Canada boasts second largest nonprofit sector in the world

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If you are a bit surprised by the title of this week's Cover Story, you're not alone. Even the researchers that came to this conclusion were somewhat surprised to learn that Canada has one of the largest nonprofit and voluntary sectors in the world, second only to the Netherlands. Last week, Imagine Canada (formerly the Canadian Centre for Philanthropy) unveiled this and many other interesting findings in a new report. The Canadian Nonprofit and Voluntary Sector in Comparative Perspective is part of the Johns Hopkins Comparative Nonprofit Sector Project, which examines the nonprofit or civil society sector in 37 countries around the world. Aside from giving the Canadian nonprofit sector an idea of where it stands relative to other countries, the Imagine Canada report also sheds light on a very vital segment of the Canadian economy that, for the most part, is not recognized as such by government or the general public.

An economic powerhouse

Although the United States has long been considered to have the most developed nonprofit sector in the world, Canadian nonprofit and voluntary organizations employ 12% of the country's economically active population, compared to 9.8% in the US. That translates into more than two million full-time equivalent (FTE) workers, two-thirds in paid positions and the remainder as volunteers. To put it in perspective, Canada's nonprofit and voluntary organizations engage nearly as many full-time equivalent workers (2.073 million) as all branches of manufacturing combined (2.294 million). Aside from the size of the nonprofit workforce, the sector also contributes about 6.8% of the country's gross domestic product (GDP). As of 1999, that output equaled $61.8 billion (Canadian). If you include the value of volunteer work, that figure jumps to an estimated $75.8 billion, or 8.5% of GDP.

Despite having the second largest nonprofit workforce in the world, the volunteer share of this workforce is lower in Canada than in most other countries. Only 25% of the full-time equivalent workforce of Canadian nonprofit and voluntary organizations are volunteers, compared to an average of 38% among all 37 countries included in the Johns Hopkins Comparative Nonprofit Sector Project. However, the report asserts that this is not because of any absolute shortage of volunteer activity. Expressed as a percentage of the economically active population, Canada's volunteer force equals 3% versus 1.6% for all 37 countries. Still, it does lag behind a number of other countries, including Sweden (5.1%), Norway (4.4%), the United Kingdom (3.6%), and the United States (3.5%).

We aim to serve

Researchers found that the bulk of Canada's nonprofits are service organizations - those involved in the delivery of direct services such as education, health, housing, and economic development promotion. Almost three-quarters (74%) of all Canadian nonprofit and voluntary organization workers, paid and volunteer, are engaged in these activities. This is about 10% higher than the overall average for countries included in the Johns Hopkins project. Health and housing are two of the more prominent Canadian service activities that are larger here than in other countries. About 31% of the nonprofit and voluntary sector workforce in Canada is involved with health care, compared to an overall average of 14%. The housing field absorbs about 11% of Canada's nonprofit workforce, versus 8% overall. Fifteen percent of Canada's nonprofit workforce is involved in education, and another 18% work in social services.

Those nonprofit employees and volunteers not involved in service delivery make up the remainder (22%) of Canada's nonprofit workforce (excluding foundations and international groups). Their activities provide avenues for the expression of cultural, spiritual, professional, or policy values, interests, and beliefs. This includes cultural institutions, recreation groups, professional associations, advocacy groups, community organizations, environmental organizations, human rights groups, and social movements. This is below the average of 32% among all countries. When paid employees and volunteers are examined separately, volunteers are proportionally twice as likely to be engaged in expressive functions than are paid staff (36% vs. 17%).

Philanthropy accounts for very little nonprofit revenue

With all the government cutbacks in the past decade, it might come as a shock to learn that the majority (51%) of all nonprofit and voluntary revenue still comes from government. However, Michael Hall, vice president of Imagine Canada and lead author of the report, points out that the reason for this is largely because government is really supporting individual Canadians through nonprofit and voluntary sector service delivery.

Perhaps even more surprising than the large government contribution is the fact that only 9% of nonprofit revenue comes from philanthropy, something that most nonprofits spend a lot of time and effort cultivating. Even when religious organizations are included, philanthropy accounts for only 13% of the sector's income. The remaining 39% of nonprofit revenue in Canada results from fees, service charges, and investment income. These figures change somewhat if hospitals, universities, and colleges are excluded from the analysis. Then government support falls to 39% of total revenue, and fees emerge as the dominant revenue source (48%), with philanthropy still accounting for only 12% of nonprofit income.

A sector not without its challenges

"This is the second largest nonprofit sector in the world, but it's a sector under strain," Hall points out. The biggest concerns raised by nonprofits include their ability to plan for the future, to recruit volunteers and board members, and to obtain funding. Organizations reporting the most serious problems are those that rely on external funding from governments, corporations, and foundations. "We have a high level of reliance on government funding and organizations are facing a number of challenges that are attributable to the way in which they relate to government," Hall notes. "For those that are funded by government, I think a lot of it has to do with what I think is a dysfunctional funding regime that focuses on short-term funding, is unpredictable and changeable, and requires a high degree of administrative overhead to deal with the funding."

Another funding concern is the fact that "public support is dangerously shallow," with just 9% of donors contributing 46% of all donations and 40% of all volunteer hours. "We need a renewed commitment from individual Canadians to give and to volunteer," says Hall. "As a country, we are not investing in our nonprofit sector, which, as our research shows, is really a surprisingly big part of Canadian life."

Looking beyond organizational challenges, there are broader public policy issues to contend with. For example, many organizations have difficulty obtaining registered charitable status, in part because of the antiquated definition of 'charity' still employed by the Canada Revenue Agency (CRA). The CRA also places legal restriction on the advocacy activities of registered charities, which in some cases severely hinders the charity's ability to fulfill its mission. Another concern is the potential personal liability of volunteer members of nonprofit boards and the fear that this will deter potential board volunteers.

Solutions to these challenges might not come easily, but Imagine Canada hopes this report will have some influence in bringing more recognition to the sector and the issues it is facing. "I hope it shines a light on what a significant asset we have in this country," says Hall. "It's an asset that we as Canadians have created collectively, and an asset that we really haven't understood until now. It's at risk of depreciating, but we are now in a position to better understand its strengths and limitations, and how to best support it so that we have an asset that continues to grow into the future."

To download a copy of the report in PDF format, visit www.nonprofitscan.ca/pdf/jhu_report_en.pdf.

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