The ‘Crowding-outEffect’:
What does theresearch tell us?
René BekkersVU University Amsterdam
The Netherlands
March 17, 2015
Jewish Funders ConferenceTel Aviv
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.
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The ‘Waterbed Effect’
Government grants
Private donations
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’. 3March 17, 2015
Jewish Funders Conference, Tel Aviv
Friedman (1962) called this the crowding-out
effect.
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?
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A meta-analysis
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Crowding-inCrowding-out 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.
‘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.
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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
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The ‘crowding-out effect’ varies
Between
• Societies (macro-level)• Organizations (meso-level)• Citizens (micro-level)
And it varies over time.
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N = 111, r = .011
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Taxes and giving
United States Israel the Netherlands0
10
20
30
40
50
60
70
80
90
Tax burden % of GDP
Proportion of popu-lation giving to char-ity
Philanthropy ‰ of GDP
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Sources: Committed to Give, 2009-2011; Giving USA, 2014; Giving in the Netherlands 2015
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?
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N = 28r = - .176
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N = 28r = 0.567
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 16March 17, 2015
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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.
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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
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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.
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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.
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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. 22March 17, 2015
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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.
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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.
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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.
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Framing the incentive as a match
control group 50% rebate: price = 0,50
100% match: price = 0,50
0%
5%
10%
15%
20%
25%
30%
35%
Proportion of the reward for participation in GINPS04 donated by participants
+46%
+90%
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Thanks, saysRené Bekkers
Professor & DirectorCenter for Philanthropic
StudiesVU University Amsterdam
[email protected]: @renebekkers
Blog: renebekkers.wordpress.com
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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.
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Seed money: target $3,000
10% 33% 67%0
200
400
600
800
1000
1200
1400
1600
1800
2000
No refund Refund
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0%10%20%30%40%50%60%
41%48%
44%51% 55% 55%
no increase increase
Bron: CBF. 2005-2010
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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
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“If the government cuts, I will give more”
Dutch population HNW sample
59
42
37
38
419
agree (com-pletely)neutral
disagree (completely)
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Total giving per year by willingness to compensate government cuts
Dutch population HNW sample
155
4,539
246
5,431
452
6,150
disagree (completely)neutralagree (com-pletely)
“If the government cuts, I will give more”
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