by John Mohan
The current economic downturn is prompting speculation about the consequences for charitable giving and the voluntary sector. However, the research evidence is limited to small and unrepresentative surveys. Evidence from previous episodes of economic duress may provide more reliable guidance.
In Britain, research on the voluntary hospitals, which accounted for around 25 per cent of charitable activity in Britain prior to 1948, points in conflicting directions. Some argue that there was no need for the NHS since voluntary provision was vibrant. Data for hospitals reporting throughout the interwar period, however, suggests that most voluntary income sources, such as legacies, donations, and subscriptions, were static or at best growing only slowly. Hospital endowments had to be invested in a limited range of investments, which meant that yields were modest. An exception was working-class contributory schemes, in which many thousands of workers paid small weekly amounts to a collective fund. The growing popularity of these meant that income increased steadily, though unemployment did cause fluctuations for individual schemes.
Overall, in relation to income sources, there is little evidence either of much growth or of impacts from recessions, but by definition, institutions reporting consistently were those which had survived, so the sources may present an over-optimistic impression.
Income is only one part of the picture. When we consider the effects of growing demand for hospital services, by the late 1930s large and growing proportions of hospitals were experiencing deficits, and the pattern of deficits closely followed cycles in the economy. Small hospitals lacking a diverse income base were particularly vulnerable, but larger institutions were not immune. There is no clear regional divide nor were problems concentrated in particular types of hospitals. In short the situation of individual hospitals varied considerably, depending on the level of demand for their services, the balance of income sources, their asset base, and their policy towards investment of such assets as they had.
What is notable is the consistency of the ratio of charitable giving to income, suggesting that giving marches in step with the economy
For a perspective on particular income sources, American evidence on the effects of the Great Depression (1929-31) shows a substantial decline, as measured by major gifts reported in newspapers, which was directly proportionate to the fall in the stock market. However, the volume of these gifts swiftly recovered. Donations to Community Chest and United Way campaigns (funds which served a much wider range of causes) experienced a less precipitate decline, suggesting a redirection of resources towards more local, community-based organisations. Analyses of data on tax returns to the US Treasury demonstrate that the proportion of income given by individuals to charity fluctuated at around 1.8 per cent of income throughout the inter-war years. The problem was that as unemployment levels rose during the Depression years, fewer people were in a position to give anything.
The implication is that unemployment in general is the most important factor to watch. What is also notable is the consistency of the ratio of charitable giving to income, suggesting that giving marches in step with the economy and will therefore recover in due course.
There will be negative impacts of the economic downturn, but there is nevertheless some reassurance in the historical record. There is general consistency in the level of philanthropic support, and strong associations between the performance of the economy and particular income sources such as large donations. Moreover, economic hardship can prompt strong responses - witness the substantial public response to appeals to assist the depressed areas of the UK in the 1930s, or the self-help initiatives established during the coal dispute of 1984-85. Long-run studies of the numbers of charities being founded indicate steady upward growth in the numbers of new formations - even during recessions. In responding to the present challenges policymakers will instead need to target actions towards particular causes or types of organisations that suffer most in times such as these.
Professor John Mohan is Deputy Director of the ESRC-OTS Third Sector Research Centre, and Director of a programme of research on charity and social redistribution, funded as part of the Centre for Charitable Giving and Philanthropy.