The link between philanthropy and business goes back a long way in the United States. In the late 19th century John D. Rockefeller, America’s first billionaire, revolutionised first the petroleum industry and then charitable giving, while Andrew Carnegie, a steel tycoon, dedicated his fortune to funding libraries and scientific research.

Today, the nonprofit sector, as it is known in the US, is thriving. More than one million charities represent a huge proportion of the economy and almost one in ten people works for a charity. Many organisations – notably hospitals – that in this country would be state run are charities in the US.

But exactly what is meant by “nonprofit making” is the subject of concern for Mark Rosenman, a public service professor at the Union Institute & University, a distance-learning institution, and an expert on the US voluntary sector.

For many in the socially conscious 21st century, the idea that business skills can be used for philanthropic purposes is accepted without question. But while charities must declare their public benefit, social enterprises are left to their own devices, operating as businesses and profiting on goodwill. Some reinvest all their profits back into the business to support the cause; others commit to giving a percentage. But some organisations, although they go to great lengths to conceal it, reinvest none.

Professor Rosenman believes that a clearer definition of social enterprise is needed to make customers better informed about who exactly is benefiting from the income generated. “The language often obscures the reality. [Many enterprises are] trying to cover business with the cloak of philanthropy.”

He is clear on what this definition should be. “I would like to see any profits go to public purpose. If there is a surplus being generated by helping people in low-income communities, then that surplus ought not to benefit the entrepreneurs – I’m sorry, that’s business.”

The New York Times has used the term “philanthropreneurs” to describe “billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity”. These include Jeffrey Skoll, the former president of eBay, and Steve Case, the founder of America Online. In the superleague, Warren Buffett and Bill and Melinda Gates contribute billions to the developing world.

But many in the charitable sector are worried that the money given by individuals is too tightly controlled, Professor Rosenman said. He was one of several to call for an external advisory panel to monitor the spending of the Bill & Melinda Gates Foundation – a panel that was duly appointed by the foundation itself.

Professor Rosenman said that such organisations should be structured to represent a broad spectrum of opinion: “Great wealth ought not to buy access to power. It is incumbent on the philanthropists to broaden participation and decision-making about what happens to assets. Right now there is no external accountability.”

With the non profit sector starved of funds under President Bush, it is hoped that the new Administration in Washington will bring much-needed rejuvenation to the sector. Barack Obama has set out plans to concentrate on fighting poverty and is to increase funding to AmeriCorps, the domestic volunteering programme. The President-elect also intends to create an Office of Social Entrepreneurship. Any legislation passed will require a clear definition of social enterprise, and developments are sure to be watched with interest. As Professor Rosenman said: “There’s eight years of pent-up demand.”

The lowdown

Who
Mark Rosenman is the public service professor of the Union Institute and University. He worked as an informal adviser to the Clinton Administration in the 1990s on issues relating to charities and government and is now the director of Caring to Change, a initiative that seeks to reform grantmaking foundations in the US to make them more effective

What
A precise definition of social enterprise that draws a clear line with conventional business, to prevent people from benefiting financially from social need

When
The belief is widespread that the incoming Obama Administration will increase support for the nonprofit sector, after several funding streams were cut during the Bush era. A new Office of Social Entrepreneurship should help to clarify matters. The President-elect also plans several reforms including the Serve America Act, which aims to make it easier for people to volunteer

Where
The US but developments will be watched with interest in the UK and worldwide

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