ePapers Repository

The marketisation of charities in England and Wales

McKay, Stephen and Moro, Domenico and Teasdale, Simon and Clifford, David (2011) The marketisation of charities in England and Wales. Working Paper. University of Birmingham, Birmingham, UK.

PDF - Published Version


Much has been written about the reasons for and impact of marketisation on charities, their clients, and wider civil society. A central component of the marketisation thesis is that charities are substituting grants and donations with commercial revenue. However there is no consensus in the existing literature as to whether the two sources of revenue are substitutes or complementary. This paper shows that between 2003 and 2007 there was a significant increase in the proportion of overall revenue attracted from commercial sources by charities in England and Wales. Using our preferred Generalised Method of Moments (GMM) estimation model we show that the annual persistence of commercial revenue over time was 44%. In particular, a +10% change in grants and donations was associated with a -3.1% change in commercial revenue. Thus commercial revenue is an inelastic substitute for grants and donations. We therefore conclude that charities are succumbing to market forces.

Type of Work:Monograph (Working Paper)
School/Faculty:Colleges (2008 onwards) > College of Social Sciences
Number of Pages:23
Department:Third Sector Research Centre (TSRC)

Adaman, F. and Madra, Y. (2002) Theorising the ‘third sphere’: A critique of the persistence of the ‘economistic fallacy’, Journal of Economic Issues, vol. 36, no. 4, pp. 1045-78.

Andreoni, J. (1990) Impure altruism and donations to public goods: a theory of warm-glow giving, The Economic Journal, vol. 100, pp. 464-77.

Andreoni, J. and Payne, A. A. (2011) Is crowding out entirely due to fundraising? Evidence from a panel of charities, Journal of Public Economics, vol.95, pp. 334-43.

Arellano, M. and Bond, S. (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations, The Review of Economic Studies, vol. 58, pp. 277-97.

Backus, P. (forthcoming) Charitable causes in the 20th Century: trends in the foundation of charities, TSRC Working Paper.

Blundell, R. and Bond, S. (1998) Initial Conditions and Moment Restrictions in Dynamic Panel Data models, Journal of Econometrics, vol. 87, pp. 115-43.

Bond, S. (2002) Dynamic panel data models: a guide to microdata methods and practice, London: Cemmap Working Papers, CWP09/02.

Carmel, E. and Horlock, J. (2008) Instituting the ‘third sector’ as a governable terrain: Partnership, Performance and Procurement in the UK, Policy and Politics, vol. 36, no. 2, pp. 155-71.

Carroll, D. and Stater, K. (2009) Revenue Diversification in Nonprofit Organizations: Does it Lead to Financial Stability? Journal of Public Administration Research and Theory, vol. 19, no. 4, pp. 947-66.

Charity Commission (2005) The Charities SORP 2005, London: The Charity Commission.

Clifford, D., Geyne Rajme, F. and Mohan, J. (2010) How dependent is the third sector on public sector funding? TSRC working paper 45.

Dart, R. (2004) The legitimacy of social enterprise, Nonprofit Management and Leadership, vol. 14, no. 4, pp. 411-424.

Dees, J. G. (1998) Enterprising Nonprofits, Harvard Business Review, Jan-Feb, pp. 55-67.

Dees, J. G. (2007) Taking social entrepreneurship seriously, Society, vol. 44, no. 3, pp. 24-31.

Dees, J. G., Emerson, J. and Economy, P. (2001) Enterprising Nonprofits: A Toolkit for Social Entrepreneurs, Wiley.

Dey, P. and Steyaert, C. (2010) ‘The Politics of Narrating Social Entrepreneurship’, Journal of Enterprising Communities, vol. 4, no. 1, pp. 85-10.

Eikenberry, A. (2009) Refusing the Market: A Democratic Discourse for Voluntary and Nonprofit Organisations, Nonprofit and Voluntary Sector Quarterly, vol. 38, no. 4, pp. 582-96.

Eikenberry, A. and Kluvert, J. (2004) The Marketisation of the Nonprofit sector: Civil society at risk? Public Administration Review, vol. 64, no. 2, pp. 132-40.

Fischer, R. L., Wilsjer, A. L. and Young, D. R. (2007) Exploring the Revenue Mix of Nonprofit Organisations: Does it relate to Publicness? Atlanta, Andrew Young School of Policy Studies Working Paper 07-32.

Foster, W. and Bradach, J. (2005) Should Nonprofits Seek Profits? Harvard Business Review, Feb. 2005, pp. 92-100.

Froelich, K. (1999) Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organisations, Nonprofit and Voluntary Sector Quarterly, vol. 28, no. 3, pp. 246-68.

Guo, B. (2006) Charity for Profit? Exploring Factors Associated with the Commercialisation of Human Service Nonprofits, Nonprofit and Voluntary Sector Quarterly, vol. 35, no. 1, pp. 123-38.

Halfpenny, P. and Reid, M. (2002) Research on the voluntary sector: An overview, Policy and Politics, vol. 30, no. 4, pp. 533-50.

Hansen, L. (1982) Large Sample Properties of Generalised Method of Moments Estimators, Econometrica, vol. 50, pp. 1029-54.

Hansmann, H. (1987) Economic theories of nonprofit organisation, in W. Powell, (ed.), The Nonprofit Sector: A Research Handbook, Yale University Press.

Haugh, H. and Kitson, M. (2007) The Third Way and the third sector: New Labour's economic policy and the social economy, Cambridge Journal of Economics, vol. 31, no. 6, pp. 973-94.

Kerlin, J. and Pollak, T. (2010) Nonprofit Commercial Revenue: A Replacement for Declining Government Grants and Contributions? American Review of Public Administration, November 17, 2010, DOI: 0275074010387293.

Kingma, B. R. (1995) Do profits crowd out donations, or vice versa? Nonprofit Management and Leadership, vol. 6, no. 1, pp. 21-38.

LeRoux, K. (2005) What Drives Nonprofit Entrepreneurship? A Look at Budget Trends of Metro Detroit Social Service Agencies, American Review of Public Administration, vol. 35, no. 4, pp. 350-62.

Morgan, G. (2010) The use of charitable status as a basis for regulation of nonprofit accounting, Voluntary Sector Review, vol. 1, no. 2, pp. 209-32.

National Council for Voluntary Organisations (NCVO) (2010) UK Civil Society Almanac, NCVO.

Newman, J. (2007) Re-thinking ‘The Public’ in Troubled Times: Unsettling State, Nation and the Liberal Public Sphere, Public Policy and Administration, vol. 22, no. 1, pp. 27-47.

Nicholls, A. (2010) The Legitimacy of Social Entrepreneurship: Reflexive Isomorphism in a Pre-Paradigmatic Field, Entrepreneurship, Theory and Practice, vol. 34, no. 4, pp. 611-33.

Nickell, S. (1981) Biases in dynamic models with fixed effects, Econometrica, vol. 49, pp. 1417-26.

O'Brien, R. M. (2007) A Caution Regarding Rules of Thumb for Variance Inflation Factors, Quality and Quantity, vol. 41, no. 5.

Okten, C. and Weisbrod, B. A. (2000) Determinants of donations in private nonprofit markets, Journal of Public Economics, vol. 75, no. 2, pp. 255-72.

Roodman, D. (2006) How to do xtabond2: an introduction to “Difference” and “System” GMM in Stata, Centre for Global Development Working Paper Number 103.

Rose-Ackerman, S. (1996) Altruism, Nonprofits and Economic Theory, Journal of Economic Literature, vol. Xxxiv, pp. 701-28.

Salamon, L. (1993) The marketisation of welfare: Changing nonprofit and for-profit roles in the American welfare state, Social Service Review, vol. 67, no. 1, pp. 16-39.

Salamon, L. (1997) Holding the centre: America’s nonprofit sector at a crossroads. New York: Nathan Cummings Foundation.

Salamon, L. and Anheier, H. (1998) Social origins of civil society: Explaining the nonprofit sector cross-nationally, Voluntas, vol. 9, no. 3, pp. 213-48.

Sargan, J. D. (1958) The estimation of economic relationships using instrumental variables, Econometrica, vol. 26, no. 3, pp. 393–415.

Segal, L. M. and Weisbrod, B. A. (1998) Interdependence of donative and commercial revenues, pp. 105-27, in A. B. Weisbrod (ed.), To Profit or Not to Profit? Cambridge: Cambridge University Press.

Teasdale, S. (2010) Models of social enterprise in the homelessness field, Social Enterprise Journal, vol. 6, no. 1, pp. 23-34.

Teasdale, S., Alcock, P. and Smith, G. (forthcoming). Legislating for a Big Society? The case of the Public Services (Social Enterprise and Social Value Bill), Public Money and Management.

Tinkelman, D. and Neely, D. G. (2010) Research Note: Some Econometric Issues in Studying Nonprofit Revenue Interactions Using NCCS Data, Nonprofit and Voluntary Sector Quarterly, 7 June 2010, DOI 10.1177/0899764010371010.

Tsakalotos, E. (2005) Homo economicus and the reconstruction of political economy: six theses on the role of values in economics, Cambridge Journal of Economics, vol. 29, pp. 893-908.

Weisbrod, B. (1975). Toward a theory of the voluntary nonprofit sector in a three -sector economy, in E. Phelps (ed.), Altruism, Morality and Economic theory, Russell Sage.

Windmeijer, F. (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators, Journal of Econometrics, vol. 126, pp. 25-51.

Yetman, M. and Yetman, R. (2003) The effect of nonprofits’ taxable activities on the supply of private donations, National Tax Journal, vol. 56, no. 1, pp. 243-58.

Yetman, M., Yetman, R. and Badertscher, B. (2009) Calibrating the reliability of publicly available nonprofit taxable activity disclosures: Comparing IRS 990 and IRS 990- T data, Nonprofit and Voluntary Sector Quarterly, vol. 38, no. 1, pp. 95-116.

Series/Collection Name:TSRC Working Paper Series
Keywords:Charities, marketisation, nonprofit, crowding out, substitution effect.
Subjects:H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Related URLs:
Funders:Economic and Social Science Research Council, Office for Civil Society, Barrow Cadbury Trust
ID Code:1511

Export Reference As : ASCII + BibTeX + Dublin Core + EndNote + HTML + METS + MODS + OpenURL Object + Reference Manager + Refer + RefWorks
Share this item :
QR Code for this page

Repository Staff Only: item control page