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Thursday, January 3 - 9:22amSanction this postReply
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Joe,

It is rare to see such a clear presentation of important ideas. You have a talent for making the abstract easily available to others. Like a philosophical "eye doctor", it's like you can fit others with the right glasses so that they can see what is true and important. 

Great essay.

Ed




Post 1

Thursday, January 3 - 3:06pmSanction this postReply
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Joe,

Excellent article! My only suggestion would be to hold tighter to the view of charities where the donor is the 'customer,' the gift to recipient is the 'product,' and the charitable organization is the 'business.' The customer buys the product for primarily emotional reasons. I read your paragraphs where this was the viewpoint and they worked best for me. If you look at emotional satisfactions as benefits, and see that those who run charities are getting satisfied as well, then the model is one of mutual benefit.
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There are other examples of 'businesses' that don't make a profit: Credit Unions, CO-OPs, yet they have customers and can be in a competitive market.

And, there are other examples of 'product' whose cost is almost infinitely flexible (like where people muck about at garage sales for things to resell, or people who find written works with expired copyrights that they can republish, or garage band musician recordings. There are many areas where selection of 'product' is not only flexible in cost but also where the business can be very flexible in setting and changing the selection criteria. Usually their progress will be measured the amount of revenues this month compared to last.

You were astute in pointing out that the donors are most often (maybe always) satisfying an emotional need. And you pointed out that Donors ('customers') won't be happy with an inefficient charity (they'll choose a competitor), but they also will tend to choose the competitor that offers the most heart-string tugging for any dollars they've earmarked for charity giving. Lots of other businesses focus intently on the customer's emotional wants (sellers of perfume, renting movies, selling art, etc.)

I suspect that charities measure the monthly revenues first and foremost (after deducting the marketing costs). The cost of goods sold is, as you pointed out, very flexible - they can just give away what's left after fixed costs of salaries, marketing, etc. They will keep shifting the variables that they believe most effect the emotions of the most customers. They can make a 'profit' (surplus of revenues over expenses for a given accounting period) but they can't legally transfer it to 'owners.' They have to increase spending and/or watch out that capital reserve accounts don't grow too much to get them in trouble with the IRS. They won't be putting profit in an owner's personal account, like a for-profit business, but they will be satisfying wants of those who 'own' (control and direct the organization). It would be wrong to think that politicians, bureaucrats, or directors of charities are "selfless." They are just getting their wants satisfied in way that don't necessarily show up in an accounting ledger.

Your paragraph on government as a quasi-charity was good. One of the differences is that the politicians, the central planners, are satisfying their emotional wants (and the wants of special interests who keep them in power). Instead of revenues coming to their pockets like normal business owners (not counting corrupt takings which are more like semi-secret employee benefits) they need votes to stay in business, and the voters, in that view become seen as customers (along with the special interests - who line up at the private window). The politicians make policy selections to suit the voters/special-interests, (campaigning = marketing) and what is given away to the poor, or non-special interest military support, or foreign aid, etc. is like a charity's recipients - an afterthought needed to justify the whole operation whose real purpose is supporting the charity (politicians) and is powered by the voter's wants for relief of national problems they care about via policy.
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Government seen as a kind of charity:
  • Business: Providing the impression of solving dangerous national problems (kind of like insurance, but more emotional than a rational risk management. More like playing the lottery as a way to mitigate a state of poverty).
  • Customers: voters
    Business Partners (and secret customers): special interests
  • Revenues: votes
  • Profits: As a charity they have no legal profits, but they do have corrupt takings, power, narcissistic satisfactions
  • Product: a kind of hope-based extortion. If you don't vote for me, my opponent will screw you much worse and I will make things wonderful.
Notice that I didn't include anything about taxes or borrowing or money printing. Those are just either daily processes, like engaging in marketing (political propaganda) and each politician pretends that they are fighting for the right taxes/borrowing/etc. but the outcome that is negative to their customers is always the competitors fault or just a part of the overall environment. And, issues just become the content of the propaganda ("Elect me and I'll reduce taxes." Or, "Vote for me and I'll make the rich pay their fair share.")

But even if we can categorize government in ways that make it similar to charity, it would be wrong to dwell on that since the heart of a charity is that people give voluntarily and they aren't being extorted (well, not with threats of violence in this lifetime)



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Post 2

Saturday, January 5 - 6:56pmSanction this postReply
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Thanks Ed and Steve.

I wrote a bunch of articles last year and never got around to posting them.  I figured I'd start.  Unfortunately, I don't have much time these days to participate.

On this topic, the point that interested me the most was how charities don't have the same kind of selection process a business has (even a non-profit business, like a credit union).  Because of the selection process with businesses, we can expect over time that inefficient businesses will go out of business.  Charities are different in that the value they provide to their recipients has no real selection process.  They can be terribly inefficient at helping others and still survive.  To the extent there is selection, it is not based on results but on impressions.




Post 3

Saturday, January 5 - 8:15pmSanction this postReply
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http://www.moneysense.ca/2011/09/13/which-charities-use-your-money-most-efficiently/

It looks like this lady had a real impact on how her favorite charity was ran. If people speak up they can act as watchdogs in order to effect changes for the better. I believe there are now charity rating groups modeled after the better business bureau that rates charitable organizations on both efficiency and the percentage of funds that actually go directly to the recipient of the charity in question.



Post 4

Saturday, January 5 - 8:33pmSanction this postReply
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Joe,

The March of Dimes once targeted polio, then that got cured and, from what I heard, it terrified the directors who went into immediate huddle and came out with an entirely new mission - preventing birth defects. A much safer mission in that we aren't likely to run out of anything as generic as birth defects.

Like you said, their selection process is out of whack... especially when a total success (the end of polio) is a major problem.



Post 5

Monday, January 7 - 7:33amSanction this postReply
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You might find this interesting:
http://www.growthphilanthropy.org




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