Marketization

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Marketisation or marketization is a restructuring process that enables state enterprises to operate as market-oriented firms by changing the legal environment in which they operate. [1]

Contents

This is achieved through reduction of state subsidies, organizational restructuring of management (corporatization), decentralization and in some cases partial privatization. [2] These steps, it is argued, will lead to the creation of a functioning market system by converting the previous state enterprises to operate under market pressures as state-owned commercial enterprises.

Aspects

Marketized solutions of government and market externalities

Here the government seeks to solve market and government externalities with market-based solutions rather than through direct administrative means. Supporters argue that the market externality of pollution can be addressed through the sale of pollution permits to companies and corporations, thus allowing the market to "see" the information and "realize" the harm done by allowing the market to transmit pollution costs to society. This is presented as an alternative to direct administrative means, whereby the government would use command and control means to direct state enterprises and private firms to comply with the guidelines.

Marketization of government branches

This is often described as "competitive federalism" or "limited government". Proponents argue that markets perform better than government administration. Therefore, marketisation seeks to make government agencies and branches compete with each other when government branches and agencies are absolutely necessary (i.e. remaining agencies and branches not privatized or liberalized away). For example, supporters argue that a voucher system for public education would make public schools compete with one another thus making them more accountable and efficient.

Theory

Critics of globalization, privatization, and liberalization have deemed that it is unworkable without major government regulations to balance the forces involved. They argue that marketization can result in market failure.

Free Market thinkers like Hayek, Friedman and von Mises believe markets can work with far less government regulation. As they see it, the combination of liberalization, privatization, and marketization ensure that globalization fulfills the promises of peace, prosperity, and cooperation that its liberal scholars and philosophers have promised. Without marketization, supporters argue that government created externalities can distort the information available to the market which in turn makes the market not work as well as it could.

Examples

Milton Friedman offers examples of what marketized government solutions can look like. Friedman's proposed education voucher system promotes competition between public schools (and private) thus creating a market-based solution to educational issues. See Private prison. This phenomenon is now permeating into Higher Education in general, with research suggesting that students rather than being perceived as learners are now viewed as customers and therefore a critical component in the business model of many universities [3]

Marketization of the nonprofit and voluntary sector

Overview of nonprofit organizations

Nonprofit organizations came to fruition when people began to recognize that society had needs for services rendered by neither the government nor the private sector. These organizations were created to address these needs. However, due to their overall missions, it is frowned upon for these organizations to make a profit. Therefore, by their very nature, their funding sources remain ambiguous. [4] This results in nonprofits becoming resource dependent and continuing to struggle to find and maintain funding. This struggle has resulted in marketization of NPOs.

Rationale behind the marketization of nonprofits

Commercialization or marketization (the terms are often used interchangeably in the marketization debate among scholars) occurs when an NPO decides to provide goods or services with the intent of turning a profit. Nonprofits' resource dependency often lead them to constantly look for additional, nonconventional for nonprofit, funding. Factors behind a nonprofits decision to marketize are usually compounded by issues such as increased demand for services, inability to tax, and other funding sources' inability to cover operational and service costs for the NPO. In return, the NPO enters into a mixed marketplace and thus begins to compete either with other NPO's or for-profit entities. [5]

Funding sources

Nonprofit organizations have been notoriously plagued with funding issues since their inception. This is due largely in part to the basic concept of nonprofits: to provide a service that neither the government nor the private sector provides a population. Nonprofit organizations receive funding in three ways: 1. Public sources and subsidies; 2. Charitable giving, endowments, major donors; 3. Fee-based services and venture enterprises.

Public sources and subsidies

A public source refers to government assistance either through awarded grants or appropriated funding. Prior to the 1960s, nonprofit organizations relied mostly on fee-for-services and charitable giving. However, with the political climate changing significantly, it became apparent that society was using nonprofit organizations more than before. Additionally, governmental entities realized that by entering into a public-private partnership, they could fund nonprofit organizations and essentially hire then to provide services that governments did not want to provide. Nonprofit organizations began to apply and receive grant awards and appropriations for services. This trend in funding began to decline in the 1980s under the Reagan administration. With the reduction in funding available from the federal government, nonprofits have become increasingly competitive amongst each other. [6]

Additionally, grant money often comes with performance measures or quotas that are required to meet in order to maintain funding. Many nonprofits do not have either the administrative capacity to track this data or the ability to physically meet the performance measures.

Charitable giving, endowments, and major donors

Charitable giving, endowments and donations do play a significant role in funding for NPOs. However, this still does not provide enough funding for NPOs to maintain sustainability and provide adequate services.

Fee-for-services

A fee-based service is not a new concept for nonprofit organizations. Prior to the 1960s, nonprofits quite often utilized a fee-for-service model. This most commonly is seen in nonprofit hospitals. Additionally, gift shops at museums are another form of revenue often associated with fee-for-service models.

Perspectives on marketization: A pro/con discussion of current literature

Literature related to the marketization of the nonprofit and voluntary sector is broad in scope and enhanced marketization of the sector is the subject of “considerable debate among both scholars and practitioners." [7] One side of the debate asserts potential positive effects from increased marketization and one side engages the idea that primarily negative effects are associated with the integration of commercial ideology within nonprofit organizations.

Pro

Marketization is seen by some to hold the ability to provide positive outcomes for nonprofit organizations. One such potential benefit is the diversification of revenue streams and enhanced financial stability. With commercial and market approaches gaining popularity as alternative or supplementary funding sources, their flexibility and less-restrictive nature as revenue sources are noted. [8]

Portions of the literature surrounding nonprofit marketization also consider the positive effects that result from the aforementioned diversified and more sustainable collection of revenue streams. The ability of market-associated activities to “contribute to an organization’s self sufficiency and ability to attract and retain staff” is discussed. [9] The efficiency and effectiveness of organizations utilizing market-based revenue strategies are said to see potential enhancement “by reducing the need for donated funds, by providing a more reliable, diversified funding base”, or by enhancing the overall quality of programs “by instilling market discipline". [10]

Studies conducted of commercial activity in national nonprofit services associations [11] and voluntary social agencies [12] "discovered that such initiatives were generally related to and contributed substantively to mission accomplishment". [13] In the same vein, it has been said that leaders within the nonprofit sector can see benefit from understanding and finding ways to employ commercial forces for social good. [14]

Con

Negative associations between marketization and the nonprofit sector are also present within the literature. One of the main criticisms brought forth against the integration of commercial principles and activities within voluntary organizations is the potential for diversion from the original organization mission. According to Tuckman, a “strong likelihood exists that the missions of nonprofits engaged in commercial activities will grow more ambiguous over time.” The potential tendency of leadership to increasingly look at activities in terms of revenue is also as a result of increased commercial activity is discussed. [15]

Structural organizational changes are also mentioned as a potential negative impact of enhanced commercial activity among nonprofits. From organizational changes necessary to accommodate market-based endeavors, such as growth in “number and scope” of administrative offices that manage profit-seeking efforts, to the “tendency to replace traditional, social problem-focused board members with entrepreneurial, business-oriented individuals,” changes take effort from work directly related to mission accomplishment. [16]

Aside from diversion from mission and structural/staffing changes, the literature notes the potential for lost sector legitimacy as the “distinctions between the business, government, and nonprofit sectors continue to blur and their efforts overlap." [17] Related to this blurring effect, is the theory that civil society is at risk as a result of enhanced marketization within the voluntary organizations. Eikenberry and Kluver, in their article entitled, “The Marketization of the Nonprofit Sector: Civil Society at Risk,” describes the idea that marketization trends negatively impact the unique roles nonprofit organizations play within society. Overall, this theory stands on the thesis that marketization “may harm democracy and citizenship because of its impact on nonprofit organizations’ ability to create and maintain a strong civil society." [18]

The responsibility of nonprofits to those in need is said to become potentially overshadowed by economic and competition-centered values that result from enhanced market-based and commercial activities. Increased desire of voluntary organizations to “secure competitive advantage in the pursuit of producing individual-level goods and services for those who can afford them,” rather than those defined in the original organizational mission. [19]

Marketisation and existing Market Theory

In considering the applicability of the existing literature on contingency theory and perspectives on competitive advantage to the marketised social care sector in the UK, Dearnaley identified a number of areas in each that restrict its value in analysing and responding to the new market environment: the retrospective nature of theories of competitive advantage and foci on differentiation and cost leadership make these inappropriate for this new marketplace; the intangibility of competitive advantage, and particularly sustainable competitive advantage; the relative inflexibility of classical contingency theory. [20] [21] [22]

See also

Related Research Articles

<span class="mw-page-title-main">Non-governmental organization</span> Organization independent of any government, usually created to aid those in need

A non-governmental organization (NGO) or non-governmental organisation is an organization that generally is formed independent from government. They are typically nonprofit entities, and many of them are active in humanitarianism or the social sciences; they can also include clubs and associations that provide services to their members and others. Surveys indicate that NGOs have a high degree of public trust, which can make them a useful proxy for the concerns of society and stakeholders. However, NGOs can also be lobby groups for corporations, such as the World Economic Forum. NGOs are distinguished from international and intergovernmental organizations (IOs) in that the latter are more directly involved with sovereign states and their governments.

A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrast with an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. An array of organizations are nonprofit, including some political organizations, schools, business associations, churches, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions, but an entity may incorporate as a nonprofit entity without securing tax-exempt status.

<span class="mw-page-title-main">Public good (economics)</span> Good that is non-excludable and non-rival

In economics, a public good is a good that is both non-excludable and non-rivalrous. For such goods, users cannot be barred from accessing or using them for failing to pay for them. Also, use by one person neither prevents access of other people nor does it reduce availability to others. Therefore, the good can be used simultaneously by more than one person. This is in contrast to a common good, such as wild fish stocks in the ocean, which is non-excludable but rivalrous to a certain degree. If too many fish were harvested, the stocks would deplete, limiting the access of fish for others. A public good must be valuable to more than one user, otherwise, the fact that it can be used simultaneously by more than one person would be economically irrelevant.

<span class="mw-page-title-main">Public finance</span> Study of the role of government within the economy

Public finance is the study of the role of the government in the economy. It is the branch of economics that assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold, consisting of governmental effects on:

  1. The efficient allocation of available resources;
  2. The distribution of income among citizens; and
  3. The stability of the economy.
<span class="mw-page-title-main">Fundraising</span> Process of gathering voluntary contributions of money or other resources

Fundraising or fund-raising is the process of seeking and gathering voluntary financial contributions by engaging individuals, businesses, charitable foundations, or governmental agencies. Although fundraising typically refers to efforts to gather money for non-profit organizations, it is sometimes used to refer to the identification and solicitation of investors or other sources of capital for for-profit enterprises.

The voluntary sector, independent sector, or civic sector is the realm of social activity undertaken by organizations that are non-governmental nonprofit organizations. This sector is also called the third sector, community sector, and nonprofit sector, in contrast to the public sector and the private sector. Civic sector or social sector are other terms for the sector, emphasizing its relationship to civil society. Richard Cornuelle coined the term "independent sector" and was one of the first scholars to point out the vast impact and unique mechanisms of this sector. Given the diversity of organizations that comprise the sector, Peter Frumkin prefers "non-profit and voluntary sector".

<span class="mw-page-title-main">Charitable organization</span> Nonprofit organization with charitable purpose

A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being.

A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being. This may include maximizing social impact alongside profits for co-owners.

The social economy is formed by a rich diversity of enterprises and organisations, such as cooperatives, mutuals, associations, foundations, social enterprises and paritarian institutions, sharing common values and features:

Nonprofit technology is the deliberative use of technology by nonprofit organizations to maximize potential in numerous areas, primarily in supporting the organization mission and meeting reporting requirements to funders and regulators.

Laws regulating nonprofit organizations, nonprofit corporations, non-governmental organizations, and voluntary associations vary in different jurisdictions.

<span class="mw-page-title-main">Lester Salamon</span> American academic (1943–2021)

Lester M. Salamon was a professor at The Johns Hopkins University. He was also the Director of the Center for Civil Society Studies at The Johns Hopkins Institute for Health and Social Policy Studies. Salamon has written or edited over 20 books in addition to hundreds of articles, monographs and chapters that have appeared in Foreign Affairs, the New York Times, Voluntas, and numerous other publications. He was a pioneer in the empirical study of the nonprofit sector in the United States, and is considered by many experts in his field to be a leading specialist on alternative tools of government action and on the nonprofit sector in the U.S. and around the world.

<span class="mw-page-title-main">Voluntary association</span> Group of people with shared interests or aims

A voluntary group or union is a group of individuals who enter into an agreement, usually as volunteers, to form a body to accomplish a purpose. Common examples include trade associations, trade unions, learned societies, professional associations, and environmental groups.

Brian O'Connell was an American author, academic, and public administrator who helped found Independent Sector, an organization that represents the interests of charities, foundations and nonprofit giving programs in the United States.

Collaborative partnerships are agreements and actions made by consenting organizations to share resources to accomplish a mutual goal. Collaborative partnerships rely on participation by at least two parties who agree to share resources, such as finances, knowledge, and people. Organizations in a collaborative partnership share common goals. The essence of collaborative partnership is for all parties to mutually benefit from working together.

A faith-based organization is an organization whose values are based on faith and/or beliefs, which has a mission based on social values of the particular faith, and which most often draws its activists from a particular faith group. The faith to which the organization is relating to does not have to be academically classified as religion. The term "faith-based organization" is more inclusive than the term "religious organization" as it refers also to the non-congregation faith beliefs.

The Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA) was founded and incorporated in 1971 by David Horton Smith, with the help of Burt R. Baldwin, Richard D. Reddy, and Eugene D. White Jr. as the Association for Voluntary Action Scholars (AVAS).

Top-line growth is the increase in revenue or gross sales by a company over a defined period and is used to indicate the financial strength of a business and its potential for growth in the future. It is usually measured over periods of one-half or full years and is often reported as a percentage growth compared to the previous year or period. Top-line growth does not accrue across periods, instead it is recalculated based on the performance of the business in a specified reporting period. It is a gross figure that represents economic inflows to the company, prior to the deduction of expenses or changes in equity contributed by the business owners or the investors. Top-line growth is often used as a metric for business growth potential and overall operating performance. In most businesses, it forms an integral part of their strategic planning and a means of assessments for such strategies.

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Chao Guo is a public administration scholar. Currently, he is Professor of Nonprofit Management in the School of Social Policy and Practice at the University of Pennsylvania. He is also Associate Faculty Director of Fox Leadership International at Penn. His research focuses on technology and nonprofits, representation and advocacy, nonprofit governance, social entrepreneurship, and collaboration within and across the nonprofit, private, and government sectors. His research has been cited 4,371 times according to Google Scholar, with an h-index of 22 and an i10-index of 31.

References

  1. ↑ Rolph van der Hoeven, György Sziráczki. Lessons from Privatization. (1997). International Labour Organization. ISBN   92-2-109452-9 p.101
  2. ↑ Sarah Vickerstaff. The Transformation of Labour Relations. (1998). Oxford University Press. ISBN   0-19-828979-0 p.63
  3. ↑ Jabbar, A., Analoui, B., Kong, K., & Mirza, M. (2017). Consumerisation in UK higher education business schools: higher fees, greater stress and debatable outcomes. Higher Education. http://doi.org/10.1007/s10734-017-0196-z
  4. ↑ Child, Curtis (September 2010). "Whither the Turn? The Ambiguous Nature of Nonprofits' Commercial Revenue". Social Forces. 89 (1): 145–161. doi:10.1353/sof.2010.0058. S2CID   154541650.
  5. ↑ Tuckman, Howard P. (1998). "Competition, Commercialization, and the Evolution of Nonprofit Organizational Structures". Journal of Policy Analysis and Management. 17 (2): 175–194. doi:10.1002/(sici)1520-6688(199821)17:2<175::aid-pam4>3.0.co;2-e.
  6. ↑ Tuckman, Howard P. (1998). "Commercialization, and the Evolution of Nonprofit Organizational Structures". Journal of Policy Analysis and Management. 17 (2): 175–194. doi:10.1002/(sici)1520-6688(199821)17:2<175::aid-pam4>3.0.co;2-e.
  7. ↑ Sanders, Matthew (2012). "Theorizing Nonprofit Organizations as Contradictory Enterprises: Understanding the Inherent Tensions of Nonprofit Marketization". Management Communication Quarterly. 26 (1): 179–185. doi:10.1177/0893318911423761. S2CID   147090030.
  8. ↑ Froelich, K.A. (1999). "Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organizations". Nonprofit and Voluntary Sector Quarterly. 28 (3): 246–268. doi: 10.1177/0899764099283002 .
  9. ↑ Guo, Baorong (2006). "Charity for Profit? Exploring Factors Associated with the Commercialization of Human Service Nonprofits". Nonprofit and Voluntary Sector Quarterly. 35 (1): 123–138. doi:10.1177/0899764005282482. S2CID   154456751.
  10. ↑ Dees, J. Gregory (1998). "Enterprising Nonprofits". Harvard Business Review. 76 (1): 55–67. PMID   10176919.
  11. ↑ Young, D.R. (1998). "Commercialism in nonprofit social service associations". Journal of Policy Analysis and Management. 17 (2): 278–297. doi:10.1002/(sici)1520-6688(199821)17:2<278::aid-pam9>3.3.co;2-j.
  12. ↑ Adams, C (1991). "Commercial venturing and the transformation of America's voluntary social welfare agencies". Nonprofit and Voluntary Sector Quarterly. 20: 25–38. doi:10.1177/089976409102000104. S2CID   153577981.
  13. ↑ Froelich, Karen (1999). "Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organizations". Nonprofit and Voluntary Sector Quarterly. 28 (3): 246–268. doi: 10.1177/0899764099283002 .
  14. ↑ Dees, Gregory (1998). "Enterprising Nonprofits". Harvard Business Review. 76 (1): 55–67. PMID   10176919.
  15. ↑ Tuckman, H.P. (1998). "Competition, Commercialization, and the Evolution of Nonprofit Organizational Structures". Public Policy Analysis and Management. 17 (2): 175–194. doi:10.1002/(sici)1520-6688(199821)17:2<175::aid-pam4>3.0.co;2-e.
  16. ↑ Froelich, Karen (1999). "Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organizations". Nonprofit and Voluntary Sector Quarterly. 28 (3): 246–268. doi: 10.1177/0899764099283002 .
  17. ↑ Frumkin, Peter (2005). On Being Nonprofit: A Conceptual and Policy Primer. Cambridge, MA: Harvard University Press.
  18. ↑ Eikenberry, Angela (2004). "The Marketization of the Nonprofit Sector: Civil Society at Risk?". Public Administration Review. 64 (2): 132–140. doi:10.1111/j.1540-6210.2004.00355.x.
  19. ↑ Brainard, Lori (2004). "Toward nonprofit organization reform in the voluntary spirit: Lessons from the Internet". Nonprofit and Voluntary Sector Quarterly. 33 (3): 435–457. doi:10.1177/0899764004266021. S2CID   14165900.
  20. ↑ Patricia Dearnaley (2013-06-07). "Competitive advantage in the new contrived social care marketplace: how did we get here?". Housing, Care and Support. 16 (2): 76–84. doi:10.1108/HCS-03-2013-0002. ISSN   1460-8790.
  21. ↑ Patricia Dearnaley (2013-09-09). "Competitive advantage in the new contrived social care marketplace: do we need a new theoretical framework?". Housing, Care and Support. 16 (3/4): 126–135. doi:10.1108/HCS-08-2013-0013. ISSN   1460-8790.
  22. ↑ Dearnaley Patricia (2014-03-12). "Competitive advantage in the new social care marketplace: a new theoretical perspective". Housing, Care and Support. 17 (1): 5–15. doi:10.1108/HCS-12-2013-0025. ISSN   1460-8790.

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