KBE and the Third Sector

1
KBE and the Third Sector

• By
• Thomas J. Courchene
• Jarislowsky-Deutsch Professor of Economic and
  Financial Policy, Queens University
• and
• Senior Scholar, Institute for Research on Public
  Policy, Montreal

• Notes for Panel Presentation To the Conference
• The New Financial Environment Of Nonprofit and
  Voluntary Organizations
• School of Policy Studies, Queens University -
  Oct. 24-25, 2003

2
Outline

• The Knowledge/Information Era and NGOs
• The Internet and the Explosion in NGOs
• Internationalization and INGOs
• Rights and NGOs
• Policy Formation and NGS
• NGOs and Citizen Engagement
• Accountability
• Conclusion

• Definitions
• The Competitive Governments Model (Albert Breton)
• Implications of the Competitive Governments Model
• History,
• political philosophy,
• values transformation,
• market/govt failure
• ideology

3
Definition of NGOs and NPOs

• Accept Salamon and Anheier (1992)
  characterization
• Must be organized, private, non
  profit-distributing, self-governing, and
  voluntary (non-coerced membership and
  management).
• I tend to view non-profits (or NPOs) as coming
  between citizens and markets (e.g. non-profit day
  care) and NGOs sector as coming between citizens
  and governments.
• This would leave CSO (Civil Society
  Organizations) to pursue advocacy roles
  rights issues, or democracy issues (Amnesty
  International), environment issues (Greenpeace),
  or humanitarian pursuits (Oxfam).
• Goods and services (G and S) can be produced
  using a large number of alternative institutional
  arrangements governments, 3rd sector, firms,
  families, churches. Most G and S can be (and
  have been) produced by some or all of these e.g.
  welfare was role of family, then church, then
  community, then governments.
• Comparative advantage or efficiency will play a
  role in determining the organizational form that
  wins out at any point in time (which can change
  over time).
• But need to supplement this model by several
  other features.

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Competitive Governments II

• 1. History or path-dependency (e.g. VON
  continued to exist even though overall health
  system underwent major change).
• 2. Political Philosophy U.S. version of rugged
  individualism has led to a smaller role for
  government. In turn this has generated a wide
  range of societal enhancing opportunities (by
  which I mean the third-sector equivalent to the
  profit-maximizing opportunities for the private
  sector.
• This is a major reason why the US developed a
  comprehensive Third Sector well before the
  Europeans, for example. For example, US
  corporate leaders spearheaded the United Way
  appeals and became Chairs of hospitals,
  university boards, etc. well in advance of these
  developments in Canada, let alone Europe (as
  Peter Drucker has written about two decades ago,
  not to mention Alexis de Tocqueville before him).

5
Competitive Governments III

• 3. Values Transformation
• Welfare used to be about keeping body and soul
  together hence the early role for churches
  (still play a role today path dependency
  again). But welfare became more about justice
  and eventually about entitlements. Thus the
  comparative advantage of differing institutional
  forms has altered over time. We now deliver
  income support through the personal income tax
  system (CCTB) not possible until relatively
  recently.
• Examples Newfoundland recently removed the
  constitutional provision privileging
  denominational schools.
• Quebec finally got a Minister of Education in the
  1960s.
• These are inherently about the comparative
  advantages of alternative organizational/instituti
  onal forms both over time and in the present,
  i.e. the competitive governments model.

6
Competitive Governments IV

• 4. Market Failure/Government Failure
• Overarchingly, the third sector will respond to
  government failure and/or market failure. The
  most obvious such failure relates to the
  environment, a global commons where property
  rights do not exist. As a result we have the
  most high-profile advocacy NGOs (INGOs or ENGOs)
  here WWF, Greenpeace, Sierra Club, Friends of
  the Earth.
• In the presence of market failure, NPOs can keep
  the activity in the quasi-private-sector instead
  of the government sector and in the face of
  government failure, NGOs can keep the activity
  from going to the private sector.
• This is why we really need a better definition
  for voluntary sector a) NPOs/NGOs which produce
  G and S b) Human Change Organizations (Druckers
  term) for schools, hospital, churches and c)
  advocacy/rights voluntary organizations.

7
Competitive Governments V

• 5. Governance Ideology
• The Canada West Foundation sees the ideal
  non-profit as responsive to clients and
  community, non-bureaucratic, flexible,
  autonomous, etc.
• There is a quite different polar view NGOs
  should be extensions of government, embodying
  government-mandatd national standards, unionized
  workplaces, and preferably with a prohibition
  against competition from the private sector.
  These are not non-government organizations, they
  are neo-government organizations, driven by a
  desire to offset the decline in the role of
  government in recent years, i.e. to recreate
  aspects of government in the private sector.
  Since Hershell Hardins chosen instrument,
  namely the crown Corporation is going by the
  wayside (at least federally), perhaps
  neo-government organizations are becoming the new
  chosen instruments.
• Examples Debate over day care. Some provinces
  may follow the neo-government approach, others
  will follow Canada West Foundation approach. My
  preference would be to allow competition, ie, buy
  into the essence of the competitive governments
  model.

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Globalization, KBE and the Third Sector Overview

• Globalization and the KBE have provided an
  enormous boost to the Third Sector. Among the
  reasons for this
• Citizens and civil society are principal
  beneficiaries of the information revolution
• Globalization has dramatically altered the
  balance of power between private and public
  sectors, especially at international level and
  created societal-enhancing opportunities or
  countervail potential for the Third Sector
  (especially advocacy NGOs).
• Rights issues have become international, spawning
  INGOs.
• Policy formation in KBE requires sophisticated
  inputs that NGOs have become adept at providing.
• Citizens find NGOs increasingly provide rewarding
  jobs and ones that build on their human capital.
• Will deal with each in turn.

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KBE and the Third Sector Citizen Empowerment

• Among the key features of the information
  revolution has been, the democratization of
  access to knowledge and technology
• Printing made us all readers
• Xeroxing made us all publishers
• Television made us all viewers
• Digitization makes us all broadcasters
• (Lawrence Grossman, President, NBC)
• Citizens working within and across borders can
  wield heretofore unimaginable influence Maude
  Barlow and friends stopped the MAI in its tracks
  Battle in Seattle etc.
• Of the 25,000 INGOs as of January 1, 2000, fully
  20,000 did not exist a decade earlier. Hence,
  INGOs are Internet phenomena.
• Therefore, in the KBE Citizens/Civil Society are
  the source of advocacy/countervail
  entrepreneurship in search of an application
  will strive to make markets contestable socially
  just as entry makes markets contestable
  economically.

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Globalization and INGOs I

• As capital became ultra mobile and hegemonic
  (embodied in MNEs), and as governments began to
  sign FTAs etc., there was no social/political
  countervail at the international level and
  certainly no government countervail like there is
  within nations
• Amounts an open invitation for INGOs to enter in
  advocacy/countervail roles across a wide range of
  areas national sovereignty, income
  distribution, environment, etc.
• The WTO became an especially important focal
  point because
• Its dispute resolution mechanism was much more
  powerful than the GATT variant
• The issues at stake transcended border issues and
  related to domestic regulation and, therefore,
  national sovereignty
• The WTO appears willing to rule in areas other
  than trade per se if they are pertinent to a
  trade agreement.
• In combination, these concerns triggered the
  entry of INGOs and the resulting clashes in
  Seattle, Quebec, Italy, Doha, etc.
• Some of the INGOs serve as virtual secretariats
  to poorer nations who need their expertise and
  information in order to participate meaningfully
  in WTO negotiations.

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Globalization and INGOs II

• While some INGOs (e.g. the antiglobalists) want
  to stop the globalization process in its tracks,
  most do not. They recognize that stopping the
  process will only serve to put power in the hands
  of MNEs and the US. Hence, my view is that since
  they now know their power, they will begin to
  play a more constructive role.
• In Canada, we have brought NGOs on board to help
  prepare our WTO and trade stance strategies
• Internationally, the World Bank has brought INGOs
  on board
• Beyond serving as Secretariats for southern
  nations, their websites present creative
  alternatives to the status quo

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Globalization and INGOs Conclusion

• The genius underpinning the post-war compromise
  of embedded liberalism was that it allowed the
  welfare state to grow apace with the opening of
  industrial economies, because this openness was
  embedded within an activist domestic social
  democracy and an accommodating international
  governance regime. Indeed, it was the most open
  economies that had the most thoroughgoing welfare
  status (Denmark and Sweden).
• The challenge now is to embed globalization.
• One of the roles of INGOs is to do precisely
  this.
• Worth repeating, is that it is the Internet and
  the information revolution that have created the
  supply of NGOs. Their cost of entry has fallen
  dramatically, which means that international
  environments have become contestable (just as
  economic markets are contestable). Leads to
  political efficiency which is the societal
  (socio-political) equivalent to market
  efficiency.

13
The Rights Revolution and INGOs

• Rights issues human rights, labour,
  environment, democratic, safety have now become
  international. Hence, concerns that were
  expressed nationally now become transferred to
  the international arena. NGOs can become
  international or link up with other national
  NGOs.
• Moreover, the advent of democracy in many nations
  has created both advocacy and operational space
  for NGOs.
• The Internet is playing a key role in
  internationalizing rights. A single e-mail from
  relating to, say, labour rights violations can
  cause dramatic and immediate losses to
  multinationals.

14
KBE, NGOs and the Policy Process

• To be a meaningful player in the policy process
  requires a sophisticated bundle of competences
  which NGOs are only too willing to provide
  (albeit typically with an advocacy twist).
• In general, the average citizen simply cannot
  acquire these competencies.
• Therefore, citizens are increasingly
  participating in the policy process via NGOs (or
  relying on them as a virtual secretariat).
• Relatedly, educated citizens will progressively
  be attracted to NGOs since these NGOs can provide
  jobs that can be both personally rewarding and
  analytically challenging. My hunch is that
  advocacy NGOs probably have a higher-skilled
  workforce than the average private or public
  enterprise.
• House of Commons Committees, Senate Committees,
  and similar Provincial bodies will welcome NGO
  presentations. Indeed, the issue is increasingly
  that ordinary MPs do not have the resources to
  play this policy game. Another NGO role?

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KBE, NGOs and the Policy Process (Contd)

• Traditional communities and community ties in
  developed countries tend to be weakening. In
  particular, the size and complexity of government
  make direct citizen participation all but
  impossible.
• As business internationalizes, it too becomes
  removed from individual citizens and workers.
• However, the third sector is allowing citizens to
  forge new bonds of community. They can exercise
  influence, make decisions, discharge
  responsibility and in general generate a sense of
  civic participation and personal achievement
• In short, they can become active citizens in the
  full sense of the word, even as the environment
  around them is globalizing. Drucker argues that
  this is among the most important roles of the
  third sector.

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NGOs and Accountability

• NGOs are accountable to a range of agents,
  running the spectrum from public officials to
  private corporations. But frequently they are
  not directly accountable to the people that they
  serve or claim to serve.
• This differs from business which is directly
  accountable to its customers and government which
  is accountable to its electorate. (Note that
  this is not true for NPOs which tend to draw much
  of their funding from competitive sales of their
  G and S).
• This concern can be dealt with by
• Ensuring there is competition among NGOs for
  receiving funding
• Ensuring that customers/clients are on boards of
  directors
• Enhancing the degree of democracy within NGOs.
  Now that we have reworked corporate governance,
  we need to do the same for NGOs.
• Ensuring that NGO governance boards are not too
  large for effective oversight. Overly large
  boards will mean that directors will be unlikely
  to take their jobs seriously.
• Challenge may be to avoid national NGOs being
  swallowed by INGOs.

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KBE and the Third Sector Conclusions

• NGOs will grow in importance
• Policy process is becoming more knowledge/human
  capital intensive and NGOs have an advantage
  here. Already they can exert countervail to the
  trade associations (CCCE, CMA) for positioning in
  the policy process
• International organizations (especially the World
  Bank) have brought NGOs more fully and formally
  into their operations. Others will follow.
• My guess is that business will stop railing
  against NGOs and learn to harness them
  selectively for their own ends
• As NGOs grow in importance, we may have to assess
  their role in the policy process does
  Parliamentary government make Canada more
  vulnerable to NGO influence?

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KBE and the Third Sector Conclusions (Contd)

• More importantly, my guess is that the delivery
  of public services will progressively incorporate
  NGOs. They have much more flexibility than do
  government departments. (This is quite similar
  to the rationale for moving from Revenue Canada
  to the CCRA).
• Must ensure that NGOs themselves are both
  democratic and accountable.
• Competitive governments approach suggests that
  NGOs should not be sheltered from competition.
  Canada should not prohibit for-profit day-care or
  elder care. In other words, there ought to be a
  preference for non-government organizations over
  neo-government organizations.
• We will know that the NGOs will come of age when
  other NGOs are created to monitor them across a
  broad range of indicators (e.g. like bond-rate
  agencies, or Amnesty International ratings for
  governments).