Market leaders

In a recent opinion piece in The New York Times, Peter Buffett, musician, philanthropist and son of Warren Buffett, lays into what the headline writer calls ‘The Charitable-Industrial Complex’.

Buffett’s view is that thanks to increasing numbers of very wealthy people deciding to ‘give back’ some of their immense wealth, the US has ever-expanding ‘not-for-profit’ sector which is making those rich donors feel much better about themselves but is also helping to sustain the economic structures that produce the social problems their donations are, in theory, designed to solve.

Buffett tells us that: “Between 2001 and 2011, the number of nonprofits increased 25 percent. Their growth rate now exceeds that of both the business and government sectors. It’s a massive business, with approximately $316 billion given away in 2012 in the United States alone and more than 9.4 million employed.”

He continues: “As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few, the more heroic it sounds to ‘give back.’ … But this just keeps the existing structure of inequality in place. The rich sleep better at night, while others get just enough to keep the pot from boiling over.

And concludes that: “… as long as most folks are patting themselves on the back for charitable acts, we’ve got a perpetual poverty machine. It’s an old story; we really need a new one.

While no individual wealthy philanthropist is in a position to fundamentally change ‘the system’ single-handed, wealthy philanthropists are an integral part of the economic model that, as Buffet sees it, their philanthropy is insufficient to ameliorate.

You don’t need to accept Buffett’s definition of the current economic set-up, either in the US or globally, as a ‘perpetual poverty machine’ or share his views on the effects of philanthropy, to accept the underlying point that any social venture – whether it calls itself a charity, social enterprise, social business, not-for-profit etc. – has the potential to simultaneously be both part of the solution to poverty and social injustice and part of the problem.

That was the underlying question I was engaging with in my blog last week about the charity/social enterprise, Turning Point, and their policy of firing staff and rehiring them on less favourable conditions. The key defence for this kind of approach is that if Turning Point – and the many other charities who provide outsourced government services who operate in a similar way – are to compete with private sector providers, the only way to do so is by reducing costs. In the service sectors, staffing is the biggest cost.

Some in the social enterprise see beating the private sector at their own game as the mark of a successful social enterprise. That’s not a bad philosophy in principle but it’s not one that can usefully be applied irrespective of who the private sector competitors are or what ‘their own game’ is. When it comes to public services, the impact of outsourcing to private sector companies is to reduce wages and make jobs less secure.

Like wealthy philanthropists within the economic system as a whole, social enterprises and trading charities* have not been disinterested bystanders in the ongoing process of marketisation of UK public services.

As a typical example, Charity Times reported that, responding to the publication of the current government’s, Open Public Services White Paper in 2011, ACEVO‘s chief executive, Sir Stephen Bubb said: “The Government’s Open Public Services White Paper has set out the right direction of travel for our public services, but vested interests will try to make sure we never get to that intended location.

It’s not necessarily wrong for charity and social enterprise leaders to campaign for greater marketisation of public services but to do so does not amount to casting a consequence free vote in favour of more public services being delivered by lovely people who are passionate about what they do.

It’s also a vote for more services being delivered by Serco, G4S and A4e. It’s difficult to imagine an approach to public service marketisation that would be legal under EU law and would deliver more opportunities for trading charities and social enterprises without also delivering even more opportunities for larger private sector providers at the same time.

Even in a situation where real wages in the UK are falling fast and the queues at food banks are growing, it’s perfectly legitimate for charity and social enterprise leaders to argue that the overall benefits of public service marketisation outweigh the drawbacks (many of us believe that they sometimes do and sometimes don’t).

What’s not acceptable is to claim – as some social enterprise leaders have been – that public service marketisation is something that’s been done to trading charities and social enterprises rather being a process that they’ve actively contributed to and have significant responsibility for. And the very minimum level of responsibility that these organisations need to take is responsibility for the wider social impact – beyond whether a good service is delivered at a competitive price – of the services that they themselves deliver.

Unlike some in the social enterprise movement, I don’t believe that the fact that an organisation doesn’t distribute profits to shareholders is, in itself, a significant positive social impact – particularly not if surpluses are reinvested in chasing more contracts that involve firing staff and re-employing them on worse conditions.

I don’t believe that members of the senior management team at Turning Point and other charities who’ve taken similar tough choices, sit around stroking cats and cackling with glee at the idea the of firing their staff and re-employing them on worse conditions, but I don’t believe that managers at Serco and A4e do that either.

The question is not whether the leaders of large charity and social enterprise outsourcing organisation are bad people it’s whether they offer any distinctly different and more socially useful that what they private sector offers. Maybe they can and do, but most what I see at that moment suggests they’re just similar but smaller.


*Trading charities in this instance refers to charities delivering public sector contracts who do not self identify as social enterprises.


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2 responses to “Market leaders

  1. What Buffet saId about dealing with 13 year girls selling themselves and a perpetual poverty machine had a surprising resonance with something I wrote just before the NY Times article appeared, when I quoted from our 2006 strategy paper for social enterprise in Ukraine:

    “We see a staggering array of social problems arising directly from poverty, including but not limited to tens of thousands of children in orphanages or other state care; crime; disrespect for civil government because government cannot be felt or seen as civil for anyone left to suffer in poverty; young people prostituting themselves on the street; drug abuse to alleviate the aches and pains of the suffering that arises from poverty and misery; HIV/AIDS spreading like a plague amidst prostitution, unprotected sex, and drug abuse; more children being born into this mix and ending up in state care at further cost to the state; criminals coming from poverty backgrounds, ending up as bandits, returning to communities after prison, with few options except further criminal activity. These are all part and parcel of the vicious negative cycle of poverty, and this threatens to destroy Ukraine, if Ukraine is defined in terms of people rather than mere geographic boundaries.”

    I was challenging what AIDS fundraiser Dan Palotta says in his Ted talk about charity. I ended up taking what Peter Buffet says quite a lot further to illustrate how AIDS funding goes via oligarchs and where 60% go without treatment, Tony Blair recieves half a million dollars for his Faith Foundation.

    These are interesting times, of the kind suggested in that old Chinese curse. We were as far as I know the only social enterprise to warn of the failure of capitalism and subsequent uprisings and seemingly also alone in taking a stand for living wages. It was the growing disparity of wealth distribution which led to the suggestion that a business operating for a primary social cause could be the way forward Last week I read an op ed piece in the Telegraph about ‘social-good’ capitalism. which is yet another sponsored article for social impact bonds, whereas the real social capitalism is air brushed away by this partial journalism..


  2. To follow up on that point about dividend distribution, this is something I see as matter of authenticity. The concept was delivered in the first instance as an alternative to charity. Profit is necessary to sustain the enterprise, it was a matter of how it was deployed.

    Clearly big business with a smaller percentage contrbuted to social benefit could outweigh small scale social purpose. In the papal encyclical Caritas in Veritate a point is made about this issue:

    ‘This is not merely a matter of a “third sector”, but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society’

    We described this as “profit for purpose” and ourselves as a social purpose business, which ironically is the same term a4e used to describe their activities. Clearly authenticity matters when it comes to argue for social intervention. We’ve since seen ‘profit with purpose’ and other variants from the harder nosed commercial world.

    When we argue the case for investing in childcare – taking children away from harm in institutions, the argument is congruent:

    “Those who suffer most, and those in greatest need, must be helped first — not secondarily, along the way or by the way. “


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