Over the last few months, CDB’s Chinese Website has played host to a vigorous debate on the pros and cons of the marketization of the NGO sector. The issue of marketization has long been discussed within Chinese civil society. While some see it as a way to ensure the independence and competitiveness of Chinese NGOs, others see it as a threat to the inherent values of philanthropic organizations.
A number of experts and people who work in civil society contributed to the debate with articles stating their point of view. We have decided to translate two of these articles into English for the benefit of our international readers. The one you find below was written by Xu Yongguang, the director general of the Narada Foundation and an important figure within Chinese civil society, who looks upon marketization as a positive phenomenon.
The author sees a shift towards a market-led charity sector as the best antidote to what is know in Chinese as 行政化, literally “the tendency towards administration”, which denotes being incorporated into a system led by the state rather than the market, and is deeply rooted as a concept in China’s traditional planned economy.
The second article we have translated is by Hu Buxi, and argues that the market’s focus on efficiency and profit is incompatible with the values of the charity sector, and so marketization should be resisted if possible. You can find it here.
In May 2009, all the 530 students at the Sichuan Fanglongju Primary School received care packages from the China Foundation for Poverty Alleviation (CFPA).
A journalist from the China Philanthropist magazine asked me: “could we use the term ‘guo jin min tui’ (国进民退，the state advances, the private sector retreats) to define the Chinese NGO sector in the past?” My answer was that this definition was not accurate. In the 1980s and 1990s the sector sprouted, benefiting from the opening-up policy and the “guo rang min jin” (国让民进，the state encourages the private sector to advance). The once totalitarian government allowed space for the progress of the NGO sector. The Regulations for the Management of Foundations (1988, State Council) stipulated that a foundation “is a private non-profit organization that manages the funds voluntarily donated by domestic and foreign social organizations, other organizations or individuals.” There was a strong groundswell for the establishment of foundations with a governmental background, which conducted philanthropic projects in various fields such as education, medicine, poverty alleviation, women and children. This gave citizens access to public affairs. Later on, in par with the economic sector, the NGO sector experienced a trend towards “guojin min tui” (国进民退，the state advances, the private sector retreats). The government came to view the NGO sector as a supplement to its social security. Donations became “another type of tax” in some regions, and the soliciting of donations through the use of political power roiled the sector.
How will the Chinese NGO sector reform? He Daofeng[1]‘s comments on “the marketization of the economy, society and politics” inspired me to come up with the topic of “countering the administration-orientation[2] with a market-orientation”.
The concept of charity marketization (公益市场化) has a long history
The concept of charity marketization is hardly novel. Similar ideas exist in traditional Chinese culture – “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime”; “help others by helping yourself, god helps those who help themselves”. 120 years ago, the American philanthropist Carnegie, in the Gospel of Wealth, suggested to the rich that helping a man to climb up the ladder is better than giving him alms. Rockefeller believes that the happiness in being wealthy comes from being able to help others. During the recent two or three decades the phenomenon of social enterprises, using innovative business approaches to solve global problems such as poverty and the environment, has reached a climax around the world. It has impacted greatly on traditional philanthropic concepts and operations, and the marketization of charity has become a trend.
Having been born in Wenzhou city, I may have inherited the teachings of the local Yongjia School (永嘉学派), which place an emphasis on both utility and righteousness. Marketization is simply natural to me. Decades ago, a Hong Kong research institution on the market economy wanted to recruit me as their consultant, and I was surprised:”I have only worked in philanthropy.” They answered: “but Project Hope （希望工程）[4] is a remarkable example of market operations. ” This sentence enlightened me.
The opposite of marketization is an administration-orientation. According to the Law Dictionary (《法学大辞典》): “administration is the organization and management of public affairs by state administrative departments”. Promoting administration in the NGO sector means mixing civil philanthropic affairs with public affairs. Civil philanthropy falls into the category of personal rights. Administration is power-oriented. Using state power to solicit donations represents a violation of private property by state power. It ignores the will of the people, hurts their caring instincts and damages the environment of the NGO sector. Marketization is rights-oriented. Respecting the will of the people, cultivating their caring instincts and operating according to market rules are essential for building a good NGO environment and expanding the NGO market.
The public interest market is similar to the business market in four aspects-market entities, factor markets, market rules, and marketing.
Market entities
Market entities are individuals and organizations that conduct business activities in the market and have rights and responsibilities, including investors, enterprises, operators, workers, and consumers.
The investors in the NGO market are the donors. They are individuals, enterprises, and foundations, like business investors. Public and private fundraising activities in the business and the NGO sector are similar too.
NGOs run their assets and projects as businesses. In the Hong Kong SAR and in some countries, NGOs are registered as companies. But NGOs, unlike businesses, cannot distribute profits and enjoy tax exemption.
NGO managers and workers are the counterparts of businesses’ managers and workers. The business market contains investors (shareholders), enterprises (with the board of directors to make decisions for shareholders) and professional managers. The NGO market has donors (approximating shareholders), NGOs (with the board of directors to make decisions on behalf of the donors and the public), and managers (like business managers). The law, interest relationships, and governance structure are similar in the two sectors.
The composition of consumers in the NGO market is much more complex than it is in the business market. Firstly, the beneficiaries are consumers. This definition is quite easy to grasp. But donors are in fact both investors and consumers,and thus have a strong influence. Donating to a project is an act of purchase, however it is aimed not at the donor’s own consumption but rather at giving to others gratuitously. Apart from tangible consumption, the donor also “buys” a spiritual commodity, that is “spiritual consumption” of a kind that is compatible with the idioms “fragrance always remains in the hand that gives roses”, “happiness lies in helping others”, and “it is more blessed to give than to receive.” Therefore, behind all voluntary donations, there is a rational choice and an exchange of equal values.
Donors, volunteers, and service purchasers are active consumers. Hayek, co-winner of the Nobel Prize of Economics, proposed the “consumer paramountcy theory” – consumers choose products based on their will and preferences, according to which the manufacturers produce and provide products. Contrary to this is the theory of producer paramountcy. During a public fundraising in the NGO market, there is a distinct consumer paramountcy. Donors will look for good philanthropic products and donate. For every 100 RMB donation, the CFPA prepares a care package for a child in the poor areas, worth 180 RMB at the local standards. Consumers, thus, enjoy a great deal. Donors used to be able to help a child complete a primary school education with a 300 RMB donation to the Project Hope. The pleasure, satisfaction and marginal benefit of this donation go way beyond a mere 300 RMB. Consumer paramountcy is essential for the flow of philanthropic resources towards efficient organizations.
The needs and consumption of the beneficiaries are the primary engines of the NGO market. However, beneficiaries are receivers of free products and services and they are passive consumers. Within the relationship of supply and demand, providers of philanthropic products are absolutely paramount. Providers are on a slippery slope towards ignoring beneficiaries’ demands, operating projects recklessly and pushing “better this than nothing” products down the throats of the needy beneficiaries. Even more distastefully, some “philanthropists” violate the dignity of the beneficiaries in the name of “philanthropy”. The distribution of philanthropic resources under a producer paramountcy mindset greatly thwarts the efficiency of the NGO market. The results of a business investment are easily visible in profits, but the results of an NGO investment depend on evaluation, which is what serves as a means of restricting producer paramountcy within the NGO sector.
When it comes to the operations of the NGO market, producer paramountcy is not necessarily negative. It is necessary for the producer to be paramount in order to identify social problems, design innovative philanthropic products and lead the trends of consumption. Venture philanthropy (philanthropic risk investment) projects by non-public fundraising foundations, as engines of social innovation, fit in even better with producer paramountcy theory. The Narada Foundation’s Ginkgo Fellowship Program funds future NGO leaders with a high potential who have a global vision accompanied by a practical attitude. This demonstrates the producer paramountcy. Ginko Partners must meet the foundation’s criteria and will receive 100,000 RMB annually for three years as living expenses and for their personal development.The money is spent according to the plans outlined in their own proposals, so consumer paramountcy is also realized.
The research and rational use of consumer paramountcy and producer paramountcy is important for NGO marketization.
The role of the factor market in NGO marketization
First of all we must look at the NGO financial market. Philanthropy needs funds. Chinese foundations are categorized as “non-banking financial institutes” and governed by the Bank of China. The financial market pushes funds towards highly efficient units, simplifies payments and transfers, safely and effectively maintains and increases the value of the assets, and provides philanthropic trust management, which are all cornerstones of the NGO market. The development of fundraising in the NGO sector is synchronized with the financial market. In traditional public fundraising and private fundraising, there are creative fundraising modes such as database fundraising, monthly donations by credit card, internet financing and Wechat and Weibo crowd sourcing. During this year’s “two meetings” of China’s top consultative bodies, Ma Weihua, a member of the National Committee of the Chinese People’s Political Consultative Conference, put forward a very valuable proposal to introduce the trust system into the management of China’s philanthropy and charity funds. This marks the mainstreaming of once marginalized philanthropic assets in the financial market. But the need for such a proposal to advance the charitable trust law, which has been in effect for 12 years and is not yet implemented, is still worth a degree of reflection.
The NGO Labor Market
The NGO labor market is composed of professionals and volunteers in the NGO sector, the latter of which provide gratuitous services. The market mechanism provides a test for the Human Resources policies of the NGO labor market. At present, the moralization and demonization surrounding the issue of NGO workers’ salaries discourages real talent from joining the sector and hamstrings its development. Leaders of NGOs, when helping the disadvantaged and pursuing their personal ideals, need to consider whether they are putting their employees at a disadvantaged position themselves due to their incompetence and backward thinking.
The technology and information markets
Professionalism is increasingly asserted in modern philanthropy. Technical trade and communication are indispensable for the progress of the NGO market. IT technology brings mobile networks, new media, alternative donation payment methods, and improved transparency that enable easy access for the public to NGO information and philanthropic projects. It provides the primary opportunity for NGO marketization and is the catalyst for the reshuffling of the NGO market.
NGO Market Rules
The rules in the NGO market are virtually the same as in the business market: being demand-oriented; respecting the rights of individuals (voluntary donation – fair trade); opposing the monopoly of philanthropic resources and ensuring fair competition between charitable organizations; distributing philanthropic resources to achieve maximum efficiency; ensuring that the government has a supervisory instead of a participatory role (government operations are the main cause of weak supervision); holding fast to a moral baseline while avoiding “moral kidnapping”; and also abiding by laws and regulations, maintaining self-discipline, transparency and social supervision; all of these are important rules for a healthy NGO market.
The social capital rule is unique to the NGO market. The NGO market is a network of donors, volunteers, beneficiaries and the public. The healthy operation of the NGO market nurtures good social relationships, builds social trust and increases social capital. More social capital, which is based on social relationship and trust, leads to lower costs for social trade, including business activities, and generates marginal utility to produce economic value. China faces rigorous challenges on social trust. The legitimacy of NGO’s existence depends heavily on whether they contribute to restoring social trust and cultivate good social relations.
NGO Marketing
NGO marketization demands effective marketing. NGO marketing can refer to the definition of “marketing” approved by the American Marketing Association: “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”
Satisfying the needs of society and human beings is the basic value for NGOs. This value can only be achieved through marketing. As subjects of NGO marketing, NGOs should, first of all, clarify their mission, research social problems, identify needs, and find their positioning. They should develop innovative products (projects) and price them properly (to conduct fundraising and service sales), and attract donations and service purchasers through advertising and branding – mass transmission differentiates philanthropy from traditional charity. The final goal of NGO marketing is to realize the organization’s value through effective services and the implementation of projects. The targets of business marketing are products and consumers and the targets of NGO marketing are investors in the NGO market, donors acting as consumers, the beneficiaries and the governments that purchase social services. The point of business marketing is to deliver value through bilateral interaction between businesses and consumers, while the point of NGO marketing is to interact with and balance a multitude of actors including donors, service receivers, beneficiaries and governments in order to achieve maximum interest for all parties.
In the value chain of NGO marketing, different NGOs have different roles as both “businesses and consumers”. Generally, foundations are often providers of resources, working with professional service-providing organizations in their chosen fields and achieving value together. Public interest service-providing organizations and social enterprises work in multiple fields and face the public as the terminals of social services. Closely related to them are advocacy organizations for civil rights and policies. Philanthropic support organizations are to serve NGOs and provide services in accounting, finance, investment, fundraising, law, information, consulting, branding and capacity building. There are also research institutes and civil think-tanks that provide theoretical ground for the development of the sector.
Sectorial associations and self-regulatory associations are representatives of the NGO sector and make the sectorial standards (without needing administrative permissions according to the law), and constitute a key mechanism for sectorial excellence. The marketization of the NGO sector calls for the establishment of independent sectorial associations.
NGO Marketization responds to popular sentiment
The planned economy depends on the visible hand of the government and the market economy depends on the invisible hand of supply and demand. The rule of supply and demand results derives both from people’s desire for profit and from their altruism. Mencius said, “compassion is common to all men.” Universal love, compassion, honor and religious sentiment are at the root of philanthropy. An administrative orientation in the NGO sector is not only incompatible with market rules, but will also lead to an even more disastrous result than a planned economy: a monopoly on resources is possible, but a monopoly on charitable hearts is not possible. A monopoly of philanthropic resources will result in withered charitable hearts.
During the Lushan earthquake in 2013, the government withdrew itself from the fundraising market and civil donations reached their climax. The total donations from over 100 foundations exceeded the sum raised by the entire Red Cross System in China, and was many times superior to the total donations raised by the China Charity Federation. One Foundation alone raised more than the Red Cross Society of China’s offices in Beijing. Contrary to similar situations previously, there was seldom any criticism and the right to voluntary public donation was respected. Even if there were doubts about the use of the donations, it was understood that the NGO market could self-regulate, without harming the government.
The marketization of the NGO sector aims to restore the fundamental position of the market in distributing philanthropic resources. It is the key approach to the reform of the Chinese NGO sector. The success of excellent Chinese grassroots NGOs can find its root in marketization. All the GONGOs that had successful reforms followed the rules of marketization. On the other hand, any organization that attempts to stick to an administration-orientation so as to use its power to control philanthropic resources will eventually be weeded out by the market.
Marketization differs from commercialization (商业化). Marketization the rules while commercialization stresses profit. The market is an ocean and businesses are ships in the ocean. Those once wielding the ships of business have turned to the NGO sector and will surely contribute to its advancement. Many successful foundations and NGOs have sharp business elites as dominant players.
The marketization of the NGO sector is the right path, but it is also a long path that requires us to liberate our minds and change our mindsets. After the long struggle between the market and administration-based orientations, let philanthropy return to the people, to common sense, to reason and to the rule of law and let the Chinese tradition of charity rejuvenate. This course of action is highly beneficial to public welfare and social stability, so shouldn’t all my fellow NGO workers devote themselves to it?
[1] He Daofeng (何道峰), former chairman of the China Poverty Alleviation Foundation.
[2] Editor’s note: 行政化, or literally “administration-orientation”, refers to a system led by the government rather than the market.
[3] The Yongjia School was a Confucian school of thought which was born in Yongjia, Eastern Zhejiang. It stressed the importance of trade for the country and society, and opposed Ancient China’s policy of suppressing commerce and stressing agriculture
[4] Project Hope is a well-known project founded by the author in the 1990s which aims to build up schools for China’s poor rural area with funding from the public.
