Regardless of the purposes for which money has been donated to non-profit organizations, it is spent at the discretion of people who can use it for their own perks, prejudices, or politics.
The performances of non-profit organizations shed light on the role of profit when it comes to efficiency. If those who conceive of profit as simply an unnecessary charge added on to the cost of production of goods and services are correct, then non-profit organizations should be able to produce those goods and services at a lower cost and sell them at a lower price. Over the years, this should lead to non-profit enterprises taking away the customers of profit-seeking enterprises and increasingly replacing them in the economy.
Not only have non-profit organizations not usually taken away the customers of profit-seeking enterprises, increasingly the direct opposite has happened: Non-profit organizations have seen more and more of their own economic activities taken over by profit-seeking businesses. Colleges and universities are just one example. Over the years, more and more activities once run by non-profit academic institutions themselves—college bookstores, dining halls, and other auxiliary services—have been increasingly turned over to profit-seeking businesses that can do the job cheaper or better, or both. As The Chronicle of Higher Education reported:
Follet runs the Stanford Bookstore. Aramark prepares the meals at Yale University. And Barnes & Noble manages the Harvard Coop.
The nation’s most prestigious universities—and many others in academe—increasingly contract out portions of their campus operations.{960}
According to The Chronicle of Higher Education, “Money is the No. 1 reason that colleges contract out an operation.”{961} In other words, commercial businesses not only run such services at lower costs, they make enough profit to pay the colleges more than these non-profit organizations could make from the same operations on their own campuses. For example, the University of South Carolina “rarely netted as much as $100,000 per year” from its college bookstore but Barnes & Noble paid them $500,000 a year to run the same bookstore.{962} This implies that Barnes & Noble must have made even more money in order to pay the University of South Carolina more than the university ever made for itself from the same bookstore.
Sometimes the reason many campus operations are more profitable under commercial business management is that profit-seeking enterprises reduce such waste as hiring year-round employees for highly seasonal businesses like college bookstores, where large sales of textbooks are concentrated at the beginning of each academic term. Other reasons include more experience at marketing. At the University of Georgia’s bookstore, for example, 70 percent of the books were stored in inventory when the university ran its own bookstore but, after Follet took over, 70 percent of the books were put on display,{963} where they were more likely to be bought.
In the Middle East, the first kibbutz was founded in 1910 as a non-profit community of individuals providing each other with goods and services, and sharing their output on an egalitarian basis. That first kibbutz voted to stop being non-profit and egalitarian in 2007—and, by that time, so had 61 percent of the kibbutzim in Israel. One factor in that first kibbutz’s decision to change was that young people tended to leave and go live in the market-oriented sector of the economy.{964} In short, even people raised in the philosophy of a non-profit institution like the kibbutz nevertheless voted with their feet to go join the market economy.
Despite a tendency in the media to treat non-profit institutions as disinterested sources of information, those non-profit organizations which depend on continuing current donations from the public have incentives to be alarmists, in order to scare more money out of their donors. For example, one non-profit organization which regularly issues dire warnings about health risks in the environment has admitted to not having a single doctor or scientist on its staff.{965} Other non-profit organizations that are financially dependent on current contributions, as distinguished from large endowments, have similar incentives to alarm their respective constituencies over various social, political, or other issues, and few constraints to confine themselves to accurate or valid bases for those alarms.
Chapter 25
“NON-ECONOMIC” VALUES
Beware the people who moralize about great issues;
moralizing is easier than facing hard facts.
John Corry{966}
While economics offers many insights, and makes it easier to see through some popular notions that sound good but will not stand up under scrutiny, economics has also acquired the name “the dismal science” because it pours cold water on many otherwise attractive and exciting—but fallacious—notions about how the world can be arranged. One of the last refuges of someone whose pet project or pet theory has been exposed as economic nonsense is to say: “Economics is all very well, but there are also non-economic values to consider.” Presumably, these are supposed to be higher and nobler concerns that soar above the level of crass materialism.
Of course there are non-economic values. In fact, there are only non-economic values. Economics is not a value in and of itself. It is only a way of weighing one value against another. Economics does not say that you should make the most money possible. Many professors of economics could themselves make more money in private industry. Many people with a knowledge of firearms could probably make more money working as hit men for organized crime. But economics does not urge you toward such choices.
Adam Smith, the father of laissez-faire economics, gave away substantial sums of his own money to less fortunate people, though he did so with such discretion that this fact was discovered only after his death, when his personal records were examined. Henry Thornton, one of the leading monetary economists of the nineteenth century and a banker by trade, regularly gave away more than half his annual income before he got married and had a family to support—and he continued to give large donations to humanitarian causes afterwards, including the anti-slavery movement.
The first public libraries in New York City were not established by the government but by industrial entrepreneur Andrew Carnegie, who also established the foundation and the university that bear his name. John D. Rockefeller likewise established the foundation that bears his name and the University of Chicago, as well as creating many other philanthropic enterprises. Halfway around the world, the Tata Institute in Mumbai was established by India’s leading industrialist, J.R.D. Tata, as a scholarly enterprise, while another leading entrepreneurial family, the Birlas, established numerous religious and social institutions across India.
The United States, which has come to epitomize capitalism in the eyes of many people around the world, is unique in having hundreds of colleges, hospitals, foundations, libraries, museums and other institutions created by the donations of private individuals, many of these being people who earned money in the marketplace and then devoted much of it—sometimes most of it—to helping others. Forbes magazine in 2007 listed half a dozen Americans who had donated multiple billions of dollars each to philanthropy. The largest of these donations was $42 billion by Bill Gates—42 percent of his total wealth. The largest percentage of his wealth donated by an American billionaire was 63 percent by Gordon Moore.{967} For the American population as a whole, the amount of private charitable donations per person is several times what it is in Europe.{968} The percentage of the country’s output that is donated to philanthropic causes is more than three times that in Sweden, France or Japan.{969}
The market as a mechanism for the allocation of scarce resources among alternative uses is one thing; what one chooses to do with the resulting wealth is another.
What lofty talk about “non-economic values” often boils down to is that some people do not want their own particular values weighed against anything. If they are for saving Mono Lake or preserving some historic building, then they do not want that weighed against the cost—which is to say, ultimately, against all the other things that might be done instead with the same resources. For such people, there is no point cons
idering how many Third World children could be vaccinated against fatal diseases with the money that is spent saving Mono Lake or preserving a historic building. We should vaccinate those children and save Mono Lake and preserve the historic building—as well as doing innumerable other good things, according to this way of looking at the world.
To people who think—or rather, react—in this way, economics is at best a nuisance that obstructs them from doing what they have their hearts set on doing. At worst, economics is seen as a needlessly narrow, if not morally warped, way of looking at the world. Such condemnations of economics are due to the fundamental fact that economics is a study of the use of scarce resources which have alternative uses. We might all be happier in a world where there were no such constraints to force us into choices and trade-offs that we would rather not face. But that is not the world that human beings live in—or have ever lived in, during thousands of years of recorded history.
Politics has sometimes been called “the art of the possible,” but that phrase applies far more accurately to economics. Politics allows people to vote for the impossible, which may be one reason why politicians are often more popular than economists, who keep reminding people that there is no free lunch and that there are no “solutions” but only trade-offs. In the real world that people live in, and are likely to live in for centuries to come, trade-offs are inescapable. Even if we refuse to make a choice, circumstances will make choices for us, as we run out of resources for many important things that we could have had, if only we had taken the trouble to weigh alternatives.
SAVING LIVES
Perhaps the strongest arguments for “non-economic values” are those involving human lives. Many highly costly laws, policies, or devices designed to safeguard the public from lethal hazards are defended on grounds that “if it saves just one human life” it is worth whatever it costs. Powerful as the moral and emotional appeal of such pronouncements may be, they cannot withstand scrutiny in a world where scarce resources have alternative uses.
One of those alternative uses is saving other human lives in other ways. Few things have saved as many lives as simply the growth of wealth. An earthquake powerful enough to kill a dozen people in California will kill hundreds of people in some less affluent country and thousands in a Third World nation. Greater wealth enables California buildings, bridges, and other structures to be built to withstand far greater stresses than similar structures can withstand in poorer countries. Those injured in an earthquake in California can be rushed far more quickly to far more elaborately equipped hospitals with larger numbers of more highly trained medical personnel. This is just one of innumerable ways in which wealth saves lives.
Natural disasters of all sorts occur in rich and poor countries alike—the United States leads the world in tornadoes, for example—but their consequences are very different. The Swiss Reinsurance Company reported that the biggest financial costs of natural disasters in 2013 were in Germany, the Czech Republic and France. But that same year the biggest costs of natural disasters in human lives were all in Third World countries—the Philippines and India.{970} Given the high cost of medical care and of such preventive measures against disease as water treatment plants and sewage disposal systems, Third World countries likewise suffer far more from diseases, including diseases that have been virtually wiped out in affluent countries. The net result is shorter lifespans in poorer countries.
There have been various calculations of how much of a rise in national income saves how many lives. Whatever the correct figure may be—X million dollars to save one life—anything that prevents national income from rising that much has, in effect, cost a life. If some particular safety law, policy, or device costs 5X million dollars, either directly or by its inhibiting effect on economic growth, then it can no longer be said to be worth it “if it saves just one human life” because it does so at the cost of 5 other human lives. There is no escaping trade-offs, so long as resources are scarce and have alternative uses.
More is involved than saving lives in alternative ways. There is also the question of how much life is being saved and at how much cost. Some might say that there is no limit on how much value should be placed on a human life. But, however noble such words may sound, in the real world no one would favor spending half the annual output of a nation to keep one person alive 30 seconds longer. Yet that would be the logical implication of a claim that a life is of infinite value.
When we look beyond words to behavior, people do not behave as if they regard even their own lives as being of infinite value. For example, people take life-threatening jobs as test pilots or explosives experts when such jobs pay a high enough salary for them to feel compensated for the risk. They even risk their lives for purely recreational purposes, such as skydiving, white-water rafting, or mountain climbing.
Using various indicators of the value that people put on their own lives in various countries, a study at the Harvard Law School estimated that the average American puts a value of $7 million on his or her life, while Canadians put a value of $4 million each on their lives and people in Japan put a value of nearly $10 million.{971} Whatever the validity or accuracy of these particular numbers, the general results seem to indicate that people do not in fact behave as if their own lives are of infinite value—and presumably they value their own lives at least as much as they value the lives of other people.
How much it costs to save one life varies with the method used. Vaccinating children against deadly diseases in Third World countries costs very little per child and saves many lives, including decades of life per child. Meanwhile, a heart transplant on an eighty-year-old man is enormously expensive and can yield only a limited amount of additional life, even if the transplant surgery is completely successful, since the life expectancy of an octogenarian is not very great in any case.
If a life is not of infinite value, then it cannot be true that “if it saves just one life” some device, law or policy is worth whatever it may cost. Certainly it cannot be true if the cost of saving one life is sacrificing other lives.
MARKETS AND VALUES
Often the market is blamed for obstructing moral or social values. For example, writers for the San Francisco Chronicle referred to “how amoral the marketplace can be” when explaining why the water supply owned by the city of Stockton, California, could not be entrusted to private enterprise. “Water is too life-sustaining a commodity to go into the marketplace with,” the Chronicle quoted the mayor of Stockton as saying.{972} Yet, every day, life-sustaining food is supplied through private enterprises. Moreover, most new life-saving medicines are developed in market economies, notably that of the United States, rather than in government-run economies.
As for privately run water systems, they already exist in Argentina. The Economist magazine reported on the results of this privatization:
Connections to the water and sewerage networks rose, especially among poorer households: most richer households and families in the city centre were already hooked up. . . Before privatisation really got under way, in 1995, child mortality rates were falling at much the same pace in municipalities that eventually privatised and those that did not. After 1995, the fall accelerated in privatising municipalities. . .The fall was concentrated in deaths from infectious and parasitic diseases, the sort most likely to be affected by water quality and availability. Deaths from other causes did not decline.{973}
In Britain as well, the privatized water supply in England has meant lower water bills, higher quality drinking water, less leakage, and a sewage disposal system that complies with environmental regulations a higher percentage of the time than that in Scotland, where the government runs the water system.{974} This evidence may be suggestive, rather than conclusive, but those who argue for political control of the water supply seldom see a need for any evidence at all. To many people, empirical consequences often matter less than deeply ingrained beliefs and attitudes. Whether in urgent or less urgent matters, many believe that those wi
th political power are better qualified to make moral decisions than are the private parties directly concerned.
Such attitudes are international. An entrepreneur in India reported his experience with a government minister there:
I had argued that lowering the excise duty would lower consumer prices of shampoos, skin creams, and other toiletries, which in turn would raise their demand. The tax revenues would thus rise, although the tax rate might be lower. Indian women did not need lipsticks and face creams, felt the minister. I replied that all women wanted to look pretty.
“A face cream won’t do anything for an ugly face. These are luxuries of the rich,” he said. I protested that even a village girl used a paste of haldi so that she could look pretty.
“No, it’s best to leave a face to nature,” he said impatiently.
“Sir,” I pleaded, “how can you decide what she wants? After all, it is her hard-earned money.”
“Yes, and I don’t want her wasting it. Let her buy food. I don’t want multinational companies getting rich selling face creams to poor Indians.”{975}
The idea that third party observers can impose morally better decisions often includes the idea that they can define what are “luxuries of the rich,” when it is precisely the progress of free market economies which has turned many luxuries of the rich into common amenities of people in general, including the poor. Within the twentieth century alone, automobiles, telephones, refrigerators, television sets, air-conditioners, and personal computers all went from being luxuries of the rich to being common items across the spectrum of Americans and among millions of people in many other market economies. The first videocassette recorders sold for $30,000 each{976} before technological progress, trial and error experience, and economies of scale brought the price down within the budget of most Americans.
Basic Economics Page 67