7. politics and economics

7/31/2019 7. Politics and Economics

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Outline

Political theories of nonprofits

Social capital and nonprofitmanagement

Nonprofit economics


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Political Theories of VoluntaryAssociations

Nonprofits counteract the coercivepower of the state

Nonprofits are a laboratory forinstitutions that governments later

adopt Nonprofits provide space between

individuals and states (Locke)

Voluntary associations are a force tofragment the proletariat (C. WrightMills)

Ref.: Frumkin (ch 2) 2002


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Tocquevilles Model ofVoluntary Associations


EqualityCivic

associationPolitical

associationDemocracy


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Links Between Governmentand Voluntarism

Moral suasion (Reagan)

Promotion of national service(GHW Bush)

Stipended volunteering (Clinton)

Faith-based initiatives (GWBush)



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Public subsidies versusprivate charity

$140

$320$398

$978

$1,637

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Agree

strongly

Agree Neither Disagree Disagree

strongly

"The government has a responsibility to reduce income

inequality"

Averageannualgiving


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Different types of giving

292%

415%

215%

36%

112%

44%

562%

0%

100%

200%

300%

400%

500%

600%

Health

Education

Religion

Socialwelfare

Environment

Arts

InternationalaidP

ercentagebywhichthosewhodisagreeexceedgivingbytho

se

whoare


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Volunteering

14%

12%

11%

12%

12%

13%

13%

14%

14%

15%

Volunteers

Volunteersfor

secularcauses

Percentagebywhichthosewhodisagreeexceedvolunteerbythosewhoare


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Its not just about money

28%

25%

20%

31%

0%

5%

10%

15%

20%

25%

30%

35%

"The government should

improve living standards

for the poor"

"People should take

care of themselves"

Population percentagePercentage of blood donated


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But its not politicsper se

Gives (Probit) Gifts (Tobit) Secular gifts (Tobit)

Constant -1.399** (0.477) [-0.515]-4121.7*** (1097.6) [-1807.3]

-2458.4*** (513.5) [-850.5]

Disagrees withredistribution 0.277** (0.118) [0.102] 599.4** (274.1) [262.8] 280.2** (122.5) [96.9]Secular -0.335** (0.133) [-0.124] -593.9* (337.5) [-260.4] 23.3 (146.5) [8.1]

Religious 0.493*** (0.149) [0.182]1453.9*** (315.9)[637.5] 75.8 (145.6) [26.2]

Age 0.02*** (0.005) [0.007] 23.8** (11.4) [10.5] 10.3** (5.2) [3.6]Income ($1,000s) 0.008** (0.003) [0.003] 39.6*** (7) [17.4] 18.4*** (3.1) [6.4]

Education (years)0.0777** (0.0243)[0.0286] 110.87* (56.8) [48.62] 54.74** (25.22) [18.94]

Male 0.011 (0.115) [0.004] -141.4 (271.4) [-62] -60.6 (121.4) [-21]Married 0.077 (0.115) [0.028] 353.2 (268.6) [154.9] 75.3 (120.3) [26]White -0.439 (0.317) [-0.162] -340.4 (683.9) [-149.3] 168 (321.1) [58.1]

Black -0.421 (0.361) [-0.155] -404.7 (792.3) [-177.4] 365.8 (366.7) [126.5]Liberal -0.15 (0.161) [-0.055] -367 (386.7) [-160.9] -214.9 (176.5) [-74.3]Conservative -0.047 (0.152) [-0.017] -364.4 (358.7) [-159.8] 67.1 (156.7) [23.2]


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Some international evidence


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Outline

Political theories of nonprofits

Social capital and nonprofitmanagement

Nonprofit economics


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Social Capital

Robert PutnamNetworks, norms, and social

trust that facillitatecoordination and cooperation

for mutual benefits

Francis FukuyamaAn institutional informal norm

that promotes cooperationbetween two or more

individuals

SynthesisThe trust and social

cohesiveness that promotesgiving, volunteering, and

participation in civil society

Evidence of social capital is moretangible than social capital itself

Ref.: Putnam, Fukuyama


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Two Types of Ties FosterSocial Capital

Ties based on homogeneity of identity,demography and sense of purpose

Can promote pursuit of narrow interests atthe expense of the wider community

Ties that span social differences (gender,ethnicity, SES)

Build social trust that facilitates cooperationfor mutual benefit

Bonds

Bridges

(Putnam, 2000) Ref.: Granovetter (1974)


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Benefits of Social Capital

Less passive reliance on state Proactive citizen intervention into social

issues

Schools, crime, economic development

Constructive association Money for charities

Lower transaction costs with contracts andlaws

Fewer public resources needed to govern Amelioration of excessive individualism

(Tocqueville 1835)

Ref.: Putnam, Fukuyama


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Costs of Social Capital

In-group trust means out-groupdistrust

Some social capital is socially

destructive Less interchange of ideas

between tight-knit groups

Less moral suasion not to cheatout-group members

Ref.: Fukuyama


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The Putnam Hypothesis

Social capital is falling in America Evidence: lower attendance by many

traditional groups (e.g. PTA, bowlingleagues, church-related groups)

Reasons Societal cynicism

Female labor force participation

Population mobility and rootlessness

Less marriage, more divorce, fewer kids

Technologyindividual consumption ofleisure

Ref.: Putnam


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Not Everyone Subscribes tothe Putnam Hypothesis

Some groups increasemembership, others losecant

just study the losers

Group membership wasabnormally high in the American1950scant measure from that

point

Ref.: Fukuyama


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Government Failure Theory

Public goods: beneficiaries have noincentive to pay, so goods areunderprovided

So why not government provision?

Political inviability

Constitutionality (religion)

Efficiency: Government does not have thesame incentives to minimize costs asNPOs

Donors dont give to public agencies

Governemnt is often too blunt for small-scale provision

Ref. Weisbrod


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Third-Party Government Theory

Government voluntarily devolvesresponsibilities to the thirdsector

or

Nonprofit sector proactivelyprovides services when they are

insufficient at the governmentlevel

Ref. Salamon


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Possible NonprofitManagement Objectives

For-profits are assumed tomaximize profit

Possible nonprofit objectives Service

Budget

Other (e.g. quality)

Mixed

Ambiguous or changing

None


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The Double Bottom Line

Regardless of mission, nonprofitsmust pay attention to revenues

Net revenues

Mission adherence

Rmax

Mmax

R*M=0, R=0Net revenues

Mission adherence

Rmax

Mmax

R*M=0, R=0


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Donor Objectives

Altruism Evident in

experimentaldata

Public goodsprovision (for selfor friends)

Warm glow fromgiving

Personal sense of duty Religious reasons

Nonreligious reasons

Social pressure

Noblesse oblige

Giving at least asmuch as others

Social prestige

Philanthropy as asignal

Ref. Rose-Ackerman

i d


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Danger 1: UnpricedResources

Donated goods: Use has opportunitycost Typical examples: computers, physical plant

Use shadow prices (what item would cost ifpurchased) in accounting

Volunteer labor Ill-use leads to

Inefficiency (squandering volunteersexpertise)

Attrition (volunteers know theiropportunity cost, even if managers dont)

Use shadow wages (what volunteer wouldcost if hired) in planning

Ref. Young and Steinberg


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Calculating Shadow Wages

Alternatives Shadow wage unique to each volunteer

(small volunteer force)

Shadow wage average wage (large

force) Other considerations

Leisure value

Next-best volunteer opportunity

Benefits to the volunteer (education, freeservices, etc.)

Cost of volunteer administration


D 2 Mi b d d


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Danger 2: MisbudgetedResources

Costs carried by other parts ofNPO, or by government

Examples: Subsidized labor,

subsidized postage Costs shifted to consumers

Example: Home health care

Result: If apparent MC < true MC,then resource will be overused.(Why?)



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Pricing Strategies: For-profits

Competitive firmsP=MC (marginal cost pricing)

Price is bid down to unit-cost levels

Profit=0

Non-competitive firms

P is set where MC=MR

(equimarginal pricing)Price is set so that profit is

maximized


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Competition with the For profit


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Competition with the For-profitSector

Where is competition? Areas of main competition: health,

education

Less competition: Social service,

environment UBIT restricts competition in the U.S.

Competition may drive NPOs tosuboptimally-high levels of unfavored-goodproduction

NPOs lose core mission

Ref. Rose-Ackerman 1996


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Who Has the Edge?

Nonprofitadvantages

Tax benefits

Trust because ofnon-distribution

For-profitadvantages

Technology

Sufficientfinancing andstaffing

High-profileexpertise

Political lobbyingcapacity

Nonprofitmanagers musttrade on these

Ref. Frumkin ch 3 2002


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Competition Among Nonprofits

Competition for what? Members/clients

Donors/volunteers/donations

Inventory (e.g. books, art works, etc.)

Competition with whom?

Other NPOs For-profits

Governments

Identifying competition

Similarity of prizes (management perspective)

Similarity of services (client/donor perspective) Common competitor: inaction (e.g. no medical

care)


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Nonprofit Commercialization

Reasons Increasing competition with for-profits

Increasing competition with other nonprofits

Growing reliance on donations and earned income

Corporate partnerships

Demand for accountability Nonprofit culture becoming more corporate

Risks Loss of core mission

Decreased attention to need, more on botom line

Ref Salamon & Young 2002

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