Abstract
In this submission it is argued that there is much confusion amongst academic and policy analysts, the policy makers of government and other institutions and the general lay public over what is meant by the various institutions that make up the private social welfare sector. Essentially this confusion arises from a reluctance to acknowledge the profit orientation of the activity carried out within that sector. The paper argues that this stance is needlessly confusing and that a more robust and socially acceptable set of definitional criteria can be built on the basis of a distinction over the nature of the property rights framework that underlies activity in the various sectors of the economy. In particular, it is argued that the distinguishing feature of so called “non-profit” organisations is the communal nature of ownership rights pertaining to them. The paper concludes with a taxonomy of terminology reflecting this distinction.
In the analysis of non-government organisations whose work is devoted to the enhancement of welfare amongst the socially disadvantaged, there exists in the literature a vagueness concerning the precise nature of the institutional forms determining those organisations suitable for inclusion in the data base for formal research. The terminology employed by scholars and researchers reflects this with terms such as third sector, non-government organisation (NGO), voluntary association, non-profit organization, not-for-profit organisation and others being variously employed. This vagueness not only potentially affects the contribution that such research might make to outcomes in the public arena, but, with the imprecise use of similar language in non-academic discussion of social sector activity and policy, it also bears implications for social policy outcomes that are perhaps not desireable. This can occur in a number of ways.
· For research and policy analysis to be conducted across a broad range of academic and professional disciplines employing “fuzzy” terminology to refer to the most basic of institutions being studied leads to imprecise specification of research outcomes. As a consequence, that research will be constrained to some extent from exerting an effective impact on social policy outcomes. Further, the formation of priority hierarchies in the framing of budget allocations and other relevant determinations for both government and other providers will take on a bias to the extent that such imprecise research outcomes are stymied in their influence.
· At another level, the confusion leads to vagueness in the literature when consideration is given to the operation of social development organisations within the commercial or market sector of the economy. In particular, there is a reluctance to attribute market oriented activities as profit oriented, with concepts such as self-sustainability, informal sector, cash surplus and cost-coverage commonly used. This bears quite serious implications when government addresses the administrative position of organisations of this ilk. An instance is shown with the difficulties experienced by the Australian government in considering the application of the General Sales Tax to the “commercial” operations of “charities” in the interests of fair competition.
· In the rationalist environment of minimal government budget provision for social asset acquisition and social fabric maintenance, the need for community organisations to initiate a self-sustaining presence in the open economy has become all the more pressing. The role of precise terminology is now far more critical.
The attempt to tie down precise terminological meaning refocuses perceptions of both the extent and nature of what identifies institutionally the exact meaning of these organisations as social entities. This is tied to the systemic elements of the economy as a whole and has some crucial implications for what is needed in the policy agenda for all governments.
The argument in this paper rests on four basic distinctions.
1. In the light of the newly emerged pressure for social organisations to become more resource independent, a definition of resource building techniques is called for. In this we will find the foundations of a classification system. Self resourcing activity requires some mix of the following options:
a) Endowment resourcing: the securing of a stream of endowment resources for use in community welfare oriented activities, these to be obtained from government where still available, and from a much broader provider base in commerce and the general community and/or
b) Operations (market) resourcing: the generation of an operating surplus from an organisation’s activities to be set aside for the extension of the community welfare oriented activities of that organisation.
As there exists, at any one time, a profusion of community oriented functions requiring resourcing, the nature of the resourcing process under endowment resourcing for any one organisation is, by nature, a competitive one. Similarly, the generation of a surplus from community oriented activities under operations (market) resourcing implies a process of production of goods and/or services for sale in the open market on a competitive basis. Under either resourcing option, the organisation must compete with other organisations.
What is essentially different between the two resourcing options is the participation of the organisation under operations (market) resourcing in open market or commercial activities. The option involves the acquisition of labour, raw materials and assets and their combination in order to produce goods and/or services for sale in the open market. This is the equivalent of profit generation activities in the normal commercial sense*.
The difference between the community oriented organisation and the commercial business is that, for the former, the stream of profits is to be employed in the delivery of community oriented activities. The commercial business generates profits in order to enhance the income/wealth of the owner(s) of the business, hence it is termed a for-profit organisation. But the community oriented organisation also generates profits (or a surplus) (even if in order to enhance the wellbeing of needy target groups within the community), but is strangely referred to as a not-for-profit organisation. With both activities essentially profit oriented in nature, this terminology is needlessly confusing. There is something more fundamental distinguishing the nature of the different institutions. The question is not one dependent on the use of the term “profit”. Clearly community oriented organizations can and do generate profits and use them in pursuing their goals.
2. If the terminology is to employ the concept of “profit”, a clarification of the status of profit is required to allow precise specification of the institutional significance of various organization forms.
a) Legal entitlement to the profit stream generated from commercial activity attaches to the ownership of the business in which it arises. For non-incorporated businesses, ownership is secured through legal registration of the business name under which the business operates. For incorporated businesses, ownership is secured through legal registration of ownership over some portion of the shares issued by the business. For such a business in its purest form, these rights are fully tradeable on the open market. In less pure form, certain circumstances may require that the legal basis of the business contain provisions setting various degrees of limitation on the tradeability of ownership rights.
b) Legal entitlement to the profit (or surplus) generated by a non-incorporated operations resourced community oriented organisation is secured by the minutes of the meeting of the organisation that established its original charter. For an incorporated operations resourced community oriented organisation, legal entitlement to the profit stream is secured in the legally registered articles of incorporation of the organisation. In practical terms, the essence of the distinction to be made between an operations resourced community oriented organisation and a commercial business is that ownership rights in the former cannot be sold on the open market as there is no provision for this under law. The rights to the profit stream of the operations resourced organisation are not tradeable*.
It should be noted that, with tradeability of ownership rights variable for commercial business organizations, the distinction is spectral in nature.
3. This precise specification of the essential difference in the nature of commercial and non-commercial organisations can be augmented by a conceptual distinction between non-commercial organisations according to the goals that inherently drive the activities of the individuals involved in each organisation. The organisation exists to benefit the wellbeing of some defined group within the community. In the extreme cases, these groups may involve:
a) the actual “working” membership of the organisation, in which case the organisation can be construed as purely (100%) self-devoted.; or
b) a target group in the external community, in which case the organisation can be construed as purely (100%) community devoted.
The organisation may have some mix of these group-types comprising its total target group. Hence, again, the distinction is spectral in nature.
4. A further distinction can be drawn according to the social status of the individuals comprising the target group:
a) those in the target group possess characteristics that are addressed by the organisation in its activities where such characteristics are considered to reflect a state of social deprivation, either in monetary/material terms or in terms of some form of social discrimination; or
b) those in the target group do not possess characteristics that are considered to reflect such social deprivation.
Again, the distinction is spectral in nature.
These fundamental characteristics of the community based organisations targeted in social development research and welfare policy can be summarised in terms of the conceptual map presented in Figure 1. The distinctions to be drawn between various types of organisation are spectral in nature with continuous differentiation possible amongst all four basic characteristics.
FIGURE 1 DEFINING INSTITUTIONAL STRUCTURE
A Taxonomy of Institutional
Structure
In all cases within this taxonomy, there will exist hybrid or spectral variations in the defining characteristics of an organization. At the most fundamental level, distinction can be made between three types of institutions:
Level 1
a)
Community Equity Organisations
This term refers to any non-government organization with a legal basis that does not allow open market trading in the ownership rights (equity) to the operating surplus (profit) that the organization generates in it activities.
b)
Profit Equity Organisation
This term refers to any
non-government organization with a legal basis that does allow
open market trading in the ownership rights (equity) to the operating surplus
(profit) that the organization generates in it activities
c)
This term refers to any government organization. By definition, the term “government” would
preclude open market trading in the ownership rights (equity) to any operating
surplus (profit) that the organization generates in its activities. From another perspective, though, government
organizations could be seen as an ultimate form of community equity
organization, perhaps termed a social equity organization.
Level 2
Within the category of community equity organizations, a range* of sub-groups can be distinguished
a) Community Equity Trust Organisations
c) Community Equity Cultural Organisations
d) Community Equity Religious/Spiritual Organisations
e) Community Equity Political Organisations
f) Community Equity Recreational Organisations
g) Community Equity Special Interest Organisations
a) CETO External Focus
This group might also be termed pure charity organizations.
b) CETO Internal Member Focus
c) CETO Hybrid Focus