Demos Daily: The other invisible hand

Yesterday the Government announced a £750m package to support charities stay afloat during the coronavirus crisis – a move which has been welcomed as a positive step by many in the third sector. But there is a wider question around charity sustainability and survival in times like these: what role should the government play when contributing to the charitable sector, when so many rely on their work? Back in 1995, we called for a new settlement between government and charities in our pamphlet, The other invisible hand.

Read ‘The other invisible hand’ here, and the introduction below.

The need for a new settlement: summary and introduction

Britain is not a nation at ease with itself. In almost every field policymakers are struggling with intractable problems that are not responding to orthodox solutions. The problems of drugs, housing, ill health, unemployment, pollution, racial tension and urban decay are only the most visible.

For much of this century, government might have been expected to offer solutions to these problems. But today, it often has neither the will nor the means. In the 19th century traditional charities, too, might have been expected to fill the gap. But their capacities are too limited, and their structures too antiquated to be effective or legitimate.

In this report we argue that the priority now is to find new ways of mobilising and channelling voluntary energies – the energy to give, to help, to create and to change – in ways that fit with the culture and norms of today. The approach is strikingly different to that of the government, whose main initiative of recent years has been the National Lottery, generating large sums of money under central control, and probably leading to a net decline in money available for charitable organisations. And it represents a strikingly different approach to those who focus solely on tax and redistribution as the way to solve social problems.

At the core of the analysis is the belief that all modern societies depend on two invisible hands. One is the invisible hand of self-interest that works through the market to promote economic prosperity. The other is the invisible hand of generosity, help and moral commitment that sustains a sense of community and mutual responsibility. In recent years this second invisible hand has been relatively ignored. Britain and other western societies have proven much better at managing material advancement and outlets for self-interest, and at organising professional service delivery, than they have been at providing outlets and encouragements for moral impulses. Yet experience has shown that without the effective organisation of helping behaviour societies become diminished. The quality of life, the delivery of services, the sense of community: all suffer.

But it is neither possible nor desirable to return to older models. The heritage of charity, one of the main vehicles by which the other invisible hand is organised, is increasingly out of step with modern society. The main laws and concepts are centuries old and are now too paternalistic, inflexible, too inappropriate to economic activity and at odds with a democratic culture.

Yet despite the anachronism of much charity, and despite the relative myopia of politics, we argue that there are good reasons for believing that the next century could bring a renaissance of the civic – of people’s ethical connections to each other and to larger purposes. This may seem a surprising claim. In most western societies people’s sense of civic attachment seems to have grown weak. There is a widespread sense of loss of community in much of the Western world, and a loss of faith in institutions. The conditions for traditional communities-deference, social homogeneity, immobility – have disappeared.

Today every place is connected to many others by media, telecommunications and travel; by people’s many attachments; by the wider spread of interdependence which means that few depend any more on their close family or neighbours. Only 11.2% of city dwellers feel there is a sense of community where they live, and barely a quarter know their neighbours well. Moreover in other respects society has become disconnected and dislocated with the decline of great political blocs and churches. Many of the old attachments have gone: between 1971 and 1992, for example, membership of the St Johns Ambulance brigade fell 45%, the Women’s Institute 33.3%, the Girl Guides 29% and the Boy Scouts 11.2%. Church going has declined by 1.5 million in the last 15 years.

Yet it is hard not to be struck by the strength of the countervailing forces: the urge to belong, to participate and to achieve change; the burgeoning non-profit sectors and associations across the world; the fact that relative prosperity releases people to cultivate their values and enthusiasms. Over the last decade, for example, the memberships of Friends of the Earth and Greenpeace have grown from 50,000 to over 550,000. Income for organizations such as Save the Children, Oxfam or the RSPCA has roughly tripled over the same period. Innovative forms of fundraising like Live Aid or Comic Relief have both tapped people’s emotions and shown that sympathy and a willingness to help is present when approached in the right way. The charitable impulse remains, but its forms have changed.

This, we argue, is the foundation on which we need to build. While the report concentrates on the formally defined charitable and voluntary sector, its scope is broader. It looks at the deeper motivations that encourage voluntary and charitable action in the first place. It deliberately directs attention away from the roles of service delivery and the contract culture which have dominated debate in the voluntary sector in recent years, important though they are, and looks instead at the means to realise a more connected society.

The starting point for policy, we argue, is the recognition that ethical impulses are part of human nature. If markets depend on material self-interests, governments on coercion, the base of the non-profit sector is moral commitment. These commitments will not always be consistent. Indeed it is the nature of ethics that they often clash. But a more ethically engaged and literate society will tend to make for a better quality of life, in its widest sense, and for both givers and receivers.

From 1601 to 2001

The space for voluntary action has been repeatedly redefined since 1601 when the basic legal concepts of charity came into being. In this century the major new settlements took place after 1945, when charity was pushed to the margins as the state rolled forward, and after 1979 as the voluntary sector was brought in as a contractor for services.

Why is there a need for a new settlement, perhaps one timed to coincide with the 400th anniversary of 1601? The first reason is that the sector has become differentiated. Dozens of large service providing organisations have grown up, primarily dependent on government contracts (and not that dissimilar from for-profit organisations either in terms of staff motivation or the responsiveness of management). New generations of campaigning organisations have come into being, as well as thousands of self-help organisations. The result, as we shall see, is that almost all of the old definitions are straining at the limits: there are charities that are really service providers, campaigns dressed up as educational bodies, mutual aid organisations having to pretend that they are not in order to qualify for charitable status. As a consequence almost all of the dominant policy moves of the last couple of decades have proved at best problematic (the rise of contracting), at worst futile (tax reliefs). But there are also other factors demanding a fresh perspective. One is the marked internationalisation of the sector. The overseas aid charities have been amongst the most successful in recent years. Across the world, non-government organisations have steadily grown in stature, with a leading role around development agencies, in the Rio conference and in initiatives like Local Agenda 21. Within Europe, housing associations are beginning to operate across borders, while community bodies are learning to collaborate to qualify for the European Union funds. Umbrella bodies are thinking internationally – with the Charity Knowhow Fund, the international telethon, the Charity Aid Foundation’s work in the USA and Russia, and the work of the Charity Commission in Eastern Europe. More than ever ideas are spreading globally – ideas like the contracting models that rapidly spread from American states like Massachussetts into the UK public sector, or the Foyer concept that has been imported from France. And perhaps of most significance for the long-term, an embryonic global civil society is taking form around issues like the environment, human, or women’s rights, just as it has long existed around the major religions.

Another driver of change is belief and motivation. Public values are changing profoundly and moving further away from the old Christian religious roots of charity and their ideas of sacrifice and duty. Instead the dominant values increasingly stress self-responsibility, commitment, integrity as well as the pleasure to be had from engaging in voluntary action. They are evolving around a new everyday language of commitment that is far more alive than the atrophied language of the public, social, and civic. All of these changes are taking place at an extraordinary pace. They have fuelled a lively debate that has been helped by reports such as the Centris study for the Home Office, the University of Kent Study and the current NCVO Commission on the future of the voluntary sector. These are confirming that the sector, if it can justifiably be called one, remains defined legally by a ragbag of outdated rules and definitions, by tax privileges that are often inappropriate, and by rules of governance that are at best ill-defined and at worst paternalistic.

Achieving a new fiscal and legal framework for voluntary action will not be easy. There are innumerable details and complexities involved. But any government which achieves it will be chiming in with a powerful popular mood for new means of belonging and new ways to reconnect people to their society and communities. It will also be in tune with a global shift towards new forms of association and self-reliance in place of the bureaucratic state and big business.

Amongst dozens of recommendations, this report sets out some of the elements. It argues for:

  • A simplified set of core legal principles from which organisations should be able to choose – balancing incentives for participants, liability and risk-taking, and accountability. These should be developed to replace the cumbersome and anachronistic legal forms, with often unlimited liability, through which most voluntary activity now has to operate.
  • 􏰀The development of new models of public funding, involving a partnership between government and charities, linked to more sophisticated measures of success, including subjective and qualitative indicators that involve the public in their definition.
  • Tax benefits to be given to activities commonly defined as public goods rather than specific organizational forms such as charities.
  • New financial mechanisms to direct money to social goals: in particular a system of voluntary taxation using the Inland Revenue for taxpayers to earmark money to charitable activity.
  • New support for charitable investments, loans, bonds and guarantees; and a new set of institutions including a Charity Bank, all to provide new outlets for individual generosity.
  • Removing the remaining restrictions on free speech for charities, to enable them to play a full part in political life.
  • An ‘Investors in the Community’ kitemark for companies involved in community activities, so as to promote responsible business involvement in community activities.
  • A new CONNECT scheme for community service, for the unemployed and others, whereby volunteer time is exchanged for public funding in order to create useful work and participation in society.
  • A shift in public funding to deliberately encourage innovation and experiment, with a fixed percentage of non-profit organisation funding (initially 0.5%) for overt ‘risk’ funding.

These steps we argue would be useful starting points. They would significantly change the operating environment for voluntary action. But what we are driving at is also something less easily defined: a change in culture towards a more engaged and committed society.