1 Social Capital and Political Theories of the Nonprofit Sector.
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Transcript of 1 Social Capital and Political Theories of the Nonprofit Sector.
1
Social Capital and Political Theories of the
Nonprofit Sector
2
Outline
• Political theories of nonprofits• Social capital and nonprofit
management• Nonprofit economics
3
Political Theories of Voluntary Associations
• Nonprofits counteract the coercive power of the state
• Nonprofits are a laboratory for institutions that governments later adopt
• Nonprofits provide “space” between individuals and states (Locke)
• Voluntary associations are a force to fragment the proletariat (C. Wright Mills)
Ref.: Frumkin (ch 2) 2002
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Tocqueville’s Model of Voluntary Associations
Ref.: Frumkin (ch 2) 2002
EqualityCivic
associationPolitical
associationDemocracy
5
Links Between Government and Voluntarism
• Moral suasion (Reagan)• Promotion of national service
(GHW Bush)• Stipended volunteering (Clinton)• Faith-based initiatives (GW
Bush)
Ref.: Frumkin (ch 2) 2002
6
Public subsidies versus private charity
$140
$320$398
$978
$1,637
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Agreestrongly
Agree Neither Disagree Disagreestrongly
"The government has a responsibility to reduce income inequality"
Ave
rag
e an
nu
al g
ivin
g
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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
Social w
elfare
Environm
ent
Arts
International aidPer
cen
tag
e b
y w
hic
h t
ho
se w
ho
dis
agre
e ex
ceed
giv
ing
by
tho
se
wh
o a
re
8
Volunteering
14%
12%
11%
12%
12%
13%
13%
14%
14%
15%
Volunteers
Volunteers for
secular causes
Per
cen
tag
e b
y w
hic
h t
ho
se w
ho
dis
agre
e ex
ceed
vo
lun
teer
by
tho
se w
ho
are
9
It’s not just about money
28%
25%
20%
31%
0%
5%
10%
15%
20%
25%
30%
35%
"The government shouldimprove living standards
for the poor"
"People should takecare of themselves"
Population percentage
Percentage of blood donated
10
But it’s not politics per 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 with redistribution 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 nonprofit
management• Nonprofit economics
13
Social Capital
Robert PutnamNetworks, norms, and
social trust that facillitate coordination
and cooperation for mutual benefits
Francis Fukuyama
An institutional informal norm that promotes cooperation between
two or more individualsSynthesisThe trust and social cohesiveness that promotes giving, volunteering, and
participation in civil societyEvidence of social capital is more
tangible than social capital itself
Ref.: Putnam, Fukuyama
14
Two Types of Ties Foster Social Capital
• Ties based on homogeneity of identity, demography and sense of purpose
• Can promote pursuit of narrow interests at the expense of the wider community
• Ties that span social differences (gender, ethnicity, SES)
• Build social trust that facilitates cooperation for mutual benefit
Bonds
Bridges
(Putnam, 2000) Ref.: Granovetter (1974)
15
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 and laws
• Fewer public resources needed to govern• Amelioration of “excessive individualism”
(Tocqueville 1835)
Ref.: Putnam, Fukuyama
16
Costs of Social Capital
• In-group trust means out-group distrust
• Some social capital is socially destructive
• Less interchange of ideas between tight-knit groups
• Less moral suasion not to cheat out-group members
Ref.: Fukuyama
17
The Putnam Hypothesis
• Social capital is falling in America• Evidence: lower attendance by many
traditional groups (e.g. PTA, bowling leagues, church-related groups)
• Reasons– Societal cynicism– Female labor force participation– Population mobility and rootlessness– Less marriage, more divorce, fewer kids– Technology—individual consumption of
leisure
Ref.: Putnam
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Not Everyone Subscribes to the Putnam Hypothesis
• Some groups increase membership, others lose—can’t just study the losers
• Group membership was abnormally high in the American 1950s—can’t measure from that point
Ref.: Fukuyama
19
Outline
• Political theories of nonprofits• Social capital and nonprofit
management• Nonprofit economics
20
Government Failure Theory
• Public goods: beneficiaries have no incentive to pay, so goods are underprovided
• So why not government provision?– Political inviability– Constitutionality (religion)– Efficiency: Government does not have the
same incentives to minimize costs as NPOs
– Donors don’t give to public agencies– Governemnt is often too “blunt” for small-
scale provision
Ref. Weisbrod
21
Contract Failure Theory
• Information Asymmetries: both parties to a transaction are not equally well-informed
• When the stakes are too high for one mistake (e.g. medical care), we may prefer firms with “no profit motive.”– Why? Does non-distribution
constraint enhance integrity?– Nondistribution might also hurt
efficiency
Ref. Hansmann
22
Third-Party Government Theory
• Government voluntarily devolves responsibilities to the third sector– or
• Nonprofit sector proactively provides services when they are insufficient at the government level
Ref. Salamon
23
Possible Nonprofit Management Objectives
• For-profits are assumed to maximize 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, nonprofits must 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
25
Donor Objectives
• Altruism– Evident in
experimental data
• Public goods provision (for self or friends)
• “Warm glow” from giving
• Personal sense of duty– Religious reasons– Nonreligious reasons
• Social pressure– Noblesse oblige– Giving at least as
much as others• Social prestige
– Philanthropy as a signal
Ref. Rose-Ackerman
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Danger 1: Unpriced Resources
• Donated goods: Use has opportunity cost– Typical examples: computers, physical plant– Use shadow prices (what item would cost if
purchased) in accounting
• Volunteer labor– Ill-use leads to
• Inefficiency (squandering volunteer’s expertise)
•Attrition (volunteers know their opportunity cost, even if managers don’t)
– Use shadow wages (what volunteer would cost if hired) in planning
Ref. Young and Steinberg
27
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, free
services, etc.)– Cost of volunteer administration
Ref. Young and Steinberg
28
Danger 2: Misbudgeted Resources
• Costs carried by other parts of NPO, 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?)
Ref. Young and Steinberg
29
Danger 3: Sunk Costs
• Sunk costs are unrecoverable– Example: employee training after
the fact
• Sunk costs should be ignored to maximize net benefits (or minimize net losses)– Example implication: Don’t carry an
unproductive employee just because s/he was expensive to train
30
Pricing Strategies: For-profits
• Competitive firms– P=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
31
Pricing Strategies: Nonprofits
• Usually, competition is limited• Pricing schemes
– MC=MR (monopolistic pricing)– P<MC for favored activities or favored clients
• Cross-subsidization from other activities, donations, or governemnt subsidies
– Price discrimination• Classical price discrimination: clients are charged
according to characteristics (e.g. kids free)• Voluntary price discrimination: P<MC to induce
donations (e.g. voluntary payment)• Intertemporal price discrimination: Price depends on
day or time (e.g. weekdays free admission) to induce participation
32
Competition with the For-profit Sector
• 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 to
suboptimally-high levels of unfavored-good production– NPOs lose “core mission”
Ref. Rose-Ackerman 1996
33
Who Has the Edge?
• Nonprofit advantages– Tax benefits– Trust because of
non-distribution
• For-profit advantages– Technology– Sufficient
financing and staffing
– High-profile expertise
– Political lobbying capacity
Nonprofit managers must trade on these
Ref. Frumkin ch 3 2002
34
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)
35
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