Wednesday, September 24, 2014

Flourishing in a Not-for-Profit World

This week Donnie Maclurcan presented his view of the future at Leeds University as part of the CASSE autumn programme.

Donnie’s thesis is that all organisations will be, or should be, Not-for-Profit (NfP) by the middle of the century. He started by explaining the difference between NfPs and the third sector, which used to be almost totally dependent on handouts. Now, 53% of NfP revenue is self-generated and used for the organisations’ social purpose. By contrast, in Donnie’s view the traditional capitalist for-Profit (fP) businesses are socially divisive and exacerbate economic inequality. This is not due to paying exorbitant salaries, but results from capital gains, dividends and inheritance. Apparently, just 85 individuals in this world control wealth equivalent to that owned by 3.5bn people. The constant growth of fPs brings ecological devastation.

Donnie challenges the accepted wisdom that states that competition and self-interest are what make society work. He believes that the centralisation of wealth and power creates social and economic stratification and a compulsion to consume. He challenges the myth (the American Dream) that anyone can be wealthy. In fact only 5% of Americans ever move from their original social/economic position. 

What should be done? Central market regulation? Concentrating power in the hands of the state is no better than concentrating it in the hands of the rich, and the line between the rich and the state can easily become blurred. Strong regulation can stifle innovation. Growth continues. Self-regulating capitalism? Donnie does not believe that we can rely on fPs to innovate the world out of ecological disaster. From his work on nanotechnology he does not even believe that fPs could achieve decarbonisation in time to avoid disaster. Self-regulating capitalism is still capitalism; still reliant on growth.

The Alternative Solution is the Not-for-Profit Enterprise, where the organisation socialises its profits. In other words it either uses its profits to further its social purpose or donates its profits to organisations benefiting the community. There are no shareholders demanding dividends and no owners who can turn a profit by selling of all or part of the business. 

NfPs are better because NfPs can outperform traditional businesses. The example of the credit unions versus the banks in the US was quoted, although Donnie did admit that in the US credit unions get special tax breaks. NfPs use freeware rather than expensive mainstream software. Employees are more motivated, empowered, working in organisations with a flatter structure. NfPs create open source research rather than licensing their intellectual property (IP) in order to make money from users as the traditional fP would. The motivation and commitment from working for an NfP can lead to remarkable productivity gains. The quoted example was that car manufacturer WIKISPEED could develop in 8 days what would take Toyota 30 years. (The politest thing I can say about that statistic is that I don’t believe it. Let’s not overstate the case now.) Examples of NfPs are Mozilla, creators of the Firefox browser, and Wikipedia.

“Working together is better” There’s more concern about the origin of products. NfPs are more ethical and they never plan for obsolescence. The wide availability of digital resources means that the barriers to entry to many businesses are very low. Capital costs are falling and crowd-funding, a completely new source of finance, is widely used by NfPs. For larger investments shares should be replaced with community bonds as has been tried in Canada. Holders receive a fixed return but have no part in the ownership of the enterprise and no right to a share of the profits, (although they can lose their total investment if things go wrong.)

Profits should be a means to an end, not an end in themselves. For this to happen, for the world’s wealth to be equitably distributed, NfPs are necessary, although not sufficient.

What do I think?

Undoubtedly global inequality needs to be tackled, and at first sight universal Not-for-Profit seems an ideal solution. I have a number of concerns. In the traditional model a company borrows money to set itself up. Service companies, ideas companies, software companies can be set up for pocket money. Manufacturing companies, retailers, farms, transport, power generators and heavy industry need significant investment. Some is borrowed as fixed interest bonds. Interest is paid whether profits are made or not. If it all goes wrong, bondholders get part of anything that’s left: shareholders get nothing. Nevertheless, shareholders invest. They support the company, they take the risk. If there’s no profit there’s no dividend. If it goes wrong shareholders can lose their whole investment. They invest in the knowledge that they are taking a risk and they expect to be rewarded for that risk with dividends in the good times and increasing value of their shares. They share in the growth in the value of a business that they have helped create. All businesses are risky, some more so than others. We need innovation, but innovating businesses can be the most risky of all. If we go to a total NfP model, who takes the risk? 

If we’re going to convert existing businesses to NfP who is going to buy out the existing shareholders, and what will they spend the money on? And if we nationalise everything are we ready for the backlash?

Can every enterprise be a social enterprise? Will we find people who will be motivated by every occupation? Even the dirtiest jobs?

I asked what would happen to pensions if there were no more shares for pension funds to buy. Buy bonds instead, but the increasing reach of the social sector and growing support for the elderly will mean a reducing requirement for pensions. Really? Sounds like David Cameron’s Big Society. (RIP) If I have foregone consumption throughout my life to assure a comfortable retirement I expect to enjoy it in proportion to the savings I’ve made, not rely on universal handouts!

I think climate change, resource depletion and the whole range of sustainability issues are the crucial priority of the moment. Not-for-Profit may be a useful context, but it's only one aspect of the big and threatening picture.

Donnie’s presentation was delivered with clarity and confidence without a single note or slide and kept our attention throughout. Lots to think about. After a struggle I’ve pre-ordered his book: How on Earth. I look forward to reading it and learning more.