April 5, 2024

#1 - If the N-P sector did not exist, we would wish to invent it.

No market model is perfect, but I imagine most would appreciate that capitalism is the preferred approach versus alternate models. Capitalism has improved the quality of life for much of humanity, with a wide range of freedoms.


However, capitalism has some shortcomings. It has led to large, urgent, and complex economic, social, and environmental challenges.  Capitalism needs some guardrails, and our communities need some additional organized entities to help protect the civil society we seek.  

The principal role of government (in democratic capitalism) is to provide ‘public goods’ (e.g. fire departments, police departments, the military, public health, legal systems, and so on) which private businesses are not incented to supply (yet), and where individuals are not equipped to deliver individually.  

With high taxes and a large public sector, one might believe that our governments should be responsible for many of the services which current charities are providing.   Some argue that we do not need the charity sector if only our governments better delivered the social services we need. But that is too simplistic and fails to appreciate the many additional benefits the charitable sector brings...

Charities can address problems which may not be politically popular. They are more responsive, can act independently, and can move more quickly than governments.  They also plan further ahead than the next election cycle.  They can take risks which governments may avoid. Local charities understand their communities and engage Canadians in supporting them.  

As just one example, the development of mRNA which vastly accelerated the introduction of vaccines in response to COVID, was developed in large part by charitable donations from grant-making foundations interested in advancing such research in the 1960s and 70s.  Thank you!

Furthermore, leveraging the charity sector is more attractive than raising taxes.  Charity encourages voluntary giving which likely exceeds what taxes could extract. Our governments cannot afford to raises taxes to fund all social needs since it would cause a push back from voters and make Canada less competitive in a global economy.  

So, if the charity sector did not exist, we would likely wish to create it, and leverage the altruism of donors. This is precisely what many countries have done, through legal acts and tax incentives specifically developed for the charitable sector.  

However, the charity sector is also needs some oversight on behalf of taxpayers.  You see, although much money is given voluntarily, this money is not totally ‘private’ once donated.  Donors get a charity tax credit taken from the public purse.  This is  ‘public money’ which could have been used in others ways. So, the government has a responsibility to ensure that money donated to charities, and the charity tax credits it offers, are effectively used in a timely and efficient manner. This is not always the case – all is not well!

This is the basis of the next blog in this series.

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