A compartive understanding of the commercialisation of the third sector, simon teasdale & domenico moro, sra seminar april 2013
A comparative understanding ofthe commercialisation of thethird sectorSimon Teasdale and Domenico Moro11 April 2013
Perceived wisdom?• “Funding available to nonproﬁts in the UnitedStates has fallen at a time when the range ofservices they provide has expanded to includethose previously delivered by government(Samu & Wymer, 2001). One consequence isthat nonproﬁt organizations are being pushedinto adopting a social enterprise model oftrading for a social purpose (Zietlow, 2001).”(Teasdale, 2010: 90)
010203040506070198219831984198519861987198819891990199119921993199419951996199719981999200020012002YearPercentageofTotalRevenueCommercialRevenuePrivateContributionsGovernmentGrantsU.S. Nonprofit Revenue 1982-2002 by Percentage of Total(Kerlin and Pollak, 2010)(excluding hospitals and higher education institutions)
England and Wales, all general charities, commercialand total income since 2000/01 (£ billions) (derivedfrom NCVO, 2010)0.05.010.015.020.025.030.035.040.02000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08EarnedTotal
Research question 1• Consistent with resource dependence theory,at the level of individual charities, iscommercial revenue a substitute(replacement) for grants and donations?
Research Question 2• RQ2: How does a change in CommercialRevenue effect Grants and Donations?• Legitimacy, two perspectives:– Crowd out (substitutes)– Crowd in (complementary)
DataEngland / Wales United States80,589 charities 335,936 nonprofitsData derived from annual returns to theCharity Commission for England andWales between 2002-2008Digitized financial data derived from IRSForms 990 filed by 501(c)(3) publiccharities between 1995 and 2008Does not include most smaller charities(Income < £100k); religious organizationsDoes not include exempt religiousorganizations and those with less than$25,000 in annual revenue.As outliers, Universities, Hospitals andPrivate Schools were removedAs outliers, Hospitals and Universitieswere removedCommercial revenue= activities infurtherance of the charity’s objects+activities for generating funds; tradingsubsidiaries (gross) + unspecified salesand fees from operating activitiesCommercial revenue = program revenue+ membership dues + special events(gross rev) + sales of inventory (grossprofit)
Notes: *= significant at 5%;**=significant at 1%.Commercial revenue as dependent variable(England/ Wales)(1)OLS(2)Fixed effects(3)Random effects(4)GMM-SYSLn (isi,t-1) 0.84[0.002]**0.08[0.043]**0.70[0.002]**0.44[0.021]**Ln (ivi,t) 0.018[0.002]**-0.18[0.036]**-0.01[0.024]-0.31[0.161]*Constant 1.75[0.285]**11.62[0.061]**3.30[0.03]**9.34[1.748]**S Yes No Yes NoT Yes Yes Yes YesN Obs 77,624 77,624 77,624 77,624R-sq 0.73 0.01 0.737Withinbetween0.020.070.0130.737Hansen 6.22p value 0.044AR(1) -19.76p value 0.000AR(2) 2.03p value 0.042
Notes: *= significant at 5%;**=significant at 1%.ICNPO Field Persistence effect Substitution effect (-)Social services 0.39* -0.69*Law, advocacy andpolitics0.30* -0.56*International 0.59* +0.86*Overall model 0.44** -0.31*Some statistically significant variations byfield of activity (England / Wales)
United States: CR as dependent variableln(CRi,t)=δ1,t + α1 ln(CRi,t-1) + 1 ln(DRi,t) + 2 ln(DRi,t-1) + 1 NTEE+ρ1 T+ 1i + 1i,tNotes: *= significant at 5%;**=significant at 1%.GMM SYS (Column 4) is derived from a random sample of 1% of nonprofits bootstrapped 10,000 times.GMM-SYSα1 :Annual persistence of CR ln(CRi,t-1) 0.60[0.03]**1: Short-term crowd-effect -0.22[0. 08]**2 0.11[0. 02]**δ1 4.42[0. 05]**Longer-term crowd-effect (1+2)/(1- α1) -0.28[0.145]*NTEE NoT YesN (Observations) 1,561,545Hansenp value140.300.28Wald test for Granger causality (χ2ce(2)) 7.57AR(1) -10.10**AR(2) 1.44
United States: DR as dependent variableln(DRi,t)=δ2,t + γ1 ln(DRi,t-1) + τ1 ln(CRi,t) + τ 2 ln(CRi,t-1) + 2 NTEE+ρ2 T+ 2i + 2i,tNotes: *= significant at 5%;**=significant at 1%.GMM SYS (Column 4) is derived from a random sample of 1% of nonprofits bootstrapped 10,000 times.GMM-SYSγ1 Annual persistence of Dr Ln (DRi,t-1) 0. 46[0. 04]**τ1 Short-term crowd-effect ln(CRi,t) -0. 24[0. 10]**τ2 ln(CRi,t-1) 0. 15[0. 02]**δ2 5.87[0.06]**Longer-term crowd-effect (τ1+ τ2 )/(1- γ1) -0.16[0.08]*NTEE NoT YesObservations 1,561,545Hansen 133.57p value 0.38Wald test for GrangerCausality(χ2ce(2)) 7.56*AR(1) -10.54**AR(2) 1.84
Statistically significant variations by field ofactivity (US)NTEE field of activityLonger- term crowd-out effect (-) of DRon CRLonger-term crowd-out (-) effect of CR onDRDiseases, Disorders, MedicalDisciplines-0.67**[0.16]-0.31**[0.08]Crime, Legal Related-0.60**[0.18]-0.18**[0.06]Health-0.18[0.13]-0.26**[0.08]Mental Health, CrisisIntervention-0.27**[0.09]-0.37**[0.09]
Conclusions• Commercial revenue is a partial replacementfor donative revenue in both countries• Commercial and donative revenue areinterdependent• Commercial revenue also crowds out donativerevenue (only measured in the US)
Making sense of our data• Resource dependence theory?• Theories of declining legitimacy?• Simple micro-economic theories:– Much of the commercialization of the third sector inEngland was driven by state action makingcommercial revenue relatively ‘cheap’ to obtain. In theUS the benign economic period since 2002 has seengrants and donations become ‘cheaper’. Nonprofitsreact to a change in the price of different revenuesand adjust revenue mixes accordingly. They may overadjust in the short term and compensate over a twoyear period.
Implications• Future research to understand different trajectories• Nonprofits considering whether to develop earned incomestrategies may be encouraged by the relatively high annualpersistence of commercial revenue over time. This wouldappear more stable source than donative revenue, but islower than has been found in other studies.• Nonprofits should exercise caution when deciding whetherto prioritize commercial revenue over donative revenue (orvice versa). At the level of the individual nonprofit,decisions must be taken with reference to the relative costsof deriving commercial and donative revenues rather than“perceived wisdom”