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The Theories of Non-proﬁts: A Reality Check from Slovakia
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LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
Vol. 14, No. 3, pp. 399-418, July 2016
The Theories of Non-profits: A Reality Check from

Slovakia
7
MÁRIA MURRAY SVIDROŇOVÁ, GABRIELA VACEKOVÁ & VLADISLAV
VALENTINOV
ABSTRACT The goal of the paper is to analyze the economic

determinants of the non-profit sector in Slovakia. In contrast to the
neoclassical market failure approach, we build on the institutionalist
and systems-theoretic framework that draws attention to the
shortcomings of the dominant institutional structures of the private
for-profit and public sectors. Utilizing a representative survey of 60
nonprofits, we identify their key characteristics and single out the
“supply-side” and “interdependence” theories as their most useful
explanations. These results accentuate the role of nonprofits in
realizing societal values, while taking account of institutional
complementarities, regional variations, and legal peculiarities.
KEYWORDS: • non-profit sector • societal values • functional system

• economic determinants • Slovakia
CORRESPONDENCE ADDRESS: Mária Murray Svidroňová, Ph.D., Assistant Professor,

Matej Bel University, Faculty of Economics, Tajovskeho 10, 97401 Banská Bystrica,
Slovakia, email: [email protected]. Gabriela Vaceková, Ph.D.,
Assistant Professor, Masaryk University, Faculty of Economics and Administration,
Lipová 41a, 602 00 Brno, Czech Republic, email: [email protected].
Vladislav Valentinov, Ph.D., Research Associate, Leibniz Institute of Agricultural
Development in Transition Economies, Theodor-Lieser-Str 2, 06120, Halle, Germany,
email: [email protected].
DOI 10.4335/14.3.399-418(2016)
ISSN 1581-5374 Print/1855-363X Online © 2016 Lex localis (Maribor, Graz, Trieste, Split)
Available online at http://journal.lex-localis.press.
400 LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT
M. Murray Svidroňová, G. Vaceková & V. Valentinov: The Theories of Non-
profits: A Reality Check from Slovakia
Introduction
The academic field of the non-profit sector studies has been firmly gaining ground
in the last decades all over the world. Non-profit organizations are widely
acknowledged today to “play a variety of social, economic, and political roles in
society. They provide services as well as educate, advocate, and engage people in
civic and social life” (Boris & Steuerle, 2006, p. 66; cf. also Kuhlmann, 2010;
Michalski & Mercik, 2011) or act as an initiator of innovation in public services
delivery (Nemec, Mikušová Meričková & Svidroňová, 2015). To Salamon et al.
(2013, p. 1), the rising prominence of non-profit organizations constitutes the
“global associational revolution”, i.e., “a major upsurge of organized, private,
voluntary and non-profit activity [that] has been under way around the world for
the past thirty years or more” (ibid). Against this backdrop, it is only natural that
social scientists have started a creative search for theories and models that would
not only explain the evolution and societal functions of the non-profit sector but
also help to productively harness its policy potential.
This paper is primarily concerned with those theories and models that are of
interest to economists. Given that the global non-profit sector presents a major
economic force (Salamon et al., 2013), economists developed a number of
ingenious explanations of why non-profits could play an important role in the
modern economies, especially in the Anglo-Saxon institutional context. The main
thrust of these explanations ascribes to non-profits the ability to correct specific
types of market failure (Steinberg, 2006). Economics, however, is a pluralistic
science. Whereas the economic science in the Western world is clearly dominated
by neoclassical and new institutional economics approaches, it likewise contains a
number of heterodox strands that take a critical stance on the market failure
framework. This stance is especially sympathetic for those sociologists and
political scientists who see the market failure framework as a reductionist attempt
to straightjacket the complex and institutionally rich social reality into a market
setting consisting of consumers and producers.
In this line, Smith and Gronbjerg (2006, p. 235) take the market failure
explanations of non-profits to task for failing to take a proper account of their
institutional embeddedness. Anheier and Salamon (2006) developed the “social
origins” theory as a direct counterpoise to the market failure explanations. The
social origins theory is intended to emphasize “the embeddedness of the non-profit
sector in the cultural, religious, political, and economic realities of different
countries. It thus views decisions about whether to rely on the market, the non-
profit sector, or the state for the provision of key services as not simply open to
choice by individual consumers in an open market…Rather, it views these choices
as heavily constrained by prior patterns of historical development and by the
relative power of various social groupings that have significant stakes in the
outcomes of these decisions” (ibid, p. 106).
LEX LOCALIS - JOURNAL OF LOCAL SELF-GOVERNMENT 401
The social origins theory, however, is primarily geared toward explaining the
geographical variation across the global non-profit sector rather than toward
identifying the causal mechanisms responsible for the “reconstitutive downward
causation” from the encompassing institutional structure onto the level of specific
non-profit organizations (Valentinov, 2012). The identification of these
mechanisms is surely a daunting task. Yet, recent systems-theoretic approaches to
conceptualizing non-profits (Valentinov & Vaceková, 2015; Valentinov et al.,
2015; Valentinov & Chatalova, 2014) highlight the considerable heuristic
potential of the idea of the functional differentiation of society, especially in the
interpretation of Niklas Luhmann, the prominent synthesizer of sociology and
systems theory. Luhmann (2012) took functional differentiation to mean the
decomposition of society into functional systems such as economy, politics, law,
education, health care, and others. While the details of Luhmann’s thinking cannot
be summarized here for reasons of space, it may suffice to note that, according to
him, each of these systems, in virtue of its “complexity reduction” role, inevitably
fails to process a large share of signals from the encompassing societal
environment. Simple as it is, this argument allows conceptualizing the role of non-
profits in terms of failures of several functional systems, such as economy and
politics. Especially important is the fact that these failures do not need to be intra-
systemic, such as market failure or governmental failure. Rather, the most
important failures reflect the inability of these systems to come to grips with (i.e.,
register and process) the proliferating complexity of the societal environment
(Valentinov and Chatalova, 2016). The latter failures may not even appear on the
radar of the economic and political systems and yet exercise a considerable
influence on the shaping of the societal functions of non-profit organizations
(Valentinov, 2015a, b, c, d).
Systems-theoretic approaches, especially of Luhmannian variety, are notorious for

their abstract character. Yet, in contrast to this popular belief, this paper identifies
and implements an empirical strategy that not only traces the roles of non-profits
back to the limitations of the economic and political functional systems, but also
takes account of those non-profit activities that are not registered on these
systems’ radars. This is done by an exploration of non-profits populating a given
institutional space, in our case Slovakia. In contrast to available empirical studies
focused on testing the validity of specific market failure theories (cf. Steinberg,
2004), we seek to establish the comparative validity of alternative theoretical
approaches on our representative sample of Slovakian non-profits. In doing so, we
obtain insights not only into the validity of specific theories per se, but also in
their comparative usefulness in making sense of complex and institutionally rich
social reality.
A synopsis of non-profit theories
In line with the proposed systems-theoretic approach, the extant theoretical

approaches to non-profits can be classified into three groups: those reflecting the
limitations of the economic system; those reflecting the limitations of the political
system; and those that cannot be attributed to the failure of any specific functional
system. The third group may appear amorphous, but it can be conveniently
conceptualized in terms of the societal values that underpin the missions of the
concerned non-profits. As Valentinov (2012, p. 83) put it, “the role of the non-
profit sector is in reconfiguring the allocation of societal resources, as it is
evolving in the for-profit sector, in such a way as to bring it in congruence with
the broader societal values, such as those of human dignity, environmental
preservation, and care for disadvantaged people. The for-profit sector needs to be
supplemented by the non-profit sector not because of market failures, but because
of its failure to take due account of the relevant societal values”. An advantage of
the proposed classification is that specific non-profit theories may belong to
several groups at the same time (Fig. 1). Furthermore, any specific listing of non-
profit theories does not need to be comprehensive in order to fit in the
classification.
Figure 1: Classification of non-profit theories
Source: authors
As shown in Figure 1, non-profit theories reflecting the limitations of the

economic system include Hansmann’s trustworthiness theory, Weisbrod’s
governmental failure theory, and a recently advanced rurality theory (Valentinov,
2009; Valentinov & Iliopoulos, 2013). Hansmann’s and Weisbrod’s theories have
been widely discussed in the secondary literature and are commonly seen as
market failure theories (despite the reference to “governmental failure” in
Weisbrod’s case). Valentinov’s (2009) rurality theory does not necessarily present
a market failure argument. It rather refers to the discrepancy between the standard
of living in urban and rural areas. This discrepancy is caused by a number of
socio-economic characteristics of rural areas, such as low population density,
geographical dispersion, and a lack of infrastructure. These characteristics lower
the rate of return on for-profit entrepreneurial activities and thus create a niche for
rural non-profits. Non-profit theories reflecting the limitations of the political

system include the already mentioned Weisbrod’s governmental failure theory and
Salamon’s (1987) voluntary failure theory, also known as “interdependence” or
“third party government” theory. Finally, the so-called “supply-side” or
“entrepreneurship” theories (Young & James, 1987; Rose-Ackerman, 1996)
explicitly emphasize the role of non-profits as outlets for the realization of specific
societal values and ideologies.
Table 1 presents the major theoretical approaches, presenting a summary, key

terms, key strengths, and key weaknesses. We omit the social origins theory
because it is intended to apply to cross-national comparisons rather than
explorations within one country.
Table 1: Theories of the non-profit sector
KEY KEY
THEORY SUMMARY KEY TERMS
STRENGTHS WEAKNESSES
Unsatisfied
Explains part of
demand for
government-private
public and quasi-
Heterogeneity Demand institutional choice Assumes
public goods in
Theory heterogeneity; dynamics in liberal inherent conflict
situations of
A.K.A: median voter; democracies in the between
demand
Public Goods or government; context of public government and
heterogeneity
governmental quasi-public fund shortages; private non-profit
leads to
failure theory goods why non-profits provision
emergence of
become “gap-
non-profit
fillers.”
providers
Non-profit
Explains close link
organizations are
between value base Assumes neutral
a reflection of Social
of many non-profits state; equates
demand entrepreneurship;
Supply Side and choice of religious and
heterogeneity, non-monetary
Theory service field such secular value-
served and returns; product
A.K.A: Entrepre- as health and based behavior;
created by bundling;
neurship theory education (to what about non-
entrepreneurs demand
maximize value value based non-
seeking to heterogeneity
impact and profits?
maximize non-
formation)
monetary returns
Given Introduces tripartite Scope of theory

information relation as basic limited to
Nonrival goods;
asymmetries theoretical problem experience of
information
Stakeholder between provider and goes beyond informational
asymmetry; trust;
Theory and consumer, simple principal- problems faced
principal-agent
stakeholders agent issues: by deeply
problems
decide to Stakeholder – concerned
exercise control provider – recipient stakeholders—
over delivery of what about more

service conventional
non-profits?
Other
Non-distribution
institutional
constraint makes Explains part of
responses
non-profits more non-profit – for-
possible
Trust trustworthy under profit institutional
Non-distribution (government
Theory conditions of choice from
constraint; regulation); non-
A.K.A.: information supply-side
trustworthiness; profit constraint
Contract or asymmetry which perspective, with
information weakly enforced;
market failure makes focus on inherent
asymmetry indirect profit
theory monitoring problems in
distribution
expensive and “nature” of good or
possible (for
profiteering service
profits in
likely
disguise)
Because of
(initially) lower
transaction costs,
Assumes neutral,
non-profit
Moves away from yet well-meaning
organizations
Interdependence zero-sum, state; equates
precede Philanthropic
Theory competitive relation value-based and
government in insufficiency,
A.K.A.: between voluntary non-value-based
providing public particularism,
voluntary failure sector and behavior; when
benefit goods, paternalism, and
theory or third government; will synergies
but due to amateurism; third
party government explains frequent develop and
“voluntary party government
theory pattern of public- when not –
failures” develop
private partnerships conditions
synergistic
unclear
relations with the
public sector
over time
The size and

structure of the
Difficulty in
non-profit sector Comparative- Move away from
testing counter-
are a reflection of historical emphasis on micro-
factual as non-
its approach; path- economic models
Social Origins profit form varies
“embeddedness” dependency; and puts
significantly over
in a complex set state-society interdependence
time and across
of relationships, relations theory in context
countries/cultures
classes, and
regime types
Source: Anheier, 2013
Empirical results from Slovakia
To examine the economic theories that motivated the establishment and justify the
existence of non-profit non-governmental organizations in Slovakia, we started a
pilot questionnaire. A total of 60 organizations responded. The sample reflects the
current state of the structure of non-governmental organizations (hereinafter
referred to as NGOs) in Slovakia. The appropriateness of the structure and the

scope of the sample were confirmed by the statistical significance of the results of
a Chi-square test.
We used the Friedman and Wilcoxon tests to examine whether non-profit non-
governmental organizations had a particular reason or motive for being
established. In analysing the dependence of economic theories on other factors
such as region, location, legal status, core work organization, etc., we used
Pearson’s chi-square test of independence. If there was a confirmed dependency,
we measured the level of intensity of dependence with Cramer’s V. All statistical
analysis was done using SPSS (Statistical Package for the Social Sciences)
software.
Sample description
The respondents were different types of non-profit non-governmental

organizations located throughout the territory of Slovakia; Table 2 shows the
locations in all eight Slovak regions.
Table 2: Location of the non-profit organizations by region
Region Number of organizations

Banskobystricky 5
Bratislavsky 16
Kosicky 2
Nitriansky 4
Presovsky 7
Trenciansky 14
Trnavsky 7
Zilinsky 5
Source: authors
Of the total sample of 60 organizations, 48 were active in the city/town,

accounting for 80% of the total number of organizations involved; the remaining
12 functioned in the villages/countryside, representing 20% of the total number of
organizations involved.
The respondents varied depending on the size of the municipality in which they
operated. Most organizations were located in cities with a population of over
100,000 inhabitants (15 respondents) and in towns with between 50,000 and
99,999 inhabitants (14 respondents). The fewest respondents said that they
operated in municipalities with populations smaller than 199 or between 500 to
999 inhabitants. For a better overview of the answers of all respondents, we
presented the results in a figure (Fig. 2).
Figure 2: Share of the respondents by the size of municipality in which they

operate
Source: authors
The largest share of non-profit organizations involved in the research, a total of 46

respondents, had the form of a civic association. Two organizations had the form
of a foundation, three organizations were noninvestment funds, and six were
established as organizations providing generally beneficial services (public benefit
organizations). The remaining three organizations chose the option “other” (an
association of legal entities and unspecified non-profit organizations). An
overview is presented in the following figure (Fig. 3).
Figure 3: Legal form of the respondents
Source: authors
Figure 4 shows that the respondents were usually active in the non-profit sector
for 5 to 10 years.
Figure 4: Age of the respondents (how long they operated in the non-profit
sector)
Source: authors
To describe the size of respondents we used two characteristics: number of

employees and/or volunteers (Table 3) and size of the annual budget (Table 4).
Table 3: Overview of full-time and part-time employees and volunteers in

respondents’ organizations
Number of organizations
Yes No
Full-time employees 13 47
up to 5 employees 7
5 – 9 employees 2
10 – 20 employees 3
more than 20 employees 1
Part-time employees 14 46
up to 5 employees 11
more than 5 employees 3
Volunteers* 50 9
up to 5 volunteers 5
5 – 10 volunteers 21
more than 80 volunteers 1
Source: authors
* The sum of organizations with volunteers is not 60, as one organization reported only
occasional volunteer help for special events.
Table 4: Size of the annual budget in the respondents’ organizations
Annual budget (in thousands of €) Number of organizations

Less than 1 9
1- 5 15
5 - 10 12
10 - 20 7
20 - 50 4
50 - 100 5
More than 100 8
Source: authors
Based on their reported fields of operation, the respondents covered all of the main
areas in which non-profit organization operate and provide their services (Table
5).
Table 5: Areas of operation of the respondents
Areas of operation Number of organizations*
Health care 8
Education 12
Sport 10
Welfare 15
Human rights 1
Culture and art 8

Religion and spiritual development 4
Environment 4
Others (research and development, family 5

issues, leisure activities, drug prevention,
not specified)
Source: authors
*The sum was greater than 60, as respondents could choose up to three fields in which they
operated.
Figure 5 shows the reported activities of the responding non-profit organizations.

The respondents were mostly service producers (43%); 40% could not identify
themselves using the provided options and they chose “other”, mostly stating that
their activities were a combination of watchdog and service or advocacy and
service organization.
Figure 5: Reported activities of the responding non-profit non-governmental

organizations
Source: authors
Economic theories of the non-profit sector in Slovakia
We assigned each non-profit organization an economic theory in accordance with

the reason they cited for their foundation. The results are shown in Table 6.
Respondents could choose from among the available answers, shown in the first
column, and we assigned them directly to particular theories, shown in the second
column. The third column reflects the number of organizations that selected the
particular theory. The sum of respondents is greater than 60, since they were
allowed to choose up to three reasons for their creation and existence.
Table 6: Theories of creation and existence of the responding non-profit non-

governmental organizations
Reason for establishment/creation Theory Number of

organizations
Non-profit organization was created based Supply side
on the personal interests of its founder, i.e. theory
founder followed their own needs and
motives for self-realization. Or (the 30
organization) wanted to provide a service to
ourselves; we created an association that
provides mutual benefits to its members.
This product / service was needed for the Rural theory
community of people living in rural areas;
7
we wanted to contribute to the development
of the community/locality.
We perceived the need for a non-profit Interdependence
organization in the locality /in Slovakia in theory
17
addition to public and private profit
organizations, so we were established.
We perceived that the market lacked a Trust theory
trustworthy partner and in our opinion a (information
non-profit organization was a more credible asymmetry 2
producer of goods / services to the theory)
consumer, so we were established.
We established our non-profit organization For-profits-in-
as an atypical form of business; we did not disguise theory
want to create a business or social
enterprise, but the activities that we do are
8
publicly beneficial (beneficial for the wider
environment) and by these activities a profit
can be produced, which we return to the
main activities of the organization.
The government did not provide a service / Heterogeneity
product at the national or local level theory
because it lacked the capacity (financial, (government
personnel, etc.), or the product was failure theory) 10
provided by the government but with signs
of cronyism or corruption, so we were
established.
We were established in partnership with Third party 1
government/local government. Government government

helped us with the foundation; the theory
government (national, regional or
municipality) was our founder.
No private companies provided such a Realization of
service / product because it would be societal values
unprofitable for them, i.e. there was a lack theory 13
of such a service in the market, so we were
established to provide it.
Source: authors
The table shows that eight respondents selected the option stating that they wanted
to do some kind of business and a legal form of non-profit organization was the
most suitable way for them to do so, because with their activities they would
achieve a profit, but these activities fulfilled the characteristics of a general
benefit. The organizations reinvested their achieved profits in the core business, as
required by legislation. This reason or motivation for establishing an NGO is
described in for-profits-in-disguise theory (Weisbrod, 1988).
The most commonly selected theory was the supply side theory, chosen by 30
organizations involved in our research, representing half of the total surveyed
organizations. This preference was confirmed by the Friedman test, which we
used to find whether the organizations were created for the same reason (theory)
or if there was a more preferred theory. Based on the results of the Friedman test,
the non-profit organizations clearly preferred the supply side theory as the reason
for their creation and existence. Only one organization chose the third party
government theory.
The salient relationships
The reason for establishing a non-profit organization may depend on many factors
(c.f. Bakoš, Soukopová & Šelešovský, 2015; Havlan & Radvan, 2008), including
the region in which the organization operates, the population in the area, the
location of the organization in an urban or rural area, areas of operation, and type
of activity. It may also depend on the legal form, but since most of the surveyed
organizations were civil associations, we considered it unnecessary to examine the
dependency of the theory on the legal form of organization. We did not have
sufficient responses to evaluate correlations for other legal forms. The selected
factors for which this evaluation was possible include:
 Region in which a non-profit non-governmental organization operates.
 Location of a non-profit organization – place where activities of NGOs are
focused (town/village).
 Size of the municipality (number of inhabitants) in which a non-profit non-
governmental organization operates.
 Area of operation in which a non-profit non-governmental organization

operates (health care, welfare, education, environment…).
 Age of a non-profit non-governmental organization.
 Size of a non-profit non-governmental organization based on number of
employees.
 Size of a non-profit non-governmental organization based on amount of
annual budget.
To evaluate the dependency of the selected factors for the establishment and
existence of the non-profit organization on various factors, we used Pearson’s chi-
square test of independence. Where a dependency was confirmed, we used
Cramer’s V to measure the intensity of the dependency. All calculations were
made using SPSS statistical software, and the results were reviewed with an expert
in the field of statistics.
The following table presents an overview of the theories of non-profit non-

governmental organizations with confirmed dependencies (for the sake of brevity,
we show only those theories and factors where dependencies were confirmed).
Table 7: Overview of economic theories of non-profit non-governmental

organization existence with confirmed dependency
Economic theory Confirmed dependency
Trust theory the region in which a non-profit non-governmental

organization operates
Interdependence the number of inhabitants in the municipality in which a
theory non-profit non-governmental organization operates
seat of a non-profit organization (town/village)
Rural theory the number of inhabitants in the municipality in which a
non-profit non-governmental organization operates
area of operation in which a non-profit non-governmental
organization operates (health care, welfare, education,
environment…)
Heterogeneity type of activities that non-profit non-governmental
theory organization carries out as their core work (service,
advocacy, etc.)
Source: authors
As can be seen in Table 7, dependency was confirmed only in four theories of the
existence and establishment of non-profit organizations: trust theory,
interdependence theory, rural theory, and heterogeneity theory (based on
government failure).
For the trust theory (or information asymmetry theory), we confirmed the
dependence on the region in which the organization operates. All of the
respondents that chose this theory were from the Zilinsky region. They felt
connected to this theory because the market lacked a credible producer of goods or
services and non-profit organizations could be a solution to the problem of
untrustworthy for-profit commercial organizations. These organizations could use
this fact as an argument to gain more support from the region.
For the interdependence theory and the rural theory, we confirmed the dependence
on the population in the municipality and on the area (field) in which the non-
profit organization operated. The rural theory was chosen to a greater extent by
respondents who work in rural areas, mostly in villages with less than 5000
inhabitants. We thus indirectly confirmed the importance of this new theory. It
would be desirable to pay more attention to the research of this theory in order to
identify the specific needs of these organizations and design tools to support them.
Non-profit organizations can greatly benefit a municipality, and the municipality
should therefore encourage their establishment and existence, in the form of
subsidies or tax credits in local directives. The interdependence theory was
selected by organizations operating in cities with larger populations. This shows
that non-profit organizations are complementary with for-profit organizations in
urban areas, where the economy is developed at a higher level and there are better
conditions for such cooperation.
The last confirmed dependency was of the heterogeneity theory, the dependence
of the type of activities performed by the organization on government failure. The
government in such cases did not produce enough goods and services, and
governmental activities were insufficient to support interests of others, so these
non-profit organizations were created to cover the gap.
Non-profits as an alternative to commercial enterprise
In this part we address the for-profits-in-disguise theory which was chosen by 8

respondents in our analysis. It points out to an interesting argument why NGOs are
being established in Slovakia. When the government fails, the solution may be the
market and profitable businesses (Mikušová Meričková, Nemec & Soukopová,
2014; Soukopová et al., 2013; Soukopová & Struk, 2011; Matějová et al., 2013) ,
but it is also the non-profit sector that provides products and services, sometimes
as their core work, sometimes as a side activity. The latter is considered to be the
commercial activity of non-profits. The commercial activities are allowed in
Slovakia for most of the legal forms (all but non-investment funds) when the non-
distribution constraint condition is met (i.e. the profit gained must be fully
reinvested into the core work of the NGO). In the following table 8, we compare
classic commercial and non-profit enterprises. The table demonstrates the benefits
of non-profit business in comparison to a classic entrepreneurship. It follows from
the table that entrepreneurs in Slovakia consider establishing a non-governmental

organization to be easier, faster and less expensive than setting up a commercial
enterprise.
Table 8: Basic characteristics of commercial and non-profit entrepreneurship
Characteristic Commercial Non-profit

entrepreneurship entrepreneurship
Goal main goal is to achieve fulfilment of
profit organization’s mission –
to provide social benefits
Equity depends on the legal form obligatory only for
(e.g. for Ltd. which is the foundations and
most common form, it is noninvestment funds
at least €5,000)
Business activity business is a main funded under

activity, the reason why redistribution
the company was mechanisms;
established entrepreneurship is seen
as a side activity
Tax exemptions no tax exemptions no income tax on the

income from the main
activity (core work), no
income tax on income
from tax assignation
Duration of depends on the legal form up to 30 days, usually up

establishment procedure (e.g. for Ltd. it is between to 10 days
15 and 21 days)
Registration business register relevant registers at the

Ministry of Interior
Registration fees depends on the legal form usually €66 per

(e.g. for Ltd. it is €331.5 registration
for the registration in the
business register, plus
between €5 and €15 for
other administration fees)
Source: authors
The advantage of doing business as a non-profit organization in Slovakia is that

non-profit non-governmental organizations usually do not have to have equity;
only two legal forms, foundations and non-investment funds, require equity; the
rest do not have to have any assets to start their activities. Although non-profit
non-governmental organizations are not established for doing business, they can
conduct business activities if they meet the condition of reinvesting profit into
their main activities /core work. Revenues gained through the main activity for
which they were established are exempt from income tax. Thus, if the non-profit
non-governmental organization develops activities that meet the nature of their
core work and fulfil a generally beneficial purpose, the non-profit organization can
be regarded as a specific form of business/ entrepreneurship.
It is probably for these reasons that eight of the survey respondents chose
entrepreneurship theory. Their non-profit organizations were founded as an
atypical form of business. Their primary goal was not to establish a business, but
their activities were generally beneficial and could make a profit, which was then
returned to the core work of the organization.
Conclusions
This paper advances a novel research program that seeks to revisit the role of
conventional economic approaches to explaining the existence of the nonprofit
sector in the modern society. Drawing upon the institutionalist and systems-
theoretic ideas, this research program is primarily geared to identifying the real-
world problem-solving potential of the nonprofit sector rather than to reconciling
nonprofit activities with the neoclassical market failure framework. Accordingly,
the normative benchmark underpinning our study is not Pareto-optimality of
perfectly competitive markets but rather the realization of societal values with a
view to improving the quality of social life. This benchmark reflects the fact that
the dominant institutional structures of the modern Western world – markets and
hierarchies pertaining to the private for-profit and public sectors – do not permit
an adequate realization of societal values. This argument follows from both the
heterodox institutional economics and the Luhmannian systems-theoretic
perspective that is critical of the ability of functional systems, such as economy

and politics, to do justice to the complexity of the societal environment.
Our empirical analysis of the Slovak nonprofit sector has identified education,
sports, and welfare as its most important activity fields. It is thus in these fields
that the dominant institutional logics of market and bureaucracy are least
applicable. The sizable presence of volunteers likewise testifies to the functional
limits of the traditional employment relation in the Slovak society, and especially
in the above mentioned nonprofit activity fields. A remarkable finding is that the
supply-side theoretical approach to explaining nonprofits has turned out to be
most relevant in the Slovak context. This finding suggests that people are using
the nonprofit sector as an outlet for the realization of those values that cannot be
expressed through the dominant for-profit and public institutions. Furthermore, the
confirmed real-world importance of the interdependence theory calls attention to
the complementary nature of the extant institutions which accordingly work best
in concert rather than in mutual isolation. The obtained results are contingent on
regional contexts which differ in terms of their historical and cultural heritage.
Finally, the legal environment in Slovakia has been likewise shown to leave a
mark on the motives for the founding of nonprofits. All the revealed patterns – the
shortcomings of dominant institutions, the importance of societal values,
institutional complementarities, regional variations, and legal peculiarities – get
short shrift in the mainstream market failure theories of the nonprofit sector. By
emphasizing these patterns, the authors hope to deepen the understanding of the
nonprofit sector as a real-world institution rather than as a market failure-
correcting device. This understanding is imperative for making the fullest use of
the nonprofit sector’s capacity to solve societal problems.
Acknowledgement
The authors are grateful to anonymous reviewers for helpful comments. The third author
gratefully acknowledges the support from the Volkswagen Foundation. This contribution
was supported also by the Grant Agency of Masaryk University in Brno, No.
MUNI/A/1047/2015.
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The Theories of Non-proﬁts: A Reality Check from Slovakia

Article in Lex Localis · July 2016

Mária Svidroňová Gabriela Vaceková

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The Theories of Non-profits: A Reality Check from

ABSTRACT The goal of the paper is to analyze the economic

KEYWORDS: • non-profit sector • societal values • functional system

CORRESPONDENCE ADDRESS: Mária Murray Svidroňová, Ph.D., Assistant Professor,

Systems-theoretic approaches, especially of Luhmannian variety, are notorious for

A synopsis of non-profit theories

In line with the proposed systems-theoretic approach, the extant theoretical

Figure 1: Classification of non-profit theories

As shown in Figure 1, non-profit theories reflecting the limitations of the

rural non-profits. Non-profit theories reflecting the limitations of the political

Table 1 presents the major theoretical approaches, presenting a summary, key

Table 1: Theories of the non-profit sector

Given Introduces tripartite Scope of theory

over delivery of what about more

The size and

Empirical results from Slovakia

referred to as NGOs) in Slovakia. The appropriateness of the structure and the

The respondents were different types of non-profit non-governmental

Table 2: Location of the non-profit organizations by region

Region Number of organizations

Of the total sample of 60 organizations, 48 were active in the city/town,

Figure 2: Share of the respondents by the size of municipality in which they

The largest share of non-profit organizations involved in the research, a total of 46

Figure 3: Legal form of the respondents

To describe the size of respondents we used two characteristics: number of

Table 3: Overview of full-time and part-time employees and volunteers in

Table 4: Size of the annual budget in the respondents’ organizations

Annual budget (in thousands of €) Number of organizations

Table 5: Areas of operation of the respondents

Areas of operation Number of organizations*

Culture and art 8

Religion and spiritual development 4

Others (research and development, family 5

Figure 5 shows the reported activities of the responding non-profit organizations.

Figure 5: Reported activities of the responding non-profit non-governmental

Economic theories of the non-profit sector in Slovakia

We assigned each non-profit organization an economic theory in accordance with

Table 6: Theories of creation and existence of the responding non-profit non-

Reason for establishment/creation Theory Number of

government/local government. Government government

The salient relationships

 Area of operation in which a non-profit non-governmental organization

The following table presents an overview of the theories of non-profit non-

Table 7: Overview of economic theories of non-profit non-governmental

Economic theory Confirmed dependency

Trust theory the region in which a non-profit non-governmental

Non-profits as an alternative to commercial enterprise

In this part we address the for-profits-in-disguise theory which was chosen by 8

the table that entrepreneurs in Slovakia consider establishing a non-governmental

Table 8: Basic characteristics of commercial and non-profit entrepreneurship

Characteristic Commercial Non-profit

Business activity business is a main funded under