The remarkable feature of the nonprofit sector is its astonishing diversity. This feature gets short shrift in the traditional market or governmental failure theories of the nonprofit sector. Drawing on Niklas Luhmann’s concept of functional differentiation, we demonstrate that these theories are implicitly economy- and politics-biased. In seeking to overcome these biases, we show that nonprofits and nongovernmental organizations (NGOs) are better understood as those varieties of organizations whose primary focus is on function systems other than the economy and politics. We summarize this argument in the concept of organizational multifunctionality, which turns out to be likewise applicable to the for-profit sector.
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