Contribution of the Not-for-Profit Sector: Productivity Commission - Term Paper Example

CRITICAL REVIEW Contribution of the Not for Profit Sector Productivity Commission Research Report 1. Overview The 2010 report of the Productivity Commission on the contribution of the Not for Profit sector suggest that NFP organisations are largely contributing to the financial and labour market requirements of the country. The estimated contribution of NFPs to country’s GDP since 1999 is around $43 billion while wages from voluntary works exceeds $14 billion in 2007. However, these figures are mere estimates and do not reflect the full contribution of the sector such as their actual contribution to the well being of volunteers and effectiveness in delivering services. Some the issues raised by the report include accountability, transparency, and the need for regulating NFPs. These include reforms in measuring and evaluating the performance of NFPs and creation of a new office for NFP sector engagement that would ensure the efficiency and accountability of the sector. 2. Introduction Not for Profit organisations in Australia play a very important role in moderating social problems and improving the well being of society1. However, although estimates of the NFPs contribution to the country’s economy and labour market is significant, its exact contribution to the well being of its members and community is not clear. The Australian government through the Productivity Commission is seeking the best solution to social exclusion by determining the effectiveness of the NFPs and creating programs and policies based on evidence. Moreover, the government wants to explore the NFPs impact on well-being of society and optimise the relationship between these organisations and other institutions2 (Productivity Commission 2010, p.4, Background). The following sections critically review the report of the Productivity Commission on the contribution of NFPs. These include discussion on the impact of NFPs in the Australian economy and labour market, issues concerning NFPs such accountability, and the recommendations presented by the commission. 3. The Impact of NFPs in the Economy and Labour Market In general, the Productivity Commission’s task is to study and measure the efficiency and contribution of the Not for Profit sector in Australia and their report suggest that NFPs has a significant impact on the country’s economy3. Between 2006 and 2007, the sector contributed about 43 billion Australian dollars to the country’s GDP while wages earned from volunteering of around 4.6 million Australians reached 14.6 billion in 2007. Aside from the huge benefits being received by people requiring their services, NFPs undoubtedly is contributing to the financial and labour market requirements of the country. In fact, a study conducted on the accounts of not for profit organisations in several countries revealed that these organisations to at least 5% of each country’s GDP. In Australia, as reported by the same study, the NFPs even exceeded the economic contribution of the mining sector4. However, these figures according to the Productivity Commission report do not represent the full contribution of the sector as a number of factors were not taken into account. For instance, although a significant number of volunteers are undoubtedly earning from the NFPs, it is not clear how the sector is contributing to their well-being. According to Haider & Scheneider5, wage formation and structure in NFPs is unclear as there are differences in the way each organisation disperse wages. For instance, the more volunteers the organisation has, the lower the dispersion of paid employees. Moreover, the estimated economic contribution does not reflect the wider community benefits6. Consequently, the government find it difficult to make decisions regarding NFPs activities such resource allocation, services improvement, and policy creation. Moreover, since NFPs is one sector that has a considerably diverse range of objectives, motivations, operates in different locations, and operates in a number of market sectors, monitoring their activities is fairly demanding. For these reasons, the Not for Profit sector all over the country must face a number of issues including accountability and demand for proof of effectiveness7. 4. Issues Facing the NFPs Although NFPs are generally working for community welfare, the significant amount of support their getting from government, businesses, and donors deserve some form of accountability. According to Brandsen & Pertsoff8, there is a growing interest in NFPs particularly on its activities while delivering public services and the real benefits from the sector. However, since Not for Profit organisations by nature are “unowned”9 it may be difficult to determine its level of performance and who are accountable. For instance, patrons of one NFP have no control over the organisation’s spending and unaware if the donations are being spent on the beneficiaries or for official’s personal needs. Moreover, donors have no way of telling how effective are the services being delivered as there is no reporting requirement being imposed on NFPs10. The surge of interest in NFPs is not only evident in Australia as European countries are also concern about the increasing diversity and “isolationism”11 of the sector which make them more difficult to understand. For instance, cross-sector partnership between not for profit and for profit organisations is increasing and blurring sector boundaries12. Moreover, aside from the fact that pro-social and philanthropic motivations is difficult to measure and increasing becoming a subject of suspicion13, scandals such as the Red Cross donations in 9/11 and the conviction of the United Way’s president in the mid 1990s for fraud contributed to the increasing interest in the sector14. This is the probably the reason why the report of the Productivity Commission recommended a consolidated regulatory framework that would provide clearer governance and accountability among NFPs15. Since the nature of NFPs activities generally needs the trust of donors and the public to progress, transparency and accountability among NFPs is definitely required16. As reported, the communities understanding of the sectors role and contribution to public welfare is generally poor and requires significant consideration from the government17. Measuring and evaluating the performance of NFPs through a nationally accepted framework can help particularly in funding, transparency, and accountability. 5. A Move for Better NFPs In view of the issues surrounding the activities and contributions of NFPs, reform in the way Not for Profit organisations allocate their resources is required. This is to ensure NFPs effectiveness and attainment of goals. For this reason, the commission proposes a number of elements that must be incorporated in the integrated approach to reform that include an effective knowledge system that can provide a better understanding of the sector and evidence of performance. The system according to the commission can build confidence in the sector and can provide decision-makers with guidance. However, knowledge management in Not for Profit must be carefully tailored to create internal efficiencies as the nature of the organisation itself may prevent it from adopting the strategy that is commonly intended and progressing in the For Profit sector. According to Renshaw & Krishnaswamy18, compared to For Profit organisations, knowledge management is still new in the NFPs sector and may require considerable modifications. For instance, commercial For Profit organisations’ knowledge management strategies are commonly built and focused on ICT may not be compatible to organisations with strong external community focus such as the NFPs. The commission also proposes several other elements such as clearer governance and accountability among NFPs and better arrangements to allow more efficient sector development. Another is providing incentives to encourage social innovations and strengthening collaboration and engagement by building better relationship between all sectors particularly the government. In general, the commission is recommending a sector reform that will be facilitated primarily by the Australian government through development of central policies and implementation unit such as the creation of the Office for NFP Sector Engagement linking the NFPs to other sectors19. 6. Conclusion Not for Profit organisations in Australia undoubtedly contributes significantly to the financial and labour market requirements of the country. However, there is no existing framework to measure and evaluate the full contribution of the NFPs thus government cannot create programs and policies that could improve their effectiveness and ensure delivery of services. The report emphasises the need for measuring the full contribution of the sector as the well-being of its members and the community receiving its services is not clear. Accountability and transparency are the main issues facing the NFPs as there is increasing interest in their activities particularly in the allocating resources and effective delivery of services. The Productivity Commission recommended reforms to enhance understanding of the sector through performance measurement and evaluation. These include knowledge management, clearer governance and accountability, social innovations, and strengthening collaboration between NFPs and other institutions. Through creation of central policies and an office that would link NFPs with government and other institutions, the commission is very optimistic that the contribution of the Not for Profit organisations can be measured and evaluated effectively. 7. References Brandsen T. & Pestoff V., (2007), Co-Production, the Third Sector and the Delivery of Public Services: An Introduction, Tilburg School of Politics, Netherlands, p.1-8 Haider A. & Schneider U., (2009), Wage Dispersion in NonProfit Organizations: Do Volunteers, Donations and Public Subsidies Have an Impact?, Center for NonProfit Strategy and Management, Vienna University of Economics and Business Administration, April 2009, pp.1-24 McKnight L., (2010), The Future of Doing Good, Leader Lab, Vol. 1, (2), pp.1-6 Productivity Commission, (2010), Contribution of the Not-for-Profit Sector, Research Report, Canberra Renshaw S. & Khrishnaswamy G., (2009), Critiquing the Knowledge Management Strategies of Non-Profit Organisations in Australia, World Academy of Science, Engineering and Technology 49 2009, pp.456 – 464 Serra D., Serneels P., & Barr A., (2010), Intrinsic Motivations and the Non-Profit Health Sector: Evidence from Ethiopia, IZA DP No. 4746, pp. 1-21 Sisco H., (2010), Crisis Definition and Response: Understanding non-profit practitioner perspectives, Quinnipiac University, Prism 7 (2), pp. 1-11 Tamburrini G., (2009), Non-Profit Organizations and Parton’s Protection: A Comparative Legal and Economic Analysis of Civil Law and Common Law Systems, Electronic Journal of Comparative Law, Vol. 13.3. 2009, pp. 1-11 Read More