Tonight I spoke at the Pro Bono Econos Third Sector Talks at QUT’s Gardens Theatre on the challenges facing not-for-profit organisations in these fiscally lean times and how economists can help. My slides are available to download (Making do with less) and my speech notes are reproduced below. Many thanks to some generous colleagues and friends for comments and suggestions that I have incorporated into the speech notes.
Making do with less
Good evening. Tonight I would like to make some remarks on how economists can assist not-for-profits (NFPs), particularly in these fiscally lean times. To begin, I would note that, in my view, economics is driving the growing importance of NFPs in our society.
The massive increase in living standards we have experienced since the end of the Second World War has meant that meeting our most basic needs is largely no longer a challenge for our economy, and hence we have more time, attention and resources to devote to other priorities.
In meeting these needs, we are faced with a choice. Milton Friedman observed (in Capitalism and Freedom) that:
“There are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion—the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals—the technique of the market place.”
Friedman might have clarified that NFPs are covered in the second category, as NFPs exemplify the voluntary co-operation of individuals, and indeed that is one of the advantages they provide relative to government.
Given the NFP sector is a largely voluntary creature of the energy and innovation of a few, it might be worthwhile reflecting on why the NFP sector exists, and why NFPs “self selects” to do things in specific areas of society. I think there are some very strong economic reasons for this:
1) Either the market isn’t providing an outcome that some people think is appropriate (this could be outright market failure or perceived inappropriate priorities or approaches by the state). This is an allocative efficiency argument.
2) The NFP activities are generally consistent with state social policy and programs, but they can be delivered better by an NFP. This is probably more of a technical efficiency argument.
Since at least the 1970s, there has been widespread dissatisfaction with government-directed welfare-state solutions and government provision of social services and delivery of outcomes in other areas such as the environment.
So governments have turned to private providers, including NFPs, to provide community services. One example is the job network, which replaced the old Commonwealth Employment Service (CES), in which NFPs such as the Salvation Army now offer employment services alongside for-profit providers.
At the same time, NFPs are performing their traditional roles, as well as new ones are demanded by the community over time. For many services, governments have always recognised that NFPs deliver services that governments may otherwise have to—e.g. Guide Dogs or Meals on Wheels.
So clearly, the third sector is important, and being seen as more important, but funding for traditional activities from agencies such as Queensland Health and Housing and Communities has been cut back in recent years for many NFPs, or is appearing less reliable in the future. I would like to make some brief remarks tonight on how I think economists can help meet the challenges NFPs face.
Queensland Economy Watch 