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Could re-thinking charities solve the cost-of-living crisis?

 

The recent win by president elect Donald Trump may be a paradigm shift for western democracies and their market-based economies. If Trump actions the promises made during his election campaign, he has the potential to disrupt the role of government institutions as well as the US and global economies the likes of which has not been witnessed in decades.

As commentators analyse the local and global implications of Trump’s victory, political apparatchiks here in Australia will be considering their own strategies for the upcoming federal election, no doubt pondering the question whether the politics of grievance, the mainstay of Trump’s campaign messaging, will deliver them victory.

Fear, as a campaigning strategy, is stock in trade for most political parties. However, the politics of grievance is something else altogether. Unlike fear, the politics of grievance, allows for the possibility of abandoning established institutions, systems and protocols, completely reordering the functioning of society and the economy.

Many Australians today feel aggrieved, forced to deal with the never-ending cycle of increased prices for basic goods and services, making life for them and their families hard. Much of the blame and anger about our high cost of living has been directed at the Albanese government. Doing so is easy, but unfair and unhelpful.

Many of the drivers of the current cost of living issues stem from decades of inaction from previous governments unable or unwilling to make the tough decisions on issues such as competition policy as well as tax and welfare reform. Add to this our forty-year fixation with an ideology that claims markets can fix everything, and it is hardly surprising that many Australians are all too willing to lay the blame for their current ails at the feet of our body politic.

So, what to do?

The answer is to disrupt certain sectors of the Australian economy with the introduction of a new style of market competitor, one whose purpose is to drive down and keep prices of goods and services as low as possible. In the most basic of terms, the new competitor would prioritise consumers ahead of shareholders – people over profit.

One way in which this could be done is to have government inject themselves into the marketplace as a direct competitor, through the vehicle of a government business enterprise (GBE). GBEs have been around for decades, think of Telstra, Medibank and Qantas. While these and many other GBEs have been sold off by successive governments others continue to operate including NBN Co. and Australia Post.

 

'A more appealing alternative is that charities, not-for-profits and cooperatives become the new market disruptors within Australia’s economy.'

 

GBEs have a history of being market creators, providing goods and services to consumers that would otherwise not be available to them because of distance, poor infrastructure, or population density. However, as private sector competitors enter the market, the role and function of GBEs change, in part because of their duty to uphold the concept of competitive neutrality – a principle which requires GBEs not to exercise any advantage they have as a result of government ownership over their competitors. As a result, GBEs become just another player in the market and become market price takers, the benefits of which are increased revenue for governments.

In reality without first addressing the competitive neutrality policy, the impact of GBEs on market competition and prices may be limited. Nonetheless direct government intervention into uncompetitive markets may serve as a powerful signal that it is serious about addressing cost of living pressures at their source. A more appealing alternative is that charities, not-for-profits and cooperatives become the new market disruptors within Australia’s economy.

Charities hold a unique place in our society, operating where markets don’t and existing only for public benefit. Despite their longevity in Australia, charities have been held at the margins of our economic system, albeit that the charity sector accounts for around 8 percent of Australia’s GDP and employ some 10.5 percent of the working population.

As significant as these figures might be, the economic contribution of charities tends to be in sectors which rely on government funding and philanthropy. Their capacity to operate in the broader economy is limited, partly through choice but also because the restrictions they face in areas of financing and regulation. Lifting these restrictions may be part of the solution in getting increased competition in markets where the dominance of a few corporate players means that prices for goods and services are kept unnecessarily high.

The mechanics of this would be relatively simple but would require a shift in public policy including the regulation and financing of those charities wishing to move into this space.

For an entity to be a designated charity it must be a not-for-profit and have only charitable purposes that are for the public benefit. These charitable purposes are prescribed in law. As the law currently stands it may be difficult for an entity to be deemed a charity if their purpose is to increase market competition for the benefit of all Australians. However, Parliament has the power to address this legislative uncertainty, if it chooses to do so.

While such a charitable purpose may be noble it means nothing in practical terms if those charities are not able to access capital. And this is where the government can leverage its unique power to offer finance to charities at a discount, either at the bond rate or current cash rate. To avoid crowding out existing for-profit providers it would be necessary for there to be a cap on the market share these new competitors might hold. However, that cap could be adjusted if there is a social good in doing so.

No doubt many economists and the broader business community will rail against such an intervention arguing issues of competitive neutrality and the undermining of the free market. In doing so they are all too willing to ignore the failures of the current system and the harm it is causing Australians through unnecessarily high cost of living pressures. It is no longer tenable to rely on the defence that our current market system is the best of the worst systems. People are hurting and are feeling aggrieved by a political and economic system which appears to favour the establishment over the working class.

The Government would benefit from supporting an increased role for charities, cooperatives and not for profits in our broader economy. Introducing a people over profit construct into our market economy is a signal to the population that the Government is willing to explore innovative ways to address some of the failings of our economic system. Ignoring this opportunity may leave the door open to what we witnessed in the US on November 5, the consequences of which are yet to be fully realised.

 


Joe Zabar is the Chair of Mercy Works Ltd and a Visiting Fellow with the Tax and Transfer Policy Institute, ANU 

Topic tags: Joe Zabar, Cost of living, Poverty, Charities, Economics

 

 

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