The not-for-profit sector has been under increasing pressure to adopt market-based approaches in the development and delivery of human services. This perspective has been reiterated consistently through various reviews and re-commissioning processes, placing the sector in the precarious position of choosing to provide services or advocacy. It has also seen an encouragement of for-profit providers in the sector, the subject of last weeks’ Power to Persuade Symposium.
This blog, from David Tennant, Chief Executive Officer, Goulburn Valley Family Care Inc., is part one of a two part blog on what this means for the sector. This blog will discuss the development of the marketization of community services, recent cuts and focus on productivity, and whether market-based mechanisms really can address the needs of vulnerable communities. This next part of the blog will discuss how the sector is faring in this context, and what this means for regional not-for-profit services providers.
In March 2009, the Productivity Commission received Terms of Reference to conduct a review into the Contribution of the Not-for-Profit sector in Australia. The Commission was charged to “undertake a research study on the contributions of the not-for-profit sector with a focus on improving the measurement of its contributions and on removing obstacles to maximising its contributions to society.”
In announcing the review, the Assistant Treasurer, Chris Bowen was keen to point out that the value of the not-for-profit sector was not being questioned and that “any policy reform in this area will be aimed at strengthening the community sector’s capacity to deliver services in response to community needs.”
The resultant report was released on 11 February 2010 and in many ways it confirmed what was already known. The work being undertaken by not-for-profits in this country is incredibly diverse and represents a significant and increasing proportion of national economic activity.
The Commission found that Australia had around 600,000 not-for-profit organisations. Drawing on ABS data, it concluded that 59,000 of these organisations were economically significant, contributing approximately $43 billion to Australia’s GDP and in the order of 8 per cent of the nation’s workforce in 2006/07. The sector had shown consistent and significant growth at an average of 7.7 per cent annually between 1999 and 2007. As well as people in paid employment, the sector attracted 4.6 million volunteers representing a wage equivalent value of $15 billion.
The Commission’s extensive set of recommendations covered five domains:
- Building a better understanding of the value of the community sector and tracking and reporting on its impacts;
- Improvements to regulation, in particular the development of a central national regulator and register of not-for-profits;
- Encouraging individual and collective philanthropy and harmonising fundraising legislation nationally;
- Facilitating sector development and innovation; and
- Reforming government purchasing and contracting arrangements.
Like many Productivity Commission reviews, the findings generated considerable public discussion, not the least amongst not-for-profit organisations. Most commentators, including those within the not-for-profit sector welcomed the report and noted how important and useful the process had been. There were however some sensible words of caution.
The briefing ACOSS prepared for its membership recognised important limitations, including the fact that the primary reason for the Productivity Commission’s existence is to encourage a more productive economy. It is not always possible to ascribe market ‘value’ or to quantify economic activity in not-for-profits that operate in non-market areas or entirely outside of the market.
While such activities might exclude these organisations from most measures of economic activity, they are also definitive elements of the not-for-profit sector, for instance when the mission of a not-for-profit is to support their local community. The fact that such a contribution may be hard to calculate within a market-based framework of economic activity does not make it any less valuable, least of all to the not-for-profit sector.
In the years since the release of this report, almost every state and territory government and in particular the Commonwealth has conducted some sort of review of what is spent on not-for-profit activities and the commissioning, contracting and performance monitoring associated with that expenditure.
However, strengthening the capacity of the sector to deliver services in response to community needs has not necessarily been either the focus or outcome of review work since the Productivity Commission completed its study. Some of the subsequent reform has been extremely positive with the potential to deliver genuine benefit in the years ahead; however the new challenges for the sector do appear to outweigh the recent improvements. It is worth exploring one of the key challenges in greater detail – a fresh wave of market-based competition reform directly impacting the not-for-profit sector.
Marketising Community service
There are many ways in which the pressures facing community service providers have been felt in recent years. For example, there has been considerable debate about the role of government funded not-for-profits participating in advocacy. In some jurisdictions or specific areas of service activity, government funding is conditional on not advocating for policy or regulatory change.
There have also been wholesale recommissioning exercises, within and across jurisdictional boundaries. Some of those processes appear to have prioritised savings to such a degree that the probable consequences of diminishing or even ceasing to fund services altogether were either not considered, or not considered to be important.
One very large tendering process, conducted by the Department of Social Services (DSS), was the subject of a Senate Inquiry earlier this year. In its submission to the Inquiry, ACOSS summarised the level of concern about the cumulative effects that the ‘tsunami’ of cuts to the not-for-profit community would have on the vulnerable and disadvantaged. Rather than seizing an opportunity to engage communities in conversations about needs and how best to address those needs, ACOSS described the communication of Departmental priorities as having been conducted ‘via briefing’ not consultation. In relation to the formal terms of agreements, ACOSS submitted that “contract terms and conditions have challenged, and in some cases destroyed, relationships and collaborative partnerships” in the growing marketization of the community services sector.
This is an example only but it is symptomatic of what seems to be a pronounced shift in the way that governments consider the value of and engage with community not-for-profits. In many instances, detailed review of what governments purchase, from whom and how, have preceded or accompanied recommissioning processes. Those reviews have shared some common themes, including the requirement to find savings in a difficult budget environment and looking for efficiencies, by sharing support functions or making greater use of new technology. It is hard to argue with genuine attempts to ensure that the expenditure of public funds produces the best possible value and outcomes.
There have been other consistent but more controversial messages. Although not always expressed in clear terms, it would appear that:
- Governments would prefer to reduce the overall number of not-for-profit providers.
- There is an appetite for generating additional funding for community service delivery through building quasi-investment markets.
- The delivery of community services is increasingly being opened to for-profit providers, or put another way the limitations on services that can only be delivered by providers not motivated by profit are diminishing.
It is rare in the reporting of outcomes of review processes, either conducted directly by governments or commissioned externally, for commentary to be other than supportive of the value of not-for-profit work. The repetition of statements of support belie an undercurrent that somehow not-for-profit providers are a class less capable, less motivated or less worthy of government support than those who have the discipline of making profit to keep them focused. With an underlying commitment to open new markets in order to improve services and reduce costs, the conversation about not-for-profits feels more like an effort at preservation than respecting fundamental differences in what motivates the separate sectors.
There is no better example of this tension than the recommendations in relation to Human Services contained in the final report of the Harper Competition Review released in March 2015. Recommendation 2 in the Human Services chapter begins with an overarching statement of intent that “each Australian government should adopt choice and competition principles in the domain of human services.” To assist in delivering on this intent, the Review Committee sets out five guiding principles, the fourth of which is “a diversity of providers should be encouraged, while taking care not to crowd out community and volunteer services.”
The Committee did not elaborate on the actions required to prevent crowding out of community and volunteer services, or what the consequences might be if that occurred. They were also silent on why markets had not naturally evolved for services on which the most vulnerable and disadvantaged rely, or on the propensity for some existing markets to exacerbate or exploit vulnerability and disadvantage.
There is no doubt the traditional reliance on public funding, distributed by governments, represents a major risk for the not-for-profit sector. It is especially problematic during periods of economic realignment, or in the context of planning for an obviously ageing population. Again, review and reform processes have looked to market-based thinking for inspiration and solution. Not-for-profits are encouraged to look at ways to commoditise their service offerings, in order to forge partnerships with major corporates or philanthropy. Whilst there may be some logic in diversifying funding streams, for example through the development of social impact bonds, the collective history of investment markets weighs heavily against this idea being the answer for sustainable welfare funding that reaches the most disadvantaged.
Where does that leave the not-for-profit sector, and more importantly, the vulnerable people they work with? To be continued…
 Bowen The Hon Chris MP, Assistant Treasurer and Minister for Competition Policy and Consumer Affairs; Productivity Commission to Review the Contribution of the Not-for-profit Sector; Media Release (joint); Canberra 17 March 2009
 A summary of key facts confirmed in the Productivity Commission’s report can be found on the Commission’s web-site at http://www.pc.gov.au/inquiries/completed/not-for-profit/report
 Productivity Commission; Contribution of the Not-for-Profit Sector Research Report; Canberra, January 2010, pages XLI-LII (Recommendations Summary)
 Boyd-Caine, Tessa; Contribution of the not-for-profit sector Productivity Commission Research Report – ACOSS analysis and priorities for future advocacy; Australian Council of Social Services, Sydney, February 2010, page 2
 See for example news coverage in June 2015, detailing the concerns of Community Legal Centres about restrictions on their ability to lobby in relation to policy and law reform issues http://www.abc.net.au/news/2015-06-12/community-legal-centres-fear-being-silenced-by-gag-clause/6543148
 Australian Council of Social Services; Submission to Senate Community Affairs Committee Inquiry: Impact on service quality, efficiency and sustainability of recent Commonwealth community service tendering processes by the Department of Social Services; Sydney, March 2015, page 3
 ACOSS; Submission to Senate Community Affairs Committee (ibid); page 7
 ACOSS; Submission to Senate Community Affairs Committee (ibid); page 5
 Harper, Ian; Anderson, Peter; McCluskey, Su; O’Bryan, Michael; Competition Policy Review Final Report; The Treasury, Canberra, March 2015, page 254
 Harper, et al, Competition Policy Review Final Report; ibid