Varieties of capitalism, varieties of philanthropy (part 1)

One item on my to-do list is to look into whether there might be “varieties of philanthropy” to go along with “varieties of capitalism.” The latter is the idea that U.S.-style capitalism is not the only or best kind, and that other kinds, like the Continental-Japanese model, are not only distinct but not necessarily converging on the Anglo-American model in the context of globalization and trade liberalization.

Let’s start by looking at the basic distinction in the varieties of capitalism literature, between “liberal market economies” (Anglo-American) and “coordinated market economies” (European-Japanese). This is from Hall and Soskice’s Varieties of Capitalism (p. 8):

In liberal market economies, firms coordinate their activities primarily via hierarchies and competitive market arrangements…Market relationships are characterized by the arm’s-length exchange of goods or services in a context of competition and formal contracting. In response to the price signals generated by such markets, the actors adjust their willingness to supply and demand goods or services…In many respects, market institutions provide a highly effective means for coordinating the endeavors of economic actors.

In coordinated market economies, firms depend more heavily on non-market relationships to coordinate their endeavors with other actors and to construct their core competencies. These non-market modes of coordination generally entail more extensive relational or incomplete contracting, network monitoring based on the exchange of private information inside networks, and more reliance on collaborative, as opposed to competitive, relationships to build the competencies of the firm. In contrast to liberal market economies (LME), where the equilibrium outcomes of firm behavior are usually given by demand and supply conditions in competitive markets, the equilibria on which firms coordinate in coordinated market economies (CMEs) are more often the result of strategic interaction among firms and other actors.

Now substitute “nonprofit” for “firm” in the above. Think about how nonprofits get their funding in the U.S. Doesn’t it seem like we operate in more of a CME model?

  • “Relational or incomplete contracting” => grants based on relationships with program officers with little provision of what constitutes success
  • “Network monitoring based on the exchange of private information inside networks” => just ask Lucy Bernholz or Janet Camarena about the struggle to make the private information inside philanthropic networks and organizations public.
  • “More reliance on collaborative, as opposed to competitive, relationships to build the competencies of the firm” => Capacity building and technical assistance provided by funders for nonprofits, long-term funding relationships where impact and capacity are not necessarily the central criteria for determining continued funding.

We operate in perhaps the quintessential liberal market economy (and liberal here means Adam Smith-style “classical” liberalism, aka laissez-faire), but the political economy of nonprofits in the U.S. looks more like a coordinated market economy. Why does this matter? Hall and Soskice again (p. 9):

In any national economy, firms will gravitate toward the mode of coordination for which there is institutional support.

What is the “mode of coordination” being supported in the U.S. philanthropic market today? A key question in the “varieties of capitalism” literature is convergence: will European CME economies ultimately end up looking more like the U.S. LME economy? This is a cross-national comparison, and the answer so far seems to be, “not necessarily.” A key question in the study of “varieties of philanthropy” might be intra-national: will the CME model of nonprofit funding in the U.S. converge on the LME model of the overall U.S. economy?

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4 Responses to “Varieties of capitalism, varieties of philanthropy (part 1)”

  1. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Is the answer “taxes”? Says:

    […] that the government will care for the poor.” This speaks to varieties of capitalism, a topic I’ve considered at length on this blog. Motivations for giving in each type of system might be an […]

  2. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » This is scandalous Says:

    […] by politics and policy. Classic political economy. The “varieties of capitalism” work that I’ve written about here is, to me, one of the more valuable contributions of political […]

  3. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Stones in the river (continued) Says:

    […] the Chinese economist who’s the head economist at the World Bank. A central tenet of the varieties of capitalism approach I’ve written about extensively on this blog is that there is more than one way to […]

  4. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Get Out the Map Says:

    […] relate to the varieties-of-capitalism/varieties-of-philanthropy concept I’ve written about at various points here. […]

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