DEFINING THE NONPROFIT SECTOR: THE CZECH...

Working Papers

of the

The Johns Hopkins Comparative Nonprofit Sector Project

Lester M. Salamon, Director Helmut K. Anheier, Associate Director

DEFINING THE NONPROFIT SECTOR:

THE CZECH REPUBLIC

Pavol Frič Charles University

Institute of Sociological Studies

Lenka Deverová First Consulting p.b.c.

Petr Pajas

Center for Democracy and Free Enterprise and First Consulting p.b.c.

and

Hana �ilhánová

Civil Society Development Foundation

1998

Suggested form of citation: Frič, Pavol, Lenka Deverová, Petr Pajas, and Hana

�ilhánová. �Defining the Nonprofit Sector: The Czech Republic.� Working Papers of the Johns Hopkins Comparative Nonprofit Sector Project, no. 27, edited by Lester M. Salamon and Helmut K. Anheier. Baltimore: The Johns Hopkins Institute for Policy Studies, 1998.

ISBN 1-886333-32-7

© The Johns Hopkins University Institute for Policy Studies, 1998 All Rights Reserved

Comparative Nonprofit Sector Project

Institute for Policy Studies Center for Civil Society Studies The Johns Hopkins University Baltimore, Maryland 21218

U.S.A.

PREFACE

This is one in a series of Working Papers produced under the Johns Hopkins

Comparative Nonprofit Sector Project. Now in its second phase, this Project is a collaborative effort by scholars in over twenty countries to understand the scope, structure, and role of the nonprofit sector using a common framework and approach.

The Working Papers provide a vehicle for the initial dissemination of the work of the Project to an international audience of scholars, practitioners and policy analysts interested in the social and economic role played by nonprofit organizations in different countries, and in the comparative analysis of these important, but often neglected, institutions.

Working Papers are intermediary products, and they are released in the interest of timely distribution of Project results to stimulate scholarly discussion and inform policy debates. A full list of these papers is provided on the inside of the back cover.

The production of these Working Papers owes much to the devoted efforts of our Local Associates, and our project staff. In particular, the present paper benefitted greatly from the editorial work of Dr. Stefan Toepler, the coordinator of our Central European work, and the production assistance of Wendell Phipps, the project’s secretary. We also want to express our deep gratitude to our colleagues on this project, to the International Advisory Committee that is helping to guide our work, and to the many sponsors of the project listed at the end of this paper.

The views and opinions expressed in these papers are those of the authors and do not necessarily represent the views or opinions of the institutions with which they are affiliated, The Johns Hopkins University, its Institute for Policy Studies, any of its officers or supporters, or the series’ editors.

We are delighted to be able to make the early results of this project available in this form and welcome comments and inquiries either about this paper or the project as a whole.

Lester M. Salamon Helmut K. Anheier Project Director Associate Project Director

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DEFINING THE NONPROFIT SECTOR: THE CZECH REPUBLIC1

Introduction

The nonprofit sector is a relatively new phenomenon in Czech society. In recent years, however, the concepts of �nonprofit organizations� and �civil society� have increasingly found their way into high level political discourse in the Czech Republic, popularized by the conflicting views of Czech President Václav Havel and former Prime Minister Václav Klaus on their relative importance (Havel, Klaus and Pithart, 1996). While Havel conceives civil society as an important part of political culture encompassing a variety of citizen activities that are undirected by the state and that provide a counterweight to the state bureaucracy and state centralism, Klaus rejected the concept of civil society as unclear to the public and that �everybody may understand it the way he chooses.� Despite the prominence of the civil society debate, the term �nonprofit sector� remains new and unfamiliar to the public at large and conceptions on which organizations are included in the nonprofit sector and what they should do vary greatly. Moreover, there is no general awareness yet that the diverse variety of nonprofit organizations form a sector of their own. What this indicates is that the Czech nonprofit sector is still in a period of self-identification and that there are no precisely set boundaries delineating the scope of its activity.

Currently, the further development of the Czech nonprofit sector also faces a number of additional obstacles. Not only is its very concept largely undefined, but the public generally does not hold nonprofit organizations in high esteem. On the political level, the nonprofit sector is regarded as peripheral to the overall process of economic transformation and is often seen as allied with the political opposition. While the sector has undergone significant changes over the past years, the modes of state support have not changed substantially. They remain centralized and indiscriminate, reminiscent of the support systems of the communist era. As long as opportunities to develop independent revenue sources are lacking, nonprofit organizations face not only fiscal and economic insecurity, but also a number of other crucial challenges that center around the overall problem of a lack of consensus on their proper role in society. The challenges to overcome include bureaucratization pressures resulting from a still incomplete legal framework, barriers to professionalization, and, perhaps most important, the issue of accountability and public trust.

1 Written by Pavol Frič (Lecturer at the Institute of Sociological Studies, Charles University, and coordinator of the

Czech part of the Johns Hopkins Comparative Nonprofit Sector Project), Lenka Deverová (attorney at law, co-founder of First Consulting p.b.c. and legal adviser to the Information Center on Foundations), Petr Pajas (Deputy Director of the Center for Democracy and Free Enterprise, co-founder and executive officer of First Consulting p.b.c., and Chairman of the Board of the Information Centre on Foundations), and Hana �ilhánová (Director of the Civil Society Development Foundation and leader of the CSDF research team).

The objective of this paper is to describe the conceptual space of the nonprofit sector in the Czech Republic and to define the organizations that comprise it. Our starting point is a brief outline of the sector�s historic roots followed by a discussion of the development of the present nonprofit

Frič, Deverová, Pajas, and �ilhánová Defining the Nonprofit Sector: The Czech Republic

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sector. A major part of the paper is devoted to describing and analyzing various forms of nonprofit organizations both in terms of their legal status and in the light of criteria to define the sector as a whole. The major types of nonprofit organizations are civil associations, foundations, churches andreligious congregations, and public benefit corporations. The paper also discusses a number of borderline cases. The final part of the paper describes the social-political context, its effect on the nonprofit sector, and possible future developments. This analysis is summed up in ten �critical issues� relating to the nonprofit sector. Historical Background

A distinct theme of increasing citizen participation in society emerges from an examination of the history of philanthropy and voluntary initiatives in the Czech Republic. Closely related to the given political situations, growing civic courage and the will to associate have often signaled an end to authoritarian systems, such as the end of Absolutism, the disintegration of the Austro-Hungarian Empire, the liberalization of Socialism at the end of the 1960s, and finally the events of 1989. Historically, civic movements have played a significant role in the political climate and have also taken an active part in changing the status quo. Perhaps this explains why totalitarian regimes have often felt the need to suppress civic initiatives. Early Religious Influence and the Rise of Absolutism

The origins of philanthropy and the nonprofit sector in the Czech Republic are closely tied to Christianity. Christian beliefs were a strong motivating force for disseminating the ideas of charity, love, and assistance to those in need. As early as in the 13th century, the first foundations supporting churches and spiritual education were established within the Catholic Church, which played a dominant role throughout the Middle Ages in creating charitable institutions. Other spiritual roots took hold as well, including the development of the brotherhoods of Jewish religious communities, and non-religious philanthropy grew as urban centers began to flourish. The emergence of the Hussite religious reform movement in the early 15th century and the beginning of the Renaissance period greatly reduced the influence of the Catholic Church, and cities and communities assumed a greater role in the fields of social care, welfare, education, and training.

Under the reign of the House of Habsburg, however, the Czech lands were re-catholicized after the Bohemian Revolt was stifled in 1621 (Kolektiv autor_, 1993a, pp. 285-286). The Jesuit Order, in particular, played an important role by administering its own university through a wealthy foundation. Although the sovereigns supported and financially contributed to the Catholic Church, this support also ushered in a period of extended and strengthened power of the state over the Church.

During the period of Enlightened Absolutism in the second half of the 18th century, and particularly under the reign of Joseph II (1780-90), the church became increasingly under state surveillance. Many monasteries, brotherhoods, and orders were dissolved. Their property was confiscated and transferred to public charities and foundations for humanitarian and social purposes, which Joseph II used to centralize social care and welfare. Religious charitable institutions assisting paupers, headed by local parish priests, became important elements of this centralized system. Where no such religious organizations existed, public charitable institutions were organized by the local communities. At the same time, the position of the Church diminished in elementary, secondary, and university education (Kadlec, 1991). The state introduced a new school system, with


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schools and universities chaired by secular officials. As a result, the role the Church played in philanthropic activities was more and more taken over by the state. From National Revival to Interwar Democracy

The modernization of the country and the liberalization of public life that marked the era of late absolutism also opened new opportunities for civic activities and led to the establishment of a number of civic associations and foundations. Societies and foundations blossomed during the National Revival from about 1830 to the neo-absolutist interlude beginning in the early 1850s. At that time, a number of patriotic societies supporting the arts and education were formed, as were cultural, scientific, and economic societies, women�s educational groups, and scholarship foundations for the dispossessed. Prominent examples included the Committee for the Foundation of the National Theater, the Mánes Group, the Matice _eská - Czech Foundation, and the Hlávka Foundation (Poche, 1980, pp. 23-28). While the initial aspiration of these patriotic groups was to raise the level of culture and education of Czech citizens within the Habsburg Empire, cultural emancipation gradually grew into a quest for political emancipation. At the time of �Bach�s Absolutism,�2 however, these efforts were severely persecuted by the secret police and, consequently, a number of groups carried out their activities in secret. Political moderation occurred after 1860 when the Austro-Hungarian Empire officially renounced Absolutism. The transformation of the monarchy into a modern state also brought greater tolerance and respect for civic, social, and ethnic rights. Some of these rights were also embedded in the new legal code and the Imperial Law on Associations of 1867 which contained provisions on the activities of charities and societies.

A new surge of societies, associations and foundations accompanied the creation of the independent Czechoslovak Republic in 1918 and the introduction of democracy. Nonprofit organizations were often formed on the basis of ethnic or religious principles for cultural, educational, and charitable activities or to attack social and health problems. Common purposes ranged from supporting students and apprentices and the education of girls to providing mother and child and preventive health care. Czech, German, Jewish, Polish, Ruthenian, and other societies existed to assist people in need (Tvrdo_, 1936). What is more, the provision of public social care, which was among the primary responsibilities of municipalities, regions, and the state, was frequently supplemented by voluntary activity carried out by semi-public and private nonprofit institutions that were entrusted with considerable official power. Voluntary organizations and foundations thus gained an important standing at the time and were a pillar of support for the pre-war Czechoslovak democracy.

2 Named after Alexander von Bach, the Minister of the Interior of the Habsburg Empire from 1852 to 1859, who

sharply repressed Czech patriotism.

The relative importance of the nonprofit sector during this time is borne out in extensive statistical research that was conducted in Czechoslovakia in the 1930s. Part of this research mapped public and private social care and care for the poor. According to data of the State Statistical Office, 5,140 societies were active in Czechoslovakia at that time in the area of charitable and humanitarian care alone. Most frequently, nonprofit organizations were involved in establishing and


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administering various institutions and facilities owning 16 percent of all social facilities at that time. Adjusting for state subsidies, the nonprofit sector accounted for about 26 percent of total social care expenditures. In 1938, for example, the organization Charita managed a total of 172 establishments serving almost 40,000 people in Bohemia. (Pé_e o ..., 1935; 1937)

The blossoming of civic activities came to an abrupt end during the German occupation beginning in 1939 and civic organizations soon became dysfunctional or were banned entirely. Many important representatives of cultural, educational, and youth organizations were imprisoned, deported to concentration camps, or executed, and a number of organizations were forced to go underground or to continue their work in exile. The Communist Period

After World War II the activities of most associations and foundations were renewed, but it was not long before their development was violently interrupted again by the coup of 1948. The Communist take-over restricted all democratic freedoms, including the pursuit of voluntary activities that did not suit the governing ideology. The association of citizens in independent organizations became impossible, association property was confiscated, and a number of democratically-minded people were persecuted and imprisoned. From 1951 onwards, as part of the campaign against the Church, all charity and diocesan associations in Czechoslovakia were systematically dissolved. In 1960, diocesan facilities had to relinquish their remaining social care establishments and institutions to the state.

During the communist era, all permitted socio-political activities were consolidated within the National Front, comprising a variety of political organizations, trade unions, and so-called �voluntary social organizations.� In addition to overtly political organizations, such as the League of Czechoslovak-Soviet Friendship (Svaz _eskoslovensko-sov_tského p_átelství) and the Czechoslovak Peace Committee (_eskoslovenský mírový sbor), the National Front also comprised groups like the Czechoslovak Women�s League (_eskoslovenský svaz _en) and the Czechoslovak Union of Journalists (_s. svaz noviná__) as well as special interest and physical education leagues, such as the Leagues of Czech Philatelists, Bee Keepers, Fishermen, and Physical Education Clubs. The full degree of organized and state-controlled public life is reflected in the 1972 statistical records of the National Front�s Central Committee, which showed 19 million National Front memberships in a country with a total population of 14.5 million at that time, indicating the extent of multiple memberships.

Subsidized by the state budget, all organizations, including common interest, sports, and cultural groups, were structured according to the �principle of democratic centralism,�and a �politically reliable� leadership stood at the top of the hierarchy. The centralized system of state power thus autocratically permeated areas of private interests or citizen needs and did not permit alternative forms of association to develop independent of the National Front. Serving as yet another instrument of state control over social and private life, moreover, National Front organizations did not represent free and truly voluntary activity. Although participation in some politically oriented organizations was merely formal (involving no more than the payment of membership fees and attendance at meetings), membership was nevertheless considered an expression of loyalty to the state and positively influenced admissions to higher education as well as career prospects. Non-participation in youth organizations, which were almost entirely state


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organized, was seen as resistance to the regime and effectively meant exclusion from further advancement in life (�ilhánová et al., 1995, p.11).

Political opening toward the end of the 1960s reawakened, for a short time, the interest of citizens in public affairs. At that time, several civic appeals were launched, the best known of which was a movement for the support of abandoned children, SOS for Children�s Family Homes (Konto SOS d_tských vesni_ek). Other organizations, such as the Scouts and Sokol (an important physical education association originally founded in 1862), also became active again. However, during the period of so-called �normalization� following the military invasion of Czechoslovakia by other Warsaw Pact countries and the end of the Prague Spring in 1968, all of these activities were once again banned. Nevertheless, opposition groups began to arise sporadically during the 1970s in the form of civic political advocacy initiatives which faced persecution by the state. These organizations, among them Charter 77, the Committee for the Defense of the Unjustly Persecuted, and the Czechoslovak Helsinki Committee, not only advocated for civic freedoms, but also addressed social questions by publishing reports and organizing support for political prisoners and their families, etc. (Kolektiv autor_, 1993b, pp. 301-304).

The decade of the 1980s again saw a slight political opening with regard to the activities of social associations, as a number of young people became involved in newly forming environmental movements. In addition, new educational and scientific groups, societies, and self-help cooperatives appeared. The activities of officially permitted and �tolerated� organizations gradually started to develop outside state control, and their initiators ignored state directives with increasing audacity. A number of current organizations began their activities informally in the late 1980s.

The activity of civic initiatives culminated in the revolution of 1989. In 1990, the Act No. 83 on the Association of Citizens, regulating the activities of civic associations, was passed and new organizations independent of the state developed. Several organizations worked toward providing social and health care services, particularly those that had been ignored by the state for so long. The former leagues broke up, and their place was taken by a network of organizations specializing in the problems and needs of certain client groups, including those that were formerly treated as taboos, such as drug addicts, the mentally ill, homosexuals, AIDS victims, and the homeless (�ilhánová et al., 1995, p.12). Moreover, as many local associations tackling regionally specific problems have been formed, the growth of organizations has not been limited to Prague and other large cities.

A significant portion of the former National Front�s financial resources was divided and transferred to the Czechoslovak Council for Humanitarian Cooperation, which many humanitarian organizations joined. Part of the funds were transferred to the George of Pod_brady Foundation for European Cooperation. A number of Church organizations also renewed their activities in the diocesan and charity facilities that had been returned to them through restitution. The activities of several pre-war associations and foundations, including the YMCA, American Homeland-Americká domovina, the Vesna women�s group and others, have also been renewed and today are trying to re-establish discontinued traditions.


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Major Types of Organizations

Several years after the end of Communism, Czech law has not generally defined the concept of nonprofit organization and there is no single law regulating all types of nonprofit organizations (Deverová, Pajas et al., 1996a). On a general level, legal theory treats nonprofit organizations as entities that use their profit for the organization�s further development, are not primarily established for the purpose of business, and do not divide their profit among their founders or members. Based on the Civil Code and essentially following the Austro-Hungarian civil law tradition, a number of prevalent types of such organizations can be distinguished, including civil associations, churches and religious congregations, foundations, funds, and public benefit corporations. Civil Associations

A civil association can be defined as an organization of people, bound by a common interest, who, in order to pursue this interest, have found it appropriate, useful, and practical to associate their activity and possibly (though not necessarily) their property. Sometimes also named alliances, societies, or clubs, they account for the majority of nonprofit organizations in the Czech Republic and represent the fundamental means to utilize the constitutional right of assembly as laid down in the Czech Bill of Basic Rights and Freedoms.

While there is no positive legal definition of the appropriate purposes of civil associations, the law holds one limitation by stipulating that civil associations may not infringe on the personal, political, or other rights of citizens. Since the establishment of a civil association is thus not necessarily linked to the pursuit of purposes generally beneficial to the public at large (as in the case of foundations), associations are not prohibited from engaging in entrepreneurial activities. However, any profits derived from such activities are subject to full taxation, must be put towards the fulfillment of the aims of the association and may not be divided among members.

On the other hand, the Act No. 83/1990 Sb. on the Association of Citizens does not explicitly condone entrepreneurial activities of civil associations either. On the contrary, the Act declares it inappropriate to establish a civil association with the primary purpose of profit making, as such activities should be reserved for limited liability companies, stock holding companies, and several other types of businesses regulated under the Code of Commerce.

The current laws, applying to private (non-public) entities, however, make it possible to do practically anything that is not explicitly forbidden by the law. Thus, since the Act No. 83/1990 Sb. prohibits only the establishment of a civil association for profit making purposes, it is not illegal for an already established civil association to engage in unsystematic and economically marginal entrepreneurial activity to generate income to support its activities. However, in cases where the revenue authorities object to the pursuit of such activities by a given association on the grounds that they are inappropriate for this legal form, the matter might be taken up by the Ministry of the Interior.


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Churches and Religious Congregations

The legal treatment of churches and religious congregations is based on the freedom of speech and the freedom to disseminate religion or faith. The Act No. 308/1991 Coll. on the Status of Churches and Religious Congregations establishes the basic legal position and the Act No. 161/1992 Coll. on the Registration of Churches and Religious Congregations mandates a registration agency (the Ministry of Culture) and stipulates minimum membership requirements for registration purposes. Specifically, a church may apply for registration if it has a minimum of 10,000 members of age who are permanent residents of the Czech Republic or if it is a member of the World Council of Churches and has at least 500 persons of age who are permanent residents of the Czech Republic and who profess to support it. While these requirements are often criticized as discriminatory to small, nascent churches and religious societies, many smaller churches and religious societies operate without recognition by the state. Provided they do not violate general legal regulations, the state does not impose any sanctions on such unregistered religious bodies. The main difference is that unregistered churches are not eligible for state subsidy.

The fact that recognized churches receive state subsidies indicates that there is no clear separation between church and state yet in the Czech Republic. In a way, this is a legacy of the Communist regime�s overall tendency to control tightly all civic activities, including religious ones, by fostering financial dependence on the state. Registered churches receive contributions from the state�s cultural budget. Based on a funding formula developed under the Communist Regime, these contributions cover the salaries of priests and part of the operating expenses of churches and are based on growth projections for the number of priests. In addition, the state may allocate discretionary grants for the maintenance of buildings, mostly culturally priceless cathedrals and other religious buildings.

This situation has changed only recently. Currently, new legislation is being prepared that would initiate a real separation of the churches and the state. As a solution for their economic independence, this legislative initiative would restitute original church property, such as forests and other real estate. The income from these estates should allow churches to cover at a minimum their operating costs. Combined with membership contributions, possibly tax revenue, and continuing state support for maintenance of the culturally important religious edifices, this is seen as a way to reduce the dependence of churches on the state. Foundations and Funds

In contrast to civil associations, which are based on the membership principle, the new Act on Foundations and Funds, which took effect in early 1998, defines these two legal entities as associations of property serving public benefit purposes. In general, the Act aimed to distinguish more clearly between foundations and other nonprofit organizations. Accordingly, grant-making foundations registered before 1998 may re-register as foundations or funds under the new Act or merge with other re-registered foundations or funds until the end of 1998. Essentially service providing organizations that had taken the foundation form in the past may change their legal status to public benefit companies without losing their legal personality in the process.

According to the new Act, foundations (nadace) are now required to have an endowment consisting of either cash kept in a special bank account, real estate or other assets that generate


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substantial income. Endowment assets, which, on a permanent basis, may not be less than half a million Czech Crowns (K_), must be registered and may not be sold. Only the income, but not the assets themselves, may be used for the foundation�s purposes. The income derived from the registered endowment is fully exempt form the corporate income tax. Foundations may hold additional assets beyond the required minimum endowment, which need not be registered and are thus not subject to the above restrictions. However, income from assets other than those registered as part of the endowment is not exempt from corporate income tax, but taxed at a reduced rate. The basic difference between a foundation and a fund is that a fund (nada_í fond) does not have a registered endowment. The assets of funds are treated and taxed like non-endowment assets of foundations.

Except for administrative expenses, neither foundations nor funds may use their assets (whether part of the registered endowment or not) for purposes other than those for which they were established. The board of directors must determine a limit on administrative expenses, expressed as a percentage of either the total income from the registered endowment, total grant expenditures, or the overall value of assets. The percentage set must be registered and may not be changed for at least five years. With the new law, foundations and funds are expressly prohibited from using their property for the benefit of employees, members of the board of directors or the supervisory committee. Sanctions may be imposed in case of non-compliance. In addition, foundations and funds may not engage in commercial activities either on their own or in partnership. As a sole exception, foundations, but not funds, may own up to 20 percent of the shares of single companies traded on public stock exchanges as long as they do not use more than 20 percent of their assets, excluding the endowment, for such investments.

The Act on Foundations and Funds also defines the manner of establishment of these legal entities. In contrast to the prior Civil Code regulation, which required registration with the district courts, legal personality is now granted by the regional registration courts that also register commercial entities. The register is open to the public and contains information on the foundation�s or fund�s name and address; the name and identification of founders and their shares of the endowment; the purposes for which the entity is established, which must be of public benefit in accordance with the examples given in the Act; the overall value of the registered endowment; the names of board members (at least three natural persons) and of supervisory committee members (which for smaller funds may only be one person); grant-making rules; the percentage limitation on administrative expenses; and the powers of the board to act on behalf of the entity. The Act also specifies the conditions upon which the courts may decide to wind up a foundation or fund and how the remaining assets may be used in such a case. The board of directors does not have the power to dissolve a foundation or fund.

A special case of foundations and funds, not covered by the Act, are so-called state funds, usually established by special legislation, and municipal funds, which are similar in operation to contributory organizations (see below). Both state and municipal funds receive their financial resources from public budgets and are usually supervised by a board nominated by their state or municipal founders, but nevertheless enjoy a certain degree of independence. However, to distinguish these funds from private funds registered under the Act on Foundations and Funds, they may not use the term nada_í fond in their name. Examples include the Prague Social and Health Fund (established by the Prague City Council), the State Environmental Fund, and the State Fund for Market Regulation in Agriculture. These funds may provide grants to third parties. Their existence reflects the freedom of the state and municipalities to make use of those legal forms that are


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available and suitable for a certain purpose. Because these entities are fully separate from the state, it is difficult to consider them as �governmental.� Public Benefit Corporations

The public benefit corporation is a new and complementary type of a non-membership, nonprofit civic organization that provides public benefit services as described in Law No. 284/1995. All citizens must have equal access to the services provided by these organizations. Public benefit corporations are not prohibited from making profits, but any profits must first be assigned to a reserve fund to cover any future losses and then may be used for the extension of the services for which the public benefit corporation was established (Galí_ková, 1996). This type of nonprofit organization was the first one in the Czech legal system that had a clearly defined nonprofit status. Its introduction into the Czech legal system in 1995 was a step forward in differentiating the nonprofit sector from other sectors.

The law defines �publicly beneficial services� generally as �services provided for the public under pre-set terms that are identical for all users.� A public benefit corporation is set up, at the behest of the founders, by its articles of association or its founding charter. Any natural person or legal entity, including the state, may be a founder.

Borderline Cases While the former types of organizations are clearly regarded as part of the Czech nonprofit

sector, there are a number of borderline cases that are either not usually identified as part of the sector or show characteristics that call their �nonprofit� nature into question. These include cooperatives, interest associations of legal entities, companies, budgetary and contributory organizations, political parties, and trade unions. Cooperatives

The Commercial Code defines a cooperative as an association that has been created on the membership principle. A minimum registered capital of 50,000 K_ is required. A cooperative may be set up for business purposes but also for other purposes. Generally, cooperatives are not seen as a part of the nonprofit sector, but there are a few exceptions to this rule, including cooperatives active in education, the environment or social care. However, since their social orientation has always been a significant function of many cooperatives, they do indeed form a part of the nonprofit sector. Interest Associations of Legal Entities

The law defines an interest association of legal entities as an organization that may be set up as a separate legal entity to protect the interest of the associated entities or to achieve a common purpose. Such purposes may be either publicly beneficial nonprofit activities or business activities. An interest association of legal entities is founded either by the drawing up of written articles of association or by approval of a founding membership meeting, established through registration with the county council, and governed under the rules spelled out in their by-laws. The Act No. 367/1990 Coll. on Municipalities, allows local governments to establish interest associations as voluntary associations of municipalities to address common tasks such as education, social care, health care,


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waste disposal, water supply and waste water treatment. Municipalities may transfer both physical and financial assets to such associations for the purposes under which they were established. Limited Liability and Joint Stock Companies

Both types of companies are governed by the Commercial Code, but may also be set up for non-business purposes (Pelikánová et al., 1994). Limited liability companies must have registered capital of not less than 100,000 K_, and the shares of each partner must at least 20,000 K_. Partners are liable for the company�s obligations up to the amount of their individual shares. In the case of joint stock companies, the registered capital is divided into a certain number of shares of a certain value. One million K_ is the minimum value of the registered capital. Limited liability companies and joint stock companies set up for other than business purposes are usually found in the fields of education and health care. Budgetary and Contributory Organizations

Budgetary organizations are state bodies that have their income and expenses specified in separate line items of the state budget for that year, as laid down in the Law No. 331/1993 on the State Budget of the Czech Republic. Examples include the Office of the President of the Republic, the Parliament, the Czech Grant Agency, individual ministries, the Constitutional Court of the Czech Republic, the Academy of Sciences, hospitals, state schools, universities, museums, and research institutes. Budgetary organizations are entirely financed by the state and must return any unused funds as well as any revenues resulting from their own activities to the state budget at the end of the year.

A contributory organization (sometimes also referred as a �subsidiary organization�) has elements in common with budgetary organizations. Although the state contribution may represent the largest portion of its budget, not all its expenses are covered by the state. These organizations are usually established to fulfill cultural and educational functions by other government entities. An example of this type of organization is a state-supported theater. Contributory organizations may have income in addition to the government subsidies to cover their expenditures, but any net income earned during the fiscal year may be fully or partially withdrawn by the founding government entity or left in a reserve fund of the organization. Such a decision is fully in the hands of the founder and the organization has no means to influence it. The position of a director of a contributory organization would be very weak in any confrontation with the founder, because the founder may remove the director without any explanation or reason. Budgetary and contributory organizations can be set up by the central bodies, county councils, and municipalities. The main difference between budgetary and contributory organizations is mainly the degree to which they receive financial resources from state, county, or municipal budgets. Political Parties and Similar Organizations

Political parties and similar organizations are established and registered according to a special law. They register with the Ministry of Interior, based on a proposal of a Preparatory Committee which is accompanied by a supporting petition of 1,000 citizens and by-laws that define the internal governance structure and decision making procedures. Para-military purposes as well as promotion of fascism or other socially destructive ideologies are forbidden. Political parties have the right to propose candidates for elections in communal, regional, and national democratically elected


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institutions. The law governing elections stipulates state support per vote and per deputy for those political parties that attain more than three percent of votes in national elections. Since January 1, 1997, only certain types of income generating business activities are allowed. Political parties and organizations are not considered as a part of the Czech nonprofit sector, but constitute an integral element of civil society. Trade Unions

While the law considers trade unions to be civil associations, there are legal differences with respect to the establishment of unions. More specifically, trade unions are established by simply filing a registration application to the Ministry of the Interior. The Ministry must register the union and has no discretionary power in this respect. Like political parties, trade unions are an important component of civil society, but are usually not associated with the nonprofit sector.

Regulatory and Fiscal Issues

Taxation

Nonprofit organizations in the Czech Republic are subject to the same income tax requirements as other entities that are not set up for a business purpose. This stays the same throughout the life span of the organization and is virtually identical for all types of nonprofit organizations. (Deverová, Pajas et al., 1996b)

Generally, according to the Act No. 586/1992 Coll. on Income Tax, subsidies, contributions, and other forms of support received from the state, county councils, or municipal government are tax exempt. In addition, no tax is paid on income interest from current accounts. Membership fees are tax exempt as are the collection proceeds of churches and religious societies, income from ecclesiastical charges, and membership dues of registered churches and religious societies. Lottery proceeds are tax-free provided at least 90 percent of them are earmarked for publicly beneficial purposes.

However, income in excess of expenditures deriving from the conduct of related activities is subject to taxation. The Act on Income Tax requires organizations to account separately for each program area and income tax is levied on each program area as opposed to the organization as a whole. Nonprofit organizations are allowed to lower their taxable income in program areas that yield surpluses by up to 30 percent (not to exceed three million K_) or 100,000 K_, whichever is higher, provided the amount will be fully used to offset losses in other related programs. Nonprofit organizations also pay taxes on income from advertising and renting.

Regarding business activities, the Public Benefit Corporation Act stipulates that nonprofit organizations may not participate in joint business activities with other parties. The Association Act prohibits civil associations from being established solely for the purpose of gainful activities. The Act on Foundations and Funds explicitly prohibits any direct business activities or participation in such activities for these organizations. A special exemption from this rule applies to foundations allowing them to invest up to 20 percent of their assets in shares of a joint stock company in order to better utilize their endowments. By the same token, however, a foundation may not own more than 20 percent of the share of any individual company. More generally, the Act stipulates that the


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conduct of educational, social, sporting and cultural activities as well as lotteries and similar public games is permissible and not to be considered business activity as long as it is not the sole source of income and not conducted on a regular and continuous basis.

Apart from tax relief for nonprofit organizations, the Income Tax Act also spells out tax incentives for donors to the nonprofit sector. Generally, the Act allows the deduction of donations for public benefit purposes, which are defined as science and education, research and development, culture, schools, police, and fire departments; youth services; animal protection; social care, health care, environmental, humanitarian, charitable, and religious activities (of registered churches and religious societies); physical education and sports. Also considered as public benefit is the support of natural persons who are residents of the Czech Republic and who operate school or health care facilities as well as facilities for the protection of abandoned animals or threatened animal species, and the financing of such facilities. While the range of purposes that merit deduction of donations is the same for both natural persons and legal entities, there is a difference in the deductibility limits. Natural persons may deduct a minimum of 2 percent, but not more than 10 percent, of their taxable income, but there is a 1,000 K_ minimum donation. Legal entities may deduct a maximum of 2 percent of taxable income after other eligible deductions with a 2,000 K_ minimum. This treatment is not very attractive to legal entities. Special State Approvals

Nonprofit organizations operating private schools and health care facilities are subject to special requirements and direct state approval. Any private school must be incorporated by the Ministry of Education, Youth and Physical Education as part of the overall school system and in compliance with the relevant laws. Any private health care facility needs a license by the Ministry of Health Care to operate and must operate the facility in compliance with the specifications spelled out in the Act No. 160/1992 Coll. on Health Care in Non-State Health Care Facilities.

Defining The Czech Nonprofit Sector

The term �non-governmental organizations� is frequently used in the Czech Republic to describe a set of organizations that includes all civil associations, public benefit corporations and foundations, and most charitable establishments of churches and religious communities. This term is now being replaced or substituted by the new term �civic organizations� which may have a broader meaning and may include political parties, registered churches and religious communities (not only their charitable or educational establishments), and trade unions, as well as some professional societies and chambers and even certain cooperatives. It is generally accepted that the budgetary and contributory organizations, as well as all forms of legal persons established for profit making purposes, do not belong to this set of organizations. According to the �structural/operational definition� of nonprofit organizations proposed by Salamon and Anheier (1997), organizations that are commonly included in the nonprofit sector are distinguished by having the following attributes: Organized

Organizations must be institutionalized to a certain extent, primarily via a written document (statutes or organizational code). Nonetheless, institutionalization may also be demonstrated in other ways - for example holding regular meetings of members and representatives, or following


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procedural rules or other forms of structured activities. This criterion is generally applicable to all organizations in the Czech nonprofit sector. Private

Private organizations are institutionally separate from the state apparatus and public administration. Nonprofit organizations are neither part of public administration nor are they managed by state administration or administrative boards in which state officials predominate. This does not mean that they cannot receive significant support from public budgets or that state officials cannot sit on their administrative boards. At present, this criterion will serve to exclude budgetary and contributory organizations from the analysis, because both types of organizations are considered state or municipal organizations. It is very likely, however, that over the next few years these organizations will be transformed into nonprofit organizations providing public benefit services and will most likely take the form of public benefit corporations. Many of these organizations will thus become part of the nonprofit sector in the future. Other borderline cases are the funds set-up by ministries or city councils. Non-Profit-Distributing

Nonprofit organizations do not distribute profits among owners, members or administrators. Although nonprofit organizations may accumulate profit, this profit must be used exclusively to support the basic objective of the organization. In this sense, private nonprofit organizations have a primary purpose other than the creation of profit. Potential problems arise with regard to associations of legal entities and cooperatives, because both types of organizations may be established either for nonprofit or business purposes. However, those established for nonprofit purposes have all the hallmarks of nonprofit organizations and thus fit the structural-operational definition. Somewhat more problematic is the treatment of limited liability and joint stock companies provided they serve other than business purposes. Both types of companies, even though they are established for public benefit purposes, may divide profit among partners or shareholders according to the legal form under which they are registered. Thus they do not meet the nonprofit criterion. Self-Governing

This criterion requires organizations to be capable of managing themselves. Nonprofit organizations have their own internal management procedures and are not managed from outside. This criterion has relevance for a large number of establishments founded by churches and religious communities and congregations. The extent of their legal personality might be disputed due to their subordinate position with respect to the parent church or community, but their relative economic independence and their full independence from the state, together with their important role in the use of voluntary work for solidarity purposes, make them a respected, important, and welcome part of the nonprofit sector as well as an indispensable part of the civil society of the Czech Republic. The issue of self-governance has also some bearing on associations, foundations, and initiatives that are set-up and managed by budgetary organizations (such as universities) or local public institutions.


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Voluntary

Nonprofit organizations make use of voluntary participation in their activities to a certain degree, either in the execution of the actual activities of the organization or in the management of its affairs. This does not mean that all, or a majority, of the organizations� income must come from voluntary contributions or that the majority of the members of the organization must be volunteers. The existence of a certain voluntary contribution or voluntary service as a member of the administrative board may suffice. This criterion will effectively exclude professional chambers, such as bar associations (which are self-governing professional organizations with mandatory membership), that grant approval to carry on certain professional activities and monitor their members. The chambers are considered as organizations not established for business purposes and they are similar to organizations in the nonprofit sector. The fact that membership is mandatory, however, leads to their exclusion from this analysis.

In sum, civil associations, churches, religious congregations and their establishments, foundations, and public benefit corporations are the main organizational sub-sets of the Czech nonprofit sector. They meet all of the characteristics of the structural/operational definition, and this provides an adequate means of delineating the contours of the nonprofit sector. However, the transitory state of some types of organizations requires a cautionary approach to the definition question. The �nonprofitization� of state institutions will result in changes in the future. In addition, definition problems relating to possible profit-sharing at companies pursuing nonprofit purposes and the relative autonomy of establishments founded by churches and religious congregations are in need of further refinement.

The Nonprofit Sector and Czech Society

The Concept of Civil Society

The concept of civil society was introduced to the public after the end of the Communist Party�s monopoly of power in 1989. This historical event left indelible traces on the way in which the term �civil society� appears in public usage. At first, the mass media proclaimed that civil society in the form of dissident organizations had a decisive role in the downfall of Communist totalitarianism. Civil society was understood to be organized defiance toward an unjust government and undemocratic conditions. The new political leadership accordingly embraced civil society organizations as the authentic expression of the will of the people. After the first euphoria subsided, however, questions of political stability and smooth functioning of democratic institutions began to dominate the debate. Political thinking was especially influenced by Dahrendorf�s (1990) proposition that civil society was not mature enough yet to fulfil the role of guardian of the stability of the political situation and that this maturation process would take several decades. Based on this proposition, a new understanding of civil society as a generator of political culture among the population, a culture that will be a guarantee of the democratic and peaceful development of society, has taken hold.

In terms of organizations, civil society is most commonly associated with foundations, trade

unions, political parties and movements, and advocacy associations. More recently, however, the term has also begun to encompass all kinds of voluntary public activities and services provided by associations, public benefit corporations and charitable and educational establishments of churches


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and religious congregations. Nevertheless, while the terms civil society and nonprofit sector clearly overlap, certain types of nonprofit organizations, such as private hospitals run as limited or joint stock companies, are considered businesses rather than civil society organizations. Public Perception of the Nonprofit Sector

While the role of nonprofit organizations in society has been publicly discussed now for several years, the debate has not furthered the cause of the sector. To the contrary, largely due to critical statements of political representatives, the work of nonprofit organizations in the Czech Republic is taking place in a climate of distrust that tends to degrade the importance of the nonprofit sector in the eyes of the Czech public. Indeed, substantial parts of the public appear to equate the nonprofit sector with fraudulence, waste of public resources or inconsequential fringe groups. This widespread negative image of the sector has in turn made it easier for the state to keep these organizations on a tight leash. The low prestige of nonprofit organizations in the eyes of the public lessens their leverage in negotiations with the government and, without broader support from the public, lobbying parliament is also less effective.

These attitudes were powerfully reflected in a public opinion poll that was conducted by the Charles University�s Institute of Sociological Studies in the spring of 1995 (Purkrábek, 1996). A significant result was that Czech citizens ranked the support of nonprofit organizations as the least significant of seventeen public policy issues. Less than a quarter of the population (24 percent) considered supporting the nonprofit sector as being important. The poll furthermore showed that respondents were able to distinguish between various kinds of nonprofit organizations, but, at the same time, did not feel that this range of organizations formed a distinct sector. This feeling might be explained by that fact that the nonprofit sector in the Czech Republic has not matured yet, but might also be due to its great diversity of organizational forms and purposes. The fact that many of the organizations which today form part of the nonprofit sector already existed under socialism, while others were formed only after its fall, also plays a significant part in the lack of a coherent sector identity. The social organizations of the socialist era are not widely associated with the new term nonprofit sector and, at present, public discourse on the subject rather concentrates on the newly formed foundations and civic associations that deal with pressing problems such as drug addiction, caring for people with health disabilities, refugees, and the homeless. Nonprofit organizations transformed since the socialist era, on the other hand, are primarily active in traditional, and less contentious, areas, such as leisure activities. Although comprising the greater part of registered nonprofit organizations, their presence in society, however, has largely escaped public attention and is not discussed in the context of the growing nonprofit sector (Fri_, 1996).

The internal differentiation within the nonprofit sector is also reflected in the degree to which people are willing to take part in the activities of various nonprofit organizations. Citizens most often participate in the activities of �traditional organizations,� such as voluntary recreational organizations (20 percent), common interest and professional associations (13 percent) and trade unions (13 percent). Support for non-traditional nonprofit organizations is, for the time being, fluctuating. Although organizations providing social support or help for the disabled, and human rights and environmental movements enjoy the sympathy of a considerable share of the population, the number of those who actively participate in their activities is relatively small with two to six percent (Fri_, 1996). In terms of future developments, however, the large number of persons which are not active yet, but indicate interest, suggest that public involvement will increase in the non-traditional spheres of public life. Least attractive to citizens is participation in openly political or


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religious organizations (political parties, nationalist and protest movements, and religious organizations). Participation in the activities and events of these organizations was rejected by more than four fifths of the citizens questioned. Political Concerns

A certain paradox and specific feature of nonprofit organizations struggling for survival in the Czech Republic is the fact that while the scope, internal structure, style, and rules for the nonprofit sector�s operations are still in the development stage, the system of state funding has not changed. Indeed, the communist era subsidy system based on the principle of centralized, flat distribution of financial support has essentially remained intact and is frequently criticized by nonprofit advocates as inadequate and inconsistent with recent developments and the new realities of the sector. At the heart of the problem lies a funding system in which state subsidies are distributed to nonprofit organizations, or rather specific projects, by central ministries which have neither reasonable selection mechanisms and procedures nor the administrative apparatus in place to guarantee the choice of the best qualified projects. Many representatives of nonprofit organizations see the remedy for this problem in the decentralization of funding decisions, that is, in adopting a system of financing nonprofit organizations through regional and local authorities where the relationships and procedures are more transparent (Fri_ and �ilhánová, 1997). The distribution of subsidies, however, is not the only problem. Another issue relates to the relative autonomy of organizations that receive state funding. Indeed, state subsidies are far from being unconditional support of the projects of nonprofits, but come with stringent requirements and obligations. In the context of the new market-oriented economy with lessened state control, the term subsidy is thus perceived as pejorative and a symbol of inequality between the state and nonprofit organizations.

Unfortunately, these structural problems are unlikely to be overcome as long as the political will is lacking to break up vested interests, to overcome the established stereotypes of the state bureaucracy, and not to leave the nonprofit sector to develop on its own in conditions that are not relevant to its current needs. At present, there are a number of barriers preventing politicians from effectively supporting the development of the sector. Often these barriers take the form of various concerns that shape official meetings and negotiations as well as the general attitudes of government representatives towards the sector. In the economic vision of the former Václav Klaus government, the nonprofit sector played only a peripheral role and the possibilities of the sector�s contribution to the process of transformation were not fully appreciated (Gabal, 1996). Moreover, in Klaus� view (1994), the renunciation of part of the overall tax revenue through tax exemption would lead to reduced, rather than increased, services for all citizens. Therefore, low interest in providing support for the nonprofit sector and the failure to recognize its potential social and economic impact have been the main features of the relationship between the government and the nonprofit sector in the recent past (Pot__ek, 1997).

The reservations of the government, and of some politicians of the governing coalition parties, however, do not only apply to economic considerations, but also to the political impacts of the nonprofit activities. More specifically, a major concern brought forth is that nonprofit organizations are not a proper vehicle for political action, but have been used to increase the influence of the political opposition. This concern appears to be grounded in the historical experience that the activities of nonprofit organizations usually had significant political overtones and that the political opposition to the totalitarian regimes of the past was often recruited from the leadership of nonprofit organizations. After the elections of 1992, some nonprofit organizations had


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indeed become a refuge for many former dissidents involved in open conflict with the government. More recently, the Ministry of Interior went so far as to voice concern that some nonprofit organizations serve as the base for the activities of various extreme political groups (Fri_ et al., 1996). In a way, all these various aspects may explain the certain instinctive aversion of the government to the nonprofit sector and its tendency to see nonprofit organizations as political opponents rather than allies.

As a different take, a prominent representative of the largest governing party recently declared his party not in favor of greater support for nonprofits, as increased visibility of the role and significance of the sector would result in confusion in the minds of voters. In his opinion, voters would not be able to reconcile conflicting messages which encourage them to follow the market rules, on the one hand, and an altruistic life philosophy, on the other. If the altruistic values, as propagated by the nonprofit sector, were to dominate, this could erode support for the conservative political spectrum (Fri_ and �ilhánová, 1997). In sum, the discussion shows that the development of the nonprofit sector in the Czech Republic has taken place in the context of diverse political interests, which has not yet furthered the evolution of a supportive relationship between the state and the sector. Ten Critical Issues of the Czech Nonprofit Sector

Contrasting the opinions and concerns of the general public, politicians, the state administration, and representatives of nonprofit organizations helps uncover some of the critical issues that lie at the heart of the public debate and that represent the divergent interests, efforts and attitudes of these various groups. In particular, there are ten of such issues whose identification facilitates insights into the current state of the nonprofit sector and highlights what is at stake in its further development. The resolution of the conflicting processes and tendencies that each of these issues embodies will help overcome the problems currently faced by nonprofit organizations in the Czech Republic. 1. Centralized state financing and the limited possibilities of nonprofit organizations to raise their

own revenues, both with the help of slight tax relief for donors and in the form of business activities, keeps the nonprofit sector dependent on the state. The pressure of nonprofit organizations for a greater degree of independence, however, is getting stronger and is reflected in the demands for restructuring and decentralizing the system of state financing as well as for resolving the issue of entrepreneurial activities. From the points of view of the state administration and the political sphere, however, misgivings about significant changes still outweigh the difficulties resulting from the current centralist system. The government therefore prefers to maintain the present, what they consider �problem free� situation, as long as possible.

2. The system of rules regulating the activities of the nonprofit sector is not entirely complete and

clear, and the demands on administrative performance are intense. Without a clear regulatory system to go by, the state administration in providing support to nonprofit organizations strictly adheres to whatever regulations currently exist, provides little cooperation, and prefers the status quo over more complex and flexible approaches to solving social problems. As a direct result, the nonprofit sector faces considerable bureaucratization pressures. On the other, a new ethos of �service for democracy� and customer focus is slowly spreading within the state administration, largely carried by new appointees many of whom have previously been active


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in nonprofit organizations. Although the dissemination of this new ethos is still hampered by the hectic pace of work, it may lessen the bureaucratization pressures on nonprofits in the long run.

3. Although the overall regulatory framework for the nonprofit sector is not completely in place

yet, there is a current tendency to tighten provisions aiming at preventing fraudulent activities and other misuses of the nonprofit status. Part of this trend is to ensure strict compliance between the legal form a nonprofit has chosen and the eligible purposes that may be served with this legal form. This trend is resented by nonprofit advocates in favor of granting new organizations more leeway in determining their ultimate purposes, which would enable them to find their position in society even at the cost of temporary regulatory chaos.

4. In the recent past, many administrative and political representatives have discussed the

possibility of privatizing budgetary and contributory organizations. If this privatization were to take place, these organizations would probably be transformed into nonprofit organizations. The potential benefits of privatization, however, are balanced by concerns that the process might get out of hand and the state might effectively lose control over these institutions. Efforts to privatize budgetary and contributory organizations are thus currently neutralized by pressures to keep them and especially their properties and assets (e.g. buildings, equipment) in the public sphere.

5. As aspects of economic effectiveness have begun to penetrate the social welfare system, at

least a partial change in the role of the state administration, from directly providing services to just financing the provision of services by other parties, has gradually become necessary. The substantial opposition to this change is supported by a widespread conception that embraces a state monopoly of social services and views the nonprofit sector as a fringe supplementation of state provision.

6. There has been some progress in the professionalism of nonprofit organizations. This is

evident in their activities, accounting practices, advertising and promotions, lobbying, fund raising, and legislative monitoring. Further professionalization, however, is hindered by the lack of secure financing and the resulting concerns about job security and unclear career prospects that especially affect professionals working in nonprofit organizations. A second barrier to professionalization is the fact that some nonprofit organizations are founded as an alternative to the pervasiveness of bureaucratic processes and procedures that characterize other institutions. Many of these organizations outrightly reject any kind of �paperwork� and even communications with the state administration.

7. By concentrating their attention mainly on occasional problems and scandals, the mass media

continue to disseminate, even though unintentionally, a negative image of nonprofit organizations and discredit them in the eyes of the public. However, there is also a counter trend of showcasing responsible behavior of the representatives of nonprofit organizations in an effort to increase the credibility of the sector, which is especially important in the cultivation of sponsorships and donations.

8. The forced centralization of social organizations in the National Front under the Communist

regime has led to persistent opposition and distrust of nonprofit organizations toward setting up information centers, federations and umbrella groups. This keeps the nonprofit sector


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largely in a state of disorientation. Nonprofit organizations do not communicate enough among themselves, waste energy and resources, and have so far failed to concert their efforts vis-à-vis the state. Attempts to build an intra-sectoral infrastructure are still in the beginning phase.

9. Another important issue relates to the extent of citizen involvement. The relative passivity of

many citizens towards civil affairs that resulted from the omnipresence of the Communist state has been augmented and intensified by the present wave of individualism and consumerism, leaving large parts of the citizenry indifferent to the activities of nonprofit organizations. Nevertheless, a newly emerging culture of civil responsibility is beginning to manifest itself not only in private support for various nonprofit organizations, but also in the growing interest in their activities and how they are controlled.

10. As noted above, representatives of the governing coalition continue to equate nonprofit

organizations with the political opposition and to try to keep the sector within its �proper� limits. Nevertheless, the problems that the nonprofit sector currently faces are beginning to surface on the political agendas. This is in part a result of continuing efforts to make politicians realize that nonprofit organizations are not focused only on interfering with the establishment, but that they can assist in a smooth economic transition by helping to absorb some of its negative impacts or by directly supporting entrepreneurial activities.

Conclusion

The nonprofit sector in the Czech Republic is going through a period of expansion. The latest data suggest, however, that the growth rate of nonprofit organizations is beginning to slow down, and that a phase of market saturation for the services provided by these organizations is approaching (�ilhánová et al., 1996). This means that in the short run a more intensive consolidation within the nonprofit sector may take place that will separate those that will survive from those that will have to dissolve. This will be influenced by economic conditions and the legislative framework, as well as the political climate. In principle, this consolidation could lead to improvements of the overall position of the sector, as decreases in quantity might result in increases in quality. The present state of affairs, however, raises doubts over whether this will actually be the case.

The legislative framework for the nonprofit sector is as yet incomplete, sometimes unnecessarily complicated, and does not provide sufficient protection against misuse of nonprofit status. While the current regulatory system makes it difficult for nonprofits to operate freely, it is not strict enough to overcome the existing negative image and to create a climate of trust either. The incomplete character of the regulations governing nonprofit organizations has led to some confusion about the actual differences between various types of organizations. For example, in the recent past, foundations had been able to carry out the same activities as civic associations and civic associations do what should be done by public benefit corporations. Judging from their activities, these organizational forms have been virtually undistinguishable. In this sense, the new Act on Foundations and Funds has been one step to clarify the respective roles and characteristics of different legal forms. In general, creating a new and comprehensive legal framework has been the main area of cooperation between the nonprofit sector and the state.


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The system of state financing that was taken over from the communist era still lacks a clear plan for the development of the nonprofit sector and suffers from excessive centralism. It gives the impression of a long-term provisional arrangement waiting for a definite solution that has yet to materialize. Yet, there is no doubt that state support will continue to be of central importance for the nonprofit sector. The present system of state financing of nonprofit organizations fosters an atmosphere of uncertainty and has a tendency to keep alive those organizations that know the ropes and not those that provide the highest quality services. Foreign sources of finances for nonprofit organizations are beginning to diminish rapidly which, especially in the area of human rights, could give rise to major problems. As parts of the public fail to reconcile profit-generating activities with nonprofit status, economic activities of nonprofit organizations remain the most controversial source of their income; but final regulatory guidelines for such activities are still lacking. More optimism for the future lies in sponsorships as another important source of nonprofit revenues. Current developments do not suggest that the amount is rising markedly, but that its cultivation is taking place and that it is leading to a more effective use of these resources.

Political attitudes towards the nonprofit sector will certainly also have a significant influence on any consolidation processes. The approach of the government so far, which has placed economic transformation above all else, has pushed a closer consideration of the role and contribution of nonprofit organizations to the background. The situation is also affected by the considerable lack of knowledge on the part of some politicians concerning the patterns of state financing of the nonprofit sector in developed western societies. They erroneously assume that in the West the state does not financially support nonprofit organizations at all, and they consider the situation in our country a relic of socialism. By the same token, even the opposition on the left does not appear to favor the further development of the nonprofit sector. Especially nonprofit activities in the social and health care markets are regarded as a threat to the state social welfare system, while at the same time also seen as marginal, specialized and non-standard services.

In sum, the development of the nonprofit sector as outlined above suggests that any consolidation pressures that are likely to take shape in the near future will have some benefits, but also cause substantial problems. In addition, even though the number of nonprofit organizations is presently increasing, fatigue is beginning to show in the activities of many of them, both as a result of uncertainties generated by the current legal and fiscal environments as well as over-exertion of nonprofits in trying to meet their own objectives. Many organizations work on a voluntary basis and cannot afford to pay a professional workforce. The possibility of professionalizing the staff of nonprofit organizations will play a decisive role not only in the coming process of consolidation, but also in further shaping the nonprofit sector in Czech society.


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