How should Aus­tralia’s char­i­ta­ble sec­tor be stack­ing up?

The West Australian - - OPINION - David Gilchrist and Penny Knight An unedited ver­sion of this ar­ti­cle ap­pears on the­con­ver­sa­

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.

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