Of Market Failure, Voluntary Failure, and Third-Party Government: Toward a Theory of Government-Nonprofit Relations in the Modern Welfare State

Despite the fact that gouernment in the United States relies more heavily on nonprofit organizations than on its own instrumentalities to deliver government- funded human services, and that nonprofits receive more of their income from government than from any other single source, the phenomenon of government- nonprofit partnership has been largely overlooked both in analyses of the welfare state and in research on the voluntary sector. This article argues that this neglect of government-nonprofit ties is less the product of a lack of research than of important weaknesses in theory. Both the theory of the welfare state and the theory of the voluntary sector, moreover, are deficient. To overcome these weaknesses, the article advances an alternative theoretical formulation that replaces the prevailing con ception of the welfare state with the concept of “third-party government,” and replaces the current “market failure-government failure” theory of the voluntary sector with a theory built around the concept of “voluntary failure” instead. Viewed through these alternative conceptual lenses, the phenomenon of government-non profit partnership comes into far better view and becomes far more understandable. Against the backdrop of this alternative theory, the article then identifies a number of principles that should guide government-nonprofit relations in the years ahead.