I am thinking of the huge nonprofits that are dominant local economic enterprises, like UPMC or Washington U.
1. They are non-profit for tax purposes, but otherwise they behave like businesses. Administrators are well paid. They engage in business strategy, including mergers and expansions.
2. They exploit their non-taxable status, particularly in taking over land. You have a comparative advantage in building on land if you don’t pay real estate taxes.
3. Their CEO’s (or equivalent) have a lot of power, because they are not answerable to customers. I have said many times that a non-profit is like a for-profit except that it must satisfy donors rather than to customers.
With respect to #3: are they not answerable to both customers and donors? To the extent that they are run like businesses, they will have customers (patients, for example). Success with one group can compensate for failure with the other. This would still insulate non-profit CEOs from customers but perhaps not completely.
How much in the way of donations does an organization like UPMC take in these days? As a percentage of total revenues, I would guess next to nothing. Local philanthropists can tell, I would wager, that UPMC doesn’t need cash handouts in order to keep doing what it does. Medicare and Medicaid probably provide the bulk of its revenues. This does not imply, however, that Medicare and Medicaid officials can order it around, however. If anything, the relationship probably goes the other way. As employers of thousands of skilled professionals, they carry a lot of political clout, particularly at the state level.
Successful nonprofits are much like the pre-reformation church, they become black holes of capital, even if they put much of that to good use, once stuff enters their domain it never really leaves.
Maybe they need some extension of the law against perpetuities?
You should read Foundations: Their Power and Influence by Rene Wormser.
Nonprofit endowments are also major investors. Their investment gains compound tax free and so at twice the rate of for profit entities in short term strategies at current tax rates. They become more attractive LPs because of their size and can crowd smaller for-profits out.
If non profit do a bad job satisfying customers compared to for profit firms, donors will not show up! The great Henry Hansmann told us the story in The Ownership of the Enterprise.