SCOPE AND IMPACT OF THE THIRD SECTOR

Presentation to Good Practice in Action SeminarWellington,16 March 2007

Mark Lyons, Adjunct ProfessorUniversity of Technology, Sydneymark.lyons@uts.edu.au

Today’s Journey

Why a third sector? What is it/where is it? What does it contribute? How does it work? Government relationships with third sector

As enabler and regulatorAs direct funder (grant maker, third party purchaser)As object of advocacy

What is wrong with the relationship and what might be done?

Why a Third Sector?

(we know about government, we understand business, so why a third sector)

A name for vast number of organisations that are:

Private (ie not government), but Not run primarily for-profit (as a

conventional business)

Third sector

Comprised of organisations formed/supported by groups of

people to provide services for themselves or

others to advocate their own or others’

interests to worship a God or Gods

Third sector organisations (TSOs)

Differ from other private organisations by:

Prohibition on distribution of profits to members (or owners/initiators) and/or

Democratic governance

Other Names

Nonprofit Sector Voluntary sector Social Economy Civil Society

Each term focuses on different parts or different aspects of third sector

No agreement means low recognition. Third sector not yet “invented” as was

business 40 years ago

Where is the Third Sector?

In Australia (and New Zealand?) Everywhere! 86% of adult Australians belong to at least

one TSO(most popular: automobile clubs, credit unions,

sports clubs, social (registered) clubs, hobby clubs [eg gardening, fishing, reading, walking]);

Also: 87% donate; and 41% volunteer for at least one TSO.

Most likely to be found (ANZSIC 2006 Divisions)

P Education and Training Q Health Care and Social Assistance R Arts and Recreation Services S Other Services (eg unions,

business and professional associations, religious organisations)

But also in

H Accommodation and Food Services (eg hospitality clubs, some uni colleges, school canteens)

I Information, Media and Telecommunications (eg community radio)

K Financial and Insurance Services (eg. credit unions, endowed charitable trusts))

L Rental, Hiring and Real Estate Services (eg. housing associations, owners corporations) and

M Professional, Scientific and Technical Services (eg. medical research institutes)

And a few scattered through all of the remaining 11 Divisions.

In Australia

around 700 000 TSOs 350 000 incorporated 35 000 employee people (ie 95%

volunteer only!!)Summary: huge variety in size and activity. But in that respect, no different to

business government

How/What does third sector contribute?

To Economy (Australian data):

7% of jobs

3.3% to GDP (4.8% when volunteering valued and added to numerator and denominator)

Revenue:

50% sales to individuals and private businesses

30% government grants, contracts and vouchers)

20% private donations

If we value volunteering and add it to donations (and total):

40% sales

23% government

37 % donations

So, TSOs

mobilise almost $20 billion of money and time

that might not otherwise be committed to the provision of services – or

at least not to anything like the same extent.

How/What does third sector contribute?

To Society Product of and reproduce social capital

(networks, norms and trust that enables participants to act together to pursue shared objectives – Putnam)

Not only source of course, and different TSOs better than others at reproducing different types of social capital (bonding, bridging, linking)

A source of social learning

People learn how to work together, acquire and practice skills of

organising and leadership may not learn elsewhere

“elementary schools of democracy” de Tocqueville (1837)

A source of social innovation

Many new ways of addressing social problems emerge from third sector and are addressed (initially) by third sector organisations

Some Aust egs: surf rescue (1900s)housing finance for working families (1930s)aged persons’ accommodation (1950s),group training for apprentices (1980s)landcare (1990s)

How/What does third sector contribute?

To a democratic political system Aggregating and representing/advocating

interests to government, corporations, TSOs, and wider public

Also Encourage interest in politics and

participate in political system (members of any TSO are 2.7 times more

likely than non members to participate in political activity)

Individual TSOs

Add to one or more of these contributions to varying degrees.

but We lack an overarching theory of the third

sector of the kind economics provides for the for-profit or business sector

nonetheless Important to be aware of all three types of

contribution.

Is the third sector growing?

Some say yes (eg Salamon) and some no (eg Putnam)

In Australia: overall no faster than economy, but Many parts in decline (trad Christian

denominations, unions, political parties, community service clubs, local sports clubs)

Other parts growing (eg health charities, schools, Pentecostalist churches, non-Christian religions, philanthropic foundations)

Basically a transformation: charities grow, mutuals decline.

Many reasons for transformation

Social: Demog change, longer working hours and commuting, higher incomes, value changes (individualism, consumerism)

Political: government encourages for-profit competition, and demutualisation.

And internally TSOs: fail to adapt to changing tastes and

expectations; badly managed.

Behaviour of TSOs

Shaped by defining characteristics: nonprofit distribution &/or democratic governance;

But also: size, activity (industry) and whether primarily public or

member benefit.

How are TSOs structured and governed?

Huge variety of ways… Most have members, but many

have only a few and some (charities) do not (“non-owned entities”)

Mostly, most members not very involved in organisation

Most TSOs

Rely on effort of a few volunteers to keep them going

A few big ones have sophisticated management and governance

Most are part of larger networks – eg of a religious denomination, a sport, a

federation, a peak or umbrella organisation.

Challenges to effective TSO management

No simple bottom line to evaluate performance;

Complexity of third party funding Multiple accountabilities to members, clients, funders,

communities? and for what: expenditure, quality of

provision, responsiveness to members?

Common failures of TSOs caused by:

Amateurism, Particularism (closed group) Poverty of resources, especially

capital Misallocation of resources (too

much on direct service) Oligarchy Secretiveness

Implications of all this for governments

(think about government business relations as a counterpoint)

How does government interact with third sector?

Government as enabler/regulator

Via incorporation, Via regulating fundraising (maintain

reputation by keeping out impostors)

Via tax concessions

These are the most common ways of interaction

In Australia

A light regulatory touch, but confusing (and burdensome for some).

NOT an area of any policy attention and not well done.Eg: Incorporation and fundraising-

40 to 50 different pieces of legislation and regulators for the third sector

cf with vast reform activity to facilitate business where

one act and regulator controls incorporation and fundraising

tax concessions: a complex muddle-

no principles or theory, not well understood,

seeming contradictions, opportunities for political patronage

and score settling policy review limited in scope and

frequency and ignored by government

Government as funder

Affects relatively few TSOs – But a majority of employing TSOs

(c20-25 000) A focus of much attention from both

sides Especially in health services and

social assistance industry

Government as object of advocacy

Very few TSOs seek to pressure government, but

Governments find dealing with interest representation difficult –

Welcome the expertise and aggregation of interests that TSOs provide, but

A tendency to stamp down on those interests that are critical and weak.

Main problems in current approaches to TSOs by Australian governments

Focus only on a few organisations: those that are funded, and those that criticise.

Fail to recognise that these are part of much larger whole;

Believe their only value lies in ability to serve the government.

Some Australian contradictions in government approaches to TSOs

Favour TSOs as close to the community and responsive to individual need – but

Remove any capacity for flexibility by contracts, favour large multi-site organisations as more efficient,

disparage representativeness of community organisations that criticise policy.

Confuse community with community organisation or TSO.

Conclusion

For governments to work with third sector, it is important:

To realise extent and scope of sector that only a few bits of it are funded by or lobby governments

Think about third sector in same way as business sector.

To recognise that main role of government is to enable and facilitate sector’s prosperity, but that means it must understand the dynamics of

sector and how it produces the effects that it does.

Conclusion

Governments should acknowledge (in policy and publicly

and frequently) importance of sector in all its variety;

Understand the indirect effects of government action, (and also other social changes) on the third sector.

Conclusion

Needs many policies (UK a model) Encourage giving (of time and

money) Encourage business and third sector

partnerships Build capacity in sector Address capital access problem Encourage innovation in sector

Conclusion

Require and facilitate public accountability (and thus knowledge) of sector.

Assist different parts of sector to come together (ideally this happens first and is facilitated by foundations)

But in final analysis, third sector organisations have to be able to review and renew themselves, individually and collectively.

Two current areas of greatest angst in Australia

funding social services (assistance)

and

“silencing dissent”.

Funding

Competing perspectives or frames TSOs and GovernmentProduct of the intersection of

expansion of welfare state and community development movement of late 1960s/1970s.In reality:

Two TSO perspectives

Funding (continued)

One TSO perspective: TSOs are major providers of services Many have initiated a service &/or provide it to disadvantaged groups that

cannot access it elsewhere. They look to government for help to

maintain and expand this endeavour. Sometimes pick up services previously

provided by government employees

Funding (continued)

Second TSO perspective: encouraged by government to start,

performing a public service, remain closely tied to the funding department

Both groups see themselves as partners of government – but feel exploited

Funding (continued)

Government perspective: Days of governments starting or

simply helping TSOs are past (ie government as philanthropist).

But TSOs can help government deliver public services

An instrumental perspective

Funding (continued)

Under pressure to massively expand services (for children, families, disabled, aged)

Governments moved from grant in aid to purchase of service without being clear about the changes, the reasons for them and their implications.

And therefore without explaining or justifying them.

Funding (continued)

Consequently, governments: exploit TSOs – abuse monopsony power,

shift all risk, add unnecessary and burdensome red tape,

In some cases encourage for-profits to compete with TSOs (ie treat TSOs simply as another business);

Create in many small/medium TSOs a “victim” mentality and dependency on government.

Funding (continued)

Governments Talk of partnership but practice command

and control. Fail to recognise that TSOs were there

first, and TSOs frequently have more expertise, and Fail to recognise that many TSOs receive

funds from many programs, and so make no effort to coordinate reporting requirements.

What to do?

No simple solution

Governments should Recognise how TSOs work and what

they contribute (more on the big picture below)

What to do (continued)?

In the context of the bigger picture Think about whether they want to

encourage TSOs by assisting them to provide services,

or to ensure services are delivered, whether by for-profit businesses or TSOs

Be clear about benefits and losses of each option;

Develop clear distinction between grants and purchase of service payments;

What to do (continued)?

Apply the same rules for red-tape reduction to their relations with TSOs as they do with business.

Do a lot of talking and listening (to build a genuine partnership)

Move toward a single act for incorporation and fundraising

to define and ensure accuracy and public availability of all appropriate information re TSOs – ie a single filing).

“Silencing dissent”

Recognise TSOs are a central part of a civil society.

Support those representing disadvantaged groups, but sufficiently, and via a commission responsible to parliament to remove tendency of ministers/public servants to threaten funding

But set standards for representation for all TSOs – part of the basic information that should be publicly available;

Do not make criticism of government policy a breach of a contract to deliver services