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NOTE Consumption, Profit, and Competition in the Not-for-Profit

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I will try to speak about consumption, profit and competition in the not-for-profit.

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I will start with the assumption that the donor is a consumer.

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We know that the goal of for-not-for-profit organizations, charities, NGOs, foundations

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or other associations is to achieve social, humanitarian but also cultural or environmental

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purposes by multiple resources, monetary resources, donations and sometimes also investments,

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human capital, employees or volunteers, and every material aid available.

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So starting with this assumption means that, as Robert points out, the member of an organization

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consumes the services of the organization not by purchasing a product but by helping

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the organization pursue its goal.

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It means that people support the organization and the programs they approve and sympathize with.

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A donor patronizes an organization and its projects when he approves its goal and, generally, the tools to achieve these goals.

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So, the not-for-profit is a market directed by donors.

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If the donors share the same aims with an organization, it means that he has decided what programs have to be accomplished and what not.

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It is the donors to decide the ends. And Rothbard has, suppose, for example, the organization is a charity giving ends to the poor. In a sense, the purpose it is is to benefit the poor, but the actual consumers here, the gifts to productions, decisions, are the donors, not the recipients of the charity.

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The charity serves the purposes of the donors, not the recipients of the charity.

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The charity serves the purposes of the donors, and these purposes are in turn to help the poor.

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But it is the donors who are consuming, the donors who are demonstrating their preference

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for sacrificing a lesser benefit, the use of their money elsewhere, for a greater, giving

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money to the charity to help the poor.

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It is the donors whose production decisions give the action of the charity.

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So, it's always a question of choice.

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Every individual makes choices and evaluates things according to his needs.

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Mises explains that, in very different states of satisfaction and the means for their attainment,

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man arranges all things in one scale and sees in them only the relevance for an increase

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in his own satisfaction.

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In correcting men, there exists primarily nothing but various degrees of relevance and urgency with regard to his own well-being.

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So, individuals do not make a selection process from absolute and immutable, unchanging values,

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but from decisions dictated by preferences done under a limited time and under some conditions.

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Every choice depends upon the values subjectively given to goods or services.

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Individuals make preferences according to what they judge better for them.

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And as Mises himself observes, the value given to something can be objectively opposite to its real value,

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but this does not mean that a choice is not founded on a subjective estimation.

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Consequently, in the market consumers orientate the production according to their actual and future needs,

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which producers have not only to satisfy but also to anticipate.

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Equally, in the not-for-profit, people support those institutions they share intention with

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and those ones consider more efficient or original to approach the problems.

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The donors, even if they can be individuals or firms or other associations or foundations,

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because sometimes foundations don't develop programs, but they grant.

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They give only grants to other foundations or other associations.

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So, a donor do always a choice of preference according to their own conviction, beliefs,

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disposition, ideas and objects.

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Even if a donation owns a sentimental aura, it is always a choice between alternatives,

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that is, to give money or to keep it, and to do a grant to an institution rather to

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another.

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A donor makes his choices on the basis of information concerning the typology of programs

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and Engagements, concerning the requested amount and the quality of the philanthropic

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institution.

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A donor reacts on the basis of a subjective judgment about the competence and ability

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to work and to obtain results, but also about the nature of the organization, if it is,

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for instance, secular or denominational.

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Therefore, we can see clearly it is the donor to lead the not-for-profit market.

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The real consumers are not the recipients of the giving, as it is always told.

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The final recipients are the object of the purpose.

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The grants, under the guise of monetary aid and material aid, are social investment run

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by third parties.

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Not-for-profit organizations manage donors' wealth, and the donors will judge organizations

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on the basis of the outcomes.

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We can say that even if a charity's act is not a market's act, it has some distinctive

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signs that bring it back to the market exchange.

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In a sense, the donor buys from a not-for-profit institution the engagement to solve or to

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bring humanitarian, social or cultural or artistic, environmental questions down.

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So the profit.

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Well, this is a very delicate question, but some consideration can be done.

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Well, I will quote Hazlitt. It's better to start with it.

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Profits, in short, resulting from the relationships of cost to prices, not only tell us which goods it is most economical to make, but which are the most economical ways to make them.

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As a classical firm, also not-for-profit institution has to direct its factor of production, that is, all available resources, monetary, human and material capital.

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It has to maximize its resources and avoid all capital scattering if it wants to succeed and attain its missions.

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It has to leverage funds, that is, to extend the value of each grant in the long term and

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create a benefit greater than the benefit generally obtained by that amount.

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In other terms, each dollar invested has to give a social return, an impact greater than

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the impact generally obtained by one dollar.

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So the institutions that last and increase capital are those ones that achieve the maximum

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and social return. So, the more competitive not-for-profit bodies are those with a better

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performance that is a better return on the donor's investment. In other terms, for an

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actor of the for-profit market, the profit is the difference between the cost of production

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and prices. Profit is depending on the consumer's judgment. Profit rewards the entrepreneur

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and the entrepreneurship. For a not-for-profit actor, it is a question of social return,

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And the social return it is not only the partial or the full solution of a problem, but it

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is also all direct and undirect benefits it causes.

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For a classical firm, the profit is the mean to evaluate what to produce and how to produce

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it.

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For a not-for-profit institution, the social return is the way to estimate its activity,

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to see weak and strong spots, to revise what elements to improve and to plan the way to

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It exists a way to calculate the social return. It is the social return on investment.

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The social return on investment is a way to show in monetary terms the social return, the impact of programs.

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There are many discussions about the feasibility of giving monetary value to things that do not have market value.

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But the social return on investment can help investors to better analyze if the investees are efficient and if the adopted systems, strategies are good or not.

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Moreover, by the social return on investment we can give a value to not-for-profit bodies and have a view on why and where their programs are effective or not.

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And also, by social return on investment, for instance, we can evaluate the amount of reduction in public assistance costs.

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We can show, in example, how much the cost of government policies for elderly persons or the homeless are decreased thanks to private funds and projects.

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But I think it could exist another kind of profit for a not-for-profit actor.

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For instance, let's take an organization serving meals to the poor.

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This association prospects to the donors, or the potential donors, the cost for the daily meals of a family.

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The costs prospected are higher than the real cost.

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The difference is necessary, firstly because you don't know how many donors will reply to assure the programs.

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The donors who reply positively accept this cost, that is that they are accepting the price of the mission.

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The difference between the real cost of the mission and the price is a kind of profit that the institution, the foundation,

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can use, for the same mission, to benefit a larger number of families, for instance, but also for other projects, for other programs,

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or it can use it to collect monetary resource to improve the organization performance, that is to say, capital expenditure or human resource,

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for instance, to hire a secretary.

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In a way, also, the reiteration of grants, the new donors and increase of funds that depend on donors' judgement can be considered profit.

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It is maybe to force things, but if we think that the profit is also a reward for the entrepreneur and the entrepreneurship,

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The reiteration of grants and the arrival of new donors are a reward for a not-for-profit actor, like in the not-for-profit market.

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Let's pay attention to the... no, I told it because I told it before, so it's okay.

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It's okay.

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Competition.

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Well, let's stop... let's focus on these words of Mises.

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The function of competition is to assign to every member of a social system

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that position in which it can best serve the whole society and all its members.

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It is a method of selecting the most stable men for each performance.

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So, as it is always told here, and it is true, competition is not about a perfect competition,

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about a fantasy equilibrium built on mathematical models and where the actors have not a perfect information.

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You know that men are fallible and their knowledge is limited.

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So, competition concerns the best means to reach ends. It is so.

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And as Hayek pointed out, competition is a problem of the utilization of knowledge which is not given to anyone in its totality.

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What it means is that competition leads to a decentralized organization made by various individuals.

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There is not a central power that plans what goods to produce and consume and how to produce

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them. In a competitive system, individuals, consumers, decide who can better serve them.

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The competition is not a stable phenomenon, but it is a continuous challenge to improve

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our knowledge and our condition. By competition, we can understand what is better and why.

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Competition processes allow us to do things better in different ways to better serve individual

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needs. And I would like to quote also Kirzner, competition process depends entirely on the

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freedom of those with better ideas or with greater willingness to serve the market to

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offer better opportunities. In the not for profit we can do similar consideration. We

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see that, especially in recent years, the institution, the not for profit institution,

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and better reacting to social and humanitarian problems are also those who are discovering new means to treat them.

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And after we will talk about the venture philanthropy.

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In the non-for-profit market, as in the classical market, the competition process entails a maximization

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of the knowledge available, and entails a maximization of all new information showing on the surface during the activity.

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It follows that only in a free market society, a not-for-profit competitive system, that is not concluded with government,

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individuals decide what programs are better and what not.

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There is not a central planning deciding what and who benefits.

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The decentralization makes new ideas possible.

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So, what is the venture philanthropy?

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Well, in the last 20 years we have seen a change in the not-for-profit sector.

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The first thing is the professionalization of the not-for-profit.

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Because donors are no more disposed only to give, they wait for results. They want to see a real return on their giving.

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At the same time, in the 90s, we can see the growth of the venture philanthropy.

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Venture philanthropy is a phenomenon related to Philanthrocapitalism.

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The term Philanthrocapitalism has been created by Matthew Bishop of The Economist and it can designate two things.

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The first one is the advantages of a free market society.

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But in particular, Philanthrocapitalism refers to Venture Philanthropy, a micro-level philanthropy that takes the instrument and the sour fare of business and adapts them to the not-for-profit sector.

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Venture philanthropy is not interested to transform the not-for-profit in a business of giving.

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Rather, it wants to integrate with not-for-profit bodies.

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The message of venture philanthropies is to treat social problems as entrepreneur-threat business.

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Venture philanthropies do not limit direction to give monetary resources or other.

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They involve themselves in programs, for instance, helping organizations to create good things, to construct a good strategy, or to manage their funds, their communication, their human resources.

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So, I quote this phrase I found on the website of Slate, on an article about winter philanthropy.

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They say, failure isn't an option, partnership between investors and investors.

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So it is related to consumption, profit and competition. It is entrepreneurship, to reason in this way.

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We can tell also other things about venture philanthropy. We don't have one single model of venture philanthropy.

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But the venture philanthropy shares some points. First of all, it is a logic of the long run.

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The second is the maximization of investment and resource for the maximum social impact, for instance supporting programs and organizations that better can solve the problem.

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The third is the evaluation of the results. This is mandatory. The evaluation of performance to better plan future projects and to collect information.

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Well, to finish, only three examples of venture philanthropy institutions. The first one is

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the Venture Philanthropy Partners of the United States. They work on the education and in

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the development of communities. And the second is the Fondation de Metre in France. They

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work for the professionalization of association, foundation, NGO and so on. And the third is

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It's very interesting, the Media Development Loan Fund, because they work for the expansion

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and the birth of free and independent mass media in East Europe, Africa, former Soviet

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Union and South America.

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So I finish my presentation, but I would like only to say why to talk about this.

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Well, because normally they demonize consumption, profit and competition.

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By this paper I would like to demonstrate that consumption, profit and competition exists also in the not-for-profit.

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We can make our life better thanks to consumption, profit and competition.

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And so it is mandatory also for the not-for-profit. They do that even if they say,

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Sorry, no, we don't do that. We don't do that. No, sorry, you do that. So, that's all.