Economic Activity vs. “Economic Impact”

Recently, the Maine Association of Nonprofits issued its annual report looking at the “economic impact” of Maine’s charities. Like other economic reports, it requires a bit of unpacking.

There’s no question that non-profits provide valuable services to Mainers. They do sustain large payrolls, which benefit Maine families who work in these fields (predominantly health care). And with these wages, they pay taxes, buy goods and services, and support other jobs in Maine.

With that said, Maine’s share of personal income from the non-profit sector (18%) is far above the national average (10%). These jobs are largely service jobs, providing health care or social assistance to Maine residents. They may pull in federal funding (aka “other states’ money”), grants or even some tourist dollars. But they don’t represent value-added jobs that are producing goods for export or companies that can attract outside investment into Maine.

In other words, while they are important to our quality of life and our economy, non-profits don’t create “foundational jobs” and they don’t generate new wealth for Maine. Like all service sector and public sector jobs, they do not pay for themselves and, by their nature, cannot be self-sustaining. They are supported by the economic output from foundational jobs.

Also, as service/public sector jobs, they are largely recirculating dollars within the state and not creating wealth or growing the state’s economic pie.  A couple of thought experiments might shed some light.  If everyone worked for the government, we’d have to be taxed 100% to pay ourselves.  If everyone was a lawyer, accountant, stock broker, financial adviser, banker, or any other service sector employee, we’d all starve or freeze in short order.

Foundational jobs in construction, farming, fishing, forestry, manufacturing, transportation, and energy add value, create wealth, and pay for service and public sector jobs.  The non-foundational jobs are important but they are also dependent.  Government jobs are important (police, fire, DOT, DHHS, etc.), but the taxes to pay for them are a burden on foundational jobs and if those taxes are too high, investment, jobs, and people go elsewhere.

Healthy economies have as many people as possible employed in foundational jobs creating wealth and providing people with homes, food, heat, transportation, and other necessities of life.  Maximizing the number of those jobs makes us all better off and creates the maximum amount of tax and support for non-profits consistent with a healthy, balanced economy.

And that’s the key:  balance.  If taxes are too high, government too inefficient, the service sector too large, and non-profits too big a sector of the economy, the foundational sectors are depressed—investment, employment, and prosperity all suffer.

What share of overall employment should be in the non-profit sector for a healthy economy?  What about public sector employment?  Is the non-profit sector larger because of Maine’s aging population, and if so, how do we bring the state’s average age back in line with the rest of the nation?  How do we grow manufacturing and other foundational sectors to pay for more services?

We don’t know the answers to these questions because they’ve never been asked in the context of a strategic overview of Maine’s economy.  The future is coming.  We need a plan.