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This is an archived post from our old blog. It's here for the sake of posterity (and to keep the search engines happy). Our new blog can be found at

Corporate Investment and Non-Profit Starvation

Tyler Cowan has an interesting post (referencing a Financial Times article) on corporate investment. He quotes from the original piece:

But perhaps the most remarkable result comes from newly available data on private companies studied by Alexander Ljungqvist and colleagues at Harvard and New York University. They find that, keeping company size and industry constant, private US companies invest nearly twice as much as those listed on the stock market: 6.8 per cent of total assets versus just 3.7 per cent.

Private companies are four times more responsive to new investment opportunities and, when a private company goes public, it changes its behaviour.

It's not hard to speculate why publicly traded companies would invest at a lower level than private companies. Private companies are trying to maximize long-term profits, so they make rational decisions about buying new equipment that will pay off down the road, etc. Publicly traded companies are obsessed with quarterly financials, which creates pressure to cut costs even when doing so is akin to shooting oneself in the foot.

I'm wondering about the implications for non-profits. Like publicly traded companies, our financial results are published for the world to scrutinize. Unlike publicly traded companies, who are judged mainly on earnings-per-share, our criteria for success is ambiguous and inconsistent. The trend these days seems to be that non-profits ought to be generating surpluses and reserves from sustainable revenue sources (how novel!), but there are still plenty of funders and donors who won't fund a non-profit that appears not to "need" their support. Point is, the incentives are a bit murky.

More importantly, though, many non-profits don't even have the option to invest in their own infrastructure at a meaningful level. They simply don't have the cash. Having to choose between meeting this month's payroll or investing in technology to engage new patrons over the next decade isn't really a choice at all.

I've written before about the sweeping, long-term changes afoot in our field. We will witness lots of creative destruction in the coming decades. Our ability to adapt to social and technological change depends - in part - on whether we can invest sufficiently in the new infrastructure that we'll need to thrive in the future. This is true at the organization level and the sector level.

Does our industry culture encourage or discourage this kind of investment? Do our balance sheets even make it an option?