Charities and nonprofits in Canada are facing tough times. With increased demand for services and decreasing financial support from government and donors, organizations are seeking new funding sources. Additionally, as businesses increasingly receive funding for work traditionally done by charities, organizations face more competition from outside the sector. In response, charities and nonprofits have adopted market methods and values to help survive this resource squeeze. This “marketization” of the sector is central to the survival of charities and nonprofits, but are there unintended consequences?
Over the past several years, external conditions have drastically affected how the charitable and nonprofit sector operates. Public policy has played a large role in the shift towards marketization. The government has moved from core funding to project-specific grants and decreased overall funding to the sector, leading organizations to engage in earned income activities to support their work. Governments have also increased competition between for-profit and nonprofit sector organizations by giving funding and contracts for charitable work to for-profit organizations.
In an increasingly resource-scarce and competitive environment, nonprofits are adopting market methods and values in their operations. This “marketization” can be seen in a few different ways. Nonprofits and charities now operate more professionally; employing business people, setting performance targets, and running sophisticated marketing and fundraising campaigns.
Organizations are also turning to social enterprise, conducting earned income activities to obtain resources to support their mission. Earned income activities have increased as a percentage of total charitable revenue over the past several years. Without these activities, many organizations would face budget shortfalls and struggle to fulfill their missions.
What’s the problem?
Marketization has helped nonprofits and charities stay alive in resource-scarce conditions, but some argue it compromises the intrinsic character of the sector and erodes its value proposition.
The marketization of the sector can lead to mission creep when organizations take actions under market influence that they otherwise would not. In a study of 25 social ventures, close to 90% describe significant conflicts between their missions and the demands of corporate stakeholders. The two most financially successful social ventures reported deviating significantly from their social mission by reducing time devoted to advocacy, avoiding providing services to the most needy (and costly) clients, and focusing on activities with the greatest revenue-generating potential. Other research shows nonprofits will “shed their altruistic cover and assume the values and behavior of for-profits” when faced with promising opportunities for commercialism.
Shifts in revenue sources, types of funding, and changing donor demands can impact nonprofit behaviour. Project-based funding can mean a quick turnaround for showing impact, and less of a focus on complex, long-term solutions. It can also limit investments in interventions that are harder to measure, like advocacy or community building.
According to one author (Jeavons, 1992), charities and nonprofits make their claim to government and public resources based on their embodiment of moral commitments, and “the quality of these organizations’ values-expressive character and behavior is crucial, for it is the demonstration of these moral commitments that then legitimates and strengthens their claims.” Adopting commercial methods opens the door to the influence of incentives and distractions that can draw charities and nonprofits away from their missions. By adopting market values and methods, charities and nonprofits may jeopardize their value proposition as embodying strong moral commitments, and compromise public opinion and support of the sector.
What can be done?
Charities and nonprofits are caught in a feedback loop. Their claim to resources is based on their moral commitments, but as they incorporate market methods and values into their operations and ethos, their claims to resources may weaken in the eyes of the public. This can in turn lead to fewer donations and grants from the public and the institutions that represent them, further increasing their reliance on marketization.
Breaking this feedback loop is important to preserving the public’s trust. If charities become accustomed to articulating their value through a market lens, they may lose the battle of public opinion. Organizations must continue to emphasize their moral commitments and the intangible contributions they make to the fabric of society.
Charities need to keep mission front of mind when making decisions, and ensure market activities do not erode their social good activities. Consciously or not, marketization can change the way charities operate. If organizations deprioritize the neediest, and limit investments in advocacy work or community building, they abdicate a significant part of their duty to society. Leaders must do gut checks when making strategic decisions – scaling back on intangibles may be good for the bottom line, but bad for the organization’s mission.
If organizations want to maintain the sector’s distinct and uniquely valuable role in society, the status quo cannot hold. Organizations should sustain and enhance their commitment to their missions and their belief in the importance of their intangible contributions to society. Marketization is here to stay, but charities and nonprofits need to protect their unique contributions to society from the influences of the market, lest we lose them entirely.
About the Author
Emily Rea was the Marketing & Communications Assistant at Imagine Canada in summer 2017, and is a current economics student at McGill University. She has previously worked in global health for a charity and a social enterprise. Emily is interested in the changing role of nonprofits in society and how different types of organizations participate in social change.
Guest contributions represent the personal opinions and insights of the authors and may not reflect the views or opinions of Imagine Canada.