not for charity, but for service. 179 Since the start of the economic downturn in 2008, most for-profit banks have pulled back from small business lending, while small business loans from credit unions have continued to grow each year. 180 Hope Federal Credit Union in Jackson, Mississippi, is an excellent example of how a credit union can maximize social outcomes because it is not profit-oriented. "In 2011, Hope made 85% of its business loans to minority and women-owned businesses, loans supported through community and economic development programs, loans to businesses in distressed communities and loans for community facilities. What's more, nearly 75 percent of its loans were made in high-poverty/low-income communities -a rate nearly 30 percentage points higher than the average for regional banks." 181 Hope has more than 26,000 members and it offers a viable alternative to 'unbanked' and 'underbanked' citizens, many of whom have struggled significantly with debt owed to forprofit institutions. "By design, CSI co-ops are not-for-profit, so at the end of the year, any money left in the budget stays with the individual co-op. The resident members decide how to use any surplus cash for the betterment of their co-op." 186 And this trend is not restricted to the English-speaking world. Not-for-profit cooperatives are notably abundant in Japan. In 2007, Japanese consumer co-ops generated a total of $22 billion in revenue and had 17 million members. 187 There is also a growing movement of university, medical and housing co-ops in the island nation. 188 In the category of NFP mutuals, which are essentially cooperative insurance companies, there is another Fortune 500 company: Nippon Life, which has 10 million policyholders in Japan, South Korea and the U.S. 189 In 2015, it had over $500 billion in assets and profits totalling $5.15 billion. There is a growing amount of momentum behind community-ownership. 192 When a community collectively owns something, this is a form of NFP ownership, as there are no individual owners or shareholders. The ownership is set up in a way that benefits the entire community, not just a few privileged people. Community ownership models are being innovated in a wide variety of sectors. Community-owned renewable energy is one of the most exciting of these innovations. Denmark was a pioneer in this field, with many of its numerous community wind projects dating back to the 1980s. 193 The way it works is that a community pools its resources in order to make the capital investment of buying the wind turbines, which will then pay for themselves by providing free energy within 7-10 years after installation. After those 7-10 years, the community just sits back and benefits from clean, renewable, cost-free energy. Some communities even make money from selling their surplus energy into a national or regional grid, with any profit made by the community used to benefit the community. 194 Community ownership can take many different forms. In the case of wind turbines, for example, the municipality or city can own them, or a new NFP corporation can be formed to represent the community's ownership (like community-based enterprises in the U.K.). Or a NFP cooperative can be formed, to ensure democratic control of the turbines, as is the case with many of Denmark's community wind installations. In any case, the ownership is purpose-driven and does not allow for private financial gain. Often, community ownership is a response to privatization in a certain sector. When people feel that a basic need is not being met adequately due to private ownership, a natural reaction is to 'communitize' that product or service. Next Century Cities is an initiative dedicated to spreading community-owned broadband throughout the U.S., city by city.
In the face of restricted access to the Internet due to the rising prices of major for-profit broadband providers, the people who created Next Century Cities decided enough was enough; that the Internet has become too essential for both work and daily life for people not to have. Groups all over the world are using community ownership to protect land, forests, and rivers for the good of the community. The idea of community forests has taken off in Latin America in recent years and a lot of innovation has taken place there. Some community forests have set up multiple subsidiary enterprises based on the forest, like businesses that provide timber, water, tourism, and non-timber forest products. Some of these enterprises are not profitable (they may even operate at a loss), but communities float profits from one business to others in order to make them all work. It's like a supportive web of businesses. For these communities, the enterprises are important not because they make profits per se, but because they generate local employment, so people from the community do not need to go to the city in search of work. For instance, in a community forest in Ixtlan de Juarez, Mexico, the most profitable business has been in timber and the other businesses, like water and tourism don't generate as much money, but that doesn't matter to the community, as profit isn't their main goal. Similar community forest models have been observed in The Gambia as well as First Nations communities in Quebec. 198

Government-ownership is basically just community-ownership on a larger scale. And sometimes they can be the same thing, as is the case with municipalities owning wind turbines. From the local through to the national and federal levels, government-owned corporations can also be considered NFP businesses, as all profits must be reinvested into government missions, which are meant to serve society. Profits cannot be privately distributed. In most countries, these corporations encompass things like water works, electricity grids, airports and sea ports. In the U.S., the Bank of North Dakota is a unique example of a government-owned company, as it is the only state-owned bank in the United States. Because it is focused on returning value to the communities of North Dakota instead of private shareholders, it has stayed away from most of the risky and speculative activity that so many for-profit banks have become tied up in, which kept the bank and the state of North Dakota insulated from the economic downturn in 2008. 199 In fact, it was boasting record profits in 2009, while most private, forprofit banks were in turmoil in the U.S. 200

A wide variety of businesses can be NFP -and it's important to note that common words used to identify businesses like 'multinational corporation', 'local company', ' small business', 'ethical business', 'social enterprise', 'co-operative', and 'family-business' do not tell us if the firm is profit-oriented or purpose-oriented. These labels do not tell us whether there are private owners or shareholders. They do not tell us whether the profit is being extracted into the elite economy at the end of the year or if it is being cycled back into the real economy. In trying to create a more sustainable economy, the business language we're all used to is not sufficient, nor is it precise enough to describe whether a business is fundamentally generative or not, that is, whether it is contributing to power of the Wealth Circulation Pump or that of the Wealth Extraction Siphon. If we zoom in on the 'Zone of NFP Enterprise' on the business model spectrum xvi , we can see some of the great diversity in the realm of NFP business and note that there is a lot of potential for even more diverse forms to emerge. Traditional nonprofits are outside of the box because they do not focus enough on generating their own revenue, or becoming financially self-sufficient. On the other hand, if an NFP or for-profit subsidiary worries too much about profit, and goes too far up on the vertical axis, it is likely to drift from its mission, which defeats its whole reason for existing. Not-for-profit business has the potential to be just as diverse as for-profit business, which is featured to the right of the dotted line (see the image below). Everything in the NFP box is mission-driven, embodies an ethic of 'enough' and has no private owners. Our vision of the Not-for-Profit World economy is to have the core of economy in that broad box -thus creating an entire economy truly built for purpose. Now it's time to think inside the box! With the emergence of new for-profit business models that have social missions, profit distribution caps, asset-locks and capped investment strategies, along with the growing number of co-ops and NFP enterprises all over the world, business trends seem to be moving in the NFP direction. In fact, we argue that the business models to the left in the image below are actually becoming more competitive in the market than the business models to the right, due to the fact that they can more adequately meet the needs of society in the 21 st century. Companies with common for-profit legal status can also act like NFPs, cycling all of their profits back into social or environmental missions. A for-profit Limited Liability Company can create clauses in its by-laws or statutes that state: a) the social or environmental mission of the company, and b) that the company will never privately distribute its profits or assets, but instead use all surplus to achieve its mission. This means that even in places that don't have legal infrastructure that supports NFP business, for-profit companies can act like NFPs and join the growing momentum behind a purpose-driven economy. From what we have said so far about NFPs, it might seem easy to distinguish an NFP from a for-profit entity -we thought it was when we started working on this book.
However, the dividing line is not always so clear. Some terms can make for-profits seem like NFPs and vice versa, so it's important to be aware of those as we enter an era in which this distinction is becoming ever more important. Much of this confusion is due to nonprofits moving into the business sphere at a rapid pace. It is such a new phenomenon that our vocabulary about business has not yet adapted. Up to now, all business has been assumed to be for-profit. When we think of business, most of us think of for-profit business by default and that's why our business language was developed to refer specifically to this type of business. As NFPs move into business, things can get kind of blurry. For instance, Harvard University, which is an NFP business, is often described as a private university. But what does 'private' mean? This word conjures up all kinds of different understandings. Many take it to mean privately-owned by individuals, but as we know, NFPs cannot be privately-owned. Taken at face value, it may seem that Harvard is a for-profit university. But it is not. Are they just trying to make it seem more like a business than a traditional nonprofit? Maybe. But the most likely reason they use the word 'private' is to distinguish Harvard from public universities. In the U.S., universities are usually categorized as being either public or private. Private is taken to mean 'not state-owned'. There is no real third term for independent, not-for-profit universities like Harvard. Yet this growing trend means that NFP enterprises should start collectively carving out their own distinct space in all sectors. In the case of American universities, it would be a lot clearer if we begin to categorize universities as NFP, public, or for-profit; rather than just private or public. Many NFP co-ops also use for-profit language, perhaps without realizing it. An NFP co-op is not technically 'owned' by the members, as many U.S. credit unions and consumer co-ops claim to be. Many of these same NFP co-ops refer to their members as 'shareholders', which of course is also legally impossible in NFPs. A shareholder owns a portion of a company, and seeks to make financial gains from the part of the company he or she owns in the form of a dividend payout from the profits every year. Since no one can own an NFP and an NFP cannot privately distribute profit, the words 'owner' and 'shareholder' have no place in the description of NFP co-ops. Likewise, an NFP co-op might refer to a required founding 'share' for a nominal amount, but there is no title, equity, trade-ability or transferability of shares and, the ownership is therefore, 'not-for-profit'. In simple terms, no one can own a share of an NFP, except for another NFP. Using the word 'share' in the context of an NFP co-op is purely symbolic and can actually do more harm than good, making people think the co-op is for-profit. The inaccurate use of these words can be confusing and misleading. Many NFP co-ops also say that their members receive 'dividends'. We have found this to be the case for quite a few NFP credit unions and energy co-ops, which at first made us doubt whether they were really NFP. Yet these dividends are really just refunds or rebates that the co-ops give back to their customers at the end of the year. No one receiving dividends from an NFP is making a financial gain from them. The same is true for 'patronage dividends' and 'capital credits'. These are just rebates or partial refunds in the NFP arena, but the word 'dividend' makes it sound like shareholders are looking to make a financial gain at the end of the year. It makes the refund sound speculative when it is not. Sometimes interest on loans is even referred to as equity by NFPs. But again, as no one can own an NFP, no one can have equity in it. Equity is another one of these for-profit terms that implies private ownership and even speculation. Interest on loans that a company pays to its lenders is very different from equity-based dividends that only for-profit companies can distribute. No one can blame NFPs for using for-profit language; it has been natural for them as they move into the business arena to use the business jargon that already exists. But as the NFP business sector starts to realize its full potential, we encourage these enterprises to proudly use a more accurate vocabulary. There are no member owners, just members and that's part of the strength of the model. There are no shares, shareholders, or dividends, and that's why we can feel sure that they're dedicated to a social mission, and not profit-maximization. There's no private equity and that's the beauty of it. Let's embrace these important differences and carve out more space for this burgeoning sector that's transforming the economy for the better. Let's give it more credit. Until now, most law-makers have not realized the importance of the for-profit/NFP distinction. As a result, some legal structures also blur these lines. For example, Community Interest Companies in the UK are often thought of by the public as NFP entities, but there are in fact both for-profit and not-for-profit CICs. Community Interest Companies limited by share, as their name implies, do sell shares in the company and can privately distribute up to 30% of the profits. However, the vast majority of incorporated CICs are not-for-profit (the limited by guarantee form) 204 because the entrepreneurs behind these companies see it as a model that better aligns with their purpose and vision. Thus, the NFP entrepreneur represents a new livelihood for the 21 st century. Likewise, the benefit corporation model in the U.S., which is only for-profit, sounds like it is NFP.
In fact, many people have asked us why we don't use the term 'for-benefit corporation' instead of 'NFP', as it sounds so much more positive, and seemingly defines the company by what it is, rather than what it is not. The misleading nature of the for-profit benefit corporation name is the reason. It goes to show how many different interpretations the words 'benefit' or 'purpose' can have, whereas 'not-for-profit' has a very specific legal interpretation that is nearly universal throughout the world, and has been tried and tested over 200 years. In fact, we strongly feel that what the world needs right now is exactly not-forprofit business. Many people also assume that all social enterprise models and all social cooperative models are NFP. However, we've seen that social enterprise legal models don't require a company to be for-profit or NFP in most countries in the world. An exception to this is the social co-op in southern Europe. Social cooperative models in Greece and Italy are often referred to as NFP, even in government documents, but they are actually for-profit according to international legal definitions, as these models allow for the private distribution of between 20 and 35 percent of profits. 205 Although these models are a step in the right direction (a step away from the narrow focus on profit-maximization) they fall short of being able to bring about systemic change. They still privatize the surplus of the system and put the cart before the horse. We are not the first to recognize the importance of making clear distinctions between a company that privately distributes profit and one that doesn't. There's a reason why the notfor-profit legal status exists and is so heavily defended by courts of law. This wisdom has been around since the birth of for-profit corporations, centuries ago. It's a clear distinction in legal terms. Now we just have to use accurate words to describe it in business terms, and to show people the potential of NFP models. To our knowledge, this book is one of the first to point out the importance of the for-profit versus NFP distinction in terms of its ramifications for how the entire economy works xviii . This is a new frontier and clarifying the territory is always part of pioneering work. One of the main messages of this book is that we should embrace NFP enterprise as the generative business model it is. People all over the world are increasingly recognizing the strengths of the NFP way of doing business and this is why NFP business is on the rise. 206 It is such a new trend that there is not an overwhelming amount of data comparing NFP enterprise to traditional nonprofits and forprofit business. The purpose of this book is to reveal the existence and rise of NFP enterprise to a broad audience (even if we don't know how fast or big that rise is) and, just as importantly, to illustrate the incredible potential NFP enterprise has to fundamentally transform the economy for the better. We're putting forth a vision for a healthier economy that can meet the challenges of this century and we feel like there is enough data about NFP enterprise to show that this vision is worth pursuing. This book is an open invitation to put these ideas to the test. The Urban Institute, Johns Hopkins University and a handful of independent researchers are tracking this NFP enterprise trend xix , but it is incredible how little attention NFP business gets when it is right under our noses. Political economist Gar Alperovitz points out that almost 40 percent of the 200 largest enterprises in the twenty largest U.S. cities are NFPs, like universities and hospitals. 207 More nonprofits are enterprises than you might realize -just think of all the associations whose membership fees pay for staff. Here are some statistics to show just how strong the NFP business sector is, all over the world:

• In Scotland, a nation of just over 5 million people, the NFP sector generated over £4.9 billion a year and employed 138,000 people in over 45,000 organizations in 2012-13. 208 • And in that same timeframe, 2012-2013, the NFP sector in Australia contributed 55 billion Australian dollars to the economy, which was twice as large as the economic contribution of Tasmania that year.209 • In 2010, the NFP sector in Canada contributed over $100 billion to the nation's GDP (7 percent of the total GDP), four times more than auto manufacturing. 210 And these numbers don't even factor in the economic impact of NFP volunteers. • One in three Americans is a member of a credit union and membership is rising exponentially, by 2.25 percent a year. 211 • There are 4,600 Community Development Corporations in the U.S., focused on setting up low-income housing schemes, all of which are not-for-profit. That's a lot of people benefitting from NFP businesses and, importantly, no owners or shareholders are getting rich from it. All of the money generated by all of these NFPs stays in the real economy. Imagine if all that profit was instead fueling the elite economy. Trends seem to point towards ongoing growth in the NFP business sector. Between 2001 and 2011, the NFP business sector in the U.S. grew at a rate of 25 percent (compared to the forprofit sector's 0.5 percent growth) and the sector's growth continues to massively outpace the growth of the overall economy. 219 On a global scale, it is estimated that 7.4 percent of the world's workforce is employed by nonprofits -and that probably doesn't even take into account all of the employees of mutual insurance companies and NFP cooperatives. 220 We have seen a dramatic rise of the use of the words 'social enterprise' and a steady rise in the use of 'not-for-profit' in books since 1980. 221 And NFP enterprise incubators -spaces where NFP startups are intentionally developed and given support -are popping up all over the place.
Green White Space, for instance, is an NFP business that helps other NFP businesses start up, scale and sustain themselves through self-generated revenue. Green White Space is based in Sweden, but has projects and partners all over the world. Our for-profit world is leading to collapse At a party given by a billionaire on Shelter Island, American author Kurt Vonnegut asked his friend and fellow author, Joseph Heller, "Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel 'Catch-22' has earned in its entire history?" Joe replied, "It doesn't bother me. I've got something he'll never have." Kurt asked, "What could that possibly be?" Joe answered, "Enough." Before exploring how the Not-for-Profit World model can work, we need to have a deeper understanding of how and why the for-profit world in which we currently live isn't working well. When we look a bit deeper, we find that the worsening social, economic and environmental conditions of the 21 st century are symptoms of a deeper crisis of purpose and perception in Western culture. 224 This crisis manifests in our for-profit economic system and its fundamental assumptions. Stories create the world in which we live. The manmade world around us is a manifestation of a story. The world is manifested and shaped according to our views and beliefs. And those views and beliefs are really just the stories we've inherited and tweaked to explain why the world is the way it is. 225 For instance, the idea that progress means moving forward in time is a story; a belief. Historians and anthropologists have found that many indigenous cultures, including most Native American cultures, view time as cyclical, not linear, because they built their societies according to the natural cycles of the moon, the sun and the seasons. 226 They share a collective story that says time is a cycle that continuously moves around and around. This is very different from the Western civilization's story about time. In the Western world, we assume everything must constantly be developing, progressing, and moving forward over time -we envision time as a ruler by which to measure progress. 227 Think of all the charts and graphs that have time as their horizontal axis (we even have some in this book it's moving in one direction -from left to right. We're not saying that one story of time is better or more correct than the other, but rather just acknowledging that they're both stories. Remember Kuhn's paradigm shifts? A paradigm can be thought of as the main guiding story of a society. Before Copernicus and Galileo, European society organized around the story that the Earth was the center of the universe. After Galileo's telescopic discovery, society began to organize around the story that the Earth and other planets revolve around the Sun -that we are part of a heliocentric solar system. Many scholars argue that it is the very ability to share stories that separates us from other species. 228 This ability has allowed us to create complex forms of social organization. The capacity to transmit stories, to describe the world around us, to talk about ideas and visions for the future, has enabled us to organize into very large groups to work towards common goals. Only by having shared goals, and a shared story, can we cooperate flexibly in very large numbers. 229 There are all kinds of stories that shape society today -stories about what it is to be human, about how women and men should behave, and how society should be organized. These stories vary from culture to culture, but there are also some fundamental stories that shape all of Western civilization and, in the 21 st century, global civilization. Just as with any social system, the for-profit economy in which we live is underpinned by a certain set of assumptions, beliefs, and worldviews. Business is based on shared stories about the economy -a common economic myth. 230 What is the overarching story around which we organize our businesses and the economy? What narrative keeps our current economic system going? Even people who have never taken a single economics course know this story, because most of us have internalized the narrative of the for-profit system. These are some of the fundamental beliefs of modern Western civilization and so we learn them as children, through our schooling, from our parents, and even from fairytales, comic books, cartoons, and video games. We're exposed to this story daily through the news, TV shows, films, magazines, and advertisements. In short, the story goes something like this:

Evolution is a process of different organisms competing for scarce resources. Thus, evolution is driven by competition and survival of the fittest. That's why human nature is mostly selfish, greedy and competitive and people are primarily motivated by their ability to profit; to make a personal gain. In light of the fierce competition of evolution, it is only rational to always be looking out for your own self-interest and trying to maximize your individual gain. Chances are you've been steeped in this story for most of your life. You might agree with all of it, parts of it, or none of it, but every idea in the for-profit story is undeniably familiar. The vast majority of us in Western society have been exposed to it since we were young children, so it can be shocking to look at it as a story, rather than as the indisputable facts of life. It's like a fish suddenly understanding that it's surrounded by water. The for-profit story encompasses the fundamental theories on which our global economy is based: rational, self-interested firms maximize profits; rational, self-interested consumers maximize their 'utility'; the decisions of these actors drive supply and demand; the market moves; and resources are allocated fairly almost as if by an invisible hand.
When this story was first being developed by the early modern economists and philosophers, it was a story of freedom and prosperity. In Anglo-Saxon society in the 18 th and 19 th centuries, the for-profit story was part of a radical movement to go beyond the social barriers that had long kept people stuck within their class of birth. The individualism, competition and meritocracy of the for-profit story were a source of inspiration and freedom for many people. It enabled lots of everyday people in the Western world to understand and express their individuality for perhaps the first time in history. Through the emergence of new business models and banking standards, non-aristocrats were able to take out loans and start up their own businesses. Over time, a true middle class emerged and millions were raised out of poverty through modern business, making it much easier for them to meet their needs. And through this rapid emergence of small and mediumsized firms, innovation occurred at a faster and faster rate. Many of these businesses did a great job of allocating resources, goods and services. The for-profit market delivered on many of its advocates' promises (depending on what gender, race and nationality you were). However, we always need to remember the importance of context. Firstly, it must be acknowledged that the wealth accumulated by early capitalists and the rise of a middle class in the first industrial countries was only made possible by slave labor, worker exploitation, colonialism and the genocide of indigenous populations and appropriation of their lands. When resources and labor are virtually free, it's quite easy to produce affordable goods and services -and to get rich doing so. Aside from the moral failures that enabled the emergence of capitalism, there is also the wider historical context. In a world in which there was no middle class, only an aristocracy and peasants, the capitalist system worked wonders. In a context in which average people had very little choice or freedom in the way they could live their lives, the for-profit story empowered many of them to work hard, start up their own businesses and contribute to their communities by providing goods and services that were never before available. Before the Industrial Revolution kicked into full gear, resources were plentiful, production was low, and consumption was minimal. The market was wide-open and there was enough room for everybody to participate in growing the economy at an unprecedented rate. In a context in which the sky was the limit to the expansion of the market, the for-profit system worked miracles for many. However, this 250 year-old economic system is no longer suitable for today's radically different world. The for-profit system and the for-profit story are outdated and are now causing far more problems than they're resolving, driving what is now increasingly referred to as 'un-economic growth'. In essence, the for-profit system can't solve today's major problems, because it is the problem. Whereas in the 19 th and early 20 th century, for-profit businesses were limited in size and scope by the communications and transportation technologies of their time, in the current globalized context, for-profit business naturally leads to a concentration of wealth and power that is proving too difficult to keep in check. Now we have levels of inequality that the early 20 th century capitalists could never have foreseen. (One report revealed in early 2016 that the wealthiest 62 individuals on the planet own as much wealth as the poorest 3.6 billion. 231 In the old days, the for-profit story of self-interest was balanced by communities holding their local business owners and managers accountable for their actions. Business owners were both revered and held responsible for their behavior. These days, supply chains have become so globalized, business management so anonymous, and production so distant from where products are consumed, that most companies have hardly any accountability to local communities at all. The greed and speculation at the heart of the for-profit story are going unchecked, and are leading to the very demise of the capitalist system. You only have to take a quick look around to see that our global, capitalist economy is not delivering on its promises for most people. In rich countries, people are working longer hours than in previous decades232 and many in the 'developing' world must work more hours than those in the 'developed' countries, without even managing to meet their basic needs. Real wages for the average worker in most places have stagnated or declined since the 1990s. 233 Public and private debt all over the world continues to rise at worrying rates. 234 Global unemployment has risen in much of the world over the last decade due to economic crises, which resulted in part from the stock market's boom-and-bust cycles and the bursting of speculative bubbles. The International Labour Organisation expects unemployment trends to continue to worsen, leading to 200 million jobless people in the world, for the first time on record, by the end of 2017. 235 And, perhaps worst of all, there's no real safety net for far too many people. 236 The middle class in Western economies has shrunk to such a degree that people can no longer afford to consume at levels that keep the economy growing as fast as economists would like xx . As a result of declining consumption in the West, many companies are seeking to expand and tap into the consumers of the so-called emerging economies. But who will provide the cheap labor to raise low-income countries out of poverty? Not only are we bumping into what are likely the social and economic limits of capitalism, but we began exceeding ecological limits to economic growth several decades ago and now face enormous environmental crises that are only exacerbated by the growth-based economy. It is becoming very clear from every angle that the for-profit system is in a troubling decline.
Capitalism has reached its 'use by' date and a growing number of people can sense the fundamental flaws in the for-profit story. There are certainly holes in the plot, but what are those holes? And how do they lead to the dysfunction we're seeing in today's economy? The for-profit story and our economic system are completely interdependent. The for-profit story supports the capitalist economy and vice versa. This means that we cannot have truly systemic change without also reshaping the underlying stories that support and validate the system. The most obvious way in which the for-profit story and economic behavior mutually reinforce each other is through the profit motive; the notion that economic behavior is the result of individuals seeking to accumulate as much financial wealth as possible. This manifests in capitalists investing in whatever will give them the highest return on investment. It can be seen in the job market, with job-seekers looking for jobs with the highest salaries. It also plays a role for some employers, who will try to pay employees as little as possible without losing them altogether. And it can be observed in shoppers always on the lookout for the best bargains. This leads us to the protagonist of the for-profit world: Economic Man, also known as Homo economicus. Homo economicus represents the idea that individuals are naturally inclined to make economic decisions based on maximizing their own self-interest. Although the term was not used until the 19 th century, it has its roots in the earliest modern economic theories. 237 In 1776, Adam Smith, the 'father of capitalism' wrote, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." 238 In an 1836 essay, early economist John Stuart Mill described man as "a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained." 239 This notion that people base their decisions and behavior on personal gain is pervasive in society. It implies that if you are smart, then you will look at how you can gain as much money as possible (as in the case of investors, shareholders and employees) or how you can lose the least money possible (as in the case of employers and consumers). Paying more than the lowest possible price for something is considered foolish behavior. Yet, if you are a seller, not getting paid the highest possible price for a good is considered equally foolish and even weak. That's the profit motive at work. That's the engine of our economy. But is this really the best way to run an economy and to motivate economic activity (and behavior more generally)? Is it reasonable to hold as a common belief that the smartest people in society are those who take the most for themselves? That the most intelligent are the greediest? What does that say about generous people? On closer inspection, it becomes very clear that when private gain is the primary source of motivation in the economy, people tend to make very selfish decisions that may provide a financial gain for them, but at a cost to the wider community. Take the example of an oil drilling company that, in order to save money, doesn't update its safety measures, risking the lives of its employees as well as the health of the natural environment in which the company is drilling. Or think of a car manufacturer that lies about its cars' emissions in order to boost sales and maximize profit. The profit motive also sets the stage for very unhealthy norms in corporate culture. In publicly-listed companies (i.e. -companies traded on the stock exchange), CEO compensation often depends on share price rather than any other indicators of performance. This detaches performance from real world value creation. In other words, a financial company can be trading toxic financial instruments that harm its own customers, not to mention undermine the entire economy, but if it raises share prices in the next quarter xxi , the CEO will be handsomely rewarded. This was demonstrated very clearly in the U.S. Congressional hearing of Lehman Brothers' CEO, Richard Fuld, who received over $480 million, mostly in bonuses, from 2000-2008, while the company was going bankrupt. 240 Lehman Brothers was the first big financial company to declare bankruptcy in September 2008, triggering the global economic crisis. These Congressional hearings did an important job in questioning the ethics and fairness of Wall Street CEOs taking so much money home, just because share prices were going up. What the hearings failed to note is that this sort of greed and short-termism is built into the very fiber of the profit motive. Although it's easy to point fingers and declare these actions unethical, and label these people a few 'bad apples', this sort of behavior is actually just the rational thing for business managers to do, according to the for-profit story. It naturally flows from the for-profit worldview. If we want systemic change, we need to take a deeper look at the rules of the game, and not get caught up on blaming the individual players. Perhaps people like Fuld are greedy sociopaths, but it's not a coincidence that they're the winners of our economic game. The profit motive was guiding them 100% of the way. They are the epitome of 'rational economic actors' being motivated by the accumulation of private profit and selfinterest. Indeed, they are playing by the rules of capitalism very well. It is a paradox of society to hold the profit motive as a central tenet of business, and then call people who succeed through maximizing personal gain 'greedy', when it would be exceptional for them not to be. Think of Monopoly, the ultimate capitalist board game, where the goal is to win by accumulating the most money and property on the board.
What do players do? They follow the game rules and to try to amass as much property as they can. Even the most generous of us can act like insatiable sociopaths when we play Monopoly. It's hard not to when domination and accumulation are the goals of the game. It's self-contradictory to encourage the Golden Rule -do unto others as you would have them do unto you -but only within the larger framework of the profit motive. This is a recipe for inner conflict, because you can't expect a society built on individual gain to function for the common good. This hypocrisy is particularly evident when business people that play by the rules of for-profit business are praised and envied for their financial success, but at the same time scorned for being greedy and selfish. How can we rationalize the idea that we all should want more material wealth, but we shouldn't harm others by our greed and selfishness? There is a larger cultural crisis lurking beneath the economic crisis. It's a crisis of the values we hold and the stories we tell. We've been taught to only see our side of the equation when we sell or buy something, and that we should focus on bettering our own position while seeking to exploit the other's position. Rarely ever are price negotiations and financial transactions centered on creating a reasonable deal for both parties. Much more often, it's about whether we made money. The more expensive whatever we are negotiating is, the greater the stakes, which means that we become even more focused on maximizing our own gain or minimizing our losses. This often promotes a certain level of dishonesty relating to major financial transactions. Think of a house for sale: the sellers try to make the house seem as valuable as they can (exaggeration is common) and potential buyers try to point out the flaws in it. The inexperienced or poorly researched buyer will certainly emerge less well off, as will anybody who is thinking about a fair deal for all. When the stakes are high, there's also a much higher risk for deals to fall apart due to this element of exaggeration, dishonesty and the resulting mistrust. And when deals do go through, there are often sore feelings or doubts afterwards about not having gotten enough money or having paid too much. Whatever the results, this way of thinking about economic transactions does little to build real trust in society and can do a lot to tear relationships apart. Most of us have seen how even families can be broken apart due to financial mistrust; brothers not speaking because of a business deal that went wrong or cousins going to court over the value of a previously shared family property. These stories are commonplace in the modern capitalist economy. That's how the system works. You're not supposed to consider the other people involved in an economic transaction. You're not supposed to worry about the previous owner who lost their home to foreclosure, or to feel happy for the customer who might have gotten a really good deal. You're supposed to maximize your self-interest, and it's up to the others to maximize theirs. This way of thinking compromises our ability to be empathic and compassionate with one another. That is why, in most of the 'developed' world, we often advise each to never do business with a friend or loved one. Keep your personal and business lives separate. The profit motive seems to encourage a kind of schizophrenia. Be a kind, loving person at home. Be a ruthless, selfish person at work. Be fun around your friends; be serious around your colleagues. After all, you're only at work to make money -it's serious. Yet, empathy and compassion are the glue that keeps families, communities, and organizations together; they're pre-requisites for trust and deep social connection. 241 There is a growing body of research on financial wealth that shows with overwhelming consistency that the rich tend to be more selfish, less empathic, less generous and less compassionate than people who have less money. 242 Again, this is neither surprising, nor a coincidence. Either they have become this way as a result of succeeding in the for-profit world, or the only people who can succeed in the for-profit world are those who are less empathic and more selfish. It's likely a combination of both. In any case, the data allows us to make a strong argument for moving beyond the profit motive and the privatization of profit. Aside from the selfishness and greed promoted by the for-profit story, there is another very good reason we need to move on from the for-profit system: it is self-destructing. This selfdestruction is evident in the three global crises of the 21 st century: inequality, declining wellbeing and ecological collapse. And these crises of capitalism are very much rooted in the mechanism of the wealth extraction siphon. What started out as a game of 'who can amass the most wealth' has led to a situation in which the system is starting to collapse in on itself. This is an inevitable consequence of the forprofit system. Capitalism has always contained the seeds of its own demise -it just had to run its course before this became evident xxii . The wealth extraction siphon works by taking wealth out of the real economy and putting it into the elite economy. The wealthiest people in American society gain 47% of their income from the real economy via wages and salaries (16%), business income (17%), and interest and dividend payments (14.1%). 243 Trickle-down theory proposes that the wealth will trickle down to lower-income households from this elite group, as they spend money back into the real economy, fueling the wealth circulation pump. But do they put that back into the real economy? Not exactly.
Economist David Harvey points out that many modern-day capitalists are choosing to reinvest much more of their capital in financial assets than in production and labor, because that's where they get the greatest financial returns on investment. 244 Data from 2015 shows that the super-rich in the U.S. put 57% of their wealth directly into the elite economy of stocks, securities, derivatives, bonds, hedge funds, and mutual funds to personally profit even more. 245 And it's questionable how much of the remaining 43% actually makes its way back into the real economy. Eighteen percent of super-rich income is invested in real estate,246 much of which is spent on luxury property, which just moves money from the hands of one super-rich owner to another, keeping the wealth in the elite economy. It can be argued that even when the super-rich buy property in order to rent it out in the real economy, they are actually priming the wealth extraction siphon even more, because they will be receiving rent from tenants who work in the real economy and they will put most of the payments they receive into the elite economy. So their investments in real estate are more likely to strengthen the siphon than to strengthen the pump. The other 27% of their wealth is kept in cash and bank deposits, some of which is spent into the real economy. 247 Many of their purchases, like $20,000 handbags, multi-million dollar yachts and vacations on private islands, keep wealth in the elite economy. In any case, the super-rich take more from the real economy than they put back in. This is the wealth extraction siphon at work. It is a self-perpetuating mechanism, because once you've bought equity in a successful company, the payments just keep rolling in from that investment, with very little or no work involved, allowing you to buy more equity in other companies. In other words, the for-profit world drives unhealthy levels of inequality because its accumulating tendencies are greater than its circulating tendencies. A very important aspect of how the siphon functions is that people in different income brackets spend money into the real economy at different rates. 248 A person living on a low income might spend 100 percent of their money back into the real economy, and a person living on a moderate income might spend 85 percent of it back into the real economy, saving 15 percent for retirement or a rainy day. But what small percentage of their wealth do billionaires spend back into the real economy in a given year? Nick Hanauer, one of the richest people in the U.S., gave us an idea when he said in his TED talk, "There can never be enough super-rich people to power a great economy. Somebody like me, who makes hundreds or thousands of times as much as the median American… I don't buy hundreds or thousands of times as much stuff. My family owns three cars, not three thousand. I buy a few pairs of pants and shirts a year, like most American men. Occasionally we go out to eat with friends. I can't buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can't buy any new cars, any clothes, or enjoy any meals out." 249 One report published by Pricewaterhouse Coopers in 2015, titled Billionaires: Master architects of great wealth and lasting legacies, determined that 83% of billionaires who decide to sell their businesses and 'cash out' put that money into financial and portfolio investing (i.e. the elite economy), rather than entrepreneurship. 250 This leads to the fact that 94% of all long-term capital gains in the U.S. go to the richest 20% of the population, and 47% go to the richest 0.1. 251 Some super-rich people get the majority or all of their income from the elite economy, never really interacting with the real economy at all. The portfolio and financial investing of the wealthy only serves to expand the 'rentier class', people who don't work because they can live off of income gained from their assets. 252 In the U.S., the rentier class's wealth and power has increased significantly in recent decades. Between 1973 and 1985, the rentier class received 16% of domestic corporate profits, but by the 2000s this number had increased to 41%. 253 Some of these millionaires and billionaires are growing their wealth exponentially through financial markets. What else can be expected when private wealth is seen as the primary driver of economic activity, and most big businesses hold profit maximization as their top priority? A statistic that people throughout the world have come to know very well since the Occupy Wall Street movement began in 2011, is that 1% of the U.S. population has 40% of the nation's wealth. 254 This is where the term 'The 99%' came from -it refers to the 99% of Americans who have only 60% of their country's wealth. In fact, it is now estimated that the richest one-tenth of 1% of Americans own almost as much wealth as the bottom 90% combined. 255 The Walton family, for instance, owns 1.6 billion shares in Walmart, which delivers more than $3 billion to them annually. Similarly, the famous investor, Warren Buffet, receives more than $2 billion in dividends every year, and many others like Larry Summers and Bill Gates make hundreds of millions of dollars every year just from dividend payouts. And that doesn't even include capital gains they make from trading assets or the interest payments they receive on other financial assets. These numbers refer strictly to the money paid out of company profits at the end of the year. 256 It's easy to see why capital gains and dividends have been the largest contributors to rises in inequality in the U.S. (Hungerford, 2013). This can only happen in a for-profit system. It's not just a U.S. phenomenon, though.
The entire bottom half of the U.K. only owns 2-3% of the wealth 257 and, likewise, the bottom half of the global population together possess less than 2% of the world's wealth. 258 Inequality is at a historic high now, 259 with more than 80% of the world's population living in countries where income differentials are. 260 Even in 'emerging' economies, like China and Brazil, where we were supposed to see the formation of a large middle class, we are seeing enormous inequality persist. The World Bank and the Chinese government both concede that the wealth gap in China is among the world's largest. 261 A quick look at history will show just how dramatically inequality has risen in the past 50 years. In 1960, the richest 20% of the world's population had 30 times the income of the poorest 20%. 262 In 1997, nearly forty years later, they had 74 times as much (Ibid). In 2013, the international charity Oxfam reported that the richest 200 people in the world owned as much wealth as the poorest 3 billion 263 ; a shocking statistic. However, in 2014, they updated this number, showing that 85 people owned as much wealth as the poorest 3.5 billion. 264 That's a big change in just one year! The follow-up Oxfam report published in 2016 estimates that now the 62 richest billionaires have as much wealth as the poorest 3.6 billion people in the world. 265 This latest report also found that the richest 1% of the world's population own more wealth than the other 99% of the people on the planet combined! (Ref: Ibid) Incredibly, there are single suburbs, like Mosman, Australia, whose combined taxable income is more than some countries' GDPs. 266 These super powerful individuals are not only using their wealth to generate even more for themselves (as any good capitalist should), but a great number of them are also evading taxes. They do this by keeping their wealth in 'tax havens', places that are happy to help the superrich avoid paying taxes, by offering exceptionally low or no taxes on wealth and also by protecting banks from having to report their clients' wealth. Well-known tax havens include Luxembourg, Bermuda, Switzerland, the Cayman Islands, and more recently some U.S. states, such as Delaware, Nevada and South Dakota. 267 It is estimated that a global total of between $21 and $32 trillion of super-rich individuals' wealth is sheltered in tax havens. 268 For comparison, the total U.S. GDP in 2014 was about $17 trillion. 269 This tendency for inequality to grow is exacerbated by the for-profit story -that the rich are good capitalists who will use their wealth to benefit society, an idea that leads to the wealthy receiving all kinds of special privileges and advantages, making it even easier for them to accumulate more wealth. In his talk, one-percenter Nick Hanauer also pointed out that the incredible difference between the 15% tax rate that capitalists pay on carried interest, dividends, and capital gains, and the 35% top tax rate on work that regular Americans pay is difficult to justify without a bit of deification. (Ref: Nick Hanauer talk)

From the for-profit worldview, it is justifiable that the wealth of the world's 7 richest people is more than the combined GDP of the 41 most heavily indebted low-income countries in the world, consisting of 567 million people xxiii . 270 Many successful capitalists will say that this needs to be fixed somehow, admitting that it is unsustainable (indeed, Nick Hanauer wrote a memo to his 'fellow zillionaires' called: 'The Pitchforks Are Coming… For Us Plutocrats' 271 but the for-profit worldview continues to justify itself. This is just a temporary glitch; the market will get things back to normal eventually. Yet, without addressing the wealth extraction siphon, we will only be able to make small adjustments within an economic system that inherently leads to more inequality. The statistics above are shocking. They show us that our world's resources, including the basic resources needed to live, are not being distributed fairly. Nearly 800 million people are undernourished and 2.5 billion don't have access to sanitation, 272 while a few dozen billionaires have more wealth than the rest of the world combined. Even if you're in the middle class in Europe or the U.S., odds are that your real wage (your wage in relation to the cost of living) has stagnated or declined while the super-rich have been multiplying their wealth. 273 It is clear this system is failing to allocate goods and services as efficiently as we need it to. This level of inequality is simply unacceptable, inhumane, and a dangerous threat to social cohesion. And these numbers would actually be much worse if it weren't for great efforts to counteract the siphon with progressive taxation and philanthropy. The extreme inequality that has developed despite such efforts shows that wealth redistribution strategies will never be able to outpace the exponentially widening income gap inherent in a for-profit economy. In order to gain a better understanding of current economic trends, economist Thomas Piketty painstakingly analyzed massive amounts of historical tax return data. In his book, Capital in the 21 st Century, he describes that capitalism has an inherent tendency to increase inequality because returns on capital exceed the rate of economic growth and so any economic growth benefits only those at the top. 274 Piketty also notes from his data that we have entered an indefinite era in which returns are (and will continue to be) higher than the rate of economic growth. This means massive inequality is written into the very fabric of capitalism in the 21 st century. The For-Profit World Always Wants More Some don't see Picketty's conclusion as a problem, because they aren't convinced of capitalism's requirement for growth. Nobel Prize winning economist Robert Solow notably stated, "There is no reason at all why capitalism could not survive with slow or even no growth...