To Profit or Not to Profit

Many civil society activities are incorporated in some kind of not-for-profit organisation. But why should that be? The usual argument is that they are not ‘commercial’ so they should not make profits. Or that they depend on donations (i.e. the profits of others) for their income and capital. But why should that be? Why do we assume that it is not economic or should not be profitable to help an old lady cross the street, or to clear up after an earthquake? (War-torn countries are not rebuilt by charities.) And why should a ‘non-commercial’ activity not make a profit, not have the benefit of realising that it has itself created value, not just spent other people’s money?

In the main because of our mindset and because of the prevailing tax regime with its Robin Hood gesture of taking from the rich and giving to the poor. Why, though, can we not think in terms of everyone creating wealth? After all, that is what any set of accounts envisages, including those of so-called not-for-profit organisations. In fact they are not that at all. Both for-profits and not-for-profits make a profit. The distinction is simply between distributing profits to private persons and devoting them entirely to a ‘public benefit’ purpose. But again, why should a humanitarian cause benefit the public any more than a well-run restaurant or train service?

This workshop explores ways in which these conceptual and institutional constraints can be overcome. 

Rethinking Not-for-Profits

The first slide examines the various aspects of a not-for-profit – purple for its real estate, pink for its ‘core activity’, and orange for its fund raising and public benefit objective (Spanish 'promocion'). It asks which of these need in fact to be within a not-for-profit and which would be better off in a for-profit setting, especially as regards the availability and effective use of capital and the psychology of those responsible (green arrow). The red and blue boxes respectively track the income and expenses and balance sheet aspects.

 

Rethinking Property Rights

The second slide is about how we are related to the earth and to real estate in terms of the history of freehold, leasehold and other ‘layers’ of ownership. How real estate has passed from belonging to ‘the gods’ (dios), coming down to become the responsibility and even possession of human beings, but only so that they can work out of their individuality, their I (yo). Property rights have this underlying purpose: to enable an individual human being to take hold of the earth so that he can use it in service to his fellow men. 

We all need to own if we are to play our part in the human story. But we must beware becoming caught by the earth, by ownership, by possession (orange arc below). We must avoid becoming possessed by the thing we possess. Understanding this enables is to rethink direct ownership of land (brown), leasehold use of land – for example to build a building (light orange), and licensed use of such buildings (yellow, green and red). This in turn will enable us to fine-tune the financing of real estate and the projects that use it.

It will also give new meaning to 'speculation' (mirroring). For example, by using 'fictitious' real estate values to collateralise investment in future projects.

 

Rethinking Real Estate

Slide three examines a piece of property with multiple uses – farming, education, residential – all of which are ‘housed’ in a not-for-profit (shown by the orange line surrounding all). But need they be?  Could they not be distinguished one from another, articulated rather than monolithically organised? In this way different capacities and different people could enter in. This is behind ‘asset maximisation’ – which is not just about selling assets at their highest price, although more and more that is all people think about. In fact an asset cannot be ‘maximised’ unless it is analysed out into its various value-creating elements. The question is whether one does this in order to sell off the assets piecemeal at the highest price, and so make money in the real estate that cannot be made in the real economy. Or whether one dynamises a project by allocating its various elements to different people with their different capacities, so that they can then work with one another in a new way.

Legal, Accounting and Financial Aspects

The fourth slide is the legal, accounting and financial counterpart of this case. The lower section details how the various elements of the project can be rethought so that the different aspects work to form a whole: the land below the topsoil (brown); the use made of the topsoil, whether farmed or removed for building (yellow, orange, green); and the use made of the farm, the buildings and so on (pink). (Below the topsoil, it is a moot point to whom any resources found there belong - the individual in his own right or as custodian for humanity as a whole.)

The red and blue boxes concern the technique of accounting. The graph in pink and green is about choosing to be a tortoise or a hare in one’s long term investment strategy. The circle and three lines top right are about the secret of all real estate investment: own a temple and all land around, then rent space for the hotels, merchandise and other things people need in order to get to the temple, where entry is free.