Besides the three main types of businesses which operate for a profit (sole proprietorship, partnership, and corporations), there are other forms of businesses that may be categorized as non-profits. These non-profits are companies that perform a service, not necessarily to make a profit but to perform some type of service for its members.
- In the United States free enterprise system, the government has certain responsibilities to its citizens to create ordinances and regulations that apply to the establishment of various types of businesses.
- The United States government plays both a direct and indirect role in our free enterprise economy.
- Cooperatives lower the cost of production and marketing for the benefit of their members.
- What are other types of organizations beyond those that exist to make a profit?
- Why would the government feel the need to insert itself into the economy?
Other Types of Business Organizations
Civic & Community Non-Profit Organizations
Non-profit organizations include: welfare groups, churches, hospitals, schools, museums, civic organizations, fraternal organizations, veterans organizations, and social clubs. These types of associations are legally incorporated and have the same type of structure as a corporation, so they may benefit from unlimited life, borrow money, or hire qualified employees. They provide goods and services to their members or participants to better their lives or improve a particular outcome, such as education or health. These associations are not set up to make a profit, but if they do, the money is reinvested or the organization is expanded to provide more services. Since the services that are performed by the non-profit are difficult to analyze in terms of economics, it is important to realize that these types of companies or associations contribute to other aspects of people’s lives and fill a societal need.
Video: What is a Cooperative?
Cooperatives are nonprofit, voluntary associations that work for the benefit of specific consumers, certain types of producers, or they perform a service for its members. An example of a consumer cooperative would be Sam’s Club or Costco. These companies purchase items in bulk and pass on the savings to the members of the consumer cooperative. A producer cooperative would work the same way for its members. Examples of producer co-ops: Dairy Farmers of America, Florida's Natural Growers, Land O’Lakes, Welch’s, Sunkist Growers, Inc., and Whole Foods Co-op. These producer cooperative business organizations are owned and operated by a group of individuals for their mutual benefit as they work together to get the best possible prices for their products. Service cooperatives provide credit unions and insurance coverage for their members. Local examples would be Navy Federal Credit Union, El Paso Area Teachers Federal Credit Union, GECU, and USAA. As the number of participants who belong to a cooperative grows, so does its influence and ability to provide more benefits to members.
Labor, Professional, and Business Organizations
Other groups are organized to provide support for their members such as labor organizations and unions. Labor unions were created to assist workers in their attempts to get better wages, working conditions, and benefits. Unions negotiate on behalf of their members to settle disputes involving pay, vacation or sick days, health care, and insurance coverage. Unions may try to influence legislation and work to strengthen their bargaining position when dealing with employers and business organizations. Not all industries have unions but a few examples are: American Federation of Labor-Congress of Industrial Organization (AFL-CIO), the American Federation of Teachers, and United Auto Workers.
Professional societies and trade associations are usually non-profits, and not unions per se, but they also work to improve working conditions and public perceptions, network, collaborate, promote new practices or ideas, and represent the interests of their industries. The American Hospital Association is a national organization that represents and serves all types of hospitals, health care networks, and their patients and communities. The National Association of Realtors, American Psychological Association, and American Dental Association are other professional societies.
A trade association, also known as an industry trade group, attempt to influence public policy in a direction favorable to the group's members. This can take the form of contributions to the campaigns of political candidates through Political Action Committees (PACs),lobbying legislators to support or oppose particular legislation, or attempt to influence the activities of regulatory bodies. Examples of trade associations: Aerospace Industries Association, Alliance of Automobile Manufacturers, Food And Beverage Association of America, and Pharmaceutical Research and Manufacturers of America. Currently there are over 7,600 national trade associations in the United States, with a large number headquartered in the Washington, DC area, as well as many trade associations at the state and local levels.
Business associations promote their interests through the local chamber of commerce or the Better Business Bureau. These are non-profit organizations that work for both the betterment of the companies that are members and the consumers who may be interested in conducting business with them. The “Greater El Paso Chamber of Commerce aggressively advocates for the interests of business to drive economic growth” (El Paso Chamber of Commerce). While the El Paso Better Business Bureaus’ mission is to “be the leader in advancing marketplace trust” by: 1) setting standards for marketplace trust, 2) encouraging and supporting best practices by engaging with and educating consumers and businesses, 3) celebrating marketplace role models, 4) calling out and addressing substandard marketplace behavior, and 5) creating a community of trustworthy businesses and charities (Better Business Bureau of El Paso).
Lastly, the government is considered a non-profit organization, as its mission is not to make a profit but to play a role in the economy. That role could either be directly or indirectly. When the government, or its agency, provides a good or service to businesses and consumers it is considered a “direct role”. There are numerous examples everyday of the government (federal, state, or local) participating in the market place. The Tennessee Valley Authority was created during the Great Depression to provide jobs, control flooding, divert water for hydro-electricity, and provide rural areas with affordable electricity. Because the U.S. government built, maintains, and operates this business it is competing directly with other possible producers of electric power. Another example is the Federal Deposit Insurance Corporation (FDIC), also created during the Great Depression to regulate the banking industry in order to protect consumers. Additional examples are: the United States Postal Service, Veterans Administration Hospitals, and the federal government’s Public Housing Authority. State and local governments play a direct role by providing services such as roads, hospitals, schools, fire and police protection, courts and public parks. Government is able to provide these services through the spending of tax revenues that are collected.
When the government referees the interaction of companies, such as public utilities and the consumer, it plays an indirect role. The reason for this is reflected in the belief that, to a certain extent, the government needs to ensure the relatively smooth operation of the market place. The best example is when the electric company wants to raise revenues by increasing the cost of its product. Because the electric company is a monopoly, it could charge whatever it wanted and customers would have to pay. However, since it is regulated by the state or local government it must abide by the regulations established and go through the steps to justify the rate increase. If it can convince the regulatory agency that it needs the increase, it may be able to pass the cost on to the consumer. If it cannot increase consumer rates, then it will have to seek out alternative ways to raise revenues.
When the government provides money to people in specific categories, such as the aged, it is also indirectly participating in the economy. Social security, veterans’ benefits, unemployment compensation, disability payments, and financial aid for college students are all examples of entitlements that allow the recipients to participate in the marketplace. Indirectly, the government affects the market by assisting individuals who may not have the resources to purchase goods and services.
Self Check Questions
- What is a non-profit organization? Reflect on the companies that you do business with. Which ones are non-profits? What do they do for the community? Why would you do business with them?
- Community and civic groups provide services just like a corporation. List local community and civic groups that you do business with. Why do you do business with them?
- A co-operative performs an economic service for the benefit of its members. Do you do business with any local co-operatives? Which ones? Why or why not?
- Labor unions represent their members in employment matters. Are labor unions strong in El Paso? Texas? Which industries have labor organizations? Do you know anyone in a labor union?
- A city's Chamber of Commerce promotes the welfare of its members. Do an internet search of the El Paso Chamber of Commerce to identify which companies are members. List what the Chamber does.
- Go online and find information for a city that you have never been to but are interested in learning more about. Visit that city's Chamber of Commerce web page and list 5-10 pieces of information about the city.
- Compare the direct and indirect roles of government. Give 3 examples of each role as it pertains to the economy.
- Go online and do a search of local public utilities. Identify each company and write a brief description of what it does and which organization regulates it.