Charities are outmoded institutions that have no contribution to make to modern society. What is needed are social enterprises. Discuss.

Introduction
In this essay I will start by looking at definitions of both “Charities” and “Social Enterprises” before going on to look at a short history of the development of the voluntary sector in the UK. I will then move on to examine the arguments suggesting that charities have become outmoded and the perceived benefits of social enterprises as an alternative approach. In the final section I attempt to critically assess these arguments and to draw some conclusions.
Some definitions
Charities are essentially organisations established to provide some form of public good, with most of their funding being generated through donations from individuals, companies or government departments. In the UK a charity must be registered with the Charity Commission and the purposes of the charity must meet the “public benefit requirement”. Its purposes will be defined in its governing document or constitution, and ALL of its purposes must be exclusively charitable. This is the main distinction between charities and social enterprises. This latter term is used to describe a wide range of organisations which are run as businesses (and often constituted as companies rather than charities) but don’t exist purely to make money for their stakeholders. Instead they have other goals such as to benefit the community, the environment or any other social interest. Consequently either all or some of their profits are reinvested in promoting their particular cause, whatever that may be. Social enterprises raise funds through selling either goods or services which people wish to purchase, while charities rely heavily on the generosity of givers, often appealing to their sense of “guilt” as regards the plight of others less fortunate than themselves.
A brief history of Charities and the development of Social Enterprises
The industrial revolution of the 18th and 19th centuries not only created enormous wealth for the privileged owners and middle class managers, it also caused huge social upheaval through movement of the population from the countryside into cities. Poverty and other social issues caused the newly wealthy to give generously to early charities, to the extent that by the mid-1880's the Times could boast that the income of London charities was greater than several European countries.
During this period many of the UK's best known charities were formed, including among others - Barnado's, the National Society for the Prevention of Cruelty to Children (NSPCC), the Royal Society for the Prevention of Cruelty to Animals (RSPCA), and the Salvation Army.
Despite the large amounts of money raised, concerns over the shortcomings of this charitable giving soon became apparent. Questions regarding the efficiency of such charitable donations caused lively debate and led people to design new ways to try and maximise the impact such charitable giving had in tackling the social and economic issues of the time.
The Charities Commission was formed in 1853 and was the first step towards a more coherent national policy of supporting the work of charities. It had the power to impose sanctions in cases of abuse and to change trust deeds and endowments which had become irrelevant due to the passage of time.
Over time the failure of charities to really address poverty and other social problems became apparent and many fell into disrepute. Furthermore, society's own failures to find manageable solutions did a great deal to convince the wealthier middle classes of the need for state intervention in key policy areas like social welfare, education and care of the elderly.
The eventual culmination of this was the establishment of the Welfare State by the post Second Wold War Labour Government. This resulted effectively in the takeover by the Government of many services previously provided almost entirely by voluntary organisations and posed serious questions as to the role of charities in the modern era. Discussions focussed on the need to protect but also modernise ancient trust deeds and endowments, and on the role of charities in delivering services in the future and formulating new solutions to social problems. The 1960 Charities Act established the Central Register of Charities and relaxed the rules regarding changing and up-dating charitable purposes which in turn allowed ancient bequests and endowments to have contemporary use, whilst still hopefully respecting the wishes of the founder.
Alongside the development of the charity movement the last century also witnessed the formation of a number of early social enterprises, the most common forms being credit unions, employee owned companies, co-operatives and housing associations.
Since the 1980's charities themselves have begun to use social enterprise activities as part of their fundraising and the important role of fundraising has developed and become much more professional. In 1983 the Institute of Charity Fundraising Managers (ICFM) was established to promote the work and practice of professional fundraisers. This development coupled with its scope for abuse led to legislation in 1992 and 1993 to control the work of professional fundraisers, consultants and the many "commercial participators" who work with charities to generate funds, often employing elements of social enterprise, such as promotional partnerships, merchandising and charity shops.
More recently however, the privatisation of many state welfare services by the Conservative government of the 1980's has had a significant impact on the charity sector and has resulted in the establishment of many social enterprises. Increasingly government and the educational establishment have become involved in promoting the formation of social enterprises. Many universities and colleges now offer qualifications on social entrepreneurship, and in 2002 the UK government established a social enterprise strategy. This has developed further so that there is now a social enterprise action plan under the responsibility of the Office of the Third Sector which in turn is part of the Cabinet Office. Such political moves have coincided with an increasingly suspicious general public leading us to question whether the role of the traditional charity, as we understand it, has indeed become outmoded in the modern world.
Are charities outmoded institutions?
Academics have found it difficult to measure whether charities are inferior to social enterprises in a truly scientific manner. They have not been able to identify useful metrics to allow us to make meaningful comparisons and without the ability to perform sound quantitative analysis and comparisons, any attempt at comparison will likely be unsatisfactory to some degree.
However, as Wang (2009) postulates, there are essentially four key arguments which suggest that charities are inferior and consequently outmoded:
1. Charity is limited
As Matthew Bishop and Michael Green (2008) in their book “Philanthrocapitalism – How the rich can save the World” point out, there is not enough charity and aid money in the world to meet the needs of the poor. Consequently the argument goes that if you want to help 300 million people in, say, China then charity is not the answer. Supporters of the social enterprise approach believe that charity is designed to transfer value while business is designed to create and capture value. And if we’re trying to provide value to the poor, it seems much better to create it using the power of business then to transfer it using the power of charity.
2. Charity is often inefficient
Here the argument is that charitable giving is inefficient per pound spent because of bureaucratic and allocative inefficiency. As William Easterly (2006) writes in “The White Man’s Burden”:
The difficulty of foreign aid agencies is that a bureaucrat is controlling the thermostat to the distant blanket of some poor person, who has little ability to communicate whether she is too hot or too cold. The bureaucratic Planners get little or no feedback from the poor. So the poor foreign aid recipients get some things they never wanted, and don’t get things they urgently need.
Thus it is argued that aid is by design an inherently inefficient way of helping the poor because of its lack of accountability to the people who are the primary beneficiaries of aid. In his book “Out of Poverty: What Works When Traditional Approaches Fail”, Paul Polak (2008) argues in favour of market-based solutions to poverty:
In the first twenty years of my work with IDE, development leaders were outraged by my notion that you can and should sell things to poor people at a fair market price instead of giving things to them for nothing.
And the development organizations continued to donate mountains of food, free village hand pumps that broke down within a year and were never fixed, and thousands of free tractors that continue to rust under the African sun.
3. Charity and aid is often intrusive, insulting and harmful
Charities can be argued to be intrusive in many ways. They employ people to solicit donations on street corners, send unsolicited mail and intrude into people’s homes through “cold-calling” phone calls and shocking television advertisements. Such tactics again are often inefficient as charities spend more and more on them until the point where they judge the “return” on them to be uneconomic. Even then their response may be to attempt to increase the “shock” and intrude more.
Ugandan journalist Andrew Mwenda makes some strong and interesting points as regards the situation in Africa. In his TED talk (2007) he argues that the Western media should really stop portraying Africa as a continent of hopelessness that needs foreign aid. This has caused African governments to create distorted structures of incentives, poor institutional and policy frameworks and widespread corruption. With so much aid money received the best option is working for governments and this has stifled wealth creation and entrepreneurship. The media appeals play on the emotions of sympathy, pity and charity and in many ways are counterproductive. He argues that the challenge should be creating wealth NOT reducing poverty, and to achieve that Africa needs support in investment, internal wealth creation and in creating the internal framework to make this happen.
4. Business (if successful) achieves size (or scale)
In his book “Creating a World without Poverty: Social Business and the Future of Capitalism”, Yunus (2007) points out the difference in ability between a business and a charity in achieving scale.
Charity too has a significant built-in weakness: It relies on a steady stream of donations by generous individuals, organizations, or government agencies. When these funds fall short, the good works stop. ........And in hard times, when the needs of the unfortunate are greatest, giving slows down. Charity is a form of trickle-down economics; if the trickle stops, so does help for the needy.
A social business is different. Operated in accordance with management principles just like a traditional PMB, a social business aims for full cost recovery, or more, even as it concentrates on creating products or services that provide a social benefit. It pursues this goal by charging a price or fee for the products or services it creates…
The achievement of full cost recovery is a moment worth celebrating. Once a social-objective-driven project overcomes the gravitational force of financial dependence, it is ready for space flight. Such a project is self-sustaining and enjoys the potential for almost unlimited growth and expansion. And as the social business grows, so do the benefits it provides to society.
Although governments try to address some of the difficulties facing charities in achieving scale, it remains difficult for them to achieve this when government aid and private donations are their only viable and regular source of funds. Social enterprises on the other hand can avoid the need for charitable funding entirely.
Some stronger arguments take a more cynical view of charities. They criticise them for not having a plan to address the root causes of why the charity was created in the first place. They fail to use the network of people affected by a social problem as a tool for social change.
They do not share vital information about the bigger picture with people who will be most affected. Agencies and charities that serve people living in poverty often do not give those people information about public meetings, rallies or other actions meant to confront the roots of the injustice.
In “Pedagogy of the Oppressed”, Paulo Freire (1972) describes this withholding of information as violent:
To alienate people from their own decision-making is to change them into objects. Any situation where some prevent others from engaging in inquiry is a form of violence.
He goes on to argue that employees of a charity will have a vested interest not to share their skills and information and there will be little effort to involve new people in decision making and power sharing. Charities require repeated action and there is no long term solution or strategy ever offered and no opportunity for those forced to use the charity to take part in a discussion as to the roots of the problem, and thereby formulate solutions.
Charities, so this argument goes, seek to feel better by saving others and concentrate their efforts on this and paying little attention to organising for long-term social change and improvement.
Freire goes on to describe what he refers to as false generosity:

In order to have the continued opportunity to express their "generosity" the oppressors must perpetuate injustice as well. An unjust social order is the permanent fount of this "generosity", which is nourished by death, despair, and poverty. This is why the dispensers of false generosity become desperate at the slightest threat to its source. True generosity consists precisely in fighting to destroy the causes which nourish false generosity. False charity constrains the fearful and subdued the "rejects of life," to extend their trembling hands. True generosity lies in striving so that these hands--whether of individuals or entire peoples--need to be extended less and less in supplication, so that more and more they become human hands which work, and working, transform the world.
This rather extreme view claims that charity is about perpetuating injustice whilst social enterprise is about transforming the injustice. Charity treats the symptoms whist ignoring the causes, whist social enterprise seeks to tackle the causes.
Do charities still make a contribution to modern society?
Implied in the essay title is the implication that perhaps society itself has changed in such a way that “modern” society has rendered the traditional charity movement as outdated. As mentioned earlier, the historical moves firstly in the creation of the welfare state and more recently in the dismantling of government run programmes through the privatisation of services have had a profound effect on charities. However, it is still clear that many of the fundamental problems faced by society in the nineteenth century are still evident today. Homelessness, unemployment, health care, medical research and poverty are still significant issues and although many social enterprises, for example “The Big Issue”, have arisen there remains a significant role for traditional charities. In addition natural disasters such as earthquakes, tsunamis, and famine still occur, as evidenced in Ethiopia at the moment, whilst wars are as prevalent today as ever. All of these result in the mass displacement of populations, abject poverty and the need for immediate aid. Governments cannot supply all of this and charities have a clear role to play. In such cases of extreme and sudden disaster there is also no obvious role for social enterprises.

Summary and conclusions
As I have shown above, it can be argued that charities are limited, inefficient, intrusive and unlikely to achieve scale and one might therefore have thought should be in terminal decline. However the evidence is very different. In his 2006 article “Voluntary Action – renaissance or decline?” Frank Prochaska highlighted that the number of registered charities had increased by 70% since 1991, charitable income had risen to over £20billion, and employment in the sector represented about 2% of the workforce. These are hardly figures of a movement which has become outmoded.
However, he went on to point out that in the mid 1980’s about 10% of charitable income came from government sources but by the late 1990’s this figure stood at 45%. Although this recognition by government of the ability of the voluntary sector to provide social enterprises is commendable there is an argument that it also carries dangers. The contract culture puts in question the independence of the charity and they can become caught up in government regulation and service delivery – just who is the volunteer working for in such a situation? As a consequence there is a risk that charities working closely with government departments will alter their objectives and targets to suit the range of grants available to them, and they will also be less inclined to act as critic of government policy. Furthermore, if contributors believe that charities are essentially funded by government they may be less inclined to make donations.
Of course, social enterprises which are genuinely independent of government can resolve a number of these issues and in theory would be a preferable solution to charities. However, such pure social enterprises are a very rare breed and in practice we tend to find for-profit companies which have social enterprise arms, and charities which similarly have social enterprise activities. Social enterprises have undoubtedly brought benefits to the charitable sector by encouraging financial planning and the measurement of results, and leading them to become more innovative and effective. However, they are not without their problems and can be criticised for taking resources away from the charity’s core activities. Critics point out that running a charity is different from running a business and if there were such easy ”profit” to be made then someone would surely have done it already. They also argue that social enterprises have hidden subsidies which allow them to pursue their aims whilst still remaining competitive. Furthermore it is folly to assume that such social enterprise activities are themselves not open to abuse. On the radio recently it was highlighted that when buying charity Christmas cards in a high street shop there may be as little as 6% of the proceeds going to the charity! Above all, like all small businesses more than 50% of such enterprises fail within the first few years.
In conclusion I would argue that the contention in the essay title is not appropriate and largely incorrect. There are a number of clear and legitimate criticisms of charities and similarly advantages to social enterprises. However pure social enterprise organisations are very rare and clearly unable to tackle many of the significant problems and disasters which occur in modern society. Governments are also often unable to tackle such issues themselves and this leaves a clear role for charities. What has happened is that many charities have reformed themselves to embrace social enterprise activities as part of their fundraising mix. At the same time social entrepreneurs have incorporated social enterprise activities within their own successful businesses, and in practice “social enterprise” is evident in both the business and charitable sectors. Thus such social enterprise activities can and should have a prominent part in our attempts to tackle poverty and other social issues, but they cannot be the full answer. Consequently our society should aim to teach the next generation of fundraisers, charity workers, social workers and policy makers to think not simply about innovative entrepreneurial solutions, but also about how these will fit alongside and strengthen the existing charitable activities.

References

Bishop, M. & Green, M. 2008. Philanthrocapitalism: How the rich can save the world. London: Bloomsbury Press.
Cates, A. 2009. Charities: Inefficient, ineffective and intrusive? Available at www.soschildrensvillages.org.uk
Easterly, W. 2006. The White Man’s Burden: Why the West’s efforts to aid the rest have done so much ill and so little good. New York: The Penguin Press.
Freire, P. 1972. Pedagogy of the Oppressed. Harmondsworth: Penguin.
Mwenda, A. 2007. Talks: Andrew Mwenda takes a new look at Africa. Available at http://www.ted.com/talks/andrew_mwenda_takes_a_new_look_at_africa.html#
O'Hagan, B. 2001. The History of UK Charity. PNNOnline Monday, August 13, 2001
Polak, P. 2008. Out of Poverty: What Works When Traditional Approaches Fail. San Francisco: Berrett-Koehler Publishers.
Prochaska, F. 2006. Voluntary action – renaissance or decline? New Start magazine 14th July 2006
Wang, T. 2009. Charity vs Business: The Business Case. Available at http://tonyjwang.wordpress.com/2009/05/08/charity-vs-business-the-business-case/ Wikipedia. 2009. Social Enterprise. http://en.wikipedia.org/wiki/Social_enterprise.
Yunus, M. with Weber K. 2007. Creating a world without poverty: social business and the future of capitalism. New York: Public Affairs.