The ‘Crowding-out Effect’: What does the research tell us?

Name: The ‘Crowding-out Effect’: What does the research tell us?
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Description: The ‘Crowding-out Effect’: What does the research tell us?

The ‘Crowding-out Effect’: What does the research tell us?
René Bekkers VU University Amsterdam The Netherlands Jewish Funders Conference Tel Aviv March 17, 2015

The ‘Crowding-out Effect’
Occurs when a decrease in government funding leads to an increase in philanthropic funding for a cause. Or vice versa, when an increase in philanthropy reduces government funding. March 17, 2015 Jewish Funders Conference, Tel Aviv

The ‘Waterbed Effect’ Private donations Government grants
Friedman (1962) called this the crowding-out effect. The metaphor assumes the water mass is constant & contained. In a JC interview, Hagai Katz (2010) said Israelis view philanthropy and government funding as a ‘zero-sum game’. March 17, 2015 Jewish Funders Conference, Tel Aviv

Questioning the metaphor
The metaphor is not born out of research. For a researcher, it is a testable hypothesis. Empirical tests may as well reveal the reverse effect of ‘crowding-in’: when an increase in government funding increases philanthropic activity. The research question is: when and where occurs how much crowding-out? March 17, 2015 Jewish Funders Conference, Tel Aviv

Jewish Funders Conference, Tel Aviv
A meta-analysis Crowding-out   Crowding-in De Wit, A. & Bekkers, R. (2014). Government support and charitable donations: A meta-analysis of the crowding-out hypothesis. Paper presented at the 43d ARNOVA Conference, Denver, November 20-22, 2014. March 17, 2015 Jewish Funders Conference, Tel Aviv

‘A severe cut in government funding to nonprofit organisations is not likely, on average, to be made up by donations from private donors.’ Abigail Payne (1998) Across all the published studies, a $1 increase in government support is associated with a $0.22 decrease in private charitable donations on average. March 17, 2015 Jewish Funders Conference, Tel Aviv

Contingencies US-based studies find more crowding-out than studies from elsewhere, including Europe. Experiments in controlled environments (mostly with students) find more crowding-out than studies analyzing archival data from nonprofit organizations. March 17, 2015 Jewish Funders Conference, Tel Aviv

The ‘crowding-out effect’ varies
Between Societies (macro-level) Organizations (meso-level) Citizens (micro-level) And it varies over time. March 17, 2015 Jewish Funders Conference, Tel Aviv

March 17, 2015 Jewish Funders Conference, Tel Aviv

Taxes and giving Sources: Committed to Give, ; Giving USA, 2014; Giving in the Netherlands 2015 March 17, 2015 Jewish Funders Conference, Tel Aviv

EU investments in innovation
In the European Foundations for Research and Innovation (EUFORI) Study, a consortium of 34 national experts documented ~12,000 foundations supporting R&I in Europe. In which countries are foundations most active? How do foundations view their relationship with government? March 17, 2015 Jewish Funders Conference, Tel Aviv

Four models of collaboration
Competitive: try to do better than government or make government do better Initiating: start a program, and export it into government policy Substituting: take over government tasks Complementary: work towards similar goals and strengthen each other as partners March 17, 2015 Jewish Funders Conference, Tel Aviv

Creating a ‘Giving Culture’
Modesty: “Do not let your left hand know what your right hand is doing” (Matthew 6:3; Maimonides second degree) Philanthropy should not be a dirty word. Social entrepreneurship could be the first degree (help a person help himself). Education could play a role in creating a giving culture, e.g. through service learning. March 17, 2015 Jewish Funders Conference, Tel Aviv

When is that culture change scheduled?
On Thursday the 17th, at 3.30 PM Text from a cartoon in Dutch by John Reid, Bastiaan Geleijnse and Jean-Marc van Tol, April 15, 2011 March 17, 2015 Jewish Funders Conference, Tel Aviv

Popular concerns Coverage: the general level of service provision may suffer when the government retreats. Inequality: philanthropy may fund specific causes, but not others; Matthew-effects will help those causes with an early advantage. ‘Too much’ influence on public policy for philanthropists leading to arbitrariness, nepotism and inequality. Lack of trust among population and between government and philanthropy sector. March 17, 2015 Jewish Funders Conference, Tel Aviv

What we need is… A serious political discussion about the role of philanthropy in public policy. Decent research informing policy decisions, paying attention to undesirable side-effects. Thorough evaluation of the results of any changes that will be implemented. March 17, 2015 Jewish Funders Conference, Tel Aviv

Ingredients People are longing for a more ‘caring society’ and are prepared to contribute. People enjoy giving and volunteering more than paying taxes. They dislike organizational inefficiency. People respond to tax incentives and changes in government subsidies, but not that much. March 17, 2015 Jewish Funders Conference, Tel Aviv

Flexibility is the rule
The crowding-out effect is flexible, open to modification. Governments, nonprofit organizations, philanthropists and the public at large can influence it. March 17, 2015 Jewish Funders Conference, Tel Aviv

Conditions for cooperation
Meeting – Knowing – Strengthening each other; mutual trust. Accountability and (some) regulation. Public confidence and transparancy. Self-organization of the sector; speaking with one voice. March 17, 2015 Jewish Funders Conference, Tel Aviv

Alternative visions Aiming for a substitution effect, the resulting crowd out will be far from perfect. If nonprofit organizations are viewed as partners in public policy, this would help. Think from a ‘crowding in’ hypothesis, even if subsidies are not changing. Present subsidies as matching grants. March 17, 2015 Jewish Funders Conference, Tel Aviv

Framing the incentive as a match
+90% +46% Proportion of the reward for participation in GINPS04 donated by participants March 17, 2015 Jewish Funders Conference, Tel Aviv

Thanks, says René Bekkers Professor & Director Center for Philanthropic Studies VU University Amsterdam Blog: renebekkers.wordpress.com March 17, 2015 Jewish Funders Conference, Tel Aviv

Local cross-sector collaborations
Private foundations in the Netherlands with a local focus receive more funding requests from nonprofits. Interest increases in what works in cross-sector collaborations, also from the government. Community foundations are now being established. March 17, 2015 Jewish Funders Conference, Tel Aviv

Seed money: target $3,000 March 17, 2015 Jewish Funders Conference, Tel Aviv

Bron: CBF March 17, 2015 Jewish Funders Conference, Tel Aviv

HNW 2013 Survey 13% response rate from millionaires Average giving: €5,200 = 1.9% of income Heavily skewed: 80/20 rule Highest amounts donated by young self-employed entrepreneurs Increase from €2,300 in 2009 March 17, 2015 Jewish Funders Conference, Tel Aviv

“If the government cuts, I will give more”

Total giving per year by willingness to compensate government cuts
“If the government cuts, I will give more” March 17, 2015 Jewish Funders Conference, Tel Aviv

The ‘Crowding-out Effect’: What does the research tell us?

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