In part 2 of her research-based article, Prof Liliana Gelabert of IE Business School urges a rethink of policy, management and the great challenges facing society in which non-profits can play a key role.
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Taking a step back: Rethinking policy and management
The assumption that greater welfare non-profit participation would yield continuously increasing benefits in reducing income inequality has important policy implications given the substantial amount of resources allocated to non-profits – not only directly through grants, contracts and training but also indirectly through their tax-exempt status.
Prof Liliana Gelabert proves this assumption false, which means that in periods when the public sector budget is strained, trading direct tax revenues for a larger non-profit sector might not translate into a proportional fall in in income inequality, especially at high levels of competition. In such a case, Prof Galabert and her fellow researchers make two recommendations for local governments. First, local governments may be able to reduce competition by concentrating their resources on those with a demonstrated capacity to help the disadvantaged effectively and substantially.
Although this focus can reduce the diversity of welfare-oriented non-profits in a locality, it can help build greater capacity for those with an outstanding track record. Second, local agencies should help non-profits develop more accurate and transparent performance measures. Such measures could also serve as a basis for potential donors to evaluate non-profits, allowing them to choose the ones that they consider to be the most efficient at using resources to achieve their social goals.
Non-profits and competitive pressure
On the managerial side, Prof Gelabert identifies ways in which non-profits could respond to resource competition. One possible solution, she emphasises, is the creation of cross-sector collaborations that take advantage of each partner’s specific capabilities to solve a complex social problem. Non-profits could also address competition and defend their niches by relying on fine-grained financial and social impact indicators rather than by advertising or fundraising more.
She believes that the competitive pressure from other non-profits would also call for a more specialised profile of worker in non-profits, particularly individuals with experience in the private sector, to respond adequately to competition. However, she warns that this rationalisation of the ‘third sector’ could undermine the nature of voluntary work by infusing it with too much of an instrumental logic. One possibility, she suggests, is that welfare non-profits increase coordination efforts with other non-profits in order to share resources and hence avoid competition.
Prof Gelabert’s findings regarding institutional context also suggest several major policy implications. First, considering that greater government enforcement capabilities improve welfare non-profits’ effectiveness, she insists that greater enforcement of labour laws can actually set the appropriate context for welfare non-profits to reduce income inequality significantly. Second, since direct government social policies seem to reduce the effectiveness of non-profits, she suggests that greater coordination between government and organisations addressing grand challenges is needed to exploit complementarities and avoid possible crowding out. Finally, she stresses the importance of racial integration policies to reduce the negative effect of segregation on income inequality, and to leverage the activity undertaken by welfare non-profits.
Rethinking grand challenges
Prof Gelabert’s study brings to light consequential relationships, which are both unexpected and far from originally hypothesised theoretical relationships in the context of grand challenges. Her research highlights that communities not only influence organisations but that their collective action can also affect local communities.
Moreover, conducted at a community level, the study serves as a reminder that while grand challenges are frequently classified as national-level problems, significant within-country variance remains in the degree to which social problems emerge and influence people’s lives. Policymakers and managers must, in light of this study, reconsider and revise pre-existing ideas and assumptions in the context of grand challenges.
- View Prof. Gelabert’s research and publications
- Link up with Prof. Liliana Gelabert via LinkedIn
- Explore the degree programmes on offer at IE Business School
- Related research: Understanding community dynamics in the study of grand challenges: How nonprofits, institutional actors, and the community fabric interact to influence income inequality, by Pascal Berrone, Liliana Gelabert, Frederica Massa-Saluzzo, Horacio E. Rousseau; Academy of Management Journal.
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