Is an Independent Nonprofit Sector Prone to Failure? An Austrian School Analysis of the Salamon Paradigm and the Lohmann Challenge

Nonprofit organizations have traditionally been considered a meaningful substitute for the services provided by the bureaucratic welfare state (Berger, Neuhaus, and Novak, 1996), a vibrant but largely overlooked “independent sector” characterized by a spontaneous ordering of associations that are founded neither on the state’s compulsory power nor the search for private monetary profit (Cournelle, 1965). Lester Salamon’s body of work - which is extensive - suggests otherwise.1 Salamon argues that the U.S. has a long, established history of efficient institutional linkages between the nonprofit sector, which he calls the “voluntary sector,” and the state. Rather than a substitute, Salamon sees nonprofits in an effective “partnership” with the state, a viable form of “third party” governance. He argues that the independent sector is in fact not so independent. On its own it is prone to failure