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Capitalism in crisis: Lessons continued

I’ve been writing about what we in the nonprofit sector can learn from the ongoing debate about the value of private equity. Just to underscore there is a nonprofit for every occasion, POLITICO reports that the Private Equity Growth Capital Council (PEGCC), a 501c6, has launched “Private Equity at Work,” a new initiative aimed at educating media, policy makers and the public about the private equity industry, including videos and an advertising campaign.

Today I have two more observations.

Private Equity. Much of the support for private equity – and the tax advantages they receive – is based on the proposition that they are generating new jobs and ultimately new businesses. I don’t think the nonprofit sector gets enough credit for encouraging start-ups and innovation and we rarely fit into public policy job creation solutions. We’re often told in political debates that we need to do more to support small businesses through cuts in bureaucracy and final support since it’s with small businesses where job creation and innovation occurs. Rather than seeing this as a good thing, we sometimes fret that we’re adding too many new nonprofits. From my perspective, our challenge in the nonprofit sector isn’t coming up with new ideas, it’s figuring out how to generate more capital in order to increase impact and scale.

The Symbiotic Relationship of Nonprofits and Consumerism. Finally, no matter what bour perspective about private equity, it is here to stay. Robert Reich observed in last week’s Financial Times that the “crisis marks the triumph of consumers and investors over workers and citizens.” He points out that “getting the best deal” often has national, employment, and environmental considerations that we don’t think about and there’s little stopping this trend as “technologies outpace the capacities of democratic institutions to counterbalance them.”

There’s another aspect to this issue as well. We should also remember that our endowments and retirement funds in the nonprofit sector provide much of the money that private equity needs to do its business, and in return we rely on them to be successful. The Wall Street Journal reported this week that public employee pension funds had about 11 percent of their assets invested in private equity. So, we’re part of the game. We may not like all aspects of the private equity model, but the profits they generate play a big role in the ultimate success of the nonprofit sector.

Crisis is said to be the mother of all invention, and who else but the nonprofit sector is more suited to take up the charge in these trying times? I’ve heard stories time and again of nonprofits seeing a problem and creating a structure – or working with others already in that space – to tackle that problem, despite funding challenges and all other obstacles. I applaud the entrepreneurs across this country for their creative thinking in tackling the world’s challenges, and for their imagination and foresight in sustaining their businesses while doing so.

Topics: Nonprofit Leadership and Practice