Charities, businesses can be as inept as government

Published 7:23 am Wednesday, November 15, 2017

Last week, USA Today ran a story critical of the Red Cross.

The Red Cross has, for years, been dogged by allegations of wasteful spending and inefficient aid distribution and this story was more of that. Specifically the story criticized the aid agency’s response in the wake of hurricanes Harvey and Irma. According to the story, the nonprofit collected $211 million after Harvey but they spend up to a quarter of their donations on internal expenses.

I probably do not need to remind anyone here, but the money they did spent on recovery was not spent well. Indeed, the Red Cross’ offer to give every individual $400 after the flood here was met with a lot of interest—and a faulty website, long waiting lines and confusion.

Subscribe to our free email newsletter

Get the latest news sent to your inbox

This may be bad news for the people who donated to the organization and it’s certainly bad news for recipients of Red Cross aid. However, the report should serve as a reminder that more than government can be inefficient.

While plenty of politicians criticize the government (even as they run for office to serve that same government) the fact remains government, at least, is accountable. In other words, if you donated to Red Cross and regret it, well, too bad. On the other hand, if you’re upset with how the government is spending your money you can do something about it come Election Day.

I don’t mean to necessarily defend the government, but it bears repeating that the oft-repeated criticisms about the government being inefficient and unable to do anything may as well be applied to charities and private sector firms. One does not have to serve in government to be bad at one’s job.

I point this out because next year is an election year and I am willing to bet pretty soon we will hear from congressional and senate candidates who will argue our federal government is unable to do much of anything. This argument is usually used to justify gutting social welfare programs for the poor or to outsource welfare programs (and prisons). Politicians call this “market based solutions,” but whatever the term, it’s almost always a mistake.

Sometimes services are handed over to private industries that lobbied heavily for privatization. This was the case with Mississippi’s prisons. One need only Google “private prisons and Mississippi” to see how that state’s private prison industry bungled their operations. The second result from Google is a New York Times story with the headline, “Privately run Mississippi prison called a scene of horror is shut down.”

Mississippi’s private prisons and the Red Cross aren’t the only examples of governments outsourcing work for worse outcomes. The problem, it seems, arises in other instances of outsourcing. Several years ago, the Nation reported on outsourcing and, based on a University of Colorado study that looked at outsourcing in sanitation and healthcare, the magazine reported outsourcing in those sectors led to, “weakened social infrastructure, deepened economic inequity and hollowed-out civic institutions.”

In addition, contracts to private companies are essentially little more than monopoly deals as generally contracts on services are only renewed annually and generally they’re renewed without comment while contracts for prison and hospital management can last for years.

The irony is, whoever performs the services, the taxpayer pays for it but private companies don’t face public scrutiny. So, in the case of the prisons, the public (and the media) has very little idea of what goes on within the company or within the prisons because private companies are, well, private.

So, until there is a massive scandal, these private companies can keep whatever internal problems they have hidden away from the public.

Not that public scrutiny in and of itself is enough to make an organization change. Heck, the Red Cross has faced the same criticism for seven years (after the 2010 Haiti earthquake, their expense to charity ratio made international news) and the charity has not yet been able to really improve services or their efficiency. As the Red Cross is kept alive by charity, one would think they would have every incentive to change their business model lest they face declining contributions but, as USA Today reports, the agency is still incredibly flawed.

The government might be inefficient and it might be slow but, again, there are at least elections every few years.

Keep that in mind next year when the political hopefuls promise free-market solutions.