How should Australia’s charitable sector be stacking up?
The question of how many charities Australia should have is a recurring topic of debate. But it is not clear that it’s really the key question to be asking. A better one may be: what do we want the sector to look like and why?
It is an attractive proposition to say we would gain major efficiencies if there were a limited number of major not-for-profit and charitable providers of governmentfunded human services.
If we had such an arrangement, the argument goes, fewer charities would mean less resources spent on overheads, such as chief executives, accountants, auditors and other expenses needed to manage an organisation.
This is logically sound. The fewer organisations, the higher the economies of scale, the less administrative capacity required. The same could be said of many areas of the economy. But a market economy values competition and diversity in its commercial providers.
Another argument is that establishing new charities should be made more difficult, and that those proposing to establish one should first demonstrate that a similar charity does not already exist.
This discussion assumes charities are inefficient service providers and not fully responsive to market forces, and that charities are economic and social “cost centres”, draining the economy, whereas their commercial cousins are important “profit centres” generating wealth and GDP.
It’s a widely held belief that charities are not as efficient as other providers. However, there is no evidence of a correlation between an organisation’s efficiency and whether it is a for-profit or a not-for-profit business. Instead, efficiency and productivity have been found to be dependent on many factors that affect charities and commercial organisations.
There is also no evidence that bigger organisations are more efficient than smaller ones. An organisation’s optimal size is determined by a range of factors. Many are related to its operating environment, client base and resource costs. It’s about being fit-for-purpose.
The reality is that smaller organisations, including small charities, can often meet the needs of unique communities better than bigger groups.
Charities, like all entities, buy and use resources to produce outputs. If they succeed, they will attract resources and grow. If not, they will eventually be wound up.
As in the commercial sector, this is part of the renewal and regeneration that is necessary to drive on-going improvement. New charities often invoke new ways of doing things, but rarely do we ask the question whether their establishment is justified.
The real question is not whether we have too many charities, but rather, whether they are fit for purpose in the context of the mission and the services or products they offer. And are our charities achieving the highest return for their beneficiaries for assets used?
Answering these questions requires charity boards, executives and those donating to, or contracting with, charities to have high expectations and to challenge charities to ensure their resources are achieving the outputs and outcomes needed by their beneficiaries.
If not, they should ensure their assets are transferred to an organisation that can.
If we continue to base our views of the charity sector on incorrect assumptions and perceptions we run the risk of damaging a national asset. Australia’s not-for-profit sector is not perfect. But, overall, it is pretty good — and we Australians have much to be proud of.