Structuring Neoliberal Governance: The Nonprofit Sector, Emerging New Modes of Control and the Marketisation of Service Delivery

Structuring Neoliberal Governance: The Nonprofit Sector, Emerging New Modes of Control and the Marketisation of Service Delivery Bryan Evans, Ted Richmond and John Shields Abstract Governments in the Anglo-American democracies have restructured their relationships with nonprofit organisations (NPOs). New modes of control have emerged which represent the paradox of centralised decentralisation. We examine the impacts on NPO financing, accountability and human resources. While the experience of Canadian NPOs is used to illustrate the impact of neoliberal induced restructuring, comparative evidence suggests that the Canadian experience is broadly representative. The imposition of neoliberal governance structures on nonprofit service providers serves to compromise their autonomy and advocacy function, while commercialising nonprofit operations and imposing burdens that have strained organisational capacity. The neoliberal model of market-based regulation has moved many nonprofit service organisations away from their community oriented focus and towards a “business model”. In various forms, the state has introduced quasi-markets or, at a minimum, required NPO’s to engage in more competitive practices with negative consequences for nonprofit mission, culture and labour-management practices. The result is a growing level of instability within the sector.

1. Introduction Throughout the 1980s and 1990s, governments in the Anglo-American democracies transformed their structures of governance, from Keynesian-based institutions and processes towards neoliberal ones. These changes also transformed nonprofit organisations (NPOs) and their relationships with the state. To comprehend the changes that are taking place within the welfare state today with regard to state-NPO relations, we must “understand the difference between the ‘old’ system of cooperation, basically founded upon close integration and mutual trust, and the new [publically supported human services architecture which places] ... more focus on competition, time-limited contracts, legal control and accountability” (Eikås and Selle 2002, 48). State policy in the contemporary era has been reshaped along neoliberal dimensions, or, expressed another way, a paradigm of market regulation (Caillouette

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2004, 1).1 New modes of control have emerged under neoliberalism which have been characterised as the paradox of centralised decentralisation. NPOs that deliver of various kinds of publicly supported social and human services are particularly affected. This article examines the impacts on NPO financing, accountability and human resources fostered by the state’s changing governance relationship with nonprofit service providers. The experience of Canadian NPOs is broadly generalisable within the neoliberal set of counties (see for instance: Bassett and Van Gramberg 2005; Salamon and O’Sullivan 2004; Evans and Shields 2002; Taylor 2002; Brown et al. 2000; Ryan 1999). The imposition of neoliberal governance structures on nonprofit service providers has served to compromise their autonomy and advocacy function, while commercialising nonprofit operations and imposing burdens that have strained organisational capacity. Market-based regulation has moved many nonprofit service organisations away from their community oriented focus and towards a “business model”. In various forms, the state has introduced quasi-markets or at minimum required NPO’s to engage in more competitive practices, with negative consequences for nonprofit mission, culture and labour-management practices. The result is a growing level of instability within the sector. This article argues that this has been consciously constructed by neoliberal policy architects, although some negative effects are the result of the unintended consequences of this new governance structure. Most important, it links the use of contract financing with forms of state control imposed on NPOs through a new system of “accountability”. To date, little work has been carried out regarding the role the new accountability systems have played in the neoliberal restructuring of NPOs; this article seeks to address this gap. 2. The Keynesian Welfare State and Third Sector Service Provision: Contextual Considerations During the Keynesian era it was generally assumed that the public institutions of the social security state, by and large, displaced the role of “charitable” organisations in the provision of welfare and other social services. The actual situation was rather different. Nonprofit social service providers did not fade away but to a significant degree reconfigured their organisations and practices from their paternalistic chari-

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table origins to become community-centred “public service” providers. Rather than retreat and diminish in size and scale with the advance of the ever expanding administrative state, the nonprofit sector experienced unprecedented growth. The state and the nonprofit sectors grew in tandem, with a symbiotic and dynamic relationship developing between the two sectors (Scott 2003, 14; Shields and Evans 1998; Salamon 1995, 37). A mixed social economy (Valverde 1995a: 1995b; Rekart 1993) featured by a high degree of state-nonprofit cooperation was forged, although the place of the nonprofit sector in this relationship was often invisible (Hall 1997, 47). Hence, rather than a state monopoly on welfare provision, in a mixed social economy, social services were delivered through a combination of state and privately run and administered initiatives. Such NPO services were joined together with the state through public-sector financial support. While NPOs were a secondary element in the Keynesian welfare state structure, they nonetheless remained significant junior partners to the state in the construction and delivery of important social services. In Canada, for example, nonprofit service providers were the main delivery agents in areas such as home care, immigrant settlement services, childcare, women’s shelters, and youth services. The advantage of nonprofit sector involvement in publicly supported services was seen as their ability to be innovative, flexible, non-bureaucratic (Deakin 2003, 196) and close to the communities in which they operate. Nonprofit services were also often more personalised in nature, delivered often by “wellmeaning amateurs” rather than professionals (Hall and Reed 1998, 56). As Lester Salamon (1995, 49) observed: “voluntary organisations are in a better position than government to personalise the provision of services, to operate on a smaller scale, to adjust care to the needs of clients rather than to the structure of government agencies, and to permit a degree of competition among service providers”. However, Keynesian-era nonprofit service provision was viewed as a supplement to state provided social services, working to deepen social provision but not replace the central place of the state. The nonprofit sector was recognised as inherently limited, for example, in its capacities to be the primary provider of “collective goods” (Salamon 1995, 16). The state provided uniform services on an equitable basis for all. NPOs tend to provide individualised services (shaped to individual needs) in a holistic way (crossing boundaries) from particular value bases.

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NPOs also developed significant roles in advocacy – giving “voice to the voiceless” in policy circles – as well as creating services focused on prevention of social ills (Taylor 2002, 105). The advocacy function was important in incorporating more marginalised elements of society into a system concerned with gaining legitimacy through the use of compromise and accommodation. The major contribution of third sector organisations was its complementary support to the Keynesian welfare state structure. A number of features governed the relationship between the Keynesian state and NPO service providers and distinguish it from the neoliberal period: 1) funding provided by the state to NPOs was primarily base or core funding allowing for significant latitude for spending purposes; 2) funding was long-term and stable which enabled NPOs to build institutions that became embedded in communities; 3) the relationships between the state and NPOs tended to be regulated by bonds of trust, not highly regulated contracts, which awarded nonprofits considerable autonomy in how they constructed and delivered programs supported by public funds; 4) the role of NPO service providers was not to replace/displace state provided public goods but to fill gaps thus complementing Keynesian welfare state measures; and 5) a system of adhocracy, rather than rigid forward planning bureaucratic regulation, tended to govern the evolution of the relationship between the state and NPOs. Under Keynesianism the emphasis was overwhelmingly on building state capacity, the third sector was largely cast as secondary and thus tended to be ignored. Moreover, neoliberal understandings of the Keynesian period promoted the unfounded idea that the statist orientation of the Keynesian welfare state had served to squeeze out nonprofit actors. Hence, both constructions tended to minimise the place of NPOs. In fact, the NPOs played a far more important role in the welfare state system than has been generally acknowledged. There is, of course, a danger of romanticising the “partnership” that existed between the state and NPOs during the Keynesian period. This relationship was uneven, often ad hoc, and public funds were not always spent wisely. But in comparison to the present set of state-NPO relationships, the former period had advantages with regard to the provision of community-based nonprofit services. The triumph of the neoliberal governance paradigm has upset this former set of relationships and understandings between the state and nonprofit sector.

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3. The Neoliberal Governance Paradigm The use of “governance” in preference to “government” already implies a public sector that has undergone a significant degree of restructuring and transformation. Governance is more than “government”, which is concerned with institutions and administration functions of a state. Governance embodies the idea, for example, that there should be multiple actors beyond government in the provision of public services, including civil society actors (Kjær 2004, 1-4; Bovaird 2005, 221). Governance is also concerned with building centralised capacity within the state for the facilitation of the horizontal management of public policy. This enables senior policy bureaucrats and cabinet ministers to reorganise the vertical silos of policy and program delivery. In this sense governance is about the overarching co-ordination of public policy. The neoliberal shaping of governance is concerned with achieving a certain kind of “balance between governing actors” (Kickert 1993, 195). The goal, however, is the restructuring of sectoral and institutional arrangements, and not the balancing of social interests with the redistribution of resources, which was the concern of the Keynesian era. Under neoliberalism, governance has also come to be viewed as in effect the acceptable face of spending cuts (Leach and Stoker 1997). But it is much more substantial than fiscal restraint alone. Neoliberal governance is, more fundamentally, about the reconstruction of the state through: • An emphasis on management and performance measurement and a corresponding decline in policy work; • A “disaggregated” approach to public sector management entailing attempts to introduce and/or increase competition within the public sector; • An emphasis on fiscal constraint; • The importation of private sector business practices; and • Deregulation in favor of markets (Hood 1990, 9-10). The governance issue in the neoliberal era has centred on the idea that government should steer (focus on policy setting and coordination) and leave the rowing (the delivery of publicly supported services) as much as possible to other parties (Osborne and Gaebler 1992). This logic has driven the rationalisation of social service provision through

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the deployment of alternative service delivery. In essence, the neoliberal governance framework contends that: ... the traditional goals of government – welfare, prosperity, and security – can no longer be accomplished by the centre acting alone. Increasingly they are sought through processes of concentration, interaction, networking, piloting and steering; processes in which traditional centres of authority (ministries, agencies, public bureaucracies) interact in networked configurations with, and through a host of private, para-state, third sector, voluntary and other groups” (Walters 2004, 29).

However, while the neoliberal state is content to “share” some of the responsibilities of governance it retains ultimate central control of the overall direction of restructuring. While the language of partnership is often employed to characterise such new arrangements it serves to mask a fundamental restructuring of the public sector and of the relationship between the state and civil society. The benign language of “partnership” hides a steeply hierarchical and centralised relationship of power embedded in a contractual arrangement between the state and those agencies increasingly responsible for the delivery of public goods and services. More generally, neoliberalism represents an assault on the Keynesian welfare state by placing most human activities on a marketbased footing. New partnership relations among for-profits, the state, and NPOs pushes nonprofits to become more entrepreneurial, to rely on fees for service, and to redefine their missions (Social Planning Council of Metropolitan Toronto 1997). Neoliberals cast the nonprofit sector as an independent third force closely cooperating with government to sustain social provision. Civil society is self-sustaining and too much government involvement is a barrier to the effective operation of society, including NPOs. But the ability of the third sector to replace the state’s social welfare functions is questionable. The neoliberal appeal to community and charity as the new basis for public welfare has become a route to dismantle the state’s role in welfare provision and dis-empower citizens while making “it easier for government to shed its responsibility for the poor. … It is not an accident that poverty grows deeper as our charitable responses to it multiply” (Poppendieck 1998, 5-6). The nonprofit sector occupies a strategic place by contributing to the legitimation of the market society. In essence the transformation

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to a market society requires that human needs become more depoliticised, thereby facilitating the off-loading of social programs to the nonprofit sector. The new paradigm insists that only the market can deliver effectiveness, efficiency and economy and consequently the “business model” is promoted as a superior means for the production of goods and services. This applies equally to social policy (Means, Morbey and Smith 2002) and has become the new “common sense” (Armstrong, Armstrong and Connelly 1997, 5; Stein 2001). The market mechanism has been brought into public service provision through the purchaser/ provider split made possible by alternative service delivery. This allows the state to introduce competitive tendering and contracting, the most common approach to creating a market framework, with the objectives of achieving greater efficiency by imposing an economic discipline upon producers, depoliticisation of service delivery, rationing of outputs and redistributing risk away from the government (Walsh 1995, 26). The neoliberal governance paradigm operates in public administration through New Public Management (NPM) which consists of two basic streams: managerialism and modes of control. Managerialism is defined as involving continuous increases in efficiency; the use of ever more sophisticated technologies; a labour force disciplined to productivity; clear implementation of the professional management role; managers being given the right to manage (Pollitt 1990, 2-3). Modes of control deals with the emergence of indirect control or centralised decentralisation as a means of managing from a distance and which is operationalised through such means as continuous quality improvement; an emphasis upon devolution; information systems; an emphasis upon contracts and markets; performance measurement; and an increased emphasis on audit and inspection (Walsh 1995, xiv). The prominent place that NPM has come to play within NPOs has led to a “cultural take-over by stealth” of nonprofit service provision by business values and practices (Taylor 2002, 98-99). The introduction of a new funding regime and accountability measures as central control mechanisms through which the state has restructured its relationships with NPOs is clearly visible and suggests intent on the part of neoliberal policymakers. While not all the consequences of NPO restructuring may have been anticipated by neoliberal governance architects, such

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as the organisational disruption brought forth by income instability under the new funding regime, other effects were the reason changes were introduced. The use of funding contracts and strict administrative accountability systems were designed to solidify funder control of program costs and structure. (Handy 1990, 94). NPOs would be compelled to bend to neoliberal accountability schemes and human resource strategies: “the use of contracts to regulate state finance of services provided by private organisations indicates more, not less, government regulation” (Ascoli and Ranci 2002, 5). 4. Funding NPO Public Service Delivery: The Contracting Regime Neoliberal NPM systems have been brought into the nonprofit sector through a system of contract-based financing. Nonprofit sector reliance on government financial support is large, constituting about 60% of funding totals (Scott 2003, 15), but within the NPO social and human services sub-sector, nonprofit dependence on state funds is even higher, often resting at 80% or more of their funding base (Eakin 2001, 5). NPOs have faced serious funding constraints as governments have reduced spending in order to address public deficits and to finance tax cuts. Because NPOs are so heavily reliant upon government financing, finding replacement dollars for public funding has been difficult. For every one percent drop in state support, NPOs would have to increase their corporate-based sources of revenue by a full 50% to make up the difference (Shields and Evans 1998, 94). Most NPOs have been unsuccessful in sustaining their funding levels and many smaller NPOs are simply incapable of engaging in such activities. Evidence of NPO financial stress is widespread. One study of Ontario nonprofit organisations found that between 1993 and 1997 over two-thirds of the NPOs surveyed experienced income declines averaging some $350,000 per organisation (Reed and Howe 2000, 11), a significant loss of revenues for relatively small agencies. Moreover, these income declines took place during a period where demand for services was rapidly increasing (Reed and Howe 2000, 16). An even more serious issue is the change in the kind of state funding. “Core or base funding” dollars typical of the Keynesian period

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have been replaced by “contract or program-based funding” which entails “the purchase of defined services with specified outputs and closely controlled funding, usually accompanied by increased accountability requirements with little or no flexibility in program delivery or funding” (Eakin 2001, i). These contracts, generally tendered through an open-bidding process, are centred on the idea of “value for the dollar” and are explicitly designed to be awarded to the lowest bidder. Other factors such as the value of community-centred and personalised service, hallmarks of traditional nonprofit care, are considered as extraneous considerations and hostile to the logic of the contracting, market-based mechanism for awarding contracts (Scott 2003, 31). Typically NPOs must obtain “matching contribution funding” from other sources in order to secure a contract greatly increasing the administrative burdens of obtaining and maintaining contract financing. (Eakin 2001, 1-3), Contract financing was introduced and perfected in New Zealand and Britain under neoliberal governments, and is informed by the paradigm of market regulation and NPM administrative practices. Deliberately built-in under-funding of NPOs is a central part of contract funding. The logic, as Eakin (2001, 2) notes, is: that under-funding would allow the public to choose which services to support with their donations. ... ‘Contract funding’ for defined services enable governments to specify outputs and closely control spending. This type of funding has tremendous appeal; it was seen as bringing the rigours of business to the perceived ‘inefficiencies’ of service provision among voluntary sector organizations.

Among the results of these funding changes is an appreciable increase in organisational income instability and vulnerability; reduced organisational effectiveness in light of energy expended to maintain income levels; and “deteriorated” relationships with government funding agencies in large part because of changing government priorities and funding concerns (Reed and Howe 2000, 17-18). The contract funding system tends to impose government funding priorities upon NPOs dependent on state revenues, forcing nonprofits to “juggle” their “missions and mandate to suit the funding agenda” (Scott 2003, 36). It also encourages NPOs to commercialise their operations through the imposition of fee structures and the selling of other products in order to attempt to raise money to make up for government revenue short falls. The contracts

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are also by design short term. NPOs are continuously engaged in the process of applying for new funds – a process that ties up valuable NPO human resources. The short term nature of funding also creates a climate of financial instability that makes rational long term planning difficult. In the USA Salamon and O’Sullivan (2004) have shown that nonprofit agencies are adapting and surviving at the cost of reduced services to the most vulnerable clients, loss of autonomy, mission drift and reduced advocacy, and deteriorating working conditions for agency staff. Current contract funding arrangements with nonprofit organisations, after all real costs are factored in, are “from 7%-15% short of actual costs” (Eakin 2002, 8; Eakin 2004). This has been described as the “hollow core approach to funding”, where funders provide financing for program delivery but fail to pay for the necessary administrative components of the job. More disturbingly, however, recent evidence suggests that even basic service delivery costs are not being fully funded by governments (Eakin 2004: 2005; Taylor 2002, 92). Charitable donations are in effect funnelled into subsidising government contracted programming (Lewis 2005). In a detailed Toronto-based study it was found that state underfunding was centred in three key areas: 1) employee benefits; 2) supervision of front-line staff; and 3) financial support for core operating costs (Eakin 2004, 17). In human service organisations, salary costs typically make up 85% to 90% of organisational costs but in the nonprofit agencies under study it averaged only 71% (Eakin 2004, 26) an indication that nonprofit fiscal stress is being “managed” by laying off core staff and restraining wages and benefits – often the only area where there is flexibility in nonprofit budgets. The presence of a “funding regime” implies that there exists “a unified set of values and regulations governing the relationship between the nonprofit and voluntary sector and their stakeholders, including funders” (Scott 2003, 35). Market/business principles, fiscal restraint and government control through the contract rest clearly at the centre of this “funding regime”. Moreover, nonprofit third sector organisations are being positioned to police their contracts with the state. NPOs mediate between citizens and the state to ensure the contract terms are fulfilled. However, where they depend on the state

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for funding of service delivery, they are not autonomous to negotiate on behalf of their client groups. In this process NPOs are being transformed into one dimensional alternative service delivery agents and stripped of their multi-purposed origins. Change is most evident in the negative effects on NPO advocacy. Many NPOs are afraid to voice public criticism of governments on which they are financially reliant. The problem of “advocacy chill” is wide spread. Moreover, NPOs are spending significantly greater amounts of resources chasing government contract dollars and then administrating the programs. In this situation, diminishing resources are left for service mandated NPOs to exercise their “voice” function. The neoliberal governance framework requires the nonprofit sector to invest scarce resources to build its own coordinative capacity if it is to have any impact on policy development. But the fragmented nature of social service delivery makes this difficult (in the province of Ontario alone over 3,200 organisations of varying sizes are involved in the production of social services). For NPOs, the new relationship with the state sets up a hierarchy of privileged actors outside the state and shrinks the space for civic engagement. “From the outside, it is more difficult to lobby multiple partnerships than a single government body” (Jenson and Phillips 1996, 128). The nonprofit sector is located conceptually between the state and the economy. This poses interesting questions around the neoliberal project to shrink the state and to silence the dissonant voices and demands that characterised the Keynesian welfare state. The problem with the welfare state, according to neo-liberal critics, was that it was overly responsive to the demands of “special interests” (Richards 1997, 169-184) that had been articulated by a host of NPO advocacy groups. The new “contracting regime” has been effective at muffling such voices. 5. Accountability: From Public to Administrative Accountability This contracting regime imposes a new set of accountability measures on NPOs . Accountability can be defined as the “obligation to explain how a responsibility for an assigned mandate has been discharged. It is particularly important in situations that involve public trust. The

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purpose of accountability is to ensure that the exercise of responsibility is directed towards meeting the goals of the organization” (Panel on Accountability and Governance in the Voluntary Sector 1998, 8). Nonprofit organisations in our society have an “implicit social contract of privilege and trust”. Because these organisations’ goals are designed to be of public or mutual benefit, there exists “a clear ethical obligation to perform according to promise and, as with all contracts, to be subject to evaluation and ready to answer for a failure to perform” (Jeavons 1994, 197). Consequently, the importance of accountability and the associated pressure to improve organisational performance within the third sector has grown as NPOs have taken on an increasing role in the delivery of publicly supported services (Light 2000, v). A central question, however, is whether NPO accountability has shifted away from its community roots towards a one dimensional focus on accountability to the state. Increased government regulation of NPOs through the use of service contracts does not in itself equal accountability. In fact, it deflects attention away from the most significant aspect of accountability, the responsibility of the organisation “to the cause” it was “established to benefit” (McCambridge 2005, 3). NPOs have multiple sources to which they owe a measure of accountability. The Panel on Accountability and Governance in the Voluntary Sector has observed that NPOs are responsible “to their beneficiaries or clients, members, volunteers, staff, partners and affiliates, donors and funders, and governments, as well as to the general public. But, they are accountable in different ways to these different constituencies” (1998, 8). These often come into conflict. Client group interest may be directed toward enhancing the quality and personal touch of NPO services, for example, while government funders may be more interested in increasing the “efficiency” of service delivery and cost cutting. Under the contracting funding system NPO “accountability” to government funder priorities holds precedence over other accountability obligations. The neoliberal governance paradigm has justified welfare state restructuring on the grounds of enhancing efficiency and accountability (Burke 2000, 179-181). Even though public trust in NPOs remains considerably greater than faith in government or large corporations, the impression remains that the nonprofit sector lacks the kind of effi-

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ciency located in the state and market sectors. Consequently, NPOs find that: How the nonprofit sector does its work is becoming almost as important to funders and clients as what the sector actually delivers by way of goods and services” (Light 2000, v).

Management thinking and approaches such as “the lean and mean philosophies” that reshaped the state and private sectors in the 1980s and 90s have now come to prevail in the nonprofit sector in Canada. It is telling that charitable organisations feel compelled to direct their fund raising drives as much around their organisation’s efficiency as the altruistic benefits of their mission. Paul Rutherford (2000, 117-118) has observed: “The big charities employed a particular vocabulary of aid to explain their activities. They talked what is colloquially known as the “language of business,” promising efficiency and economy: “Doing good fast and cheap” would be an appropriate slogan”. Problematically for the nonprofit sector this is a kind of a “Harvard Business School bang-for-the-buck mentality that fails to take into account the subjective, unquantifiable nature of much philanthropic work” (Dowie 2001, xv). A key policy informant who had worked in the Canadian pubic service in relation to NPO issues reported: ... I always found the notion of voluntary sector ‘inefficiency’ curious. Often, in justification of some new, particularly destructive initiative, I would be told that voluntary organizations were inefficient because they did not use the latest management theories in their operations, or did not have a ‘bottom line’ mentality. This despite the obvious fact that voluntary organizations consistently deliver more outputs per dollar of input than either business or government, and consistently seem able to motivate workers to astonishing levels of effort for low compensation. If only business and government could learn to be equally ‘inefficient’ (Interview, October 9, 2004).

Similarly, Julie White, former Executive Director of Ontario’s Trillium Foundation, the largest state financed charitable funder in the province of Ontario, warns about attempts to hold nonprofits accountable to the same measure of success that applies to the business sector: And all this has created significant pressure on the sector for ‘deliverables’; you know, “what are the numbers?”, “what are you able to achieve?” And although I think there are some good benefits in apply-

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ing business standards to charitable organizations, charities do not have quarterly earnings. Their impact is often long term and harder to define and part of the challenge for us, in the sector, is trying to find effective ways of measuring things. And there is a danger in rushing too quickly to superficial indicators that we think are going to measure our success. ... Canada doesn’t do very well in terms of bringing its various sectors together to learn from each other, and although it is true that the nonprofit sector has much to learn from business, it is also true that the business sector has a great deal to learn from the nonprofit sector, particularly about meeting the needs of conflicting stakeholders, managing and measuring long term impact, and dealing with uncertainty. To say nothing about doing ‘more with less’ (1996, 4, 8).

Under the neoliberal “contracting regime” accountability is presented as a value neutral demand that is closely linked to market notions of efficiency. The tight linkage established between “efficiency” and “accountability”, however, betrays the value charged character of this association. There is also a failure to draw distinctions between “administrative accountability”, “evaluation” and “public accountability”, a situation that greatly blurs the meaning of NPO accountability. Administrative accountability is essentially about reporting that funds are spent in accordance with the conditions laid out in the funding contract. The burden of “administrative reporting” under the contract regime has increased greatly in recent years. One informed estimate calculated that the cost to NPOs to do the necessary paper work to meet funder expectations constitutes as much as 20% of the value of the contract – an amount rarely acknowledged in the funding award itself (Phillips 2002). Problems associated with a variety of government spending scandals and “audit chill” have made public service bureaucrats even more voracious in the demands for paper work associated with government contracts. Government bureaucrats’ strategy of shifting responsibility downward by increasing the administrative reporting burden of NPOs is an unintended consequence of the “contract funding regime” which has had the perverse effect of actually reducing the capacity of NPOs to service their client base (Reed and Howe 2000, 31). In terms of governance, the new contractual terms for service delivery have become a device that is used by the state to exert control over NPO service providers. “While this issue may appear to be purely

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administrative, in reality it is political because our frameworks for evaluation are directly linked to our visions of accountability in a democratic society” (Omidvar and Richmond 2003, 8; also see Evans and Shields 2002). This narrow form of administrative accountability has come to replace the more informal trust relationships that prevailed during the Keynesian period. For its part, evaluation is concerned with identifying whether a particular program is producing the desired objectives or results. While NPOs may be able to assess such factors as the raw numbers of individuals served and time spent per client, they are not in a position, nor sufficiently resourced, to undertake more holistic evaluation assessments. Data collected by individual NPOs can be important sources of information used in the evaluation process but the social science expertise and macro levels of data and analysis necessary for true evaluation are available only to very large and well resourced organisations, such as government. Most data NPOs are required to collect is not even useful in the evaluation process. The burden of administrative data collection and reporting are a means of imposing narrow bureaucratic control on NPOs (Chambon and Richmond 2001; Howarth 1998). NPM’s focus on “administrative accountability” has come to overshadow “public accountability”. Public accountability is centred around the responsibility of government authorities to account in a full public manner for the kinds of support that they are providing for the provision of public goods and services. This is a responsibility that should identify that adequate financial support, infrastructure and long term vision are in place to sustain desired publicly provided and supported services. This type of public accountability, however, has largely been displaced by narrow administrative forms of accountability. In this way government is able to evade responsibility for under funding services and shift blame for deteriorating service quality onto third party NPO service deliverers. The general tendency under neoliberal governance systems is to push risk and accountability downward (Taylor 2002, 106). NPOs within the neoliberal governance paradigm are increasingly looked upon as “executing agencies for government programs” (Ford and Zussman 1997, 7). This is “not partnership, it is control” by state authorities (Ford 1998, 37). The fear of control is fuelled by

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the need to strengthen narrow forms of administrative accountability when the relationship is an arm’s-length one linked by a contract. In this sense, state contracting/outsourcing may be viewed as extending state control deep into NPOs, creating a “shadow state” structure over the nonprofit sector (Boase 2000; Institute for Public Policy Research 2001, 213-248). The result is centralised decentralisation; the state is able to control outcomes through market-based contracts and managerialist accountability structures. This is a conscious consequence of neoliberal governance restructuring. 6. Re-engineering the Nonprofit Workforce Changes in NPO funding regimes and accountability systems have also deeply affected nonprofit human resource structures. NPM is a model of “public sector management characterised by performance results, contracting out, and the attainment of accountability and efficiency through individual achievement of set targets, behavioural coaching, and ongoing evaluation” (Baines 2004a, 274; Shields and Evans 1998) – the issues involved here are not just about technical innovations and improvements but just as much about nurturing the development of a “contracting culture” needed to transform the work of the sector (Eikås and Selle 2002). This form of management stands in stark contrast to the more outcome-based models of the traditional welfare state. Under NPM and similar results-based management models, programme success is calculated in relation to the achievement of quantifiable performance and individual targets. This style of management has been deemed “punishment by counting” (Miller and Philo 2001, 9). Thus, in order to meet targets, management control over the labour process necessarily increases, fundamentally changing work organisation. The effects on community-based organisational structures can be dramatic as relatively egalitarian work structures are pushed to mimic the hierarchical structures found in the private and state sectors. The purported benefits of NPM are decentralised control, quality services, empowerment of workers and customer choice. However, NPM closely resembles private sector style managerial techniques employed in manufacturing and commercial sectors, most notably lean production.2 Like lean production models, NPM’s ability to “empower workers” within the Canadian public and non-profit service sectors has

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proven spurious. Findings indicate that, rhetoric aside, managers in the public sector continue to operate within the hierarchal, bureaucratic models that preceded the introduction of NPM, while managers in the under-funded nonprofit sector spend a great deal of their time fundraising, leaving little if any time to consult with staff or include them in planning and evaluation (Baines 2004a, 275). NPM encourages managers to view their organisations as business units, adopting business oriented solutions within sectors that traditionally eschew such routinised and rigid methods of work organisation. The application of standardised, quantifiable procedures to each and every case regardless of context and without the possibility of deviation ostensibly removes the ability of workers to respond to specific cases with the creativity, discretion and sensitivity that may have characterised approaches in the past. Indeed many human service workers believe that they “have been transformed into clerks wherein their attentions to clients include only carefully quantified parcels of administrative work and statistics keeping” (Baines 2004a, 278). Furthermore, by eliminating the need for worker discretion and creative interventions, workers with lesser credentials are now able to assume such work, thereby reducing labour costs. Indeed by breaking work down into smaller segments, tasks can be more readily “farmed out” to volunteers while at the same time requiring less managerial supervision due to the simplicity of the tasks assigned. The dual effects of work intensification and the changing nature of the work itself have strained NPO capacities. Nonprofit work is being reshaped, among other forces, by the following: an environment of increased competition; the need to work in multi-partner projects; increased accountability reporting; fewer committed and flexible volunteers; clients with more complex problems; and the need to be computerised. Expanding social problems in the context of state offloading has meant increased demands on NPO services but generally without the benefit of staff levels to match demand growth. The pressure, consequently, has been for NPO workers to continuously do more for less (Reed and Howe 2000, 21-22). A study of the job quality in the nonprofit sector reveals that workers in the sector are on average considerably older and more likely to be employed in contingent jobs. While they are better educated, they

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enjoy fewer fringe benefits, and bear heavier workloads. Managerial, professional and technical/trades earn $2 to $4 per hour less than those in the for-profit sector (McMullen and Schellenberg 2003). Empirical evidence in Canada points to the existence of a significant gap in wage rates, promotional opportunities and higher levels of employment contingency and insecurity experienced by paid workers in the NPO sector compared to comparable workers in other sectors (Saunders 2004). A Canadian Policy Research Networks study concluded: “Government off-loading has meant increasing demands on the sector. But, resources may not be adequate for the new responsibilities. Workload problems, stress, work/life conflict, job insecurity, lower pay and benefits and a high level of dissatisfaction are all warning signals” (2003, 2). The reality is that NPOs have long delivered social services “economically” by way of “the sacrifices of exploited staff ”. Neoliberal rationalisation of NPO service delivery, however, has worked to further intensify the level of labour exploitation. It may be the case that nonprofit workers find their work rewarding because it involves helping people through a philanthropic organisation, but this “does not compensate for low wages and lack of benefits” (Canada West Foundation 2000, 6). Retaining quality staff under these conditions will likely become increasingly difficult. By definition the areas (human services) most affected by contracting out – alternative service delivery (ASD) – are labour intensive, hence the only way to control costs is through addressing labour expenditures. This required the move away from large unionised organisational structures to decentralised smaller nonprofit (and in some cases for-profit) organisations. But with competitive contract bidding, pressure was institutionalised to keep labour costs under control. Strong unions forcing up labour costs can place their organisations in a situation of competitive disadvantage and thus force workers in such settings out of jobs. It is likely that the movement to competitive tendering is as much about weakening the bargaining power of trade unions as it is to save money (The Economist, 17 September 1983, 53). The service contracting system and the accountability mechanisms associated with them fundamentally restructure nonprofit work. For example, in long-term health care, the Ontario Ministry of Health has in effect been able to redefine work as a series of narrow tasks rather

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than the intensively personal care to patients which typified previous work patterns. This depersonalisation of the provision of care is informed by the need to rationalise care and strip out “waste”. For this, long-term care providers earn $9-$12 per hour with limited benefits – “conditions inferior to those of their counterparts in hospitals and nursing homes (Aronson and Neysmith 1997, 52). Their conditions of work “are intensifying with managerial practices designed to cut government costs. Cost-cutting is felt in various ways: as reductions in time allotments to clients; in the introduction of split shifts and of unpaid ‘on call’ duties; in reduced support and supervision; and in caseloads of more needy clients being discharged from hospitals…” (Aronson and Neysmith 1997, 55-56). The mission of management under NPM is to standardise work processes to increase efficiency. To do so requires expanded control of the labour process resulting in a loss of worker autonomy, typically expressed through detailed service direction and the collection of data as a means of measuring service delivery (Fabricant and Burghardt 1992, 74-79). This translates, more often than not, into a “race to the bottom human services care”. No less a Canadian institution than the Toronto Dominion Bank has come to the following assessment regarding the crisis in human resources and state of stress facing the nonprofit sector: Jobs are frequently part-time or temporary. Pay for managers, benefits and opportunities for advancement and training are often less than in many other sectors. Workloads have been rising, as increasing demand for charitable services has not been matched by additional staffing. ... [M]any of these labour issues are related to financing challenges. At the same time, Canadians are working longer hours and tend to commute farther distances than ever before, leaving them with less time for voluntary work (Toronto Dominion Bank 2004, 3).

The restructuring of the nonprofit sector has had an additional human resources effect – the amount of volunteer labour that is drawn from workers employed in the social service sector, especially among the female labour force is significant. This suggests that nonprofit sector workers may be absorbing a disproportionate amount of unwaged work downloaded from public and non-profit services (Baines 2004a, 281). Through such arrangements, the traditional problem of the dependability of volunteer labour is effectively resolved by compelling waged

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workers to accept unpaid labour as a job expectation. The reliance on the paid workforce to undertake volunteer labour also significantly reduces the costs of training and supervision, as there is a skilled and experienced work force doing the job for free (Baines 2004a). Moreover, other forms of unpaid labour exist beyond the expectation to volunteer. Significant amounts of unpaid overtime, as workers struggle to keep up with workloads, have also been registered. It has been estimated that paid workers commonly perform 30 minutes of unpaid overtime per day. Finally, the professional integrity of workers and their devotion to “caring work” also facilitates the performance of unpaid work. Many workers cite their concern for clients’ welfare and a desire to mitigate the cruelty of the system as reasons to go above and beyond the requirements of their paid position. These kinds of actions constitute a considerable subsidy to the social service system (Baines 2004a, 284). 7. Conclusion For the nonprofit sector, neoliberal restructuring is resulting in the commercialisation of nonprofit activities and the loss of autonomy as NPOs become tied to government-controlled contracts. In this process, the third sector services are being radically transformed. Increasingly, service fees are being introduced, as are “rationalization” and “professionalisation of services”. These changes are affecting the quality and character of nonprofit service delivery and diminishing their community orientation and personal touch. Community involvement in nonprofit service provision is being replaced by professional management with increased “accountability” to the state. Moreover, the important advocacy role for NPOs as a voice for the voiceless has been challenged by the new contracting regime. The dangers of this neoliberal market oriented approach to governance is captured eloquently by Robert Ware (1999, 307): Communities are the place for public moral activity, while markets are the place for private economic activity. Communities, at their best, foster recognition, care and co-operation. Markets foster anonymity, independence and competition. Communities are considered the place for openness, security and trust. Markets are the place for secrecy, insecurity and distrust ... Communities look for dignity and equality. Markets look for fitness and success. ... The problem is that our society is awash with markets but in need of substantive community with public values.

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The neoliberal paradigm governing the relationship between the nonprofit sector and the state has resulted in a cultural shift away from a “public service orientation” to a “new market-based managerialism” among NPO service deliverers. NPOs are increasingly becoming servants to contracts controlled by state funders and in the process their community focused missions are being undercut and, as in the case of the NPO workforce, business models of organisation are radically restructuring these institutions along market-friendly, not clientfriendly, paths of development. Notes 1. It should be noted that this stands in some considerable contrast to what has been labelled a paradigm of partnership regulation (Cailloutte 2004, 1) that in the Canadian case emerged most fully in Quebec in the 1990s and that is at least implicit in the federal Voluntary Sector Initiative (VSI) but yet to be actualised in standard practice – so there exists something of a counter model to the overwhelmingly dominant paradigm of market regulation. However, while a set of principals that gave recognition to meaningful state-NPO partnership values were adopted in practice with the VSI these principals have had little impact on the ground were state and nonprofit service delivery agreements are actually put into action. 2. Lean production or ‘management by stress’ is characterised by tighter managerial control of the work process, intensification of work, cost reductions, increased standardization, reduction of waste, just-in-time deliverables to eliminate inventories, flexible labour practices, attitudinal training, close monitoring of all aspects of work, and a greater reliance on contracting out. However Baines notes that this is not a simple transfer of an industrial model of management onto the service sector. Rather NPM represents a ‘uniquely public and non-profit sector form of lean work production’ (2004b, 7).

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