A huge slice of Australia’s GDP is generated by non-profit organisations. Where does this unexpected altruism sit in relation to our corporate culture? By Gina McColl
Non-profit organisations: it is a tricky business when an enterprise is defined by what it is not; and in globalised market economies, the non-profit sector is a tricky business indeed. In business usage, profit is the excess of total revenue over total cost during a specific period. In the current corporate environment, dancing to the Milton Friedman tunes, “the business of business is business” and “corporate philanthropy is theft”, profit is the motor that drives efficiency, productivity and economic growth.
In a market economy, commercial enterprises make a profit through successful competition: that is, by persuading consumers to buy their goods and services rather than someone else’s. But non-profit organisations are not necessarily the polar opposite of this: just think of the way different charitable associations ran high-profile marketing campaigns during the recent Balkans war, competing to solicit your donation as well as disburse the proceeds through their own refugee camps or aid programs. Non-profits are indeed very business-like organisations.
In 1990, management theorist Peter Drucker wrote in Managing for the Future: “Few people are aware that the non-profit sector is by far America’s largest employer. Every other adult works as a volunteer, giving on average five hours each week to one or several non-profit organisations. Were volunteers paid, their wages would amount to some $150 billion, or 5% of GDP.”
A report by the Centre for Australian Community Organisations and Management (CACOM) shows that in Australia in 1996 the total non-profit sector employed 600,000 people, representing 6.5% of the labor force, and spent $26 billion, or 5.3% of GDP. Voluntary commitment in Australia compares less well with that in the US: in 1994-95, fewer than one in five Australians over 15 performed voluntary work.
What is a non-profit organisation?
The non-profit sector includes not only local and international charities and welfare organisations, but also trade unions, religious, health and educational institutions, and community-based associations ranging from Alcoholics Anonymous to the Scouts Association. Despite the astonishing diversity of these organisations activities, they are united by a common goal: the delivery of services or fulfilling a mission such as social advocacy or community building – activities that cannot be accounted for in simple dollar terms.
The value of volunteer time – or the future benefits of health care, or “pure” research – can be guessed at, but this in some ways misses the point. What it does is reveal how pervasive business accounting methods are in determining what is valuable. We cannot estimate the value of health, only the avoided costs of sickness and disability. It is also impossible to estimate the value of social equity and the common good, or the rewards of voluntary commitment.
Civil society and the third sector
The landscape that non-profit organisations currently traverse is best understood through a history of the changing roles of business, churches, government and theories of civil society. Variously defined by philosophers from Locke, Kant, Hegel and Marx to contemporary writer John Ralston Saul, “civil society” describes that whole realm of voluntary or spontaneous social relationships that lies outside the institutions of political and legal order (including business, culture, labor, religion, philanthropy, and so on).
Its most important characteristic is the absence of coercion, with the state providing only a regulatory framework for the institutions of civil society. If everyone is subject to the same known rules or laws, then they are able to co-operate freely, confident of their rights and of the ways in which the rights of others limit their own behavior. Conduct for the common good is not therefore prescribed or coerced (as is the case under totalitarian regimes), but is simultaneously voluntary and self-interested.
A number of theorists have argued that business exemplifies virtuous self-interest par excellence. Adam Smith, the pioneering advocate of the free market, noted that commerce encourages probity and punctuality, as dishonesty is ultimately harmful to a merchant’s future transactions. Relationships of trust are essential to economic development through the market. Others have argued that the non-profit sector is the best example of civil society because a just society in which wealth is redistributed avoids war and revolution and encourages prosperity for all citizens.
But aren’t commerce and altruism mutually exclusive? You only have to think of the financier George Soros to see how difficult the answer is. Soros makes enormous profits by speculating – and bringing national economies to their knees in the process – but gives vast sums away through his philanthropic foundation. Whether this example demonstrates the need for more coercion, in the form of international regulation, or demonstrates the redistributive power of the market in a healthy civil society is hotly contested. But it is precisely this form of “mutual obligation” that Prime Minister John Howard had in mind in March when he called for business to join his “social coalition”.
Non-profit and community sector organisations are frequently referred to as the “third sector” of the economy, the first and second being government and business. For most of this century, non-profits and government have worked together. Through welfare entitlements, the state took on some direct responsibility for social support, while non-profit organisations provided a range of other social services (charities, hospitals, and schools) with funding mainly provided by the public purse.
The Prime Minister is looking to change all that with his call to business to increase its investment in the community through corporate donations and forging partnerships with non-profits. And he backed up his call with a $51-million package of tax incentives to encourage businesses to be good corporate citizens. Sound familiar? The rhetoric is that of civil society (mutual obligation, enlightened self-interest), but the doctrine has so far proved to be a one-way street: the young unemployed are obliged by law to work for the dole; but for big business “community-mindedness” is voluntary.
The cost of competition
Business methods and business organisations have been substantially changing the relationship between the first and third sectors throughout the decade. Outsourcing, one-line budgeting, performance benchmarking and compulsory competitive tendering have not only changed the ways in which non-profits have managed their own businesses, but have also meant that they are competing with each other and with for-profits for the right to provide services.
In an article in the January-February issue of the Harvard Business Review, William Ryan argues that these changes raise fundamental questions about the mission and future of non-profits. The US context of Ryan’s inquiry is in many ways more advanced than the Australian one. In the US, for-profit companies dominate health care; and prisons, welfare-to-work programs, day-care centres and schemes for at-risk youth have all had substantial involvement by the private sector. Locally, the transformation of state-run employment services into the privatised Job Network offers the clearest example, however the push to privatise hospitals and prisons, particularly in Victoria, suggests that this strategy will be vigorously pursued.
Ryan asks whether the traditional goals of social advocacy and community building are compatible with the goal of successfully competing in the market. His clear-eyed scrutiny maps the prominences and depressions of this new landscape. He says the large for-profits can offer economy of scale, better opportunities to manage risk, and greater mobility, which are all attractive to government. However, the smaller non-profits long-term commitment to a local community may offer benefits that do not survive competition policy, but are more useful to the actual beneficiary of the services. Although he acknowledges that the new prospect may be one of improved efficiency and administrative transparency, Ryan warns that some of the services that non-profits offer – to “chronic” cases or those ineligible under government criteria, advocating policy change, enabling the work of volunteers – could be compromised by the challenges of becoming competitive providers.
Melbourne city mission
Jenny Boulton is the general manager of Melbourne City Mission, Northern Region, an organisation whose self-described role is “to work with the most marginalised people in society and those at the greatest disadvantage”. With a commitment to turn no one away because their circumstances are too difficult, City Mission offers a range of services to people with disabilities and developmental difficulties, and homeless or at-risk people; family mediation; youth and aged services; palliative care; and nursing homes. Boulton says: “It’s a difficult environment to be working in, but we have managed to stick to our values.”
With an annual expenditure of about $14 million state-wide, City Mission employs 700 staff (plus volunteers) and is structured along business lines with a board of management, a chief executive and general managers of the various regions and services. All executives are on performance contracts and work with annual performance targets, which are reviewed mid-year. Continual performance assessments and an emphasis on the bottom line mean that staff may feel that their commitment, the extra time they devote to clients or projects, is overlooked. Boulton says: “You have to work harder, as a manager, to make sure that your staff feel they are valued.”
The changed relations between non-profits and government, and increased competition, have directly effected City Mission services. Operating since 1854, the mission has recently been required to tender for its existing services under state competition policy, and it also tenders for new programs.
For many years, City Mission ran an employment service that offered job-finding programs, but when the Job Network was introduced, City Mission chose not to tender, and the service is currently focused on advocacy. Successful tenderers for Job Network services include a number of old-established non-profit providers, such as the Salvation Army, as well as for-profits, such as the giant recruitment consultancy Drake Personnel.
Boulton says: “When we tender for a program or service, we look carefully at its target group and what the underlying aim of the program is. We felt that the people we work with – the most marginalised and disadvantaged – were not the people that were going to benefit from the Job Network. So we felt we had more to offer in an advocacy role.”
She says that, as a consequence of that decision, a significant number of City Mission’s employment programs have closed. “We felt that our values and clients were being compromised by the way in which the programs were tendered, and that we could have a stronger voice if we weren’t involved.”
As the government tenders out more of the services it has provided in the past, it is clearly favoring a system of fewer providers who can then subcontract. But although there are dangers in the push to become a bureaucratic arm of government, Boulton says there have been some advantages. One advantage has been the development of stronger formal working relationships with other service providers. “On the plus side, efficient concentration of what different organisations share can produce the best possible outcome for the people we are working for.
“Competition for competition’s sake doesn’t work for people who are in the most disadvantaged groups. To say that market forces would solve the accommodation problem for people with severe disabilities and behavioral problems, for example, almost doesn’t make sense.”
Industry funds, a form of non-profit organisation in existence for hundreds of years, are gaining a new visibility in the current competitive environment. Funds such as Hesta, a fund for health-sector employees, enjoy a high profile and strong growth. Unlike super funds offered by conventional for-profit companies, there are no dividends to shareholders, or sales commissions paid to insurance agents. In the words of former governor of the Reserve Bank Bernie Fraser as he appears on TV in an advertisement for Hesta: “All profits belong to members.”
Contemporary industry funds have their roots in the mid-1980s when 3% award superannuation was introduced in lieu of a wage increase. According to a report by the Australian Superannuation Fund Association (ASFA), by 1998 there were 108 industry funds with 5.85 million accounts (or 30% of total accounts) and $26.3 billion in assets (7% of total superannuation assets).
At least 12 funds are now on public offer (open to people in and outside the industry), and another 13 will be added by December 1999.
According to Dr Michaela Anderson, policy and research officer with AFSA, industry funds have achieved their huge growth because they keep coming up with innovative ideas. They have formed alliances with bodies that can provide other services, such as home loans and insurance, to offer to their members, and have been shrewd in keeping their administrative costs down.
Anderson says: “They are really giving their competitors a run for their money. As a mutual fund, with no shareholders standing behind them waiting for a dividend, what’s the driving force? The driving force in this case is service to members.”
These successful entrepreneurial activities have provided the competition to drive down other prices, and now conventional retail providers even have look-alike “industry funds”.
Industry funds are the modern form of an idea that has its roots in labor movements going back a good deal further than the mid-1980s. In mediaeval Europe, trade-based guilds existed to train apprentices and supervise skills. Each guild had a collection box to which members were required to contribute regularly. The funds were used for hospital and funeral expenses, and relief for aged or disabled members.
Schemes with ends similar to those of the guilds gained in popularity in industrialised countries during the 18th and 19th centuries in the form of friendly societies and mutual funds.
In the 20th century, this form of mutual insurance fund provided the model for the pension schemes developed in the modern welfare state, in the form of non-contributory income-tested pensions (the model that exists in contemporary Australia with regard to unemployment, sickness, disability, old age and family support) and contributory insurance schemes (such as WorkCover and the Transport Accident Commission).