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Economic impact

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By Lydian Altman Sauer, Margaret Henderson and Gordon Whitaker

Local governments often act strategically to attract new business to their communities.

They sometimes take persuasive, supportive roles in keeping or expanding established businesses.

But is this focus on the private sector adequate to build a truly thriving community?

Elected and appointed officials provide this support to business and industry because they see economic development as one of the functions of local government.

They value the contributions that businesses make to a healthy local economy, recognize how local residents benefit from the jobs and services that businesses provide, and appreciate the purchases and the tax payments that businesses make.

Government officials also want to avoid the debilitating economic and psychological impact that the loss of an employer can have on citizens.

Their interest is in sustaining the long-term viability and health of the community.

That same interest can motivate their support for building the sustainability of nonprofits.

Depending on local circumstances, local government officials might have other reasons to consider supporting nonprofits, along with the private businesses and industries in their communities.

Both businesses and nonprofits provide jobs within their communities and generate a demand for support services, such as places to eat lunch, buy office supplies, or use day care.

Both businesses and nonprofits can attract resources from outside the community.

For businesses, this comes in the form of capital from external investors.

Nonprofits generate a different kind of investment — contributions, grants, contracts and government funding, from both inside and outside the community.

The profits generated by businesses ultimately revert to the owners, who may or may not live in the community.

Nonprofits are required to reinvest all their profits to carry out their missions.  The missions of community-based nonprofits are typically focused on the local community.  Therefore, nonprofits’ earnings usually stay in the area.

When a nonprofit is as large as Duke University in Durham or Wake Forest University in Winston-Salem, its overall health affects nearly every corner of the local community.

More often, though, nonprofits are overlooked as an important part of the local economy.

Many community nonprofits are like small businesses. Their collective impact is diverse and significant, especially to the employees, clients, and residents whom they touch.

Yet because each is small, its individual contributions frequently are overlooked or undervalued.

Not only do nonprofits bring money into their communities and provide services and economic stimulation in return, but they also contribute to civic engagement through many different forms of volunteerism and community education.

Businesses do consider fiscal incentives when deciding where to locate, but they also consider the fabric of life within communities as well.

Governmental officials interested in economic development should take time to consider the varied contributions of nonprofits as well.

A thriving nonprofit sector builds the vibrancy of a healthy community.


Lydian Altman Sauer and Margaret Henderson are associate directors of the Public Intersection Project, and Gordon Whitaker is professor of public administration and government, all at the School of Government at the University of North Carolina at Chapel Hill. This article is adapted from a longer article in the Winter 2005 issue of Popular Government.

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