Charity Financials Insider

Dangerous myths?

28 July 2011

Catherine Walker and Debra Allcock Tyler believe the application of market models to the charity sector is misguided and people don’t expect something back when they give

There comes a time in every life, whether individual, government, business or charity, when we have to re-examine and reassert our core values. This is especially important when we are faced with a shift in the way other people see us. In this case it is the increasing tendency towards treating the charity sector as a business market and giving, volunteering or doing good as a reciprocal transaction. So what is a charity?

Kevin Carey answered this question in last month’s Viewpoint1 when he asserted that the four key functions of charities are to:

(1) provide contracted goods and services;

(2) campaign for others (government, industry) to provide goods and services;

(3) sell goods and services; and

(4) allocate philanthropic proceeds.

We think this is at best an odd interpretation of the work of charities and at worst dangerously misrepresentative. Is he really referring to all charities here? Including local community groups picking up litter? Universities? Local churches? Animal rescue centres?

In fairness to Kevin it does seem to be the prevailing view in government circles that charities are simply another source to supply the market. This view completely fails to recognise the fact that charitable endeavour is at its core about altruism. It is not a transactional activity, but a transformational one. And the work of charities is far more than simply the cause. The existence of charities acts as a ‘call to the heart’ of our citizens. Charitable endeavour calls forth in others the desire and willingness to serve others, our communities and our society. The current model of the market applied to our sector is not appropriate. Indeed, it assumes that the market model in and of itself has inherent attributes that work across sectors.

There are some core myths about the market model:

(1) market models are the most effective way to deliver the work of charities;

(2) the beneficiary is the same as any consumer, with rational informed desires about where to seek help;

(3) those interacting with charities desire to do so on a transactional basis, for example, givers and volunteers will do so only if an end reward is on offer; and

(4) charities are inefficient and social investment is the way forward.

Myth 1: Market models are the most effective way to deliver the work of charities

In this new market, price is often king. But the work of the sector is not cheap. Working with vulnerable people and causes is an expensive business, for good reason. Voluntary sector providers who want to compete with both public and private bodies are often forced to undercut competitors by cutting quality in both delivery and product.

This means that only larger and more financially stable charities will be able to compete on these terms, thus favouring the private sector businesses or the creation of larger mutuals, cooperatives or social enterprises (with no evidence that these will be better at delivering the services).

The inevitable consequence is less-satisfied end users. Any attempt to distinguish by success rates is likely to be undermined by providers picking and choosing their end users to prioritise the ones that can be served most easily. This leaves the hard to reach and hard to serve out in the cold.

For most givers, emphasising exchange and reciprocity over pure altruism makes charity a poorer experience, denigrating it to one of mere bartering

Bob Hudson, professor of social sciences at Durham University, talks in the Guardian about the ‘Poundlandisation’ of public services: “Just as McDonaldisation was based upon the availability of a cheap workforce, so the Big Society is premised upon cheap, or even free, labour.”2 Patrick Butler takes this further in his article (also in the Guardian) about charities being squeezed out of the £5bn Work Programme scheme once they have fulfilled their ‘bid candy’ function.3

Myth 2: A beneficiary is the same as any consumer

Those whom charities benefit are often those failed by traditional systems, including the market and state. Specialist charities have grown programmes over years of experience with hard-to-reach communities and marginalised individuals. Charities have gone to find those who are unable to seek help for themselves. Will this happen in a marketplace where competition for low-cost services means a one-size-fits-all model or nothing? Some beneficiaries become invisible in such as system. The supplier will not even be able to see the long tail of the demand curve where the highest need is being ignored.

There are further implications of treating beneficiaries as consumers: this ignores the wider benefits to society of charitable endeavour. For example young drug users, once rehabilitated, do not go on to commit crimes affecting other members of society.

Myth 3: Those interacting with charities expect something back

The Cabinet Office’s Giving White Paper clearly sets out a model of giving and volunteering based largely on the principles of ‘exchange and reciprocity’ rather than any altruistic or public goods-based theory of why people give. The underlying assumption is that people only give of their time and money if they think that in some way this will be reciprocated. So the model becomes one of rewarding giving and nudging givers as if they are incapable of making the correct moral decisions for themselves. Worse still, it seems that businesses, the living embodiment of the market, are exonerated of all but the smallest moral responsibilities towards the social economy or the sector.4

What happened to giving and not counting the cost? The government seems to have taken the view of traditional economists in seeing altruism, charity and giving as irrational, and therefore in need of incentivising. The eighteenth-century German philosopher Immanuel Kant once said that incentivising people to act in morally correct ways takes away one’s moral sense of duty. Not only do we agree but it was this moral sense of duty we thought the government was meant to be encouraging with Big Society.

Giving is not a one-way street. Giving researchers agree that people do get something out of giving – some intangible benefits (joy, satisfaction, a warm glow) and some tangible (giving provides for the common good and may also provide some specific future benefit to one’s family, friends or oneself). Yet the Giving Green Paper did not agree: “the prospect of feeling good about ourselves, making new friends or gaining experience, are not enough on their own to encourage us to give in new ways, to new causes or for non-givers to start.” But those of us who have worked within the charitable sector have evidence that people do give for no other reason than they believe it is the right thing to do.

Although there is an argument for philanthropy (defined as more strategic higher-value giving over time) being perhaps geared towards being more entrepreneurial and therefore motivated by exchange and incentives, it might also be argued that for most givers, emphasising exchange and reciprocity over pure altruism makes charity a poorer experience, denigrating it to one of mere bartering.

Myth 4: Charities are inefficient and social investment is the way forward

It seems that we’re all social enterprises now, or will have to be to survive in the brave new marketised world. All the more so since grants are being squeezed out of the picture and the only main new form of finance from the government now is social investment. Its emphasis is seen pervasively in current policy proposals; even in the output of the Red Tape Taskforce. Lord Hodgson’s report recommends (as one of its six main themes) the creation of the ‘social investor.’5 This is based on its assumption that the social sector is constrained by its inability to access investment capital and its “heavy dependence on donor finance.” There is little evidence of this so far.

It’s not that social investment (whatever that means), does not have its place alongside other forms of financial aid, but it simply will not serve the vast majority of charities in the sector. Those able to attract such investment are likely to be larger, already relatively wealthy, charities who already have access to capital markets. Smaller charities don't take loans. Why? Because they know that funders or donors don't want their funds spent repaying interest on loans. And in fairness, if a social enterprise can't get a mainstream loan, you have to question its business acuity.

Then let’s look at social impact bonds. These are meant to replace direct government funding and attract private finance into a payment by results marketplace where charities delivering social services will be measured and given an economic value according to their performance. Those who are able to demonstrate success will be retrospectively ‘paid’ for the savings they create for the public sector, while investors reap a dividend. Surely we must ask ourselves if it is morally or ethically right to create a false market where private capital investors are able to effectively gamble on the lifetime chances of the most needy and vulnerable people in our society?

Further, measuring results for these individuals is not a straightforward market measure. The interventions that work are often complex, time-consuming and nuanced. As Mark Rosenman, director of the US foundation Caring to Change points out “to fully benefit the common good, grant makers would focus on the causes of the problems they seek to solve, and their efforts would be informed by an understanding of the interdependencies of people, communities, and institutions”6 The payment by results approach fails to address the fact that for many vulnerable people the problem is environment, not nature. It’s really society which needs fixing, not individuals which is why so many charities have campaigning as an essential part of their work.

What’s it worth?

To conclude, we have to pick up on another of Kevin Carey’s assertions. He ended his article with the statement that: “To be worthy means to be worth something, but worth is a market attribute not a self-awarded accolade.” To us, this is just wrong. Is something only worth doing if someone is willing to pay for it? What about intrinsic value? Is our worth as human beings to be equated with the value of, say, a bar of soap? Are we commodities to be bought and traded on an open market? We are talking about vulnerable, brilliant, intrinsically-valuable human beings whose lives and endeavours should be valued not according to the invisible hand of the marketplace, but according to what is good and right and true.

Charities are fundamentally an embodiment of the best part of human nature, the best evolutionary bit, the bit that makes us a social being with the common good at heart. Value comes in living a good life. Value is about selflessness not about a price tag imposed in an intrinsically greedy marketplace. This is not piety or sentimentality, nor is it about good and evil, but it is about what kind of charity sector is best for a good, big or better society.

1. See Caritas, issue 44, July 2011, page 12

2. www.guardian.co.uk/society/joepublic/2011/may/09/poundlandisation-public-services

3. www.guardian.co.uk/society/patrick-butler-cuts-blog/2011/jun/22/bid-candy-charities-carved-out-of-work-programme

4. Caritas’ coverage of this can be found at: http://tinyurl.com/6fro49c

5. Caritas’ coverage of Unshackling Good Neighbours can be found at: http://tinyurl.com/63db45n

6. http://philanthropy.com/article/How-Even-Great-Foundations-/57719/

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Debra Allcock Tyler

Chief executive, Directory of Social Change

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Cat Walker

Dr Cat Walker has worked in the UK voluntary sector for the last 17 years, including Charities Aid Foundation where she was Head of Research from 1999-2006, and Directory of Social Change where she was Head of STEAM (Sector Trends Evidence Analysis Metrics) from 2010-2015.

Cat now works as a freelance consultant and is the founder of The Researchery – a policy-focussed, strategic research surgery for those who want to get more out of data for evidence-led social change we can all believe in.

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