Third Sector: The Contribution of Nonprofit and Cooperative Enterprises in Australia 1864487429, 9781864487428

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MARK LYONS is Professor of Social Economy at the University of Technology, Sydney, and is Australia’s leading expert on third sector organisations. He was the inaugural chair of Australian and New Zealand Third Sector Research and a founding director of the International Society of Third Sector Research. He has been a member of several government advisory bodies, including the Prime Minister’s Round Table on Business/Community Partnership and the Reference Group on Welfare Reform.

THIRD SECTOR The contribution of nonprofit and cooperative enterprise in Australia

MARK LYONS

ALLEN & UNWIN

First published in 2001 Copyright 䉷 Mark Lyons 2001 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without prior permission in writing from the publisher. The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10% of this book, whichever is the greater, to be photocopied by any educational institution for its educational purposes provided that the educational institution (or body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act. Allen & Unwin 83 Alexander St Crows Nest NSW 2065 Australia Phone: (61 2) 8425 0100 Fax: (61 2) 9906 2218 Email: [email protected] Web: http://www.allenandunwin.com National Library of Australia Cataloguing-in-Publication entry: Lyons, Mark. Third sector: the contribution of nonprofit and cooperative enterprises in Australia. Includes index. ISBN 1 86448 742 9. 1. Cooperative societies—Australia. 2. Nonprofit organizations—Australia. I. Title. 068.94 Set in 10/12 pt Janson by Midland Typesetters, Maryborough, Victoria Printed by Griffin Press, Adelaide 10 9 8 7 6 5 4 3 2 1 iv

CONTENTS

List of tables Acknowledgments Introduction PART I 1 2 3

WHAT

WHERE

HOW

33 41 46 50 53 59 63 71 82 91

IS THE THIRD SECTOR WHERE IT IS?

The third sector in Australian history The dynamics of third sector growth and decline

PART IV 16 17 18

WHY

5 12 22

IS THE THIRD SECTOR?

Community services Health Education and related activities Other human services Religion Arts and culture Sport and recreation Interest organisations Economic cooperation Philanthropic intermediaries

PART III 14 15

IS THE THIRD SECTOR?

Defining the third sector Diversity Distinctive characteristics of third sector organisations

PART II 4 5 6 7 8 9 10 11 12 13

vii viii ix

99 105

THIRD SECTOR ORGANISATIONS WORK

Governing and managing third sector organisations Financing third sector organisations Staffing third sector organisations

v

123 138 150

vi

THIRD SECTOR

PART V 19 20 21

RELATIONS

WITH OTHER SECTORS

Drawing support from households Relations with business Relations with government

PART VI

THINKING

161 170 180

ABOUT THE THIRD SECTOR

AND ITS IMPORTANCE

22 23

Making an economic contribution Making a social and political contribution

PART VII 24 25 Notes Index

197 204

CHALLENGES

The challenge of the third sector The challenge to third sector organisations

217 226 230 239

LIST

2.1 II.1 4.1 5.1 6.1 6.2

7.1

8.1 9.1 10.1 11.1 12.1 13.1

OF TABLES

Numbers of third sector organisations, 1996 Basic economic dimensions of Australia’s third sector, including Australia’s nonprofit sector, 1995/96 Third sector community services organisations, 1995/96 Third sector health organisations, 1995/96 Third sector organisations in education, 1995/96 Education-related third sector organisations (parent associations, university unions, research organisations), 1995/96 Third sector organisations providing other human services (housing, employment and training, legal services, community transport), 1995/96 Religious organisations, 1995/96 Third sector arts and culture organisations, 1995/96 Third sector sport and recreation organisations, 1995/96 Third sector interest organisations, 1995/96 Third sector organisations formed as an expression of economic cooperation, 1995/96 Philanthropic intermediaries, 1995/96

vii

21 31 40 45 49

49

52 58 62 70 81 90 94

ACKNOWLEDGMENTS

M

ANY PEOPLE HAVE contributed to the writing of this book. My colleagues in the Community Management Programs and the Centre for Australian Community Organisations and Management (CACOM) at the University of Technology, Sydney (UTS), helped flesh out a research agenda almost a decade ago and then, through their research, contributed many insights on which I have subsequently drawn. Jenny Onyx, Julie Nyland, Sally Saunders, Janie Pocklington, Alan Bridges, Natalie Buckmaster, David Meltz and Maureen Cleary have made important contributions. Myles McGregor Lowndes at the Queensland University of Technology helped immensely to develop my understanding of the legal environment of nonprofit organisations. Susan Hocking worked alongside me throughout the Australian Nonprofit Data Project. At different points we were assisted by Charlotte Fabiansson and Miriam Wiggers de Vries. Staff at the Australian Bureau of Statistics, especially Paul Sullivan and Ross Upson, and also Richard Madden, Rob Edwards, Russel Rogers, John Struick, Lyn Blair, Jenny Widdowson and Theo Neuman, made a huge contribution to the development of quantitative estimates of the dimensions of Australia’s nonprofit sector. Martin Stewart-Weeks helped shape my understanding of the nonprofit sector and civil society while Garry Cronan added immensely to my understanding of cooperatives and mutuals. UTS School of Management and CACOM secretarial staff, Barbara Van Es, Enid Cross, Bev McNeil, Jenny Tomkins, Kerry Levi, Sandra Chia, Elizabeth Hardman and Terry Rosser, provided much assistance. My family tolerated my long periods ‘working on the book’. To one and all, my sincere thanks. I hope you and others will consider the effort worthwhile.

viii

INTRODUCTION

M

ARY SIGHED AS she pulled away from the community child-care centre. It was always hard to say goodbye to Joanie, her three-year-old, though the child seemed not to mind. It had been no easier with Andrew, who was now at primary school and always ran from the car to greet his friends. Thinking of Andrew reminded her that she must mail his enrolment for the district soccer club. She had missed the deadline last year and it was only because her friend, Patricia, was secretary of the club that she had been able to sneak him in. She had met Patricia through the local bush regeneration group. They had become good friends and she had persuaded Patricia to join her in the local tennis club, which always needed members. Thoughts of Andrew and his school also reminded her that next Friday was her day for tuckshop duty. Her P & C responsibilities were becoming more and more demanding. Earlier in the year she had agreed to become treasurer. She was an accountant by training and the P & C employed a part-time bookkeeper but its finances were quite complex. Not only did it run the tuckshop, but it also looked after the uniform shop and a before- and afterschool care program. Patricia’s children went to the local Catholic school, but they seemed to rely no more on the voluntary labour of parents than did Andrew’s government school. Mary reflected that she was fortunate to have a job where she could use her skills but that required her to work only three days per week. She worked with the Product Retailers’ Association. She looked after the finances and sometimes provided training in financial management for members. There were only five of them in the office and they made a pretty good team. Mary was glad that she did not have the director’s job. The association had over 1000 members and a board that was always making contradictory demands. Her boss was always cranky the day after a monthly board meeting. On those occasions she and the others kept their heads down. At least her part-time job gave her the opportunity to be involved in other activities, unlike her husband Mike whose career in the public service was becoming more and more demanding as budget cuts seemed to reduce staff but not the amount of work that had to be done. But on top of that he was becoming increasingly involved in union activities after work. She was glad her father and Mike seemed to hit it off. Her father had always been hostile to unions. She supposed it was because he owned his own small business, a factory manufacturing electrical goods. His hostility was odd, though. As far as she knew, he had never

ix

x

THIRD SECTOR

had any difficulties with unions. He had sold the business a couple of years ago. She knew he wasn’t happy with the price he had got, but his life was a lot less stressful now and he had plenty of time to indulge his hobby, which was working with a group of men on the coachwork of some old trams that the Electric Tram Association were restoring at their shed on the other side of the river. It kept him from getting bored and he didn’t spend as much of his retirement income as Uncle Ted did, playing the pokies and drinking with his mates at the leagues club. Thoughts of her father faded into thoughts of her grandfather, her mother’s father. He had recently had an operation on his eyes but it didn’t seem to have helped much. Because he had kept private health insurance, he had been able to get a bed at St Agatha’s without the wait he would have had if he had been a public patient. It was lucky he had kept paying his private health insurance. It had been force of habit, she thought. Like his father before him, he had been an office holder in the friendly society that eventually became his health insurance fund. But despite the operation his eyesight still seemed to be weakening. She knew her mother was worried, partly because it was she who was spending more and more time over at the old house looking after him, doing his washing and cleaning and preparing his meals. Mary had told her mother that she thought she should at least get the local meals on wheels and neighbourhood aid society to do that work, but she knew her mother thought it was her job to look after grandpa. Mary had thought of suggesting that they try to persuade grandpa to move to a nursing home, but she knew he would not. Mainly he was afraid that he would have to sell his home before he could enter the nursing home and he was determined to hold on to it. He intended that it should go to the Disability Foundation when he died. One of his other children, Mary’s Uncle Reg, had been born with a severe disability and had spent his relatively short life being supported by the foundation. Grandpa had helped build some of the foundation’s original buildings and was determined to leave it something of substance when he died. Perhaps he would not have to sell his house, after all, before his sight had begun to deteriorate, he had done a lot of work for the local Uniting Church and had been on the board of their aged-care complex for almost 20 years. Mary felt sure there would be a place for him, if only he would ask. She turned on the radio and tuned it to the local community station. They often made community announcements and gave news of local events around about this time. She wanted to hear if their bush regeneration group had been able to persuade the local councillors to reject their planning department’s recommendation to turn some of the bush that ran behind her house into a couple of playing fields and a site for a new scout hall. In a sense, Mary thought, she would win whatever the outcome. She was committed to keeping as much of the bush as possible; it was something she believed in and she had helped clean out the weeds that were encroaching on it. On the other hand, if the proposed developments went ahead, her children would probably benefit from that too.

This story is invented but unexceptional. It illustrates the manner in which all our lives are structured by interaction with organisations of various kinds. But only one of the organisations mentioned, Mary’s

INTRODUCTION

xi

father’s factory, is a business run to make a profit for its owners. And only three organisations Mary is thinking about are government organisations. Almost all the organisations in Mary’s thoughts belong to what some call the third sector: the child-care centre, the P & C, the Catholic school Patricia’s children attend, the bush regeneration group, Mary’s tennis club, the district soccer club, the trade association where she works, the union her husband is active in, the Electric Tram Association, the leagues club, the health insurance society, St Agatha’s hospital, the meals on wheels, the neighbourhood aid society, the Disability Foundation, the Uniting Church and its aged complex, the community radio station, the scouts. These are but a few examples of the hundreds of thousands of similar organisations that many people belong to or draw services from and that hugely enrich Australian life. Third sector organisations are everywhere. Yet, when many people in Australia think of the way the world they inhabit is organised, they think of it as a duality: business and government. The third group of organisations, organisations that are not part of government and are not run to make a profit for their owners, are generally overlooked. They are a lot more important than most people realise. This book is about them.

PURPOSE

Most Australians, approximately 65 per cent, belong to at least one third sector organisation. About 40 per cent describe themselves as active members. So most are familiar with at least one or two third sector organisations. But they do not see their organisation as belonging to a larger sector. This book is written to help Australians recognise that the P & C, tennis club, church or union they belong to is part of a far larger organisational sector, not as large as business or government but, in various ways, just as important. The third sector, like the rest of our society and economy, is undergoing major and often disruptive changes. These changes have created two pressing challenges. The first is the challenge the third sector offers us all. This is the challenge to our taken-for-granted assumptions that the only way we can organise ourselves is through government or as a business. As we seek to understand and shape a response to the challenges that face us as a society, we need to be conscious of the important role the third sector has played and must continue to play if we are to remain a just, prosperous, diverse and democratic society. At the same time, third sector organisations are challenged, in many different ways, to remain relevant and effective in the changing world we inhabit. And because, in the final analysis, they are the product of our collective actions, this challenge is for all of us.

xii

THIRD SECTOR

CONTEXT

The third sector, with its various synonyms—nonprofit sector, social economy, civil society—is attracting increasing interest worldwide. This interest is shared by policy makers and researchers as well as by advocates for the sector. There are many reasons why this should be so. In most countries, the third sector is growing. This growth is a product of many factors. One is democratisation. Since the 1980s, communist regimes have been overthrown in Eastern Europe and transformed in some parts of Asia, whilst military dictatorships and other authoritarian regimes have been pushed aside in other parts of Asia and Latin America. In all of these transformations, ‘people power’ has been particularly important. Thirdsector growth is a product of higher levels of education and of urbanisation. In the developed world, it has been assisted by the privatisation of many services previously provided by governments. It is becoming widely recognised that economic and social development cannot be obtained by an overemphasis on either state or market and that a successful balancing of government and business requires a strong third sector. Over the past decade, a significant scholarly interest in the third sector has developed, including a major comparative study coordinated by Lester Salamon at Johns Hopkins University.1 Regional organisations such as the European Union and international bodies such as the World Bank have sponsored research to better understand the sector and thereby encourage its growth. This book is the first publication to describe Australia’s third sector. It draws heavily on research undertaken by my colleagues and me through the Centre for Australian Community Organisations and Management (CACOM) at the University of Technology, Sydney during the 1990s. At the centre of that research has been the Australian Nonprofit Data Project (ANDP), undertaken in collaboration with the Australian Bureau of Statistics and with support from the Australian Research Council and the Productivity Commission. The ANDP was the first attempt to map the dimensions of Australia’s third sector and to do this in a comparative context by joining Australia to Phase 2 of the Johns Hopkins Comparative Nonprofit Project. Detailed statistics from the Australian Nonprofit Data Project have been published separately2 but this book provides the first narrative overview of Australia’s third sector. This book also provides the first attempt to understand the dynamics of the third sector and to raise some important questions about its future. To do this it draws on my research, and that of my colleagues, and also my long involvement in and with the third sector, as executive director of the Australian Council of Social Service (ACOSS), as a board member of ACOSS and several other organisations and as a teacher in the University of Technology, Sydney’s, postgraduate programs for management of third sector organisations.

INTRODUCTION

ORGANISATION

xiii

AND SOURCES

The book is divided into seven parts, which are divided into 25 short chapters. Part I offers a definition of the third sector and a description of its main features noting both its diversity and the characteristics that distinguish it from both government and business sectors. The three chapters in this part are a little technical and a reader more interested in description might start with part II. Part II looks at third sector organisations in the various fields where they are important actors. It also provides some basic data. Part III briefly summarises the way the third sector has been woven into the fabric of Australian history since the earliest days of white settlement. It identifies the factors that have enabled and stimulated its growth and also the factors that have led parts of it to decline. Part IV looks more closely at the way third sector organisations work, how they are governed and managed, how they are financed and how they are staffed. Part V locates the third sector in the wider economy, society and political system, and reviews the many different ways in which it interacts with households, business and government. These five parts are largely descriptive. They are designed to inform the reader of the extent to which our way of life is dependent upon third sector organisations. The final two parts are both more theoretical and speculative. Part VI reviews the way the third sector has been understood, explained and accorded significance by economists, sociologists and political scientists. It is here that the currently fashionable concepts of social capital and civil society are reviewed. This adds another dimension to a consideration of the future of Australia’s third sector, which is the subject of the final part of this book. Part VII looks to the future; to the challenges that the third sector poses and the challenges it faces. The third sector plays an important role in Australian life yet that role is challenged, both by wider social and economic changes and also by policies pursued by both government and business. A challenge to government, to business and to all of us is to recognise the importance of the third sector and to act in ways that ensures it a continuing role in our future. Fortunately, the currently dominant views of the roles of government and business are themselves under challenge from alternative paradigms that can more readily accommodate the third sector. But the third sector itself must adapt to these challenges; in its different components it needs to review and renew, recognising and holding onto its core contributions while being prepared to discard practices that are no longer helpful. In this process of review and renewal, third sector organisations will need to adopt and adapt many techniques and practices from for-profit firms. In particular, they need to build their management capacity and look to the way they are governed.

xiv

THIRD SECTOR

They will need to become more open and accountable. Inevitably, some organisations, some whole parts, will and should die. Finally, the third sector’s different components must themselves recognise what they have in common and work together. Only in that way will the third sector attain the recognition it deserves and win the support which the wellbeing of our society needs it to have.

PART I

WHAT

IS THE THIRD SECTOR?

1

T

HE FIRST PART of this book introduces the object of the study: the organisations that comprise the third sector. It begins with a definition of the third sector and some of the other terms that are commonly used to describe this broad class of organisation, or at least large parts of it. Chapter 2 sketches the many ways in which organisations in the sector vary by looking at differences in terminology used, the activities performed, their age, size and structure, whether or not they employ staff, their governance, legal forms and their tax treatment. Chapter 3 identifies the distinctive characteristics of third sector organisations, the features that differentiate them from business and government organisations. It also reviews the particular challenges posed for those responsible for running third sector organisations. Readers who are unfamiliar with the third sector and its various component parts may find these chapters a little abstract. A great deal more concrete information is provided about the various components of the third sector in Part II and some readers may therefore wish to begin there and then tackle Part I.

3

1 DEFINING

THE THIRD

SECTOR

T

HE FIRST TASK of this book is to convince its readers that there is a distinctive third sector. We all understand what is meant by the public or government sector; we know what is meant by the business sector, though the more formal terminology, ‘for-profit sector’, may be unfamiliar. Within each of these sectors there is a great diversity. Within the public sector there are government departments, the police and armed forces, government schools and hospitals, trains and buses. There is the judiciary, whose members are appointed and funded by the government but who are in other respects independent. But we know that what they have in common is that they are, in the final analysis, accountable through a minister to parliament. Within the business sector there are large corporations and small corner stores; there are firms that grow things, build things and sell things; there are firms that own newspapers, stage musicals, provide mercenaries, run hospitals, help us search the Internet and groom dogs. But we understand that what these firms have in common is the wish to profit from their activities, to give their owners a return on the money they have invested. The third sector also encompasses great variety, in the size of organisations and the activities they undertake. More will be said of that later. At its simplest, the third sector encompasses all those organisations that are not part of the public or business sectors. But, to be more positive, we can say that:

The third sector consists of private organisations 1 that are formed and sustained by groups of people (members) acting voluntarily and without seeking personal profit to provide benefits for themselves or for others, 2 that are democratically controlled and 3 where any material benefit gained by a member is proportionate to their use of the organisation. 5

6

WHAT IS THE THIRD SECTOR?

This definition can be explained by elaborating on the key terms or phrases. Private Third sector organisations are independent of government. They are not directed or controlled by ministers or government officials. Organisation The third sector is comprised of formal organisations. It does not contain informal groups of friends or family members. An organisation is formally constituted when a group of people agree to a purpose and a set of rules that potentially enable the organisation to continue when its founders are no longer involved. Groups of people (members) Third sector organisations are the product of collective action. They are formed when a group of people agree to work together for a common goal. These become the organisation’s members. Third sector organisations are sustained and renewed by others joining the organisation as new members. Some are also sustained by the gifts of money or time from people who do not seek membership. Acting voluntarily Third sector organisations are started by people who joined together voluntarily. So too are those who join subsequently mostly volunteers. A few third sector organisations succeed in requiring everyone who belongs to a certain profession or works for a certain company or attends a university to join a professional organisation, a union or a students union. This does not make them any the less third sector organisations. Rather, it testifies to the success of past political activity and is likely still to be contested. Those who are active in directing the organisation are still volunteers in the conventional sense. Without seeking personal profit Third sector organisations are not formed or joined by people seeking personal profit. Most third sector organisations are prohibited from distributing any surplus they might generate as payments to members; the few that do, do so proportionately to the individual’s use, not the funds he or she has invested. Benefit People come together to provide things or services or to do things that they cannot provide or do on their own. Through such collective action they generate value. The benefit may be to provide opportunities for worship, to advance a cause, to organise games, to set and maintain standards within an occupation or profession, to strengthen their position in a labour or product market, to provide services not available from firms or at a more affordable price, to help the sick, to educate children, to house the homeless, to empower the disadvantaged, to find a cure for an illness and so on. For themselves or for others In many cases, those who benefit from the new values created by collective action are those who have acted and those who have subsequently joined them: the members of the third sector organisation. In other cases, the beneficiaries are other people: other members of the public, disadvantaged groups, future generations. Within

DEFINING THE THIRD SECTOR

7

the third sector it is important to distinguish between member-serving and public-serving (or member-benefit and public-benefit) organisations. The former are sometimes called self-help or mutual organisations. The distinction is not always easy to draw as many third sector organisations have both member-benefit and public-benefit aspects. To take some examples, trade unions, business associations, sporting and social clubs are member-serving; nonprofit hospitals and community welfare agencies are public-serving. Democratically controlled Almost all third sector organisations have members and are controlled by their members on the democratic principle of one member, one vote. Sometimes small organisations are run as collectives. Usually, members elect representatives to a board or committee that governs the organisation. The exceptions are some churches and charitable trusts and a few public-serving organisations that are owned by other third sector organisations. Material benefit . . . proportionate to use An important feature of member-benefit organisations is that the benefit is proportionate to the member’s use of the organisation. This happens automatically in the case of mutuals and many cooperatives. If a social club offers food and drink at lower prices than a nearby hotel or if a credit union offers lower interest on a loan, the member receives the advantage to the extent that they use the service. In the case of those few trading cooperatives that actually pay a dividend, the dividend is proportionate to the use that the member has made of the cooperative over the relevant period. This, together with the previous feature (democratic control) is what distinguishes the third sector from for-profit firms. In a firm, the owners or investors receive a dividend and the right to exercise control proportionate to the level of their investment. In a third sector organisation, each member has an equal right to control but either no member gains a material benefit (public-serving) or the benefit gained is proportionate to use (member-serving).

NONPROFITS,

MUTUALS AND COOPERATIVES

This last point is important, not only for differentiating third sector organisations from firms but also for delineating important differences in emphasis in comprehending the third sector between the United States and continental Europe. To understand these differences, we have to explore the relationship between third sector organisations and profit. Profit is the surplus of an organisation’s income over its expenditure at the end of a reporting period, usually a year. Any third sector organisation, unless it has no need of money at all, such as a babysitting club, must have at least a modest excess of income over expenditure or profit for most years. That is, third sector organisations must make a profit or at least break even. But this is not their main purpose. Indeed,

8

WHAT IS THE THIRD SECTOR?

if a third sector organisation continued to make large profits year after year, it has clearly failed in its purpose. With one exception, public-benefit third sector organisations should spend whatever is their revenue providing services to others. The exception is that they may be attempting to build a reserve, a prudent step for those that employ staff. With two exceptions, member-benefit third sector organisations should price their income generating services at the lowest possible cost to their members and should therefore have little or no surplus at the end of their reporting period. One exception is that of producer cooperatives, which should seek to pay the highest possible price to their members for their produce, which the cooperative then processes and markets. In some cases cooperatives may find it easier to pay a dividend (proportionate to use) from profits at the end of the year. The other exception is that member-benefit organisations, especially large ones, also need to build a reserve fund. Most third sector organisations are prohibited from distributing a profit. Some forms of incorporation and most tax concessions require that the organisation prohibits distribution of any profit to members, or any surplus assets if the organisation should be wound up. Such organisations are known as nonprofit organisations. Nonprofit means nonprofit distributing. All public-benefit third sector organisations are nonprofit organisations in this sense and most member-benefit organisations are also; they distribute benefits to members in the form of lower prices for services rather than a formal distribution of profits. In the United States, most scholarly attention has focussed only on these public-serving nonprofits. Generally it is only these that are referred to when Americans talk of a nonprofit sector. However, in law, most member-benefit organisations are also part of the nonprofit sector. Cooperatives and finance mutuals are not legally nonprofit organisations and do not figure in the American literature on the third sector. In continental Europe, far greater emphasis is placed on third sector organisations as expressions of solidarity or mutuality and on their democratic control. The European Union has adopted the French concept of l’economie sociale or social economy. The social economy consists of cooperatives, mutuals and nonprofit associations. It is synonymous with the third sector as defined here.

GLOSSARY Many terms are used to describe different groups of organisations that constitute the third sector. Common Australian terms are identified and briefly discussed in chapter 2. Some terms are used internationally to cover large groups of third sector organisations and they are noted here along with an indication of the scope of their coverage. Nonprofit sector As noted in the preceding section, this refers to third sector organisations that are explicitly prohibited from distributing a

DEFINING THE THIRD SECTOR

9

profit and surplus assets when they are wound up. However, such organisations are permitted to distribute benefits by other means, such as lower costs for members. Voluntary sector This term is the preferred term in the United Kingdom. It approximates to nonprofit sector. As the United Kingdom becomes more closely aligned with the rest of Europe, the more encompassing term social economy is receiving increasing use. Social economy Social economy refers to cooperatives and mutuals as well as nonprofit organisations. It is synonymous with third sector as that term is used here. Third sector This term is most commonly used by the international research community as the most encompassing term with a neutral connotation. The definition provided earlier in this chapter (pp. 5–7) is the first attempt to give it a formal meaning. Community organisations This term usually refers to small third sector organisations operating in a limited geographical area. They may include member-benefit as well as public-benefit nonprofit organisations. Community sector An Australian term that refers to third sector organisations providing community services plus small locally based organisations in adjacent fields or activities such as health, legal services, employment services and the arts. Civil society organisation Civil society is an increasingly popular term, but one that has many meanings. Civil society organisations are generally understood as coextensive with third sector organisations, although sometimes the emphasis is on small advocacy organisations that are clearly controlled by their members and designed to give them voice. Non-government organisation (NGO) This term is commonly used in Southern or developing countries and in development literature. It generally refers to public-benefit nonprofit organisations, often from the North and distinguished from people’s or community organisations. In Australia, the term is sometimes used to refer to public-benefit nonprofits in the health and community services fields, though in government documents it often encompasses for-profit organisations as well.

CLARIFYING

RELATED TERMS

Several other terms need to be clarified before a clear picture of what is, and is not, meant by the third sector and what organisations should, and should not, be included within it. One is the term ‘public’. Earlier it was emphasised that the third sector is the product of private initiatives and is controlled by private individuals as opposed to government officials. This does not mean that third sector

10

WHAT IS THE THIRD SECTOR?

organisations might not pursue public purposes; indeed those that seek to benefit people other than their members do just that. Neither does it mean that third sector organisations might not be heavily, even entirely, funded by governments. The test is control; while a private organisation that receives all or most of its revenue from government is likely to be influenced by the government, it is not owned or controlled by government. In several fields, third sector organisations receive all or most of their funding from governments on the same terms as government-owned organisations. These organisations are part of groups collectively referred to as public hospitals or public universities, but that title does not necessarily mean that they are part of government and not third sector. In most cases, these third sector organisations are owned by religious organisations, such as St Vincent’s Hospital in Sydney or Melbourne or the Australian Catholic University. These organisations are free to refuse government funds or, if government funding stops, they can still continue to operate, as did, for example, the Mater Hospital in North Sydney. Further, the fact that some third sector organisations are incorporated by a special Act of parliament does not necessarily make them part of government; some public companies such as Westpac and AGL are incorporated by their own legislation. It is worth noting that they and many other companies are described as ‘public’ companies because their shares are traded on the stock market and not because of any suggestion of government control. This study focusses on organisations that comprise a third sector and juxtaposes them with organisations that are either part of the government or public sector and those that are part of the business or for-profit sector. Reference will be made to a fourth sector, the household or family sector, but within the fourth sector, by definition, there are no organisations. Some other studies divide their field of study into three in a way that superficially approximates the division used here. They draw a distinction between state, market and community. These terms are generally not well defined and conflate different categories: while state can refer to public organisations, a market is a location for a type of transaction. Sometimes market appears to be used as a synonym for business or for-profit organisations, but such a conflation should be avoided. Governments and third sector organisations also operate, or partly operate, within markets. Community has a superficial resemblance to third sector, but more conventionally it refers to individuals and families that live in a particular area, along with their third sector organisations, businesses and, sometimes, local government. Sometimes it appears to be used synonymously with the household sector, referring exclusively to individuals and families. At all events the state–market–community division is not at all the same as the model of three organised sectors used here.

DEFINING THE THIRD SECTOR

HYBRID

11

ORGANISATIONS?

The focus of this book is on organisations and organisation behaviour. It seeks to demonstrate that there is a distinct third sector that should be given equal recognition with business and government sectors. It assumes that the behaviour of organisations is shaped to a certain extent by the fundamental organising principal that locates them in a particular sector. However, it is not claimed that this is the sole determinant of organisation behaviour. Many other factors shape the behaviour of organisations, one of the most important being the industry or field of activity in which an organisation operates. For example, the behaviour of a nonprofit hospital will be shaped as much or more by the relationships and practices in the hospital industry than by its nonprofit or third sector status. A number of writers have noted a convergence between sectors and have suggested that third sector organisations are beginning to resemble businesses or governments, that government is resembling business and that some businesses are taking on some characteristics of the third sector. There is some evidence of this, but it is not widespread. More importantly, it only makes sense to speak of convergence if there are previously distinct categories (or sectors) that might converge. Instead of convergence, it often makes sense to identify the emergence of hybrid organisations, organisations that adopt some of the characteristics of one or both of the other sectors. Thus most universities, while they are still most appropriately treated as part of the government sector, have many characteristics that resemble nonprofit organisations (and a few that are more like business). Some cooperatives are seeking to raise capital by issuing tradeable shares while retaining their member control. Some other examples of hybrid organisations will be discussed in Part II. The remaining two chapters of Part I introduce Australia’s third sector by indicating the main dimensions along which third sector organisations differ, one from another, and then by reviewing the distinctive problems faced by third sector organisations, problems that are a product of those characteristics that locate them within the third sector.

2 DIVERSITY

A

USTRALIA’S THIRD SECTOR encompasses a vast range of organisations. They differ, one from another, in many ways: in how they are named; in the activities they perform; in their age; their size; how they are structured; their level of reliance on paid staff; in the tasks performed by their governors; in their legal form; in their tax treatment; and in their commitment to social order.

TERMINOLOGY Chapter 1 notes some of the different names given to nonprofit organisations. Generally, one particular name is popular in one or two industries or fields of activity. For example, ‘community organisations’ or ‘community sector’ is used mostly in the community services industry, with some overlap from small organisations in health, housing, the arts and advocacy and interest groups associated with those fields. ‘Club’ is associated with nonprofits in the sport and recreation field, though it is also used by some ex-servicemen’s clubs, such as Legacy, that developed into community service providers and by businesspeople’s clubs, such as Rotary, Apex or Zonta, that raise funds for community purposes. ‘Association’ is mostly used by nonprofits representing various interests, such as business, trade or professional bodies. It is also one of the specialised legal terms used to describe nonprofit organisations. ‘Society’ is also often used by professional bodies, though also by some organisations in the recreation and community services fields. ‘Union’ has now come to be used mainly by organisations of employees in a particular occupation or industry, though it still has a limited wider use, as in ‘student union’ or ‘credit union’. ‘Church’ has a clear and specialised reference, as does synagogue, mosque or temple. They are places of worship but also the community 12

DIVERSITY

13

of those who worship and, sometimes, the organisation that sets the rules for its believers. ‘Charity’ is a particularly confusing term. It has a specialised meaning in law but in popular use refers to only part of the range of organisations that are, legally, charities. Legally, a nonprofit organisation is a charity if its purpose fits under one of the four ‘heads of charity’: the relief of poverty, the advancement of education, the advancement of religion or other purposes beneficial to the community. In popular use, charities are organisations that raise funds from the public to provide relief to people who are disadvantaged because of poverty, ill health, disability or natural disasters. This was the use enshrined in the Industry Commission’s 1994/95 enquiry into Charitable Organisations in Australia.1 The origin of this usage probably lies with state government arrangements to license organisations to raise funds from the public—under what used to be called ‘charitable collection acts’. Many people working in what are popularly called ‘charities’ oppose the use of the term, believing it to carry overtones of the wealthy giving handouts to the ‘deserving’ poor. They believe it demeans the people they work with. Those organisations that are popularly referred to as charities would fit within the legal definition of charity, but the legal usage encompasses a far wider range of organisations: schools, universities, churches and other organisations such as, for example, gun clubs, that are considered in law to benefit the community. In its popular use, ‘charity’ excludes charitable trusts. Charitable trusts are nonprofit organisations established by bequest to administer sums of money or goods bequeathed for a charitable purpose in perpetuity. They sometimes provide a service or undertake research, but are more likely to make grants to other organisations. In Australia, many charitable trusts are administered by for-profit trustee companies. The term ‘foundation’, which in the United States is commonly applied to such trusts, is sometimes used thus here, but much more commonly is used to describe organisations in the health, education and research fields that are both grant-seeking and grant-making. In some states, for-profit organisations are also permitted to call themselves foundations. ‘Cooperative’ is both a term that describes a particular form of organising and a specific legal identity. It is adopted by organisations in many industries including agriculture, fishing, manufacturing, retailing, education, accommodation and community services. Some cooperatives prohibit the distribution of profits and fall within the nonprofit sector. Others permit a distribution and are known as trading cooperatives. These names are not just a device for identification. Many carry with them a set of meanings, understandings and expectations that have their origins in earlier times and refer to a wider world view. For example, the term ‘private schools’ carries a certain class baggage and conveys images of wealthy independent schools. It thus excludes the majority of nonprofit schools, which are not wealthy. ‘Non-government schools’ is a more inclusive term.

14

WHAT IS THE THIRD SECTOR?

‘Union’ and ‘cooperative’ are terms that celebrate collaboration and solidarity. The former, in particular, has intimations of resistance to oppression. ‘Community’ in community organisation is a word with many positive connotations. It suggests an organisation that is rooted in its neighbourhood, that in some way expresses the authentic needs and aspirations of a great mass of ordinary people, at least in that area. By contrast, a ‘society’ wears an old-fashioned garb and suggests exclusivity. ‘Association’ is perhaps the most literal term, but it, too, betrays its origins and carries implications of small size, perhaps of an organisation entirely comprised of volunteers.

ACTIVITIES The range of things that third sector organisations do is enormous. They stage plays and concerts; they teach yoga and organise cricket competitions; they restore old machinery and encourage new inventions; they perform ceremonies to mark birth, marriage and death; they treat the sick, house the homeless, seek justice for the oppressed, represent the interests of workers and seek government support for business and so on. There are few fields of human activity where there are not some activities undertaken by third sector organisations. Some of the things they do are also done by government bodies, others by for-profit organisations. One field of which third sector organisations have almost exclusive possession is the provision of religious worship. It is hard to imagine a church that is run as a for-profit organisation (hard but not impossible, as will be shown later). State churches were once common but never in Australia, and even in those countries where they did exist, there was always a tension between leaders of the church and leaders of the state. The organised representation of interests also seems to require a nonprofit form of organising. Since most interest-group activity is directed towards government, it is difficult to imagine a government organisation that could represent the interests of private individuals or groups. It is possible to imagine a for-profit enterprise established to represent and perform services for a particular set of commercial interests, but few exist. Most people join an interest association because they want (or want an assurance of) an opportunity to shape the policies and strategies of the association by democratic means. In the end, members like to feel that they can throw out the management committee or the directors if they do not represent their views. If they were purchasing this service from a for-profit organisation, their only option would be to purchase, or threaten to purchase, these services elsewhere. Most sports, especially at the local level, are organised by nonprofit associations. Many are supported by government-provided facilities such as playing fields and swimming pools and by commercial suppliers of specialised equipment. Many sports, from elite to junior level, receive

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15

company sponsorship. Many recreation activities are facilitated, regulated or encouraged by third sector organisations. The list is endless, whatever captures the enthusiasm of a few people: goldfish breeding, star gazing, bell ringing, vintage car restoring. Many recreation activities are facilitated by for-profit organisations such as specialised equipment suppliers. Nonprofits are active providers of many services that are also provided by government. There are nonprofit schools, hospitals, other health services, child care, aged care, services for people with disabilities, employment and training, refuges, housing and advice and information services. Some of these services are also provided by for-profits.

AGE Third sector organisations vary greatly in age. The oldest third sector organisations in Australia are the churches. Judaism can trace its origins back many thousands of years; Christian denominations claim up to 2000 years, though different denominational forms are more recent than that. When the Church of England arrived in Australia with the First Fleet in 1788, it was part of the apparatus of government. It achieved independence only in the 1820s. The first Catholic priest arrived in 1800 and in 1803 the government sanctioned another convict priest to public ministry. However, after a convict rebellion a year later, that permission was withdrawn and Catholic services were not officially permitted again until 1820. The first meeting of Methodists occurred in 1812. The oldest, still existing, Australian-founded third sector organisation is the Benevolent Society, which began in Sydney in 1813 (and was reconstructed in 1818). What is now the Royal Agricultural Society began in 1822 and the Sydney Chamber of Commerce in 1826. The Kings School, in Parramatta, NSW, can trace its origins back to 1832. Other well-known third sector organisations have their origins later in the nineteenth century: the Australian Jockey Club (1842); Sydney’s St Vincent’s Hospital (1857); the Salvation Army (1880). Others, such as the Red Cross and the Scouts, began in Australia in the early twentieth century. Many other third sector organisations began in Australia’s first 150 years but have not survived. The great majority of third sector organisations are probably no more than 20 or 30 years old.

SIZE As with the for-profit sector, most third sector organisations are small. The great majority operate on a purely voluntary basis and have fewer than 100 members. Others are larger, some far larger. In 1995/96, the Australian Red Cross had an annual expenditure approaching $200 million; St Vincent’s Hospital spent nearly $190 million. Standards

16

WHAT IS THE THIRD SECTOR?

Australia spent $59 million, while Panther’s Rugby League Club in Penrith turned over $83 million. Among mutuals and cooperatives, the NRMA had an income of $2800 million, mainly from its insurance subsidiary and the Dairy Farmers Cooperative a turnover of $638 million.2 The effect of size on the behaviour of nonprofit organisations will be considered in the following discussion.

STRUCTURE

AND SPREAD

Most third sector organisations operate from the kitchen table of whoever is their most active member. This is particularly true of those organisations whose main tasks during the year are to organise a competition, stage a few events or publish a few newsletters. Some third sector organisations need an identifiable site to pursue their mission. A religion needs a meeting place, a football team needs an oval. Larger third sector organisations, those that provide a regular service, will generally need an identifiable premises. Some of these premises, such as a hospital or school, might be very large indeed. A few third sector organisations operate from a number of locations. Generally, in Australia, even these larger third sector organisations confine their operations to a single city or perhaps a single state or territory. Such organisations might be structured in one of three ways. A few adopt a divisional structure, along functional lines, which might mean that staff at one site will report to several different divisional managers within the organisation. More common is the practice of devolving authority to site or centre managers. A few organisations have emerged as a result of the federation of previously independent organisations, such as kindergartens. In these circumstances, local centres retain a certain degree of autonomy and may elect a majority of board members to the federated organisation. Some organisations have separate fundraising bodies. Earlier this century these were described as auxiliaries and would often have branches around the state that the organisation operated in. They were mostly volunteer organisations, where women were the great majority of the volunteers. They had a good deal of autonomy from the main organisation for which they raised funds. Torchbearers for Legacy and the Smith Family’s View Clubs are two examples. Large multi-site organisations are mostly confined to the community services industry. Many larger third sector organisations—churches, some charities and arts organisations, professional societies, business associations and unions, other interest groups and most sporting bodies—aspire to operate Australia-wide. Generally, these are federations. The national association will be comprised of representatives of state and territory organisations, which will, in turn, be governed by local and/or regional groups. A small but growing number of organisations adopt the alternative form, that of a single national organisation with state branches. A few Australian third sector organisations operate internationally. These are mostly the

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17

Australian arm of international aid organisations although some churches and the Australian Council of Trade Unions sponsor international aid and development organisations.

EMPLOYEE /VOLUNTEER

MIX

Larger third sector organisations employ people to do most or all of their work. In June 1996, there were over 34 000 third sector organisations that were employers, employing just over 630 000 people, an equivalent of 460 000 full-time employees. This constituted 7.6 per cent of the Australian workforce. It was 12 per cent of private employees. Third sector employers range in size from small community organisations, which employ a part-time coordinator, to large hospitals and school systems, which employ thousands. It is these organisations that generate most of the economic impact of the third sector, but the great mass of third sector organisations rely entirely on volunteer labour. It is difficult to estimate how many these might be, but rough estimates suggest that there are between 500 000 and 700 000.3 Many larger third sector organisations also rely, to varying degrees, on volunteers. Altogether, in 1994/95, 2.3 million Australians volunteered a total of 374 million hours for third sector organisations. This is the equivalent of over 217 000 additional full-time employees.

GOVERNANCE The governance of an organisation refers to the arrangements for its ultimate control, involving who sets its direction, and who monitors and finally takes responsibility for the organisation’s performance. Governance is distinguishable from management, which is concerned with the day-to-day exercise of authority and guidance of the organisation, as well as the generation of strategy, but within guidelines set by the governors. For almost all third sector organisations, governance is democratic. Members of the organisation elect boards of directors and a management committee that take responsibility for the governance of the organisation. They report to an annual meeting of members and stand for re-election each year (or so). This is the method enshrined in most legislation that incorporates third sector organisations, though it can sometimes be altered to fit special circumstances. Some third sector organisations, for example, choose to operate as a collective: members of the organisation, including employees, meet regularly to make decisions for their collective endeavour. Most third sector organisations sponsored by the churches or by religious orders are governed by appointed boards. Some of these organisations, including some of the larger schools and hospitals, have

18

WHAT IS THE THIRD SECTOR?

only recently been separately incorporated. Their boards are appointed by members of the sponsoring body, such as a religious institute or a synod. Some of these organisations are still not separately incorporated, receiving legal protection (it is assumed) from the sponsoring church, which is incorporated. Such organisations are mostly in the Catholic church. They will sometimes have no board; the chief executive is directly responsible to episcopal authority. Sometimes that chief executive will appoint a board of advisers to provide high-level advice on mainly business matters. Most religious organisations elect their leadership; a few hierarchical churches do not. Paradoxically, the Pope is elected, but by a group of men he or his predecessors have appointed. In practice, boards or management committees perform many different roles. Those differences are largely a product of the size of the organisation. In small organisations, those that rely entirely on volunteers, and sometimes in those that employ a few staff, board or management committee members undertake day-to-day administrative work. They are in effect administrative volunteers. Paid staff are used, along with other volunteers, to provide services. In even smaller organisations, the committee is made up of all of the people who do the work needed to keep the organisation operating. In some cases this is a small number of people but in other cases, such as some parents’ organisations at large private schools, it might consist of over 100 people. In these cases, office holders such as the president, secretary and treasurer do the additional work necessary to enable the organisation to operate effectively.

LEGAL

FORM

The law offers groups of people who wish to form, or who have formed, an organisation the opportunity to obtain a legal identity, or personality, for that organisation. It is not necessary for a group to be incorporated to ensure that continuity for the organisation after original members have departed, but incorporation provides protection for members and facilitates the growth of the organisation. Incorporation means that it is the organisation, and not its members, that enters into contracts and may sue, or be sued, for the recovery of debts. Most government departments require an organisation to be incorporated before it can receive grants. Incorporation also imposes certain responsibilities such as submitting annual returns to a registering authority. It can also impose certain restrictions on the way the members of an association wish to organise themselves. Most third sector organisations never incorporate. There are many different ways to incorporate. The most common form of incorporation is as an incorporated association. Every state and territory has its own associations incorporation legislation and these differ one from the other in minor ways. In 1996, there were about 120 000 incorporated associations in Australia. Larger organisations, or those that operate in several states, are generally incorporated as companies limited

DIVERSITY

19

by guarantee. There were about 9000 of these. Organisations may also choose to incorporate as cooperatives. In 1996, there were about 3000 cooperatives in Australia. There are less now. In most states, associations incorporation legislation is less than 20 years old. In those states, prior to the 1980s, a few nonprofit organisations had incorporated as private companies, probably because their legal advisers did not know the existence of a more appropriate form. More specialised forms of incorporation are available to organisations with special membership or limited functions. Aboriginal groups may incorporate under the Commonwealth Aboriginal Councils and Associations Act. In most states, industrial organisations such as unions are incorporated when they register with the Industrial Registrar. Parent organisations associated with NSW public schools may incorporate under the Parents and Citizens Act, but only a few have done so. Strata Title legislation creates ‘bodies corporate’ or associations of the owners of units or apartments in a block of apartments and charges them with the responsibility for the upkeep of the building and grounds. In 1996, there were just over 180 000 bodies corporate in Australia. Some third sector organisations are established by Acts of parliament. This is true mainly of those established in the nineteenth century and of the older Christian denominations. A few organisations, such as the Red Cross, have been incorporated by letters patent. Most forms of incorporation create their own mode of regulation and accountability requirements. Some work better than others. The variety raises the question of whether a single form of incorporation for third sector organisations, one that would create a single regulatory authority but with appropriate variation in regulation and scrutiny to recognise variations in size, would not be appropriate. This question is explored in the last part of the book.4

TAX

TREATMENT

Almost all third sector organisations receive some concessional tax treatment, but the scope and application of these concessions varies enormously. Almost all nonprofit organisations (that is third sector organisations that are specifically prevented from distributing their profit) are exempted from paying tax on their income. These include all publicserving nonprofits and many of those that are member-serving as well, including many industry associations and sporting bodies. Those that are not exempt are generally exempted from being taxed on their membership subscriptions under the operation of the mutuality principal. Even trading cooperatives are allowed to deduct the repayment of principal as well as interest on certain loans as a compensation for the disadvantages they suffer in the capital market. Certain nonprofits are exempted from various taxes on their inputs. Until the introduction of the Goods and Services Tax (GST) in July 2000,

20

WHAT IS THE THIRD SECTOR?

the most valuable exemption was from wholesale sales tax. Exempted were religious organisations, nonprofit schools, public hospitals and what are called public benevolent institutions (PBIs). These latter are nonprofit organisations in the community services industry that provide identifiable forms of relief to identifiable disadvantaged people. PBIs and churches are also exempted from a range of state taxes and local government rates and given limited exemption from fringe benefits tax. The GST has had a huge impact on nonprofit organisations. It ties them into the taxation system far more than before and at considerable cost. The GST legislation abolished sales tax and thus sales tax exemptions, and in their place created another type of ‘exemption’, wider in scope but still inconsistent and confusing in its application. The exemption is for what are called ‘GST free’ transactions. Nonprofits that qualify as charities in the full legal sense and those that do not but have been given the right to give their donors a tax deduction qualify for this exemption. They are able to claim back from the government the GST paid on inputs into their ‘non-commercial’ activities. Most memberserving nonprofits, because they are not charities, are not GST free. A variety of third sector organisations are also permitted to allow their donors to deduct the value of the donation from the donor’s taxable income. These include public hospitals, school building funds, public benevolent institutions and many sporting, arts and environment organisations. Donations to churches are not tax deductible. In broad, tax exemptions are designed to assist certain third sector organisations by allowing them to devote more of their income to their mission. Some third sector organisations are far more generously favoured than others. Tax deductibility is designed to encourage donations, but to only a limited range of third sector organisations. The range and application of concessions is haphazard and their application by the Australian Taxation Office is in many cases inconsistent. In some fields their application to third sector organisations is criticised by for-profit firms as giving the third sector an unfair advantage. In some fields, their application is criticised by third sector organisations that miss out. This is particularly true within the community services where large, traditional, church-sponsored organisations receive generous treatment as PBIs while many newer, smaller organisations that focus on advocacy or preventative programs such as counselling, do not. It is surely anomalous that donations to wealthy yacht clubs are encouraged by tax deductibility while donations to the councils of social service are not.5

ORDER/DISCORD The role of third sector organisations in giving voice to many and varied interests has already been noted. Most third sector organisations focus exclusively on their major reason for being, whether it be to provide highquality health care, regenerate an area of bushland or represent and

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Table 2.1 Numbers of third sector organisations, 1996

c. 700 000 third sector organisations

include

f c. 320 000 incorporated third sector organisations

➯

120 000 incorporated associations 9000 companies limited by guarantee 3000 cooperatives 180 000 bodies corporate c. 8000 others

include

f c. 34 000 employing third sector organisations

provide educational services for members of a particular trade. But some third sector organisations are formed primarily to espouse the views of their members to the wider public. Sometimes this is part of a strategy for changing government policy; sometimes it is part of an attempt to change the attitudes and behaviours of the wider public. In itself, this is part of the great strength of the third sector and one of its distinctive contributions to democratic life. But some third sector organisations espouse causes that are directly offensive to others and appear to relish in giving offence. A few even espouse the overthrow of an existing regime. Some incite their members to violence against other members of their society. In some cases, organisations will arrange the killing of those who oppose them, or of members of the state authority, in order to destabilise that authority. Australia, fortunately, is presently free of organisations that use violence to pursue their ends (it has not always been so). It is not entirely free of organisations that deliberately seek to offend others. It is easy to celebrate the third sector—there is much to praise in its testimony to people’s capacity for self-organisation. It is also important to recognise that the third sector has a dark side.

3 DISTINCTIVE CHARACTERISTICS OF THIRD SECTOR ORGANISATIONS

I

N CHAPTER 1, the defining characteristics of organisations comprising the third sector were outlined. Chapter 2 indicated ways in which third sector organisations vary one from another. This chapter focusses on characteristics shared by third sector organisations but, in this case, characteristics that generate challenges for those governing and managing third sector organisations, challenges that are hardly found within the public or the for-profit sectors. These challenges flow from the defining characteristics of the third sector. They are the centrality of values; complexity of resource generation; reliance on volunteers; difficulties in judging organisational performance; lack of clarity about accountability; and conflict between board and staff. It will not be claimed that all third sector organisations experience all six challenges; rather that they all experience some of them.

CENTRALITY

OF VALUES

Values play a central role in many third sector organisations. Third sector organisations generally were started by people who shared certain values. These values may be part of religious beliefs; they may arise from a deep concern for the world’s environment or be an expression of solidarity. Members of cooperatives are expected to commit themselves to the seven principles of cooperation developed by the International Cooperative Alliance.1 These principles are embodied in cooperatives’ legislation. Some values are less transcendent. Some organisations are formed by people who value features in their neighbourhood and do not wish to have these changed. These informing values are the feature that attracts new members to the organisation and mostly are the glue that holds the organisation together. Third sector organisations are rarely characterised by pragmatic self-interest alone. Even trade associations, which bring together owners of firms that are competitors in the marketplace, are the 22

DISTINCTIVE CHARACTERISTICS

23

product of their active members’ belief in, and enthusiasm for, the value of that trade. One consequence of this centrality of values is a certain instability, a tendency towards divisiveness. Third sector organisations are as prone as other types of organisations to instability caused by personality clashes between governors or between governors and senior managers. They are also prone to instability because of contradictions in their structure of governance, as noted later, but the importance of certain values, beliefs, identities or enthusiasms to many of those who keep the organisation going often makes it difficult to resolve disagreements through compromise. Third sector organisations can often be slow to change in response to new circumstances, such as a decline in membership or audience, or a change in the circumstances of their membership base. Sometimes certain of their members or the board hold on to old practices because these seem to embody the central values or purpose of the organisation.

COMPLEXITY

OF REVENUE GENERATION

Perhaps the clearest difference between third sector organisations and organisations in the other two sectors is the complexity of their revenue generation. Government organisations receive their funds for both operating and capital expenditure through the budgetary process. These funds come into government via a number of methods, including taxes, fines and borrowings, but the process whereby they arrive at the spending department or agency, along with the budgetary process for that organisation, is relatively uncomplicated. For-profit organisations (and those hybrids, government-owned enterprises) receive their revenue from sales of goods or services and their capital from borrowings or injections of equity. For public-serving third sector organisations, operating revenue comes from several sources: membership dues, donations, bequests, sale of core services, profits from unrelated business ventures, government grants or contracts (often many of these, each with different conditions attached), grants from trusts or foundations, sponsorship or other forms of partnership arrangement with business and interest on capital reserves. Capital is harder to raise than for the equivalent for-profit organisations. It might come from borrowings, but in the case of public-serving nonprofit organisations it will often come from donations gathered in a capital appeal. The process is less complex for member-serving organisations, although they still must balance the level of revenue they draw from membership fees as opposed to the charges they levy on their members for services. Trading cooperatives more closely resemble conventional for-profits in that they generate their operating revenue from sales, but they face problems when it comes to raising capital, being prohibited by cooperation rules and their values from bringing in outside equity.

24

WHAT IS THE THIRD SECTOR?

RELIANCE

ON VOLUNTEERS

Most third sector organisations rely entirely on voluntary effort to do their job. This is entirely unlike business and government organisations. About 6 per cent of third sector organisations employ paid staff, but most of these also utilise volunteers to undertake important tasks. Ensuring the most effective combination of volunteers and paid staff is a significant challenge to their managers. A very small percentage of third sector organisations make no use of volunteers, even providing their board members with remuneration.

DIFFICULTY

IN JUDGING PERFORMANCE

Boards and managers of third sector organisations generally have difficulty judging the organisation’s performance. They lack the relatively simple measure of return on funds invested available to for-profits or the judgment of the share market, which is a constant discipline on those businesses whose shares are publicly traded. Difficulties in judging performance is a problem shared by many government organisations as well. For third sector organisations, it has several causes. Many of the services third sector organisations provide, especially those that are public-serving, are intrinsically difficult to judge. Services such as child care, health education campaigns or environmental advocacy have some objectives that are fully realisable only several years on. Simple measures of customer satisfaction, such as increased or decreased use, are often not available as the users of many public-benefit services are unable to change providers. Memberserving third sector organisations might also have difficulties. Even though their revenue is largely derived from member use of their organisation, this use is not the only measure of their performance.

ACCOUNTABILITY One of the major challenges that emerges from the distinctive character of third sector organisations concerns accountability. Arguably, government organisations are accountable to the electorate via the tortuous but well-understood mechanisms of responsible government. For-profit firms are accountable to customers via the market mechanism (provided competition exists) and to shareholders or owners via the return they give on funds invested. Not only are simple methods such as these not available to third sector organisations, but it is not at all clear to whom ultimately these organisations should be accountable. For member-serving third sector organisations, it is pretty clear that in the first instance it should be their members. But this poses a problem, especially for organisations with tens of thousands of members. The problem is that most of these members are uninterested in the

DISTINCTIVE CHARACTERISTICS

25

organisation, provided it renders them the service they joined to receive. Although they are formally members, in their heads they are consumers. This means that either the senior staff or a few members and the senior staff they appoint are free to take over the organisation and run it as their own. They are clearly not interested in taking steps that might achieve a wider membership involvement. Some consumer cooperatives and mutual insurance organisations have developed arrangements that officially disenfranchise most of their members. In one case, this was done in order to create a more active and informed constituency to force accountability on the board of the organisation but, however worthy, it reflects what appears to be an Australian characteristic, a dislike of organisational democracy. It displays what the sociologist Robert Michels referred to (in a study of Italian political parties) as the ‘iron law of oligarchy’. In public-serving nonprofits, the practice is even less clear. Some, such as the St Vincent de Paul Society, have many members who are active as volunteers in doing the work of the Society. But an active membership does not ensure an accountable organisation. Until recently, the St Vincent de Paul Society, at the state level, was unable to prepare an annual financial statement despite that being the level where most authority resided. By contrast, as already has been noted, some other public-serving third sector organisations do not have members at all; rather they are owned by another nonprofit. Most have very few members, who, on their own, are not suitable as the object of the organisation’s accountability. For some organisations, incorporated by their own legislation around the turn of the century, that legislation gives membership rights to their donors, but those donors are not informed of this. When donors to Australian third sector organisations receive a report on their organisation, it is usually designed to elicit further support rather than present a fair and honest picture of the organisation. According to many American writers, it is the board who are charged with the task of ensuring the fiduciary responsibility of the organisation. In theory this means that the public can feel confidence in the organisation because of the quality of its board. In practice, American nonprofits are required to report annually to the Internal Revenue Service. These reports are public documents. Public-serving third sector organisations in Australia have toyed with the thought that they should be accountable to a number of different groups. Perhaps they should be accountable to their financial backers, perhaps to the users of their services. Many take the easy way out and are content to meet the reporting requirements imposed as conditions of government funding, arguing that it is this that makes them accountable. Private schools, for example, report voluminously to the relevant Commonwealth government department as a condition for receiving Commonwealth financial assistance but these reports are confidential and it is far from common for a school to provide an annual report and financial statement, even to parents, let alone to the wider public. Churches, which receive a number of tax concessions from the government, are entirely unaccountable to either government or the wider public.

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WHAT IS THE THIRD SECTOR?

Although incorporation in most cases imposes upon the organisation the responsibility to report annually to the registering authority, in only two cases is that requirement enforced. The Australian Securities and Industry Commission is assiduous in ensuring that companies limited by guarantee provide an annual return that can then be accessed by the public, for a fee. But because its forms are designed for for-profit corporations, the information they collect on public-serving third sector organisations is of limited value. In several states, registrars of cooperatives also insist on regular and full reporting. These reports are confidential. The Australian Taxation Office takes little interest in the third sector. It is perhaps not surprising that the public is largely ignorant of Australia’s third sector when there is such uncertainty about its accountability.

BOARD/STAFF

CONFLICT

A final challenge, a perennial challenge for those third sector organisations that employ staff, is tension, often conflict, between senior staff and the board or management committee. These tensions arise from a lack of clarity about the role of boards, a difficulty made worse by lack of clear performance measures. Similar tensions occur in government organisations that adopt a board structure, but these are few. They are present in some corporate boards as well but, overall, only a few corporations have boards that are dominated by non-executive directors, and the existence of widely accepted measures of company performance helps defuse the potential for tension. Boards of management or executive committees are everywhere in the third sector. In small, non-employing organisations they run the organisation on behalf of the wider membership, they take the lead in doing what has to be done. In employing organisations they might still perform some administrative or management tasks, but their main job is to set direction for the organisation and ensure that staff carry it out. But it is difficult for members and executive staff to determine what degree of involvement is needed or appropriate for the board to ensure that its directions are being carried out. For boards of trade associations or social clubs, full of people used to running their own business, a hands-off stance is difficult to maintain. In public-serving organisations, board members are mostly unfamiliar with the field or industry in which the organisation is active. Sometimes they use this as a reason for allowing the senior executives to run the organisation, but in other cases they set directions and goals that executive staff believe are inappropriate or unachievable. These characteristic problems of third sector organisations will be examined more fully in part IV; they will be illustrated in the more extensive treatment of the range of activities of Australia’s third sector provided in part II.

PART II

WHERE

IS THE THIRD SECTOR?

27

T

HE FOLLOWING TEN chapters describe Australia’s third sector in greater detail. They group third sector organisations into fields or industries according to their primary activity. For example, a football club and a sailing club are both part of the sports industry, while a family counselling service and a youth drop-in centre are both in the community services field. In the chapters that follow, the terms ‘field of activity’ (or simply ‘field’) and ‘industry’ will be used interchangeably. This use of ‘industry’ may appear odd to some readers, who associate it with trade or manufacturing activities exclusively. But these days it is a generic term used to refer to groups of organisations according to their primary activity, irrespective of what that activity might be. In other words, all forms of organised activity can be allocated to an industry. The term is used thus in international and national classifications of organisations such as the international Standard Industry Classification (SIC) and the Australian and New Zealand Standard Industry Classification (ANZSIC),1 which differs from the SIC in some minor respects. These systems of classification are used in turn to present a great deal of data on economic activity at the economy-wide level and at the industry level. Classifying third sector organisations to industries has two advantages. In the first place, it enables comparisons to be made between the contribution of third sector organisations to an industry and the contribution of for-profit and government organisations. This is because the Australian Bureau of Statistics reports economy-wide data on the operation and performance of organisations by industry. A second reason is that identifying the industry a third sector organisation is part of is as important in understanding its behaviour as is its third sector character. The activities an organisation engages in locates it in an industry: a unique pattern of rules and resources, challenges and constraints. Sharing that industry are other organisations engaging in similar activities, organisations that may be collaborators or competitors. The behaviour of

29

30

WHERE IS THE THIRD SECTOR?

all organisations in a particular industry are shaped by that industry setting. But they are also shaped by the sectoral character of the organisation—whether it is part of government, a for-profit or a nonprofit organisation. To say that organisations should be classified according to industry groupings is easy; to construct a system of classification is complex and will not always satisfy all users. Reference has already been made to the ANZSIC, the system used in Australia. ANZSIC is a hierarchical classification which groups 465 industry classes into 158 industry groups, 53 subdivisions and 17 divisions. An organisation is allocated to one of these classes according to its main activity. It occupies this class with organisations performing the same activity. They are then placed with organisations from several other classes that are broadly similar to form a group, and so on up the hierarchy. Popular understanding of what constitutes a particular industry often coincides with the technical usage, but not always. For example, the tourist industry would popularly be seen as including organisations classified to two separate ANZSIC divisions (accommodation, cafes and restaurants, and transport and storage), while the sports industry might be thought, incorrectly, to include the manufacturers and retailers of sporting goods. Sometimes the technical requirement that classification be on the basis of primary activity can affront popular ‘commonsense’ notions. For example, a parents’ association that runs the school canteen as its main activity would be classified as part of the fast foods industry. The classification system employed in this book will conform to ANZSIC, although at several points more popular terminology will be employed and in a few minor cases, where the principles employed in the ANZSIC classification are at least debatable, groupings that conform more to popular usage will be used. For example, parents’ associations will be treated, together with university unions and nonprofit research institutions, as a related part of the education industry. Four of the ten chapters of this section will, for convenience, group nonprofits from several different ANZSIC divisions. The logic of these groupings will be clear and the terminology familiar. At the conclusion of each chapter, some basic economic data will be provided. This is drawn from the Australian Nonprofit Data Project, and its publication Dimensions of Australia’s Third Sector.2 The data is drawn only from those third sector organisations in each field that employ people. It therefore understates the economic contribution of the sector. Table II.1 sets out this data in aggregate. It does so in two columns, one for the nonprofit sector and one for the wider third sector. The difference is that the third sector includes mutual finance and insurance organisations and trading cooperatives, which some would exclude from a more strictly defined nonprofit sector. This is the group of organisations described in chapter 12. It should be noted that the data in the industry-specific tables at the end of each chapter in part II will not add to the totals here. This is

WHERE IS THE THIRD SECTOR?

31

Table II.1 Basic economic dimensions of Australia’s third sector, including Australia’s nonprofit sector, 1995/96

Operating expenditure ($m) Income ($m) By source Fees and sales* Government Fundraising Other No. of employees

Nonprofit sector

Third sector

26 109 27 393

51 582 58 953

14 851 8296 2866 1380 579 367

37 128 8331 2866 10 629 633 758

*Components of income here and in subsequent tables when totalled may differ slightly from the income figure due to rounding.

because the data in table II.1 includes third sector organisations spread across industries other than those that are the subject of the separate chapters. In addition, the data here has been adjusted to remove the double counting that would occur if income generated by religious organisations or charitable trusts and transferred to nonprofit organisations in other fields, such as education or community services, were counted in both fields. The components of the main sources of income should also be mentioned. Government is self-evident. Fees and sales include income from the sale of all services the organisation was established to provide. It includes membership fees. Fundraising is a broad term that encompasses funds raised by conventional fundraising techniques such as appeals, bequests or special events, and, for public-serving nonprofits, also the profits of business ventures and interest from investments. Other covers interest earned by the rest of the third sector, plus rent, commissions and so on. In table II.1 and other tables that follow, there will be a difference between income and operating expenditure. Usually income will exceed expenditure meaning that overall, third sector organisations in this field received more income than they spent. Individual organisations that have had this experience may have added the surplus to a capital reserve or an endowment fund, or committed it to capital works (not recorded here). When expenditure exceeds income it means that, overall, organisations in a field are spending more than they receive and are running down their reserves, or running up debts to their banks. Employees consist of fulltime, part-time and casual staff employed in June 1996. More details of the data in this and subsequent chapters can be found in Dimensions of Australia’s Third Sector.3

4 COMMUNITY

SERVICES

T

HE COMMUNITY SERVICES industry is an emerging industry. Although many of the services and the organisations that constitute it have existed for many years, the existence of a distinctive industry has only recently come to be recognised. The boundaries of the industry are not well delineated. Community services abut and overlap the health, education, employment services, housing and recreation industries in particular. Community services include children’s services; various forms of supported accommodation (for older people, people with disabilities, including psychiatric disabilities, women escaping domestic violence, younger people, families and single men and men); various forms of support to enable people with a disability to remain in their own home (including respite for their carers) and to enjoy in as full a way as possible life in the community, including help in finding paid employment; child protection and substitute care; youth work; family support, including counselling; financial counselling and emergency relief; information and advice; individual and class advocacy; and community development. Community services include services where there is an element of medically supervised care or an element of education, but where these are not dominant. Thus, arguably, nursing homes and preschools could be included in community services. However convention still rules that they remain part of health and education, respectively. Community services encompasses many of what are often identified as separate types of service. But what they all have in common is that they provide support, care, encouragement and advice for people in a way that is primarily determined by them, involves some enduring pattern of interaction and is designed to remove the need for support or to enable people to achieve maximum feasible independence or autonomy in their home and community, or a setting that as closely resembles this as possible. Third sector providers of community services, generally referred to as community organisations or the community sector, vary greatly in their

33

34

WHERE IS THE THIRD SECTOR?

size and scope. Many, both large and small, are specialist providers of particular types of service (eg residential care) to particular population groups (eg frail older people). However, most of the large and about 40 per cent of smaller organisations, such as neighbourhood or community centres, provide many services, often at different sites, to a wide range of population groups. Overseas aid and development organisations are part of community services. The great majority of community organisations are local in focus and reputation. Many of even the largest are barely known outside their own state. When, in 1995, the Industry Commission (now the Productivity Commission) prepared a list of the 50 largest community organisations, numbered among the top ten were nationally known nonprofits such as the Red Cross, the Salvation Army and World Vision.1 Also included were the Wesley Mission, the Silver Chain and the Endeavour Foundation, little known outside their respective states (of New South Wales, Western Australia and Queensland). The Brotherhood of St Laurence, included among the 20 largest, has a national reputation, but for its research and advocacy, which accounts for only a relatively small part of its expenditure, the bulk of which is applied to the provision of aged care and employment services in and around Melbourne. Other third sector community service providers with names that are known nationally are not governed or managed nationally. These include organisations such as the St Vincent de Paul Society, Legacy, Lifeline, Scouting Australia, Guides Australia, the YMCA and the YWCA. These are member-owned organisations, wherein, to varying degrees, the members not only govern the organisation, but as volunteers, provide many of the core services. Authority is dispersed in different ways between local regional and state groupings. Little or no authority is given to a national committee or office. Of the three largest nationally known nonprofits, only World Vision has a clear national authority structure. The Salvation Army in Australia is in fact two separate organisations, the southern and the eastern commands. The Australian Red Cross has been strengthening its national office, but still has strong state divisions. It was only in 1995 that the national office took control of the Red Cross blood services and only since 1998 has it had control of Red Cross policy across the country. The only community organisations that operate nationally from a single headquarters are those that provide no (or few) services in Australia: the major overseas aid and development organisations such as World Vision, Care Australia and Community Aid Abroad. Their presence in Australia is in fundraising and community education. The first two of these are Australian branches of organisations with headquarters in the United States and Belgium respectively: the nonprofit equivalent of a multinational. Even Community Aid Abroad, although founded in Australia, has close links to Oxfam. Two factors explain the scarcity of national organisations and the absence of a national perspective on community services in the third

COMMUNITY SERVICES

35

sector. One is the essentially local focus of community services. Each person’s needs are subtly different to another’s; volunteers and funds are generally recruited locally; local communities like to feel that their efforts are going directly to help their local area. A second reason is that many of the largest organisations began in the nineteenth century when Australia was made up of six separate British colonies. Even today, despite the large amount of Commonwealth government funding that has poured into the community services industry since the late 1960s, state and territory governments retain an active role as regulators and funders. Despite the continuing strong local and state focus of community organisations, it is possible to detect a small but growing interest in developing a national perspective, even national organisations. Two large Sydney-based community organisations have pursued different paths towards achieving a national presence. The Sydney City Mission, under the title of Mission Australia, has brought city missions in several other states under the direction of its board. The Smith Family, originally established in Sydney in 1922, has gradually spread to other parts of the state and more recently has established offices in Canberra, Melbourne and Brisbane. Also establishing a presence in Melbourne has been KU Children’s Services, formerly the Kindergarten Union, the country’s largest provider of children’s services. The importance of organised religion as the midwife to many prominent third sector endeavours in the community services industry can be seen by glancing at the list of the 50 largest nonprofit community services providers compiled by the Industry Commission. Sixteen of them were multi-service providers. Of these, eleven were church sponsored (and several others were the product of religious motivation, though without a continuing church connection). Ten of the eighteen aged-care providers were church sponsored as well, but not one of the thirteen nonprofits providing services for people with a disability had a church connection. Age is another important variable. Nonprofit organisations that are initially successful tend to become institutionalised. Of the sixteen multiservice nonprofits in the Industry Commission list, nine were over 100 years old; of these, seven were church sponsored. Although a decreasing number of Australians profess adherence to an organised religion and few still attend worship regularly, religion is still a powerful motive for publicserving nonprofit activity, as the range of often only semi-formal organisations to help the unemployed, refugees, students or people with disabilities that have formed around many churches, synagogues and mosques can testify. The number of aged-care and disability-services organisations among the 50 largest community organisations is also worth noting. The involvement of third sector organisations in these two fields had different origins, but over the past 30 years they have followed similar growth paths, mapped out by the Commonwealth government. Disability service providers can be divided into those that were formed prior to the First World War, to assist people suffering from sight and hearing disabilities,

36

WHERE IS THE THIRD SECTOR?

and those formed mostly after the Second World War by parents of children with cerebral palsy, Down syndrome and so on. Of these, the spastic centres or societies are the most widely known, although there are other organisations with a higher profile in particular cities, such as the Endeavour Foundation in Brisbane, Yooralla in Melbourne and the ACTIV Foundation in Perth. The model for aged housing was pioneered in Melbourne in the late 1940s by the Freemasons’ Homes and the Brotherhood of St Laurence. From 1955, the Commonwealth government offered matching funds to cover the capital costs of building self-care units and then assistance with support for the frail aged in hostel-style accommodation. This incentive was accepted not only by long-established multi-service providers but other nonprofits that had not previously been active in community service provision, such as several masonic lodges, some friendly societies (which had lost a role after changes to health-care funding following the passage of the 1950 National Health Act), and some sub-branches of the Returned Services League (RSL). In the 1960s, the Commonwealth offered funds to build and operate nursing-home accommodation as well. The model for specialised aged-persons housing developed in the third sector has subsequently been adopted by the for-profit sector as the basis for retirement villages. Community organisations draw their income from a large variety of sources. They provide the most complete illustration of the complexity of revenue sources that is one of the defining characteristics of the nonprofit sector. Aggregate data is provided in Table 4.1 at the end of this chapter. But these averages conceal considerable variation. A few organisations receive no direct government funds; a few, invariably smallto-medium in size, are entirely dependent on government grants, though even they, unless they are very small, will get their funds from several different funding programs and levels of government. Some of the larger organisations, in particular, operate significant business ventures that have little or no relation to their community services work, but earn a regular profit to apply to that main activity. The Smith Family, for example, operates the largest non-woven goods manufacturing plant in the country (using as raw material unusable clothing collected by their clothing appeal—other community organisations sell their rags offshore). The Wesley Mission in Sydney continues to operate profitably a large orchard that was bequeathed to it. Looking for alternative sources of funds is one of the major preoccupations of community organisations as government funding is either cut, fails to keep pace with demand for services or is increasingly entwined with onerous and generally ill-defined reporting requirements. It is not surprising that government funding looms large in the thoughts of managers and boards of community services nonprofits. It was government funding, particularly from the Commonwealth government, that generated the growth of the sector, starting in the 1950s but especially from the late 1960s.

COMMUNITY SERVICES

37

It should be said that this dramatic increase in government funding did not occur independently of the third sector. It was advocacy work by a few provider organisations and, later, feminists and other community activists, along with organisations of disadvantaged people themselves, ‘consumers’ in today’s terminology, that prompted the Commonwealth government to begin funding accommodation and then services for older people, people with disabilities, children, the homeless and so on to create the complex fabric of community services that we have today. It should also be said that at no time did government organisations provide many community services. The growth of the community sector in Australia, unlike in some other countries such as the United Kingdom, has not been as a result of privatisation or contracting-out. A few examples of privatisation can be found, but these can be matched by examples of governments nationalising parts of the third sector, such as the Home Care Service in New South Wales. One consequence of the growth of the third sector in the community services field being the direct result of government funding is that some people in government departments and some in small third sector organisations view the community sector as an extension of government. This is perhaps not surprising, as many nonprofits established during the 1970s and early 1980s were the direct result of public servants organising groups of people to apply for funds to operate a child-care centre, a homecare service or an employment service for people with disabilities. One consequence has been that some of these nonprofits have failed to put down strong roots into their community and are unable to seek funds from that community. Others are unwilling to seek funds, believing that their clients should receive their services as a right, not as a charity, and the organisation should therefore be fully government funded. On the government side, two consequences seem to flow from viewing the community sector as an extension of government. One is that often quite junior public servants believe they can cut across a nonprofits’ line of authority and direct a middle manager who is responsible for a service funded by the government program that the public servant administers. A second consequence is that government policy makers are unable to recognise that the great majority of nonprofits are autonomous organisations, to be engaged in dialogue about the future of community services, instead of simply being informed of government decisions. One assumption that sometimes appears implicit in government policy making, and, it must be said, in some of the more romantic discourse in the community sector, is that community organisations are managed by volunteer management committees elected from the local community or users of services: the so-called ‘community management model’. The reality is rather more complex. In a 1994 survey of over 1000 nonprofit organisations selected by a random stratified sample from a larger set of organisations funded by the (then) Commonwealth Department of Human Services and Health, only 6 per cent depended entirely on management committee members to perform all the administrative and

38

WHERE IS THE THIRD SECTOR?

management tasks. In another 20 per cent committee members performed some of the day-to-day administrative tasks, but most of these were performed by paid staff. Although some of these organisations had only a few paid staff, 80 per cent of staff described as ‘chief executive’ or ‘coordinator’ claimed to have had management experience at a senior level before taking their present position. Half of them claimed to have TAFE or university qualifications in management. Many boards also had members with business or management qualifications: 37 per cent of the sample had at least one accountant on their board; 34 per cent at least one member with a university qualification in management.2 Many nonprofit organisations providing community services argue that they do more than simply provide a service, such as a meal delivered to someone’s home or assistance with dressing for a person with a disability. They argue that their staff are committed to respond to the whole needs of the person who is their client. This might mean providing companionship, advice, changing a light bulb, running an errand and so on. They might be paid staff (or they might be volunteers), but they try to help in the way a good neighbour or a friend would. They also say that they offer advocacy, on behalf of individuals who are being deprived of their rights, but also on behalf of classes of people when those people are suffering hardship because of economic or social factors, for example, unemployment or changes in government policy, such as changes in pension eligibility. Some also claim that they try to work in such a way as to strengthen the community in which they are providing services, perhaps by helping their clients to form a self-help group or by spinning off to the local community responsibility for running a venture such as a youth centre. It is claims such as these that are at the heart of the community sector’s complaint against government attempts to reconstruct its grants to community organisations as contracts for the purchase of specific units of service. It is argued that this arrangement fails to recognise the additional service that they supply. There is much that the community sector can validly complain of in government-initiated changes to funding regimes, which is discussed in chapter 18. However, while examples of services that provide a holistic response can certainly be found, they are not the norm, and examples of advocacy and community development are rare. This is not surprising. Well before current government attempts to restructure its support the pressure of requests for assistance, requests that invariably outran an organisation’s capacity to respond, had ensured that the idealised approach of the community sector remained just that, an ideal.

COMMUNITY

DEVELOPMENT

Community development is a slippery concept in the Australian context. It is not much used and has no clearly agreed meaning. It is most commonly used by people working in the community sector, in ways

COMMUNITY SERVICES

39

outlined in the preceding discussion. In its usual meaning in the sector, it refers to organising disadvantaged groups or communities to empower themselves and to demand better services or recognition of their rights. Sometimes community development might be used to refer to activity by a local individual or group designed to obtain for their suburb or district a resource such as a multi-purpose hall that could be used by many groups in the district. This was its common meaning in the decade following the Second World War. It is rare in Australia for the term ‘community development’ to have an economic development dimension. Sometimes it might refer to efforts to create new jobs in a community experiencing a decline in employment opportunities due to the closure of major employers, or other consequences of economic or government restructuring. The Local Employment Initiatives Scheme, funded by the Commonwealth in the early 1980s, provides the closest example of this approach to community development in Australia. Business Enterprise Centres, a network of nonprofit organisations supported by local firms, provides advice to people who want to set up a business, but is unable to provide seed capital and does not develop wider plans for economic development of an area or region. There are some regional economic development initiatives operating in some parts of Australia. These have generally been the initiative of governments although they do involve nonprofits and are usually coordinated by a nonprofit created for that purpose. Regional Tourist Organisations are another set of nonprofits whose object is to improve the economic prospects of certain parts of regional Australia. In North America the term community economic development refers to these sort of efforts, but it is not much used here. Such examples are not really part of the community services industry: the Australian Bureau of Statistics (ABS) would probably place them in the interest groups industry, along with local progress associations, chambers of commerce and resident action groups (which are often formed to oppose certain sorts of economic development). Community development is a concept that needs to be refurbished and given a broader focus than it has in this country at present.

OVERSEAS

AID AND DEVELOPMENT

Some nonprofit organisations that provide community services do so not in Australia but in less developed countries. They mobilise resources (volunteers and money) here and apply them, alleviating distress or building stronger, more self-reliant communities elsewhere. In the process they help educate members of the Australian public about events in less fortunate parts of the globe. In 1996, there were over 60 such organisations. As noted earlier, they include such organisations as World Vision and Community Aid Abroad, but also the Overseas Service Bureau, which organises work (paid at local rates) for hundreds of mainly young

40

WHERE IS THE THIRD SECTOR?

Table 4.1 Third sector community services organisations, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

3700 3870 770 1919 1043 139 132 247

Australians in developing countries, and much smaller specialist organisations such as APACE, which develops and applies appropriate technologies for use in developing countries. Several of the largest of these are the overseas aid and development arm of particular religious denominations, such as Caritas Australia (previously Australian Catholic Relief) and the Adventist Development Agency. Other smaller organisations are also closely tied to particular churches, reflecting the origins of many nonprofit aid organisations in the missionary efforts of various churches. Overall, during 1996, Australian nonprofit organisations spent a little over $200 million in overseas aid and development in over 70 countries. A little over half this came from their own sources of funds, mainly donations from the Australian public. The remainder came in a ratio of 3:1 from the Australian government and international agencies such as the United Nations and the Asia Development Bank. Altogether they raised over $160 million from the public to support their work. About $60 million of that went to support their infrastructure, including training, advocacy, community education and fundraising in Australia. There is relatively little interchange between these organisations and the great mass of Australian-focussed community service nonprofits. This was perhaps justifiable in the first 30 years after the Second World War, but is less so now. The economic decline of parts of Australia and the success of some community development programs in developing countries, including those that overall are experiencing faster growth rates than we are, suggests that there are some lessons for this part of the ‘North’ to learn from the ‘South’.

5 HEALTH

W

HAT WE KNOW as the health industry encompasses a huge variety of organisations, from single-doctor practices to teaching hospitals, from community health centres to pathology laboratories. Health is an industry that is significantly dependent upon, and intertwined with, the related industries of research, education, pharmaceuticals and health insurance. At its small end, the industry is dominated by selfemployed or small groups of medical and allied health professionals. Despite a high degree of regulation by both government and the professions, these operate as small businesses. At its large end, it is dominated by government-owned hospitals. Nonetheless, the third sector plays a significant though changing role. The third sector is still a significant provider of hospital beds. Australian health statistics generally distinguish between private and public hospitals. Private hospitals include nonprofit and for-profit hospitals. Public hospitals are mostly government, but include some that are nonprofit. A common measure of hospital utilisation is to total the number of days spent in a hospital by each patient. This gives the number of patient days. In 1996, nonprofit hospitals contributed 53 per cent of patient days in private hospitals and 5 per cent in public hospitals. Nonprofit hospitals are mostly owned by Catholic religious orders. Most of these were established in the nineteenth century when hospital care was a form of poor relief (hospitals were not the preferred site for medical practice, and did little to encourage recovery, so the wealthy tried to avoid hospitals in favour of being treated at home). They received government support. As hospitals came to be generally favoured as places for treatment, many of these nonprofit hospitals were incorporated into what came to be known as the public hospital system. The consequence was a growing loss of control to state health departments, though this was not fully obvious until the 1970s. As governments became increasingly determined to limit the growth of health expenditure and relocate hospital beds from within the nineteenth-century boundaries of

41

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WHERE IS THE THIRD SECTOR?

Australia’s capital cities towards their late twentieth-century outskirts, their bureaucrats inevitably clashed with the nonprofit public hospitals. Although ostensibly part of the public system, these organisations were not as amenable to direction as the government-owned public hospitals. As well, whenever the bureaucrats proposed policies the hospitals did not like, they had a disturbing habit of arranging for the bishop to raise their concerns with the premier. Nonetheless, over time, many public beds and thus government funding have been withdrawn from the nonprofit part of the public system. In some cases, as with the Mater Hospital in North Sydney, the hospital continued as a private hospital. In other cases, such as the Royal Hospital for Women in Paddington (owned and operated by the Benevolent Society), the government took the name and resources to a new hospital elsewhere in the eastern suburbs, leaving the society to sell the land to fund other more innovative programs, including some in women’s health. Over the past 20 years, this greater government intervention has coincided with increases in both the complexity and the cost of running hospitals and a dramatic decline in numbers joining religious orders. Many religious orders no longer have the energy, resources or skills to continue to provide hospital services. In a few cases, religious orders have passed the hospital over to the diocese, which has then contracted a private firm to manage it. In the United States this path usually leads to the sale of the hospital to one of the private hospital chains that have been building a strong presence in the health industry since the 1980s. The forces that are transforming the health system have some way yet to run; it is likely that when the system stabilises there will be few nonprofit hospitals remaining. The same cannot be said of nursing homes. Despite still being classified as part of the health industry, nursing homes are gradually being integrated into a growing system of aged services, which are properly part of community services. Although for-profit providers own more nursing home beds than the nonprofit sector (48 per cent to 38 per cent),1 there are very few for-profits that provide a full range of residential services for older people, a common pattern with nonprofits. There are none that provide both community and residential aged care, as do several larger nonprofits. Government nursing homes are generally considered badly run and governments are gradually moving out of that area of service provision. Ambulance services are another field where a nonprofit association, the St John Ambulance Association, pioneered the provision of a valuable service. From the 1890s until 1919, the volunteers of the St John Ambulance Brigade provided the only ambulance services in all states of Australia. In 1919 in New South Wales, they were replaced by a public ambulance service, but in some states they continued to run the ambulance service with increasing amounts of government subsidy. Gradually, starting with the capital cities, they were replaced by a government service. In rural South Australia, this has only happened in

HEALTH

43

the 1980s. The association is still active in providing first-aid courses and supplying trained volunteers at certain sporting events and other public occasions. The appropriateness of the nonprofit form for pioneering new and initially specialised health services can be seen in the Royal Flying Doctor Service and, more recently, in the various helicopter emergency medical services. Third sector organisations provide a number of other specialised services in the health industry. These include the Australian Red Cross Blood Service, which has almost a monopoly in the provision of blood and blood products. They also include services associated with the first or second waves of the feminist movement, such as family planning childbirth education and women’s health centres, and a number of organisations working with people suffering from the effects of drug or alcohol abuse or from a psychiatric illness. The latter are relatively rare in Australia, where government has always taken the main responsibility for the mentally ill in contrast to the United States, where the nonprofit sector has always had a major role in this area. The third sector does not provide general community health services. Community health centres are invariably run by the government, though in some states they are structured to make them appear as if they are independent of government and under ‘community’ control. This was the case in Victoria, where community health centres were apparently governed by communityelected boards but were staffed by public servants seconded from the health department. They were, in effect, government–nonprofit hybrids, or they were until Easter 1997, when the Victorian government abolished their boards and brought centres under direct departmental control. The discussion so far has been about public-serving nonprofits. There is also a strong member-serving dimension to the third sector in the health industry. As with the public-serving organisations, the contribution of member-serving third sector organisations was more important in the nineteenth and early twentieth century, although one set of organisations will continue to play a central and unchallenged role in the future. The decline of the friendly societies, discussed in chapter 12, did not mean the end of member-serving organisations in the health industry. The past 30 years has seen the remarkable growth of what are best described as condition-specific organisations. These days, for every known medical condition there is an association for people suffering from the condition or for their carers. There are organisations concerned with stroke, cancer, HIV/AIDS, diabetes, Alzheimer’s disease, multiple sclerosis, chronic fatigue syndrome and many, many, more. These organisations do some or all of a variety of things. They provide support and information for their members; they publicise and educate a wider public about the condition; they provide services for people with the condition, often pioneering innovative kinds of service; they raise funds for research and services; they lobby governments to fund research and the provision of specialised services. Strictly speaking, only some of them, those that primarily provide health care, fit into the health industry.

44

WHERE IS THE THIRD SECTOR?

Others are better classed as research organisations and more of them as community service providers. Not all condition-specific organisations are member-serving. A few are government–third sector hybrids. For example, the New South Wales Cancer Council is a government-owned organisation that behaves like a nonprofit. Others are not truly member-serving, or, at least, are not governed by people with the particular condition or their family members or carers. As sometimes happens with public-serving nonprofits in the health field, medical practitioners, in these cases usually researchers, exercise considerable influence on some condition-specific organisations, so much so that the organisation is better classed as public rather than member serving.

EMERGENCY

SERVICES

This range of services does not fit easily in any industry. They are not all part of the health industry, but because saving lives is a major rationale, they have been included here rather than elsewhere. Experience of bushfires and floods are deeply etched into the Australian psyche. The damage caused by storms and gales is as much a part of the experience of city dwellers as those in the bush or rural outskirts of cities. The popular pastime of surfing has its attendant risk as do certain other recreations, such as boating and caving. In Australia emergency services had their origin in mutual organisations, but increasingly have been drawn under the control of government. There are good reasons for government involvement in the organisation and provision of emergency services. In areas of high population density, it is often easier for government to solve the free-rider problem that bedevils all collective action solutions to widely shared problems. Governments can employ specialist staff or require contributions from the people likely to be affected. But a government’s best strategy is to work collaboratively with the nonprofit associations that represent the mutual response to the problem. To varying degrees, this is how governments in Australia have worked. Firefighting is one example. Volunteer fire brigades enlist and train thousands of people each year. They provide the only organised response to fires outside of the built-up areas of major cities or specialised areas such as national parks. In the suburbs of the major cities, which developed in the period after the Second World War, they share responsibility for fire protection with the paid firefighters of the government-run metropolitan fire brigades. Yet, they are closely tied to government, with a state government department or authority providing much of their equipment (the volunteer brigades have to raise some of their own funds), and training and coordinating their activities in the case of fires. From the perspective of the government, these firefighters are individual volunteers in the government’s bush or country fire service. But from the

HEALTH

45

Table 5.1 Third sector health organisations, 1995/96* Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

4201 4391 2117 1964 147 163 111 484

*includes emergency services

point of view of the volunteers, their brigades are assisted by government to provide a valuable public service. The gradual replacement of volunteer ambulance services by government services has already been noted. Generalist emergency services provision provides another model, one that replicates the government vision of the volunteer fire brigades. Emergency service workers are trained volunteers but are under the direct control of employees of government emergency service departments. They are, in effect, volunteers for the government. Surf lifesaving provides the opposite example. Although individual surf lifesaving clubs receive considerable assistance from their local council, they are part of a single national nonprofit organisation that turned over $8 million in 1996. The Volunteer Coastal Patrol does not intersect with the lives of most Australians in the manner of the surf lifesavers and as a result is a much smaller organisation, entirely dependent on volunteer labour. There are other nonprofit organisations specialising in providing emergency searchand-rescue services in specialised circumstances. These include the Caves Rescue Group and the Volunteer Rescue Association. It is worth noting that the National Safety Council of Australia, which managed to extricate itself from the notorious collapse of the National Safety Council of Victoria in 1989 (Australia’s most spectacular collapse of a nonprofit organisation), now concerns itself with working with companies to improve their occupational health and safety, rather than with emergency services.

6 EDUCATION

AND RELATED

ACTIVITIES

T

HE THIRD SECTOR is an important part of Australia’s education industry. Private, or non-government, schools educate 29 per cent of Australian children. They spend over $5 billion in doing so. Fifty-five per cent of their revenue comes from government and 35 per cent from parent fees. The reason for Australia’s large nonprofit schools sector lies in the nineteenth-century insistence by Australia’s Catholic bishops that the children of Catholic parents be educated in Catholic schools. Government policy in the different colonies had originally encouraged the main Christian denominations to operate their own schools. By the 1860s, this policy had changed to one that insisted that all children attend government schools with a curriculum that included education in the beliefs common to all forms of Christianity. When the Catholic church refused to join this system, all government assistance for Catholic schools was ended. Catholic schools continued however, and grew in number, sustained by parent fees that were kept low because teaching was done by members of religious orders who required merely their keep. The call for a renewal of state aid for Catholic schools was a frequent refrain of the bishops for the next 80 years. Finally, in the 1950s, the Commonwealth Liberal–Country Party government commenced the first tentative funding of private schools. Under the present arrangements, the basic framework of which was laid down during the Whitlam government (1972–75), schools receive a sum of money for each pupil, where the value of the sum is determined by the socio-economic environment of the school, the fees it charges and its demonstrated capacity to raise funds. Most Catholic schools, those that are part of the Catholic school systems administered by Catholic Education Offices in each diocese, now receive more from government grants than they do from fees. This untying of the government’s purse strings came at an opportune time for Catholic schools. From the 1960s, recruitment into religious orders declined precipitously. Now almost all teachers at Catholic schools are lay and are paid an award wage.

46

EDUCATION AND RELATED ACTIVITIES

47

While the controversy over Catholic education was raging a number of private secondary schools were formed to cater for the children of wealthy parents. It was not until the twentieth century that governments invested heavily in secondary education. Most of these private secondary schools were sponsored by one of the Protestant denominations and were modelled on the elite ‘great public schools’ of England. They did not need government support, but have gratefully received it since it has become available. Since government support for private schools has become available, a number of Protestant denominations have expanded their systems of schools. A number of schools with a strong commitment to evangelical Christianity have also begun, the so-called Christian schools. A growing public dissatisfaction with government schools, particularly secondary schools, has led to a high demand for places at private schools, which are perceived as possessing a more disciplined learning environment. For many years, government policy was to discourage the formation of new private schools by making them ineligible for government support if they were near an existing government school. In 1996, the Commonwealth government removed that restriction and a further growth in private schools can be anticipated. Schools that are part of church-run systems are governed a little like their state school counterparts: only a limited autonomy is given to each school (though this varies from state to state: parish schools in Victoria, for instance, have more autonomy than they do in New South Wales). Non-systemic or independent schools are mostly incorporated as nonprofit companies, usually with boards appointed or elected by various church authorities. Nonprofit schools are, by and large, highly secretive. They must report very fully to the Commonwealth government for their government grant, but it is difficult to find individual schools or school systems issuing a public report, not even to parents and certainly not one containing financial details. A long history of resistance by some vocal minorities to state aid to non-government schools possibly explains this reticence, but it hardly becomes such a major set of nonprofits to be so unconcerned with public accountability. Whether they are government or third sector, schools are supported by a good deal of nonprofit enterprise. Even government schools, which for many years were described as providing free education, depend on parents’ groups to raise funds for certain equipment. Many parents’ groups operate the school canteen or tuckshop, some run the uniform shop and in a few cases in some states, they are responsible for maintaining the school grounds. Schools themselves, especially primary schools, recruit many parents to perform curriculum-related tasks around the school, but the voluntary effort mobilised by parent organisations is considerable, as are the often complex organising tasks that they carry out. In several states, all or most preschools are nonprofits. Third sector organisations play a role in post-secondary education as well. Four small universities are nonprofits. As well, surrounding all universities is a significant infrastructure of support organisations: student

48

WHERE IS THE THIRD SECTOR?

councils, unions, guilds, clubs and societies, colleges and halls of residence, research institutes, foundations, language schools, consultancy companies and so on. Most of those are third sector organisations. There is relatively little third sector involvement in technical education, but most adult or community education is provided by third sector organisations, through community or evening colleges or neighbourhood houses or through more venerable institutions such as mechanics institutes or workers’ educational associations. Governments support the mainstream efforts of adult and community education, providing facilities, such as schoolrooms, and subsidies. In a couple of states, governments directly provide some adult education through statutory authorities. Many government technical and further education providers offer some ‘hobby’ programs that would be described as community education. Some of the blossoming business and language colleges are nonprofits and of course most continuing professional education is organised by professional associations (those organisations are treated in chapter 11). The question of whether most universities are government or nonprofit organisations is vexed. They are best considered as hybrid organisations.1 This is not true of the two universities that are not part of the publicly funded system, Bond University and Notre Dame Australia. These are both incorporated as nonprofit organisations. The Australian Catholic University, although it is part of the public system, is incorporated as a company limited by guarantee and is owned by the Catholic church. Avondale College is owned by the Seventh Day Adventist church. Together, in 1996, these four organisations employed 1661 staff, enrolled 12 000 students and spent $93 million. By contrast, the remaining 36 ‘hybrid’ universities spent $7 billion. University unions, those bodies to which all students belong and which provide food and beverages, recreation facilities, shops and subsidies for clubs and societies, turn over more than one-quarter of a billion dollars annually ($264 million in 1996). Strictly, they are not part of the education sector, but rather the accommodation, cafes and restaurants industry. University staff clubs belong to the same industry and are counted there. Student representative bodies are part of the interest group industry. University colleges and halls of residence are run by nonprofit companies (if they are not directly run by the university). Traditionally, they were established by the major Christian denominations. The ABS classifies them to the accommodation industry (and so must we), although they all to varying degrees provide additional educational support for their residents. Universities first set up separate consultancy arms as money-making ventures in the 1960s, but since the late 1980s have sought to utilise the revenue-generating possibilities of the expertise tied up in their staff with greater enthusiasm. In some cases, these revenue-generating organisations are part of the university structure, responsible through the vicechancellor to the governing body. Most universities have structured them as a separate company, either a nonprofit company, which nonetheless

EDUCATION AND RELATED ACTIVITIES

49

Table 6.1 Third sector organisations in education, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

6138 6034 2280 3172 363 219 134 569

Table 6.2 Education-related third sector organisations (parent associations, university unions, research organisations), 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

870 948 522 190 203 33 9265

returns a surplus to the university, or as a proprietary company wholly owned by the university. The separate company form enables the university to operate independently of government funding guidelines and enter into partnership with for-profit firms. In so far as they are separate entities, they are best viewed as part of the research industry.

RESEARCH Most research in Australia is undertaken by government bodies, particularly the CSIRO and by universities. There are a small number of third sector research organisations, mostly in the medical field. One of these, the Walter and Eliza Hall Institute is, arguably, Australia’s premier medical research centre. Others such as the Garvan Institute and the Peter McCallum Centre have also attracted high reputations. In all cases, these centres were established by a single grant or bequest, which was then built on by successful fundraising and grant seeking. A good deal of funding for medical research in Australia comes from the public via condition-specific organisations such as the Heart Foundations or Cancer Councils. These have been considered as part of the health field because they generally provide other services and mostly make grants to other organisations to undertake research rather than doing research in-house.

7 OTHER

HUMAN SERVICES

HOUSING

T

HE INVOLVEMENT OF third sector organisations in the provision of housing has a long and complex history. However, it was mostly in the form of mutual organisations designed to provide their members with finance to purchase or build their own housing. These are treated in chapter 12. Until the 1970s, the direct provision of housing by the third sector was limited to the provision of selfcare units for older people (described in chapter 4). This was unlike the United Kingdom where a good deal of housing was provided by nonprofit housing associations. A modest start was made in the 1970s with the provision in the Commonwealth State Housing Agreement for limited funds to be made available to local authorities and community groups to provide and manage housing for certain specialised groups. In a similar way, funds were made available to Aboriginal and Torres Strait Islander groups to build and manage housing. By 1996, there were approximately 33 500 housing units provided by nonprofit organisations. Approximately two-thirds of these are owned by the nonprofit (although they are heavily mortgage financed); the rest are managed by the nonprofit on behalf of either a government or a for-profit owner.

EMPLOYMENT

AND TRAINING

The provision of a mixture of work and training as a service for unemployed people, especially those who had been unemployed for some time, emerged in the mid-1970s. Nonprofit organisations, especially those in the community services, found the provision of government funds to 50

OTHER HUMAN SERVICES

51

enable them to offer employment along with some training to the longterm unemployed a great boon. At the initiative of the Commonwealth government, a number of specialised Community Youth Support Schemes (CYSS) were established, initially to provide support and some job preparation for unemployed young people, but increasingly to provide training that it was hoped would improve their employability. During the 1980s, government policy increasingly favoured training at the expense of work experience. The nonprofit sector always argued that a mixture of possibilities were needed, as different unemployed people had different needs. Many nonprofits withdrew from the field, and those that remained, such as those funded by the CYSS program that was renamed by the government as Skillshare, came increasingly to specialise in training provision. A few, such as the Brotherhood of St Laurence, applied some of their own funds to develop and evaluate innovative schemes that went beyond the government’s preferred paradigm. In its last years, the Keating Labor government adopted many of the policies, such as case management and the importance of work experience, that the nonprofit sector had long proposed. Within two years the new Liberal–National government had dramatically cut funding. In a major piece of privatisation, it put out to tender basic job placement services that had previously been provided by the Commonwealth Employment Service (CES). A slimmed-down CES was converted to a governmentowned company, Employment National, and told to compete with nonprofits and an increasing number of for-profits, for service contracts. The process used for awarding contracts and setting prices was controversial and caused great consternation, especially among nonprofits. Nonprofits retained a significant presence in the market, especially through the efforts of the Salvation Army and Mission Australia, but also a new network organisation, Job Futures. Nonprofits were even more successful in the second round of job network tenders. Overall, though, the nonprofit contribution to the provision of employment and training services in all their forms, including executive and professional recruitment, has never been large. It should be noted that the data reported at the end of this chapter does not include the contribution to this field by Mission Australia and the Salvation Army, which are classed as part of the community services industry. As with many other industries, there is a member-serving as well as a public-serving nonprofit presence in the employment and training industry. It is relatively small, consisting of a number of group employer schemes established by industry associations to act as the employer of apprentices, enabling each apprentice to move easily between several small employers to obtain the full range of industry experience, which a single small employer could not provide. In addition, there are several ‘body hire’ cooperatives formed from unemployed skilled workers, the most successful being in the Hunter region of New South Wales. Altogether, the nonprofit component of the employment and training industry amounts to $220 million.

52

WHERE IS THE THIRD SECTOR?

Table 7.1 Third sector organisations providing other human services (housing, employment and training, legal services, community transport), 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

LEGAL

363 376 193 164 7 13 12 405

SERVICES

In the early 1970s, alarmed at the high cost of legal advice to low-income people, staff and students at several university law schools established shopfront legal services; an Aboriginal legal service was established at about the same time. These soon won government support and a network of 140 community legal centres has spread across the country. Some provide advice on particular matters such as tenancy law, others offer services to Aboriginal people, but the great majority provide a shopfront general legal service. They remain heavily dependent upon government funding but also receive volunteer input from practising solicitors.

COMMUNITY

TRANSPORT

In New South Wales, a little over 100 small, specialised nonprofits provide transport services, mainly for older people who do not have their own transport or who cannot easily use public transport. Similar services are provided by local government, in other states exclusively so.

8 RELIGION

R

ELIGION REFERS TO beliefs about an existence beyond the material world. These beliefs are also the basis of other beliefs about the material world and how to behave within it, together with sets of symbols and rituals that embody and express those beliefs. To survive and prosper, a religion needs organisation. Religious organisations do two things: they facilitate worship or other symbolic actions, and they control the beliefs and practices of members of that religion through laws and through approving or disapproving of writings and teachings directed at members of the religion. Sometimes these functions are performed by the same organisation, but generally they are allocated to separate specialised organisations within the religion. Places of worship are generally called churches, synagogues, temples or mosques. The rule-making part might be referred to as the official church, synod, union or groups of approved scholars such as imams. Most religions have a third set of organisations that perform a number of specialised roles within the religion. These include organisations of certain elect members of the religion, such as religious orders, and their specialised places of residence and worship (called variously monasteries, convents, temples and so on). They also include organisations for the specialised education and training of clergy and other leaders of the religion, and organisations to help support the faith of members and to win others to that faith, such as missions, bible societies and so on. Rowland Ward and Robert Humphreys have identified over 300 separate religions operating in Australia.1 These range from the large and well-known denominations such as the (Roman) Catholic church, the Anglican church, the Uniting church and the Baptists through to the Seventh Day Adventist church and various Pentecostal religions such as the Assemblies of God in Australia and the New Life Churches of Australia. But the list also includes many non-Christian religions such as Judaism, Islam, Buddhism, Confucianism, Shinto, the Baha’i Faith, various forms of spiritualism and theosophy and Aboriginal religions. It

53

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WHERE IS THE THIRD SECTOR?

also includes beliefs that some might not consider religion, such as the Church of Scientology and Wicca or witchcraft. Religious organisations are member-serving organisations. They differ from other membership organisations in that most people are born into a religion. That is, if their parents are active members of a particular religion, or frequently even if they are not, a child is instructed in and often involved in the practices of that religion. In the past this created an identity that remained for life. Even today, such experiences may influence people well into adult life but, despite the best efforts of some parents and the members of various religions, many turn away from any active religious membership or even religious identification in teenage or early adult years. Adults who are members of a religious organisation today tend to have chosen to be so. This creates an interesting paradox. Membership of a religion comes in two forms: an identity and an active involvement. Few who claim an identity are actively involved. In the 1991 census, a little over threequarters of the population claimed membership of some form of religion. However, Ward and Humphreys estimate that only 11 per cent of the Australian population, a little over 2 million people, are active members of religious organisations. The largest religious organisation by far, with almost 50 per cent of those who are active adherents, is the Catholic church.2 Religious organisations vary considerably in the structure of their governance. Some are hierarchical with authority centred on one office and flowing downwards through the organisation; others are based around individual congregations of believers who establish higher levels of organisation primarily as coordinating mechanisms. Some are no more than single congregations gathered around an inspiring preacher. The main difference lies in the teachings of the particular religion about the rules for believers to follow to reach heaven or enlightenment. Almost all Australian religious organisations have a higher authority, located outside Australia. This is particularly true of the hierarchical religious organisations, such as the Catholic church and the various Orthodox churches. It is less true of the Anglican church, while the various congregationbased churches are usually linked to some other congregations overseas. The various non-Christian world religions are also tied, with varying degrees of firmness, to centres in other countries where the majority of the population might adhere to that particular religion. Excepting Aboriginal religions, almost all of the 300 religions in Australia were brought here by groups of immigrant adherents. Australians who are active members of various religious organisations are through that act of membership linked to countries and much wider movements outside our own. Religious organisations can be an important guard against parochialism. Most religious organisations in Australia are multi-site organisations. Some large Christian denominations have thousands of distinct organisational entities (parishes, monasteries, seminaries, dioceses, religious institutes and so on). Most religious organisations depend upon a specialised

RELIGION

55

class, caste or occupation (called, for instance, priest, minister, rabbi or imam) who officiate at, or at least facilitate, the special events or occasions of worship that are at the heart of the religion. These specialists are generally educated for their role (although in some cases such as Pentecostal religions they may be ‘called’ and demonstrate the truth of that by their ability to build a congregation). In some cases, the specialists are required to lead a life that is somewhat apart from other members of the religious organisations. In hierarchically organised religions, they have authority over ordinary members of the religion (the laity). In some congregational religions, they might be invited by the congregation to fill the specialist role and, in turn, might have that invitation withdrawn. The large number of separate components in any particular religious organisation invariably creates tensions. The ability of the leadership of any particular religious organisation to demand compliance with their statements of the doctrine of the religion is always limited. The incentives, indeed the necessity, for political activity within these complex organisations is immense. Major sources of disagreement reside in relations between clergy and congregation at a local level and between the views of doctrinal leaders and the practices of members. Disagreements can arise regarding the contents of belief, the symbols and rituals of belief, and about more mundane matters such as property. Most religious organisations develop sets of rules, not only to govern the behaviour of members but also to allocate rights and responsibilities within the organisation. Of course, it is the hierarchically organised religions that have the most fully developed codes. The Catholic church, early in the twentieth century, codified its various rules and regulations into a Code of Canon law. This is a body of law similar in many respects to the body of statute law within any country. The existence of so many religious organisations looking to sources of authority outside the jurisdiction of the nation-state might be thought to pose a challenge to that state. In the nineteenth and early twentieth centuries there were many who thought this of the Catholic church. It has not been an issue in Australia for some decades. For the most part, government authorities and the custodians of civil law along with those who hold authority in religious organisations studiously avoid each other. As far as the state is concerned, religious organisations are just a set of voluntary associations.3 The civil courts will generally try to avoid being asked to adjudicate upon disputes that might arise within voluntary organisations. Nonetheless, almost all religious organisations in Australia have acquired a distinct legal personality for the purposes of civil law through some form of incorporation. Many religions, particularly those with few congregations and places of worship in a state or city, incorporate as associations or companies limited by guarantee. Some of the largest Christian denominations are incorporated by special Acts of parliament (usually state parliament); some merely create trusts to hold their property. Occasionally, when disputes arise within particular religions, the civil courts are asked to intervene. Sometimes this is over

56

WHERE IS THE THIRD SECTOR?

the ownership of property, as when the dispute is between a congregation, which might hold the title deed to a church or mosque, and a higher authority in the church, such as a bishop, who might insist upon appointing a particular member of the clergy to minister to the congregation. Sometimes, as in a recent dispute within the Sydney Anglican church, the courts are asked to rule on the propriety of certain church rules, such as those concerning the ordination of women. As noted, the civil courts seek to avoid being involved in matters religious. However, because religious organisations can claim special tax treatment, and because marriage law gives certain rights to the clergy of certain religions to perform weddings that are legitimate in the eyes of the state, the courts have been required from time to time to rule on whether a particular nonprofit organisation was or was not a religion. The most famous case involved the Church of Scientology. The Church of Scientology claimed exemption from Victorian stamp duty on the grounds that it was a religion. This was disputed by the commissioner of taxation in Victoria. The commissioner’s view that Scientology was not a religion was upheld by Victorian courts but on appeal by the Church of Scientology to the High Court of Australia, the lower court’s judgment was overturned and the Church of Scientology was declared a religion. The various justices of the High Court were unable to reach a consensus on the meaning of religion, proffering three broad definitions. The most straightforward of these held that, for the purposes of law, the criteria of religion are twofold: belief in a supernatural being, thing or principal and, secondly, the acceptance of canons of conduct in order to give effect to that belief.4 Although religion is primarily a system for signifying beliefs beyond everyday life, religious organisations are nonetheless part of everyday life and as dependent upon revenue and property as any other third sector organisation. For the most part, religious organisations draw a distinction between responsibility for or the stewardship of property and responsibility for the content of belief and the conduct of worship. For the management of property and other financial matters, laypeople are regarded as being at least as skilled as members of the clergy. At the local congregational level, there is usually a parish or congregational committee that looks after financial matters, though usually only in an advisory capacity. At the level of the diocese (the main unit of management within hierarchical churches), presbytery or union, there is usually a committee of laypeople skilled in the ways of the material world to guard and grow the material resources of the religious organisation. Religious organisations have always been a prominent part of Australian life. The Christian churches in nineteenth-century Australia were seen in an ambiguous light. On the one hand, they were seen, and saw themselves, as a civilising influence. A district could be considered settled when the first church was erected, usually as a result of voluntary labour. But the churches were also the source of division and controversy within the colonies. Many clergy were notorious for their combatorial qualities. Sectarianism, generated by various Protestant and Catholic

RELIGION

57

clergy from the 1860s onwards, became an enduring feature of Australian life for almost a century. It helped to keep many Catholics in a subcultural ghetto, complete with Catholic schools, hospitals, insurance companies, department stores, sporting and recreation clubs. Sectarianism helped shape political alignments, though the ‘political parsons’ were unable to win many adherents to their cause. Sectarianism was disparaged by most opinion leaders and rejected by important third sector institutions such as the trade union movement and the Labor Party. Nonetheless, in the realignment of political allegiances that took place after the 1916 split in Labor over conscription, Catholics became numerically dominant within the Labor Party and an identity between Catholicism and support for Labor was forged. As well as being anti-Catholic, political Protestantism became associated with what late nineteenth-century Australians called ‘wowserism’, or strident objections to alcohol and gambling. For the most part, however, the clergy of various religions were unable significantly to shape the voting behaviour of their nominal or even their active adherents. Most Australians, perhaps in reaction against late nineteenth-century sectarianism, relegated their religious membership to a private sphere of life, cut off from the decisions they made as citizens. Nonetheless, the churches have contributed richly to other facets of Australian life. They were the vehicle through which resources to build schools, hospitals and community service organisations were mobilised. Even today, the same process continues. Many parish churches and congregations, mosques, temples and synagogues support various endeavours designed to improve the wellbeing of disadvantaged members in their communities, both among their members but also among the wider community. These include the provision of many forms of community service from aged care, disability services, child care, emergency financial support, housing, other specialised accommodation, employment and training. These efforts are often relatively small and closely intertwined with the activities of the sponsoring congregation. They are distinct from the better known church-sponsored organisations such as Geelong Grammar, the St Vincent de Paul Society or St Vincent’s Hospital which contribute so much to education, community services and health in this country. Nonetheless, it seems that only a minority of active religious adherents are spurred to engage in public-serving activities. Only 27 per cent of regular attenders at Protestant religious services were involved in community service/social welfare groups when surveyed in 1991. However, almost 60 per cent were involved in some other form of third sector organisation.5 Like other long-established member-serving organisations, religious organisations have seen a slow decline in their membership in terms of nominal adherence, the percentage of Australians identifying with a particular faith in the census has declined from the high nineties in the 1890s to a little below 90 per cent from 1933 until 1976 when it began to fall to only 74 per cent of the population in 1996. Data on numbers of active members is less reliable but points to a gradual decline. This is

58

WHERE IS THE THIRD SECTOR?

Table 8.1 Religious organisations, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

892 1001 – – 1001* – 17 000

* Includes $157 million categorised by the ABS as commercial sales

not to say that all religious organisations have experienced a decline. Some, such as Pentecostal groups and some non-Christian religions, such as Buddhism and Islam, are growing as a result both of conversion and immigration. Some religions previously counted in the census, such as Unitarianism, have almost ceased to exist. Others, such as Congregationalism and Methodism, have been subsumed along with many Presbyterians into a new Uniting church. The 1960s proved to be a tumultuous decade for many of the Christian churches. None were affected more than the Catholic church, whose Second Vatican Council (the first had been 90 years before) began a movement for renewal and reform that has overturned many traditional symbols and beliefs. However, frustration with the pace of reform has led many clergy and religious to leave their special calling, and persuaded many who might once have demonstrated a strong religious commitment in such a calling to avoid it. For the Protestant churches, the 1960s were a period of ecumenism, of burying past differences between the Protestant churches and of opening dialogue with both Orthodox and Catholic churches. The capacity of religious leaders to influence politicians appears to have declined quite dramatically over the past 30 years. This decline coincides with many changes in religious organisations and a decline in their nominal membership. It also coincides with a rediscovery by religious leaders of the poor and a renewed concern with issues related to social justice rather than the social behaviour of the population. It is clear that the process of transformation of religious organisations has some way to go. It is quite possible that the main Christian religions will decline further in importance; alternatively, they may revive to play a major role in rejuvenating traditions of civility and justice within Australian society. The role of religious leaders and others who are clearly and publicly motivated by their religious beliefs in seeking justice for Aboriginal people testify to this possibility. As well, in a world where the nation-state is loosing its influence to international or global corporations, these original global organisations, the various components of the world religions, provide a potential avenue for citizen involvement in international affairs that far outweighs international nonprofit organisations of a secular kind, such as the Red Cross, Amnesty or Greenpeace.

9 ARTS

AND CULTURE

T

HERE ARE TWO ways of approaching artistic and other cultural activities. One way is to focus on people’s participation in these activities, as actors, painters, musicians and singers, and on the organisations that facilitate that. The other way is to look at arts and other cultural organisations and events as entertainment, as opportunities for the recreation and education of others. The focus then is on professional organisations that compete with each other for audiences or visitors. If we focus first on organisations that facilitate participation in cultural activities, we see a considerable presence of the third sector. At this level, certain activities that we identify as culture are little different to other activities that we might identify as recreation. Thus, a group of people in a country town might form a drama society and produce one or two plays per year. Or a group of keen musicians in a region or city might form an orchestra or choir, or a group of university students a film society. These are all activities that require the participation of a group of people. Such a group may form as a one-off venture, but more likely will seek an extended association and a name. Thus a new third sector organisation is born. Its purpose is largely mutual; although the product will give entertainment to others, that is not the main reason for performing. Those whose enthusiasms are more solitary, such as painting, poetry writing, photography or pottery, do not necessarily need the company of others to pursue their interest, but frequently will belong to a group of other enthusiasts for supportive criticism and advice about materials, techniques and so on. Various craft associations display and sell the best products of their members. Sometimes these members manage to make a living from their enthusiasm. Social and technological changes since the 1960s have inevitably transformed the shape of the third sector in the field of arts and culture. Whilst television and the expansion of social clubs may have reduced the number of theatrical and choral groups, easier access to radio and

59

60

WHERE IS THE THIRD SECTOR?

television frequencies has produced hundreds of community radio and even a few community television stations. The expansion of secondary education has dramatically increased the number of people who have been given opportunity to acquire basic skills or appreciation in one or other art or craft. Large immigrant populations have increased the number of associations formed to keep alive cultural practices from the old country. Aboriginal people, long the object of discrimination, have made great use of western art forms to develop their own distinctive expression in painting, dance, theatre and film. In many cases these advances have been facilitated by third sector organisations. Other ‘communities’ or groups of people with distinctive identities have used festivals to affirm their identity—whether it be as gays and lesbians through the Gay and Lesbian Mardi Gras or as film or jazz buffs or as residents of a town or district. Festivals have proliferated since the 1980s. Because they generate an economic benefit through tourism, many are run by local governments, but others are initiated and remain under the direction of people working through third sector organisations. Some nonprofit arts organisations were initiated by other third sector organisations. The New Theatre in Sydney was formed by the Communist party in the 1930s, while the Genesian Theatre was formed by a group of Catholics in the 1950s. Government grants have helped foster amateur arts and cultural organisations. Regional theatres such as the Q Theatre have been assisted from time to time with grants and now offer limited seasons with paid rather than amateur actors. The Commonwealth government has led the way with grants made through the Community and Cultural Development Fund of the Australia Council. The Australia Council was established in 1973 to administer all the government’s grants to arts organisations. The Fund and its predecessor, the Community Arts Board, have encouraged the holding of regional arts festivals, which have in turn encouraged local arts organisations to grow and to cooperate. Festivals have helped provide the arts with an economic justification, via their boost to tourism. The Commonwealth government has also encouraged the growth of community radio by granting certain community organisations radio licences. Some community television licences have also been granted, but the rapidity of technological change in these media, such as pay TV and the prospective introduction of digital transmission, makes the continuing existence of nonprofits in the electronic media precarious. A quite different picture emerges when we look at arts and cultural organisations that employ professional performers and exist to offer artistic or cultural experiences of the highest quality to as wide an audience as possible. Here we find a mixture of government, third sector and for-profit organisations. With a couple of exceptions, the third sector is the newest arrival on the scene. Australia’s major symphony orchestras, museums, galleries, parks and gardens are almost all government controlled. The exception is the Museum of Contemporary Art in Sydney. In the case of the orchestras,

ARTS AND CULTURE

61

government control is exercised at arm’s length: each is incorporated in separate companies wholly owned by the Australian Broadcasting Corporation (ABC), a statutory authority responsible to a minister. The major radio and television networks are government owned or, more commonly, part of for-profit media companies. Most popular theatre, especially musical theatre, is provided by for-profit entrepreneurs; film and video production is almost entirely for-profit. However, the major performing arts companies, opera, ballet, dance and theatre, are all nonprofit organisations. So too are chamber music groups and choirs. And so too are a number of smaller theatre companies and experimental dance groups. But this set of organisational arrangements, like the range of highquality artistic offerings, is of recent origin. Until the 1950s, there were no nonprofit organisations that employed professional performers. The best known nonprofits were the philharmonic societies in the major cities. All opera, ballet and theatre were arranged by entrepreneurs, of which J.C. Williamson was perhaps the best known. The ABC had begun symphonies in each state capital in the late 1930s. Coinciding with the 1954 royal visit and designed to capitalise on it, three men, H.C. Coombs (the governor of the Commonwealth Bank), Charles Moses (the chairman of the ABC) and J.D. Pringle (the editor of the Sydney Morning Herald ) formed the Elizabethan Theatre Trust. They hoped to raise enough money from government grants and public donations to enable the trust to start permanent ballet, opera and theatre companies. The funds raised were not as extensive as required, but nonetheless the trust was able to begin the Australian Opera and the Australian Ballet. Their existence remained precarious until Coombs was able to persuade the Holt government to commit regular Commonwealth subsidies. Meanwhile, the size of the potential audience for the high arts was growing, the product of the expansion of higher education from the 1960s and the large numbers of immigrants from continental Europe. In 1973, the new Whitlam Labor government, responding to this demand, reorganised all Commonwealth support for the arts into the Australia Council and proceeded to massively expand it. In turn, state governments that had previously provided intermittent patronage for the arts, regularised and expanded their support. It was mainly from state governments that support for new nonprofit professional theatre companies emerged. As with sport almost a century before, state governments also provided the prestige venues needed for these artistic endeavours. Sydney’s Opera House is the best known example. Today, professional companies exist on a mixture of income from subscriptions and other ticket sales, government grants, corporate sponsorship and private philanthropy. Their existence is still precarious. In 1997 the Victorian Opera, which had largely existed on state government subsidies, was forced to amalgamate with the Sydneybased Australian Opera (to form Opera Australia). The Sydney Dance Company was recently saved by the injection of some significant private and corporate donations.

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WHERE IS THE THIRD SECTOR?

Table 9.1 Third sector arts and culture organisations, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

434 466 213 176 38 39 6677

It is clear that all of the high arts require government assistance. It would not be politically acceptable to have government theatre or opera companies; nor would it be possible for governments to provide regular assistance to a for-profit company. It is the logic of finance as much as anything else that dictates that almost all of Australia’s high arts should be provided by third sector organisations. Even those organisations, such as the museums and orchestras, which are government owned, behave very like the nonprofits and actively seek donations and sponsorship. The management and governance of the elite cultural third sector organisations is rather different from the smaller organisations established to facilitate participation. They rely on professional managers, usually experienced in the management of this class of organisation. Their boards consist of a mixture of people either with standing in the particular artistic discipline or, predominantly, with high-level business experience, and contacts with others of wealth and influence. Despite these advantages, boards and senior managers are sometimes riven by division, and do not always appear to be able to steer their organisations through the tricky shoals of changing taste and diminishing government and private patronage.

10 SPORT

AND RECREATION

SPORT

A

SPORT GENERALLY involves some form of physical exertion and competition according to predetermined rules. Sometimes the competition is between individuals, sometimes between teams. Sometimes competitors control inanimate objects such as cars or boats; sometimes the competition is between animals such as horses and dogs, especially bred and trained for competition. Competition requires organisation; teams also require organisation. In Australia, almost all sporting teams and competitions are organised by third sector organisations. Some of the best known are household names: the Carlton Football Club, the Australian Rugby League, the Australian Jockey Club, the Australian Olympic Committee and so on. These are well known because they participate in or organise some of the major sporting competitions that are followed by millions of Australians. They are also very large, with annual expenditure of tens, even hundreds, of millions of dollars. But the great majority of Australians who participate in sport do so via thousands of small clubs, most of which depend entirely on the voluntary labour of some of their members for their continued survival. Above the layer of local clubs are district or regional and state organisations. These arrange competitions and distribute any resources for the development of young talent that the central body has extracted from government or from business. Above the state level of organisation there is a national body. Their job is to maintain the rules of the sport, to organise any national-level competition and to link Australia to any international body of the sport. Not all sports have an international organisation but, where they exist, they hold final responsibility for the rules of a particular sport and/or for organising international events. International sporting bodies such as FIFA (for soccer) or the International Olympic Committee (IOC) are among the most powerful bodies in the world; governments fete them to win the right to stage the sporting festivals that these bodies command.

63

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There is a degree of mutual dependence between local and higher level sports organisations. Local organisations depend on the elite level of the sport attaining and retaining a high public profile, so as to attract new participants. The higher level organisations that are responsible for organising elite competitions depend on the local and district level to discover and nurture talent. Schools, too, are sites for discovering and training talented youngsters. Even among government schools, interschool competitions are mostly organised by nonprofit associations. The relationship between governments and sporting nonprofits is relatively straightforward. Local government provides and maintains many of the grounds, pools and courts that are used for individual recreation and local-level sport. Clubs make a small payment for their use, but generally they receive a significant level of government subsidy. Sometimes facilities are provided that are suitable for state- or nationallevel competition. Generally the venues for top-level competition are provided by state governments, though day-to-day management is vested in a government-appointed trust. Some wealthy sports, such as horseracing, own their own facilities. So too do some golf and bowls clubs. In other sports, such as Rugby League, many of the major clubs have been enriched by grants from their social clubs and their share of television rights, and have made a significant contribution to the upgrading of their home grounds. For-profit enterprises also provide some facilities, such as squash courts. In addition to providing sporting facilities, state governments have for the past 30 years or so provided financial grants to sports organisations, mainly to help development and with the costs of administering statelevel organisations. The Commonwealth government has also assisted, particularly, elite athletes in certain sports. It operates an Institute of Sport and a Sports Foundation in Canberra, and has made donations to many sporting bodies tax deductible. Australians have long taken success on the sporting field as a sign of their achievement as a nation, and, beginning in the late 1960s, national governments have committed increasing resources to seek success, especially in that massive festival of sport, the Olympic Games. The relationship between nonprofit sports organisations and the business sector is more complex, with the business sector offering both support but also competition. Business incursions into areas of sport that have previously been the preserve of nonprofit organisations is increasing and will transform the structure of sport in Australia. Most sports require some form of specialised clothing and equipment. These are invariably manufactured and marketed by business enterprises, many of which, such as Nike or Adidas, are large transnational corporations. They are sold by many small firms whose business depends on growing participation in sport. As a result, they provide useful financial support for even local clubs. Other businesses also find it a useful marketing or public relations strategy to sponsor sports teams or competitions, from the local to the international level. It is particularly

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65

valuable if the sport is televised and watched by millions of people. Some sports have always attracted crowds of spectators; the mass media, especially television, has made them a major source of mass entertainment. Companies whose products were coming under criticism in certain quarters were quick to sense the opportunities that sports sponsorship held. Persuading some sports to forgo the revenue provided by cigarette companies was a long drawn-out process and is still controversial. It is the dual role of sport as participation and entertainment that has created tension between nonprofit and for-profit organisations in sport for 150 years. Entrepreneurs have always been attracted to sports that had a high level of public interest, either by charging people to view a competition that they stage or by offering opportunities for people to bet on the outcomes. They would invariably pay the competitors, who were the best in their field. Running, walking, rowing, sailing and boxing events were organised by entrepreneurs up until the late nineteenth century (and far longer in the case of boxing). These events and horseracing attracted gambling and, of course, the sale of alcoholic beverages. The first Australian cricketers to tour England were a team of Aboriginal people, on a tour organised by some entrepreneurs. The second team, the first of players drawn from the burgeoning club competitions in Sydney and Melbourne, organised their own tour (in 1878), investing their own money in a joint stock company and enjoying large profits when it was successful. Richard Cashman has traced how, early in the second half of the nineteenth century, a powerful social movement developed among the middle classes to rid sport of the corrupting influences of paid or professional sportsmen and gambling.1 For those who shared this ideology of amateurism, sport was a great character builder. It taught teamwork and respect for rules. The ideology was especially championed by those who had been through the English ‘public’ schools and in Australia its base was in the largely private secondary schools. But its influence spread much wider. As an ideology it gave a great boost to the nonprofit form of association. By 1900, all sport was firmly under the control of amateur administrators. In some cases all taint of money had been expunged, in other cases truces had been reached that allowed some payment for some players, as in Australian Rules Football where a Victorian Football League broke away from the fiercely amateur association, or in Sydney, where some clubs in mainly working-class areas of the city broke away from the Rugby Union, changed a few of the rules, and formed a Rugby League. There was a strong middle-class aspect to the amateur sports movement. Gifted young sportsmen from working-class families were less enthusiastic than their middle-class counterparts. In boxing, an amateur committee controlled the sport that most boxers, all amateurs, participated in, while for-profit firms and entrepreneurs staged fights for professionals with sufficiently attractive prizes to attract the best of amateurs. Horseracing remained largely untouched. Nonetheless, the nonprofit clubs that controlled horseracing moved to control gambling or bookmaking, at

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least on course. Entrepreneurs were still active and in the new century organised pony-racing clubs. The large increases in income and free time that were the gift of the long postwar boom from 1946 till 1975 brought huge pressures to bear on the amateur ideology and it broke. These pressures came from several points. The popularity of tennis and golf, individual competitor sports, led to entrepreneurs in the world’s largest sporting market, the United States, to set up professional circuits. For a time, the amateur clubs that controlled the major tournaments excluded professionals, then they bowed to commercial reality and allowed them in. It was inevitable that the amateur ethic would decline. People payed to see the best, and the best needed to train intensively. They needed to be paid. Not only that, companies would pay to be publicly associated with the major competitions. Further, by the 1970s, television networks were prepared to pay large sums to televise events. Television meant greater publicity for the sport and thus greater popularity. It also meant money that could be used to develop it at school and local level. Money could also pay players and pay professional managers. The television networks came to exert considerable influence on many sports. Sometimes the directors of the nonprofit associations that continued to control the major team sports did not respond as a media entrepreneur wished and major struggles ensued. This happened in cricket in the late 1970s and Rugby League in the late 1990s. What has happened is that the organisation of elite competition in many sports has become entwined with the corporate strategies of global media and communications companies as they compete to win the massive profits they are sure will be the rewards for whoever picks the right combinations of technology and programming. It is a tough world for nonprofits, which only 30 years ago were run by volunteer officials. It requires entirely different management skills, and an entirely different set of goals. No elite-level club can any longer afford to operate like the one dissected in David Williamson’s well-known play, The Club. Some do, but they will probably not survive. The money that is attracted to sport as entertainment has drawn in other entrepreneurs as well. In Rugby League, several of the new teams established to compete in the new national competition established in the late 1980s were owned by private companies. Several teams in the national soccer competitions were also. This had long been the arrangement for baseball and football in the United States and Canada, and for soccer in Britain, but never in Australia. During the recent attempt by News Limited to establish a rival Super League, the directors of several of the existing nonprofit, community-owned, clubs sold half of the club to the corporation. For-profit ownership of football clubs does not always ensure success. When the Australian Football League club South Melbourne was moved to Sydney to become the Sydney Swans, it was sold to a for-profit company. After some initial success, the team and the company fell on hard times, attracting small attendances and limited sponsorship. The

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67

company went into liquidation and the team became the possession of a new nonprofit club. Since then it has prospered. Other entrepreneurs have set up whole new competitions, such as the National Basketball League, in which all competing clubs are private business ventures. In some cases whole new sports have been invented by entrepreneurs, such as the triathalon. One-day cricket was invented by a media company. Entrepreneurs are not only penetrating and transforming the elite levels of sport. Traditionally, at the local level, to participate in a sport on a consistent basis, a person joined a club and ended up committing time to running the club as well as playing the game. Now, some fitness clubs (which, despite the terminology, are private firms), offer to their clients the opportunity to form a team and engage in a few rounds of competition in a preferred sport, without the additional commitments associated with running a club. It is an attractive proposition to many busy people, but it has turned participation in sport into another item of consumption.

RECREATION Recreation differs from sport in that there is no element of competition. There may be some element of physical exertion, but it is less likely. Many recreation activities are entirely unstructured; they may be pursued individually or with others. The latter we most frequently refer to as socialising. Many businesses exist to aid socialising: the brewing and wine industry, hotels, restaurants and so on. In Australia there is a very large group of third sector organisations that were formed, or expanded, precisely to provide opportunities for socialising. These are social clubs, most of which are licensed to sell alcoholic drinks and to operate gambling machines. These are known as licensed or registered clubs. The first social clubs were clubs such as the Australia Club or the Melbourne Club, formed around the middle of the nineteenth century by the colonial elites as a place for relaxation and networking. Some of the high status sporting clubs such as racing clubs and golf clubs created opportunities for members and their guests to socialise, and this practice spread to other clubs. The huge growth in nonprofit social clubs occurred after the Second World War, the result of increasing wealth and leisure time, the spread of populations in the major cities and the failure of the hotel industry to adjust to new demands. In the older parts of Australia’s cities there were many hotels. Mostly they were small, offering limited accommodation and a very limited opportunity for socialising, especially socialising between men and women. Their main bars were spartan with limited seating. Women were excluded from all but small ‘lounge’ bars. Small victories by the temperance movement early in the century had restricted opening hours, leading to the notorious ‘6 o’clock swill’, where men crowded the hotel

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bars after work to drink as much as they could before the bars closed at 6 o’clock. The temperance movement had also limited the spread of hotels. For those people wanting an opportunity to socialise with partners or friends, the alternative was the licensed social club. Many developed out of existing nonprofit organisations: football clubs, bowls clubs, golf clubs, Returned Services League sub-branches. In other parts, groups of people (mostly men) formed workers’ clubs or country clubs, depending on the status of the district. In New South Wales, clubs began, illegally, to install poker machines. Worried by the growth of the club movement, the Australian Hotels Association, representing the hotel owners, tried to force the government to prosecute the clubs. The clubs threatened to mobilise their already extensive membership and persuaded the government to give them an exclusive licence to operate poker machines and, through taxation, to create another useful revenue stream for the government. After that, the clubs flourished, some of them growing into huge leisure complexes with entertainment, sporting and holiday facilities. Most recently, some have developed conference facilities with accompanying three- and four-star hotels. Virtually all of this growth has been funded from the proceeds of gambling, which the clubs use to subsidise their bar and food sales and entertainment as well as their growth. The largest clubs turn over tens of millions of dollars per year. They are by far the largest community-owned and operated facilities in the country. Third sector social clubs did not grow to the same extent in other states, which were reluctant to allow any poker machines within their jurisdictions. Since then all state and territory governments, hungry for the revenue provided by gambling taxes, have permitted for-profit companies to establish large casinos replete with banks of poker machines as well as the more sophisticated paraphernalia of roulette and so on. Most have also permitted hotels and clubs to install poker machines. In New South Wales in the 1990s, hotels were permitted to install a limited number of poker machines. In the capital cities since the late 1970s there has been a huge increase in the opportunities for sophisticated wining and dining. Clubs now face a challenging environment. Another group of third sector social clubs offer more limited opportunities for socialising and tie these to other purposes, such as selfeducation or community service. Many of these are known as community service clubs. Included here are organisations such as Rotary, Lions, Apex, Zonta and Toastmasters. Included among these is the original model for these and many other self-help organisations, the masonic order. At the core of these clubs is a regular meeting of club members for socialising. These meetings usually involve some ritual, elaborate in the case of the masons, perhaps no more than a few ritual phrases and practices in the case of the others. Clubs mix self-interest and public-interest activities to varying degrees. For people in business or the professions, belonging to one of these clubs can provide valuable opportunities for networking and business advantage. Most clubs are part of international organisations,

SPORT AND RECREATION

69

allowing members the opportunity to make instant contacts in other parts of the country or the world. Membership is usually by invitation and is usually restricted to one or two for each trade or profession. Membership of certain clubs, such as Rotary, carries a certain social status. Some clubs aim to encourage members acquire certain skills, for example, Toastmasters helps members become adept at public speaking. Most of these ‘sociability’ clubs engage their members in socially useful activity. They mediate between the business sector and third sector community organisations. Many raise funds for and, as volunteers, help build public facilities such as parks or playgrounds. Others arrange student exchanges. In the past some clubs have helped raise public awareness of issues. In 1923, not long after it was founded, the Rotary Club of Sydney conducted a survey of what they called ‘boys’ work’, including opportunities for recreation, to identify the factors that led to delinquency. Five years later it joined a worldwide Rotary survey of crippled children and subsequently helped found the NSW Society for Crippled Children (now the Northcott Society). Apart from a few wealthy central business district clubs, these ‘sociability’ clubs are purely volunteer organisations at the local level. Local clubs are part of districts and regions and so on. At those higher levels they will usually employ administrative staff, but they remain highly dependent on the voluntary commitment of their members. In most cases, membership appears to be falling. There are many forms of recreation other than socialising. Many of these are catered for by for-profits. The tourist industry, for example, offers resorts, cruises and theme parks. But many activities that people wish to pursue as recreation are more specialised. They represent enthusiasms shared by only a few others. To the extent that people wish to, or need to, enjoy their enthusiasm with others, a voluntary association, a third sector organisation, is required. There are thousands of these: for bushwalkers, stamp collectors, rose growers, model aircraft enthusiasts, anglers, Jack Russell terrier owners, quilt makers, bird watchers, MG car owners, genealogists and so on. Many activities that are recreations for some are, or once were, work for others. Aero-clubs allow commercial pilots a recreation that utilises the skills they need for their work; they train potential commercial pilots as well. Many members of societies for plant growing or animal breeding grow plants or breed animals as a living or to use at their work. Some clubs allow their members to continue practising old crafts that are no longer commercially used and to pass them onto younger enthusiasts. Thus there are associations to restore and operate old steam locomotives, old sailing vessels, old motor vehicles and so on. Sometimes these associations set up museums to show off their handiwork. Recreation clubs are member-serving, but sometimes perform a useful public purpose. Dog clubs, for example, teach dog owners how to care for, handle and train their dogs. Experienced bushwalkers or speleologists can often provide invaluable assistance in rescues. Bird watchers or other natural history groups sometimes undertake extensive fieldwork for ecological studies.

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Table 10.1 Third sector sport and recreation organisations, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

5942 6491 6015 100 265 111 98 341

Recreation clubs are an example of a classic membership association. They bring people together across class and geographical lines. They rely entirely on voluntary effort, although, where a group of clubs form into a peak council (such as the Canine Council), that peak will often employ staff. Generally, they raise their own funds, through subscriptions and fundraising events. Sometimes, as with sport, the reliance of a particular club on certain products means that the retailers or manufacturers of those products will provide sponsorship funding. Dog food companies provide considerable support for dog clubs, for example. But recreation clubs are also prone to some of the problems that can afflict all organisations of enthusiasts: domination by cliques, internal bickering, rigidity and a failure to adapt to changing circumstances or the tastes of younger members.

11 INTEREST

ORGANISATIONS

M

ANY THIRD SECTOR organisations are formed by individuals or other organisations that share a common interest or identity. Some of these are formed primarily to advance or protect that interest by representing it to the wider society or government and by providing services to its members. Most of these organisations are formed to protect and advance a shared economic interest. They are member-serving organisations. Included in this group are professional associations, unions, employer associations, trade and other business associations such as chambers of commerce, and other groups representing such varied interests as pensioners, motorists, tenants, residents and land holders. Some other third sector organisations are formed to represent what their members believe to be a wider public interest, or the interests of others whose poverty or other disadvantage leaves them unable to act effectively for themselves. These include most environment groups, policy advocacy groups, such as the Australian Council of Social Service or the Tasman Institute, and organisations established to improve business performance, such as Standards Australia or the Australian Quality Council. Also included here are the thousands of organisations that constitute the structure of various social movements concerned with rights: for women, gays and lesbians, ethnic minorities and people with disabilities. Together with some parts of the environment movement, these causes attract people whose strong commitment leads them to identify closely with the cause and build a lifestyle that reflects that commitment. In this aspect, some social movement organisations resemble religious organisations. However, the great majority of third sector organisations formed to represent interests are pragmatic. A final set of third sector organisations formed to advance their members’ interests and, they believe, the interests of the whole society, are political parties. The two major parties, the Australian Labor Party and the Liberal Party, were both formed by pre-existing interest groups: trade unions in the case of Labor and a combination of business

71

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WHERE IS THE THIRD SECTOR?

associations and middle-class women’s, Protestant and temperance organisations in the case of the original Liberal Party. The National Party represents rural interests. In Labor’s case, trade unions retain a formal involvement in the party’s structures and processes. Other parties rely on individual members who share a common set of interests or concerns, or are breakaways from existing parties.

PROFESSIONAL

ASSOCIATIONS

Professional associations are formed to set standards and control entry to certain occupations. In this way they resemble medieval guilds. They do so by specifying the content and level of training required of practitioners and by having this right acknowledged by government and education providers. They require members to maintain and update their skills by taking further courses of study and by reading professional journals. They justify their role by referring to the assurance it provides to members of the public that someone licensed by them will provide a service of acceptable quality. But professions are also occupations by which their members earn an income. Although the level varies from profession to profession, many professionals are self-employed or work in partnership. Generally they will be employers. A few professionals, such as pharmacists, are also retailers. These interests are wider than simply professional practice and as a result give rise to several organisations within the same profession. Thus, within medicine the various colleges focus strictly on issues of professional education and accreditation, while the more generalist Australian Medical Association concerns itself with industrial types of issues, such as its insistence on fee-for-service medicine, or policy issues such as the state of Aboriginal health. Occasionally a college will also engage in policy advocacy, as the College of Surgeons did in favour of making seatbelt use compulsory in motor vehicles. Pharmacy is divided between the pharmaceutical societies (in each state and nationally) and the Pharmacy Guild, which is concerned with the interests of pharmacists as retailers. Members of professions where self-employment is high like to set their fees by collective agreement. The strong labour market power of the professions is attracting critical attention from those parts of government committed to creating greater competition in the economy. The claims of professions to set standards of practice and the high prestige generally accorded them has also attracted criticism from time to time, most particularly during the 1970s when hostility to the pretensions and practices of the professions was at the heart of many social change movements and gave rise to women’s health centres and community legal centres. The definition of what constitutes a profession is arbitrary. The most widely recognised professions today are medicine and the law. But in 1921, when the Commonwealth statistician defined profession for the

INTEREST ORGANISATIONS

73

census, he included public servants, the military and clergymen. Many occupations aspire to professional status. The achievement of such a status is a major goal of many occupational associations. Some achieve it part way. School teaching aspires to be a profession, but because all teachers are employees, mostly of the government, they have never achieved the status nor the independence of the ‘classic’ professions. Their professional body, the Australian Council of Education, is weak and few teachers belong to it. Most do belong to their relevant teaching union however. Nursing is an occupation that aspires to but has not quite achieved professional status. The College of Nursing along with the nurses’ unions were instrumental in having nurse education shifted from hospitals into higher education, in order to help boost the claims of nurses to professional status. Accountancy is one occupation that has gone a long way to achieving full professional status. Fifty years ago it still looked more like a trade, with occupation-based training and several organisations representing the interests of accountants employed in different fields. It has only been within the last 30 years that most accountants have been university trained. The profession is still not unified, with several bodies including the Institute of Chartered Accountants representing the self-employed and the Australian Society of Certified Practising Accountants representing most of the employed accountants respectively.

TRADE

UNIONS

Along with political parties, trade unions are the best known interest organisations. This is a consequence of their central role in Australia’s economic and political history since the 1880s. Unions have been extraordinarily popular; at their peak in the 1950s and 1960s they had almost 60 per cent of the workforce as members. They formed and continue to support and significantly influence the Australian Labor Party and thus exert a considerable influence on state and national politics. Finally, in a society that has seen little violence and bloodshed, the frequent confrontations between organised labour and business, with government usually taking the business side, have woven a dramatic thread through our history. Unions exist to increase the bargaining power of individual working people. By joining together and threatening to withhold their labour, they can negotiate better pay and conditions than would be possible for individuals. This leverage works best when workers have some skills that make it difficult for the employer to replace them with other, non-union, labour, and in times of near full employment. The first unions were craft based, and the high point of union membership was reached in the decades of full employment following the Second World War. But many other factors affect unions’ capacity to advance their members’ interests and the proportion of the workforce that belong to unions. One important influence that has shaped the way unions have

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developed in Australia has been the way industrial relations have been conducted within a specialised legal framework. The creation of this industrial legal system was one of the major institutional inventions of early twentieth century Australia. Initially opposed by the union movement, it was then embraced and has shaped the unions’ behaviour since. In particular it has reduced the need for active shopfloor unionism. Via the system of industrial awards, benefits won by a union at one or two sites or perhaps in a trade flowed on to others working under that award and, often, to workers under other awards as well. Australia’s federal system of government meant that there were seven legal jurisdictions. Unions operated in each state and usually at the national level as well. Close links were built between unions and certain legal firms. Because of their central place in the nation’s economy and because of their important institutional link with the Labor Party, control of unions is often fiercely contested. Usually, the contest has ideological dimensions, these days usually between those aligned with the left or right factions of the Labor Party. In the period from the 1920s to the 1970s, the fight to control the unions was fought between communists and those on either the right or the left who opposed communism. During the late 1970s and 1980s, two important, self-initiated changes occurred in the Australian union movement. The first was an attempt to reduce dramatically the number of unions by encouraging the amalgamation of many craft-based unions into larger industry-wide bodies, and then to amalgamate these across adjacent industries. The number of Australian unions fell from 326 to 132 between 1986 and 1991.1 The second initiative was to form an accord with the incoming Hawke Labor government, under which the union leadership proposed a fall in real wages in return for an increase in targeted government social expenditure and cuts in taxes. The aim was to encourage a revival in economic activity, which was achieved, along with a revival of investment in manufacturing industry. Union influence declined over the thirteenyear life of the Hawke–Keating Labor government, but was nonetheless considerable and led to a number of important social policies, such as compulsory, employer-funded superannuation. Both of these initiatives came from the Australian Council of Trade Unions (ACTU). They were a product of a gradual centralisation of power within the union movement. They coincided with, and may have assisted, a considerable fall in union membership, which declined slowly from the mid-1970s to the mid-1980s and then rapidly thereafter till by the late 1990s it stood at less than 30 per cent of the workforce.2 The decline in trade union membership has been dramatic and may be permanent. Recent research suggests that it is primarily a consequence of three factors. The first is structural changes in the labour market, in particular the decline of blue-collar manufacturing (traditionally highly unionised) and the growth of the service economy, which traditionally has been less unionised. The second factor has been the collapse of compulsory unionism as employers have withdrawn recognition of such

INTEREST ORGANISATIONS

75

arrangements and governments have delegitimised and prohibited them. Third, unions have not read the changes well and have continued to spend more effort trying to poach members from other unions rather than attempting to expand into the growing non-unionised areas of the workforce.

TRADE

AND BUSINESS ASSOCIATIONS

The first organisation to represent the interests of businesses was formed long before the first trade union. The Sydney Chamber of Commerce first began in 1824. Organisations representing employers in various trades formed during the 1830s and 1840s, though they usually had to reform in the 1860s after the considerable economic turmoil caused by the goldrushes. By the 1880s, in the larger colonies at least, the issue of free trade versus protection was causing business interests to divide on either side of that issue and, where necessary, to form new organisations to advance their case. Many new trade associations and other business organisations formed. Growing union activity provided another spur to business organisation. Sometimes, a business or trade group would try to coordinate their response to union demands, sometimes they would form specialised bodies, such as employers’ federations. As industrial relations became entwined in its special legal system, these bodies, which had the same standing before the industrial courts as unions, took on the task of representing employers and providing education and advice to their members. The growing regulatory role of government during the twentieth century added to the need for business organisation. Since the 1940s, it has been the Commonwealth government that has had the main impact on business. This has created pressure to bring together state trade associations into loose federations or even single national bodies with state branches. It has also led to the quest to form peak bodies to represent the interests of various businesses in a coordinated way. The National Farmers’ Federation represents almost all the product-specific groups within the rural industry; the Business Council of Australia represents the 40 or 50 biggest firms that believe their interests are different from those of the great mass of Australian companies; the Australian Confederation of Commerce and Industry represents the latest attempt to bring together the bulk of industry and trade associations, while another three or four groups claim to represent the interests of 600 000 small businesses.

OTHER

INTEREST ASSOCIATIONS

Many other third sector organisations are formed to represent the interests, mainly the economic interests, but sometimes the legal rights, of their members. These often represent groups of people by the various roles they play in society, as consumers, as motorists, as residents, or as

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recipients of government-provided benefits or services: pensioners, carers, university students, and people with a disability or an illness. Examples include the Australian Consumers Association, the Returned Services League, The Country Women’s Association and the Australian Quadriplegic Association. Some of these have become service providers or research organisations in their own right.

PUBLIC

INTEREST ORGANISATIONS

Many other third sector organisations seek to represent the interests, or what they believe to be the interests, of others, sometimes disadvantaged people, sometimes the whole of humankind, sometimes future generations, sometimes other animals or ecosystems. Environment groups such as the Australian Conservation Foundation, Greenpeace or the Wilderness Society are perhaps the best known of organisations formed to protect the environment, but they are joined by many hundreds of organisations with a local or regional focus or a concern with particular forms of environmental threat. Included here are also organisations that seek to protect the built environment, such as the National Trust and those that are concerned with animals, whether native, such as the Wildlife Information and Rescue Service (WIRES), or domestic, such as the far older and better known Royal Society for the Prevention of Cruelty to Animals (RSPCA). Other well-known advocacy organisations include Amnesty International, the Council of Civil Liberties, and the Australian Council of Social Service (ACOSS). The members of ACOSS and the state councils of social service (COSSs) are mostly other organisations providing community services. However, unlike a conventional trade association, the COSSs seek to develop and advocate policies that they believe would advantage low-income and other disadvantaged Australians. These are the clients of their member organisations and in this way the COSSs share and extend the mission of their members. Included here are also organisations of people who share a commitment to particular ideas or values and who seek to analyse events, and develop and advocate policies that embody those ideas. A great success story of the 1980s and 1990s has been the profound influence that has been wrought on government policy by organisations such as the Institute of Public Affairs or the Centre for Independent Studies, which have argued for smaller government and lower taxation. Other older bodies such as the Council for the Economic Development of Australia (CEDA) or the Australian Institute of Political Science operate more as fora for the discussion and broadcasting of ideas than for the advocacy of a single position. Nonprofit organisations that seek to encourage businesses of all kinds to improve their performance, such as Standards Australia, the Australian Quality Council or the Australian Institute of Management, can also be included here.

INTEREST ORGANISATIONS

POLITICAL

77

PARTIES

The best known third sector organisations formed to advance particular interests and shape government policies in ways that embody certain ideas about how to make the world a better place are political parties. Only three parties in Australia can aspire to form a government and two of them only in coalition. Nonetheless, there are almost 100 distinct political parties registered in Australia. Clearly, winning government is not the only incentive for forming a party. In some countries it is difficult to distinguish between a political party and the government. The party structure constitutes the core of the state. One-party states such as China and Vietnam exemplify that arrangement. In other states such as, until recently, Mexico or Indonesia, there are various parties, but one has been in office for so long that it too is indistinguishable from the government. In Australia, political parties are definitely independent of government, even when their parliamentarians form a government. The occasional eruptions over policies and priorities between party and parliamentary leadership of all three major parties testifies to that. Perhaps because of their intimate relationship with government, political parties are the most highly regulated of the third sector organisations that seek to represent interests. To contest an election a party must be registered with the Commonwealth or state electoral commissioner. The party must have at least 500 members and file annual returns detailing the sources of its income. In return, it receives financial grants, the level of which reflects the number of votes cast for the party’s candidates. The electoral rules determine the structure of opportunities for parties. Except under exceptional circumstances, to form a government, a party or coalition must control a majority of seats in the lower house. A different method of election to upper houses (and to the lower house in Tasmania and the ACT), assists smaller parties to obtain one or two seats, and thus the opportunity of gaining the balance of power. This gives parties such as the Australian Democrats or the Greens the opportunity to exert often considerable influence over government policy, and inspires members of other small, sometimes single-issue parties to persevere with the often fruitless task of election campaigning. Even if a party cannot hope to win even one seat, if it can demonstrate that it commands the votes of a small but committed group of members, it can do deals with major parties anxious to secure the second preferences of its supporters. For the most part, political parties are open organisations. Those seeking membership are usually screened, and those who have been members of other parties given particular attention. The Labor Party for many years struggled to keep members of the Communist Party from joining, or through sympathisers, from exerting considerable influence over party policy. The major political parties have themselves attracted

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many groups who, while broadly sympathetic with the party’s position, try and shape it to accord with their own more sharply defined positions. Over the past century, such divisions have often split or threatened to split a party. Yet to remain a viable electoral force, a major political party must be able to hold within it a variety of sometimes strongly opposed positions. Since the 1980s, the Labor Party, in an apparently successful attempt to manage these tensions, has formalised a system of factions and a division of offices within the party machinery to keep these fissiparous tendencies under control. The Liberal Party has been less successful. In the late 1990s, the One Nation Party demonstrated the difficulty of holding together in one organisation a group of people with strong views, big egos and little experience of politics.

THE

DARK SIDE OF INTEREST REPRESENTATION

Among third sector organisations formed to represent interests, there are a few organisations that offend against the mores of the majority of the population. The members of some are prepared to break the law and even to practise violence against their opponents in pursuit of their goals. There are some who argue that there are too many interest groups and that their presence weakens the capacity of government to govern effectively. Others retort that their presence is precisely a sign of a vibrant democracy. All would agree that a strong democratic political system requires that the various contending interest groups that operate within it keep their actions within the law and do not, through their words or actions, seek to inflame hostility between different groups in society. By and large Australia has been relatively free of groups whose behaviour threatened social order. From time to time in the nineteenth century, sectarian behaviour by Catholic leaders or Protestant organisations such as Orange lodges threatened that order. Then in the 1920s and particularly in the early 1930s, conservative groups organised secret armies, largely because they believed their interests were threatened by socialists or communists (or even a Labor government). The Communist Party was unable to organise a revolution in Australia, but it did take secret orders from Russia and at times acted in ways that arguably subverted democratic processes. These few examples of the ‘dark side’ of the nonprofit sector are a useful corrective to those who propose that through voluntary association only good things come.

HOW

INTEREST ORGANISATIONS WORK

Interest associations not only embody a great variety of purposes, they vary greatly in size, from small local progress associations, landcare groups or scholarly disciplinary associations that rely on the efforts of a few enthusiastic and committed volunteers to keep going, to very large

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79

professional and trade associations that have an annual expenditure of tens of millions of dollars. The Institute of Chartered Accountants in Australia, for example, spent over $33 million in 1997, while Australian Business (previously the NSW Chamber of Manufacturers) spent $25 million on its core activity as an employer and industry association. Although they vary greatly in size and in the range of interests they represent, third sector interest organisations share some characteristics that make them particularly challenging to manage. They are all membership associations. Members are often individuals and sometimes other organisations. Members are sometimes few or may number hundreds of thousands. Members expect two things from such associations: some successes in advancing or serving their interests or the cause they are interested in and a sense of being in touch with and able to influence the decisions of the directors and managers. For some organisations it is enough that they are actively involved in policy debates or in publicity events and demonstrations that express the views of members to a wider public as well as the government. Many more strive to effectively serve the particular needs of members for advice, information or education. All interest associations invest heavily in newsletters or journals. All hold regular conferences. For members of many organisations, such as professional and trade associations, these are mainly opportunities for further education, networking and, for some, tax-deductible relaxation. For groups more interested in shaping public policy, annual conferences are the venue for reviewing, defending and changing policies. Annual or biennial conferences are often the occasion for the election of new directors (some larger organisations do this by postal ballot). Some associations have difficulty finding people to join their governing body; for others there is spirited contest. The constitution of many interest associations provides that only a few directors retire at any one time, to try and reduce the turmoil that can be caused by a new team introducing sweeping changes every two or three years. Nonetheless, this sometimes happens when a new and determined chair or president is elected. In many associations, the directors and particularly the chair set directions for the organisation; in others, a longstanding chief executive has a strong hold on power and uses the board as advisers. The former arrangement is more likely in trade associations, where most of the board and certainly the chair are people with considerable experience in the trade or industry, probably gained running their own firm. They invariably like to take an active role and sometimes find it difficult to adapt to the need to accommodate the views of others and to compromise—qualities that are usually required to effectively govern an interest association. They sometimes run the organisation as if it were a for-profit, responding to only those of their members’ needs that will return a profit. Another common source of conflict within interest associations arises from the great size of Australia, which forces some form of federal structure on most bodies. Those that originated in the nineteenth century

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set up as independent organisations in each colony. When federation occurred, they faced the need to coordinate their actions and policies nationally, which they usually did by federating. Other associations that established themselves in the twentieth century did so state by state because difficulties in interstate communication and the pre-eminence of state governments made that the most sensible structure. Since the 1940s, the growing strength of the national government has necessitated the creation of a stronger national presence. However, the idiosyncrasies and jealousies between state-based organisations makes operating an effective federated organisation as difficult as making our federated political system work well. Some associations have gone further and created, usually with difficulty, a single national organisation with state branches. The revenue of interest associations is often precarious. Longestablished professional and trade associations with wealthy members who can afford high fees and to pay further for the many services the association provides are generally healthy financially. In some cases they have extensive investments built up over the years; in some cases they operate successful business ventures, such as bookshops, consultancies or insurance. The NRMA, the very successful motorists’ association in New South Wales, came to be dwarfed financially by the very successful insurance business it developed as a service for its members. But many interest associations are in a less happy position financially. Even the major political parties, despite their age, remain close to insolvency, surviving at times on the good grace of their bankers. Other organisations rely on making a surplus from their annual conference to see them through the year, as membership fees alone would not cover the year’s expenditure. Many an association has collapsed because the annual conference did not bring in the anticipated surplus. Associations with a large or high-income membership are finding that they can lever some sponsorship money from companies that are interested in building links with their members, but such opportunities are not available to all. Representing interests is a task that favours the third sector form of organising. Those who share a common interest wish to have a say in the way that interest is represented or in other ways served, and this requires a democratic, member-owned organisation. Some for-profit organisations specialise in representing interests. These are lobbying or public relations firms. Generally they are employed by single companies, and they champion an interest for only a short time. Some government bodies, such as human rights and equal opportunities commissions, also seek to advocate the interests of particular disadvantaged groups, but while they are sometimes effective, their very success is often their undoing as they generate hostility from other parts of government. Overall, the organising of interests is one of the central contributions of nonprofit organisations to economy, society and politics. It is not an activity that can generally be done by government or by

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81

Table 11.1 Third sector interest organisations, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales* Government Fundraising Other No. of employees

3002 3251 2170 466 87 529 46 982

* Includes $1322 million in membership fees

for-profit organisations. A healthy capability to organise around shared interests is crucial to the wellbeing of a democratic society and an efficient economy.

12 ECONOMIC

COOPERATION

A

N IMPORTANT CLASS of third sector organisations are formed to advance the economic interests of their members, either by increasing their market power through cooperation or by providing services not available or not accessible to them in the market. Included here are credit unions, friendly societies, most cooperatives, some building societies, some insurance companies and bodies corporate. Arguably, trade unions and trade associations could be classed here rather than with other interest organisations. The difference is that the organisations that are the focus of this chapter are formed primarily to provide tangible services to their members, rather than represent their interests. Members of this class of organisation are clearly part of the third sector; they are at the heart of what the Europeans call the social economy. However, because they do not operate with a strict non-distribution constraint, some, particularly in the United States, do not consider them nonprofit organisations. But, if they are not nonprofit organisations, they are not for-profit organisations in any conventional sense either. They were formed to provide goods or services to their members that were not otherwise available, or not available at prices their members could afford. These goods or services might be consumed directly by members or might assist them market their own product efficiently and in a way that they control. They are the product of the late eighteenth- and nineteenthcentury tradition of solidarity—of the third part of the revolutionary cry of ‘liberty, equality and fraternity’. They represent a tradition that in this country is now withering. To understand the extent of their decline it is necessary to provide a little history.

FRIENDLY

SOCIETIES

The first friendly societies were formed in Australia in the 1830s, modelled on English friendly societies, many of which had emerged 82

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83

almost 100 years earlier. Within 30 years, they had a ubiquitous presence throughout the colonies and by the 1920s almost half the population was covered by friendly society membership. Their particular appeal was to skilled workers and the self-employed. To belong, a person needed a modest but secure income. In return, the friendly society offered a continuing income if the member was laid off work due to accident or illness, access to medical care for self and family members, and a good funeral. Some ran their own pharmacies and a few even offered limited support during periods of unemployment. Each friendly society was a hierarchical structure built on local lodges. Each applicant for membership would be known to at least some other members, thus creating a form of collective policing of members’ interests. This collective discipline was reinforced by a sense of mystery created by the names of friendly societies: Oddfellows, Foresters, Druids, Hibernians, Sons of Temperance and Australian Natives, and by the special dress and rituals that spoke of older times and created special obligations. Active membership was required, at least attendance at weekly lodge meetings. Above the lodges were regional, state and even national assemblies, and offices. Office holders could travel to meetings and feel a sense of self-importance that went beyond their roles as husband, father and employee. There were a few women’s friendly societies and, beginning in the 1890s, other societies established women’s lodges, but generally it was the male breadwinner who belonged, his membership giving cover for the whole family. Friendly societies faced two problems. One was the risk of being bankrupted by heavy calls on their funds. The size of their networks guarded against this, but government enquiries from time to time drew attention to the importance of reviewing subscription rates in the light of actuarial assessment of their obligations. The second problem, which proved fatal in the end, was the powerful opposition of the organised medical profession, in the form of the Australian branch of the British Medical Association (now the AMA). These doctors objected to the practice of the lodges of employing or contracting with individual medical practitioners to treat their members for a capitation fee. Contracts were sometimes awarded after competitive tender. This, the doctors contended, interfered with their right to set their own fee for individual items of treatment. The controversy raged on and off for over 60 years, until the passage of the National Health Act in 1951 finally enshrined fee-for-service medicine and forced the friendlies out of what had been one of their main fields of service. Other government initiatives, such as free hospital care in most states, widows’ pensions and unemployment benefits, introduced in the mid-1940s, also removed some of the insecurity that led people to join a lodge. By then the lodge structure of the friendly societies had become an anachronism. The 1930s Depression had cut membership dramatically and the Second World War interfered with its regrowth. The rituals no longer held the same appeal. From the early 1950s friendly societies went through several decades of turmoil and decline as they sought to chart a new path.1

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Initially, the Commonwealth government’s new health insurance arrangements favoured the third sector. Government subsidies were only available to those who joined a voluntary health insurance organisation. Most friendly societies proceeded to offer health insurance to their members, but they were competing against organisations that had specialised in this form of service and they could no longer insist that members had to join and actively participate in their local lodge. A few adapted to this new role; most did not. A spate of amalgamations followed over the next 30 years. Some, recognising that their members were ageing, took advantage of Commonwealth subsidies for aged persons’ accommodation and opened retirement villages and nursing homes; some in Victoria took advantage of a right under Victorian friendly societies legislation that allowed them to sell life assurance. Their tax-exempt status gave them certain advantages not possessed by the life companies or other financial institutions. Some took advantage of these concessions and vigorously marketed life assurance based products as tax-efficient savings vehicles. This proved successful, even when the favourable tax status was withdrawn. However, unwise investments by one of the fastest growing of these friendlies during the boom years of the 1980s led to its takeover by another, and made it clear that friendly societies were not going to reemerge as an important set of nonprofits.

BUILDING

SOCIETIES

Building societies also began in the nineteenth century, beginning in the late 1850s, first in their terminating or limited life form and then as permanent building societies. A large number of for-profit building societies began in the 1870s, and some nonprofits converted to that form. Together they largely financed the land and housing boom of the 1880s, and together they largely collapsed in the depression of the early 1890s. In its purest cooperative form, a building society was formed by a group of people who agreed to contribute a small sum each week to a common fund. When that fund was large enough to assist the purchase of a house, members would draw lots for it. The lucky member and the others would continue contributing until the fund was large enough for another draw and so on until all had been satisfied. The society would then terminate. The process was slow. In another version, funds would be borrowed from another source, enabling members to obtain a loan at the start. The society would continue until the loan and interest had been repaid. A permanent building society had two types of members, those who were borrowers and those who were depositors. Depositors might of course later become borrowers. Permanent building societies could continue indefinitely, provided they could continue to attract depositors and provided borrowers continued to make repayments. The risk they ran was of taking deposits at call and lending the funds over 10 or 20 years. Many people lost their savings when the land boom collapsed in 1890.

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85

Few building societies survived and home ownership became once more the privilege of the middle classes. In the mid-1930s, following the Depression that had begun that decade, Alf Sheldon, the registrar of cooperatives in New South Wales, sought a way of reviving the building industry and easing the huge shortage of housing. In the country town of Mudgee he found several terminating societies that were continuing to operate in the modified manner of the nineteenth-century model. A group of people wanting funds to build a home would form a society under the guidance of an experienced volunteer who would become secretary to the group. The secretary would then negotiate a loan with a local bank sufficient to provide housing to the members, who would take the funds and pay them back in regular instalments through the society to the bank. Sheldon thought the model could be spread to other parts of the state. The major banks and insurance companies, the most likely source of funds, were sceptical but agreed to make loans if the government would provide a guarantee. This was provided and terminating societies were begun in a number of Sydney suburbs, and in Newcastle and Wollongong, drawing on local businesspeople, especially those with some knowledge of cooperatives, and union officials in industrial sites with large workforces such as the railway workshops. The model proved immediately successful. The growth of new terminating building societies was halted during the Second World War, but from 1946 it took off apace. The model was copied in other states. Few loans were defaulted. The success of the societies persuaded the mainly for-profit banks that they could afford to make loans available to working people and that they could dramatically expand their customer base by doing so. They began savings banks to attract customers and made housing loans directly. With their major source of funds dried up, those running terminating societies persuaded the Commonwealth government to loan funds through the Commonwealth State Housing Agreement. Since then, terminating societies have continued, though in a small way, with a different name (cooperative housing societies) and under increasing government control, which has reduced their effectiveness. In New South Wales they were the lending agents in the late 1980s HomeFund debacle, where the government tried to arrange affordable loans at a time when increasing interest rates forced up the repayment rates so that the loans became unaffordable. Meanwhile, in the 1950s, those who had been involved in the administration of terminating building societies began permanent building societies, which became in the 1960s and 1970s the major source of housing finance in Australia and a major alternative to the banks as a place for savings. They were governed by boards that were in theory elected from the depositors, who were all members of the society. In reality, they were elected by a small number of members mostly known to the directors. As they grew in size, they acquired professional managers. These men in turn encouraged building societies to grow even bigger by amalgamating. As they grew bigger, they grew further away

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from their membership. Then, in the 1980s, deregulation of financial markets unleashed a huge increase in competition and further pressure not only for amalgamation but also to gain additional capital by converting to public companies and acquiring a general banking licence. Very few building societies remain today and many of those that do are for-profit entities.2

COOPERATIVES Cooperatives trace their origins to Robert Owen’s utopian New Lanark experiments at the beginning of the nineteenth century. They failed but the idea of cooperation in the workplace or the marketplace exercised a strong attraction to many working people and some middle-class reformers for the next 150 years, and took various forms. Although their origins lie in the early eighteenth century, friendly societies are a form of cooperative, and for many years were regulated by the same legislation that controlled cooperatives. What were explicitly called cooperatives began in Australia in the 1860s on the Newcastle coalfields, in the form of worker-owned stores based on the successful model pioneered at Rochdale, England, in the 1840s. Under this model a group of miners in a village would pay money into a common pool and begin a store. The store would sell goods to all comers at a low price and, at the end of the year, members of the cooperative would divide any surplus among them as a dividend or ‘divvy’, where the amount received was proportionate to the level of use made of the store. An attempt to operate a mine under worker control along cooperative principles was successful for a few years but ultimately failed in the face of discriminatory practices by other businesses in the district. Other cooperative ventures were launched in other parts of the country, mostly consumer cooperatives, but the working-class movement was divided on the merits of cooperatives. Critics argued that they distracted working people from the class struggle by making little capitalists of them. Indeed, the most fertile ground for the cooperative idea was among small-scale rural capitalists. The dairy farmers’, wheat growers’ and fishermen’s businesses were barely large enough to support them and they found in cooperatives an organisational form that improved their economic position. Through a cooperative, groups of small-scale dairy farmers or wheat growers could band together and remove their dependence on the ‘middle man’ in bringing their produce to market. If further processing was required, the cooperative could do it; the ‘co-op’ could even wholesale the product, leaving only the retailer between the producer and the consumer of the product.3 Producer cooperatives flourished in the 1920s and again immediately after the Second World War. Since then many have amalgamated. Some of these large cooperatives are very successful. Dairy cooperatives (and several public companies structured to operate as cooperatives, such as

ECONOMIC COOPERATION

87

Bonlac) have made dairying a successful industry. But large cooperatives need access to large amounts of capital and several cooperatives have converted to public companies, the best known being Westfarmers. Others are looking to raise capital by selling non-voting shares on the stockmarket. In this way they hope to retain control of the cooperative, but with non-member executive directors running the organisation and with its value being set by the share market, their hope seems chimerical. The nonprofit/for-profit hybrid the primary producers now own will slip from their control and become just another public company. The cooperative form, however, will continue. As a method of incorporation, cooperatives are favoured by those who wish to allow worker or consumer control or to follow collaborative forms of decision making. In New South Wales and Victoria, cooperatives legislation has for decades allowed the formation of what are called community advancement cooperatives. As a result, there are cooperative schools, health centres and refuges, as well as cooperative bookshops, wine merchants and ski-lodges. Housing cooperatives have been encouraged by some state governments as a method of organising the provision of government-subsidised housing. Several industry peak associations have incorporated as cooperatives. So too have many Aboriginal organisations, even though special Commonwealth legislation has been passed to enable Aboriginal organisations to incorporate in culturally appropriate ways. Many groups of friends and neighbours operate food-purchasing cooperatives, though without going to the trouble of incorporating. Suggestions for cooperatives as a way of empowering consumers in newly created or increasingly complex markets for electricity or health care demonstrate that the idea of cooperation as a basis for organising still has some attraction. The new unified cooperatives legislation progressively being enacted by state parliaments draws a clear distinction between trading and non-trading cooperatives. It is likely that this distinction will become more pronounced as the big producer cooperatives seek to stretch the cooperative model to enable them to raise the capital needed to run a global business while retaining member control.

CREDIT

UNIONS

One form of cooperative that is thriving in Australia and may be able to retain an important niche within the financial services market is the credit union. Credit unions began in Germany in the mid-nineteenth century. They are essentially a consumer finance cooperative. Members make deposits and other members borrow for consumption items. They were slow to start in Australia, perhaps because early cooperatives legislation specifically prohibited finance cooperatives and probably because building societies satisfied major consumption needs. In the 1930s, Alf Sheldon, the same New South Wales public servant who began terminating building societies, tried to generate an interest in credit unions. The

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groups who were interested were mostly young Christian intellectuals, including young Catholics associated with Bob Santamaria. The first attempts to begin credit unions were interrupted by the Second World War. They were initially based on parishes, but only became successful when they moved their basis of organising to the workplace.4 There are now around 300 credit unions in Australia, with over 3 million members and $14 billion in assets.5 Credit unions have remained relatively small. Sixty have less than 1000 members and the median size is around 7000. As a result their directors remain relatively close to their members. They have resisted the trend to offer a wider range of financial products. They invest a lot of effort in educating their staff that they work for a member-owned organisation; that every person they serve at the counter is an owner. As a result they score highly in surveys of customer satisfaction. However, their small size is also a disadvantage. Credit unions cannot offer the range of services provided by banks and few of their members do all of their banking with their credit union. As well, they cannot generate the same level of efficiency as the banks and as a result their interest rates are not always better than those offered by the banks. Some have even begun charging members for some of their services, against strong resistance. While credit was scarce in the 1940s and 1950s when they began, it has not been since the 1980s and in the highly competitive market for financial products, it is not clear that credit unions offer the best deals.

MUTUAL

INSURANCE COMPANIES

Mutual life insurance companies have followed a very different path from credit unions. From their beginnings in the 1840s, they aimed to attract primarily the middle classes to membership. Their boards were comprised of the colonies’ business elites. It was not until the early twentieth century that they copied the British mutuals and developed policies suitable for people on lower incomes and employed canvassers to collect their small but regular payments. As Australia’s middle classes grew, particularly during the 30 year economic boom that ended in 1975, so too did the membership of the mutual insurance companies. But members were, by and large, ignorant that membership gave them voting rights and, collectively, both ownership and control of the company that held their policy. They saw themselves as policy holders, as consumers. Thus, when the more competitive financial markets of the 1990s bred a rush for growth and a rash of takeovers and, finally, ‘demutualisations’, members were pleasantly surprised if their policy also generated a windfall gain of shares in the new public company. The demutualisation of the large life insurance companies has not entirely removed the third sector from the retirement savings marketplace. A number of nonprofit industry superannuation funds, jointly operated by unions and employers, have been set up since the

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89

ACTU inspired expansion of occupational superannuation in the 1980s. Health insurance is another field where mutual organisations were once dominant and continue to play an important role. As hospital fees increased during the 1920s and 1930s, several mutual insurance organisations, such as the Hospitals Contribution Fund (HCF), were formed, mainly by doctors, to sell hospital insurance. As noted earlier, in the dramatic shake up of health financing arrangements after the Second World War, friendly societies became voluntary health insurance providers, joining the existing mutuals and some new mutual organisations, such as the Medical Benefits Fund (MBF). After the Whitlam Labor government had introduced Medibank, a compulsory, tax-based medical insurance scheme, the predecessor of Medicare, only a few voluntary or mutual health insurance providers remained. These were given a new lease of life when the Fraser Liberal government began dismantling the compulsory health insurance system, turning Medibank into a government-owned health insurance provider competing with the other mutuals. In 1983, the reintroduction of a single, compulsory, government health insurer for medical costs, Medicare, once more reduced the scope of the private health insurers, forcing them to concentrate on private hospital insurance and various extras. They are still highly regulated by government. The rapidly rising cost of hospital care and increasing use as their membership ages have caught the private funds in a cost spiral. As costs rise they increase premiums but because they have been (until recently) required to apply a community rating, these increased rates hit the healthy young and the higher risk aged alike. As a result, the number of people carrying insurance fell, increasing pressure for another premium rise. Those dropping private cover then add to numbers using the badly stretched public system, increasing waiting lists and causing major pressures that threaten the whole health care system. Governments of both political complexions seem unable to design effective policy solutions. At best, they have merely halted the decline in numbers with private cover. Meanwhile, several for-profit insurers have moved into the field, mainly by taking over mutuals. They anticipate that eventually government will reduce regulations and make health insurance a profitable field. If that happens it is likely that the remaining mutuals will demutualise or sell out to for-profit firms. Policy changes announced in the 1999 Budget may have begun this process. At present, the largest provider of private health insurance is the government provider Medibank Private, closely followed by MBF and then HCF. Altogether, in 1995/96, mutual health insurers had approximately 88 per cent of the market.

BODIES

CORPORATE

Another form of third sector organisation, though one mandated by legislation and therefore more a nonprofit–government hybrid, is the body corporate. In all Australian states and territories, legislation requires

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Table 12.1 Third sector organisations formed as an expression of economic cooperation, 1995/96* Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

25 473 31 561 22 277 35 – 9249 54 390

* Includes mutual finance and insurance organisations and trading cooperatives Note: Income and expenditure figures are disproportionately large because, following ABS practice, they include premiums, interest earnings, pay outs by and withdrawals from insurance organisations.

that in any block of apartments or offices where individual apartments or floors have separate titles and are separately owned, the owners must form a body corporate that has the responsibility for looking after the facade of the building and any common space. Responsibility for this is usually contracted to a management company, which is paid by a levy on owners. The body corporate can also collectively set and enforce certain rules to ensure that the behaviour of all residents conforms to standards set by the majority. In apartments this can mean rules prohibiting pets and other restrictions that cause friction. The body corporate was an invention of the 1950s, designed to encourage urban living by allowing Australians to live in apartments without compromising their deep commitment to home ownership. It also provided ready finance to developers by enabling them to sell ‘off the plan’, and provided housing at a lower price than the conventional house on a quarter-acre block. Bodies corporate provide for many Australians the most immediate experience of pure democracy at work. It is an unaccustomed experience and not always a satisfying one.

13 PHILANTHROPIC INTERMEDIARIES

A

SMALL AND HIGHLY specialised part of the third sector is devoted to encouraging and facilitating philanthropy, that is, the voluntary gift of time or money to advance the public good. There are two groups of organisations, one that seeks to encourage and facilitate volunteering; the other group seeks to encourage giving. The latter also includes charitable trusts, which provide evidence of past generosity. Reflecting the relatively underdeveloped levels of giving and volunteering in Australia compared to the United States, Canada or the United Kingdom, this part of the third sector is not well developed. Fewer than 20 per cent of Australians volunteer their labour. Mostly it is for nonprofit organisations but sometimes it is for governmentcontrolled bodies such as emergency services units, hospitals and art galleries, and sometimes it is for for-profits, such as nursing homes. Most volunteers are recruited directly by the organisations or by friends, but beginning in 1974, a network of volunteer referral agencies has emerged, sustained by modest and often grudging amounts of government assistance. They are known generically as volunteer centres. They operate as volunteer labour exchanges. They publicise the value of volunteering to potential volunteers, assess the kind of work applicants are best suited for and place them in such work with volunteer-seeking organisations that have also registered with the centre and been assessed for their capacity to provide volunteers with suitable work in appropriate conditions. They thus work to publicise volunteering and seek to ensure that organisations employing volunteers manage them effectively. Two have recently established schools of volunteer management and obtained vocational accreditation for their courses. It must be said, though, that nonprofit organisations generally do not consider the management of volunteers to require any particular skills. Giving is encouraged by organisations, both public and third sector, that seek funds from the public. Community chests or United Way, along with more recent arrivals community foundations, represent a generic

91

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attempt to encourage giving. United Way organisations now operate in most state capitals and several regional centres. They specialise in fundraising by payroll giving, an arrangement whereby an employer deducts a pre-specified amount from the employee’s pay and passes it to the United Way, which aggregates it with other deductions and then dispenses these on a regular basis to a range of approved third sector organisations, mostly providing community services. The United Way is very big in the United States and Canada, but in Australia has had only limited success. The United Way has recently been joined in this endeavour by Ozgive, run by the Australian branch of the very successful UK based Charities Aid Foundation and by Earthshare, which focuses on raising funds for environment organisations. Both of these allow individual payroll donors to nominate a particular recipient organisation. Community foundations seek larger donations that can become a principal or endowment, which in turn generate an income stream from which payments can be made to public-benefit nonprofits in their community. Gifts can be made to the general fund or separately identified. They have been hugely successful in the United States and, after encouragement by the Thatcher government, in the United Kingdom. They are less successful in Australia. Philanthropy Australia is the peak body for Australia’s charitable trusts or foundations. Charitable trusts are small and relatively few in Australia. Unlike the United States or the United Kingdom, there are no major foundations such as Ford, Lily or Welcome here, with their large professional staff and $300 to $500 million in grants each year. With both governments and business increasingly focussing on the short term, organisations such as these can reasonably claim to be humanity’s longterm investment arm. Australia has nothing like that in size or stature. The largest Australian equivalent is the Pratt Foundation, which gave $7 million in 1998. Even when allowance is made for the far greater size of the American economy, that sum barely reaches an American equivalence of $100 million. Several charitable trusts such as the Walter and Eliza Hall Trust and the Felton Bequest, with independent trustees and wide discretion, were established in Australia early in the twentieth century, when the first of the big American foundations were beginning, but they failed to grow as the American foundations did and, more importantly, failed to inspire imitators. Even today, most wealthy Australians leave their wealth to their children or make bequests directly to operating organisations, such as hospitals, charities or universities, rather than endowing a trust to operate in perpetuity. Many of the trusts that operate in Australia are based in Melbourne, a product of that city’s once pre-eminent role as Australia’s business capital and apparently because for many years that state’s death duties legislation encouraged the formation of charitable trusts. Death duties no longer apply in Australia. Rather than encouragement, Australian taxation legislation actually places several small barriers in the way of establishing an endowed trust. It may also be that the strong spirit of egalitarianism

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that prevailed in Australia during most of this century discouraged displays of great wealth, which the establishment of a well-endowed trust might be taken to represent. If so, our newly growing inequality and public admiration for great wealth might begin to encourage the wealthy to pass over much of their wealth to organisations that can commit it to the public good. Philanthropy Australia attempts to encourage wealthy individuals and corporations to set up charitable trusts. It also operates an information service, by which grant seekers can learn which trust is most likely to support their cause. In theory, this should reduce the transaction costs of both grant seekers and grant makers. More recently, it has played an important role in Prime Minister Howard’s initiative to encourage businesses to enter into long-term collaborative partnerships with third sector organisations. One of the distinguishing features of Australian philanthropy is its secretiveness. Many individuals or companies who make gifts do not like this to be known. They claim to fear that others will then seek support and take up their time. Charitable trusts are, to varying degrees, infected with the same spirit. Some, even trusts with wide discretion about where to give, do not list in the annual directory of trusts published by Philanthropy Australia, the peak body that represents them. As a result of this secrecy, it is very difficult to obtain accurate information about them. It is impossible to estimate how many charitable trusts there are in Australia. Many are small and established for a single purpose, perhaps to award an annual scholarship or prize. The Archibald Prize for portraiture awarded each year by the trustees of the Art Gallery of New South Wales is one of the best known examples. Other trusts are established in ways that give their trustees at least some discretion over where to make grants. Overall, it would seem that in 1996, charitable trusts made grants of approximately $200 million. Some of these trusts administer their own affairs. That is, they are responsible for investing their funds to ensure a good return, for seeking and evaluating grant applications, for making grants and monitoring their outcomes. Other trusts are administered by trustee companies, such as ANZ Trustees or Perpetual Trustees. These are mostly small trusts but include some large ones such as the Viertel Foundation and the Victorian Community Foundation. In some cases, especially larger trusts, the company manages the trust for independent trustees who make decisions about application of funds; in other cases, the trustee company supplies the trustees and all decisions are made in-house. Trustee companies are large for-profit entities that manage thousands of non-charitable trusts such as family trusts. They make their profits from administration of trusts and recently tried to obtain legislative changes to state trustee acts that would enable them to charge higher rates. The degree of attention they give to charitable trusts varies from time to time. Some cannot estimate how much they disburse each year from charitable trusts. Others may know, but will not tell.

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Table 13.1 Philanthropic intermediaries, 1995/96 Operating expenditure ($m) Income ($m) By source Fees and sales Government Fundraising Other No. of employees

82* 80 1 3 62** 14 434

* Includes grants made by self-administered charitable trusts that employ staff, not by all charitable trusts ** Includes $56 million earned by charitable trusts as interest on investments

There are no Australian bodies that advocate or seek to represent the interests of the third sector. There are three university research centres that do a limited amount of research on the sector, but these have limited resources and have been able to do relatively little to map and publicise the sector’s full dimensions and contribution. An occasional government enquiry has illuminated particular parts of the sector, but governments have never recognised that the various third sector organisations that they regulate and sometimes fund have some common characteristics and constitute an identifiable sector. It might be thought that peak bodies representing nonprofit organisations advocate on the sector’s behalf, but they focus on representing only those organisations that are their members. Those running third sector organisations are mostly as uninformed of the full scope and ramifications of the third sector as everyone else. A major challenge confronting leaders from different parts of the third sector is to become better informed of the character and contribution of the sector and to work together to advance its interests.

PART III

WHY

IS THE THIRD SECTOR WHERE IT IS?

95

A

USTRALIA HAS A relatively large third sector. When we adjust for population, it is about equivalent in size to the third sector in the United States and larger than in the United Kingdom. It is more evenly distributed across a number of fields rather than being predominantly grouped in one field such as health as in the United States or education as in the United Kingdom.1 The two chapters in this part, chapters 14 and 15, seek to understand why we have a relatively large third sector and why it is distributed in the way it is. Chapter 14 briefly outlines the mileposts in the history of Australia’s third sector. Chapter 15 attempts to identify the factors that enabled and those that have stimulated third sector growth along with a third set of factors that, in certain fields, have brought about its decline. This is an important perspective if we are to grasp the dynamics of the third sector and assess its prospects in the new millennium. Third sector organisations have been a significant feature of Australian life since almost the beginning of European settlement. The configuration of the third sector, the distribution of third sector organisations across different fields of activity, has changed and is still changing; but since the 1820s there has not been a time when third sector organisations did not play a central role in many areas of Australia’s social, economic and political life. This is because certain features of Australia’s larger historical formation have favoured the third sector. In turn, third sector organisations have generated some of Australia’s defining icons, for example surf lifesaving, the Melbourne Cup and Eureka. Most of the organisations that have loomed large in Australian history, hated by some and revered by others, have belonged to the third sector: the Catholic church, the masons, the unions, the Labor Party, the RSL, the Salvos, the ‘commos’, the Movement, the Melbourne Club. The various movements that have caught up millions of Australians at different times—the labour movement, the temperance movement, the women’s movement, the environment movement—have all been comprised of third sector organisations.

97

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Third sector organisations exist because people have made an effort to form them. People have done so to provide a service or advocate a cause, for themselves and their family or for others. Usually this service is not provided by business or government, or not provided in a form or at a price that is acceptable. In some cases, such as the opportunity to worship or collectively to express a point of view, it might only be provided by a third sector organisation. Third sector organisations continue to exist because people continue to commit time and financial resources to them while they or others enjoy their services. In some cases they continue to exist because they receive government subsidies. Few form if there are laws prohibiting them or making their formation difficult. Few survive if people lose interest in them or if for-profit firms offer more attractive alternatives. Sometimes they are taken over by governments. Across a country’s history, the rate of third sector formation and the fields in which third sector organisations are formed are a guide to the changing interests and preoccupations of its people. Third sector organisations are shaped by, but also shape, a country’s history. These two chapters provide an interpretation of the dynamics of Australia’s third sector. They demonstrate that our currently strong third sector is the outcome of many favourable circumstances and the actions of many committed people. They also show that parts of the third sector can disappear; that the continued existence of large components of the sector is not guaranteed. If Australians fail to recognise the third sector’s importance and frame their actions, and government policies, accordingly, and if the third sector fails to review and renew itself, large parts of it will certainly disappear.

14 THE THIRD SECTOR IN AUSTRALIAN HISTORY

I

T IS LITTLE more than 200 years since Europeans first settled the Australian continent. During the second half of the nineteenth century, Australia consisted of six self-governing colonies of Great Britain. In 1901 those six British colonies federated to form a single nation. Even today, in 2000, it is the English monarch who is Australia’s head of state. Australia has always had a high proportion of migrants in its population. During the nineteenth century, most of these came from Great Britain, which then included what is now the independent Republic of Ireland. They brought with them many of the institutions, aspirations and quarrels of ‘home’. But Australia was a different environment and these institutions, aspirations and quarrels developed in some different ways. Several of these imported ideas and practices had a direct bearing on the development of Australia’s third sector. These included middle-class notions of charity and a strong lower class tradition of mutual association and democracy. Later in the nineteenth century, they included a powerful commitment to amateurism in sport. They also included animosities based on religious and class divisions. By the late nineteenth century these imports had taken root and were beginning to develop peculiarly Australian forms. Although Australia began as a penal settlement, a thriving society of free settlers and ex-convicts soon developed. These were mainly from the low and middling orders of the British Isles and shared the democratic aspirations of their class. By 1860, most Australian colonies had granted manhood suffrage and early in the new century the colonies extended the right to vote to women. Although Australian colonists shared the laissez-faire liberal views of mid-century England, they modified these to suit their situation. Governments played a vital role in encouraging business enterprise, by bringing in labour and capital, and building an extensive infrastructure of railways, ports and roads.1 They ensured that every child received an education. But in other areas of social policy, governments were reluctant

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to intervene. Rather than directly providing for the poor and the sick, they encouraged leading colonists and their wives to form and support nonprofit organisations to provide services. These were commonly called ‘public charities’. In turn, governments subsidised these organisations, mainly on a dollar-for-dollar basis, but increasingly, especially into the twentieth century, at a higher rate. Government regulation increased with the level of government subsidy. Often, although the timing depended on other factors, governments came to administer these nonprofits directly, in effect nationalising them.2 Despite strong efforts by the middle-class elite to prevent it, all colonies experienced outbursts of sectarianism or conflict between Catholics and Protestants. In part, these were colonial reflections of the disputes occurring within Ireland and the industrial cities of Britain. The vehicle chosen by the colonial elites to prevent sectarianism was a system of public education that would teach all children the tenets common to all Christian religions. This proposal, advanced early in the second half of the century, was resisted by the Catholic bishops and clergy who insisted that Catholic children be educated in Catholic schools. This encouraged a Protestant backlash and the formation of separate Catholic and Protestant subcultures.3 One consequence of sectarianism is a large number of nonprofit Catholic schools that, for over a century, have educated 20 per cent of Australian children. Sectarianism also encouraged the growth of other nonprofits, which provided health and social services and various recreational opportunities. Many of these were defensive, in the sense that they were formed so that children, the poor and the sick of one denomination would not have to receive support from, and thus possibly be proselytised by, other denominations. By no means all of these new religion-inspired charities were sectarian in intent or in character, but the existence of sectarianism certainly encouraged the strong commitment needed to begin and maintain these private charitable initiatives. By the late nineteenth century the Australian colonies enjoyed a significant comparative advantage in the production of wool and other staples, such as wheat and gold.4 Per capita, they enjoyed the highest income in the world; an income that was relatively equitably distributed. As a result, most Australians, those who enjoyed regular work or were self-employed, were able to make provision for possible hardship, such as sickness or unemployment, and to save to purchase their own home via mutual associations, mostly imported from Britain, such as friendly and building societies. By 1900 friendly societies provided more assistance to help families deal with ill-health and to prevent them slipping into poverty and hardship than did the conventional charities and the government.5 By the 1920s almost half the population were members, or the dependants of members, of friendly societies.6 The same spirit of mutual support drew many employees into trade unions and prompted many small farmers to form cooperatives to market their produce. In both cases, people were acting collectively to improve

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their positions in markets that were heavily biased against them as individuals. Their commitment to collective action was pragmatic rather than ideological, but it created a powerful tradition nonetheless. Business interests, towns and villages, self-employed tradespeople and professionals also discovered (or rediscovered, for this was the lesson of medieval guilds) the value of organising to protect and advance their economic interests and their family’s wellbeing. Australia’s open, democratic political system imposed no barriers and the early success of some groups encouraged others. For most of the second half of the nineteenth century, the political system was particularly fluid, with no single defining issue. In this climate, the trade union movement organised to elect members to parliament, but found it difficult to keep them focussed on the movement’s concerns when they were there. In New South Wales, the Trades and Labor Council determined to form an extra-parliamentary Labor party to select and stand candidates across the colony. To strengthen its unity, it stipulated that all those elected as part of the new Labor Party pledge that they would vote according to the majority view of their party in parliament. This created the first disciplined political party.7 In response, a number of extra-parliamentary voluntary organisations associated with business or middle-class interests—trade associations, women’s groups and groups associated with the Protestant church—collaborated to form a Liberal Party.8 Thus the bifurcation of parliamentary politics into a division between labour and capital that has lasted for 100 years was formed. Sporting associations proliferated during the nineteenth century (and subsequently). A good climate year around, plenty of space and the fact that most of the working population had some leisure time encouraged sport, both as a participatory and as a spectator experience. The success of trade unions in winning a 44-hour week, freeing Saturday afternoons from work, played an important role in this. So too did the amateur sports movement that encouraged participation in sport as a character-building exercise and a source of manly virtue. But participation had to be for the love of the game. All associations with monetary reward or gambling had to be removed. As a result, by the end of the nineteenth century, the forprofit organisation of sport had been almost extinguished.9 Identification with place and nation was also reinforced by sport. Many joined or at least identified with local football clubs as supporters. Even before the formal creation of an Australian nation, national identity came to be powerfully tied to the success of ‘Australians’ in the sporting field. Certain sporting figures acquired heroic status and by the 1900s certain sporting events, such as the Victorian Racing Committee’s Melbourne Cup or the cricket tests against England, were noticed by almost everyone. Surfing became popular in the 1920s but was sometimes hazardous. Skilled surfers formed volunteer life-saving clubs to protect other surfers from their inexperience. They were fit, bronzed and risked their lives to save others. For 40 years they were a symbol of Australian manhood.

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Australia’s participation in the First World War powerfully affected the country. The industry protection provided by the war’s interruption of trade encouraged Australian business, as did the experience of leadership the armed services provided to thousands of young men. But events at home and abroad also intensified class conflict. Several recessions and the Great Depression meant that, overall, living standards increased little during the 1920s and 1930s. Conservative business interests dominated these two decades. The early 1920s saw the first attempt to articulate a theory of social formation based on associations, but it came to nothing.10 They also saw the formation of powerful exservice groups, a notable growth in professional and trade associations and the beginning of businessmen’s service clubs such as Rotary. The Depression weakened Australia’s charities and friendly societies alike. In the late 1930s, with government encouragement, new mutual finance institutions such as building societies and credit unions began to flourish in the post-war decades. The decade after the Second World War marked an important watershed for large parts of the Australian third sector. During the war, the Commonwealth government had become solely responsible for administering an income tax, which until then applied to probably no more than 20 per cent of the population. The wartime Labor government proceeded to extend income tax to cover all the working population. In return, it dramatically expanded the range of government pensions and benefits and provided large amounts of Commonwealth funding to the states for health services.11 These and related changes finally led to state governments taking over the administration of public hospitals (except those run by other nonprofits such as religious orders). One consequence of this was a decline in philanthropy. Hospitals had been the main recipients of Australian philanthropy during the nineteenth and early twentieth century; their incorporation into government, along with a gradual increase in levels of personal income tax, led Australians to conclude (falsely) that they were highly taxed and that governments looked after those in need. In the 1950s and 1960s a popular view developed that poverty had been eradicated in Australia. When its continued existence was convincingly demonstrated in the late 1960s and early 1970s, the conclusion drawn from this rediscovery was that government needed to do more. The tradition of individual philanthropy had been significantly weakened. At the national level, a Liberal–Country Party (conservative) government was in office from 1949 until 1972. It was reluctant to follow the path foreshadowed by Labor and expand the range of state-provided services. Instead, it continued with the practice laid down since the early nineteenth century of subsidising nonprofit organisations to provide a continually expanding range of social services. It also encouraged the transformation of friendly societies into health insurance organisations by subsidising the costs of nonprofit insurers. This only delayed the inevitable decline of a once-vital institution. Such an arrangement could

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not insure the whole population. Private health insurance was increasingly criticised and in 1975, except for private hospital costs, a Labor government replaced it with a single government insurer, Medibank. The conservative government also began the practice of funding Catholic and other private schools. In so doing it signalled the final decline of sectarianism in Australian life. A subsequent Labor government expanded support, targeting most resources on the poorer parish schools. It was fortunate that it did, for without increasing government support, the Catholic church, faced with a dramatic decline in members of the religious orders who staffed its schools, would never have coped with the huge expansion of secondary education in the 1970s and 1980s. In the 1970s, the Commonwealth government came to be influenced by a combination of ideas from the second wave of feminism, the community development movement and various rights movements. It encouraged the formation of new nonprofit, community-based organisations, which it funded to provide a further range of social services.12 State governments followed. Government funding also went to the older social service nonprofits as well, enabling them to grow considerably. Government funding also, for the first time, enabled the emergence of nonprofit professional theatre, opera and ballet companies. Prior to this, nonprofit arts organisations had been more for the recreation of their members than for the edification or entertainment of the public. That role had been taken mainly by for-profit entrepreneurs. Since the Second World War, the ethnic composition of the Australian population changed remarkably, the result of large-scale immigration from countries in continental Europe and then from Asia. This ethnic diversity has expressed itself through a vast array of third sector organisations, from cultural and educational associations to religious organisations, to welfare societies. Aboriginal Australians have also developed a network of third sector organisations from legal and medical centres to cultural and social service organisations, to housing and employment cooperatives, to local councils and to development corporations that act as a local government to remote communities. These have mainly emerged since the 1970s through growing government support and the replacement of paternalistic and sometimes repressive policies. It has only been since 1971 that Aboriginal Australians have been counted in the population census and only since 1992 has the law recognised that Aborigines inhabited and possessed the land before the British conquest, which began in 1788. The past two decades have seen important changes in the global economy. Two industries, the media and financial services, have been transformed in ways that have had a dramatic impact upon two fields of nonprofit activity. Many sports have become major sources of mass entertainment and as a result are courted by television companies. This has transformed the upper echelons of many sports, with national associations selling television rights for large sums, and local clubs negotiating million-dollar sponsorship deals and employing their elite

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players on generous contracts. The transformation of many nonprofit sporting associations into for-profit businesses has begun. The globalisation of financial markets has also led most of the remaining mutual finance institutions, such as building societies and insurance companies, to de-mutualise or convert to for-profit status. Only credit unions, which are mostly smaller organisations where the directors are closer to the membership, have resisted the trend. Responding to similar market pressures, smaller producer cooperatives have amalgamated into large multimillion dollar agribusiness and food producers. They presently seek ways to raise private equity capital without abandoning their commitment to democratic member ownership. A number of other dramatic social and economic changes over the past two decades have also impacted upon the nonprofit sector. The decline of manufacturing employment and the growth of a service economy, increasing numbers of women in the workforce and longer hours worked by those in full-time employment, changes in leisure behaviour and the increasing percentage of the population from nonEnglish speaking countries, including Asia, have all combined to weaken many traditional membership associations such as the Christian churches, trade unions, scouts and guides, service clubs and so on. During the fifteen years between 1980 and 1995, the percentage of the population that volunteer has declined by about 10 per cent, to less than 20 per cent of the adult population.13

15 THE

DYNAMICS OF

THIRD SECTOR GROWTH AND DECLINE

ENABLING

FACTORS

T

HE GROWTH OF Australia’s third sector has been assisted by nine important enabling factors. These factors are not in themselves sufficient to create and sustain a third sector, but their absence can certainly make the formation of third sector organisations difficult or unlikely. These factors are:

● ● ● ● ● ● ● ● ●

a benign legal environment time for organised leisure and a temperate climate a relatively high level of disposable income a relatively well-educated population a population of sufficient size to sustain a range of voluntary associations a relatively high degree of mobility in that population an understanding of, or a familiarity with, the possibility of voluntary association the existence of a need for certain services that could be provided by a third sector organisation a high degree of heterogeneity or diversity within the population

To take each of these factors, briefly, in turn: There have been very few occasions in Australia’s history when governments have attempted to prevent the formation of voluntary associations. When they did it was only because they feared a quite specific threat to social order. Even during its first 20 years, when the colony at Sydney most resembled a penal settlement, a Catholic priest among the convicts was permitted to say mass, thus permitting the association of Catholics for the purpose of worship and instruction. Two years later, in 1805, this permission was withdrawn after a revolt by Irish convicts.1 In the 1840s, the government used the Masters and Servants Act to make it illegal for working men to join together to raise wages and 105

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improve working conditions.2 The need for such combinations disappeared when the goldrushes of the 1850s drew many working men to the goldfields and ensured good pay for those who remained in the cities. The passage of manhood suffrage during this decade gave working men the vote and ensured that such legislation was not used in this way again. Interestingly, another form of association popular with working men from the 1830s, the friendly society, was not considered illegal, in spite of a 1797 English Act, still in force in the colonies, banning them as secret societies. Clearly, government authorities took a pragmatic view of such organisations. Governments only moved to prohibit an association if it appeared to offer a threat to existing economic interests. This may have been the reason for prohibiting the formation of financial cooperatives in the first cooperative legislation, passed in New South Wales in 1864.3 Alternatively, the authorities may have feared that the savings of ordinary working people might be lost if they were allowed to operate their own savings banks. The 1923 Cooperatives Act removed that prohibition and credit unions began, though, because of the Great Depression, not for almost 20 years. An active associational culture requires that people have time and at least a modest amount of income to devote to causes. The Australian colonies were among the first in the world to enjoy a 44-hour working week, introduced gradually into most occupations during the second half of the nineteenth century. This meant that the working week finished at noon on Saturday. Given that organised leisure was prohibited on Sundays, the value of the half Saturday to the growth of both participant and spectator sports is obvious; but the restriction of work to eight hours during the working day also allowed time for other associational activity such as lodge meetings, choral or band practice or some form of continuing education. A temperate climate meant outdoor activities were possible all year round and people faced no extreme difficulties attending regular meetings of a lodge or society. Participation in such activities also required an income large enough to provide a small surplus after meeting the costs of necessities. From the 1860s till the 1920s, thanks to gold and Australia’s huge comparative advantage in wool production, Australians enjoyed perhaps the highest income per-capita of any people in the world. Of greater importance, thanks to the success of the early trade unions and a frequent scarcity of labour, this income was relatively evenly distributed. This is not to say that there were no Australians who were very poor, living in appalling conditions in bush shacks or urban tenements, and that there were no extremely rich Australians (though many of those returned to England to enjoy their wealth). But, by and large, most Australians enjoyed enough disposable income to enable them to start, join or support voluntary associations of every kind, should they wish to do so. Although it is not necessary that someone is able to read and write to join or even to start a nonprofit association, the possession of these skills makes such action more likely. An ability to read means that constitutions

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are not a complete mystery and that basic records of meetings or financial statements can be prepared. It also means that a person can find out about the existence of such organisations from newspapers and that correspondence can be had with others of like mind in different parts of the country or world. Although schooling did not become compulsory until the 1880s, it was widely available before then and enjoyed by many. Quite a high proportion of the early settlers could read. To sustain a third sector, a population needs to be a certain size. It is not possible to specify what that might be, but the more complex a society, the larger it needs to be to provide groups of sufficient size to enable some of their members to form associations. In early New South Wales, in the period up to the 1850s goldrushes, many associations were formed representing different interests in the population. These included business interests, sporting clubs, scientific societies, libraries and other adult education endeavours, performing arts groups, friendly societies and political interests. However, with few exceptions, they were not able to sustain themselves beyond a few years. Other colonies had similar experiences, sometimes for a longer period of time and sometimes prompting the government to take a larger role in the provision of social services than it did in New South Wales or Victoria, which were, by 1860, the two largest Australian colonies. Today, country towns with a far smaller population than Sydney then had are able to sustain a range of associations, but a narrower range and one wherein a number of associations are branches of state-wide or national associations and are sustained by that wider structure. In early New South Wales, the mobility of the small population added a further difficulty to the task of sustaining third sector organisations. However, once the population of the colony reached a certain size, which it clearly had done at the conclusion of the goldrushes in the late 1850s, a degree of mobility became an important factor enabling the further growth of a third sector. Population mobility facilitated the spread of ideas and the mixing of experiences. In the nineteenth century, newspapers, books and a public that could read ensured the spread of new ideas, including ideas about new causes and organisations. However, word of mouth and actual experience were still powerful teachers. This method of spreading ideas worked best when a population was mobile, which it most surely was in the Australian colonies in the nineteenth century. Not only was there a great deal of movement within and between the colonies, as men and women sought new opportunities, but the population was constantly replenished with new immigrants, almost all from different parts of the United Kingdom, which at that time included all of Ireland. A further enabling factor is the presence of an environment where third sector organisations were understood; where a role for them in at least some parts of society was taken for granted. The United Kingdom, from whence the immigrants came, provided many examples of charitable efforts to assist the poor. It also provided many examples of self-help organisations

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such as friendly societies, mutual insurance societies, cooperatives and trade unions. Most of the early examples of these member-serving nonprofits were begun by people who had been members in ‘the old country’. In the case of friendly societies, those initiated in the colonies were initially less successful than those that were started as colonial branches of English organisations. The latter were assisted by their familiar ‘brand’ names and were able to draw on the head office for the technologies needed to organise their relatively complicated financial operations.4 Closely related to the factor that third sector organisations are widely understood or taken for granted is a further enabling factor that there is something for them to do. That is, that there are gaps in the provision of services that might be filled by the third sector. If governments provided a comprehensive range of services for the poor, or if business firms provided all forms of entertainment or opportunities for sport, then there would be little need and few opportunities for third sector organisations to develop in those fields. In the Australian colonies, there were few areas where government or business had staked a prior claim. There were large areas of life where if people were to enjoy opportunities for leisure or learning or to gain security against the effects of ill-health or if the poor or disadvantaged were to be assisted, then it would only be through the self-organised efforts of people who cared. On the business side, this absence of competition to third sector endeavour was not surprising. In the early years of the colony, except for providing opportunities to drink and to gamble, there were many easier ways of making money than catering for the leisure needs of the working population. Rudimentary financial institutions did not believe it possible to earn returns insuring against the risks faced by ordinary working people. As to government competition, the early nineteenth century was perhaps the very best time to lay the foundations for a strong nonprofit sector. Initially because of a shortage of funds, and later because of the dominance of a set of ideas known as liberalism, governments sought to do as little as possible beyond what was needed to maintain order. This meant that in so far as nonprofits were able to provide an adequate service, they would probably continue to do so, perhaps even with government assistance: giving grants is always less expensive than providing services directly. In addition, once nonprofit provision became institutionalised, it would then be seen as the right way to do things, to be changed only if it failed or was overwhelmed by a government driven by some pressing imperative. What made colonial Australia so conducive to the growth of a strong set of public-serving nonprofits was that the great majority of immigrants brought with them a set of ideas about how life should be ordered. Sometimes these ideas were contested, but one view that was widely accepted until nearly the end of the century was that of laissez-faire liberalism, a view that gave the state only a limited role in economic and social affairs. In the colonies this was modified to suit circumstances where only the colonial governments could guarantee the large amounts of capital needed to build the railways, ports, roads and major utilities. This produced

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what has been called colonial socialism, but that compromise of liberal principles did not spread to the field of human services, except for education. As a result, colonial governments only reluctantly provided health and social services, and only after it was clear that the charitable efforts of the better-off citizenry, assisted by government grants, were insufficient. A final important enabling factor in the growth of a strong Australian third sector was the diversity or heterogeneity of the population. When a group of people feel a strong affinity with each other and a difference from others in their wider society, they will tend to organise around that difference. The most common sources are race, ethnic or religious differences. Nineteenth-century Australia had many different versions of the Christian religion and many organisations set up to worship and in other ways to celebrate or protect those differences. Although most people came from the British Isles, there was sufficient regional diversity within Great Britain to generate differences in the Australian colonies. These regional/national differences sometimes stood alone but were often intertwined with religious differences. So most Irish celebrated a distinct identity that was both Irish and Catholic while most Scots celebrated their distinct cultural traditions woven through with Presbyterianism. Since the Second World War, Australia’s population has become much more ethnically diverse as a result of extensive immigration from most parts of the world. This has generated a wide range of ethnic social and cultural organisations. Other important differences emerged early in the nineteenth century. In a society that is being constructed, where people are keen to build a better society than the world from whence they came, tradition has little hold and many people have ideas about how to shape the institutions and practices of their new society. These ideas often are turned into nonprofit organisations. As well, Australia’s colonial economies were closely tied to Britain, the most advanced industrial economy of the day. The growth of new technologies, new trades and professions was reflected in each colony and generated their own associations. Indeed, the fact that Australia was until 1901 six separate colonies meant that when it federated there were as many as six associations pursuing similar interests. Federation and the growing strength and importance of the new Commonwealth government did not however cause these associations to amalgamate. Rather, it encouraged them to create a seventh distinct organisation to represent their interests at the national level. It has only been in the past 20 years that any collection of state-based organisations has tried to merge into one. It has not been an easy task.

STIMULATING

FACTORS

The many enabling factors present in the colonial environment would not in themselves have produced a strong third sector. The ethnic and

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religious differences in the population may have been evident only in informal, unorganised ways; a relatively high level of disposable time and money may have been consumed entirely by informal, unorganised activities such as reading, drinking or picnicking; the absence of government services does not mean people will band together to provide what they need. What was required to produce a strong third sector were stimulating factors, factors that encouraged and spurred people to form associations. There were plenty of stimulating factors in the Australian environment including: ● ● ● ● ● ●

religious belief secular ideologies economic self-interest the desire to socialise and recreate by sharing enthusiasms evangelists for existing nonprofits government encouragement and finance

The first and perhaps most important stimulus was religious belief. There are several ways in which religion stimulated the formation of nonprofit organisations. At one level, it stimulated people to act out particular components of their beliefs, to organise relief for the poor, for example. It also led people, particularly those who had committed their lives to their religious faith, to maintain and expand the organisational presence of their religion and to ensure its growth into the future. Finally, there were those whose beliefs focussed on the great battle between good and evil and predisposed them to see enemies of their faith all around, usually in the followers of other faiths. They formed the core of sectarianism that played a central role in shaping Australia’s third sector. Only a minority of Australians were ever strong believers in that they attended church at least weekly. An even smaller number were so committed that they made religion their life and became a priest, minister or member of a religious order. These strong adherents required the core of lay believers to support them and in turn they encouraged those believers to start or join organisations of various kinds, particularly those providing relief, care and education to the poor. The Benevolent Society, Australia’s oldest nonprofit community services provider, began in 1813 as the NSW Society for Promoting Christian Knowledge and Benevolence in These Territories and the Adjacent Islands. Its founders were all gentlemen colonists of independent means. All were evangelical Christians. At the prompting of Governor Macquarie, they focussed their efforts on the colony’s poor. Five years later, deeply in debt, the society was transformed into the Benevolent Society of NSW with the backing of a larger group of citizens convened by another clergyman. Setting a pattern that has prevailed, the Benevolent Society received financial backing from the government.5 This arrangement was greatly multiplied. The Anglican church received limited financial support from the beginning. Indeed, in its early

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years, its clergy received a government salary as chaplains. Later, the four major denominations received government support that proved important to build the fabric of organised religion in a sparsely settled country. The rapid growth in population in the 1840s and then during the goldrushes of the 1850s removed the need for such support. As well, it was opposed by those who embraced the new liberal ideology. This included many within the churches who believed that state aid was destructive of good relations between clergy and their congregations. Religion played a central role in the growth of education. In the first two decades of the nineteenth century, the responsibility fell to the clergy in their role as chaplains to organise rudimentary education for the children of convicts and poorer settlers. The governor’s wife presided over a committee of officials that ran a school for orphans, funded from government revenue. Any secondary education was provided as a commercial venture by men with a university education but few prospects. This picture began slowly to change in the 1820s and 1830s as other denominations began primary schools and the first boys’ secondary schools, Kings Schools, were begun by the Anglican church. With government support, by the 1840s the four main denominations were running many schools. To an increasing number of government officials, this was an unsatisfactory state of affairs. They believed that the provision of a basic education for all children was vital for their colony’s economic and social development. It was a central responsibility of government. In New South Wales and what later became the separate colonies of Victoria and Queensland, officials favoured using the Irish National System of education as a model. Developed for use in Ireland earlier in the century, one of its features was that it had been developed, with the then approval of the Catholic church, to educate Catholic and Protestant children together in a conscious effort to encourage tolerance. Colonial officials favoured the scheme for the same reasons, believing that if children could be educated in what was common to their various Christian faiths, they would lay aside the sectarian brawling that marked life in England’s cities and occasionally marred colonial elections. As a result, in the 1840s, the government began its own system of schools using the Irish National System. This soon drew attention to the inefficiency of supporting four separate denominational school systems as well as the national schools, and led to growing pressure to bring the denominational schools into the government system. This became one of the defining issues for colonial liberalism, which became the dominant ideology from the 1860s to the 1890s. In New South Wales, pressure for creating a single government system became particularly intense after the abolition of state aid to religion in 1862. However, the growing resistance of the Catholic church in Europe to liberalism, and the growing involvement of Catholic clergy in Ireland in the increasingly popular movement for Irish independence, meant that, in the colonies, the Catholic clergy were increasingly unwilling to accept

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anything other than their own schools. In the 1860s and 1870s, moves by colonial governments to create single systems of government schools and to eventually withdraw all state assistance from schools that did not join generated occasionally wild denunciations from Catholic bishops. In turn, these provoked an equally furious backlash from certain Protestants schooled in an evangelical tradition that saw the Catholic church as the enemy of both Britain and true Christianity. Thus, the liberal intention of creating a land free of sectarian strife had the opposite effect. Although the dominant liberal tradition, which was hostile to displays of Protestant as well as Catholic sectarianism, together with the indifference of the majority of the population to making religion a public affair prevented sectarianism from becoming a serious source of disorder, there emerged two distinct sectarian subcultures that significantly shaped Australian life for almost a century. This sectarianism was significant in the history of Australia’s third sector because it encouraged both Catholics and Protestants to develop their own organisations to protect their members, especially their children, from contact with the other religions. This was most pronounced with the Catholic church, which not only developed Catholic schools, but Catholic children’s homes, youth groups, drama societies, university colleges and student societies, friendly societies, building societies and insurance companies. For a while during the early twentieth century there was even a Catholic political party. Sectarian Protestantism manifested itself in organisations such as the Loyal Orange Institution (which for a few years in the 1870s had one-fifth of the Protestant male population as members), the Protestant Defence Association, various Protestant children’s homes, friendly societies, and even a Protestant political party (a breakaway from the Labor Party). It is important to recognise that not every nonprofit started by one of the churches was sectarian in intent, that is, designed to offer services to members of a particular faith and to turn away, or to try to convert others. Neither their hospitals nor many of the mainstream social service organisations applied a religious test to those needing help. But sectarianism powerfully fuelled a lot of nonprofit activity in Australia from the 1860s to the 1950s.6 Other beliefs, strongly held, also generated a great deal of third sector formation. These beliefs were sometimes shaped by religion, but were more narrowly focussed and did not incorporate belief in a supreme being or the supernatural. They are best described as secular ideologies. Usually, they focussed on one aspect of people’s behaviour, social organisation or economic practice, and sought change by example—by urging and educating and by having governments pass laws. Sometimes they were motivated by a strong sense of injustice and asserted a claim for rights. The organisations they generated are often referred to as social movements. One of the first examples in Australia was the movement to encourage amateur sports. This movement has been described variously as

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athleticism, amateurism, or muscular Christianity. Its advocates argued that sport, particularly team sport, built character, enhanced social discipline and encouraged pride in country. It has been argued that this movement was part of the middle-class push to break the pattern of working-class culture. That may be so. Its advocates were mainly middle class and often clergymen; it was in the newly emerging private boys’ secondary schools that these ideas were most powerfully expressed. But most importantly, it transformed sport. Prior to the 1850s, most participatory sport was organised on an ad hoc basis. Teams sometimes formed for a season or two but there were no organised competitions or standardised rules. Spectator sports were often organised by entrepreneurs, as a form of entertainment, and one that afforded great opportunities to make further profits by selling alcohol and taking bets. The reformers were determined to remove all taint of money from sport. Competitions would be between amateurs, and betting would be prohibited. Not all sport fell to their onslaught; they were not so interested in horse and other animal racing and boxing and, to a lesser extent, sailing, sculling and running maintained professional branches. But, by and large, the movement was responsible for organising sports through nonprofit associations, mainly run by amateurs, on a local, regional, state and national basis. It is only since the 1980s that this structure and tradition has started to change.7 Many other examples of social movements can be found in Australia’s history, generating many thousands of nonprofit associations as their organised expression. Amongst the most important are the temperance movement, which was at its strongest in the late nineteenth and early twentieth century, especially among women; the women’s movement, in two waves, around the turn of the century and again from the mid-1960s to the mid-1980s; and the environment movement. Another movement of great importance, but one that combined economic self-interest with a secular ideology, was the labour movement. Economic self-interest was a powerful motive for forming nonprofit associations, such as trade unions, employer and professional associations, and trade and industry associations. In such associations, men and women, directly or through the companies they own, combine to protect and advance their interests as employees, self-employed people or employers. Economic protection was the motivation driving the formation of many friendly societies from the mid-nineteenth century. It was behind the formation of many cooperatives, those that today would be designated as trading cooperatives. On a different plane, the quest for sociability via organised leisure pursuits was another important stimulator for the formation of third sector organisations. People’s drive to use at least some of their time for recreation in sociable pursuits provided a strong impetus for the formation of many third sector organisations. In the early nineteenth century, apart from pubs and occasional sporting contests or theatrical performances, the opportunity for socialising was relatively limited. The

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amateur ideology ensured that sport would be organised through voluntary associations. Non-competitive recreations, such as choral singing, bush-walking, rose growing or animal breeding, required associations to organise meetings, set rules for judging excellence and so on. For some the motive may have been economic, for most it was social, the desire to share their enthusiasms with others. The quest for opportunities to socialise drove those members of sports and other interest associations such as the Returned Services League sub-branches to set up their own social clubs in the 1940s and 1950s, in competition to the hotels that provided no opportunity for family outings. These evolved into the immensely popular registered clubs. Many nonprofit associations start as the result of evangelisation by members of existing nonprofits. Common examples include service clubs, friendly societies and some congregational-based churches. Sometimes, a paid canvasser for the head office of the organisation moved from town to town encouraging appropriate people to set up a branch of the organisation, instructing them in organisation lore, equipping them with the appropriate regalia and forms. More commonly, a member of a club in one city contacted one or two friends in another city and encouraged them to set up a branch there, playing the canvasser role on an ad-hoc, volunteer basis. Sometimes people in a particular city or town heard or read of an organisation that captured their imagination and sought to establish a branch or lodge in their town. Not only service clubs spread this way, but so too did organisations such as the scouts and the Red Cross. Government officials can sometimes be powerful evangelists for starting third sector organisations. In the late 1930s a few officials in the NSW Registry of Cooperatives were instrumental in developing a terminating or cooperative model for a building society and in selling the idea to people with experience of cooperative forms of endeavour, such as union officials and friendly society or cooperative executives.8 More recently, in the 1970s, government departments in a number of the human services employed canvassers (called community development officers or catalysts) to form community organisations to provide particular services, such as child care, and to help the organisations apply for government funding. Sometimes, all the government did was advertise the existence of funds for particular services and in that way it encouraged people to form community organisations to apply for them. Often government policy was reflecting the views of social movements such as the feminist movement, which emphasised the importance of women, or of communities running services particularly used by them, such as child care, refuges, women’s health centres or Aboriginal legal and health centres. Many of the organisations set up with these incentives continued to act as if they were no more than extensions of government, relying almost entirely on government support. They became particularly vulnerable when government funding fashions changed.

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DIMINISHING

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FACTORS

The final set of factors that shape Australia’s third sector are those that diminish it. The factors that diminish or reduce the size of the third sector are three. They are: ● government actions ● for-profit competition ● changes in popular taste that reduce the appeal of certain nonprofits Governments can reduce the number of third sector organisations in several ways. Most directly, they can take them over or, in effect, nationalise them. In New South Wales and several other states, this happened to many hospitals during the 1950s. Prior to that time most hospitals were nonprofit organisations, either established by some preexisting organisation such as a Catholic religious order or a secular nonprofit such as the Benevolent Society, or established as a public charity, with a board elected by subscribers. In the nineteenth century, hospitals were exclusively used by the poor and were classic charities, depending on subscriptions and government grants. With improvements in medical practice and infection control, by the early twentieth century they were the preferred site for treatment for all classes and as a result demand grew. Although hospitals charged fees to their wealthier patients, and although state government support increased, none of these revenue sources was sufficient. Many patients could not afford to pay fees. A number of creative strategies for raising funds were begun, including hospital insurance schemes and lotteries, but there were never enough funds. In the late 1940s, the Commonwealth Labor government, newly wealthy as a result of its wartime acquisition of the exclusive power to tax income and its application of income tax to almost the whole population, offered to take over all hospital funding from the states. This arrangement did not survive the change of government in 1949. However, the new Liberal–Country Party coalition government began making very generous grants to the states for hospitals but tied certain conditions to these. In most states, state governments quietly took responsibility for appointing the boards of those hospitals that were public charities and bringing them under other forms of public service control as well. This effectively turned the hospitals from nonprofit into government organisations. Those that were owned by other nonprofits, such as religious orders, continued as nonprofits, though to receive the considerably increased government funding they were forced to surrender a good deal of their autonomy. A similar logic can be seen at work in New South Wales in the 1980s when the Liberal government took over the Home Care Service of New South Wales, a multimillion dollar network of small voluntary associations that, as a result of a large increase in Commonwealth support for home care, had been required to grow massively. Government officials

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felt that they could better control the service if it was placed directly under their control. Another way that government actions can cause the decline of the third sector is through ending their support or by changing the rules whereby nonprofits obtain government support to provide services. These effects can of course only occur in those fields, mostly public serving, where nonprofits are significantly dependent on government support. Usually, government is driven by ideology to make the changes. An interesting example occurred in New South Wales in the late nineteenth century, when the government, convinced by reformers of the evils of large congregate-care children’s homes, moved to put all the children in the children’s homes that it funded into foster care, setting up a government board to administer the new arrangements. As a result, those children’s homes ceased to exist. Alternatively, governments sometimes decline to renew funding for particular nonprofits or use the power that being the main source of funds gives to force amalgamations of several nonprofits. These actions do not have a major effect on the sector as a whole. By contrast, recent moves to make third sector organisations compete with each other and with forprofits for government funds are likely to cause considerable changes to the third sector, especially in the community services field, which is where this new government policy is most extensively applied. The policy is likely to encourage the growth of large third sector organisations and the decline of small organisations, a reversal of the policy of the 1970s and early 1980s. For-profit competition can sometimes bring about the loss of third sector organisations, either by putting them out of business, by their members deciding to convert to for-profit form or to sell to or agree to a takeover by a for-profit firm. Four examples illustrate some of the different processes. All come from the period after the Second World War and all were a product of the success of nonprofits in pioneering different fields. Terminating building societies begun in the 1930s were enormously successful in lending ordinary working people the finance they needed to obtain housing. Previously, the banks would not lend any more than 60 per cent of the value of a property. The building societies were lending 95 per cent without problems. By the 1950s the banks recognised this and, in a drive to build a large customer base, decided to make it far easier to obtain a bank loan for housing. The banks had been the major source of funds to the building societies and these funds were no longer available. The terminating societies looked to the Commonwealth government to provide funds, but that changed somewhat the operations of the terminating societies. Leading figures in the terminating societies also put much energy into developing permanent building societies that successfully sought to build a large consumer base (of depositors as well as borrowers), thus competing successfully with the banks. Nonprofit organisations pioneered self-care accommodation for the

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aged from the late 1940s onwards. With Commonwealth government assistance after 1954, many nonprofits began homes, using contributions from future residents as a way of raising the capital needed to attract the Commonwealth subsidy. Later, with government help, an additional level of supported accommodation (in the form of hostels) was added. By the 1980s for-profit developers were building and marketing identical accommodation, reducing the need for nonprofit accommodation and helping to encourage the government to abandon the capital subsidy. In sport, administrators of the state and national associations of sports with large spectator followings slowly adapted to the world of television, which promised them huge revenues from sponsorship but also greater interference from sponsors and media companies. The alternative World Series Cricket competition set up by media interests associated with Kerry Packer and the Nine Network in the late 1970s was an indication of the power of these interests. Later, News Limited bought a controlling interest in a number of Rugby League clubs in order to set up its own competition in opposition to the traditional series organised by the nonprofit Australian Rugby League. This in effect converted those clubs from nonprofits into for-profits. Some newer sports, such as basketball, were organised as profit-making ventures from the beginning. In the final example, the growth of capital markets and the need to have access to larger pools of capital have persuaded many mutual insurance organisations and building societies that they need to convert to a for-profit form, or ‘demutualise’. Proponents of demutualisation argue that mutuals are disadvantaged by not having ready access to new sources of capital and that for-profit companies are better able to judge their performance (because the stock market is doing it for them) and, as a result, they are more efficient. There may be some merit in these arguments, but there are equally significant difficulties in pursuing sensible long-term strategies when under the notoriously short-term ‘disciplines’ of the stock market. Despite the continuing success of many mutuals in far larger markets than our own, proponents of demutualisation, frequently the directors and managers of existing mutuals and the firms that grow rich helping it to happen, have been carrying all before them. The third factor that brings about a decline in parts of the third sector is a change in public tastes, interests and expectations. Many nonprofit organisations are formed at particular times and meet the needs and expectations of many at that time. However, they are frequently slow to change, to adapt to new needs and expectations. Often this is because those who retain control of the organisation are unwilling to recognise that change is needed or, conceding that point, are unwilling to compromise some important aspect of past practice. Friendly societies had been very successful in attracting and retaining a large membership until the Great Depression. They had combined a valued service with ritual and opportunity for socialising. But for several decades before the Depression, there had been a reduction in the decisions that could be

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taken at the lodge level and an increase in those that, for actuarial reasons, needed to be taken at the state level. Alternative forms of entertainment, such as radio and cinema, changed evening leisure practices and, as one generation succeeded the next, the rituals of the lodges seemed quaint and archaic. Eventually, by changing into health insurance organisations and later still (for a few) into mutual investment managers, many friendly societies retained a membership and their existence, but as very different organisations. Adaptations slowed their decline rather than averted it. Many organisations formed in the late nineteenth and early twentieth century for young people, the ‘Ys’, the scouts and guides, have found it hard to retain a relevance in the 1980s and 1990s. In some cases the organisations remain under the control of people who joined as young people many decades before and who are reluctant to adapt or abandon practices that were appropriate in the days of their youth but no longer. The average age of scouts and guides has been falling as the organisations seek younger (and more compliant) members whom they fail to hold once puberty is reached and full sensitivity to the world of peer models occurs. Membership of long-established third sector movements, such as the mainstream Christian churches and the labour movement, is also declining markedly. There are many reasons for this, but central to the process of decline is an unwillingness to make radical changes that might help the movement survive and flourish again. The churches, with their far longer history, can perhaps wait for the process of social and economic change to bring again a religious revival as last occurred in the late eighteenth and early nineteenth century. The labour movement cannot afford to take such a long-term view.

PART IV

HOW

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T

HIS PART DESCRIBES the common arrangements for governing, managing, financing and staffing third sector organisations in Australia. Where available, it draws on Australian research to expand some of the generalisations offered in chapter 2. It describes the diverse ways in which third sector organisations are governed and the variety of revenue resources that they draw on. It outlines some of the typical problems faced by third sector organisations, a consequence of their special character. It notes the generally high level of commitment of their staff and volunteers. It is much harder to judge how well third sector organisations work and how well they are managed. There are a few Australian third sector organisations that are as well run as the best run business. A few more are badly run, frequently in danger of collapse. Most get by. They survive and provide useful services, some of high quality. But, generally, they lack a strategic vision and find it hard to adapt to a rapidly changing environment. They have not been extensively touched by the dramatic changes in management practice that have improved the performance of many for-profits. There are many reasons why this is so. Two stand out. Over the past 20 to 30 years huge resources have been committed to developing understandings and techniques to improve business performance. But not all of the management techniques developed by and for business are directly applicable to third sector organisations. Third sector organisations have special characteristics that require their own solutions but little effort is put into developing best practice management for the third sector. That, indeed, points to the second reason why third sector organisations do not perform as well as they might. There is a distinct unwillingness on the part of boards, members and funders of third sector organisations to commit sufficient resources to build and sustain highlevel management capacity.

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16 GOVERNING

AND

MANAGING THIRD SECTOR ORGANISATIONS

TERMS

T

HIS CHAPTER IS about running third sector organisations and who is responsible for determining what they do and how well they do it. Many different arrangements for governing and managing can be found among Australia’s third sector organisations. These are reviewed in the following discussion by considering a series of models that describe the main approaches. But first we need to clarify what we mean by governing and managing and what terms are used to describe those who perform these tasks. To clarify the meaning of governing and managing, it is helpful to look also at administering and leading as two other sets of activities that are often muddled together with the first two. It is easiest to start with administration. This refers to the performance of routine tasks associated with the operation of an organisation or program. In nonprofit organisations it can refer to tasks such as bookkeeping, record keeping and organising the payroll or a staff roster. Generally, it entails following rules or established procedures and involves the use of judgment in only a limited or highly proscribed way, as for example in determining the order in which to perform a series of routine tasks, or balancing the preferences of staff in constructing a staff roster. It may require some element of supervision of others, but only in the performance of administrative tasks. By contrast, management requires the exercise of a large amount of discretion and judgment. It will involve setting or reviewing objectives for an organisation or a significant part of or function within an organisation, the selection and implementation of means for achieving these objectives, and the monitoring of performance. It involves the coordination of resources—people, funds and facilities. It entails elements of planning, organising and directing. It is a task of management to develop, or select and adapt, the rules and procedures that guide the actions of administrators. Management also involves the coordination and

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direction of other staff, including in some organisations, highly skilled professionals. Another responsibility of management is to ensure that the organisation complies with all legal obligations. The manager of an organisation or unit is responsible for the overall operation of that unit. In the final analysis, a manager is unambiguously and directly responsible to a higher authority, either another manager or a board or an owner. Leadership is a term that is receiving a lot of attention at present. It is not easily reducible into a list of tasks and responsibilities. Rather, it refers to an ability to articulate the purpose of an organisation, its mission, goals and strategy, in such a way as to inspire employees and clearly inform a wider public. A leader spends a lot of time meeting with employees and with other stakeholders in the organisation, and, sometimes, the media. An effective senior manager will combine elements of leadership and management. Governance involves a special kind of management. Governors are responsible for setting the overall direction of an organisation and for ensuring its effective performance. Inevitably, governance involves the use of a great deal of discretion and judgment. In law, the governors are responsible for the organisation, for what it does, how it does it and how well it does it. They are also responsible for ensuring an organisation meets all its legal obligations, and that it does not continue to trade if it becomes insolvent. Despite these heavy responsibilities, the governors of third sector organisations are almost always volunteers and perform their duties on a part-time basis, meeting usually only monthly for a few hours at a time. In a small organisation, one that employs no-one, this matters little; in a larger organisation it is important. Inevitably, governors of an organisation rely on the senior paid staff of the organisation to carry out their bidding and to keep the organisation within the law. But, unlike a manager, who has a clear line of accountability, it is not so clear to whom governors are responsible. In most nonprofit organisations they will be elected by members and face re-election from time to time, but members are often largely inactive or few in number. The difficulty faced by many boards of governors is finding people who are prepared to join. The term ‘board’ in the previous sentence is one of the collective terms commonly used to describe the group that has responsibility for governing a nonprofit organisation. Board is often a shorthand for the more formal ‘board of directors’ or ‘board of governors’. But in many small nonprofits, governance responsibilities rest with what is called the management committee. In a few organisations, the governing body is called the council, or sometimes, the executive. Whatever it is called, such a body always will have a convenor or chair. Chair, or its gender-specific variations, is the most common term for this important position, though sometimes the term ‘president’ is used. The most senior paid staff member in the organisation also plays a crucial role in its operation, though, as we shall see, the authority of this position can vary a good deal according to the size and tradition of the organisation. The most commonly used term among larger nonprofits is

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chief executive officer or CEO. Sometimes the shorter term chief executive is used. Among smaller nonprofits, the term coordinator is common. In interest and advocacy organisations, the terms director or executive director are frequently used. Sometimes the grander, but anachronistic, secretary-general is used. In some organisations the term secretary is used to describe the most senior manager of the organisation. Such organisations often have come to pay their chair, usually referred to as the president. In just a few cases the positions of chief executive and chair will be combined. In such cases the term president is often used. In some specialised organisations the chief executive will be known by a term unique to that field, such as headmaster or principal in schools or commissioner in scouts. In organisations where volunteers play a major role in service delivery and exercise decisive power in governance, the senior paid staff member will have a lower status and may be referred to as an administrator. Sometimes the term general manager is used, often in organisations, such as those in the performing arts, where responsibility for the organisation’s program resides with a professional, such as the artistic director. A similar division is sometimes drawn in research and certain health organisations. In such cases, the general manager has a limited set of responsibilities though remains, with the board, responsible for ensuring the organisation’s continuing financial viability. Of the terms used, only that of coordinator is unique to the third sector. Some terms, such as secretary or secretary-general, are borrowed from government; others, such as chief executive or general manager, come from business. In what follows, the term chief executive is used to describe the senior paid staff member of an organisation while chair is used to refer to the chairperson of the governing body, which is referred to as the board. The background of the people who fill either board or chief executive positions varies considerably. In small, purely volunteer organisations, those who are the most committed members will invariably constitute the board. Their composition will reflect the make-up of the group. Their approach to management will reflect their experience of management, either in another voluntary association or in their employment. In large member-serving organisations the composition of the board will continue to reflect the membership, though in some large cooperatives provision is made to bring onto the board a minority of non-members with business experience. The boards of larger public-serving nonprofits are often built from people with business or professional experience thought to be useful to the organisation. Very little research has been done on the composition of boards in Australia’s third sector. One study of nonprofits in the community services industry found that over one-third had an accountant and/or someone with tertiary qualifications in management on their board. One in five of small organisations (those with an annual turnover of less than $100 000) reported that they too had people with these qualifications on their boards.1 Of course, having a board composed of highfliers from the business world is no guarantee that it will be well governed. Although nonprofits are like for-profits in some important

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respects, they are unlike them in others. Successful business people may be unwilling to recognise that. Alternatively, if anecdotes are to be believed, they believe the difference is so great that they do not need to apply any of their business acumen to the task of governing the nonprofit. Given the centrality of the chief executive, their qualification for such an important post is a matter of importance. Again, there has been little systematic research into the chief executives of Australian nonprofits. Clearly, in many fields, there is an expectation that the chief executive will have been a meritorious practitioner in that field. This is true of education and sport, and is likely to be true in health, community services and the arts. Increasingly, the chief executive will have had prior management experience, often in government or business as well as in the nonprofit sector, and to have studied management at a tertiary level. A 1990 study of the chief executives of sixteen large community services nonprofits in New South Wales found that of the thirteen men and three women, nine had university degrees, six of them higher degrees, though only one had formally studied management at university. Reflecting the strong presence of church-sponsored organisations at the ‘big end’ of the community services nonprofits, five of the chief executives were clergymen.2 By contrast, the more extensive survey of community services nonprofits referred to earlier found that almost 50 per cent of chief executives claimed to have TAFE or university qualifications in management and almost 80 per cent claimed to have had previous management experience. It is not possible to judge the level or quality of the experience.

MODELS The terms governing and managing and the definitions of their meanings given earlier assume a particular approach to running a nonprofit organisation. It is an approach that draws from the business world, but which has long been enshrined in legislation incorporating nonprofit associations. It is most appropriately referred to as the corporate management model. In this model, members elect a board that runs the organisation on their behalf and is accountable to them for its performance. It is also accountable to other significant stakeholders, such as government bodies that incorporate or license the organisation, to funders and to users of the organisation’s services. In larger organisations (and the model is most fully developed in larger organisations), the board appoints a chief executive to be responsible to it for the work of the organisation. It develops and articulates a statement of mission for the organisation and empowers the chief executive to appoint staff and develop strategies and programs to fulfil that mission. In its purest version, and in the words of John Carver (one of its most influential proponents), the board sets the ends of the organisation and allows the chief executive, within limits also set by the board, to determine the

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means. The board monitors the organisation’s performance and if the ends are not met the board should review whether they were realistic and either modify them in the light of experience or replace the chief executive.3 Increasingly, as boards become aware of the many risks to which they are exposed, they are appointing some of their members to an audit committee to keep a close watch on organisational procedures to ensure risk minimisation. This allows the full board to focus on ‘the big picture’. There are very few examples where this pure version of the corporate management model can be found. Some organisations try to follow it closely. There are however many organisations where different models are followed, often with some difficulty, given the presumption of the corporate management model in legislation enabling incorporation. These other models are briefly described in the following discussion. It should be noted that they are attempts to capture a number of features that frequently coincide in different organisations, but each particular organisation will embody only some of the features of any one model and, probably, a feature of one or more other models as well. One rather different model is the voluntary association model. This model is commonly found among small, non-employing associations. In it members, or members actively concerned to see the continuation of the association, divide among themselves the tasks that are essential for the operation and continuation of the club, society or association. These might include fundraising, arranging whatever it was the club was formed to do, attending meetings of a higher level body that the association belongs to and so on. Usually one of the members agrees to be treasurer and look after finances, and another becomes chair, which usually means making sure that everyone else is doing their job. If the association is incorporated these responsibilities become formalised, especially the requirement that there are annual general meetings and reporting back to members. One development of this model is the volunteer control model. Organisations that adopt this model are often quite large and employ staff to perform administrative tasks and sometimes professional duties as well. But the core work of the organisation is done by volunteers and those volunteers retain control of the organisation. Organisations that largely fit this model include the scouts and guides, the St Vincent de Paul Society and Legacy. Much of the work, particularly the original and now traditional work of such organisations, is done at a branch level, but branches are part of several levels of overarching structures at regional, state and national levels. In these organisations, volunteers who are the members of the organisation will directly involve themselves in the management and even the administration of at least some aspects of the organisation’s activities. Paid staff are more likely to perform administrative roles rather than management. When such organisations try to change their arrangements for management and governance, usually by trying to place a corporate management model over the other, it

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invariably generates great tensions between the chief executive and the board. Another model that is sometimes found in small organisations, including employing organisations, is the collective model. If conventional forms of organising are based on a representative model of democracy, a collective exemplifies direct democracy. In a collective, the decisions that in other models are taken by a board or chief executive are taken by the entire membership. Included in this group might be the staff of the organisation and, on some occasions, clients or users of the service. Often the collective is committed to consensus decisionmaking, which can slow decisionmaking. The collective form of organising clearly demands more of members than do conventional forms, but it also gives more direct experience of decisionmaking. It is most commonly adopted by small groups of enthusiasts who are committed to reproducing in their own organisation democratic forms of decisionmaking and power sharing that they believe should be present in the wider society. It differs from the voluntary association model in that all the decisions are taken by the collective rather than by the smaller group or individual given that responsibility by the members at a general meeting. A cooperative is a collective-like form and many collectives, if they decide to incorporate, do so as a cooperative, but most cooperatives follow the representative democracy path and elect their board to govern the organisation from among their members. The community management model is another model often espoused but not as often followed by small nonprofits in the community services and related fields. Under this model, members of a local community or community of interest such as users of a child-care service, are considered members of an organisation and meet annually to elect a management committee whose members then take responsibility not only for the governance of the organisation and for its management but also for most administrative tasks associated with its operation. Generally, the organisation will be in receipt of government funding, some of which will pay for a coordinator who will take on some of the administrative tasks, but these mostly will be those associated directly with the particular service being provided. In many respects the community management model differs little from the voluntary association model, except that because the organisation is in receipt of government grants and employs people, the management and administrative tasks and the responsibilities of the governors are more complex and very demanding for volunteers. It was a model developed by community activists in the 1960s and 1970s, and enthusiastically espoused by governments that relied on volunteer managers to avoid paying the full cost of providing a service. Over time, especially as organisations took on other programs and as original board members lost their enthusiasm, coordinators and other administrative staff or consultants took over the administrative tasks and some of the management responsibilities that had belonged to the board. It is a model that still has some attraction to idealists in the community sector.

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Unfortunately, it is a model that has been institutionalised in many government programs, enabling governments to continue to avoid paying for the management costs associated with any service. Another model, one which is closer in some respects to the corporate management model, is the advisory board model. Generally, this model is seen in organisations that were begun by churches or religious orders and have not been incorporated. The chief executive of such organisations is appointed by a bishop or other religious leader and reports to them. However, the chief executive will often establish a board of people with useful professional skills and connections to advise them. Some boards of incorporated nonprofits often operate largely as if they had only an advisory role, rather than governance responsibilities. Such boards will contain at least one partner in a law firm and another in an accounting firm. They will usually have someone skilled in marketing or public relations and a builder or architect to look after maintenance issues. They will sometimes have someone expert in the field or field of service in which they operate, such as social work, counselling or education. Their task primarily is to advise the chief executive and senior managers about matters affecting the organisation in their area of expertise. They will sometimes call on their firm for pro bono work; sometimes, the firm will charge a fee, if the work is extensive. The board will often work through a committee structure, mirroring management tasks such as finance, fundraising, buildings and broad program areas. There are those who argue that such arrangements are both illegal and lead to ineffective governance, but pragmatically, it is a model that many organisations find works reasonably well. A final model is often found in government–nonprofit hybrids, but also in some large interest and sports associations. This is the constituency model of governance. Under this model, the governing body of an organisation is elected from several constituencies. Many members believe that their role is to represent the interests of their constituents, rather than be responsible for the organisation as a whole. In effect they leave that responsibility to the chief executive and senior staff. These boards tend to be large and to operate a little like a parliament. Some of their members act like a governing group, supporting the managers through thick and thin; others always oppose. Religious organisations do not quite fit these models. In hierarchically organised churches, governance and management responsibilities are exercised by the same person, who has been in turn appointed by a higher authority and is responsible to them. Only the most senior authority in these churches is elected, by the group immediately below. Nonetheless, at different levels (parish, diocese) there are advisory councils or advisers, who take effective responsibility for the financial management of the entity. In congregationally organised churches, the lay management group has considerable governance authority and the clergy are beholden to them, appointed not so much as chief executives, but as senior professionals. These arrangements resemble the community management

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model. In religious institutions, members elect a small group of their number and invest them with both governance and management responsibilities for a three- to five-year period. In the past, this governing group or its leader enjoyed considerable authority. These days they are more accountable to their dwindling congregational members. A few sects still endow their leader with almost absolute authority. The size of boards varies considerably. Some are as small as three, others have 40 members and a few locate ultimate responsibility for governance in a council of several hundred. The norm would appear to be around ten. These differences reflect many factors. One is size: small volunteer-only organisations will have small boards. Another factor is the purpose of the organisation: an interest group, especially a peak council, may have a large board to ensure the representation of its various constituencies. The model of governance adopted will also influence the size of the board. Those that have a constituency model will invariably have a large board; so too will collectives. The fashion in corporate management is toward small boards (about eight members is considered optimal), but many older nonprofits that follow this model have larger boards that reflect earlier times when board responsibilities were less onerous and people with high status were invited onto boards to lift or maintain the organisation’s prestige and help it attract funds. These different approaches to governance and management are the product of many factors, including the size of the organisation, its age and whether it experienced trauma at some past time that caused the adoption of a particular way of doing things. It is also influenced by whether the organisation gains most of its revenue from donations (including ‘donations’ or grants from government) from selling services to members or from sales to the wider public. The governance model affects the way in which, and the extent to which, the organisation is able to handle conflict between the board and the chief executive, how well it responds to change, the extent to which it utilises modern management techniques (mostly developed in the for-profit world) and its approach to measuring performance. What limited knowledge we have of the way Australian nonprofits handle these matters will be reviewed in the following discussion. Tension between the chief executive and the board is frequent, especially in larger nonprofits, and particularly those that adopt either the corporate management or the volunteer control models. In some respects this tension is built into the structure of organisations that adopt these models. Board members believe that they are responsible for the overall direction of the organisation and that they employ the chief executive to carry out their wishes. On the other hand, the chief executive is the person from whom staff take their direction and who, in most cases, is the public face of the organisation. It is the chief executive who must display leadership within the organisation. Invariably, the chief executive comes to feel that they own the organisation. As well, the chief executive knows the field: they are usually a professional, while the board are not only

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volunteers, they are frequently ignorant of the field in which the organisation is operating. The prescriptive literature generally follows the line of legal responsibility and argues that the board should take charge; it should determine the goals or the ends to be pursued by the organisation. It should then allow the chief executive to pursue those ends within certain prescribed limits set by the board, which should also monitor the achievement of those goals. This requires a very proactive group of volunteers, or at least a chair who is particularly active. Some other prescriptive literature, based on research into the features of effective nonprofits in the human services, argues that the chief executive is psychologically the central figure in the organisation and that it is the responsibility of the chief executive to ensure that the board acts as an effective board. That means setting and being responsible for the goals of the organisation, but also being its advocates in the wider environment, including with funders and politicians.4 In practice it is possible to find organisations that exemplify both of these approaches, just as it is possible to find organisations that have (temporarily) resolved the tension by allowing either a chair or a chief executive to dominate. In the latter case, the organisation, despite being ostensibly organised according to the corporate model, resembles the advisory board model. These tensions do not arise in organisations that are committed to the collective model, nor do they arise in volunteer-only organisations. In these cases organisations face other difficulties, such as getting enough volunteers for all the tasks, and the problem of factionalism. Tensions are also less likely to arise in organisations that follow the community management model, as there board members are responsible for performing most management tasks as well as directing. However, as these organisations grow, they invariably move toward the corporate management model and tensions invariably emerge. In organisations that adopt the constituency model, the tension is always there, but between the chief executive supported by a majority of the board against a minority of board members.

HOW

WELL MANAGED ARE THIRD SECTOR ORGANISATIONS?

Given this diversity of approaches to governance and management, how well run are Australia’s third sector organisations? This is a difficult, even impossible question to answer, partly because every person asking it has different criteria in mind, and partly because there is almost no research to base a judgment upon. The question is probably addressed only to those organisations large enough to employ people. Two simple criteria might be utilised. How many failures are there of third sector organisations? and to what extent have third sector organisations adopted what are considered best practice business techniques? There is no systematic recording of failures of third sector

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organisations. Certainly, there have been one or two notable collapses over the past decade. The National Safety Council of Victoria collapse, leaving debts of hundreds of millions of dollars, was the most spectacular and revealed major deficiencies in prudential oversight by its board and also by its auditors and lenders. This was just one of many collapses of public companies in the 1980s due to the dishonest or fraudulent behaviour of managers and directors. The collapse of the Elizabethan Theatre Trust exposed the risks inherent in the management of any arts organisation. The past decade has seen several small nonprofit hospitals become insolvent, the consequence of cost pressures in the hospital industry and of fewer people carrying private health insurance. The governors and owners of one or two other nonprofit hospitals have sold out to for-profit providers. Between 1997 and 1999, changes in government funding arrangements led to the closure of several nonprofit childcare centres and employment agencies. In addition, many mutuals, such as smaller social clubs, are doing it tough and in some cases are closing, amalgamating with or being taken over by a larger organisation. Building societies went through a ‘merger mania’ in the early 1980s and then spent the rest of the decade converting into for-profit banks. The need to access capital is often given as a reason for demutualisation and listing as a public company. There has also been significant consolidations among rural cooperatives. The immediate cause of most failures of third sector organisations is that insufficient attention was paid to solvency and to debt. An examination of the ten largest third sector organisations in nine industries in New South Wales in the early 1990s found that 49 per cent had debtto-equity ratios that exceeded the conventional norm of prudent management, while 37 per cent had liquidity problems.5 It is when nonprofits are heavily reliant on a single-income source that they are most at risk, especially if that source is a government. Over the longer term, the reason why third sector organisations fail is that they did not sufficiently adapt to changing circumstances. A particular need that an organisation was established to meet may disappear, it may be more efficiently met by other organisations such as for-profit firms or it may take a different form. Some would say that a third sector organisation should go out of existence once its original goals have been met. To do so is a sign of success, not of failure. Others would argue that if it has certain hard-won skills and other resources, it should review its objects in the light of its fundamental mission and adapt to its changed environment. Of course, if organisational adaptation has been long delayed, the transformation required can be traumatic. Legacy, the community service organisation founded by returned servicemen in the early 1920s to care for the dependants of their comrades who were killed in the war, is an example of an organisation that has both adapted and later decided to die. When it was established, Legacy envisaged its main job as being to help the widows of deceased exservicemen bring up their children. This it did during the 1920s and

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1930s, and again for another generation following the Second World War. But by the 1950s it was beginning to become clear that its longer term job would be to care for some of the widows as they grew old. As a result, Legacy was among the third sector organisations that pioneered aged persons’ accommodation with assistance from the Commonwealth government. Then in the 1960s some members of Legacy noted that, in the absence of another major war involving Australian servicemen, Legacy would eventually cease to exist. They proposed gradually merging with Birthright, an organisation modelled on Legacy that worked with civilian widows. However, the resistance to this proposal for further change was too strong, and Legacy agreed that it would cease to exist early in the 21st century. The organisation had been prepared to review its mission and provide a very different set of services to those it had originally provided, but it was not prepared to modify its original organising principle. In most states, Legacy Foundations have been established to receive the assets and take care of the outstanding responsibilities of the Legacy clubs. There are many other examples of nonprofit organisations that keep on hanging on to old ways and principles when circumstances have changed. Large organisations that use the volunteer control model of governance are particularly prone to this. The scouts and the guides provide a classic example. In each case, chief executives had directed their board’s attention to the wealth of evidence that young people seek enjoyment and learning in quite different ways to those of an earlier generation and drawn the conclusion that unless dramatic changes were made, membership, particularly among teenagers, would continue to decline. But boards, made up of increasingly older volunteers who had given a large part of their lives to a certain sort of organisation, were unable to endorse any dramatic change. Their organisations continue to shrink. Overall, the failure rate of third sector organisations is probably less than that of for-profits. But an ability to survive does not mean that an organisation is well managed. This point is understood by some third sector managers. In the survey of the management support needs of over 1000 nonprofit community service providers described earlier, many chief executives indicated that they used consultants and other forms of management support not to avoid failure, but to improve the management of their organisation.6 Most third sector chief executives are constrained by limited funds from pursuing management-improvement strategies. In general, funders and sometimes boards are reluctant to allow an organisation to build its management capacity. To do so, they believe, is to shortchange the clients or members of the organisation. It is hard to judge the appropriate level of management capacity, but to err significantly on the side of meanness is to reduce the performance of the organisation over the long term. As has been recently pointed out by an important American study, well-run businesses recognise the importance of investing in the management capacity of the business; nonprofits rarely do.7 This points to the second criterion for judging how well nonprofits

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are managed: their use of modern management techniques borrowed from for-profit firms. The range of these techniques or practices is wide. They include the use of quarterly or monthly financial reports including analysis of variance against budget and cash flow analysis, the use of cost centre budgeting and accounting, the use of job descriptions and performance appraisal systems, well-elaborated occupational health and safety systems, the use of strategic planning in one of its many guises, the collection and use of data on consumer satisfaction up to the use of a quality assurance program, benchmarking against competitors or best practice. Many of these techniques developed during the 1960s and were adopted by large companies during the 1960s and 1970s, spreading to many smaller firms during the 1980s. Third sector organisations started later, but the past decade has seen the diffusion of many of these practices into the third sector. Of course, those operating in a competitive environment, such as large trading cooperatives and mutual finance organisations, were quick to adopt new business practices. In some other fields, such as sport, the huge increase in revenue from television in the 1980s and beyond led to the dramatic upgrading of management skills and practices and growth of the profession of sports management. In other fields, pressure to modernise management practices came from business people on boards and from the example of government, which during the 1980s and 1990s was itself being forced to become more businesslike in its practices. In turn, government program managers required budgeting and corporate or strategic planning of the organisations they supported. The field where the pressure has been least (and the resistance strongest) has been education. The study of the management support needs of community services nonprofits, noted earlier, undertook a detailed survey of 73 organisations, including whether they used any of 43 modern management practices. For organisations with revenue of over $1 million per year the average score was 31; for organisations with revenue between $100 000 and $1 million, the average was 27; while small organisations averaged 20. This same part of the study included on-site interviews with chief executives and used several other indicators (such as a qualified audit report and an inability to provide the past three years financial statements) to judge if the management was bad. It concluded that about 10 per cent could be considered to be, or recently to have been, badly managed. Another 10–20 per cent indicated sub-optimal management performance on at least one test.8 The criteria used in the survey are not good guides to judging the quality of third sector management. At best, they suggest that it is, on average, not bad. There is for most organisations a great need for improvement. But a search for more positive criteria for judging an organisation’s performance leads one into a dilemma that is particularly pronounced for most third sector organisations. This is the difficulty they face in judging their performance.

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A for-profit firm has relatively simple criteria to evaluate its success: is it making a profit that provides an adequate return on the funds invested. A vast array of performance indicators have been devised for judging company performance, all based on profit. None of these measures can be applied without qualification to third sector organisations, even to trading cooperatives and mutuals. All nonprofits must make a profit, at least in most years, but if a nonprofit organisation were to make excessive profits or surpluses it would be failing in its mission. It would be building up surpluses at the cost of providing more or cheaper services to its members or clients. Nonprofits lack two other incentives that are supposed to keep for-profits seeking optimal performance. In many fields, they lack the pressure of competition, though this is becoming decreasingly true as governments move to create quasi-markets in a number of fields where nonprofits are active. They also lack the regular scrutiny that the share market gives to publicly listed companies. But nonprofits can compensate for the absence of these spurs to efficiency by the commitment of their members, board and staff to provide the best possible service with the resources they have available. It is the strong value orientation of nonprofits that provides the spur to provide efficiently appropriate services of the highest quality. Unfortunately, the difficulty of finding adequate resources and working long hours for little return and without making an appreciable impact on need sometimes turn idealism to cynicism.

NONPROFIT

VS CIVIL SOCIETY

This chapter will conclude with a dilemma. It is a dilemma created by the different disciplinary and activist perspectives on the third sector. These are spelled out in part 6, but it is appropriate first to illustrate the dilemma here as it mostly affects the approach taken to managing and governing third sector organisations. Underneath the considerations outlined in this chapter is a far more fundamental issue to do with the contribution of third sector organisations to society, that is, why we value them. The preceding discussion has been based on the assumption that third sector organisations are service providers, like for-profit organisations. That is, they exist to provide services with certain characteristics to certain groups of people whose needs for those services are not satisfied by either for-profit or government providers. As we shall see in chapter 22, this is the basic assumption of the economic theory of nonprofit organisations. Clearly it is not a wrong assumption. It might, however, be an insufficient account of this group of organisations. That is, they do provide services (broadly defined to include representation or opportunity for worship), but they do other things as well. As we shall see in chapter 23, third sector organisations make an important contribution to civil society and to building social capital. Social capital refers to norms such as trust and

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reciprocity that enable members of a group or community to work together. It is present in some groups and communities to a greater extent than others and is strengthened by being used for collective action. In so far as third sector organisations manifest people’s abilities to join together in collective action, they are drawing on social capital and renewing it at the same time. But this way of viewing third sector organisations creates different criteria for judging them successful, and thus well managed, than does viewing them as a special kind of service provider. The implications of viewing third sector organisations in this way have not been worked through to anything like the same degree as viewing them as a service provider, but a couple of examples can illustrate some of the tensions between the two views. First is a description of what would be classed as a well-run nonprofit from the service-provider viewpoint. The example is taken from the human services, but it could, with a few changes, be a leisure or an interest organisation. Then follows an account of a nonprofit in the same field that is well run from a civil society perspective. Organisation A has a clearly defined mission and focusses on providing services of the highest quality. Its object is to produce the best possible outcomes for its clients. It determines what this might be and whether it is achieving the goal by frequent surveys of its client or customer base. It has a small board, highly skilled in corporate management and deeply committed to the special values and mission of the organisation. It commits funds to research and development because it wants to remain at the forefront of best practice and to provide even better services. Its members are few, largely the group who started the organisation and a few close friends. It has many supporters however who are encouraged to help financially and to develop a sense of ‘ownership’ of the organisation, though without any of the demanding responsibilities that accompany real membership. Its annual general meetings are small and efficiently run affairs. But such an organisation contributes little to social capital. It treats the users of its services as customers; it reduces as far as possible any member involvement in organisational governance. Organisation B is a complete contrast. It has a very large membership that includes service users as well as others who support its work. It is strongly involved in advocacy, trying to change government policies and community attitudes towards the people who use its services. It has a decentralised decisionmaking structure, so that each branch has its own committee with authority for certain decisions while electing members to the main board of the organisation. That board now has 40 members because of the number of branches that are now represented and because half the places must be taken by service users. Board meetings are lively affairs, and it often takes time to get a decision (which are sometimes overturned at the next meeting), but all are committed to the democratic processes that the organisation embodies, and those service users who are involved in governance feel a strong sense of ownership of the

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organisation and express high levels of satisfaction with its services. It takes a special type of person to work there; only people with a strong commitment to the values of the organisation and a capacity to tolerate a great deal of ambiguity, or contradiction even, are happy. Organisation B is not well run by conventional standards, yet because it encourages much more participation in its decisionmaking it generates more social capital than organisation A. The challenges faced by managers and governors of the two organisations are very different, and require very different skills and capacities to handle successfully. It is harder for organisation B, because the wider regulatory and funding environment assumes the service-provider view adopted by organisation A. That view embodies the corporate management model assumed by legislation, endorsed by most literature and advocated by most management consultants. It is important that the alternative civil society perspective is not overlooked. To judge an organisation by one perspective or the other may be to misunderstand what it is trying to do.

17 FINANCING

THIRD SECTOR

ORGANISATIONS

T

HIRD SECTOR ORGANISATIONS draw their revenue from a wide range of sources. This feature distinguishes them from both forprofit and government organisations and makes the task of managing a nonprofit more demanding than managing a for-profit firm or government agency of similar size. Overwhelmingly, for-profit firms obtain their operating revenue from the sale of goods and services. Their customers provide them with the revenue that they need to pay wages, rent, repay loans and so on. For capital, they will generally rely on funds contributed by their owner(s) and loans, though larger organisations may well seek to raise funds from the wider public and financial institutions by selling shares, thus becoming public companies. Of course, large companies can draw on even more sophisticated and complex financing instruments, but in the end these boil down to either loans or equity. Government agencies receive the funds they need for operating purposes through the budget process, or, in the case of government trading enterprises, through the sale of goods or services in a manner similar to a private firm. By contrast, most third sector organisations draw their operating revenue from a wide range of sources. This is especially true of publicserving nonprofits. Revenue sources include consumers of the services the organisation is established to provide (but rarely at a fee that covers the cost of production), membership fees, fundraising (which covers a vast range of activities from seeking donations of money or goods in kind to running special events, to organising sponsorships), government funds (which range from one-off gifts to contracts to provide specified services to specified clients), interest or rents from investments and a wide range of other business activities that might or might not be related to the organisation’s mission. Capital funds may come from loans, donations raised via a special capital appeal or government grants. Trading cooperatives and mutual finance and insurance organisations more closely resemble for-profits when it comes to their sources of

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139

operating revenue. Capital is another matter, as they cannot raise capital via share issue without loosing their mutual status and reducing or removing member control. It is this quest for capital that is causing the current rash of demutualisations among large mutuals and cooperatives around the developed world. In a few cases, cooperatives have designed hybrid structures that enable them to sell equity in an associated entity, while retaining member control of the parent body. But whether that will enable the members to assert their interests against those of their shareholders should they diverge is doubtful. Nonprofits in different fields of activity have different mixes of revenue sources, but it is rare that operating revenue will come from one source only. For example, a large provider of community services will draw its operating revenue from user fees, government grants or contracts, a variety of fundraising techniques, related and unrelated business enterprises (such as opportunity shops or card shops), and investment income. It might receive grants from a foundation to enable a new program to be developed. It will probably receive bequests, which it may treat as a capital donation (called an endowment in the United States) or which it might use to cover operating expenses. It might also be assisted by a separate fundraising organisation run by volunteers. A nonprofit performing arts company will generate operating revenue from ticket sales, private donations, company sponsorship and government grants. It may have a membership program or have attached to it a separate ‘friends’’ organisation that engages in its own fundraising and provides its members certain privileges in relation to the main organisation. A nonprofit school will mainly depend on a mix of government grants and fees, but will receive useful support from its associated parent group, which will organise fundraising events during the year and commit any surpluses it might make from its own ‘business’ ventures run on behalf of the school, such as the canteen or uniform shop. Larger schools will also have a foundation that will employ a range of techniques to raise capital for school projects. In some fields, revenue sources are less numerous. Churches, for example, rely largely on regular contributions from their congregations, though income from investment is important for the longer established ones. Social clubs draw their revenue from sales of food and beverages, though for those that operate poker machines the surplus from gambling is the single most important revenue source and is used to subsidise other services. They all collect membership fees, but these are relatively unimportant. Interest associations all receive income from membership fees, but this is generally less important than revenue received from providing services to members, and, sometimes, to a wider public, such as training courses, specialist publications and the annual conference. Some professional associations provide such an extensive range of training courses that they could be counted as part of the education industry. Interest associations in fields such as the environment or those

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representing disadvantaged groups will often receive grants from governments or charitable trusts. Within any field, the variety of revenue sources will tend to increase with the size of the organisation. A local tennis club will raise the revenue it needs from membership fees, the sale of refreshments and an occasional fundraising event. By contrast, Tennis Australia, the national association for tennis in Australia, will obtain revenue from affiliation fees, sponsorships, ticket sales, the sale of television rights and government grants. One should not make too much of the size distinction, however. A local football club will receive revenue from similar sources to those funding the local tennis club, but might obtain a certain amount of sponsorship from local business and a cut of state government-sourced development funds for junior levels of the sport in addition. The volunteer committees that manage these organisations face interesting challenges in constructing each year’s budget. Each revenue source has a host of variations and a range of peculiar challenges. An organisation must spend money in order to earn it. This is sometimes overlooked by those who donate to nonprofits and expect that all of their donation will be devoted to the cause the organisation espouses.

FEES

AND CHARGES

It is never easy to determine the level of membership fee to set. Usually there are different grades of members. There are individuals and organisations: individuals have different capacities to pay (some may be students, some retired or unemployed) as do organisations, a consequence of their different size. Boards usually favour lower fees, chief executives higher. Some members will use the organisation more intensively than others and presumably have a greater need for it. Usually member fees are set relatively low and an additional charge is levied on users of particular services. A more complex set of dilemmas is faced by public-serving nonprofits that receive third-party funding but also charge some or all users of their services. For a start, there is the question of determining how much the service or a particular item of service costs. Most avoid this question. Then there is the question of whether to set a graded list of costs to reflect a service user’s capacity to pay. Finally, there is the question of what effect setting a particular fee for a service will have on other sources of revenue, such as donors. Often organisations providing services to disadvantaged people are required to levy a charge by government bodies as part of the conditions of receiving government funding. Sometimes, the government will determine the level of fee, which must be charged (as with nursing homes); sometimes, it will only set a minimum (as with child care).

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FUNDING

Governments are a common source of funds for the third sector in many fields. Government funds are particularly important in community services, in most parts of education, in most parts of health, and, to a lesser extent, in the arts. They are less important in sport, recreation and the representation of interests and, of course, they barely exist in religion. The mechanisms by which governments support nonprofit activity are numerous. They range from one-off grants to support new program ideas, to payments designed to support an approved budget or to enable an organisation to provide a particular service to specified clients over a year, to payments tied to particular classes of clients, to payments for specified services delivered as per a contract. In some cases, the nonprofit has an idea and seeks government support to enable it to act on the idea. In this case, the government is in a similar position to a philanthropic trust or foundation. This can require extensive negotiation and is more likely to be successful if the nonprofit has developed good relations with relevant officials over time. Then there are cases where the government determines that certain services are needed in a particular region and negotiates with a single nonprofit, or several, to provide them. Sometimes the level of government support is negotiable, sometimes it is fixed. At the other extreme are funds paid after a tendering process, whereby governments seek competitive bids from several nonprofit (and, probably, for-profit) organisations to provide a specified set of services for a specified time. Governments sometimes refer to this as embodying a purchaser/provider split: the government is the purchaser of the service on behalf of the people who actually receive the service; the nonprofit is the service provider. In such cases there is little or no negotiation between nonprofits and government officials. In some cases funds are only paid after the achievement of specific results requiring the nonprofit to have its own start-up capital. In all cases, getting funds from the government has an associated set of costs, both in terms of time but also in reporting and other compliance requirements. Many argue that it also reduces an organisation’s independence.

FUNDRAISING Most public-serving nonprofits seek to raise funds from members of the public and from businesses. A few do not, believing that to do so is to make their clients objects of charity. Some believe that their programs should be fully supported from public funds. Most member-serving nonprofits do not try to raise funds from individuals, but many seek to engage in some form of business relationship with corporations whereby the company pays the nonprofit in return for publicity among the nonprofit’s members or the wider public drawn to some event or series of events staged by the nonprofit.

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The variety of fundraising methods is vast. So too is the range of their sophistication. They include badge days and doorknock appeals, street stalls, fetes and merchandising, raffles, lotteries and bingo, trivia nights and theatre parties. They include appeals made by mail, telephone and even the internet. They include special events such as fun runs, sleepouts, quests and plastic duck races. They include developing relationships with particular businesses, via sponsorship and cause-related marketing. They include maintaining relationships with long-time supporters and building relationships with older people in the hope of receiving a bequest. Another way of categorising fundraising methods is by the kind of return they give to an individual or company that is asked to provide the funds. At their most basic, a nonprofit association seeks a gift of money to enable it to continue doing whatever it was formed to do. The only return it offers the donor is a psychic one—a feeling that they have assisted a worthy cause or needy people. For many people this is a case of ‘pure’ giving, of philanthropy or altruism. Others note that even this form of giving provides a return to the giver, thus maintaining their belief that all action is self-interested. In this case, the self-interest motivating the donor is the need to express their commitment to the value of altruism or their identification with a cause. It is only for giving of this sort, where there is no tangible benefit to the giver, that a tax deduction can be obtained (provided the organisation is permitted to give a tax deduction by the Australian Taxation Office). Many other fundraising methods involve selling something to a supporter, such as a chocolate bar or a cake, or an opportunity to win a prize in a raffle or an art union. Often the objects that are sold or raffled are donated or prepared by volunteers from donated ingredients. Sometimes what is offered is an opportunity to socialise, to ‘have a good time’ while helping a good cause. People support nonprofit organisations and causes by paying to attend theatre parties, trivia nights, celebrity balls and dinners and so on. In some cases the organisers of these events will work out the real cost of the entertainment and indicate this to participants, enabling them to claim the difference as a tax deduction. For for-profit firms, there can be a business element to the transaction. Donations may be purely philanthropic. This is often the case with small businesses, where the owner will give from the business rather than from personal income that comes from the business anyway. In effect, the gift is treated as a business expense, even though it may have little or no relation to the business. A survey of business giving conducted by Reark Research for the Australian Association of Philanthropy (now Philanthropy Australia) in 1987 found that firms employing between ten and nineteen people gave $58 million to religion. This was almost 20 per cent of all giving by these firms.1 The survey also found that businesses are very focussed on ensuring that their giving is tax effective yet gifts to religious organisations such as churches are not tax deductible. This strongly suggests that gifts were made from pre-tax income, in effect, that

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they were claimed as a business expense. Yet it is difficult to understand how a gift to a church could be seen as a business expense. This example should not be taken to imply that firms do not make purely philanthropic gifts. Many firms, both large and small, do, though usually only where they can claim their gifts as a tax deduction. Increasingly, however, large firms are looking for a more tangible return. They are looking for a return by way of an enhanced image with a large part of the public or with a smaller group that they have defined as an important market. They do this via various forms of sponsorship and cause-related marketing. Thus a brewing company might pay a lot of money to the Victorian Racing Committee to sponsor the Melbourne Cup, or a financial institution will back the annual conference of a specialist medical society. Within the sponsoring or donating firm, these are decisions taken by the marketing department. Increasingly, such decisions have to be justified and evaluated by their return in increased sales or recognition. Within nonprofit organisations such ventures are still generally seen as part of fundraising, or to use a more common North American term, development. One of the responsibilities of the fundraising or development manager in larger nonprofits is to identify corporations that might be advantaged by a sponsorship or other marketing relationship with the nonprofit. For many years now, fundraising has been a highly specialised activity. Many large public-serving nonprofits employ one or more specialist fundraisers or development officers/managers. In addition, many more fundraisers operate as specialist groups of consultants. Most belong to the Fundraising Institute Australia (FIA), which operates as a professional association for fundraising, with rules of good conduct, educational programs and the like. For the most part, fundraisers look to the United States for their models and for new techniques. Whilst the public tend to give occasionally, when approached or when moved by a disaster, the ideal donor for a nonprofit organisation is a regular donor, one who gives frequently during their life and leaves the organisation a large bequest on their death. Much fundraising effort goes into turning donors ‘acquired’ via random mail campaigns or special events into regular donors. Churches have the largest group of regular donors. Many churchgoers give via a regular envelope collection. This explains why churches receive almost 40 per cent of all gifts in Australia made by individuals, even though only 15 per cent of the population give to churches. Another form of regular giving, very common in the United States and Canada but far less so here, is payroll giving. Under payroll-giving schemes, an employee agrees that their employer can deduct a certain amount from their fortnightly pay and pass it to a particular nonprofit or to a specialised nonprofit such as a United Way, which collects the payroll donations of thousands of individuals and makes larger gifts to many nonprofits that its staff and board have assessed as doing important work. Fundraising by nonprofits (and by some government organisations such as hospitals and museums) is not a new activity. In the early 1930s,

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for example, Legacy clubs were raising money from balls, golf days, card parties and a revue. Several formed ladies’ auxiliaries that conducted their own fundraising. A decade later, Sydney Legacy held the first of its annual badge-day appeals and a mail campaign. These days, these and many more methods are used by thousands of organisations. Some methods are more popular than others. In 1994, a survey of members of the FIA revealed that 70 per cent of organisations used direct-mail appeals, while 60 per cent held special events. Only 16 per cent relied on badge days and even fewer on doorknock appeals. Most organisations participating in the survey used several fundraising methods; one-quarter of them used more than six. Not surprisingly, the number of methods used varied with the size of the organisation. Almost half of those with an annual expenditure of over $10 million used seven or more fundraising methods.2 Fundraising costs money. Except for cases where volunteers use donated goods to raise money, fundraising will invariably consume staff time and resources such as printing, telephone, postage, advertising and so on. This is generally not understood by donors and is frequently concealed by nonprofits. In New South Wales, fundraising legislation that applies to many nonprofits specifies that the costs of an appeal must not exceed 40 per cent of the funds raised. This is somewhat nonsensical. A donor acquisition campaign may well bring in less than it cost. The organisation hopes to recoup the expense by turning some of the new donors into regular givers. The amount a nonprofit actually spends on fundraising is not easy to determine. Many nonprofits engage in public education campaigns or advocacy for a particular cause. The publicity they seek also helps them raise funds from the public. There is no easy rule for determining how much expenditure is fundraising and how much education. Some organisations report fundraising expenses but without including staff costs; others claim that their expenses are offset by surplus income earned from business ventures, thus assuring donors that all of their donation is applied directly to the organisation’s mission. In the FIA survey referred to earlier, fundraising methods designed to support an organisation’s operating budget, methods such as direct-mail appeals, street collections, special events, fundraising auxiliaries and the like, on average cost 39 per cent of the funds raised. Appeals for funds to build facilities or begin a major new program, known as capital or major gift appeals, consumed 22 per cent of the funds raised. Attempts to obtain bequests were even more efficient, consuming only 11 per cent of the funds raised. But this includes the experience of many large long-established organisations. For a nonprofit, even one with a high public profile, to begin to seek bequests would be an expensive exercise for the first few years. Sometimes wealthy people place some of their wealth in a charitable trust or direct for such to be done after their death. These trusts can exist in perpetuity, committing part of the income earned from their principal to support various causes. On the whole the sums they have for disposal are small, less than $1 million in most cases. Often their disposal is highly

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restricted by the deed of the trust, to art scholarships, for example, or to assist a particular organisation. But others are more open. For many nonprofits these are an important source of funds for new programs, in effect, for research and development.

BUSINESS

VENTURES

A growing source of revenue for many third sector organisations is what might be called business venturing or social enterprise. As has already been noted, many nonprofits, both member- and public-serving, charge a fee to at least some users of their core services. Many have sought to raise revenue from associated activities for years. Such activities range from a refreshment stand operated by a model train club on public open days to school canteens run by the parents’ association, to opportunity shops used to sell secondhand clothing or furniture donated by members of the public to a community services nonprofit for distribution to their clientele, but surplus to that purpose. Clothing that is too poor to recycle in that form is sold as rags, to be turned into paper or cleaning materials. In one case, the Smith Family, a major community services nonprofit, purchased equipment to enable it to do that processing itself. It now runs the country’s largest business in the production of non-woven goods. More recently, some organisations have sought to find ways of selling their core activities to a wider clientele at market rates. For example, an organisation that offers family counselling contracts with the personnel departments of large companies to provide such services to the employees of the firm, should they be required. Or an organisation that prepares tapes of book readings for sight-impaired clients sells additional copies of these tapes in the wider market place. Several consultancies have sprung up encouraging public-serving nonprofits to become more entrepreneurial. Some public-serving nonprofits have pursued business ventures that are tangential to or quite outside their basic mission. One runs a large orchard, another a radio station, another prepares gift products. One church, famously, runs a very successful food business. By and large, unless they are big enough to have their own board and specialist management staff (in effect to operate as subsidiary companies), these ventures have not been particularly successful. It is difficult for senior managers and boards to direct an organisation’s core activity along with a business venture when that is in a different industry and, probably, in a competitive and changing market. It should be noted that some nonprofits must venture into the competitive world of small business as a direct consequence of their mission. These are organisations providing employment to people with disabilities or those seeking to provide work experience for the long-term unemployed. Such organisations operate nurseries, gardening teams, cafes or packing businesses. Member-serving organisations also engage in business ventures.

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Usually these ventures are developed as an additional member service and then sold more widely; sometimes they involve selling advice about the field as a consultancy service. Anecdotal evidence suggests that sometimes boards and chief executives become preoccupied with their business ventures at the cost of ignoring basic member services. For people who run their own business, this is more familiar territory than directing a member-serving organisation.

INVESTMENTS Third sector organisations can also generate an income from investments. Most third sector organisations have a positive balance in their accounts and earn interest on that. For the great majority, the sum is small. Some, however, may have a large sum, dispersed in various forms of investments. Older organisations may have invested a small annual surplus over many years; some may have disposed of surplus property; others have acquired gifts of property, shares or cash from bequests. Organisations that specialise in providing accommodation for the aged have for many years been able to seek a substantial entry contribution from new residents. This remains the property of the resident but the organisation is permitted to keep any interest it earns as well as part of the principal. By and large, third sector organisations with significant surplus funds are conservative investors. Many with even significant surpluses will leave them in a bank or building society, in a term deposit or cash management trust, rather than placing them with specialised funds managers or pursuing their own funds management strategies. Many organisations believe that they must leave funds in trustee-approved institutions. Unlike the United States, where it is considered prudent management for a public-serving nonprofit to have an endowment fund, in Australia nonprofits are wary of having endowment funds, partly because of a fear that the public will shun them if they see that the organisation has large reserves and also because some government funding programs make it clear that an organisation will not receive government funds, or will receive reduced funds, if it has a large endowment. Organisations that do try to keep an endowment will usually call it a capital fund, suggesting that it is earmarked for some item of capital expenditure at a future time. This is sensible if the organisation is in the business of providing its services in specialised accommodation. The Commonwealth government’s recent problems over how to pay for upgrading of the ageing stock of nursing homes occurred because few organisations that had acquired or built nursing homes in the 1960s or 1970s had set aside funds over the intervening years to enable ageing stock to be replaced. Indeed, government funding regimes prevented such practices. Other third sector organisations need to build a healthy cash reserve to prevent them being forced to borrow at different points of their operating cycle. Apart from subscriptions, performing arts organisations

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generate revenue only when they are staging a show. They need a cash reserve to draw on between shows. Increasingly, government funding methods in community and employment services require organisations to operate for several months before any payments are received. It is good practice for a third sector organisation to build an endowment fund equivalent to at least three months operating revenue. Not only does it provide a buffer in the case of another revenue source drying up, but it provides a useful and untied source of revenue that can be used to develop new initiatives and trial new programs. Third sector organisations need to educate government officials and the public about the realities of prudent financial management. Another dilemma that often faces third sector organisations that manage to build an endowment fund is whether it should be kept relatively liquid or whether it should be put into real estate. For organisations that require specialised accommodation to operate their programs, this issue applies only after they have met those obligations. Those who argue for real estate (initially for staff office accommodation) argue for its security and observe that if cash is required quickly it can be raised via a mortgage. As well, property can be used as security should loan funds be required. On the other hand, those who favour a more diversified portfolio point to the generally low returns on property, particularly capital gains, and argue that an endowment managed to give a good annual return along with capital growth allows the organisation to offer more services. So far, consideration of third sector revenue sources has concentrated on operating revenue. Where do nonprofits get their capital funds to build new facilities or refurbish old ones? As outlined earlier, some may set aside small amounts each year. But, commonly, for public-serving nonprofits the answer has been from government, by way of capital grants. These grants often require matching contributions from the nonprofit. They were once a common source of nonprofit capital but are now almost nonexistent, an early victim of the late twentieth century dislike for any form of capital expenditure by governments. In several fields of activity, such as sport and the arts, government has built and retained ownership of facilities such as sporting fields and concert halls. In other cases, third sector organisations have paid for facilities from a combination of retained earnings and bank loans. Many public-serving nonprofits, such as schools, hospitals, research organisations, community service providers, churches and cultural organisations, raise funds from members, users and the public by way of capital appeals. This is a special form of fundraising that aims at raising a large amount of money in a short time, maybe one or two years, for a clearly identified purpose, such as a new building. Some churches raise the capital they need to build schools and so on by offering investment facilities to their members, taking deposits, investing them in schools or other projects that pay a return, and paying at least sufficient interest to the depositor to maintain the real value of the investment.

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Nonprofit organisations are, by definition, prohibited from raising capital by issuing shares. Other third sector organisations can issue shares only to members and are severely limited in the additional capital they can raise from this source. Large nonprofits appear to rely fairly heavily on loan capital. In an analysis of the composition of assets and liabilities of the ten largest nonprofits in New South Wales in each of nine fields of activity where nonprofits were prominent, Lyons and Buckmaster found that in all but one of the fields, the average debt-to-equity ratio exceeded the prudent level of 33 per cent. The debt-to-equity ratio is the measure of the extent to which an organisation has sufficient assets to cover its debts. A debt-to-equity ratio of one means that half an organisation’s assets are financed by debt. That was exceeded by nonprofits in three fields: social clubs, sport and the arts. Arts organisations differed from the other two in that most of their liabilities were current, indicating that they had borrowed to cover cash shortfalls associated with the need to spend funds on performers and props before raising revenue at the box office. In the other two cases, the bulk of liabilities were long term, indicating that loans had been raised to acquire capital stock. Aged accommodation, private hospitals and community service providers were also organisations that on average had large noncurrent liabilities and debt-to-equity ratios that were at least twice the prudent level.3 The extraordinary range of revenue sources utilised by many third sector organisations poses a number of challenges for their managers. On the one hand, drawing revenue from a wide range of sources spreads the risk. Two American economists, Tuchman and Chang, argue that the more a nonprofit is dependent on one or two revenue sources, the more vulnerable it is.4 Yet, the more diverse the revenue sources the more difficult is the task of balancing them. In most nonprofits, even those receiving revenue from several sources, there is no attempt consciously to coordinate, or strategically to manage, the revenue flow. The finance manager is responsible for putting together the revenue side of the budget, but this is usually a process of receiving estimates from the various managers responsible for different revenue centres. These might be interrogated and reviewed against the performance of the previous year or two, but at no point is an attempt made to plan the development of each revenue source in relation to the rest. Responsibility for different sources is divided between different managers. For many member-serving organisations, such as trade and professional associations, fees are a sensitive matter and are set by the board. User charges are set by managers in charge of the different services. Sponsorship is handled by the chief executive or by a marketing manager. The allocation of responsibilities in many public-serving nonprofits is even more divided. Fees are often set by the finance manager or finance committee of the board; government grants are sought, negotiated or renegotiated by the relevant program manager, with input from the chief executive (though with government moves to competitive

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tendering, this process increasingly involves the finance manager as well). The finance manager, sometimes the only staff member with business experience, will be responsible for developing financial projections for any business ventures. The fundraising or development manager will be responsible for developing estimates or targets for various fundraising methods. The finance manager, usually with advice from the board, finance or audit committee, will oversee any investments the organisation might have. Sometimes conflicts emerge within the organisation over emphases in revenue generation. The most common source of conflict in community services nonprofits (charities) is between fundraising staff and program staff over the desire of fundraisers to represent the organisation’s work, particularly its clients, in a way that those working with the clients believe demeans them. A similar conflict can emerge in advocacy organisations when fundraising or marketing staff accept sponsorship from a firm that policy and advocacy staff believe engages in practices they oppose. In many nonprofits, program staff are deeply suspicious of business, making any attempt by the organisation to develop a collaborative relationship with a firm a likely source of controversy. This suspicion is often shared by the organisation’s members. Foresightful organisations develop a set of principles and guidelines in advance, allowing any potential for controversy to be mediated well before an actual case arises. It is not only fundraising from corporations that can cause a nonprofit to constrain its advocacy work. Fundraising staff may seek to constrain radical stunts that advocacy staff propose on the grounds that they would alienate public opinion and the organisation’s middle-class donors rather than bringing about change in public opinion or government policy. The receipt of government funding will also sometimes lead a nonprofit to constrain its advocacy. Increasingly government programs contain clauses in their funding agreements or contracts that seek to prevent the recipient organisation from using publicly any information acquired as a result of work that the grant is partly or fully funding.

18 STAFFING

THIRD SECTOR

ORGANISATIONS

T

HE GREAT MAJORITY of Australia’s third sector organisations rely exclusively upon the voluntary labour of hundreds of thousands of Australians. These are the voluntary associations that provide a framework of opportunities for recreation or commitment in every corner of society. They are the organisations that demonstrate people’s ability to work together to advance a cause or provide a service. They draw upon and maintain social capital. The tasks these volunteers perform are numerous. They range from bookkeeping to child minding, from policy analysis to gardening, from firefighting to fundraising. Sometimes those involved in a particular organisation may allocate tasks according to the members’ particular skills or interests: someone may be better at keeping accounts, someone else at organising a cake stall and so on. Other organisations will share the tasks around. The character of those tasks varies with the mission of the organisation, but in all cases they will involve some form of paperwork, and in most cases some arrangements for handling money. Some volunteers will perform tasks that are similar to those in their paid employment, others will do work that is completely different. In the twelve months prior to July 1995, a little over 2 million Australians provided some voluntary labour for nonprofit organisations. One in three of these worked in at least two organisations. Many performed more than one set of tasks. The most common tasks were fundraising and management or committee work. Almost 50 per cent of volunteers engaged in the first of these activities and 40 per cent in the second. Almost 30 per cent were engaged in preparing and serving food. Another 20 per cent were involved in teaching or instruction.1 Yet, while voluntary work is important and while most third sector organisations rely entirely on the work of volunteers, an important part of the third sector, including the largest and best known organisations, are significant employers of paid labour. Almost all third sector organisations

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are governed by volunteers, but many, we do not know how many, also use volunteers for tasks related to their core missions or, more frequently, for fundraising and clerical work. In July 1996, there were approximately 750 000 volunteers working alongside paid employees in employing third sector organisations. Overall, volunteers contributed the equivalent of another $7.5 billion to the whole of the third sector, employing and nonemploying nonprofits alike. In 1995/96, approximately 34 000 of Australia’s third sector organisations relied to varying degrees on paid employees. Overall, the third sector provided paid employment to over 630 000 people. Its annual wages bill was approximately $15 billion dollars. The education industry had the largest number of employees of nonprofit organisations (135 000 in all). Community services nonprofits, with 132 000, were not far behind, while health nonprofits, including nursing homes, employed another 111 000. Social clubs employed 63 000 people. In some cases the third sector is the sole or the largest employer in a particular field or industry. In religion (17 000) and interest groups (47 000), the only employers are third sector organisations. In the community services industry, in 1995/96 nonprofits employed 57 per cent of all employees. In some other fields, such as school education (30 per cent) and hospitals (15 per cent), the third sector was a significant but far from dominant employer. In some other fields, such as accommodation or legal services, it barely counted. Two other demographic features of third sector employment are worth noting, though these features are more likely to be products of the industries in which nonprofits are most numerous than features of the sector. One is the relatively high levels of part-time employment. The other is a bias in the gender distribution of employment toward women. This point is often made with reference to the community sector, or nonprofits in the community services industry, but it could just as well be made with reference to nonprofits in the fields of school education and health. In each case, nonprofits employ a larger number of women than men, but this bias does not seem to be any greater than for the industry as a whole. Indeed, a heavy bias towards part-time employment is a product of the industries in which nonprofits have a significant presence, rather than a characteristic of that form of organising. Nonprofit organisations are generally laggards in the level of pay and other conditions they offer their employees. This is a product of several factors. It reflects their origins as volunteer organisations, where all the work of the organisation was done for no cost. Even decades after the organisation has grown beyond that stage, and it has come to rely largely or entirely on paid employees, boards are still composed of volunteers. In the case of public-serving nonprofits, boards are conscious that the demand for services exceeds their organisations’ ability to raise the funds necessary to supply them. In the case of member-serving organisations, boards are conscious of members’ desire to keep fees and charges as low as possible. Relatively poor working conditions also reflect the late and still relatively low level of unionisation of many fields of third sector activity.

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Most of the evidence of employment conditions in nonprofit organisations is anecdotal or conjectural. Research in the United States indicates that employees of nonprofit organisations are not as highly remunerated as employees of government or for-profit organisations doing similar work. Large nonprofit hospitals and universities are the exception. There, for senior staff at least, nonprofit organisations pay more than the forprofits. The position in Australia for non-management staff is likely to be better than in the United States because of the extensive spread of industrial awards. It is true that many staff working in community service organisations only came to be covered by awards in the 1980s, but some specialised staff, such as nurses and teachers, have long been covered by awards mandating minimum levels of pay and conditions. By and large, these employees and their unions have ensured that award conditions are met. Other employees, of a much wider range of nonprofits, were covered by other awards, such as those applying to clerical workers, but these seem far less likely to have been enforced. There is marginally more evidence that management staff of nonprofits are not as well remunerated as those from the other two sectors. This was demonstrated by a 1995 survey of students enrolled in postgraduate management courses at the University of Technology, Sydney. The mean salary received by nonprofit managers was $37 000 compared with $41 000 for public sector managers and $50 000 for those in the for-profit sector.2 Increasingly, larger third sector organisations feel the need to acquire senior management staff with appropriate levels of skill and experience. Those that are mainly dependent on commercial income, such as member-serving nonprofits, mutuals and cooperatives, have little difficulty paying reasonably competitive market rates. Many public-serving nonprofits do. In the case of those classed as public benevolent institutions, the difficulty is eased by their exemption (as of 2000, a partial exemption) from the fringe benefits tax. This enables the organisation to package an employee’s salary in such a way that a good deal of their remuneration is in the form of tax-free benefits, reducing the level of salary on which the employee has to pay tax. The limited but suggestive evidence that employment conditions in the third sector are not as good as in other sectors raises the question of whether there is a separate nonprofit or third sector labour market. It has sometimes been suggested that because nonprofits pay less, they draw from a less qualified, less skilled labour force. This observation could only be true of nonprofits in those fields where conditions are markedly lower than industry or economy-wide norms. It could certainly be true of nonprofits in community services, and among activist groups concerned for the environment or human rights. But these organisations offer benefits other than high pay. They offer an employee the prospect of working in a field that is commensurate with their values. As the chief executive of a large nonprofit community services provider, a man with a strong religious commitment who had held senior management positions in the for-profit sector put it, working in the nonprofit sector

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allowed him to give expression to his values and get paid for it.3 Jenny Onyx, in the School of Management at the University of Technology, Sydney, has compared the career aspirations of middle managers in nonprofit, for-profit and public sector organisations. She found that for-profit managers sought personal advancement and a high salary. Those in the public sector valued security most strongly, while nonprofit managers wanted work that ‘made a difference’, that helped to bring about social and political change. They were far more willing than managers in other sectors to take a new job at a comparable or even lower salary than before, if it gave them an opportunity to engage in other meaningful or challenging work or a chance to widen their range of skills.4 The nonprofit managers were mostly employed in community services. The results may not be the same in other fields of nonprofit activity, but it is likely that some differences between nonprofit and for-profit or government employees will be observed. One consequence of this atypical approach to career among people who choose to work for nonprofits is that they are likely to be exploited by the organisation. Of course, staff with a strong commitment to a set of values or a cause may be happy to work for lower pay or longer hours than would a person with a purely utilitarian approach to employment. This does not mean that they will not end up feeling exploited, especially if they experience ‘burn-out’, which is not uncommon for staff in smaller nonprofits, particularly those with an advocacy orientation, or if they loose their job when the organisation’s money runs out. One area where the concerns of staff and managers of nonprofits are likely to differ from those in other sectors is the area of values. As was noted in chapter 3, a strong preoccupation with values is likely to differentiate nonprofits from organisations in the other two sectors. This has several implications. For many organisations, a clear value commitment helps attract staff who share that commitment. From a management point of view, this can be efficient but it can pose problems if the organisation wants to change direction. Staff with a strong commitment to old values or old interpretations of those values can be stubborn opponents of change. For large organisations with a strong value commitment that rely on professional staff, such as church-sponsored community services, hospitals or schools, there can sometimes emerge a clash between the organisation’s values and those espoused by the profession. The teaching profession, for example, does not think that a teacher’s sexual orientation should affect employment; some Catholic Education Offices and Christian schools think that it should. The termination of a pregnancy can be a cause of disagreement within Catholic hospitals, between medical or nursing staff who make judgments according to professional values and pastoral care staff who represent the values of the religious order that founded and still ‘owns’ the hospital. Sometimes the dispute will be among professionals, some siding with official church teaching and others not, or between the organisation and church officials. Some church-sponsored nonprofits try

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to reduce the likelihood of tension by employing only people who are Christians and who have a reference from their minister or priest. Others try to explain their value position to prospective employees and ask that they respect those values even if they do not share them. A concern with values education is important to many third sector organisations. Two examples from very different parts of the sector illustrate this. Many third sector organisations in the human services were begun by Catholic religious orders. Most of these orders are now in serious decline, unable to recruit new members from a younger generation unwilling to make the lifetime commitment to such a different way of life. As a result, they are planning for their demise but seeking to ensure that the values they espoused will live on in the human services providers they founded. To do so many are investing in what might loosely be called values education for staff and board members. Another very different group of third sector organisations that have spent a good deal of effort developing and applying values education are credit unions. In this case, conscious of the fiercely competitive financial services environment, the credit union movement has attempted to develop their difference with their competition into a competitive advantage. Their competitive advantage over banks is that credit unions are still depositor owned. The credit union movement has devoted great effort to educating staff on this point—to realise that the customer is also their employer. The hope is that credit union members will receive a higher level of service than they would receive elsewhere. The results of market surveys suggest that they think they do. The values orientation of many third sector organisations, their origins in voluntary associations and their perennial shortage of finance makes them prone to exploit their staff, by oversight if not deliberate intent. At best, they appear reluctant to devote many resources to supporting and maintaining their staff. This is beginning to change with larger nonprofits, but they are followers when it comes to human resource management rather than leaders. Many, even large organisations, allow only limited staff training; many do not have occupational health and safety plans, despite legislation requiring them to do so. Many small organisations do not have clear job descriptions for their admittedly few staff. One area of human resource management that generally receives little attention despite its centrality to many organisations is the management of volunteers. Even in large organisations that consume many volunteer hours, the position of volunteer coordinator or manager is a relatively junior one, and few resources are spent recruiting, matching, training and supporting the organisation’s volunteers. This is despite there being a great deal of evidence that different volunteers have different motives and are therefore more suited to some jobs rather than others. In addition, little effort is put into planning how best to incorporate volunteers into the organisation and training paid staff to work with volunteers. There are exceptions, nonprofits that develop very effective volunteer programs,

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but overall those parts of the third sector that rely on paid staff for most of their output, paradoxically, are prone to exploit their volunteers, to treat them as a costless resource, not recognising that, to get the best value from volunteers, it is necessary to spend some money and time on them. The organisation, the volunteer and the society will benefit as a result. The preceding paragraph was written of third sector organisations that rely mainly on paid staff. As stressed earlier, there are many more organisations that rely purely on volunteers and some, including some that are quite large, that rely on a limited number of paid staff for administrative support or specialised services. Volunteers in these organisations may not feel that they are a barely tolerated minority contributing marginally to the main work of the organisation and having little or no say in its management. By contrast they may know that they ‘own’ the organisation. In such organisations, tensions arise over allocations of tasks and who has the greatest say in managing.

PART V

RELATIONS

WITH OTHER SECTORS

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HIS PART EXPLORES the many complex ways in which the third sector interacts with and draws support from the household sector and the other two organised sectors: the business sector and the government sector. The relationship between the third sector and individuals who constitute the household sector is a little more complex than its relations with the other two sectors. On the one hand, third sector organisations obtain resources (funds, goods, volunteers) from all three sectors (though in different proportions and amounts); on the other hand, the third sector is a product of the household sector. Almost all third sector organisations were created by groups of individuals to meet a shared need. Some grow well beyond those origins and are transformed. Nonetheless, they still retain some of the signs of their birth. The quality of the relationship between the third sector and the other three sectors are major determinants of the health of the third sector; changes in one or more of the other sectors significantly contribute to changes in the third sector. In time, though, and to varying degrees the third sector shapes attitudes and behaviours in the other three sectors.

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19 DRAWING

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HE HOUSEHOLD SECTOR is the term used to describe the collective relationships into which individuals are born and in which they live. It encompasses family, people who share accommodation or live on their own, and neighbours and friendship networks that run beyond the workplace or school. Once people begin to organise in a formal way, whether it be to take turns at babysitting or to care for other people’s children for a fee, these organisational arrangements become part of one of the three sectors of organised activity. The third sector has an intimate relationship with the household sector. Most nonprofits are begun to solve a need felt by some members of some households. These needs may be to provide a service for themselves, such as babysitting or sporting opportunities, or to protest against a road-widening proposal. Alternatively, the need may be a desire to provide assistance to others, such as the victims of disaster, those suffering from a particular kind of illness or soldiers in war. The collective need may be to enlighten the wider community and enrich future generations by establishing an art gallery, by preserving historic houses or by protecting rainforests. The household sector initiates much of the third sector and provides many of the resources that sustain it. These are the resources of money and time, made available through the acts of joining, giving and volunteering.

JOINING As noted in chapter 2, almost all third sector organisations have members. For new organisations, these are the people who started the organisation and any supporters they have persuaded to join them. Long-running organisations may have many or few members. For third sector organisations, members are, in effect, the owners of the organisation. In some organisations, the original members try to limit the membership, 161

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for fear of losing control. In some forms of incorporation, such as a cooperative, this is almost impossible. Every depositor with a credit union is a member and thus an owner. Many organisations, those that are member serving, generally will seek to increase their membership. This is as true of churches, political parties and environment advocacy groups as it is of registered clubs. To varying degrees, members provide organisations with financial support through their membership fee, and physical support through their volunteer labour. Some organisations, including public-serving organisations such as Legacy or the St Vincent de Paul Society, depend to a very large degree on the volunteer labour of all their members. Other organisations, such as some professional associations, depend to a large degree on fees paid by their members to sustain the work of the organisation, which is carried out by paid staff. In 1997, approximately 65 per cent of Australians aged fourteen or above claimed to be a member of at least one organisation. Most who belonged to one organisation belonged to two. But only 38 per cent claimed to be active members in any of the organisations to which they belonged. Thirty-three per cent of the population over 14 claimed to belong to a sporting club. Other common forms of organisation to which Australians belonged were social clubs (20 per cent), churches (13 per cent) and trade unions (12 per cent). Overall, men were more likely to be a member of an organisation than women. These data come from a survey of some 13 000 Australians conducted for the Australian Nonprofit Data Project by the Australian Bureau of Statistics’ Population Survey Monitor during 1997.1 The main purpose of the survey was to collect data on the giving habits of Australians, but two questions about membership were inserted. It should be noted that membership of churches works a little differently from membership of other nonprofit associations. It is likely that many regular attenders at a particular church, synagogue or temple may not have recorded themselves as members of that congregation or of the wider denomination of which it is a part. Although they are worshippers, they do not view themselves as members. When we turn to organisational data, we find that in 1995/96 nonprofit organisations that employed people had approximately 30 million members (many people belong to several organisations) who contributed approximately $2.3 billion in membership fees.2 These figures are very approximate as they exclude organisations in several fields but include some organisations that are members of other organisations and the fees that they paid. As well, the data excludes membership fees paid to the hundreds of thousands of non-employing nonprofits. But even if we were to assume that the total membership fees paid to non-employing organisations were only half that paid to employing organisations, we would derive an estimate of $3.4 billion in revenue from membership fees. This is rather more than the revenue that households donated to nonprofits in 1997. These estimates also omit mutual finance and insurance organisations and trading cooperatives.

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GIVING In 1997 approximately 66 per cent of Australians aged fifteen or over donated $2.8 billion dollars to nonprofit organisations. They also donated another $240 million to government and for-profit organisations, mainly the former. In addition, they donated goods of various kinds: clothing, furniture, books, toys, electrical goods and blankets. These data come from the same ABS survey that was the source of the membership data referred to in the previous section.3 In February, May, August and November 1997, a stratified random sample of a little over 3000 Australians aged fifteen and over (a different sample on each occasion) were asked whether they had made any gifts at all over the past twelve months and to recall the details of any gifts they had made in the previous three months. The detailed data were aggregated to give estimates of destinations and levels of giving for the whole year. This is the source of most of the data on giving in this chapter. Religious organisations, mainly churches, were the recipient of almost 40 per cent of donated funds. This was despite only 14 per cent of the population making donations to religious organisations in any quarter. This is perhaps not surprising, as people who are active members of religious organisations know that their contributions are the major (and in some cases the only) source of income that the organisation receives. The average annual contribution made by those giving to religious organisations was $545. Some of the money donated to churches finds its way into other ventures, such as schools, but most of it stays to meet the operating costs of the church or religious body. The next most generously supported set of organisations were those providing community services, organisations popularly (but incorrectly) known as charities. They received $478 million dollars, a little over 17 per cent of donated funds. They also received the great bulk of donated goods. On average 33 per cent of the population provided monetary assistance to community services nonprofits during each quarter. Over a year, on average, they donated $111 each. Other groups of nonprofits to receive significant amounts of assistance were international aid and development organisations ($312 million over the year), private schools ($294 million) and sporting clubs ($246 million). Research organisations (which probably included organisations that raise funds to pass onto various types of medical research, such as the National Heart Foundation) received $142 million. Environment and animal welfare groups received $65 million. Nonprofit arts and cultural organisations received only $17 million dollars, slightly less than a diverse group of interest associations including political parties, unions, professional associations and advocacy organisations. The data show that women are slightly more likely to give than men, constituting 53 per cent of givers. Men, however, give slightly more than women. This is perhaps not surprising as there are some households where a male partner is the sole income earner and limits his partner’s

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access to the family income. Of greater interest are those fields where men or women give significantly more than the opposite sex. Men are far more generous supporters of the arts and culture, sporting organisations and interest groups. They are slightly more generous than women in their support for community services and private schools. By contrast, women give more generously to religion, international aid, the environment and government schools. The effect of income on giving can be explored by grouping the population into deciles, or ten groups according to their level of income, and looking at the amount given by those groups. The results are more or less as one would expect, with more people in higher income deciles giving and giving more than those in lower. The only statistic that does not follow this pattern is the percentage of household income given by givers. In this case, givers in the lowest income decile give a higher proportion of their income (over three per cent) than those in the next decile and so on until the highest income where there is a slight increase (to one per cent) in the percentage of income given compared with the preceeding decile. There are also some differences in the pattern of support for different causes. Of the amount given by those in the lowest income decile, over one half goes to religion; only one quarter of the sum given by the highest income earners is so designated. These data report what those questioned viewed as giving. By a strict definition, if a person received any goods in return, their payment of money to a nonprofit organisation is not a gift. However, many people who purchase a chocolate bar to help a child-care centre, a seat at a school fundraising dinner, or a ticket in an art union run by a charity might consider their purchase a gift, on the grounds that they made the purchase to support the organisation and would not otherwise have done so. Some of the data reported above may well include some such ‘gifts’. One organisation that does insist on a strict definition of ‘gift’ is the Australian Taxation Office. This insistence may go some small way toward explaining the considerable difference between the above data on giving and the mere $528 million that the Australian Taxation Office estimates was claimed as tax deductible gifts in 1995/96. Two other factors explain a greater part of the difference. They are the limited range of organisations for which a deduction can be claimed and the difficulty of claiming a deduction. For a start, gifts to many nonprofit organisations are not tax deductible. Gifts to religious organisations are not deductible (though if a portion of the gift is to be passed to a school building fund or to a church sponsored charity, that portion would be). Most, but not all, organisations providing community services can give a tax deduction. Many sporting, cultural and environment organisations can, but many cannot. Schools can only give a deduction for a building fund. On top of these confusing rules, to make a claim requires keeping a receipt from the organisation that received the gift. Many people, especially those who give relatively small amounts, would not bother to find out if the organisation that was the destination of their gift was entitled to give them

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a tax deduction. Only large-scale and systematic givers, or people giving a single large donation, are likely to seek a tax deduction. The preceding discussion raises the question of why people give at all. The most frequently cited, and disputed, explanation is altruism. ‘Altruism’ is generally taken to mean action taken to benefit another at some cost to oneself. Many social scientists argue that there is no such thing as pure altruism, that all action has about it an element of selfinterest (at least, all rational action). When confronted with a case of apparent selflessness, such as someone risking their life to rescue someone from a burning building or a raging flood, they argue that the rescuer was seeking to show-off or avoid guilt feelings that would arise if they did not act to save the other. In other words, they had been conditioned to behave thus or had been socialised into a set of values that prized selfless behaviour. Similarly, economists, when seeking to explain giving where there is no material return for the giver, speak of the giver seeking a ‘warm inner glow’. Such explanations seem a little less than adequate. Some researchers note that people who have experienced an illness or have had a close relative experience the illness are far more likely than others to give to research projects that seek its cure. Much of the giving to school building funds is from parents who have children at the school, children who would presumably benefit from the new building or equipment, or from ex-pupils who expect to send their own children there. Alternatively, they may be saying thank you for their own education and affirming their own identity as an ex-pupil of the school. Then again, in all of these examples, the givers may be more likely to give to that particular appeal or organisation because they are the ones most readily identified as a potential donor and thus most likely to be asked. To a significant degree, the likelihood that a person will give depends on the likelihood that they will be asked. Nonetheless, altruism as a motive for some human behaviour has not been dismissed altogether. Indeed, there is evidence of a renewed interest in altruism. Part of the impetus comes from socio-biology, where it is argued that some degree of selflessness is necessary for the survival of a species, and that there is an hereditary component to human altruism. Part of the renewed interest comes from social psychology where there is recognition that some personalities might be predisposed toward altruism and a consequent desire to identify the ways in which such behaviour might be learned or such personalities formed.4 It is interesting to review fundraising appeals to asses the extent to which they presume the existence of altruism. Appeals by disaster relief organisations usually do and so do those by organisations seeking funds for programs that work with children. Fundraising for causes, such as preservation of the environment, often appeals to a person’s commitment to that cause, which is a form of altruism. Some appeals, such as for private schools, seek to tap an ex-pupil’s nostalgia for their school days. Other appeals are more pragmatic. Many schools and youth groups seek

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support from parents of children attending the school or active in the group. Donations are, in effect, an additional voluntary fee. Other appeals are directed to a donor’s vanity by offering publicity for gifts above a certain value. Others seek maximum impact in their timing by stressing the tax effectiveness of the gift and making the appeal just as people are preparing tax returns.

VOLUNTEERING Many more people give money to support nonprofit organisations than give their time. Nonetheless, gifts of time, which have been estimated as being worth $7.5 billion, are more than twice as valuable to the sector as a whole. In 1994/95, about 19 per cent of the population aged fifteen or older voluntarily provided 374 million hours of work for nonprofit organisations.5 Some of them (and a few others) also worked another 60 million hours for government and for-profit organisations (mostly government). Community service organisations were the major recipients of this generosity, receiving 105 million hours or 28 per cent of all hours volunteered for nonprofits. They were closely followed by sport and recreation organisations with 104 million hours or 28 per cent. The only other group of nonprofits to receive a large donation of people’s time were religious organisations, which received a little over 70 million hours or 19 per cent of the total. As was the pattern with giving, there are some differences in the numbers volunteering for different fields and thus in the average hours worked by volunteers in each field. For example, slightly more volunteered for sport and recreation organisations than for organisations providing community services. Two-thirds of volunteers worked for only one organisation; 12 per cent for three or more. Even those who worked for only one organisation performed several tasks. Almost 50 per cent of volunteers did some fundraising and a little more than 40 per cent some management or committee work. Just under 30 per cent were involved in some form of food preparation and 27 per cent in teaching or instruction. Only 11 per cent were involved in providing personal care and assistance. Men and women showed slightly different patterns of volunteering. Overall, women are more likely to volunteer, 23 per cent compared with less than 17 per cent of men. Women constituted 61 per cent of volunteers in community services, 72 per cent of volunteers in education, training and youth services and 73 per cent in health. They were 62 per cent of volunteers in the arts and 60 per cent of those volunteering for religious organisations. By contrast, women were only 43 per cent of those volunteering for sport and recreation organisations. They were only 25 per cent of emergency services volunteers and 35 per cent of those volunteering for business and professional organisations and trade unions. Women were slightly under represented among volunteers doing management or committee work and over represented in fundraising. Not

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surprisingly, they were greatly over represented among those preparing and serving food, while men were over represented among volunteers doing repair work and gardening and coaching and refereeing. Unsurprisingly, the sexual division of labour in volunteering reflects that in the world of paid employment, with the exception that a larger proportion of women are engaged in management and committee work as volunteers than as paid employees. Other divisions are also clear from the data. People living outside the capital cities are somewhat more likely to volunteer than those in the cities. When we look at the volunteer rate, or the percentage of a particular population group that volunteered during the year in question, we find that the volunteer rate for people living in Sydney was 12 per cent while for rural South Australia it was 33 per cent. For those born in Australia the volunteer rate was 21 per cent, while for those born in nonEnglish speaking countries it was just over 9 per cent. Interestingly, the volunteer rate was higher for those in employment than it was for the unemployed (21 to 17 per cent). For those in part-time employment, the volunteer rate was 27 per cent. Most of the volunteer hours contributed to nonprofit organisations are volunteered by relatively few people. When we look at the 380 000 people who volunteer more than six hours per week, we find they constitute less than 3 per cent of the whole population over the age of fourteen. They are only 14 per cent of volunteers but contribute almost 60 per cent of volunteer hours. This is similar to the pattern that we see with giving. Indeed, the characteristics of committed givers are similar to those of committed volunteers. Because Australian data on giving and volunteering were drawn from different samples of the population, it is not possible to determine whether committed volunteers are also committed givers. There is some evidence from overseas that there is a trade-off between volunteering and giving. Rational choice theories would suggest that there would be such a trade-off. Whether someone supported a cause or organisation with time or money would depend on the value of their time. Someone working in a well-paid but demanding job would be more likely to provide financial support, while someone who was retired would give time. There is a particular problem with attempts to measure levels of volunteering. It is that different people understand terms such as volunteer and voluntary work in different ways. As a result, unless a survey provides plenty of examples of the sort of activities that those conducting the survey wish to count as volunteering, many people will under report their voluntary activity. One British researcher, in a review of twelve studies of volunteering conducted in Britain between 1976 and 1990, has noted that the volunteer rate reported in the different surveys ranged from 15 to 55 per cent. He argues that surveys should seek information about people’s involvement in certain activities but not use the term ‘volunteer’ or any of its derivatives because of the different range of activities

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different respondents would understand the terms to encompass.6 A study conducted in the United States showed 500 people from different parts of the adjacent states of Pennsylvania and Delaware a list of activities and asked if they would rate the activity as volunteering. Some activities were more widely accepted as volunteering than others. The key elements that activities widely accepted as volunteering possessed were that they were freely chosen, they involved no remuneration at all (eg not even for travelling costs), they were undertaken for an organisation and they involved providing help or benefit to strangers.7 If we wish to define volunteering as requiring work for an organisation, we would preclude informal volunteering, the commitment of time to help friends and neighbours. If we wish to define volunteering as requiring an element of altruism, almost of charity, then there are a large number of activities that would be precluded. These are the activities that involve some element of self-interest, for example activities involved with active membership of a church, a club or an association, such as committee work or fundraising, or political activity on behalf of a residents’ group or a professional association. These are the activities performed by members of associations to keep the association operating. They also include the support that members or supporters provide to advocacy or protest groups when they demonstrate or in some other way seek to change public values or government policy. Even if these activities are not considered volunteering, they are a vitally important part of civil society, embodying as they do people’s preparedness to collaborate with others in pursuit of a shared goal. These activities are voluntary in that they are not coerced by government direction and are not motivated by the promise of financial remuneration. If the term ‘voluntary activity’ is to be used in the narrow sense of providing help for strangers, then we need a more inclusive term to describe this fuller range of participatory activities. It is at this point that the other way in which households support and sustain third sector organisations should be recalled: joining. Being a member of an organisation is different from but overlaps with volunteering for an organisation. A person can be a member of some organisations without that involving any more activity than writing a cheque to renew membership every one or two years or continuing to use the organisation (in the case of a cooperative). On the other hand, many organisations require more activity from their members and even those that are happy to encourage cheque-book membership rely on the active commitment of some members. The percentage of a population belonging to associations has often been taken as a sign of a healthy democratic political system. More recently, as is explored in chapter 23, the American political scientist, Robert Putnam, has suggested that a healthy associational life underpins long-term economic prosperity. He claims to find in the United States a decline in associational life. Others say that although membership of many associations that prospered earlier in the century—such as service clubs,

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fraternal lodges and sporting leagues—is declining, other forms of membership associations—such as mass organisations of retired people or national environment groups—have grown to take their place. The Australian data on this point are patchy, but point to a similar conclusion to Putnam’s. As noted already, membership is declining in trade unions, the mainstream churches, service clubs, political parties and youth organisations. Membership may be holding steady in some other fields, such as social clubs, but no new mass organisations have emerged to match those in such marked decline.

20 RELATIONS

WITH

BUSINESS

R

ELATIONS BETWEEN THE for-profit and the third sector are multifaceted. Generally, many for-profit businesses support the endeavours of third sector organisations in a great variety of ways. In a few fields, third sector organisations and for-profits compete head-on for market share and/or government dollars. In a few cases it is a business venture of the third sector organisation that competes with the for-profit. In many fields, there is a good deal of mutual incomprehension between third sector staff and business people. Sometimes this manifests itself as hostility. This is despite many business people and business-oriented professionals being on the third sector boards.

SUPPORT For-profit firms support third sector organisations in many ways. The first and most obvious way is through donations or payments of cash. However, for many businesses it is often easier to donate some of the goods or services that the business manufactures or retails. These could range from small goods that a local store might donate to a neighbourhood centre to make into a hamper to raffle during a street fair to obsolete stock that a computer importer may donate to enable a youth centre to provide a computer skills program to disadvantaged children. The same firm, or a different one, perhaps one that deals with the initial donor, may donate software or cabling or use its staff to provide training. Other businesses may ask their in-house designers to design a brochure for a nonprofit and then print it. Airline companies may donate tickets to a national association to enable it to hold a meeting or for its president to visit its state branches. Radio stations often give free publicity to fundraising events. And so on. Some large businesses encourage staff to volunteer with nonprofits, by providing incentives such as recognition in a staff newsletter, by 170

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making a donation to any organisation for which staff work as volunteers or by allowing staff to spend some paid time as well as non-work time working for a nonprofit. One large Australian firm sets aside one work day each year when it encourages staff to spend the day working for nonprofit organisations; a few firms loan staff to a nonprofit for weeks or months to help introduce a new program or new technology. Most professional partnerships do legal or accounting or recruiting work on a pro-bono basis for nonprofits. The motives that might prompt businesses to support third sector organisations are many. They can range from a purely altruistic interest to a purely business transaction. Mostly, they are a mixture of both motives. On the purely altruistic side are businesses that donate to an organisation that the owner or manager believes is doing important work in the community. The business seeks no or minimal acknowledgment for its gift; it seeks to impose no constraints on the recipient organisation and it may even ask for its identity to remain anonymous. A little beyond this are motives that are basically altruistic, but mix in a little return to the business as well. A company that donates a prize for a fundraising auction hopes to gain some benefit from those present at the event learning of its generosity and deciding to purchase from it rather than elsewhere. This is an embryonic form of what is described more fully in the following discussion as sponsorship. The difference is that in this case the possibility of a return to the company is at best a vague possibility, invoked perhaps to justify treating the support as a business expense. In a similar way, a firm that agrees to match donations made by senior staff or the staff social club is gaining some loyalty from those staff. Moving further towards an emphasis on business motives, a firm may donate funds or equipment to a nonprofit research centre in return for the firm’s own research staff working with the nonprofit’s researchers or having the right to develop for sale any product that might emerge from the research. The first mentioned benefit from this arrangement illustrates another way in which businesses sometimes support nonprofits, namely by loaning staff to the nonprofit for several months or more. Such arrangements frequently appear on the surface to be largely altruistic as there is little obvious gain to the firm. However, closer inspection reveals that the firm is seeking to broaden the skills base of its outposted staff and build links for the firm within its community that it could not otherwise acquire. Such arrangements acknowledge that by working with some nonprofits a business can provide one or two of its staff with experiences and opportunities to apply and broaden their skills in circumstances far removed from the world of business. Under another common arrangement, a business may pay an arts or sporting organisation to help it stage an event, for which, in return, the business receives a certain level of publicity and free tickets that enable it to entertain important clients or staff. Sometimes the business supplies staff to help organise the event as well. Such arrangements are generally called sponsorship. A variant of this is called cause-related marketing.

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Under these sorts of arrangements, a business may agree to donate a certain, small, percentage of sales revenue from a particular product to a nonprofit in return for the nonprofit’s endorsement of that product. Affinity cards, or credit cards that are badged by a nonprofit and return to the nonprofit a small percentage of the card issuer’s profit on the transactions performed using the card, are another form of cause-related marketing, though one that is not much used in this country. The publicity that a business receives from associating itself with a nonprofit in these ways can have a number of purposes. It can be designed to gain an initial public awareness of a firm that is newly moving into a market or to reposition the firm’s image in the public eye. It can be used to overcome the affects of adverse publicity for some other aspects of the firm’s work, such as environmental degradation or a significant reduction in staff. It can be used to give the firm an added advantage in a highly competitive market. These benefits can be readily identified, but are difficult to measure. At the extreme end are business arrangements that specify a measurable benefit for the firm. For example, an agreement between a business and a professional association might specify that in return for providing a certain amount of support to the association for staging its annual conference, the firm will achieve a certain volume of sales of its product to those attending the conference. If these targets are not met, the arrangement may not be renewed. Firms are generally sensitive to the taxation consequences of these arrangements. By and large, a business will endeavour to ensure that any costs it incurs are paid from pre-tax income. It can do this in either of two ways. One is by ensuring that there is no tangible benefit to the business and that the donation is paid to a nonprofit that can provide a deduction from the taxable income of the donor. Many companies do this, but it can be difficult to discover whether the nonprofit that is to be the beneficiary is entitled to give a tax deduction: larger nonprofits are generally able to demonstrate that they are so entitled, but many smaller nonprofits cannot. In addition, the complex nature of Australia’s rules governing tax deductibility mean that many nonprofit organisations that a company might want to support are not entitled to give it a deduction. The other, far simpler method is to claim that the company is indeed gaining a benefit from the gift and that it is therefore a legitimate business expense. This method can be used even if the business really intends the gift to be purely altruistic. Provided a modicum of publicity can be demonstrated, it is unlikely that the Taxation Office will seek to query a decision made by the firm’s owners or managers. It is for this reason, as noted earlier, that many owners of small businesses make donations through their company. The Australian Taxation Office is not the only source that might question the support that a business provides a nonprofit. The shareholders of public companies might also query it, for, unless support can be justified by increased sales, it would appear to reduce profits and thus

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reduce the return to shareholders. These days, with the big institutional shareholders aiming for the highest rate of return on their equity, the pressure on boards and on management not to support nonprofits, or to turn support into a business transaction, is considerable. For these two reasons, taxation and shareholder pressure, there is a noticeable trend in public companies away from altruistic support toward sponsorship-type support programs. It should be noted that an alternative view of business is emerging that argues there are long-term advantages for a business in developing a clear commitment to altruistic support, often called corporate philanthropy. These advantages will be considered in part VII. Another variable in forms of business support for nonprofits is the length of the period for which the support is provided. Altruistic forms of support tend to be short term, while business transactions tend toward running for a longer period. Clearly a firm can only gain advantage from a sponsorship program designed to impact on a wide group of the public, or from cause-related marketing, if the arrangement runs for several years. These are only trends—some support that has a significant business component to it may nonetheless be a one-off transaction, or may be repeated annually with no interaction between the firm and the nonprofit in between. This is more likely to be the case with small-to-medium sized companies that do not have marketing staff to maintain a relationship, even if it is only to prepare for next year’s event. By contrast, some support that is purely altruistic may involve the business working with the nonprofit over several years to develop a program. Generally, such support will involve more than a financial transaction, and will mean some of the firm’s staff become closely involved with the nonprofit, both in the firm’s time and their own time. Relationships between the for-profit and third sectors are bedevilled by stereotypes. Many employees of public-serving nonprofits are deeply suspicious of business. They see business spokespersons arguing for lower tax and lower government spending policies that would further disadvantage their low-income clients, and also reduce levels of government support for the nonprofits themselves. As was noted in chapter 18, many who are attracted to work for nonprofits are strongly value driven, and often their values entail a dislike of the profit motive and what they would see as the self-interest and greed of people who work in business. Equally, business views of large parts of the third sector are distorted by other stereotypes. To many in business, third sector organisations are badly run and their managers are less than fully competent. In some cases this is a reasonable observation (though it should be noted that the business sector is hardly replete with well-managed firms), but sometimes it arises from a failure to understand the ways that nonprofits differ from for-profits and the different constraints under which third sector organisations operate. Given that many directors of third sector organisations are engaged in business or are professionals serving business, the prevalence of stereotypes of the nonprofit sector in the business community is perhaps

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a little surprising. On the other hand, for many business people on a nonprofit board, the core business of the nonprofit is something they know little about, and the market and regulatory environment differs in important ways from that of a conventional business so that the generalised business skills they bring with them need to be adjusted to work in the different environment. This is not usually done and they often fill niche roles on a board, applying the particular business or professional skill they have in specialised ways, via a finance, a public relations or a building and works committee. As a result, they are often unable to contribute effectively to the overall governance of the organisation. In large corporations, relationships with the third sector will be handled by the marketing department or by public affairs specialists. Sometimes, if the emphasis is on supporting the philanthropic efforts of staff, it may be handled by the personnel department. Sometimes a firm will establish a separate charitable trust or foundation to provide support for nonprofits at arm’s length from the day-to-day operations of the company. It may endow it with a large sum of money (if the firm has had a particularly profitable year). More usually, the firm will give the foundation a sum of money each year out of its profits. To gain a tax advantage, such a body can only engage in purely philanthropic transactions. There is considerable debate in the corporate word about the value of forming a separate foundation. It certainly can establish the philanthropic bona fides of the corporation, but it is not an appropriate vehicle for the company to use to enter into partnership-type relationships with nonprofits, where the intention is that both sides will benefit from the relationship. Some large firms have a foundation and conduct their more businesslike transactions with nonprofits (or with government– nonprofit hybrids such as large museums or universities) through their public affairs, marketing or research departments, as appropriate. By no means all large corporations in Australia have coherent or articulated policies about supporting nonprofit organisations. Some of those that have clear policies for the head or state office will simply allow local managers (of branches, shopping centres, mines or factories) to support local causes without accounting for the funds. Many large corporations allow the chairperson or the CEO a certain latitude to support causes in which they (or, according to many anecdotes, their spouses) have an interest. Sometimes offers of considerable corporate support for an organisation favoured by a board member is a useful weapon in boardroom politics. In small and medium enterprises, decisions to support third sector organisations are generally made by the owner. This is sometimes true of large, privately owned corporations, though there is usually a management role in the process as well. Such decisions are often not planned in a similar way to other management decisions, but are a response to approaches by local groups, by fellow golf club or Rotary members, or senior staff. The role of service clubs such as Rotary, Lions and Apex in

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encouraging and organising business support for nonprofit organisations and causes is worthy of note. Such clubs bring together business people and professionals from a town or group of suburbs for socialising and business networking, but also marshall their members to support causes in the community. Their regular meetings are often addressed by executives from nonprofits and provide an opportunity for nonprofits to publicise their work with a group of local business notables. The slow decline of these clubs reduces the opportunity for business–nonprofit interaction. Many companies operating in Australia, large as well as small, are reluctant to plan the more philanthropic end of their support for nonprofits. Sponsorship or other business-type transactions are often initiated by the company as part of a marketing plan, but even in these cases it is often the nonprofit that approaches the corporation with a sponsorship proposal setting out the advantages to be gained by the corporation as well as the nonprofit. But owners and boards are reluctant to set priorities for forms of support that are largely philanthropic in character. This leads to a paradox: on the one hand, they complain about the number of requests for assistance they receive and seek to avoid publicity for the support they do provide lest it attract more requests. On the other hand they resist strongly suggestions that they set and publicise a clear and limited set of priorities for their corporate giving, lest it reduce their ability to choose particularly interesting or worthy proposals that come across their desk. One result of this avoidance of publicity is that the extent of corporate support for nonprofits is not readily known and an impression is formed that it is not common in Australia. As a result, international firms that have branch offices in Australia and extensive corporate giving programs in the United States or Great Britain will do relatively little here. International companies tend to follow what appears common corporate practice in the other countries in which they operate. Japanese companies that may do relatively little in Japan will contribute a good deal in the United States, but generally less here. The complexity of the various forms and motives of corporate support for the third sector, as well as the relative secrecy that surrounds its practice, means that there is relatively little data about its extent. There are several case studies and one or two surveys of business attitudes, but the only surveys designed to measure the extent of that support are limited in scope. In a recent review of these, it was estimated that in 1996 business support for the third sector amounted to $1.65 billion.1

COMPETITION Far from supporting third sector organisations, some firms compete with them. These are firms that provide similar services or goods to those produced by the third sector. In some cases these firms complain that the

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third sector is given an unfair advantage in that competition, by virtue of additional grants they might receive or by their various tax advantages. In a few cases nonprofits claim to be disadvantaged by their third sector status when it comes to raising capital. Competition between the third sector and for-profits occurs in two ways. The first is where the core activity of a group of third sector organisations is also the core activity of some for-profits. The second is when a business venture begun or inherited by the third sector organisation directly competes with for-profits. In several fields where third sector organisations are a major service provider, there are also for-profit organisations providing a similar service. They will frequently compete although they may find separate niche markets. Long-established fields where this occurs include hospital care, nursing-home care, child care, social clubs, the performing arts, personal finance and accommodation. More recently, government policy changes have introduced competition into employment services and personal care services. Competition at earlier times in the field of housing finance led eventually to the decline of the third sector providers. Nonprofit hospitals that are not part of the public hospital system are in direct competition with for-profit hospitals. This competition is often a source of complaint by some of the private hospital chains, which object to the tax-exempt status of the nonprofit hospitals. A detailed accounting study conducted in the late 1980s for the Health Minister’s Council concluded that the nonprofits used their tax advantage not in ‘unfair’ competition, but rather to allow them to indulge in some less-thanefficient management practices while competing with the operationally more efficient for-profits.2 The nursing-home industry is highly regulated and depends to a large degree on government grants. For this reason, there is less concern expressed by for-profits about the advantage that nonprofit (or government) nursing homes enjoy. In part this is because the one major area where the nonprofit homes had an advantage, their exemption from sales tax on their inputs, was also granted to the for-profits. Both will be GST free under the 2000 taxation arrangements. The nonprofits still enjoy exemption from income tax and, partly, from fringe benefits tax, allowing them, in theory, to pay a little less for their senior staff than the for-profits. Until the Commonwealth government began funding nonprofit and local government child-care centres in 1972, there was relatively little organised provision and, in that provision, for-profits outnumbered nonprofit providers. For-profits protested about the government grants to nonprofit providers throughout the 1970s and 1980s. Their protests were initially unsuccessful but they gained supporters within the Commonwealth Department of Finance as demand for child care outstripped supply. In 1991, the Commonwealth allowed for-profits to obtain similar access to the main source of Commonwealth funds as the nonprofits enjoyed. The final discrimination in government funding favouring nonprofits was removed in 1997.

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The huge expansion of Commonwealth funding for community services, which occurred during the 1970s and continued at a reduced rate in the 1980s and into the 1990s, went largely to nonprofits and some state government providers. Initially, for-profit providers were explicitly precluded from government subsidies. Apart from child care (and nursing homes), there were relatively few for-profit providers. Without government subsidies there was not much of a market for services for the aged or people with a disability and little provision, even by nonprofits. By the late 1980s, this position had changed. Models of aged housing pioneered by nonprofits had been copied by developers such as A V Jennings, though by aiming at a wealthier end of the market there was initially little direct competition. The huge expansion of home-based services to older people and younger people with a disability did start to attract for-profit providers, and the embrace by governments of competition policy has now meant that these organisations are just as eligible for subsidies as nonprofits. In this context it is more a case of nonprofits complaining of newly encouraged competition rather than of existing for-profits complaining of unfair competition from nonprofits. Since most nonprofits enjoy considerable tax advantages, it is likely that such complaints will soon emerge. Social clubs provide major opportunities for recreation for many Australians. They provide bars, restaurants, entertainment, sporting facilities and poker machines. Profits from poker machines help to subsidise the rest. Licences to operate these poker machines, first granted in New South Wales in the 1950s, have fuelled the remarkable growth of these community-run facilities. Ever since social clubs were granted this right, hoteliers have cried foul, claiming that clubs provide unfair competition. Until recently, these cries have been ignored by governments. Over the past decade, as state governments have scratched around for additional revenue, they have sought opportunities to expand their take from the seemingly inexhaustible penchant of Australians for gambling, and have allowed poker machines into the new casinos that they have encouraged and, more recently again, into hotels. The consequence of this competition, many in the club movement predict, will be a slow decline in the number of clubs and in the facilities the remainder provide. The field of personal finance and the related fields of housing finance, and health and life insurance have long been an arena of competition between third sector organisations and for-profits. As outlined in chapter 12, for-profit competition in these fields has dramatically reduced the extent of third sector involvement. Certain other nonprofits occupy niches in markets that are dominated by for-profits, but without threatening their for-profit competitors. Two contrasting examples can be found in the performing arts and accommodation industries. For-profits dominated the professional end of the performing arts market till the emergence of the government-sector ABC orchestras in the 1930s. In the 1950s, several influential citizens, two of

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them senior public officials, began the Elizabethan Theatre Trust in an attempt to attract sufficient private donations to fund nonprofit opera, theatre and ballet companies. They succeeded, though only with generous government subsidies, a position that remains to the present day. Because the government-subsidised nonprofit companies occupy the ‘high-culture’ ground, the commercial impresarios who specialise in musicals and other performance spectaculars do not see them as competition. In the accommodation industry, nonprofits have long filled very small niches at the very cheapest end of the market, with student accommodation and youth hostels. Although backpacker accommodation has emerged to cater for the same market as youth hostels, it is a growing market and the taxexempt status of organisations such as the YHA (or the YWCA for that matter) causes the for-profits little concern. If there were to be a longterm downturn in the youth tourist market, that may change. Another set of nonprofits that compete directly with a range of small businesses in pursuing their mission or core business are those offering supported employment, especially sheltered workshops. The configuration of services for people with disabilities has changed considerably over the past fifteen years. Although a few people with physical disabilities found work in conventional settings, most, especially those with intellectual and developmental disabilities, if they were to work at all, did so in what were generally known as sheltered workshops. These were often factory-like settings where people with a disability would perform simple tasks such as packaging. This work was usually done under contract and while proprietors of sheltered workshops often had to compete with forprofits to obtain contracts, their need to employ more staff to complete a given contract in a given time meant that they were not in a position to try and undercut other competitors. Over the past decade or so the Commonwealth government has tried to move people from sheltered workshops into conventional employment by funding other nonprofits to provide people with training and, where necessary, continuing support to enable them to hold down a conventional job (albeit one that might be paid a portion of an award wage). But these attempts have been only partly successful and many sheltered workshops remain (renamed ‘business services’), along with a range of arrangements that provide somewhat less sheltered employment for people, such as enclaves where a small group of people with disabilities work as a group in a larger organisational setting; work teams where a small group will operate a business offering gardening or maintenance services; and small business services where a small group of people with disabilities, with support, will run a small business, such as a nursery. In many cases these ventures compete directly with for-profit ventures, but the marketplace disadvantages of the ventures employing people with disabilities seem to ensure that there are few complaints of unfair competition. It is more likely to be the business ventures of nonprofit organisations that cause the greatest protest from for-profits. Unlike most developed, English-speaking democracies, Australia does not seek to restrict the

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taxation advantages enjoyed by many nonprofits to their core activities. This means that if a nonprofit community service provider, enjoying the range of tax exemptions available to a public benevolent institution, begins a manufacturing business, it is exempted (or partly exempted) from certain input taxes, such as the fringe benefits tax or payroll tax. Although it will pay the GST on inputs into its new business, it will pay no tax on profits generated from the venture. It is, of course, required to apply these profits to the core business of the organisation. The Australian Taxation Office claims to have an administrative rule that limits the revenue that an association receives from unrelated business activity to 15 per cent of turnover but, given its minimal supervision of nonprofits, there would be little risk for a nonprofit that exceeded this limit. The courts may be prepared to accept an even more benign interpretation. In a 1990s case brought by the taxation commissioner against a bowls club, the court ruled that the club was still entitled to an income tax exemption even though it derived 92 per cent of its revenue from poker machines and only 6 per cent of its expenditure was devoted to lawn bowls. There are many examples of nonprofits with business ventures that are unrelated to their core activity. A number of these were mentioned in chapter 17. For the most part, they do not appear to have caused much disquiet from competing for-profits. Anecdote points to one prominent example, the competition provided by Sanitarium Foods, a part of the Seventh Day Adventist church, to other breakfast-food manufacturers. It was protest against unfair competition by the multinational Kelloggs Company, which was rumoured (incorrectly) to have prompted the Commonwealth government to initiate the Industry Commission Inquiry into Charitable Organisations in 1994. As it happened, the Industry Commission found that nonprofits did not seek to compete on price to gain market share—they were price takers, not price makers—and they should continue to enjoy their exemption on their unrelated business income.3 A major reason for the Industry Commission’s decision was the difficulty of determining what activities were not core business and thus what income to remove from the tax-exempt status. A moment’s consideration indicates how difficult the task would be. For example, the Seventh Day Adventist church, which owns Sanitarium Foods, requires its members to follow a strict vegetarian diet. It makes perfect sense for the church to have developed its own food-processing business and to make that food widely available through conventional retail outlets. If other people, not members of the church, also enjoy the products, that does not seem reason to prevent the church from enjoying a tax exemption on any profit it earns on its food business. By a similar process of reasoning, it could be argued that a museum that runs a bookshop is pursuing its object of educating the public.

21 RELATIONS

WITH

GOVERNMENT

A

LMOST ALL THIRD sector organisations interact with governments in some manner, some far more extensively and diversely than others. The few that do not are those that are not incorporated and do not possess a bank account. There are not many organisations that fall into that category. For many basic interactions, third sector organisations are treated by governments in the same way as for-profit organisations. For example, if they employ people, they must register as a group employer, deduct the appropriate level of tax from their employees’ pay packets and send it to the Australian Taxation Office. They must also comply with occupational health and safety regulations. If they prepare food for others, for example in a school canteen, they must comply with relevant health regulations. If a group of people choose to incorporate as a nonprofit organisation, the requirements imposed on them by government differ in subtle ways from the requirements that they would have to meet if they incorporated as a for-profit company. The requirements also differ depending on the particular form of nonprofit or third sector incorporation they choose (company limited by guarantee, incorporated association, cooperative or a more specialised form). Essentially, they are required to conduct themselves in certain ways and to file certain information with the government authority that administers the particular form of incorporation. Occasionally, if the organisation fails to file or if the authority receives information that leads it to believe that an organisation is misbehaving, there will be interaction between the authority and the organisation. Such action is more likely to be taken by the Australian Securities and Investment Commission than other incorporating authorities. In some cases, fines incurred by a nonprofit that failed to comply with regulations have made it bankrupt. In a few rare cases, governments bestow upon certain nonprofits the authority to act under legislation in the manner of a government authority. The powers conferred upon the RSPCA to conduct inspections

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and bring prosecutions in the interest of animal welfare is one example; another was the authority to control thoroughbred horseracing in New South Wales, which the Australian Jockey Club enjoyed until recently. These various forms of incorporation are provided by governments to assist the owners, members or directors of private organisations by providing a legal personality for the organisation they have created or joined. The benefits of this for third sector organisations are outlined in chapter 2. They apply to for-profits as much or more than they apply to nonprofits. With two or three exceptions, government regulation of the entities it incorporates is light. Some for-profit firms, the so called ‘public companies’, invite the public to buy a part of them by issuing shares. The close regulation of these entities is designed to protect the public, especially the share-buying public, which is why public companies (of which companies limited by guarantee are a small part), are so much more carefully regulated than are other forms of incorporation (cooperatives in New South Wales and Queensland and associations in Queensland are the exception). In fact, as we shall see, governments rely far more on funding agreements to regulate nonprofits (or at least those that they fund) than the regulatory mechanisms associated with incorporation. One of the main areas where the Australian Securities and Investment Commission tries to protect the public is in what is sometimes called fundraising, or the attempts by for-profit firms to raise money from the public by issuing shares or other forms of security. The commission also regulates the very limited amount of this kind of fundraising by nonprofits, mainly religious organisations. By contrast, it is state governments that regulate the fundraising of nonprofit organisations, or some nonprofits, through their fundraising acts. Again, protection of the public against fraudulent or excessively expensive appeals are the main objects of these acts. Legislative requirements vary from state to state and are enforced with varying levels of enthusiasm. Those who drafted and passed these acts appear ignorant of the more sophisticated methods of fundraising. They are viewed by those larger nonprofits that are affected by them (and many are not) with weary resignation. Whether they are particularly effective has never been determined. However, in most states, the legislation has been around for over 50 years and has tended to define, in the public mind, what is a charity. Longevity has given the government authorities that administer the acts a certain legitimacy. From time to time, a nonprofit that is being criticised for dishonest fundraising practices will publicly invite the relevant state authority to audit their affairs. The benefits provided by incorporation are but a small part of the full range of support provided by governments to the third sector. Third sector organisations are given special support by being exempted from various forms of taxation. These exemptions are many and varied and are enjoyed in various combinations by different third sector organisations. They include exemption or part exemption from income tax, fringe benefits tax, payroll tax, stamp duty, rates and certain government charges. For the most part, such arrangements are relatively painless for the

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nonprofit. They require it to make contact but once with the authority levying the tax or charge to claim a particular exemption or concession. If granted, the nonprofit needs no longer to maintain contact with that authority. This contrasts with other countries such as the United States and Canada, where nonprofits are required at least to submit a tax return despite their being granted tax-exempt status. Their relatively limited engagement with the taxation system enjoyed by most nonprofits changed in mid-2000 when the GST was introduced, locking all but the smallest nonprofits, even those with GST free services, into regular interaction with the ATO. In general, tax exemptions are provided to nonprofit organisations because they are judged to provide a public benefit. The greater the benefit, the larger the range of exemptions. Tax exemptions are a source of disquiet to some nonprofit organisations, particularly to those that miss a particular concession while what appear to be very similar organisations receive it. There are many such examples in Australia, the consequence of bad legislation, inconsistent judicial decisions and inconsistent decisions by taxation officials.1 Lobbying against decisions to exclude a particular organisation from a particular concession generates a limited amount of contact between government officials and nonprofits. So too do attempts to extend concessions or iron out some of their inconsistencies. Treasury officials refer to these exemptions or concessions as tax expenditures. That is, they argue that they are similar to government grants to organisations, the difference being that in the former case the organisation is excused from paying a tax that it otherwise would pay if it did not meet the concession requirements. Strangely, they have never attempted to measure what these might amount to. The Industry Commission Inquiry into Charitable Organisations estimated that the various input tax concessions enjoyed by nonprofits providing community services amounted to $400 million, but this did not include all concessions or exemptions enjoyed by these organisations and, of course, excluded the great majority of nonprofits.2 Direct financial support by governments for nonprofit organisations is considerable. In 1995/96, it amounted to $8.3 billion.3 Data gathered by the Australian Nonprofit Data Project shows that government grants provided different proportions of the income of nonprofits in different fields. Government grants contributed 53 per cent of the revenue of nonprofits in education, 50 per cent in community services and 25 per cent in arts and culture. They contributed only 2 per cent to nonprofits in sport and recreation and 1 per cent of interest group revenue. Of course, these gross figures conceal a huge variation in the amounts received by individual nonprofits. Very many nonprofits receive no direct government support at all; some receive all their revenue from a government grant. Trading cooperatives, credit unions and mutual insurance organisations receive no direct government support. Neither do most member-serving organisations, though some do if they are providing

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a service that governments believe serve a wider public purpose. For example, sporting bodies are encouraged by government grants to provide opportunities to young people to participate in sport, and to provide coaching for skilled youngsters to help them move into the ranks of the sporting elite and win glory for their country. But most government support for nonprofit organisations goes to those providing a public service, such as education, health and community services. As we have seen in part III, direct government financial support for nonprofit organisations has been a feature of Australian public policy since almost the beginnings of white settlement. It was provided to encourage private initiative in the provision of health, community services and, until the mid-nineteenth century, education. Support for nonprofits in other fields of activity, such as sport and the arts, came later. With support came government attempts to oversee and control the activities of nonprofits receiving government funds. The extent and form of these attempts to oversee and control vary considerably, depending upon many factors, such as the level of support provided, the importance of nonprofit activity in the overall provision of those services and prevailing views of the role of government and the conduct of public administration (or public management as it is more fashionably called).

MODELS

OF GOVERNMENT FINANCIAL SUPPORT

It is possible to distinguish five models of the way governments provide financial support for nonprofit organisations. Each model describes a different orientation of government to the activities performed by nonprofits and a different way of conducting relations between the two classes of organisation. The first model is the government as philanthropist. In this model, the government acts as a wealthy individual, bestowing support upon a particular project of a nonprofit organisation after an approach from the organisation to a minister or a departmental official. There is very little planning in the government’s approach, other than a preparedness to support nonprofit initiatives, perhaps within a particularly broadly defined field. Sometimes a government sets up a commission or tribunal and empowers it to allocate funds to support particular nonprofit projects. Sometimes the income for such a body is hypothecated from a particular source, such as gambling taxes. Such organisations act a little like the large philanthropic trusts or foundations in the United States or Britain. The Western Australian Lotteries Commission is an example of a body with a wide remit; the Australia Council for the Arts and the Commonwealth Sports Commission are two others with a narrower focus. As the government becomes more specific about where funds are to be allocated, the government as philanthropist model fades into the second model, the submission model. In this model the government appropriates funds for a particular type of service or activity and invites

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nonprofits to submit proposals for government grants to help them provide those services. In this case the decision to provide a particular type of service is the government’s (though it may have been pressured in that direction by nonprofits), but it is the nonprofits that determine where services will be located and, to a large degree, how they will be provided. Often government funds are provided for capital purposes, usually as a matching grant to funds contributed by the nonprofit. Generally, under this model, governments provide recurrent grants as well, sometimes as salaries for appropriately qualified staff, sometimes as grants to cover all or part of budgeted costs. In this model, nonprofits still have a good deal of independence. Government support is negotiated on a case-by-case basis. As a result, there is little uniformity in levels of support provided for similar levels of service. However, there is a greater level of government scrutiny and in some cases a requirement that the nonprofit return unspent grant money. The submission model was particularly popular during the huge expansion of Commonwealth government support for nonprofit activities during the 1970s. However, it was increasingly criticised from within and outside government for the way it favoured areas where people were more readily able to form nonprofits and seek funds, rather than those areas where services were most needed. It was also criticised within government for the unsystematic way in which funds were allocated. This criticism became more intense as the need to cut government expenditure became an increasingly important priority and as methods of accounting for such expenditure became more sophisticated. In many Commonwealth government programs it came to be replaced by what came to be called the planning model. Under the planning model government officials determine in advance where services are needed and nonprofits are invited to express interest in providing services in those locations. Frequently, government decisions regarding the location of need are made after discussion with peak organisations representing nonprofit providers and, sometimes, service consumers. In most cases these negotiations would encompass decisions about which nonprofit would be funded to provide services, though sometimes that decision was made by officials after reviewing expressions of interest by nonprofits. Another significant change that the planning model introduced was that governments came to specify more clearly what sort of service they were funding and to provide the same, or almost the same, funding for such an item or unit of service wherever it was provided. When state governments moved down this track from the late 1980s, they referred to these units as outputs. The final significant change entailed by the shift to the planning model was a significant increase in the reporting back to the funding department required of nonprofits. This encompassed not just financial reporting but large amounts of client data, designed to assist the government department in its planning. This reporting was referred to

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as accountability, which was a rather restricted use of that term, given the other stakeholders to which nonprofits also should be accountable. However, to government officials, the nonprofits they funded were no more than extensions of government; their employees were not public servants, but the organisations, or rather the programs they provided, should be incorporated within the system of bureaucratic accountability. Many nonprofits were small and had been established at the initiative of public servants. They were generally happy to accept this interpretation of their relationship with government. It was part of their ‘partnership’ with government. But most of the large increase in government funding of community services in the 1970s and 1980s went to large nonprofits, the traditional ‘charities’. Many public officials found it difficult to acknowledge that some nonprofit organisations were large complex organisations with many programs and diverse sources of funds. Government officials insisted on dealing with the particular program that they funded, often exasperating senior managers of the nonprofit. As part of ensuring ‘accountability’, government program staff, often working with nonprofit peaks and consumer organisations, developed sets of outcome or performance standards for particular programs. As a consequence, many large nonprofits were required to follow different sets of standards for different parts of their organisation and to report in different formats at different times, often to different parts of the same government department. Despite muttering about the administrative costs that this entailed, most nonprofits found this acceptable as a cost of partnership with government. One consequence of the close relationship with government entailed in the planning model was a failure to develop a more complete sense of nonprofit autonomy and accountability. At a time when the public was asking public institutions such as companies and the public service for greater accountability, nonprofits failed to develop their own standards for transparency or for assuring quality of service. Instead, they accepted the government view that reporting back to government would suffice. Those that raise funds from the public generally issue annual reports, but these often have little or no financial information. Those, such as schools or churches, that raise their funds from a more restricted group often fail even to report to those supporters. The accounting profession has failed to develop appropriate or adequate standards for ensuring the accountability of nonprofits, particularly of those transactions that are peculiar to nonprofits such as gifts of money, goods and time. In practice the distinction between the submission model and the planning model is not clear cut. Many government programs for assisting nonprofit organisations provide services display characteristics of both. In effect, there has been pressure, mainly from the finance and treasury departments within government, to move from one to the other (and as we shall see, beyond). However, in some fields that pressure is balanced by other pressures, mainly from the departments responsible for administering grants and from groups outside government, and a

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particular set of arrangements becomes settled. This has happened in arrangements for funding nonprofit schools, which have remained largely unchanged since the brilliant compromise devised by Peter Karmel’s 1973 Schools Commission report. This enabled the Whitlam Labor government to embrace the funding of religious and elite schools by devising a formula that gave far greater levels of support to nonprofit schools in poor areas than to those in wealthy suburbs that already charged high fees. It also happened in the arts and with sport, where, by and large, funding arrangements are a mixture of the philanthropist and the submission model. In community services, where nonprofits have always provided a majority of services, in employment services, where nonprofit provision is barely 20 years old, and to a lesser extent in health services and other related human services, the pressures transforming government administration have continued to generate change in arrangements for supporting nonprofits. These pressures have pushed in two directions. Each direction involves the greater use of market-style relationships, but these markets operate in very different ways. One direction was toward what is best described as a quasi-voucher model of funding. This developed within the Commonwealth government during the 1980s as a result of pressure on grant-making or program departments from the treasury and finance departments to better target government expenditure on those most needing help. Targeting of government income security payments was long established as a method for curbing the rate of growth in social security expenditure, but it came to be used more extensively than ever in that field and others as the Labor government sought to marry its newfound commitment to fiscal rectitude with its older commitment to egalitarianism. In the community services this produced arrangements whereby governments funded providers with a predetermined amount according to the condition (such as the level of income or degree of disability) of their clients. This amounted to allocating those clients with a voucher-type entitlement, or a quasivoucher. This method of funding was most fully developed in child-care and nursing-home and hostel funding, but the government was beginning to structure disability services and home-based care for the aged in the same manner when the impetus for change in this direction became overwhelmed by attempts in the late 1980s and early 1990s to reform Commonwealth–state relations and shift responsibility for community services to the states. The implications of moves towards the quasi-voucher model were not understood by governments. Essentially, it created an entitlement for a certain level of fee subsidy (or ‘fee relief’ as it was called in child care) to certain classes of individuals, with the level of subsidy determined by certain predetermined characteristics. In effect, the government was strengthening the effective demand of consumers, and thus creating a conventional market where consumers could shop around between government-licensed providers, choosing on the basis of price, quality and

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convenience. This type of market emerged for a time in child care, until, in the late 1990s, the government refused to adjust the value of the voucher to keep pace with the cost of care, helping drive low-income consumers from the market. In nursing-home care, other government policies prevented the full emergence of a conventional market. The government rationed licences for new nursing homes, on the grounds that there was already an oversupply, and capped the fees that residents could be charged. These programs, child care and nursing-home care, where the quasivoucher model of funding was best developed, encompassed the two segments of community services where there were a significant number of for-profit providers. In nursing-home care, nonprofit and for-profit providers were treated alike under the quasi-voucher arrangements, though state government nursing homes (and some nonprofits long funded by the states) were treated differently. In child care it was not until the quasi-voucher arrangement had been operating for over a decade that for-profits were treated in exactly the same way as nonprofits. These were also two programs that were solely the responsibility of the Commonwealth government. However, the slower movement toward the quasi-voucher model of funding in disability services introduced the model into some state government programs, such as those funding personal care for people with a disability. Further movement at the state level was ended by the growing support for an alternative approach to creating a market. To summarise, under the quasi-voucher model, governments were moving toward creating a conventional market occupied by consumers and suppliers, wherein governments strengthened the capacity of consumers to afford market-determined fees and regulated providers to ensure their good quality. Accompanying attempts to reform Commonwealth–state relations was a strong push to reform government instrumentalities by corporatising or privatising them. This came to be known as micro-economic reform and then as competition policy. The virtues of competitive markets came to be widely sung and their creation came to be mandated and enshrined in legislation. This led to some strange inventions. Some public officials, of course, had direct experience of competitive markets. When governments wanted to purchase supplies or services such as cleaning, advertising or high-level technical advice, they would call for tenders, evaluate the tenders and let a contract for a specified product or service. The government was but one more purchaser in an already existing market. But in many areas of government activity there was no pre-existing market of purchasers and suppliers. So government officials set about trying to create them. They did so by creating wherever they could a distinction between purchaser and provider. Even within a government department, some parts became purchasers and others providers. Existing funding arrangements between governments and nonprofits could easily be fitted into this model: the department became the purchaser and the nonprofit the provider. To gain full benefit of the

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market that had been created, the funding department needed to define what services it wished to purchase, specify where it wanted them provided and seek tenders for their provision. Generally, the department would indicate what it was prepared to pay and nonprofits could bid against each other for the government tender. Thus was born the competitive tender model. In practice, governments have been slow to adopt this model. It has been enthusiastically embraced by the Commonwealth for the provision of employment services, and in Victoria for most community services, but it is less widespread in other Commonwealth programs and in other states. In part, this is because of resistance from staff in program departments, as well as opposition from nonprofit providers. Opponents point to the difficulty of defining units of service or outputs for many community services and also to the difficulty of applying the model to many services. They note, for example, the difficulty of defunding a residential care facility for older people or younger people with a disability when there are so few facilities, or where such a move would require them to move residence, seemingly at the whim of a government official. Nonprofits note that a strict separation between purchaser and provider robs the government (the purchaser) of detailed practical information about service provision, and about client needs. It damages the partnership that nonprofits believed characterised their relationship with governments to the mutual benefit of government, nonprofit and the clients of the nonprofit’s services. Certainly it is true that as governments have moved to embrace the competitive tender model, relationships between nonprofits and government officials have deteriorated. In a revealing moment during the hearings held by the Industry Commission as part of its inquiry into charitable organisations, two Victorian officials explained with relish how the threat of defunding under a competitive regime forced nonprofits to lift their game. They were reminded by the chair of the commission, a man with considerable experience in the manufacturing industry, that their views were quite at odds with what was recognised as best practice in purchaser–provider relationships in business, which stressed collaboration between purchaser and provider. In fact, there are more fundamental reasons why the attempt by reformers in government to construct funding relationships between governments and nonprofit providers as a competitive market cannot work. It is not and cannot be a conventional market. For a start, although the government is the purchaser, it is not the consumer of the services and is thus not in a position readily to evaluate the appropriateness or quality of the service. Another reason is that such arrangements ignore the interests of consumers or clients of services. The government construction is that they are purchasing services on behalf of low-income consumers, but that is not the way conventional markets work. Indeed, contract law, which is invoked to provide a framework for the new funding relationships, does not acknowledge the existence of a third party such as a consumer, if the consumer is not also the purchaser.

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In addition, the model offends precisely in terms of the economic theory that is supposed to recommend it. Because there is not a preexisting market with other purchasers of services (mostly, those who need the service cannot afford to buy it) in the community services market, the government has monopsony power, that is, the disproportionate market power that comes from being the sole purchaser. Economics textbooks recognise that monopsony power is as destructive of the benefits that flow from properly functioning markets as is monopoly power, or the disproportionate power of the sole provider. But whereas law and policy is replete with warnings against, and methods for overcoming, the abuses of monopoly power, they are silent when it comes to monopsony. Yet the abuses by governments of monopsony power in their relationships with nonprofit providers of community services are many, most noticeably in their refusal to allow competition over price, which would enable organisations to be fully reimbursed for the cost of the service the government is supposedly purchasing. Other abuses by government, abuses that show the nonsense of speaking of funding relationships between governments and nonprofit providers of community services as a market, are evident in the continuing insistence by governments that providers present them with full audited accounts and a great deal of information about their clients. Such an insistence is unknown in conventional markets where, if the government purchases a service, it evaluates the service itself and does not seek regular reports about the finances of the provider. That these practices remain is evidence of the continuation of accountability practices developed for earlier models, such as the planning model (which embodied bureaucratic rather than market models of accountability). That practices from the two models coexist testifies to the muddle that government is in when it comes to managing its relationships with nonprofit providers of community services. If it wishes to encourage competitive markets, which may be appropriate for some services, it should return to the quasi-voucher models, which at least empowered consumers. Alternatively, it should develop mechanisms, such as a pricing tribunal, commonly used to guard against abuse by government providers of monopoly power, to protect against the equally insidious abuse of its monopsony power. For some services, it should revert to versions of the planning or philanthropist models and re-establish collaborative relationships with the third sector. One other area where government embrace of market-style relations is causing confusion is in its treatment of peak associations of nonprofit organisations and nonprofits representing groups of users of governmentprovided or government-subsidised services. Peaks are unlike usual trade associations in that many of their members cannot afford to pay the fees needed to support the association. Similarly, associations of pensioners or people with a disability are unlikely to be able to afford to sustain an association that could employ the professional staff needed to represent them effectively. In the past, governments provided funds to these bodies in a manner that accorded with the philanthropist model. Sometimes,

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when an association made life difficult for the government, its grant would be cut, but the government did not specify what it wanted from the relationship. As such grants came to be subsumed under the planning model, governments had to try and identify outputs that it could fund, and demanded increased ‘accountability’. Under the competitive tender model, governments are in a dilemma. They can pretend to purchase advisory services from these organisations, but can hardly do it competitively. Alternatively, they can draw on another body of economic theory, public choice theory, and argue that interest groups reduce the capacity for good government. If government wishes to seek the views of consumers, it can employ a market research firm to conduct a survey or it can appoint a committee of ‘representatives’. In practice, governments have pursued mainly the first approach and pretended to purchase advisory services, though in a few cases where the organisation was both noisy and politically weak they have withdrawn support. In one state, the government ceased direct funding of the council of social service but agreed to provide direct service providers that it funded with a little extra, which they could use to fund the council or another peak. Such an arrangement was impractical and was soon ended. Some people, including public choice economists, have argued that it is foolish for governments to fund peak bodies that spend their time criticising its policies. On the other hand, in a democratic political system, many interests organise to represent their views to government and to shape government policy in ways that help the interests of their members. Government support for organisations representing groups of people for whom low income or other disadvantages make it difficult for their voice to be heard is no more than an investment in the democratic political process.

THIRD

SECTOR SHAPING GOVERNMENT POLICY

It is the attempts by nonprofit organisations to influence government policy that constitutes the final dimension to the interaction between governments and nonprofit organisations. In this case, nonprofits initiate contact with government, either directly or via the mass media, not to seek financial support, but rather to influence government policy. It is important to stress this dimension as there is a tendency in some parts of the nonprofit sector to emphasise the strength of government compared to nonprofit organisations. Nonprofit organisations can influence government policy in two ways, by example and by direct advocacy or lobbying. The second way is well known and is followed by a large number of specialist organisations. However, it should be recognised that when nonprofits develop a new service, a new way of doing something, governments will sometimes adopt the practice themselves or seek to have other nonprofits adopt it, perhaps by use of the inducement of grants. To take two examples: the revolution

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in aged persons’ accommodation in the 1950s and 1960s was pioneered by nonprofits seeking a better way of meeting the needs of poorly housed older people. Then, it was a nonprofit organisation that introduced the case management approach, helping older people with complex care needs obtain the services they needed while remaining at home. Often, of course, it requires the lobbying efforts of the original nonprofit or, more frequently, of specialised advocacy organisations to prompt the government to act. Although most nonprofits are formed to provide a service for members or others, there is a significant group whose primary purpose is to influence government. These can be divided into two groups: interest associations and social movement organisations. The first group is made up of those organisations that seek to defend and advance the interests of their members. These are the classic lobby organisations or trade associations. Their preferred modus operandi is to work outside the glare of publicity, exchanging information about the industry they represent for knowledge of government policies and to try and shape government policy by reasoned argument and, sometimes, the threat of noncompliance by their members. Sometimes tactical considerations require a public campaign of some kind, but this is not usual. Such organisations rely heavily on a government’s need for information. They approach the influencing task in a highly tactical manner and are focussed on the needs or interests of their members. These interest associations stand in contrast with a far more expressive and volatile group of organisations, those that are best described as social movement organisations. These organisations are formed and maintained by people committed not to their immediate self-interest, but to bringing about wide-ranging changes in current economic, social and political arrangements and practices. They may be concerned to reduce environmental degradation or to achieve greater equality or justice for women, indigenous people or refugees. Gathered around, and animated by, any particular broad goal there will be many nonprofit organisations and also individuals that do not belong in any formal sense to an organisation. It is their sharing of a broad goal that links them as part of a social movement, not any organisational structure. This is not to say that there will not be many overlapping networks within any social movement, but the movement is not organised in any formal sense. Indeed, within any movement, there will be considerable disagreement about tactics and values. Some organisations will pursue tactics that are not unlike those of conventional interest groups, others will pursue confrontational approaches in attempts to force governments to adopt their policies. Others will attempt to lead by example and attract media attention to try and change public attitudes and behaviour directly, rather than via a change in government policy. Despite a significant amount of research into lobbying, interest groups and the policy process in Australia, there is no satisfactory evaluation of the effectiveness of such organisations. Case studies of particular groups

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often conclude that they are quite effective; some studies of policy change draw the same conclusions, but others do not, focussing more on policy actors that are closer to the action, such as political parties or public servants. Certainly, there are or have been policy areas where governments try and tie a particular group closely into the policy process. The Returned Services League was generally thought to have such a position of preeminent influence with the Menzies government in the 1950s and early 1960s. However, even that influence was limited to matters of the entitlements of returned servicemen and -women and, to a lesser extent, defence policy. Generally, any strong influence that an interest organisation can exert will be highly conditional on the issue and the circumstances and will be relatively shortlived. They are nonetheless an important part of our democracy.

PART VI

THINKING

ABOUT THE THIRD SECTOR AND ITS IMPORTANCE

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HE MAIN PURPOSE of this book is to introduce Australia’s third sector and to describe the challenges that it offers and the challenges it faces. To this point, the emphasis has been on introducing the third sector, in all its variety and complexity, and in understanding its dynamics. Before turning to these challenges, it is useful briefly to review the main ways in which international scholars and policy makers think about the third sector organisations or their various aliases: nonprofit organisations, NGOs, voluntary organisations, civil society or the social economy. The low level of awareness of and interest in the third sector in Australia stands in sharp contrast with many other parts of the world. In the United States there has been a growing interest from scholars in disciplines such as political science, sociology, law and economics for many years. This interest has been mirrored in the United Kingdom and has more recently spread to Europe, Latin America and now Africa and Asia. Out of this interest has emerged several bodies of theory designed to understand the dynamics of the third sector and its contribution to wider social, political and economic formations. A brief outline of these theories will help the reader to recognise the many ways by which the contribution of the third sector can be judged.

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AN ECONOMIC

CONTRIBUTION

P

REVIOUS CHAPTERS HAVE described how third sector organisations make a considerable contribution to Australia’s economy. They are economic actors, but behave differently from private firms. To develop an understanding of third sector organisations as economic actors, and of the economics of the gifts of time and money they receive from households, requires some interesting applications of conventional economic theory. This chapter summarises data already provided about the economic contribution of Australia’s third sector. It then outlines some of the insights that are to be gained from the writings of economists into the questions of why we have nonprofit organisations, why they behave the way they do and why people make donations of time and money. Overall, third sector organisations employed over 630 000 people in June 1996. That was 7.6 per cent of the workforce and 12 per cent of those in private-sector employment. The slightly smaller set of nonprofit organisations that employed people employed just under 580 000. The overall turnover for these two sets of organisations for 1995/96 was $59 billion and $27.4 billion respectively. They contributed 3.3 and 3 per cent respectively to Australia’s gross domestic product (GDP), which was $488 billion for that twelve months. As has already been noted, these figures are framed according to conventional economic assumptions and omit several important pieces of information, one of which is the value of volunteer time contributed to these organisations. Of perhaps greater importance, they omit the economic contribution of nonprofit associations that do not employ people. Although these organisations do not provide jobs, they do provide services. Almost all generate an income and spend it on the consumption of goods and services. Unfortunately, we cannot produce even a rough estimate of the annual income and expenditure of these organisations. A similar study to this one in Sweden was able to develop an estimate of the additional expenditure of non-employing nonprofits. It added a further 14 per cent to the expenditure of employing nonprofits.1 What

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we are able to do is to very roughly estimate the value of funds raised from the public and businesses by non-employing nonprofits (by subtracting the estimates of funds raised by employing nonprofits from estimates of giving by firms and individuals). That figure is $2.4 billion for 1995/96. In addition, when volunteer time is valued (using average weekly earnings), it contributes a further $7.5 billion to the output of nonprofits (both employing and non-employing). This increases the turnover of the nonprofit sector to $37.4 billion and the third sector to $68.9 billion. If the estimates of GDP and nonprofit contribution to GDP are revalued to account for this voluntary contribution, and the estimates of the income of non-employing nonprofits are allocated to them from the household sector where it is conventionally counted, then we can say, very roughly, that the third sector contributes 4.8 per cent to the adjusted GDP, while its nonprofit sector component contributes 4.5 per cent. In summary, the third sector is a significant part of the Australian economy, but that piece of information is well hidden. In addition, Australia’s third sector makes a larger contribution to our economy than the third sector in many other countries. We only have good comparable data for the employing part of the nonprofit sector (which disadvantages some European countries with large cooperative and mutual sectors), but the nonprofit share of total non-agricultural employment in Australia of 7.2 per cent compares to 7.8 per cent for the United States, 6.2 per cent for the United Kingdom, 4.9 per cent for Germany, 11.5 per cent for Ireland, 3.5 per cent for Japan and 3.7 per cent for Argentina.2 The reasons for this lack of awareness of the economic contribution of the nonprofit sector are canvassed in chapter 2. Chapter 11 suggests a range of factors that have enabled and stimulated the growth of Australia’s third sector. This chapter with its focus on the sector’s economic contribution will briefly review the interesting body of economic theory that has developed to account for, and understand the behaviour of, nonprofit organisations and their philanthropic supporters. Almost all of this theory has been developed in the United States and reflects the particular fascination of that country’s economists with public-serving or charitable nonprofits. To non-economists, many of the assumptions of economics seem simplistic, even wrong, but it is the only social science with a single dominant paradigm, that of neo-classical economics. Within that paradigm economists develop theories of great strength and sophistication. Non-economists might not accept their basic assumptions but can be stimulated by their insights and impressed by their rigour.

NONPROFIT

ORGANISATIONS IN ECONOMIC THEORY

The first issue addressed by economists is why nonprofits exist at all. To understand their answers to that question requires a brief excursion into the place of markets and governments in conventional economic theory.

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For economists writing in the neo-classical tradition, the ideal world is a free market. But markets have certain points where they fail and governments exist to address at least some of these failures. One example of market failure are so-called public goods. These are goods that have two characteristics. Once produced, they are available to be enjoyed by everybody and their consumption does not diminish the good. That is, they are what economists call nonexcludable and nonrival. The classic examples are defence and clean air. Such goods will not be produced by private firms under pure market conditions as there is no way of covering their costs, let alone making a profit. So it is up to government, with its legitimate power of coercion, to provide such goods via taxation and legislation. However, many goods are neither purely public nor purely private goods. Some are excludable but nonrival, such as a museum or a symphony concert (an entrance fee can be charged, but once people are there, all enjoy the display or performance equally). Other goods are rival but nonexcludable, such as fish in a lake or stream. People cannot easily be excluded from fishing, but every fish caught reduces the number left for others to catch. Some goods, such as education, have some aspects that are excludable and other aspects that are nonexcludable. The benefits of an education are enjoyed mainly by the person who acquires it, but also by the wider society of which they are a part. For this reason many societies require all their population to acquire an education and provide it via government schools. Many goods with some features of a pure public good are provided by governments. The American economist Burton Weisbrod notes that many nonprofits provide goods similar to those provided by governments. He proposes that this is because such goods are funded by taxation and that governments have to balance the provision of such goods with the level of taxation required to finance them in such a way that satisfies the ‘median voter’. By this he means the voter whose preference creates a majority for a particular trade-off of tax and provision of the good, thus satisfying just over 50 per cent of the voting population. This would leave some people, who want more of a particular good or a different feature, unsatisfied. Their demand for more of the good would bring forth nonprofit organisations to satisfy it. They are prepared to pay more, but because of the ‘public’ characteristic of the good, no for-profit firm will emerge to supply it. So these unsatisfied consumers pay for the good by making donations to the nonprofits that supply it. In that way, the good can then be consumed by themselves and others for free or at a price that is affordable by all. Those who make donations to ensure the provision of the good are happy to pay in part for the enjoyment of others. Their support for the nonprofit organisation thus involves an element of altruism. In another variation of this model, Weisbrod argues that in societies where populations are divided along religious or ethnic lines, the uniform provision by government of a good such as education will fail to satisfy all groups. Where such heterogeneity or differentiation of demand exists, government provision will be limited to whatever satisfies the majority

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and there will be extensive nonprofit provision to satisfy minority groups, supported in part by fees paid by users but also by donations from members of the minority group.3 Both of these explanations for the presence of nonprofits suggest that nonprofits are a response to government failure. Weisbrod also allows that nonprofit provision may also precede government provision. This is because until a particular set of collective goods is demanded by a majority of the electorate, governments will not provide them, but nonprofits will emerge to cater to this minority demand. It is worth noting that the political scientist Lester Salamon has developed this point into a theory of voluntary-sector failure, arguing that nonprofit provision of collective goods generally precedes government provision and that it is the failure of voluntary or nonprofit provision that requires governments to act. The causes of that failure he identifies as insufficiency (nonprofits do not raise enough from philanthropy to meet demand), particularism (or a focus on particular needs at the expense of others), amateurism (in the way they respond to need and in organisation management) and paternalism (which arises from the wealthy who make the donations having excessive influence and seeking to impose their values on services).4 Weisbrod’s theory has been criticised for addressing only the question of why nonprofits provide certain goods rather than government. Critics note that in many industries nonprofits provide services that are similar to those provided by for-profit firms. This means that what needs to be explained is why nonprofits exist in industries where services are or can be just as readily provided by theoretically more efficient for-profit firms. To answer this question, Henry Hansmann proposed a theory of what economists call ‘contract failure’. This refers to a failure in the implicit contract between a buyer and a seller, or between a principal and their agent. The failure that Hansmann identifies arises from an imbalance in information between the buyer and seller or principal and agent. Examples of such information asymmetry arise in the provision of complex services such as health care or child care, or when the principal is not in a position to check the performance of their agent, such as when one wishes to make a donation to help victims of a famine in a distant country. In such situations, the provider of the service (or the agent) is easily able to exploit the consumer (or principal), by providing a low-cost, poor-quality service or pocketing the donation. There are several mechanisms available to prevent, or lessen the likelihood, of this happening. One is government regulation; another is to ensure (via regulation) that the service is provided by properly accredited professionals. Another option, available to consumers, is to ensure that they obtain the service from (or place their donation with) a nonprofit organisation. Such organisations, because they are prevented by law from distributing a profit (the nondistribution constraint outlined in chapter 1), are less likely to seek to exploit the information asymmetry than are for-profit firms. For that reason, nonprofits will emerge in these areas of the economy. In a word, nonprofits are more trustworthy.5

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There is some confirming evidence for Hansmann’s theory. Weisbrod found that nonprofit nursing homes were more trusted and that they were more likely to provide a better quality of care than for-profit homes.6 Such matters have not been systematically studied in this country, but there was some evidence in the child-care field in the late 1980s that highincome consumers were prepared to pay more for nonprofit child care than that provided by for-profits. This was before users of for-profit centres received a government subsidy and as a result those centres were forced to cut their costs to the bone to compete with nonprofit centres. The latter, because of the nature of the government fee-relief subsidy, charged a high full price, which had to be paid by high-income families ineligible for fee relief. Hansmann’s emphasis on nonprofits as a response to information asymmetry also helps to explain why nonprofits emerge rather than for-profits in the cases of government failure identified by Weisbrod. In such cases provision needs to be at least partly funded by donations and donations will not be given readily to a for-profit firm. Hansmann also explains the existence of mutual organisations in the insurance industry as another case of contract failure arising from the complexity of the insurance contract. In the United States, the failure in the early nineteenth century of a number of for-profit life insurers helped to convince people of the value of the mutual form (essentially a form of cooperative ownership).7 The problem of the theories so far outlined is that they attempt to explain the existence of nonprofits as a function of the demand for services provided by that class of organisation. Yet even in conventional economic theory, demand in itself does not bring forth a supply. What is required is an entrepreneur, someone who believes there is a demand for a particular service and can raise the capital and organise the other requisites needed to provide the service. Estelle James has developed a supply-side version of Weisbrod’s median-voter theory. Weisbrod explains why, under some circumstances, nonprofits will meet the demand for some types of goods rather than government. James explains how nonprofits come into being to meet that demand. She proposes that it is generally people associated with organised religion or some other ‘ideological organisation’ who will start a nonprofit organisation. It is they who have the strength of motivation (or intensity of preference in economists’ terms) and the access to capital, via the wealth of their religion or their capacity, to attract contributions from its adherents. It is likely to be members of such minority groups that will demand services that the government will not be able to satisfy. James finds evidence for her thesis in the fact that countries with high levels of private schooling are also countries that have a high degree of religious heterogeneity in their population.8 Dennis Young provides a closer study of nonprofit entrepreneurs. In a series of case studies, he examines newly begun nonprofits and finds that they were often begun by someone with a strong commitment to the public good and a new idea for a service. These people had sometimes

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been working for a government agency but needed to start their own organisation to be able to trial their idea.9 However, while studies such as Young’s help illuminate the world of nonprofits by showing the applicability of common economic theory, they fall far short of developing a general theory of nonprofit formation. The same judgment can be made of attempts to develop an economic theory of nonprofit behaviour. Hansmann has demonstrated the importance of the nondistribution constraint in ensuring that nonprofits will behave differently from for-profits. Estelle James has explored how a nonprofit chooses its service mix. Unlike a for-profit, which has a very clear criterion for choosing its service mix (that mix that will maximise profit), a nonprofit has no simple imperative. Its choice will represent a trade-off between its preferred services, which generally will not return sufficient revenue to keep them going, and services that can be provided for a profit. Nonprofits are heavily dependent on cross-subsidisation, as well as relying on donations of money and time to maintain preferred but loss-making activities.10 James’ original work was done in the early 1980s. Since then additional work has been done to understand the choices nonprofits make about the mix of services to offer, without advancing far toward a more comprehensive theory. Other attempts to account for significant variations in nonprofit behaviour point to the character of the market the nonprofit occupies, in particular, whether nonprofits are major or minor players in the market and whether their main competition comes from for-profit organisations, government or other nonprofit providers. Although these are economist’s questions, perhaps the most complete study of the effect of market variation on nonprofit behaviour comes from the sociologist Kirsten Gronjberg.11 Attempts to develop theories to differentiate the behaviour of different types of nonprofits are equally inconclusive. Hansmann has suggested a four-way typology of nonprofit organisations depending on whether they are governed by a self-appointed board or one elected from its members and whether their main source of funds is donations (including grants) or sales. Other studies model the effect of dependence on different revenue sources on behaviour, though some studies, borrowing from portfolio theory, argue that a well-managed nonprofit will draw revenue from a diverse range of sources. A great deal of economic research and modelling work has been done on donations of time and money, particularly the latter. US economists have been especially interested in the effect of tax deductions and government grants to nonprofits, and the effects of changes in these on people’s propensity to give and levels of giving. Drawing on rich data available from the US Internal Revenue Service, including data drawn from a panel of people at different points of time, economists have used different models and a variety of statistical techniques to explore the effects of changes in government policy on giving. Different studies produce different results, but there seems to be general agreement that tax deductions, by reducing the price of giving, encourage it and that the

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revenue forgone by government in giving a tax deduction is modestly outweighed by the additional gift that it brings forth.12 As to government grants, comparisons between the various US states allow some sophisticated studies of the effect of different levels of government support on levels of giving. Again, the results vary, but the consensus is that government grants do ‘crowd out’ giving, but to a very limited extent.13 This accords with commonsense, as high levels of government support are likely to be funded by higher levels of taxation, which reduces the funds any individual has available for giving. The relationship is so small though, that to attempt to bring forth a flourishing of individual philanthropy by cutting federal support for nonprofits in the social services, as President Reagan did in the early 1980s, is to reduce significantly the support available to the poorest of the population. Giving did increase, but came nowhere near to covering the government cuts. Nonprofits made up the shortfall by increasing charges for their services, by favouring those areas where clients could afford to pay and by seeking to diversify into other revenue-generating activities. The ones who suffered were the very poorest.14 The last example provides a nice instance of how considerable pain and hardship could have been avoided had US policy makers heeded the lessons that were there in the economic research. In Australia, we are the poorer for not having even rudimentary economic research on any of these matters. Economic theory has, arguably, a considerable hold on policy making in Australia, but it is a crude variety and its proponents seem unaware of the considerable literature on the economics of nonprofit organisations and philanthropy that is available. Economic theory underlies some approaches to the management of nonprofits as well as government policy. By emphasising one point of variation between nonprofit and for-profits, namely the nondistribution constraint, economic theory tends to construct nonprofits as being in other regards similar to for-profit firms. Thus, business techniques designed to improve the performance of for-profits are deemed to be largely applicable to nonprofits, though some variations may be needed. So approaches to governance that stress the goal-setting and directing role of the board and de-emphasise the role of members or clients in governance are preferred. In a similar way, quality-assurance mechanisms that construct users of services as customers whose satisfaction with services is to be gathered via surveys and focus groups are recommended. There is much to be said for viewing third sector organisations as being similar to for-profits. Such an approach provides their managers with a great variety of proven management techniques. Although third sector organisation differ from for-profits in some vital respects, such an approach can at least stimulate thoughts about options that might be followed when confronted with challenges. However, this approach focusses exclusively on nonprofits as economic actors, ignoring their crucial social and political role. This is a matter that is explored in the following chapter.

23 MAKING

A SOCIAL AND

POLITICAL CONTRIBUTION

I

T IS NOT difficult to recognise that third sector organisations make an important contribution to Australian society and politics. They are manifestations of the ability of individuals to join together, to work with others and to achieve a benefit for themselves or others. They provide service, they give voice, they bestow identity. They are expressions of people’s enthusiasms and their commitments. Society would be palpably poorer without their ubiquitous presence. So too would be politics, because it is through beginning or joining an organisation that most people register their views on the particular matters of public policy that affect them. However, unlike their economic contribution, the social and political contribution of third sector organisations is far harder to measure. There is no equivalent in sociology or politics to simple quantitative measures such as contribution to GDP or employment. Perhaps the closest measures we have are the percentage of the population who belong to a third sector organisation and the percentage of the population who volunteer and the hours they contribute. But both of these measures are ambiguous, being measures of inputs drawn on by third sector organisations as well as signs of the impact they can have on peoples lives. Far greater claims are made for the importance of the third sector. A strong third sector is said to underpin both a strong economy and a healthy democracy. Third sector organisations are said to be the major vehicles for giving identity and voice to the marginalised and for bringing about social change. But these are not contributions that can be measured in the way that their economic contribution can be measured. Rather, they are claims that are drawn by implication from wider theory. They can be understood intuitively and given some empirical verification via cases. To explore the contributions that the third sector makes to society and politics requires a short journey through some, mainly recent, political and social theory. Political scientists are interested in the way third sector organisations

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contribute to democratic institutions and practices. The first suggestion that there might be a connection between voluntary associations and democracy was made by the French historian Alexis de Tocqueville in his study of the United States in the early 1830s, Democracy in America. To de Tocqueville’s European eye, the success of American democracy was a product of the propensity of ‘Americans of all ages, all stations in life, and all types of disposition’ to form associations ‘commercial, industrial, religious, moral, serious, futile, very general and very limited, immensely large and very minute’. Associations were for Americans ‘the free schools of democracy’. More systematic testing of the connection between voluntary associations and democracy was undertaken by a group of American political scientists in the 1950s and 1960s, in the period of the Cold War against communist dictatorships and not long after the defeat of fascist dictatorships in Germany, Italy and Japan. They were interested to discover the features that distinguished regimes with a strong democratic tradition from those with weaker democratic practices. One important factor was that strong democracies had a high degree of citizen involvement in voluntary associations.1 Later research on the determinants of political participation in the United States confirmed the importance of involvement in voluntary associations as a determinant of political participation.2 By political participation, researchers such as Richard Nie and Sidney Verba mean writing letters to congressional representatives, joining deputations to elected officials and belonging to a political party as well as voting in elections. They note that level of education is the most important single determinant of political participation, but that for people with a low educational achievement, membership of a voluntary association increases significantly the likelihood of participation. It does so by giving experience of and skills in working with others that effectively empowers people for involvement in those public activities associated with citizenship. Of course, educated middle-class people in professional or managerial jobs obtain these experiences from many sources other than voluntary association membership but for many other groups in the population, voluntary association membership is the key to active citizenship.3 For many lower class Americans, especially African-Americans, a church is the most common form of associational membership. No research of this kind has been done in Australia. The one body of political science research in Australia that looks at a group of nonprofits is that dealing with pressure or interest groups. Their role in articulating various interests to government is recognised, but their importance is generally downplayed. Political scientists seem to accept the observation made by Sir Keith Hancock in his seminal study Australia, first published in 1930, that Australian political life is dominated by political parties.4 In making that observation, Hancock was explaining why voluntary associations did not play an important role in Australian life, as they did in the United States. The most recent study of the weight of various

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sources of influence on the policies of a state government, that by Mark Considine and his colleagues at the University of Melbourne, found that interest groups played a limited role.5 In sociology, there have been several bodies of research and theory that touch on voluntary associations. Unlike the political science tradition, some of the sociological research has been critical of nonprofits. This critical approach came from those writing from a left perspective, mostly some variant of Marxism. An important stream of sociological research in the 1950s and 1960s was community studies. Those on the left studied communities to find evidence of a class or power structure. Mostly they found that in the towns and cities they studied, voluntary associations were important mechanisms by which the upper or middle class exercised and reproduced their power. By contrast, political scientists who conducted community studies tended to find evidence of pluralistic political systems, a dispersal of power, and voluntary associations being the mechanism whereby different groups pursued their interests without one class achieving dominance across all interests. A number of community studies have been undertaken in Australia. For the most part they are written within a sociological tradition and reproduce the leftist case against voluntary associations. They note that in various communities, the middle class form far more voluntary associations and tend to hold the official positions in those whose membership cuts across class boundaries.6 In this way, it is argued, voluntary associations are a mechanism for ruling-class hegemony; they help blind working people to their real interests. A similar leftist perspective can be found in much historical writing about the welfare state. In this perspective, the growth of state-provided welfare spelt the demise of the traditional voluntary associations, the home away from home of the ‘lady bountiful’. It is still difficult for many Australians educated in this tradition to grasp that the growth of state ‘welfare’ actually led to a flourishing of nonprofit associations, rather than their decline. An alternative perspective on voluntary associations has emerged from more conservative sociologists drawing from the mass society perspective. For sociologists such as Peter Berger, voluntary associations are a crucial mediating structure between individuals and their immediate family and the overwhelming and impersonal power of big government and big business.7 Another tradition, one that draws on sociology, political science and history, is the study of social movements. Social movements are studied as the vehicles of social change or transformation. In its original form, the focus was on the movement that had transformed industrial capitalism in the nineteenth century, the labour movement, or its political off-shoot, social democracy. It also encompassed other important nineteenthcentury movements such as temperance and feminism. Its focus was primarily on their capacity for mobilising resources and on strategies for bringing about policy change. More recently, a focus on the ‘new’ social movements such as the second feminist movement, the environment

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movement and the politics of identity has emerged from Europe. Social movements are important because they provide opportunity for certain individuals to discover and explore new values and identities, and to use the new technologies of communication to link across the boundaries of geography. Social movements are mostly comprised of organisations sharing some values in common, while disagreeing on others. Yet, despite the centrality of nonprofit organisations to social movements, they rarely have been studied from that perspective. As the dominant emphasis of American sociology has moved towards economics, to focus on the individual actor in society, closer attention has been placed on how individuals work together in groups. In this tradition, the sociologist James S. Coleman claims to find in a number of groups and communities a ‘glue’ that he calls social capital. This is a set of norms of trust and reciprocity that hold the group together and greatly facilitate cooperative arrangements between members of the group. Unlike conventional forms of capital, however, social capital is not possessed by individuals but remains the property of groups. Rather than being run down by use, it is strengthened: indeed, unless it is used in frequent interaction between members of the group or community, it will weaken.8 Only some of Coleman’s examples illustrating the operation of social capital involve voluntary associations, but the concept was a suggestive one for a political scientist researching in Italy to discover the determinants of effective democracy. In 1993, the Harvard political scientist Robert Putnam published the results of a 20-year study of the introduction of a new system of regional government in Italy. He found that the new governments operated successfully in the north and central parts of Italy, but not in the south. This divide happened to mirror the divide between those parts of Italy that had successful regional economies and those parts that were economically backward. But the success of the new level of government in the areas of economic prosperity was not a consequence of that prosperity; rather, argues Putnam, both successful government and prosperity were a consequence of the rich tradition of civic association in those parts of Italy that were economically and politically successful, while the absence of such a tradition led to the economic and political backwardness of other parts. That is, the habit in some parts of Italy for people routinely to join with others in various forms of voluntary association—social clubs, choral societies and the like—explained the success of the new regional governments and of regional economies in those parts. In seeking to explain how this process worked, Putnam borrows the term social capital from James S. Coleman. It is social capital, or norms of trust and reciprocity, that both encourages the practice of civic association and in turn is reproduced by it. Thus it is social capital that underpins the economic and political success of those regions.9 Putnam’s thesis initially went unnoticed until he applied it to the United States. In subsequent research, Putnam claims to find evidence for a decline of social capital in the USA. The evidence came from many

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sources: from declining numbers joining associations such as scouts, parent associations, fraternal lodges and sporting clubs such as bowling leagues (in the title of his provocative paper, people preferred to ‘bowl alone’); from a decline in political participation; and from a decline in the percentage of Americans who were prepared to acknowledge that, on the whole, they were inclined to trust other people. The implications of this research were clear and controversial. If social capital were declining in the United States, then, in time, so too would Americans’ commitment to democracy and their economic prosperity.10 Putnam’s thesis drew a great deal of attention to the third sector, and to its role in building trust and community and in facilitating political participation and economic development. The debate continues, but the weight of evidence is reducing the scope of Putnam’s original thesis without entirely demolishing it. Meanwhile, echoes of this and related debates in the social sciences are heard in the political arena as well. The wider public attention to Putnam’s thesis coincided with an interest in what was called ‘communitarianism’, an approach to constructing relations between people and their governments that involves responsibilities as well as rights, and emphasises the importance of rebuilding a moral economy of mutual rights and responsibilities at the neighbourhood level. It also coincided with the development in Britain of ‘New Labour’ and talk of a third way, a policy path that fell between the old cradle-to-grave welfare or nanny state and the small government, market-oriented ‘survival of the fittest’ type of world favoured by Margaret Thatcher. In communitarian USA and New Labourist Britain, much attention is paid to nonprofit associations, as vehicles for rebuilding social capital, and restoring to citizens the opportunity to control many of the state-provided services they enjoy and delivering those services. Somewhat interconnected with the developing theory of social capital is another emerging framework of theory and practice known as civil society. This framework also gives a central role to third sector organisations. Unlike social capital, the most extensive current claims about civil society are made by activists. Their activist theory differs in some important respects from both the more academic theorising espoused by certain ex-Marxist sociologists as well as the strand of political philosophy interested in ways of reproducing the democracy of the Athenian or early North American republic in contemporary society. Activist use of the term civil society emerged in the 1980s in Eastern Europe among intellectuals trying to understand the manifest failure of communist regimes to satisfy people’s desire for freedom. At the same time, these activists had no desire to move to a capitalist society that generated great inequalities and its own forms of oppression. They concluded that the dominant role of the state suppressed that space for free association, where people could meet and form groups to pursue their enthusiasms, express their values or assist others. This space, and the people’s organisations that inhabited it, they called civil society. The embryonic theory that developed around this insight claimed that a strong

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civil society was needed to balance excesses of state domination and to guard against the equally oppressive free-market regime. In this conception, civil society was a lively, vibrant space, full of argument and disputation about matters of greatest import to its citizens. It represented a reapplication of the older republican idea of active citizenship, itself rooted in the ideal of the Athenian polis. An important characteristic of civil society is that its members are committed to a principle of selflimitation; that is, no matter how much they might disagree with other groups or with policies pursued by the government of the day, they would not act in ways that contradicted basic democratic institutions.11 This concept of civil society, emerging from groups that considered themselves Marxist, resonated strongly for others who had Marxist sympathies but faced oppressive regimes of a different kind from those that dominated in Eastern Europe. It was quickly adopted by activists struggling against repressive military dictatorships throughout Latin America and Asia. It helped to provide a model for a society that was dominated by neither big business nor the state, a society wherein ordinary people could organise their own interests and be heard. Thus, in the various and mostly successful struggles against repressive regimes in Latin America, Asia and Eastern Europe that occurred during the 1980s and into the 1990s, the various social movements and people’s organisations that took part in those struggles considered themselves as constituting civil society. As a result, a new generic term to describe the third sector, or large parts of it, has entered the language, that of civil society organisation or CSO.12 It is worth noting that at about the same time as activists in many countries of the South were arguing for the importance of civil society, the practice and theory of economic development began to recognise the importance of non-government organisations or NGOs in the process. Development practice had moved from an emphasis on state-centred development to an economic focus that sought to tie developing economies into the world economy. Both approaches had proven to be deeply flawed, in each case failing to deliver any benefits (and in the case of the latter, delivering many disadvantages) to ordinary people in their villages. By contrast, approaches that sought to develop indigenous organisations of peasant farmers or fisher-folk and encourage their capacity for self-interested collaboration proved to be successful at overcoming the devastation wreaked by earlier development schemes. Once again, the growth of a local third sector generated many advantages. Unfortunately, it often appeared to threaten the interests of political elites and frequently such organisations were suppressed. The activist tradition insists that third sector organisations constitute civil society. This is somewhat at odds with much Western academic theorising about civil society. This latter body of work has been stimulated by the activist discovery of civil society, but for the most part remains tied to one of two intellectual traditions in which the third sector plays something of a residual and unexamined role.

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One tradition, the most prominent, is Marxism. The term civil society was first used in the eighteenth century by the Scottish philosopher and contemporary of Adam Smith, Adam Ferguson. For Ferguson, civil society was a social formation that emerged in Europe during the time the previously dominant aristocratic military class was subordinated to the growing interests of commerce. Civil society was a society in which the state served the interests of the citizen as trader rather than the aristocrat as soldier. It could only emerge when relations between church and state had been weakened if not broken: religious toleration was an essential prerequisite of civil society. The concept was later picked up by the German philosopher Hegel and elaborated into a somewhat contradictory series of meditations on the state and society, wherein civil society is broadly identified with the organisations of economic and social life. Marx simplified Hegel to identify civil society with the interests of the bourgeoisie, and the market. For Marx, civil society was the sphere of economic relations, where economic relations dominated social relations. The concept of civil society was given a fuller but no more consistent exposition in the writings of the Italian communist intellectual, Antonio Gramsci. For Gramsci, the most pressing question was why a communist revolution had succeeded in Russia but not in the more industrially advanced economies of the West, including Italy. In seeking to answer that question he pointed to the cultural power of the Catholic church. The church no longer dominated the state but nonetheless exercised considerable power or hegemony through its various associations. This led him to consider the role of other associations within society and to distinguish between economy, state and civil society. Most importantly, Gramsci broke the correspondence between civil society and economic interests. He was never entirely clear about the relation between state and civil society, sometimes insisting on the independence of civil society, sometimes arguing that they served the same end. In that formulation, civil society was constituted by those organisations through which intellectuals, who were the servants of the dominant class, came to exercise hegemony for their ideas over the whole of society. Gramsci’s formulations were far from consistent, but this very inconsistency allowed the Marxist intellectuals in Eastern Europe enough latitude to reformulate Gramsci’s ideas to fit their own situation and generate the activists’ theory outlined earlier.13 The second theoretical tradition that informs some of the contemporary writing about civil society, especially that in North America, draws elements from the liberal and the republican traditions in political theory. In this tradition, most powerfully expressed in the writings of Michael Walzer, civil society is the space of uncoerced human association and the set of relational networks or voluntary associations that fill that space.14 It is in this space and through these associations that many people come intermittently to exercise an influence upon the behaviour of their fellow citizens, upon businesses and upon the state. Sometimes this influence is consciously sought, sometimes it is unintended, a consequence

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of members of an association following their particular interests. As a space, civil society is marked by disputation and conflict, and by compromise and collaboration. Unlike the republican tradition, which emphasises the importance of people being active citizens, freely engaged and fully committed members of the democratic state, this tradition of civil society emphasises rather the importance of people joining others in various associations to meet common needs or express common interests. Such associations might only occasionally seek to influence directly the affairs of state. In North America, this tradition has links to the political science interest in social capital and the fuzzier set of interests around communitarianism. It is through this tradition that the emphasis on civil society as a counterweight to the excesses of market and state, so important to the activist tradition of civil society in the countries of Eastern Europe and the South, especially Asia and Latin America, is introduced to the developed world. A strong civil society is discovered to be an antidote to the problems of too heavy a reliance on the welfare state or the unbridled market. In neither of the theoretical traditions are third sector organisations given the primacy that they are accorded in the activist theory. Rather, they are included as servants of some wider purpose, fulfilling a function in a wider theoretical framework. Nonetheless, the theories do accord recognition of at least some parts of the third sector, even if they say very little about the workings of those parts. Altogether, these various theories indicate a growing interest in and recognition of the third sector. Such a recognition has the potential to enrich our understanding of third sector organisations, though this will not be a straightforward process. An interest in civil society directs our interests towards third sector organisations that are the product of people’s capacity to work together; organisations that represent their interests. These tend to be member-serving organisations: cooperatives, mutuals, social movement or advocacy organisations. They are quite different from the public-serving or charitable nonprofit organisations that are the main focus of economic theory. It may be that these two perspectives, the civil society perspective and the economic perspective, provide complementary lenses through which to view the third sector. In many respects this is true. However, the two perspectives produce some contradictory messages as well. This is particularly the case if there is a desire to use third sector organisations to help build social capital. The economic perspective focusses on nonprofits as special types of firms. A well-run nonprofit resembles a wellrun firm in a number of important respects. It is efficient, committed to delivering a quality service to its customers and its directors fulfil their fiduciary duties to the wider society. By contrast, a well-run civil society organisation involves its members in its decisionmaking processes; it is participatory and discursive. In so far as it provides a service, it is far from efficient and is committed to encouraging its ‘customers’, who are its members, to develop their own capacities for self-help and to have a voice. The implications of these two perspectives for third sector managers was

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explored in the final section of chapter 16. For managers and governors, and perhaps for government policy makers interested in encouraging a greater role for the third sector, these two perspectives require some rather delicate balancing.

PART VII

CHALLENGES

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T

HE FIRST FIVE parts of this book demonstrate that the third sector plays, and has always played, a major role in our society, our economy and our political system. Key features of third sector organisations are identified and the implications of these for running third sector organisations are explored. Part VI reviews bodies of research and theory that seek to explain why we have a third sector and delineate its vital contributions to any social and economic formation. With these in mind, Part VII looks towards the future and to two important challenges. The first challenge is the challenge that the third sector poses to us all. It is the challenge to recognise that there is a third sector and that it plays an important role in our society, economy and political system. It is the challenge to value the third sector and to recognise that its current role is not guaranteed to continue into the future. We have to recognise that certain important forces in our society directly threaten the third sector and we have to ask ourselves whether we want the third sector to continue to play an important role in the future Australia, a future that is so rapidly unfolding. The second challenge is to the third sector itself, but especially to its leaders and younger enthusiasts. It is the challenge to be worthy of continued recognition and valuing. That challenge is to be creative and innovative, to adapt to the emerging world and let go of the past, but without losing touch with the core defining values and practices of the third sector. It is the challenge to engage with leaders from other parts of the third sector and to establish in the public mind a recognition that there is a third sector. Finally, it is the challenge to seek fruitful partnerships with leaders of the other two sectors to address collectively the huge environmental and social problems that confront us all.

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CHALLENGE OF THE

THIRD SECTOR

T

HIRD SECTOR ORGANISATIONS are different. They testify to our ability to organise among ourselves, to do whatever needs to be done, to give ourselves voice, to provide a service, to help others, without being required to by government or being lured by the hope of enrichment. As we face the future, trying to make sense of a rapidly changing world and attempting to understand the choices that confront us, we should give attention to the third sector. The third sector challenges us as citizens, as governments and as businesses to recognise it for what it is and for what it does. It has played an important role in our past; it continues to do many important things, to enrich our lives and to engage the commitment of millions of people. But will it continue to have a role, to have many roles, and what will they be? This is the first challenge. It is the challenge that the third sector makes to us all, but particularly to policy makers and opinion formers. It is to recognise and appropriately value the third sector’s varied and extensive presence. It is to recognise that the choices we make about how we will live and organise ourselves in the future may diminish the third sector. A strong and creative third sector is not a necessary feature of social organisation; there are many societies where the third sector plays a far less important role than it has in Australia. Arguably, there are already strong forces at work in our society that will reduce the third sector unless they are recognised and reversed. There are signs that the third sector is facing a period of transformation and possible decline. Signs of third sector decline are evident in many fields and have been noted at several points in this book. Mutual organisations operating in the finance and insurance fields have declined precipitously in number and membership, with the exception of credit unions and industry superannuation funds, which are both relatively new. The membership of many third sector organisations is declining, in some cases in absolute terms, in other cases as a proportion

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of the population. Examples include mainstream Christian churches, unions, traditional political parties, community service clubs and traditional youth organisations such as scouts and guides. In other fields, such as sport and social clubs, the third sector has probably ceased to grow. Although some nonprofits (usually large ones) are prospering, anecdotes suggest that many smaller organisations are ‘doing it tough’ and some are collapsing. The percentage of the population who volunteer has been declining since the early 1980s (at least). Organisations, such as professional associations, that rely on volunteers for many of their essential tasks are finding it harder to recruit especially from among working members. Against these signs we can point to areas of growth: in groups working to protect or restore the environment, in Pentecostal churches and non-Christian religions such as Buddhism, in condition-specific health organisations, in schools and in new forms of leisure association, such as reading groups. But the growth in these fields is relatively small and probably does not counteract the decline in other areas. The operative word is ‘probably’. We do not have good data on trends in the third sector. The only reliable data is the 1995/96 snapshot of that part of the sector large enough to employ people, 1997 data on individual giving, and trend data on volunteering. Some of the other data is not much better than anecdotal. However, if we examine the factors contributing to the growth of the third sector—outlined in chapter 15, in the context of some major forces that are currently transforming popular behaviour and the roles and practices of governments and business, we can see why there are signs of third sector decline. Chapter 15 outlined nine factors that enabled a third sector to prosper and six that stimulated it to grow. When we examine the latter, we cannot detect much likelihood of significant third sector growth. Past sources of stimulation, such as religion and secular ideologies, such as the environment movement still generate new third sector organisations, but these days they burn with a dull glow rather than an inspiring flame. Other stimulating factors have all but disappeared. People do not seek new ways to pursue collectively their economic self-interest. Few evangelists seek to extend the spread of an existing group of third sector organisations and in at least one case—the credit union movement—from whence such a drive might come, the Commonwealth government has erected a significant barrier. The sixth factor that historically has stimulated third sector growth, encouragement from government, clearly no longer exists. Of the nine enabling factors, all but one remain in place, but that one is important and is rapidly diminishing in many fields: the existence of a continuing need for services that third sector organisations are best placed to provide. There are still some activities, such as religious worship, the representation of interests and engaging in arcane enthusiasms, that are available only through the third sector, but in many other fields third sector organisations have been replaced or are being challenged by forprofit, that is, business organisations.

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The expansion of the for-profit economy over the past two decades has been remarkable. It is an expansion that has been encouraged by the ready availability of capital and by government policy—and it has transformed the way we live. These factors have all reduced the need for a third sector and people’s preparedness to engage in it. The forces that are transforming business, government and society and impacting negatively on the third sector are reviewed in the following discussion. However, these forces themselves are not without challenge, and in the emerging alternative paradigms are greater possibilities for third sector organisations.

THE

TRANSFORMATION OF BUSINESS

Over the past 20 years, business has clearly become the most powerful force that is transforming our economy and society. Business has expanded to offer services where previously none existed or where they were provided by governments or the third sector. This transformation of business has been spurred by huge changes in technology, especially in communications, and by competition fostered by government policies such as privatisation and tariff reduction. Most of all, it has been facilitated by the comparatively easy availability of capital, a consequence of the freeing of financial markets and the huge growth in superannuation funds. Business courses in universities have expanded massively as has the coverage of business affairs in the media. The impact of this on the third sector has been considerable and it has not yet run its course. Its impact has perhaps been most severe on member-serving organisations. In the finance field, the vast range of products makes the advantage of belonging to a mutual organisation less evident; the more so as many mutuals have expanded via mergers and lost any sense of being member-owned. In sport, organisers of those games with mass appeal have had to learn to pay more attention to the needs of media companies and sponsors than to club members; social clubs find plenty of competition from hotels and other entertainment sources, especially since they have lost their monopoly on poker machines. Public-serving organisations have not escaped either. The hospital industry has been massively changed by advances in medical technology, but to take advantage of these requires considerable capital investment. It is a field that favours large firms with ready access to capital and managers experienced in extracting maximum value from large new investments. Most nonprofit hospitals, owned by other nonprofits, particularly religious orders that are confronting the possibility of their own demise, are unwilling to undergo the transformations that are required if they are to survive and prosper into the new century. In the fields of community and employment services, government policy treats nonprofit and for-profit organisations alike and is slowly coming to favour large over small organisations.

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Business still provides considerable support to the third sector, but the character of that support is changing from being a gift to being a business transaction. This often demands more of the nonprofit and sometimes means that their goals have to be modified to fit with the interests of its business supporter. This particular approach to business support is driven by a view of business that stresses that the overriding responsibility of any business is to return the maximum profit to its shareholders within the law. Under this view of business, a view that is closely related to the neo-liberal ideas that have been transforming government, business philanthropy is seen as theft from shareholders. Fortunately for the third sector, this view is being challenged on a number of fronts by views that stress the wider social responsibility of business, emphasising that business has responsibilities to a wider range of stakeholders, including customers, suppliers, employees, the communities in which they operate and future generations. At a global level, business is being encouraged to arrive at these new perspectives by successful boycotts of their products organised by third sector organisations. These alternative views are held by only a small number of businesses, but those that accept this new perspective of their place in the world are often prepared to, and even seek to, work with nonprofits to address pressing social and environmental problems. Partnerships and joint ventures between the business and the third sector will become more important in the future. The recognition of this appears to be driving Prime Minister Howard with his encouragement of business–community partnerships.

NEW

LIFESTYLES

Many changes in the way we live have made conventional reasons for joining and being active in a voluntary association less attractive. Changing expectations, lifestyles and self-images have reduced the attraction of many of the traditional associations. Any youth group that expects teenagers to wear a uniform outside of school cannot be surprised that it has few teenage members. Many see volunteering as requiring a lifetime commitment; those in volunteer ambulance brigades, bushfire brigades and the like encourage such a view. Yet among the baby boomers and younger generations, that sort of commitment is frowned upon. Prosperity and a multitude of advertising media seek to turn us into a nation of consumers. For those in full-time employment, the increasing demands of work and lengthening travel time conspire against the possibility of active associational membership. The unemployed and underemployed are sometimes too dispirited or may lack convincing examples of contributory behaviour. Making ‘voluntary’ work compulsory as a condition of government income support further weakens the model of true contributory behaviour.

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In the past, to obtain access to many opportunities for sport and recreation it was necessary to join a club. That is no longer true. People’s preparedness to help others in need may not have diminished, but they are less inclined to join organisations to express it. It may be that organisations capable of tapping that continuing willingness to care for others, capable of striking a balance between people’s willingness to care for strangers and their lifestyle aspirations, have not yet been invented. But whatever is happening, volunteering is declining. Australians have never been generous with donations. A false but widespread belief that they were heavily taxed probably contributed to that. ‘Government should provide, we have paid our taxes’ is the refrain. Yet it is financial support from thousands of members and donors that provides the seed capital for innovation and makes the difference between an organisation with adaptive capacity and one that barely copes. If the third sector is to survive and if it is to renew itself and flourish in the new millennium, it will require many millions of Australians to determine to commit their funds and their time to work with others to provide services that they can enjoy, assistance to others and a passionate involvement in causes. The third sector challenges Australians to see themselves not just as consumers, but also as active citizens.

NEW

ROLES FOR GOVERNMENTS

Governments have damaged the third sector in the past by nationalising small sections of it. Government thought that a service could be better provided if the government ran it itself. Nowadays, governments do not see themselves as service providers. The threat they offer to the third sector is quite different. It is the threat of non-recognition. This threat emerges from the philosophy of neo-liberalism (or economic rationalism), which has a powerful grip on Australian governments these days. In neo-liberal theory there is only one economically efficient form of organisation and that is the profit-seeking firm. Governments do not seek to abolish the third sector, rather they withdraw any particular advantages third sector organisations had over the for-profits by way of tax concessions, for example. They throw open the granting of financial support for the provision of particular services to competitive tender. Often the rules specify that funds will be paid only after the achievement of certain milestones. Logically the next step, one already taken in the US, is to offer only one contract for a large area or a large group of services. All of this is justified in the name of efficiency. It is said to create a level playing field between nonprofits and for-profits. In fact it does not. It tilts a field toward for-profits or at least toward large organisations that have both the capital reserves to run a program for months before cash starts to flow and the organisational capacity to either mobilise large numbers of skilled workers or subcontract to smaller providers. It also changes the behaviour of third sector organisations. If governments treat

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nonprofits like for-profits, those that survive will behave in that way. Governments also threaten the third sector with their rhetoric of consumerism. People receiving services from governments or government-funded organisations are no longer patients or clients or pensioners or citizens—they are consumers. Consumers are passive; consumerism further weakens the vestigial traces of active citizenship and civic participation. Another aspect of governments’ blindness to the third sector can be seen in occasional moves, mainly by conservative governments, to cease funding advocacy organisations, replacing them with advisory councils of handpicked individuals. It might be argued that governments should not fund advocacy groups at all, but it makes a great deal of sense to do so in the interests of equity. Middle-class interests and business groups can afford to lobby in their interests; disadvantaged groups need government funds to do so. By replacing an organisation owned by a group of people with a handpicked advisory body demonstrates a desire to discourage the growth of a capacity for organisation. Finally, governments discourage the third sector and civil society by refusing to listen. A classical example of this was provided in Australia in 1998 during the tax debate. Almost always in this country, contending interest groups push their case to government, knowing that in the end the government will choose one or the other or arrive at a compromise that no one is happy with. During the tax debate, two of the main interest groups, business in the form of representatives of the two largest business peak councils, and the welfare sector, in the form of the Australian Council of Social Service, began meeting and agreed on a set of principles that should inform a new tax system. Instead of welcoming this collaboration between contending groups and working with them to go further, the government went its own way, giving business what it thought it wanted and coming up with an arrangement that was so patently unfair that it had to be significantly modified before it became law. It was a classical example of ‘hairy chested’ government insisting on its right and ability to make, and enforce, all the decisions. It is a model of government that is becoming increasingly impossible to maintain as globalisation of the world’s economic systems reduces the capacity and thus the authority of national governments. In response to the evident weakening of the capacity of governments to shape events to the extent that once they could, there is emerging a new model of governance, one that places less reliance on the power of government and looks more to strengthening the capacity of groups of citizens, or communities, to work together to solve the problems and resolve their differences. The role of government in these processes is as a facilitator. It is clear that in this new model of governance the third sector has a central position. Although this model is widely spoken of in Europe, there is little indication of interest in Australia. Its time will come. Recognising the importance of the third sector will help that time arrive and in turn establish a central role for the sector.

THE CHALLENGE OF THE THIRD SECTOR

HOW

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CAN WE RESPOND TO THE THIRD SECTOR’S CHALLENGE?

What can be done to respond to the challenge posed by the third sector? What things might be done by ordinary people, by businesses and by governments? For a start, all can recognise that there is a distinctive third sector and that the organisations that comprise it add some vital elements to the wellbeing of our society, the long-term health of our economy and the efficacy of our political system. From this recognition should flow a determination to support the third sector, by contributing time and money, and by cooperation and encouragement. We should also understand the particular characteristics of third sector organisations. They are not simply businesses or small government agencies but have their own special operating logic. Understanding this should reduce the damaging pressure on third sector organisations to cut their management capacity to the bone in order to serve more clients or provide cheaper services to members. Such an understanding may prevent governments from needlessly damaging the sector by ill-conceived policies. For most of us, the challenge posed by the third sector is to become engaged, or more engaged, in our world; to join with others to provide a service for ourselves or others, to advance a cause or defend our interests. We should recognise that always to rely on others to bring us a service (which we buy or receive as a right), or to defend our interests, is to diminish our humanity. For business, the challenge posed by the third sector is a peculiarly complex one. On the one hand, it is to recognise that third sector organisations operate on a logic different from business and that they have different goals. It is to recognise that third sector organisations engage with the world in a different way from business and that, as a consequence, their staff have skills and knowledge that a business can benefit from if it is to be a good corporate citizen. From this perspective, businesses should support those third sector organisations that appear to their owners or boards to be addressing important issues; they should seek to work with third sector organisations to advance particular causes or projects, recognising that they can build their own staff skills by doing so. As businesses come to embrace a stakeholder or corporate citizenship model of business behaviour rather than the narrow shareholder model, such partnerships will become more popular. But at the same time, some businesses are in direct competition with third sector organisations. Usually, third sector organisations have opened up a field and business has moved in later. As the economy changes and as technological and social developments transform the economics of particular industries, it is not unreasonable for profit-seeking entrepreneurs to move into fields previously occupied by nonprofits (or governments). It is a little dishonest of businesses, in such a situation, to complain of unfair competition from nonprofits, pointing to their tax advantages and disingenuously ignoring the disadvantages that nonprofits experience in areas such as capital raising. If the market favours

224

CHALLENGES

for-profits, nonprofits will gradually withdraw, as is happening with hospital care. But there may well be good public policy reasons for keeping a significant nonprofit presence in a field, because nonprofits are better at sustaining social capital or are more trustworthy. It is to governments that the third sector presents the greatest challenge, especially governments under the influence of neo-liberal ideas. These days governments are walking away from the somewhat fractious partnership arrangements that they had with nonprofits in several fields, especially community services, in favour of competitive models for allocating government support. These new arrangements tend to favour large over small organisations and, in some cases, for-profits over nonprofits. Even if they do not, they encourage nonprofits to imitate forprofits. Increasingly, governments seek to use contracts to prevent the practice of public-serving nonprofits advocating on behalf of those groups to whom they provide services. It is important that governments take account of the social contribution that the third sector organisations can make, in addition to simply providing services. It may well be that the economic and social advantages of moving to competitive models of funding, with its consequent diminution of the role of nonprofits, outweigh the costs, but an analysis of this has never been done. Government policy changes have been made with little knowledge and less concern about their effects on the third sector. This practice should change. The ignorance of the third sector within government is nowhere more striking than in the variety of arrangements available for creating a legal identity for a third sector organisation. At present, excepting cooperatives, large third sector organisations and small organisations that operate across state borders must incorporate (now merely ‘register’) with the Australian Securities and Investment Commission. This body has no concern with the special character of third sector organisations and seeks as far as possible to treat them in the same way as public companies. The information that third sector organisations incorporated in this way are required to report and the form in which it is presented may be helpful to investors in for-profit firms but is of little use to donors or potential donors. Most nonprofits are incorporated under state legislation that does not always require them to report and when it does, such reports are not publicly available. Other state legislation seeks to control fundraising by nonprofits. This legislation and its consequent regulations fails to recognise the fundraising techniques employed by large nonprofits. In addition, regulation varies from state to state. A strong case can be made for creating a single national authority to regulate the activities of nonprofits in a coherent, consistent and appropriate way. Such an authority could ensure that nonprofits were accountable to the public, while at the same time providing a body of knowledge within government to better inform the policy process. The English Charity Commission provides an early model of such a body, though it is limited in scope by an antiquarian concept of ‘charity’.

THE CHALLENGE OF THE THIRD SECTOR

225

Finally, the third sector challenges governments to incorporate a proper recognition of its contribution and character into a review of both the incoherent and piecemeal set of taxation concessions and the impact of the tax changes implemented in 2000 on the sector. Existing tax concessions are the product of special pleadings within particular fields of activity, shaped by an undue reverence for the antiquated case-law concept of charity. Their framing embodies unfairness to which their enforcement adds inconsistency. The 2000 round of changes such as the Goods and Services Tax and the review of business taxation have embodied a limited and often hostile appreciation of the third sector. The general view from agencies at the heart of economic policy making appears to be that the third sector, nonprofits and mutuals alike, are to be tolerated while they remain small and unimportant but, once they grow into significant economic agents, they should be encouraged to turn into or at least behave like for-profits. To these policy makers, the social and political contributions of the third sector count for nothing. The challenge to policy makers is to learn to value third sector contributions. To this end, Commonwealth and state and territory governments should establish within the prime minister’s or each premier’s office an agency charged with the responsibility of maintaining a close contact with third sector organisations across the full range of government portfolios. Such an agency could be made the responsibility of a parliamentary secretary or a minister assisting the prime minister or premier. To conduct their work efficiently these agencies would need to draw on data from the Australian Bureau of Statistics, which should be assisted to increase its capacity to report on the third sector and the associated phenomena of volunteering, giving and participation. For the last mentioned, the 1997 National Survey of Giving, Volunteering and Participating conducted by Statistics Canada provides a good model.1 Such agencies could be quite small but could develop an understanding of the third sector that could then inform all aspects of government policy making. They could advise other government departments and Cabinet of the likely impact of policies on the third sector and on the social capital from which the third sector draws. The Office for the Status of Women provides one such model. In the United Kingdom, a Voluntary Services Unit has been for more than 20 years located within the Home Office. It is not sufficient for governments to rely on functional departments for an understanding of the third sector. Each of them knows of only some part of the sector, which they regulate or contract to provide services. The demands of their organising logic often leads to a distorted picture of even that part of the third sector with which they interact. Good governance requires that governments rapidly develop a clear and comprehensive appreciation of the importance of the third sector. New institutional arrangements are needed for this to happen.

25 THE

CHALLENGE TO

THIRD SECTOR ORGANISATIONS

T

HE EXTENT AND pace of changes to Australia’s organisations and institutions, changes that amount to a remaking of our world, pose huge challenges for third sector organisations and their leaders. They are challenges to which, by and large, they have failed to respond. Even those few leaders who have sought to reposition their own organisation have not recognised the need to develop the capacity, and the profile, of the sector as a whole. The impacts of these changes upon the third sector have been set out more fully in the previous discussion, particularly in Part V. In brief, people are less ready to belong to and identify with third sector organisations and to engage in voluntary activity; market conditions have changed, leading to challenges from for-profit firms; finally, there have been dramatic changes in the way governments construct their relationship with the third sector. Each of these changes generates challenges to the leadership and management of third sector organisations. There are challenges in how organisations manage the resources they have and in how they reconstruct their relationship with other parts of the third sector and with the other major sectors of society—households, business in all its forms and government. At the level of organisation leadership and management, boards and managers need to develop imagination and flair. They should review the purpose and mission of their organisation in the light of current social needs or the lifestyles and aspirations of their members. They should be prepared to let go of the past while retaining the fundamental mission and the nonprofit or mutual character of the organisation. None of this is easy. Often it is the older members who are the core of the organisation. Change risks alienating them without winning a younger group of members or supporters. Adapting to the new millennium means facing a paradox at the heart of the third sector—balancing techniques and practices borrowed from business with a commitment to democratic practices that are part of what

226

CHALLENGE TO THIRD SECTOR ORGANISATIONS

227

defines the third sector. Business organisations invest huge amounts in developing methods for organisational improvement. Though many of these are little more than passing fads, the more enduring embody a great deal of good practice and should be utilised by the third sector wherever possible: strategic planning, organisational learning, quality management, and benchmarking, to name a few. Care should be taken with all techniques developed by business to adapt them to the different operating logic of third sector organisations. Many business techniques use some variant of the ‘bottom line’ as their ultimate test of organisational performance, a totally inappropriate measure for all but a few third sector organisations. Nonetheless, in some situations it can be quite instructive to think like a business about the organisation, its practices and its environment. This should be no more than a game or exercise, but it can often free managers from taken-for-granted ideas and practices and generate new ways of doing things. It is equally helpful to use new approaches at the sector level. For example, in the United States useful new ideas have been generated by thinking about nonprofit fundraising in terms of capital market theory. Another crucial lesson to be learnt from business is the importance of organisational capacity. A third sector organisation should have sufficient management capacity at the centre of the organisation, and sufficient reserves, to enable it to respond to new needs as they emerge. It should also invest significant resources in research and development to discover if there are better ways of delivering a service, ways that are better for the client and more efficient for the organisation.1 Unfortunately, so many third sector organisations live a hand-to-mouth existence that many in the sector think that that is the natural way of things. Even more regrettable is that many government officials and members of the public also think that this incapacity is the proper condition of the third sector. The reason why a businesslike focus on the bottom line is not appropriate for the third sector is that third sector organisations were not established to make as large a profit as possible and return this profit to their owners. The relationship between owners and customers of third sector organisations is far more complex. Public-serving nonprofits have two groups of ‘customers’: those who receive its services (and who pay only part of the price of receiving the service or nothing at all) and those who finance these services. Often, some of the latter are members or, in effect, owners. In member-serving or mutual associations, members are the customers. Those who manage third sector organisations in Australia are not good at recognising the special claims of members, preferring to treat them as customers only, rather than owners with a right to democratic involvement in the key decisions of the organisation. Many public-serving organisations try to keep their membership as small as possible to remove the risk that the ruling group might be deposed or have their plans challenged. Member-serving organisations treat their members as customers, doing little to involve them in the decisions of their organisation. Yet it is this democratic ownership that distinguishes

228

CHALLENGES

(most) third sector organisations from businesses and it is through this form of ownership that they make their distinctive and valuable social contribution. However, recognising that more should be done and knowing what to do are two very different things. There is little good practice to guide third sector organisations seeking to encourage greater participation by their members, thus drawing on and building social capital. As third sector leaders look outward from their organisation the first thing that must strike them is the diversity of the population, which should in turn lead them to ask if their organisation reflects that diversity in its membership, its clients and its supporters. Many third sector organisations would fail that test, signifying that they are stuck in a past time, perhaps when the organisation was founded. A central challenge for third sector organisations is to become far more open and accountable to the wider public. It is not sufficient to imagine that because numerous reports are submitted to government that the organisation is accountable. Governments like to encourage that belief as it boosts their power over the third sector, but the third sector should not succumb. The more organisations are known to the wider public, the more they will be trusted and the greater the support for them will be. It is nonsensical for parts of the third sector to claim to be community or community-managed organisations when they seek little or no support from the community and do little or nothing to report to that community on their activities and their plans. Many third sector leaders justify their limited attempts to be publicly accountable by referring to the likelihood that they will be misunderstood or criticised by those who do not understand why the organisation operates in the way it does. It is for this reason that leaders of third sector organisations need to develop a sector-wide perspective and commit themselves collectively to greater public education as well as accountability. It is interesting that in several developing countries, such as India and the Philippines, nonprofit organisations have agreed to and enforce standards for public accountability, recognising that their continuing credibility depends on it. To assist the process of greater accountability, members of the accounting profession should work with the third sector to develop accounting standards that reflect the particular transactions that distinguish many third sector organisations from their business counterparts and shape the information that members or supporters might wish to have. Ideally, these standards will go beyond financial reporting and help clear the way for adequate reporting of social and environmental impacts. When it comes to relations with business, many third sector organisations, especially those in the human services, need to put aside their prejudice while at the same time remaining suspicious of unsolicited offers of support. They need to take the initiative in thinking of ways in which their organisation could add something to a local firm, but not overdo it. Businesses receive many unsolicited approaches, partly because

CHALLENGE TO THIRD SECTOR ORGANISATIONS

229

of their own inability to determine a coherent approach to the third sector. The best approaches are well prepared, very clear about the strengths of the third sector organisation and how the firm can benefit. Third sector leaders should make an effort to inform themselves about the ways of business and be able to glean accurate information about a firm quickly (particularly in the case of unsolicited approaches from business). It is easy for third sector organisations to damage their reputation by too hasty partnerships with unsuitable companies. Yet it would be wrong to exaggerate the problems of developing closer links with business. The third sector has much to gain from such links, as does business. It is disturbing that there are no regular fora in Australia for business and third sector leaders to get together to exchange views, insights and problems. There are in countries such as Canada, the United States and the United Kingdom. It is a sad reflection that in Australia it took a political leader (Prime Minister Howard) to bring leaders from both sectors together to explore the possibilities of partnerships. The need for the third sector to act in a concerted way is particularly pressing if governments are to be persuaded to review or modify many of the practices they have introduced, and reforms they have proposed, over the past decade or so. Each third sector organisation is affected in different ways by govenment-initiated reforms, but it is vital that, on issues such as tax and corporate law reform, the sector as a whole develops logical policies that recognise the essential role the third sector plays while acknowledging some of the important differences within the sector. If the sector does not do this, no-one else will, certainly not government. As well as developing coherent plans for reform, the sector needs to develop a capacity to argue for them. This capacity will depend on a long-term campaign to educate members of the public about the contribution and special characteristics of the third sector. These aspects of third sector capacity building will need a heavy investment by charitable trusts. Trusts in turn need to recognise the importance to their own goals of building a strong third sector. As well as the challenge to educate the public, third sector leaders should do all they can to encourage the growth of the sector. Larger organisations can give support to smaller organisations, especially those started by ‘third sector entrepreneurs’. New initiatives can be encouraged, especially by trusts and foundations, which can give more attention than hitherto to building sector capacity. A final challenge, for all parts of the third sector, is to get the right mix between local and global in ideas and action. It is vital that third sector leaders are aware of and participate in the international third sector of which they are a part. Such an awareness and participation can generate new ideas for local action and build a predisposition to work collectively in Australia. It will also strengthen the international civil society, on which so much of our world’s wellbeing depends, as we move into a new millennium.

NOTES

INTRODUCTION 1. L. M. Salamon and H. Anheier, The Emerging Nonprofit Sector, Manchester University Press, Manchester, 1996. 2. M. Lyons and S. Hocking, Dimensions of Australia’s Third Sector, Centre for Australian Community Organisations and Management, University of Technology, Sydney, 2000.

2

DIVERSITY

1. Industry Commission, Charitable Organisations in Australia, Report No. 45, Australian Government Publishing Service, Melbourne, 1995. 2. Data extracted from annual reports and other sources collected by the Australian Nonprofit Data Project. 3. Estimates for the total number of third sector organisations in Australia are from Lyons and Hocking, Dimensions of Australia’s Third Sector. 4. A fuller description of the methods of incorporation available to third sector organisations can be found in M. Lyons, ‘Australia’ in The International Guide to Nonprofit Law, ed. L. Salamon, John Wiley, New York, 1996, pp. 48–54, and M. McGregor-Lowndes, ‘Australia’ in Philanthropy and Law in Asia: a Comparative Study of the Nonprofit Legal Systems in Ten Asia Pacific Societies, ed. T. Silk, Jossey-Bass, San Fransico, 1999, pp. 47–54. 5. For treatment of tax concessions for third sector organisations preGST, see M. Lyons, ‘Australia’ and M. McGregor-Lowndes, ‘Australia’. 230

NOTES

3

DISTINCTIVE

231

CHARACTERISTICS OF THIRD SECTOR

ORGANISATIONS

1. The seven principles are: voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training and information; cooperation among cooperatives; and concern for community.

II

WHERE

IS THE THIRD SECTOR?

1. The Australian Bureau of Statistics, Australian and New Zealand Standard Industry Classification, Australian Bureau of Statistics, Canberra, 1993, catalogue no. 1292.0. 2. Lyons and Hocking, Dimensions of Australia’s Third Sector. 3. ibid.

4

COMMUNITY

SERVICES

1. Industry Commission, Charitable Organisations in Australia. 2. M. Lyons and J. Nyland, Supporting the Managers: Report prepared for the Commonwealth Department of Community Services and Health, Centre for Australian Community Organisations and Management, University of Technology, Sydney, 1995.

5

HEALTH

1. Productivity Commission, Nursing Home Subsidies, Inquiry Report, Ausinfo, Canberra, 1999, p. 12. The remaining 14 per cent of beds are in nursing homes run by state or local governments or on behalf of government by nonprofits. Such is the inadequacy of government statistics that it is not possible to identify and add these nonprofits to the other nonprofits. Employment data suggest that the total nonprofit contribution to the nursing home industry is equal in size to that of for-profits (Productivity Commission, Nursing Home Subsidies, p. 14).

6

EDUCATION

AND RELATED ACTIVITIES

1. With the exception of the Australian Catholic University and Avondale College, Australian public universities are best considered as government–third sector hybrids. In many respects they are independent of government. They receive between 40 to 70 per cent of their revenue from the Commonwealth government, but that

232

THIRD SECTOR

government has no constitutional authority to legislate for universities. It exercises a great deal of influence on universities by the conditions it attaches to funding, but it does this with a number of other third sector organisations in other fields as well. Universities are established by Acts of state parliament, but while those Acts require parliament to appoint several members of university governing bodies, the great majority of the governors are elected by different constituencies such as staff, students and graduates. However, universities are treated as government authorities within the increasingly elaborate system of administrative law established by state parliaments. In New South Wales, for example, universities are subject to the Government Audit Act, the Annual Report Act, the Equal Employment Opportunity Act and the Freedom of Information Act. They require ministerial permission to dispose of property. In the United Kingdom, all universities are considered part of the third or voluntary sector, by virtue of their status as charities. In the United States, some universities such as Harvard or Stanford are nonprofits; others, such as Pennsylvania State or the City University of New York (CUNY), are recognised as government bodies.

8

RELIGION

1. R. Ward and R. Humphreys, Religious Organisations in Australia: a Comprehnsive Guide, 3rd edn, New Melbourne Press, Melbourne, 1995. 2. Ward and Humphreys, Religious Organisations in Australia, p. 19. 3. J. MacFarlane and J. Fisher, The Clergy and the Law, Kangaroo Press, Sydney, 1998. 4. MacFarlane and Fisher, The Clergy and the Law, p. 27. 5. P. Kaldor, First Look in the Mirror: Initial findings of the 1991 Church Life Survey, Lancer Books, Sydney, 1992, pp. 53–64.

10

SPORT

AND RECREATION

1. R. Cashman, Paradise of Sport: the Rise of Organised Sport in Australia, Oxford University Press, Melbourne, 1995.

11

INTEREST

ORGANISATIONS

1. D. Peetz, Unions in a Contrary World: the Future of the Australian Trade Union Movement, Cambridge University Press, Melbourne, 1998, p. 133. 2. Peetz, Unions in a Contrary World, p. 5.

NOTES

12

ECONOMIC

233

COOPERATION

1. This section draws on D. Green and L. Cromwell, Mutual Aid or Welfare State?, Allen & Unwin, Sydney, 1986. 2. M. Lyons, ‘Ted Tytherleigh’ in Australian Financiers, eds B. Schedvin and R. Appleyard, Reserve Bank of Australia, Sydney, 1984. 3. This section draws on G. Lewis, A Middle Way: Rochdale Co-operatives in New South Wales 1859–1986, Australian Associations of Co-operatives, Sydney, 1992. 4. G. Lewis, People before profits: the Credit Union Movement in Australia, Wakefield Press, Kent Town SA, 1996. 5. Credit Unions: the Inside Story, Credit Union Services Corporation (Australia) Ltd (CUSCAL), Sydney, n.d. (1996), pp. 16–18.

III

WHY

IS THE THIRD SECTOR WHERE IT IS?

1. L. Salamon et al., Global Civil Society: Dimensions of the Nonprofit Sector, The Johns Hopkins Center for Civil Society Studies, Baltimore MD, 1999, p. 21.

14

THE

THIRD SECTOR IN

AUSTRALIAN

HISTORY

1. N. Butlin, A. Barnard and J. Pincus, Government and Capitalism, Allen & Unwin, Sydney, 1982. 2. B. Dickey, No Charity There, 2nd edn, Allen & Unwin, Sydney, 1987. 3. M. Lyons, ‘Aspects of Sectarianism: New South Wales circa 1860– 1880’, PhD Thesis, Australian National University, Canberra, 1972. 4. B. Schedvin, ‘Australian Economy on the Hinge of History’, Australian Economic Review, no. 77, 1987, pp. 20–30. 5. T. Kewley, Social Security in Australia, 2nd edn, Sydney University Press, Sydney, 1973, pp. 12–13. 6. Green and Cromwell, Mutual Aid or Welfare State? 7. B. Nairn, ‘Civilising Capital’: the Formation of the Australian Labour Party, Australian National University Press, Canberra, 1973. 8. J. Rickard, Class and Politics: New South Wales, Victoria and the Early Commonwealth, 1890–1910, Australian National Press, Canberra, 1976. 9. Cashman, Paradise of Sport. 10. V. Hughes, ‘Voluntary Associations, Civil Society and Australian Statism: Historical and Contemporary Perspectives on the Strengthening of Civil Society’, Paper presented to the Biennial Conference of Australian and New Zealand Third Sector Research, Victoria University, Wellington, 1996. 11. R. Watts, Foundations of the National Welfare State, Allen & Unwin, Sydney, 1987.

234

THIRD SECTOR

12. M. Lyons, J. Nyland and S. Saunders, ‘Moving in From the Fringe’ in Women and Social Change—Nonprofits and Social Policy, ed. F. Perlmutter, National Association of Social Workers, Washington DC, 1994, no. 23–44; D. Brennan, The Politics of Australian Childcare: from Philanthropy to Feminism, Cambridge University Press, Melbourne, 1994. 13. M. Lyons and C. Fabiansson, ‘Is Volunteering Declining in Australia?’, Australian Journal on Volunteering, vol. 3, no. 2, 1998, pp. 15–21.

15

THE

DYNAMICS OF THIRD SECTOR GROWTH AND DECLINE

1. Patrick O’Farrell, The Catholic Church and Community in Australia: a History, Nelson, Sydney, 1977. 2. J. T. Sutcliffe, A History of Trade Unionism in Australia, 2nd edn, Macmillan, Melbourne, 1967. 3. Lewis, A Middle Way. 4. Green and Cromwell, Mutual Aid or Welfare State? 5. R. Rathbone, A Very Present Help: Caring For Australians Since 1813. The History of the Benevolent Society of New South Wales, State Library of New South Wales Press, Sydney, 1994. 6. Lyons, ‘Aspects of Sectarianism’. 7. Cashman, Paradise of Sport. 8. Lyons, ‘Ted Tytherleigh’.

16

GOVERNING

AND MANAGING THIRD SECTOR ORGANISATIONS

1. Lyons and Nyland, Supporting the Managers. 2. M. Lyons, Managing Large Community Organisations: the Approach of 16 Chief Executive Offices, CACOM Working Paper no. 11, Centre for Australian Community Organisation Management, University of Technology, Sydney, 1992. 3. J. Carver, Boards That Make a Difference: a New Design for Leadership in Nonprofit Public Organisations, Jossey-Bass, San Francisco, 1990. 4. A good deal of this research-based literature has been contributed by Bob Herman and his colleagues at the University of Missouri, Kansas City. R. Herman and R. Heimovics, ‘An Investigation of Leadership Skill Differences in Chief Executives of Nonprofit Organisations’, American Review of Public Administration, vol. 20, pp. 197–204; R. Herman and R. Heimovics, Executive Leadership in Nonprofit Organisations: New Strategies for Managing Executive Board Dynamics, Jossey-Bass, San Francisco, 1990; R. Herman and D. Renz, ‘Theses on Nonprofit Organisational Effectiveness’, Nonprofit and Voluntary Sector Quarterly, vol. 28, no. 2, 1999, 107–26. 5. M. Lyons and N. Buckmaster, Large Private Nonprofit Organisations in NSW: a Financial Portrait, CACOM Working Paper no. 23, Centre

NOTES

235

for Australian and Community Organisations in Management, University of Technology, Sydney, 1994. 6. Lyons and Nyland, Supporting the Managers. 7. C. Letts, W. Ryan and A. Grossman, High Performance Nonprofit Organizations: Managing Upstream for Greater Impact, John Wylie, New York, 1999. Over the past 50 years or more, most management innovations have come from the for-profit sector and have later been adopted and adapted by government and third sector organisations. 8. Lyons and Nyland, Supporting the Managers.

17

FINANCING

THIRD SECTOR ORGANISATIONS

1. Reark Research, Giving Australia: a Quantitative Exploration of the Philanthropic Sector of the Australian Economy for the 1988/89 Financial Year, vol. 1, Australian Association of Philanthropy, Melbourne, 1991, p. 38. 2. M. Lyons, Fundraising In Australia: a Survey of Current Effort, Centre for Australian Community Organisation and Management/Fundraising Institute—Australia, University of Technology, Sydney, 1995, p. 28. 3. Lyons and Buckmaster, Large Private Nonprofit Organisations in NSW. 4. H. Tuckman and C. Chang, ‘A Methodology for Measuring Charitable Nonprofit Organisations’ Financial Vulnerability’, Nonprofit and Voluntary Sector Quarterly, vol. 20, no. 4, pp. 445–60.

18

STAFFING

THIRD SECTOR ORGANISATIONS

1. Australian Bureau of Statistics, Voluntary Work Australia, June 1995, Australia Bureau of Statistics, Canberra, 1996, cat no. 4441.0. 2. J. Onyx, ‘Career Motivation: a Cross Sector Analysis’, Third Sector Review, vol. 4, no. 1, 1998, pp. 43–54. 3. Lyons, Managing Large Organisations, p. 12. 4. Onyx, ‘Career Motivation’.

19 1. 2. 3. 4.

DRAWING

SUPPORT FROM HOUSEHOLDS

Lyons and Hocking, Dimensions of Australia’s Third Sector. ibid. ibid. For an extensive discussion of recent work on altruism from a range of perspectives, see J. A. Piliavin and H-W. Charng, ‘Altruism: A Review of Recent Theory and Research’, Annual Review of Sociology, vol. 16, 1990, p. 27–65 and the special issue on altruism of Social Service Review, vol. 67, no. 3, 1993.

236

THIRD SECTOR

5. Data in this section is derived from Australian Bureau of Statistics, Voluntary Work. Australia and from unpublished data from this survey. 6. P. Lynn, ‘Measuring Voluntary Activity’, Non-profit Studies, vol. 1, no. 2, 1997, pp. 1–11. 7. R. Cnaan, F. Handy and M. Wadsworth, ‘Defining Who Is a Volunteer: Conceptual and Empirical Considerations’, Nonprofit and Voluntary Sector Quarterly, vol. 25, no. 3, 1996, pp. 364–83.

20

RELATIONS

WITH BUSINESS

1. M. Lyons, ‘What Do We Know of Corporate Support for Australian Nonprofits? A Research Note’, Third Sector Review, vol. 5, no. 2, 1999, pp. 71–80. 2. Jarden, Morgan and Archon, Financial Analysis of Australia’s Private Hospital Industry, Australian Health Minister’s Advisory Council, Canberra, 1990. 3. Industry Commission, Charitable Organisations in Australia.

21

RELATIONS

WITH GOVERNMENT

1. M. Lyons, Tax Deductibility of Donations to Community Welfare Organisations: a Report of a Survey, CACOM Working Paper no. 17, Centre for Australian Community Organisations and Management, University of Technology, Sydney, 1993. 2. Industry Commission, Charitable Organisations in Australia. 3. Estimated from surveys of nonprofit organisations (Lyons and Hocking, Dimensions of Australia’s Third Sector). This compares with $8.5 billion estimated by the ABS from government sources (Australian Bureau of Statistics, Government Finance Statistics Australia, 1995–96, Australian Bureau of Statistics, Canberra, 1997, cat. no. 5512.0.). The former figure is more reliable as the ABS government finance statistics rely on data inputed by state and Commonwealth treasury officials who do not always distinguish if grants are to nonprofit or to for-profit organisations and sometimes inadvertently include income support payments made to individuals.

22

MAKING

AN ECONOMIC CONTRIBUTION

1. T. Lundstrom and F. Wijkstrom, The Nonprofit Sector in Sweden, Manchester University Press, Manchester, 1997, appendix A. 2. L. M. Salamon, H. K. Anheier et al., The Emerging Sector Revisited: a Summary, Institute for Policy Studies, The Johns Hopkins University, Baltimore MD, 1999, appendix table 1. Note that the figures also exclude religious employment.

NOTES

237

3. B. Weisbrod, ‘Towards a Theory of the Voluntary Nonprofit Sector in a Three-Sector Economy’ in The Economics of Nonprofit Institutions: Studies in Structure and Policy, ed. S. Rose-Ackerman, Oxford University Press, New York, 1986. 4. L. M. Salamon, ‘Partners in Public Service: the Scope and Theory of Government–Nonprofit Relations’, in The Nonprofit Sector: a Research Handbook, ed. W. Powell, Yale University Press, New Haven CT, 1987. 5. H. Hansmann, ‘The Role of Nonprofit Enterprise’ in The Economics of Nonprofit Institutions, pp. 57–84; ‘Economic Theories of Nonprofit Organisations’ in The Nonprofit Sector: a Research Handbook. 6. B. Weisbrod, The Nonprofit Economy, Harvard University Press, Cambridge MA, 1988. 7. H. Hansmann, The Organisation of Enterprise, Harvard University Press, Cambridge MA, 1996. 8. E. James, ‘The Nonprofit Sector in Comparative Perspective’, in The Nonprofit Sector: a Research Handbook. 9. D. Young, If Not For-Profit for What?, D. C. Heath, Lexington, MA, 1983. 10. E. James, ‘How Nonprofits Grow: a Model’ in The Economics of Nonprofit Institutions, pp. 185–204. 11. K. Gronbjerg, ‘Patterns of Capital Institutional Relations in the Welfare State: Public Mandates and the Nonprofit Sector’, Journal of Voluntary Action Research, vol. 16, nos 1 and 2, 1987, pp. 64–80. 12. R. Steinberg, ‘Taxes and Giving: New Findings’, Voluntas, vol. 1, no. 2, 1990, pp. 61–79. 13. R. Steinberg, ‘Does Government Spending Crowd out Donations? Interpreting the Evidence’, Annals of Public and Cooperative Economics, vol. 64, no. 4, 1991, pp. 591–617. 14. A. Abrahamson and L. Salamon, The Nonprofit Sector and the Federal Budget, Urban Institute Press, Washington DC, 1986.

23

MAKING

A SOCIAL AND POLITICAL CONTRIBUTION

1. G. Almond and S. Verba, Civic Culture: Political Attitudes and Democracy in Five Nations, Princeton University Press, Princeton NJ, 1963. 2. S. Verba and R. Nie, Participation in America: Political Democracy and Social Equality, Harper & Row, New York, 1972. 3. S. Verba, K. Schlozman and H. Brady, Voice and Equality: Civic Voluntarism in American Politics, Harvard University Press, Cambridge MA, 1995. 4. K. Hancock, Australia, Ernest Ben, London, 1945 [1930, 1st edn]. 5. M. Considine, ‘Governance at Ground Level: Third Sector Interests and the Problem of ‘‘Voice’’ and ‘‘Valence’’’, Paper presented to the

238

6.

7. 8.

9. 10.

11. 12. 13.

14.

24

THIRD SECTOR

Australian and New Zealand Third Sector Research Conference, Deakin University, Melbourne, 1998. For a summary of the more important of these Australian and overseas studies see R. Wild, Australian Community Studies and Beyond, Allen & Unwin, Sydney, 1981. P. Berger and R. Neuhouse, To Empower People, American Enterprise Institute, Washington DC, 1977. J. S. Coleman, ‘Social Capital in the Creation of Human Capital’, American Journal of Sociology, vol. 94, 1998, Supplement Issue, S95–S120. R. Putnam, Making Democracy Work: Civic Tradition in Modern Italy Princeton University Press, Princeton NJ, 1993. R. Putnam, ‘Bowling Alone: America’s declining social capital’, Journal of Democracy, vol. 6, no. 1, 1995, pp. 65–78; R. Putnam, ‘Tuning In, Tuning Out: The Strange Disappearance of Social Capital in America’, P.S: Political Science and Politics, vol. 28, no. 4, 1995, pp. 664–83. J. Cohen and A. Arato, Civil Society and Political Theory, MIT Press, Cambridge MA, 1994. M. de Olivera and R. Tandon (eds), Citizens: Strengthening Global Civil Society, CIVICUS, Washington DC, 1994. A. Gramsci, Selections from the Prison Notebooks of Antonio Gramsci, Q. Hoare and G. Newell Smith, eds, International Publishers, New York, 1971. M. Walzer, ‘The Concept of Civil Society’ in Toward a Global Civil Society, ed. M. Walzer, Berghan Books, Providence RI, 1995.

THE

CHALLENGE OF THE THIRD SECTOR

1. M. Hall et al., Caring Canadians, Involved Canadians: Highlights from the 1997 National Survey of Giving Volunteering and Participating, Statistics Canada, Ottawa, 1998, cat. no. 71542 xte.

25

THE

CHALLENGE TO THIRD SECTOR ORGANISATIONS

1. This point is well argued in Letts, Ryan and Grossman, High Performance Nonprofit Organizations.

INDEX

Aboriginal Councils and Associations Act 19 Aboriginal cultural and social service organisations 103 Aboriginal legal service 52, 103 Aboriginal people, arts and crafts of 60 Aboriginal and Torres Strait Islander groups, housing for 50 accommodation industry 48, see also housing accountability 24–6, 228 ACTIV Foundation 36 activist theory/tradition 208, 209, 211 advocacy organisations 75–6, 163, 222 aged care/disability services 35–6, 42, 84, 116–17, 177, 186, 188 altruism 165, 166, see also donations; giving amateur sports movement/amateurism 65–7, 99, 112–13, 114 ambulance services 42–3, 45 Amnesty International 76 Anglican church (Church of England) 15, 54, 110–11, see also Churches animal welfare groups, 163, 180–1 ANZ Trustees 93 Apex clubs 68, 174–5 arts and culture Chapter 9 arts and culture nonprofit organisations 59, 60, 61, 62; donations to 163; funding/

fundraising 62; governance of 62; government support for 60, 61, 62, 103, 178; staff/employees 62 association, the term 14 associations see voluntary associations Australia Club 67 Australia Council 60, 61 Australian Ballet 61 Australian Broadcasting Corporation (ABC) 61, 177 Australian Bureau of Statistics 29; Population Survey Monitor 162 Australian Catholic University 10, 231n Australian College of Education 73 Australian Confederation of Commerce and Industry 75 Australian Conservation Foundation 76 Australian Consumers Association 76 Australian Council of Social Service (ACOSS) 71, 76, 222 Australian Democrats 77 Australian Hotels Association 68 Australian Institute of Management 76 Australian Institute for Political Science 76 Australian Jockey Club 15 Australian Labor Party 71–2, 77, 78, 97, 101; and the Catholic Church 57; and trade unions 73, 74

239

240

THIRD SECTOR

Australian Medical Association 72 Australian and New Zealand Standard Industry Classification (ANZSIC) 29, 30 Australian Nonprofit Data Project (ANDP) xii, 30, 162 Australian Opera 61 Australian Quadriplegic Association 76 Australian Quality Council 71, 76 Australian Red Cross 15–16, 34, 114; Blood Service 43 Australian Rules Football 65 Australian Securities and Investment Commission 26, 180, 224 Australian Society of Certified Practising Accountants 73 Australian Taxation Office 20, 26, 142, 179 Avondale College 48, 231n Benevolent Society 15, 110, 115 Birthright 133 bodies corporate 89–90 ‘body hire’ cooperatives 51 Bond University 48 boxing 65 Brotherhood of St Laurence 34, 36, 51 Buddhism 53, 58, 218 building societies 84–6, 100, 102; change of status 104; demutualisation of 117, 132; permanent 84, 85–6; terminating (later cooperative housing) 85, 116 business: competition with third sector 175–9, 221–2; and social responsibility 220; and stereotyping 173–4; support/ sponsorship of third sector organisations 103–4, 170–5, 220; motives for support 171–2; and taxation 172, 174; and challenge of the third sector 219–20, 223 Business Council of Australia 75 Business Enterprise Centres 39 Cancer Council 44

Care Australia 34 Carver, John 126 case management 51 Cashman, Richard 65 Catholic church/religious orders 15, 18, 41, 42, 46, 57, 97, 111–12, 153, 154; and sectarianism 56–7, 100, 112; and tensions/conflict 153–4 Catholic Education Offices 46 Catholic schools 46–7, 100, 111–12, 153; funding 46 Catholic universities 48 Caves Rescue Group 45 Centre for Australian Community Organisations and Management (CACOM), University of Technology, Sydney xii Centre for Independent Studies 76 challenges of the third sector Chapter 24; and business expansion/ competition 219–20; and changing lifestyles 220–1; and government 221–2, 224–5; responses to 223–5 challenges to third sector organisations 22, Chapter 25; accountability 24–6, 228; and business 227, 228–9; and globilisation 229; and government reforms 229; and growth 229; and population diversity 228 charitable trusts 13, 92–3, 144–5, 174 charities 13, 163, see also by name Charities Aid Foundation 92 child care 176, 186, 187 children’s homes 116 Churches/church organisations 12–13, 15, 17–18, 20, Chapter 8, 104; donations to 163; and education 111–12, see also schools; growth of 110–12; membership 162, 218; revenue sources 139, 143; and sectarianism see sectarianism; tensions in 55–6, 100, 153–4. See also Catholic; Protestant; religious organisations civil society organisations 9, 135–7

INDEX

civil society theory 208–11; intellectual traditions 209–11; Marxism in 210 classification of organisations by industry Part II clubs 12 see community service clubs, recreation clubs, social clubs, sports clubs Coleman, James S. 207 College of Nursing 73 College of Surgeons 72 Commonwealth Aboriginal Councils and Associations Act 19 Commonwealth Employment Service (CES) 51 Commonwealth State Housing Agreement 85 communitarianism 208, 211 community, the term 10, 14 Community Aid Abroad 34, 39 Community and Cultural Development Fund, Australia Council 60 community development movement 38–9, 103 community organisations, third sector 7, 9, 12, 14, 33–40; donations to 163; aged care/disability services 35–6, 42; church-sponsored 35; development 38–9; expenditure 40; and government policy 37, 38, 177; income/funding 36–7, 40; local/state focus 34–5; management model 37–8; and overseas aid and development 34, 39–40; staff/employees 38, 40, 151 community radio and television 60 community service clubs 68–9, 114, see also by name; membership 69, 218 community services defined 33 community studies 206 community transport 52 Community Youth Support Schemes (CYSS) 50–1 competition policy 187–90, 221 conflict see tensions/conflict

241

Considine, Mark 205 Coombs, H.C. 61 cooperative housing societies 85 cooperatives 11, 13, 86–7, 106; housing 87; legislation for 106; producer 86–7, 100–1; and seven principles of cooperation 22, 231n Cooperatives Act (1923) 106 Council of Civil Liberties 76 Council for the Economic Development of Australia (CEDA) 76 Counry Women’s Association 76 credit unions 87–8, 102, 154 cricket, test 101 cricket, World Series 117 Dairy Farmers Cooperative 16 de Tocqueville, Alexis 205 decline of the third sector 115–18, 217–18; and declining membership/volunteers 118, 168, 169, 217–18; and government actions 115–16, 221–2 democracy and voluntary associations 205 depression, economic 102, 117–18 dimensions of Australia’s Third Sector 30, 31 disability services 35–6, 177, 178, 186, 187 diversity: ethnic/population 103, 109, 228; of third sector organisations Chapter 2 donations 91–3, 142–3, 202, 203, 221; by business 142–3; by men and women compared 163–4; statistics 163–4, 218; tax-deductible 20, 142, 164–5 Earthshare 92 economic contribution of third sector Chapter 22; compared with other countries 198; and economic theory 198–203; and GDP 197–8, 204 economic cooperation, organisations

242

THIRD SECTOR

for Chapter 12; bodies corporate 89–90; building societies 84–6; cooperatives 86–7; credit unions 87–8; friendly societies 82–4; funding/fundraising 90; income and expenditure 90; mutual insurance companies 88–9; staff/ employees 90 economic dimensions, basic 31 economic theory: nonprofit organisations in 198–203; of contract failure 200–1; of the median voter 201; of volunteer sector failure 200 education Chapter 6; adult/community 48; and churches/church organisations 111, see also schools; and employees/staff 49, 151; funding/fundraising 49; government policy 46, 47; growth of 111; income and expenditure 49; Irish National System 111 Elizabethan Theatre Trust 61, 132 employee/volunteer mix 17 employees/staff Chapter 18, see also by name of industry; numbers 31, 38, 40, 48, 49, 52, 58, 70, 81, 90, 94, 151, 197; pay and working conditions 151–2; and values education 154; and values/ commitment 152–4 employer schemes, group 51 Employment National 51 employment and training services 50–2; income and expenditure 51, 52 Endeavour Foundation 34, 36 entrepreneurs of nonprofit organisations 65, 66, 67, 201–2 environment movement/groups 71, 76, 113, 163, 206–7 fees, membership 139, 140, 162 Felton Bequest 92 feminist movement 37, 103, 206–7 Ferguson, Adam 210

financial services, transformation of 103–4 financial statement 25 financing the third sector Chapter 17, see by name of industry. See also fundraising; government financial support fire brigades, volunteer 44–5 foster care 116 fourth (household/family) sector, the 10, 159, Chapter 19 Fraser Liberal Government 89 Freemasons’ Homes 36 friendly societies 43, 82–4, 100, 114; decline of 83–4; and health insurance 84, 89, 102–3; membership 83; opposed by the medical profession 83; problems 83; structure 83 funding, government see government financial support Fundraising Institute Australia (FIA) 143 fundraising/revenue generation 16, 23, 31, 91–3, 138; by business ventures 145–6; by donations 139, 142–3; by fees 139, 140; by forprofit firms 181; by government grants 139, 140, 141, see also government financial support; by investments 146–7; costs of 144; endowment funds 147; methods 141–5; government regulation of 181; and management of revenue flow 148–9; tensions/conflict in 149. See also by name of industry Geelong Grammar 57 Genesian Theatre 60 giving: donations to nonprofit organisations see donations; motives for 165–6 global economy, changes in 103–4 goods and services tax (GST) 19–20, 182, 225 governing and managing nonprofit organisations 17–18, Part IV;

INDEX

board–CEO tensions 130–1; board/management committee 124, 125, 127, 130; and chief executive officer (CEO) 124–5, 126; evaluation of 131–5; failures 131–3; models for see management models; survey of 125, 134; techniques for 134, 203; definition of 123–6 government: in economic theory 199–203; and privatisation/ competition policy 187–90, 221; third sector challenge to 221–2, 224–5 government financial support 10, 25, 31, 36–7, 40, 45, 46–7, 49, 52, 61, 62, 64, 103, 115–16, 139, 140, 141, 177, 182–3, 236n, see also by name of industry government financial support models 183–90; competitive tender 187–9, 221; philanthropic 183; planning 184–6, 190; quasi-voucher 186–7; submission 183–4 government policy 99–100, 105–6, 114, 115–16, Chapter 21, 221–2, 224–5; for financial support of third sector see government financial support; and growth/ decline of the third sector 114, 115–16, 218; and incorporation 180–2; and interest organisations 205–6; and privatisation/ competition 187–90, 221; shaped by the third sector 190–2; regulation of the third sector 180–1, 224 Gramsci, Antonio 210 Greenpeace 76 Greens party 77 Gronjberg, Kirsten 202 gross domestic product, third sector contributions to 197–8, 204 growth of the third sector xii, 104–14, see also history; and the churches 109, 110–12; factors enabling 105–9, 218; factors stimulating

243

109–14, 218; in non-Christian religions 218; and secular ideologies 112 Guides see Scouts and Guides movement Hancock, Keith 205–6 Hansmann, Henry 200, 202 health insurance: and friendly societies 84, 89, 102–3; government 84, 89, 103; and mutual insurance companies 89 health services, nonprofit Chapter 5; employees 151; emergency services 44–5; expenditure 45; and friendly societies 83; hospitals and associated services 41–4; income/ funding 45 Hegel, G.W.F. 210 helicopter emergency medical services 43 history, third sector Chapters 14 and 15; and government policy 99–100, 105–6; and the middle classes 99, 100. See also decline of the third sector; growth of the third sector Home Care Service, NSW 37, 115–16 HomeFund 85 horseracing 65–6 hospitals, government funding of 42, 115 hospitals, public 7, 10, 20, 42 hospitals, nonprofit 41–2; and competition 176; employees 151; and government intervention 42 Hospitals Contribution Fund (HCF) 89 hotels 67–8 household/family sector (fourth sector) 10, 159, Chapter 19 housing 50, 84–6; for Aboriginal and Torres Strait Islander groups 50, 103; aged 36, 50, 84, 116–17, 177; cooperatives 87; loans 116 Howard, John 220 human services Chapter 7, see also

244

THIRD SECTOR

community services; education; health services; housing Humphreys, Robert 53, 54 hybrid organisations 11, 48 immigration 103, 108 income and expenditure statistics 31, see also by name of industry income tax 115, see also tax; taxation incorporation 10, 18–19, 180–2; and accountability 26 industry, classification by Part II Industry Commission Inquiry into Charitable Organisations 179, 182 Institute of Chartered Accountants 73 Institute of Public Affairs 76 Institute of Sport 64 interest organisations Chapter 11, 191–2; funding 80, 81, 139–40; and government policy 205–6; how they work 78–81; internal conflict 79–80; membership 79; negative aspects of 78; staff and employees 81, 151 International Cooperative Alliance principles of cooperation 22, 231n Islam 53, 58 James, Estelle 201, 202 job placement services, privatisation of 51 Karmel, Peter 186 Keating Labor government 51 The Kings School, Parramatta 15 KU Children’s Services (formerly Kindergarten Union) 35 labour movement 113, 118 Legacy 16, 34, 127, 132–3, 144, 162 legal form of third sector organisations 18–19 legal rights advocacy 75–6 legal services 52 Liberal Party 71–2, 78 Lifeline 34 lifestyle changes 220–1

Lions clubs 68, 174–5 literacy 106–7 Local Employment Initiatives Scheme 39 Loyal Orange Institution 112 management see governing and managing management models 126–31; advisory board 129; collective 128; community 128–9; constituency 129, 130; corporate 126–7; of religious organisations 129–30; voluntary association 127, 128; volunteer control 127 Marx, Karl 210 Marxism and civil society 210 Masters and Servants Act 105–6 media, the 103, see also television Medibank 89, 103 Medibank Private 89 Medical Benefits Fund (MBF) 89 medical condition-specific organisations 43–4 medical research 49, 163 Medicare 89 Melbourne Club 67 Melbourne Cup 97, 101 member-serving/benefit organisations 7, 8, 54, 69, 107–8; and accountability 24–5; funding 21; in the health industry 43–4. See also interest organisations membership of third sector organisations 5, 6, 161–2; and accountability 24–6; commitment of 22; decline in 168–9; fees 139, 140, 162 middle classes in early Australian history 99, 100 Michels, Robert 25 Mission Australia 35, 51 Moses, Charles 61 Museum of Contemporary Art, Sydney 60 mutual insurance companies 88–9; demutualisation of 117; and health

INDEX

insurance 89; superannuation funds 88–9 mutual organisations 7, see also member-serving/benefit organisations National Farmers’ Federation 75 National Health Act (1950) 36, 83 National Party 72 National Safety Council of Australia 45, 132 National Trust 76 New Lanark experiments 86 New South Wales Society for Crippled Children (later Northcott Society) 69 New Theatre, Sydney 60 Nie, Richard 205 non-government organisations (NGO) defined 9 nonprofit defined 8–9 nonprofit organisations see third sector organisations Northcott Society (formerly NSW Society for Crippled Children) 69 Notre Dame Australia 48 NRMA 16, 80 nursing homes 42, 176, 231n nursing homes, government policy for 186, 187 Office for the Status of Women 225 One Nation party 78 Onyx, Jenny 153 Opera Australia 61 Opera House, Sydney 61 orchestras, symphony 60–1 overseas aid and development organisations 9, 34, 39–40, 163 Overseas Service Bureau 39–40 Owen, Robert 86 Ozgive 92 Panther’s Rugby League Club, Penrith 16 Parents and Citizens Act 19

245

pay and working conditions see employees/staff performance of organisations, judging 24, 134–5 Perpetual Trustees 93 Pharmacy Guild 72 philanthropic organisations Chapter 13; and donations/giving 91–3, 102; employees 94; income and expenditure 94; United Way 91–2, 143; volunteers 91 Philanthropy Australia (formerly Australian Association of Philanthropy) 92, 142 planning, government financial see government financial support models policy advocacy groups 71 political participation of voluntary associations 205–6, 208 political parties 57, 71–2, 77–8, 218; and the churches 57, 191. See also by name of party Pratt Foundation 92 Pringle, J.C. 61 privatisation xii; competition policy 187–90, 221; of job placement services 51 producer cooperatives 8 profession, definition of 72–3 professional associations 72–3, 218 profit, the third sector and 6, 7–8 Protestant churches/organisations 112; political affiliation of 57, 191; and sectarianism 56–7, 100, 112. See also churches; religious organisations Protestant Defence Association 112 Protestant schools 15, 47, 111 public, definition of 9–10 public choice theory 190 public companies defined 10 public-serving/benefit organisations 7, 8, 76; and accountability 25–6; funding 21; in the health industry 41–2 Putnam, Robert 168, 169, 207–8

246

THIRD SECTOR

Q Theatre 60 radio and television, community 60 recreation clubs/organisations 69–70, see also social clubs; sports clubs/ organisations Regional Tourist Organisations 39 religions in Australia 53–4 religious organisations Chapter 8; donations to 163–4; funding/ fundraising 58; governance of 54–5; government 55–6; income and expenditure 58; membership 54, 57–8; political alignment 57, 191; sectarianism 56–7, 100, 110, 112; staff and employees 58, 151; tensions/disputes in 55–6, 153–4; and third sector growth 109, 110–12. See also churches/church organisations reporting, annual 25, 26 research organisations 49, 163 Returned Services League 68, 76, 97, 192 revenue generation see fundraising rights movements 75–6, 103 role of third-sector organisations 14–15, 20–1 Rotary 68, 69, 102, 174–5 Royal Agricultural Society 15 Royal Flying Doctor Service 43 Royal Society for the Prevention of Cruelty to Animals (RSPCA) 76 Rugby League 65, 66 St John Ambulance Association 42–3 St Vincent de Paul Society 34, 57, 127, 162 St Vincent’s Hospital, Sydney 10, 15–16, 57 Salamon, Lester xii, 200 Salvation Army, the 15, 34, 51, 97 Sanitarium Foods 179 Santamaria, Bob 88 school building funds 20 schools: Catholic see Catholic schools; government 47; Protestant 47, 111

schools, private/non-government 13, 25, 46–7; donations to 163, 164, 165; state aid to 46, 47, 186; support groups 47. See also education Schools Commission report (1973) 186 Scientology, Church of 54, 56 Scouts and Guides movement 15, 34, 104, 114, 133, 218 sectarianism, religious 56–7, 100, 110, 112 Seventh Day Adventist church 179 Sheldon, Alf 85 sheltered workshops 178 Silver Chain 34 Skillshare 51 Smith, Adam 210 Smith Family, 16, 35, 36, 145 social capital 135–6, 207–8 social clubs 67, 68–9, see also recreation clubs; competition from business 177; employees 151; licensed/registered 67; membership 162, 218; revenue sources 139 social economy 8, 9, 82 social movement organisations 71, 113, 191 social and political contribution of nonprofit organisations Chapter 23, see voluntary associations social service, councils of (COSS) 76 sponsorship see business sponsorship sport and recreation Chapter 10; employees 70; funding/fundraising 70; income and expenditure 70. See also recreation clubs; social clubs; sports clubs/organisations sports clubs/organisations 12, 14–15, 20, 63, 64, 101, 221; and amateur ideology 65–7, 99, 112–13, 114; donations to 163; and entrepreneurs 65, 66, 67; and gambling 65–6; and professional sportsmen/management 65, 66;

INDEX

relations with the business sector 64–5; relations with governments 64; sponsorship 103–4; and television 66, 103, 117 Sports Foundation 64 staffing see employees/staff Standard Industry Classification (SIC) 29 Standards Australia 71, 76 statistics, third sector 21, 31, see also by name of industry Super League 66 superannuation 88–9 surf lifesaving clubs 45, 97, 101 Sydney Chamber of Commerce 15, 75 Sydney City Mission (Mission Australia) 35, 51 Sydney Dance Company 61 Sydney Swans 66–7 Tasman Institute 71 tax treatment of organisations 19–20, 56, 84, 142, 164–5, 176, 178–9, 181–2 tax-deductible donations 20, 142, 164–5 taxation, business and 172, 174 taxation system 115, 222, 225, see also goods and services tax television and sports 66, 103, 117 television, community 60 temperance movement 113 tensions/conflict: between the board and CEO/staff 23, 26, 130–1; in church/religious organisations 55–6, 100, 153–4, see also sectarianism; in fundraising/ revenue generation 149; in interest organisations 79–80; between values and the profession 153–4 theatre 60, 61, 103 third sector organisations: age and size of 15–16, 35; history of Chapters 14 and 15, see also decline of the third sector, growth of the third sector; and business

247

support/competition Chapter 20, see also business; business ventures of 36, 145–6, 178–9; challenges of and to Chapters 24 and 25, see challenges; characteristics 3, 5–7, Chapter 3; and civil society 135–7, see also civil society; classified by industry Part II, see by name of industry/organisation; defined xi, xii, 3, Chapter 1; diversity of Chapter 2; economic contribution Chapter 22, see economic contribution of third sector; employee/volunteer mix 17; financing Chapter 17, see also fundraising, government financial support, by name of industry; and the fourth sector 10, 159, Chapter 19; governance and management 17–18, Part IV, see governing and managing; and government see government; growth and decline see decline of third sector, growth of third sector; legal form 18–19; location 16; the role of 14–15, 20–1; shaping government policy 190–2; social and political contribution Chapter 23; staffing Chapter 18, see also employees, volunteers; structure and spread 16–17; and support/giving Chapter 19, see giving, government financial support; statistics 21, 31. See also voluntary associations Toastmasters 68, 69 trade and business organisations 75 trade unions 73–5, 97, 101; numbers and membership 74–5, 104, 162 Trades and Labor Council 101 training for employment 51 trustee companies 93 trusts, charitable 92–3 unemployed, services for the 50–2 union, the term 12, 14 United States of America and

248

THIRD SECTOR

sociological research 207–8, 211 United States of America and economic research 202–3; and giving 203 United Way organisations 91–2, 143 universities 10, 11, 47–9; ‘hybrid’ 48, 231–2n; colleges/accommodation 48 universities, nonprofit 47, 48, see also education values/commitment 6, 22–3, 152–4, 173; and tension/conflict 153–4 Verba, Sidney 205 Victorian Community Foundation 93 Viertel Foundation 93 voluntary associations 127; and civil society theory 208–11; and democracy 205; management model 127, 128; political participation of 205–6, 208; and social capital 207–8; and sociological research 206–8 voluntary work, compulsory 221 volunteer centres 91 Volunteer Coastal Patrol 45 Volunteer Rescue Association 45 volunteer–employee mix 17 volunteers/volunteering 6, 17, 44, 45, 150–1, 154–5, 162, 218; defined 168; informal 168; decline in

numbers 104, 218; men/women 166–7; in philanthropic organisations 91; reliance on 24; statistics 166–7; surveys of 167–8 Walter and Eliza Hall Institute/Trust 49, 92 Walzer, Michael 210 Ward, Rowland 53, 54 Weisbrod, Burton 199–200, 201 Wesley Mission 34, 36 Whitlam Labor government 61, 89, 186 Wilderness Society 76 Wildlife Information and Rescue Service (WIRES) 76 women’s movement 113, see also feminist movement work experience 51 working conditions see employees/staff pay and working conditions World Vision 34, 39 YMCA 34 Yooralla, Melbourne 36 Young, Dennis 201–2 Youth Hostels Association (YHA) 178 YWCA 34, 178 Zonta 68