Date created:23 November 2001
Last modified: 23 November 2001
Maintained by: John Quiggin
John Quiggin

Using charity to cut costs

Australian Financial Review

6 September 2001

Patriotism, said Samuel Johnson, is the last refuge of a scoundrel. He was actually referring to radical populism, rather than to the aggressive nationalism adopted by so many modern political scoundrels, but his remark was nonetheless prescient.

For free-market reformers who have failed to deliver the goods, the last refuge is commonly an appeal to philanthropy and the volunteer spirit.

This kind of talk is, of course, inconsistent with the tough-minded appeals to self-interest that dominate free-market rhetoric when things are going well, but few political philosophies are entirely consistent.

That said, the inconsistencies have rarely been more glaring than in the appeal for a revival of volunteerism presented by Peter Costello in his recent Sir Henry Bolte lecture for the Victorian Liberal Party. Few if any governments in Australian history have done more to undermine the cause of voluntary community work than the Commonwealth government of which Costello is a member and the Victorian Liberal government which lost office in 1999.

Before the era of microeconomic reform, there was an implicit social compact between the government and those members of the community willing to make contributions of money and effort to causes beneficial to the community. Monetary contributions attracted tax deductions, while volunteer labour was supported by governments through grants and other forms of assistance.

The core of the social contract was that those willing to make contributions of time and money were able, to some extent, to influence the aims and outcomes of public policy, and the way in which public services were delivered. Broadly speaking, government took responsibility for the delivery of basic services, and the efforts of the voluntary sector played a major role in determining what additional services were provided.

As far as monetary contributions to charitable causes are concerned, this is still the case. Although there are plenty of issues regarding the specific design of tax expenditures to promote charitable contributions (why, for example, a deduction rather than a rebate), the basic point that such expenditures are desirable has been accepted even by the dry economists of the Productivity Commission. Moreover it is clear enough that, if governments seek excessively tight control over the direction of subsidies for charitable contributions, the result will be to reduce the amount people are willing to give.

Unfortunately, the same logic has not been applied to voluntary contributions of time and effort. Governments have withdrawn from their role as a provider of core services and have cut back the provision of grants to voluntary groups and non-government organisations. Instead, they have instituted a regime of competitive tendering. In this system, voluntary groups are invited to bid to provide core public services at a lower cost than competitors which may be either for-profit private businesses or commercialised government businesses.

In this competitive environment, the main advantage possessed by non-profit organisation is the availability of volunteers willing to work unpaid, and of idealistic employees willing to accept less-than-market wages. By harnessing this source of unpaid or underpaid labour, governments can reduce the cost of service delivery.

In the long run, however, this is killing the goose that lays the golden egg. As competitive pressures are tightened, the original goals of voluntary organisations are subordinated to the need to meet tender specifications at the lowest possible cost. In the end, it does not really matter whether the tender is won by a voluntary organisation or a profit-oriented firm - the services delivered are those specified in the contract.

All of this is fine from the viewpoint of governments reaping cost savings, but what about the volunteers? Their unpaid labour is being used, not to provide additional services to the community, but to enable the government to provide existing (or, more often, reduced) services more cheaply. The ultimate outcome is to finance tax cuts for those who have chosen, in line with the government's real beliefs, to maximise their own market incomes.

From the viewpoint of volunteers, this makes no sense. Even supposing they felt impelled to improve the government's bottom line, they would be better off working overtime in regular jobs and sending the extra pay straight to the Treasury.

In practice, people are not so rational, and the tradition of voluntary effort will be eroded only gradually, but the growth of self-seeking over the past decade or so is plain for all to see. Governments of both political persuasions have promoted self-interest as the engine of progress, and leading political figures on both sides have embodied it in their personal behavior. At this point, calling for volunteers is the last refuge of a scoundrel.

Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the Australian National University and Queensland University of Technology.

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