Free exchange | Public spending and philanthropy

Easier said than done

Replacing the parts of the state with the voluntary sector takes much longer than many policy makers think

By C.R. | LONDON

IN THE run up to Britain's next general election, due to be held in May, the Conservatives plan to focus on simple themes, such as jobs and the economy. That stands in stark contrast to their last general-election campaign in 2010, when the party championed the "Big Society". This was the rather abstract idea that the voluntary sector could expand to replace some of the functions that the state could no longer afford to carry out itself. Many grassroots activists criticised the concept bitterly for being unintelligible to voters on the campaign doorstep. And it is hardly mentioned at all in public these days for fear of distracting from the Conservatives' main messages about the economy.

Perhaps that is just as well. A new paper, published last week by the Economic Journal, suggests that the historical evidence for the Big Society's original idea that the state crowds out voluntary efforts to relieve poverty is weak. The authors, Paul Sharp of the University of Southern Denmark and Nina Boberg-Fazlic of the University of Copenhagen, collected data for charitable income and public welfare spending per head in England between 1785 and 1815. This was during the period when poor relief was paid for partly through local taxation at the parish level, as well as charitable giving, and as such varied throughout the country. They found:

...a positive relationship between welfare provision and charitable giving using data from the late eighteenth and early nineteenth centuries, at a time when both were expanding, but were subject to increasing criticism, in particular by economists. This mirrors the situation since the end of the Second World War, when the size and scope of government provision has come increasingly under attack. There are certainly many theoretical justifications for this, but we believe that the crowding out hypothesis should not be one of them. On the contrary, there even seems to be evidence that government can set an example for private donors.

In other words, rather than finding out that higher tax rates crowded out charitable giving, the study found that greater government support for the poor may well have encouraged the rich to boost their charitable donations. Taken vice versa, it also means that reducing public spending and taxation does not necessarily lead to an immediate rise in philanthropy.

That conclusion is nothing new. As we pointed out in 2013, other research has already shown that it takes a lot of help—and time—to get voluntary outfits off the ground after state support for welfare activities is reduced. While expanding the voluntary sector at the expense of the state is a laudable goal, such a policy provides no quick fix. That may be because culture affects giving—whether through the tax system or voluntary donations—more than economics in the short term. In 1815, for instance, both private and public spending on poor relief was higher in the culturally paternalistic and rural south-east, than it was in the parsimonious, and rapidly industrialising, North (see map).

Indeed, according to several sources, one of Margaret Thatcher's regrets as prime minister was that her tax cuts in the 1980s did not create an American-style culture of philanthropy in Britain. She may have thought in 1981 that "economics are the method: the object is to change the soul". But it turned out that it took much longer to change the habits of the rich than it did to cut their tax rates. And that should be food for thought not only for the thinkers behind the Big Society—but also for tax cutters everywhere.

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