In The News

Contrasting the Nonprofit Sector in Asia and the U.S.

September 5, 2007

A summary of an address delivered at the American Bar Association’s Business Law Section Annual Meeting, San Francisco, August 2007.

In 2009, Japan will introduce a jury system in its courts. For the new system to work, Japanese will have to overcome deep-rooted cultural obstacles, including a reluctance to express opinions in public, to argue with one another, or to question authority. Polls show that more than 80 percent of the Japanese public are dreading the change and do not want to serve as jurors.  This example illustrates some of the key features underlying public attitudes towards law, government, citizen responsibility and, by extension, the nonprofit sector in East Asia as compared to the United States.

The United States is blessed with an extraordinarily large, diverse, economically-powerful and politically influential nonprofit sector, distinct from government and business. It consists of more than 1.6 million registered organizations and institutions and perhaps an equal or even larger number of nonprofit associations that are not required to formally register or report their activities.  The U.S. nonprofit sector is more broadly defined than elsewhere and includes schools, hospitals, museums, civil rights groups, labor unions, and many, many others. It accounts for more than 6% of GDP and employs more than 9% of the total U.S. workforce.

The U.S. Government supports the nonprofit sector both directly and indirectly through an enabling legal and regulatory environment, tax incentives, grants and contracts, and numerous indirect subsidies. This highly supportive environment is the result of our particular history and the American “myth” of voluntarism. That myth ” an interpretation of historical events that serves to shape contemporary views, values, and beliefs ” revolves around continuing debate about the proper relationship between citizens and their government, the distribution of power between Washington and the states, and even the moral superiority of private charity over government welfare policy.

The myth also rests on the historical reality that during much of our Westward expansion in the 18th and 19th centuries, settlers arrived before their government did. Most frontier schools, postal services, medical services, transport and utilities, care for the poor and elderly, for example, were organized and run by nonprofit community organizations or small for-profit firms. Very few social welfare services were provided by the U.S. government before Franklin Roosevelt introduced the New Deal during the Great Depression, which made the need for poverty relief inescapable. Later, Lyndon Johnson’s Great Society and the War on Poverty in the 1960s and 70s saw the greatest expansion of American nonprofit organizations, as the U.S. Government chose to implement its new programs by channeling Federal funds through state and local governments and nonprofit community organizations rather than increasing the size of the Federal bureaucracy.

In Asia, however, the institutional context for the development of the nonprofit sector is very different, reflecting Asia’s very diverse historical, political, economic, and social experiences.

One challenging element is the persistence of state-centered systems of governance. Much more than in the U.S., the state is the dominant actor in political, economic, and social life throughout Asia, with less space for “civil society.” This is the case where the state has been centralized and powerful for long time (e.g., Japan and Korea), or where it feels itself threatened by the emergence of new forces, including potentially powerful nonprofit organizations (e.g., Bangladesh and China). In either scenario, the state seeks to maintain or assert its dominance over public life, and citizens expect the state to play the dominant role. Existing laws and regulations throughout the region are heavily weighted to the security concerns of governments. It is generally much easier throughout the region to register and operate a “foundation” or a “trust,” which are collections of assets, than it is to register an “association,” which is a collection of people.

Another element includes the multiple and sometimes conflicting sources of nonprofit law and regulation, including religious traditions, pre-colonial political regimes, authoritarian colonial regimes, and post-colonial authoritarian or threatened states. As a result of these overlapping traditions and rampant adaptations from both civil law and common law traditions, nonprofit law and regulations are often contradictory, providing bureaucrats excessively broad scope for discretion in determining the application of law and regulation.

A third difference, often surprising to American practitioners, is that tax planning is not a significant factor in charitable decision-making in most of Asia. There are relatively few taxpayers in most countries; most wage-earners have their taxes deducted by their employers and do not file tax returns; tax evasion is widespread; few nonprofits are granted tax-deductible status; and governments are under great pressure to increase tax revenue.

A fourth element is the much greater role that foreign donors and nonprofit actors play in Asia than in the American context. Many Asian nonprofits were created in response to the opportunity for foreign funding and remain heavily dependent on foreign financial support. Asian governments are wary of these connections and the possibility that foreign donors (including their own citizens living abroad) may try to use local nonprofits to support Islamic extremism, separatist rebellions, or political reforms that they consider subversive.

Like the Japanese court system which will challenge citizens to overcome their dread of jury duty, there are signs of progress in the nonprofit sector in Asia. Long-standing charitable traditions of helping the poor and growing wealth are contributing to a burgeoning number of nonprofit organizations. Asian governments are beginning to see the sector as a potential source of domestic financial support and a partner in the provision of hard-to-fund social welfare services. There are several positive examples of nonprofit-government cooperation in the certification and regulation of the nonprofit sector. Yet Asian nonprofits still operate within contested space in which governments are testing the balance between facilitation and control of the sector as part of the evolution of new “social contracts” between citizens and the state throughout the region.

Barnett Baron is The Asia Foundation’s Executive Vice President.

View all posts by Barnett F. Baron

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