What Kind of Third Sector,
What Kind of Society?
Citizen’s Forum
Council of Europe
Strasbourg, October 2002
By
Helmut K. Anheier
LSE & UCLA
Facts
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4-7% of total employment in EU, 2-4% in CEE
Significant growth in economic importance of
third sector, with 5% growth rates annually in
some countries
Increase in associational density
Increase in number of foundations, assets
Greater policy recognition
Heightened expectations
What is more…
Greater economic pressure—German Free
Welfare Associations
 Consultation fatigue—UK charities
 Value dilemmas – secularization
 Future of welfare state, East and West
 Grey zones more frequent (profit, non
profit, public benefit, private benefit)
 CEE: local innovation, import of models
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Two underlying trends
1. The rise of non-profit organisations as
service-providers
-- part of public-private partnership under
the rubric of new public management
and the rise of markets and quasimarkets in areas that have hitherto been
part of the welfare state.
Two trends…
2. The (re)discovery of civil society
--as part of the growing awareness among
policymakers and scholars that the very
social fabric of society is changing. The
third sector serves as a panacea to
counteract social isolation and the
negative impact of individualism.
New Public Management
less government = less bureaucracy = more
flexibility = greater efficiency
 from third party government to mixed
economy of care / welfare
 from simple contracts to quasi markets or
‘constructed and managed’ markets
 from long-term relations to short-term
considerations, greater uncertainty

NPM -- basic idea
Better technology and improved
monitoring invite market solutions
 Competition across form possible, desirable
 Nonprofit one form among others
 Competitive contracting as tool to
implement policy = modernized welfare
state

Nonprofits as service provider
Long history, now: neo-liberal role
 Germany’s new subsidiarity
 New Labour’s Compact in the UK
 Clinton’s welfare reforms and Bush’s faithbased communities in the US
 France’s unemployment policies of
‘insertion’
 Public sector reform in CEE, privatisation

Implications
Commercialisation:
Nonprofit services become more ‘commercial’ in
a broad number of fields such as social services,
health care, education, culture [shifts in revenue
structure; rise of financial and revenue
management; rise of nonprofit marketing and
branding]
 cultural change within organisations!
Implications…
Professionalization
 nonprofits
are under pressure to become
more ‘professional’; social workers,
accountants, health care professionals,
teachers – even volunteers
 ‘corporatization’ of nonprofits, from
association to firm, von Anstalt zu Betrieb
Implications …
Organisational form questions:
Is ‘charity’ still adequate, how far can we ‘push the
limits’ of the nonprofit form? Many countries are
considering legal changes that would make it
easier for nonprofits to function as economic
actors [UK: PUI/Treasury reviews; public benefit
corporation; Social Investment White Paper;
Ireland’s Green Paper; Germany: reform of public
benefit and tax law; reforms in CEE from 1990
onward]
Implications…
‘Ethos’ implications
Is the sector still the same? Operates in
changed environment; complex
partnerships. What happens to traditional
role of sector? What is the role of values in
the context of new mangerialism.
Many nonprofits rooted in values, often
religious and political
The (Re)discovery of Civil
Society
In contrast to the neo-liberal role (NPM),
the neo-Tocquevillian approach emphasises
the sector’s social integrative function and
indirect contributions.
 Notion of social capital, self-organization
 Social capital as the glue of modern, highly
diverse societies
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Norms, networks, civil society

“strong and vibrant civil society
characterised by a social infrastructure of
dense networks of face-to-face relationships
that cross-cut existing social cleavages such
as race, ethnicity, class, sexual orientation,
and gender that will underpin strong and
responsive democratic government”
(Edwards, Foley and Diani, 2001:17).
The essence of US debate
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civil society creates social capital, which is
good for society and the economy. For NeoTocquevillians, civil society is not only a
bulwark against a state that could become
too powerful, or a mechanism that creates
social cohesion, it is much more than that: a
general principle of societal constitution.
Persistent myth or solution?
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The genius of Putnam was to link de Tocqueville’s
19th century diagnosis (or age-old mythologies, as
some would say?) to modern issue of American
society. This made his work so attractive to
policymakers in US and elsewhere: It identified a
problem (isolation, exclusion) to a solution
(voluntary associations, community) and offered a
solution from the past, suggesting tradition and
continuity to an unsettled presence. This
connection ‘clicked’ not only in the US, but also in
Britain (see Third Way) and countries like
Germany (long history of associationalism).
The essence of the European
debate
The strong and positive link between social
capital and civil society that is typical of the
US debate, is seen as more problematic in
Europe, and requires the State to make it
work.
Economic redistribution, social redistribution
of capital, life chances
Where Europe is different

the French tradition (Pierre Bourdieu) sees
social capital primarily as a form of
inequality and less as a force of cohesion;
this contradicts the US (Putnam) theme that
sees social capital as social ‘super glue.’ Of
course, distinctions between bridging,
linking and bonding capital help, but the
French approach is more critical than US
one.
Where Europe is different …
Civil society and ‘social capital’ require
‘good governance’ to function for the
greater public good.
 Government needed to create and
implement such policies of social inclusion
and integration.
 European state remains active state (even in
UK), in contrast to US (minimalist state).
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Key questions

Do these trends (NPM, civil society) share
common sources, what do they have in common?
Or are they parallel developments? Do we find
the same diagnosis across countries, and are there
commonalities? What are some of the major
implications for research and policy-making?
What can we say about the future of the nonprofit
sector in developed countries?
Or, in different words…

How can nonprofit organisations be efficient
providers and neo-Tocquevillian associations -‘be all’ -- at one and the same time; how can they
serve such dual functions beyond a certain
threshold? Does emphasis on one, e.g., service
provision under new public management, come at
the expense of the other, e.g., creating a sense of
belonging and social trust, or can both be
combined, and if so, how?
The Nonprofit Form
Nonprofits exist under certain suply and demand conditions
1. Supply
- entrepreneurship (ideological, social)
- organisational skills, human resources, finance
2. Demand
- heterogeneity, public fund shortage
- ‘voice‘ problems for diverse segments, groups
- information asymmetries, trust problems
Much of expansion demand driven!
Fundamental Revenue Problem
Preferred good: quasi-public good, difficult to price, to
raise funds for, charge fee (freerider problem etc).
Nonpreferred good: related or unrelated to purpose,
meant as ‘cash cow,‘ necessary evil
Cross subsidisation: (use revenue from nonpreferred
good to support preferred good) or
e
Direct subsidy: (grants, donations, tax concessions)
Stakeholders and Revenue
•Related and unrelated buisness income have different
stakeholder attached to them
•Leads to innovation but also tension
•Goal displacements, taming, growding out
•Conversion, merger, form changes
•Grants have ‘strings’, can reduce autonomy
Basic Issues
Like all organizations, NGOs have to
address issues of
Power / principal agent problem /
professional control (Michels, Olson)
Economic pressures (revenue,
competition, fitness)
Environmental uncertainty
(political, economics)
So…
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Can nonprofits be both?
Service provider …
and
source of social capital?
Initial answers…
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Nonprofit can be both if they are value-based,
small and locally bound, or focused on well
defined issues, groups.
They can be both if they are supported by key
stakeholder that provides financial security
In most other cases, nonprofits are transient form
if pushed—but vitally important.
Nonprofit require supportive, enabling legal
environment to develop, ‘deliver’ and to either
sustain or transform themselves.
On to more basic questions
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The numerous government policy initiatives
currently under way and being considered
suggest a more fundamental policy shift
whose ultimate objective is however not
clear: what kind of ‘society’ and what kind
of ‘community’ does Europe, the current US
administration, New Labour etc want?
National - International
These nation-state developments contrast with
what seems to be happening at the global,
transnational level
Rise of NGOs in humanitarian assistance,
development etc and the crisis of
multilateralism—is this pointing to a shift in
international relations away from nation states as
actors and constituting element of multilateralism?
Are we witnessing the emergence of a new
international welfare system based on private
actors?
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Growth of International NGO
Figure 8.1: Growth in international organisations: 1900-2000
(all active organisations)
30,000
1975
Number of organisations
25,000
20,000
15,000
10,000
5,000
0
00
9
1
06
9
1
12
9
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18
9
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24
9
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30
9
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36
9
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42
9
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48
9
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54
9
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60
9
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66
9
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72
9
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78
9
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84
9
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90
9
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96
9
1
More specifically…
What does the significant expansion of NGOs at
international level signify, mean?
‘Filling a void’ or ‘pushing open space’
Greater numbers = greater complexity?
Quantitative expansion and qualitative change?
Beginning of more fundamental shift in
organizational form? Something new?
5. Emergence of new power relations, policy
regimes at global level? Something different?
1.
2.
3.
4.
The Answers (in staccato)
So, what does it mean, then…?
1. ‘Filling a void’ or ‘pushing open space’ Both,
but increasingly more filling than pushing
around transnational goods, problems.
2. Greater numbers implies greater complexity –
quantitative expansion, qualitative change? Both,
but the latter is really what’s important now.
3. Beginning of more fundamental shift in
organizational form? Yes, much innovation.
4. Emergence of new power relations, policy
regimes at global level? Complicated…but
rather likely, and full of uncertainty…
WHAT KIND OF NGO FOR
WHAT KIND OF EUROPEAN
SOCIETY?
WELFARE REGIME?
POLITICAL SYSTEM?
GOVERNMENT?
FOUR SCENARIOUS
Here: European Union
 But similar diagnosis at country level
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‘Caricatures’—but indicative
 Not either or, but clear tendencies
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NPM-Scenario
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NGOs as a set of well-organised, corporate entities
to take on tasks and functions previously part of
national state administrations and/or EU, but now
delivered through competitive bidding processes
and contractual arrangements that try to maximise
the competitive advantages of non-profit providers
in complex, Europe-wide social markets under
some form of State/EU tutelage. (‘The NPM
guru’s global delight’).
Social Capital Scenario
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NGOs as the self-organising, Europeanised ‘quasistate’ apparatus of the 21st century, as part of a
benign global civil society, with high levels of
individualism, participation and ‘connectivity’,
that prevents social ills, detects and corrects them
before they become ‘social problems,’ well-coordinated, at arm’s length, with and by a
technocratic EU regime of minimalist national
states and other IGOs? (‘The Dahrendorf
warning as global nightmare’)
Liberal Scenario
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NGOs as a source of dissent, challenge and
innovation, as a counter-veiling force to some
form of European government (‘super state’) and
the power of TNCs—a sector that serves as a
social, cultural and political watchdog keeping
both global market and state powers in check, a
sector that creates and reflects the diversity and
pluralism and dynamism of modern, European,
even global society. (‘Gellner’s promise gone
global’)
The Corporate Scenario
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The ‘corporatisation’ of NGOs and the expansion
of business into European civil society;
corporation use extended social responsibility
programmes to provide, jointly with NGOs,
services previously in the realm of government
such as health care, child care, pensions,
community services). Entitlements linked to
corporate/NGO membership, less to citizenship
(‘Perrow’s suspicion gone global’)
Which scenario shall it be?
Key issues: divergent answers
US:
corporate, social capital
‘Old’ EU: NPM, liberal (neo Social
Democrats)
CEE: NPM, ???
Here: Tension between need for
sustainable local innovations and EU
requirements, US influence, donor
withdrawal
Thank you for listening …