It is difficult to dispute the significance of Non-profit organizations and NGOs on the national, regional, and global economies. The sheer large number of NGOs coupled with their enormous financial strength and influence makes them an integral part of the state and global governance. Ideally, non-profit organizations and NGOs perform various functions in the economy that carry a heavy impact on the success or failure of markets. Some of these functions include funding research in institutions of higher learning, provision of education facilities and services in poor nations, provision of relief services during disasters and outbreaks, environmental protection, population control, lobbying for democracy, and solving regional and global disputes, among others. Since the services provided by NGOs have a direct impact on the lives and affairs of the population, it is essential to investigate ways through which they solve government and market failures.
For a market and government to be fully functional, there must be a good relationship between the government, corporate societies (the market or economic system), and nonprofits (civil societies, social system). According to Usama (2022), the relationship between these three entities is reminiscent of a three-legged stool whereby when one leg is removed, the stool cannot stand on its own. This statement means that while nonprofits need the government to function in a given jurisdiction, the government cannot function effectively in an environment where NGOs are absent. The mutual relationships between these entities play a significant role in enhancing the health of the economy through the provision of services that governments are unable to provide with the expected efficiency. In a study conducted by Verhoef & Nijkamp (2003), it was found that the impact of externalities on the market was significant. Under ordinary circumstances, externalities are known to cause government and market failures, a process that jeopardizes the livelihood of many. Some of the externalities with direct impacts on the market include pollution (causing diseases), natural disasters (that affect the provision of essential services) wars, overpopulation, and anarchy, among others.
According to Kei Takeuchi & Masotoshi Yoshino (1991), non-profits and NGOs address governments and market failures through the provision of services that enhance the stability of an economic environment. One of these services is the provision of relief aid during the outbreaks of natural disasters (such as the COVID-19 pandemic) and wars (such as the Russia-Ukraine war and the Israeli-Hamas war). For example, since the war broke out between Hamas and Israel, markets in Gaza have been disrupted due to the imposition of a total blockade and demolition of businesses through bombing. Furthermore, people have been displaced from their homes and places of work, making it difficult to engage in meaningful commercial activities. NGOs operating in Gaza such as the United Nations Relief and Works Agency (UNRWA) provide the assistance needed to restore the lives of the affected victims by empowering them with means of sustaining their lives. Consequently, their purchasing power is restored making it possible for businesses to continue functioning.
In countries where political instability causes market failures, non-profits and NGO employs their influence to lobby for democracy or support democratically-minded politicians. In developing countries like in Africa, International NGOs use their influence to impose democratic policies that enhance political stability and capitalism, making it possible for markets to regulate themselves with little or no interference from external actors. According to Verhoef & Nijkamp (2003), non-profits and NGOs work hand in hand with the health sector to provide essential services such as population control, immunization, disease control, and birth control, among others. In developing and underdeveloped economies, these services help the country to spend less in the health sector and allocate its resources to areas that are fundamental to the livelihood of its people. If the hand of NGOs is withdrawn from the health sector, the government can spend much of its resources to address health challenges leaving the economy (or markets) in limbo.
In developed economies such as the United States of America and the United Kingdom, the responsibility for the provision of welfare services is left in the hands of non-profits and NGOs. For instance, according to Boli, (n.d.) Clinton and Bush governments in the US and Cameron government in the UK left the responsibility of welfare provision to civil societies. Under these circumstances, the US and UK governments were able to allocate more resources to the economy that would have otherwise been used for welfare. During an economic recession, NGOs and non-profits provide direct financial and material assistance to affected individuals. This form of assistance keeps the stores open as people can buy essential items. Finally, NGOs and non-profits engage in environmental protection initiatives that ensure that the amount of carbon footprints associated with commercial activities are minimized (Bush & Hadden, 2019). This process creates a conducive habitat that attracts tourist who contributes significantly to the economy, preventing the possibility of market failures. Countries that rely heavily on tourism such as Rwanda are always thankful to international NGOs such as UN Habitat.
References
Boli, J. (n.d.). International Nongovernmental Organizations.
Bush, S. S., & Hadden, J. (2019). Density and Decline in the Founding of International NGOs in the United States. International Studies Quarterly, 63(4), 1133–1146. https://doi.org/10.1093/isq/sqz061
Kei Takeuchi, & Masotoshi Yoshino. (1991). The global environment. Springer.
Usama, M. (2022, February 9). Tax Exemption Guide for Donors in the US | Donate Now. Transparent Hands. https://www.transparenthands.org/tax-exemption-guide-for-donors-in-the-us/#:~:text=The%20US%20federal%20government%20has
Verhoef, E. T., & Nijkamp, P. (2003). Externalities in the Urban Economy. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.457580
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