Giving advice for the greater good: why economists should work with charities

It’s possible for economists and charities to enjoy a mutually beneficial relationship. Kristopher Wilson

It is a well-established tradition in the legal and accounting worlds, where lawyers and accountants would provide pro bono legal and accounting services to the voluntary sector. It has also become common for businessmen like Richard Branson, Warren Buffett and Bill Gates to donate money or lend their skills to society.

However, this kind of engagement has not been seen in economics till recently.

What is Pro Bono Economics?

In September 2009, a group of prominent UK private and government economists, including Sir Gus O’Donnell, launched a project called Pro Bono Economics. The concept is simple - matching volunteer economists with charities wishing to address questions around measurements, results and impact.

Few charities make use of economists. There are two reasons why this market is missing. First, most charities cannot afford to pay economists to analyse the effectiveness of their work. Second, there are information failures on both sides. On the supply side, economists are unaware that their skill sets can be useful in evaluating the effectiveness of charities. On the demand side, charities often do not understand the value of economic analysis to their business and hence do not seek it.

Pro Bono Economics is a UK-based charity. Currently, the organisation has in excess of 150 volunteers. Of these volunteers, over half are from the private sector, around a third are from the public sector, while the remainder are academics and individuals. The organisation has a relationship with the UK Government Economic Service, which allows them to find volunteers in various government departments.

So far, eight projects with a variety of charities have been completed. An example is the work done by the volunteer economists for Barnardo’s. Barnardo’s work with those who have been sexually exploited is clear. However, using a rigorous research framework, the volunteer economists at Pro Bono Economics show that the benefits to the taxpayers of Barnardo’s interventions for young people who have been sexually exploited far outweigh the costs. There is a potential saving of either £6 or £12 for every £1 spent, depending on the assumptions made. There is now tangible, economic evidence of the necessity for specialist help, highlighting its value to the society as a whole.

A further check with Pro Bono Economics reveals that the organisation has only, so far, been able to engage about half of their volunteer pool with projects. In fact, the organisation has found that the interest from economists has so far exceeded the demand from charities, or the number of feasible projects from these charities.

A non-zero-sum game

Charitable giving by individuals is not rationally based and often personal and quirky. This is a conclusion that is well embraced by economists. Research has shown that donors want to be inspired and shown individual illustrations of the kind of good they can do for society.

However, this can be potentially a “win-win” situation for charities and economists. In the coming years, many charities around the world could face a financial squeeze as recession hits private donors and governments are forced to slash spending. This means that charities will need to fight to win funding, and individual charities will have to think hard about the best ways to present their causes and to appeal to donors. There will be an increasing need for charities to show that their projects are effective and delivering value for money.

This is where volunteer economists can help.

Getting involved with charities can help the dismal science as well. After all, economists are known to be inherently attracted to transactions that encourage self-interested behaviour, having been exposed to the “homo economicus” model. The profession has suffered severe criticisms over the past few years for failing to foresee the credit crisis, which has been demoralising for some, particularly those working in the financial sector. If more economists could volunteer their skills and time for the voluntary sector, the image of economics might improve. For individual economists, such experiences in real-life scenarios could be inspirational and enhance day-to-day commercial work.

Universal implications of pro bono economics

According to the Australian Bureau of Statistics, there were 41,008 not-for-profit organisations in Australia at the end of June 2007.

The main source of income for these organisations was funding from federal, state and local government, accounting for 33.5% of total income. The latest statistics from the Australian Taxation Office showed that there were 53,773 tax concession charities at the end of October 2010.

Most charities took a hammering during the global financial crisis. In the 2008-09 income year, individuals claimed $2,093 million in deductible gifts, a decrease of 10.8% on the previous and the first decrease in the last ten years.

With 50,000 charities in Australia, it can be a challenge to decide which charities are worthy of your hard-earned cash. Besides, Philanthropy Australia has found that Australians are not as generous as their peers in the UK and Canada. The overall giving levels as a percentage of GDP are slightly lower in Australia than in the UK and Canada.

With evidence of sluggish economic growth in Australia for 2012, charities in Australia are likely to face a similar outlook as their peers in Europe and the United States. This would mean charities in Australia could possibly face a decline in government funding and would need to fight to win funding.

There would be an increasing need for charities to prove to their donors that their impact have been effective. Volunteer economists can help to evaluate the effectiveness of these charities.

An “economists’ charity” for Australia?

Pro Bono Economics is a UK-based charity and is only working in the UK at present. At present, the organisation is funded by a number of grant-giving bodies such as the City Bridge Trust and a small number of individual donors. At the moment, the focus of the organisation is to ensure sustainable operation in the UK, before looking to expand internationally.

But the concept of “pro bono economics” is a universal one and can also be implemented in Australia. This is certainly by no means an easy concept to put to practice, but the project yields significant benefits: it seeks to improve the effectiveness of charities in Australia and allows economists to contribute both to society and to their professional development.

For some, pro bono economics may appear to be a concept where economists are seeking atonement for past sins. However, the truth is that economists have a skill set that the society can harness. More often than ever, it isn’t that economists are not charitably inclined; but they do not realise there are opportunities to contribute positively to society by using their skills.

Currently, pro bono economics engagements exist in Australia. However, such engagements occur on an uncoordinated basis. For example, Melbourne-based consultancy, Economists at Large, and academics like John Quiggin do pro bono economics work from time to time. The pro bono economics consulting work done at Economists at Large is funded by their paid work and donations from clients.

The existence of such pro bono economics engagements indicates a market for providing economic services to charities in Australia. It would seem ideal to have an organisation, seen as the “economists’ charity”, that coordinate pro bono economics engagements in Australia. The objectives of such an organisation would be similar to what the National Pro Bono Resource Centre does for the legal sector in Australia. The long-term sustainability of such an ambitious initiative is likely only to be achieved if it starts from within the profession.