Stigma: Market Mechanisms and the Third Sector

– Alexandra Bevis



I must confess, I was one of the many who – after the Free and Fair Foundation published a review of charitable spending in December 2015 – was somewhat outraged that major UK charities spent such little proportions of their income on charitable activities. Had I conducted a little more research, I would have realised that these figures were somewhat misleading. The metric conflates revenues originating from goods sold and from donations. Why is this a problem? If a charity were to rely entirely upon revenue from goods sold in their shops, it would have a low charitable spending to revenue ratio – since overheads from running shops are rather high. If a charity were to rely entirely upon donations, they would have a much higher ratio – since, assuming it was effectively run, its administrative costs would be much lower than the overheads of its shop-running counterpart.

In the latter case, the metric quoted by the report would be a good one; you can see how much of each pound you donate goes towards actually making an impact. However, the list of those named and shamed includes the likes of Cancer Research UK, which – like many other charities – uses a mixture of both techniques to raise funds. My issue with the metric is thus twofold. Firstly, by combining the revenue streams, it does not accurately reflect the proportion of each donation that is spent upon a particular cause. Secondly, individuals regularly use this metric when deciding which charities to invest in. How do I know this? It is the metric that the government use to inform citizens about charities. With the website being built around what individuals want to know about charities before making a contribution, it is little wonder that this statistic is the most outstanding within the page.

I’m rather ashamed to admit that it took me until quite recently to ascertain that we are quantifying the wrong thing. In fact, it was only really after speaking to Thomas Muirhead – the Managing Director of – at the Warwick International Development Summit about his organisation’s utilisation of market mechanisms for fundraising. Evidence would suggest we have become so debased in our charitable pursuits that we are motivated more by extreme frugality than by helping a worthy cause. The median citizen, it seems, does not measure the success of a charitable organisation in the number of new medicines developed or how many children are provided with free school meals, but the proportion of their income that is ‘wasted’ on administrative costs.

I am not saying that we should not want our money to be spent efficiently. Of course, in making a charitable contribution, we want our donation to have the maximum impact. What I am saying is that it is a fallacy to conflate the proportion of an organisation’s income spent on a given cause with having the greatest impact. Are we so short sighted to not distinguish between these income streams? One builds upon the other; the income received from goods sold is income charitable organisations would not have otherwise received from donations. However, metrics like that utilised by The Free and Fair Foundation imply – based on their inherent construction – that we shouldn’t donate to companies with greater propensity to use market mechanisms for fundraising. Should this be the case? I think not. The Third sector would be the poorer for it.

Alexandra is a second year PPE student at the University of Warwick and an active member or UWCA.