Varieties of capitalism, varieties of philanthropy (part 3)

All right, let’s recap this series:

  • There are different kinds of capitalism, different ways of organizing a market economy. According to one model from Hall and Soskice, two of the major ones are “liberal market economies” (LME) like the U.S. and England, and “coordinated market economies” (CMEs) like Germany and Japan. The main difference is in the level of coordination among firms, government, and labor: in CMEs, coordination is high; in LMEs, coordination is low.
  • Different varieties of capitalism are good at different things; in particular, according to Hall and Soskice, CMEs are good at incremental innovation while LMEs are good at radical innovation.
  • In applying this framework to philanthropy and nonprofits, thinking of nonprofits as firms, it looks like the U.S. nonprofit economy functions as a kind of CME within the broader LME of the U.S. economy. Which brings up the question of convergence; will nonprofits respond to incentives in the overall economy and start becoming more LME-like?

To get at this last question, let’s look at coordination in more detail. Hall and Soskice contrast Germany and the U.S. in terms of the relationships among four systems that impact the firm: education and training, corporate governance, inter-company relations, and industrial-relations (or labor relations).

System German Coordinated Market Economy U.S. Liberal Market Economy
Financing Obtained behind the scenes, enforced by reputational monitoring Obtained on public markets, reputation less crucial for monitoring
Education/training Develops highly skilled workers who are guaranteed employment Develops workers with general skills
Labor relations Secures places for highly skilled workers by moderating wage claims and promoting labor cooperation Easy to hire and fire workers, labor has less natural power
Inter-company relations Standard setting and technology transfer happen through cooperation Standard setting and technology transfer happen through competition

Again, it looks like nonprofits, in their relationship with foundations, operate in many respects like they’re in a coordinated market economy.

  • Financing, that is, grants, are obtained not on public markets, but through private negotiations using information that’s not publicly available, and where “reputational monitoring” underlies the relationship – e.g., program officers talk to each other about their grantees.
  • In terms of labor relations, nonprofits tend to find it hard to fire people, and it can be difficult to pay competitive salaries, so it’s not necessarily easy to hire and fire workers.
  • Standard setting and technology transfer, to the extent they happen, tend to be fairly cooperative, with infrastructure organizations like NPower being open to lots of different kinds of nonprofits.

Where the comparison doesn’t hold up is in the education/training system – there, a lot of nonprofit workers come into the field as generalists, and only specialize over time.

So does it look like there’ll be convergence? Will the nonprofit economy start to look more like the LME of the overall economy? I think convergence, if it happens, will be partial: new models of financing are emerging and multiplying, and we are moving toward social capital markets that will be based on publicly available information. But I don’t know that standard setting and technology transfer are going to start becoming more competitive, necessarily. If anything, the trend is toward greater coordination – witness the merger of TechSoup Global and Guidestar International, and the cooperation among Charity Navigator and other nonprofit rating agencies about getting beyond the primacy of the overhead ratio.

It’s worth considering what kinds of activities – what kind of innovation, for example – this kind of hybrid CME/LME model might be good at.


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One Response to “Varieties of capitalism, varieties of philanthropy (part 3)”

  1. The Blog Briefly Known as "Democratizing Philanthropy?" » Blog Archive » Varieties of capitalism, varieties of philanthropy (part 4) Says:

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