I sat in yet another dreary, mind-numbing social services meeting. The CEO of a partially government-funded community clinic was showing us slideshows on data and city statistics. After this we were entreated to small-group discussions, where we were tasked to figure out how the clinic can serve more homeless people and spread the message about free medical care. In-between thoughts of ending my misery and finding excuses to go to the bathroom, I yet again asked myself why these kinds of meetings are so common.

It seems to be rule of thumb that non-profit organizations need the following attributes:

A. A love of meaningless meetings with the unspoken goal of patting each other on the back.
B. An obsession with data quality, collecting client statistics, and creating multitudes of documentation.
C. Employees who feel, incessantly, the need to complain about low wages.

One day, I started to understand why these attributes seem so common. Non-profits, in general, seem to be this way because of one essential factor of their existences: they lack profit calculation. This is not to say that profit-seeking groups don’t collect data, statistics, or document things. But those organizations do not wholly depend on those things for their operations, and the data those firms use are market-data based on revenue.  Rothbard, in his Economic Controversies, said this about market-drawn statistics:

The free market uses them “productively” because the producers are guided, on the market, to produce what the consumers most need: automobiles, for example, rather than buggies. Therefore, while the statistics of the total output of the private sector seem to be a mere adding of numbers, or counting units of output, the measures of output actually involve the important qualitative decision of considering as “product” what the consumers are willing to buy. A million automobiles, sold on the market, are productive because the consumers so considered them; a million buggies, remaining unsold, would not have been “product” because the consumers would have passed them by.

For-profit firms, thus, can understand consumer demand and preference by how well their products sell. They can also determine pricing through the same economic mechanism. The consumer and the client are generally the same in this interaction as well. If a firm does a good job at understanding consumer demand and satisfaction, they survive. If they fail to do so, they stagnate and\or go out of business. Rothbard thusly states:

Incomes to factors and entrepreneurs on the market, therefore, are tied inextricably to the effective satisfaction of consumer demand, a satisfaction that depends on the successful forecasting of the market conditions that will exist when and after the goods or services are produced. Income to the firm and to factors from consumers is linked inextricably to the satisfaction the consumers derive. In a deep sense, therefore, income to producers on the market reflects benefits to consumers.

These factors are not the same with non-profits. Non-profits, namely those that operate upon grants, do wholly depend on data, statistics, and mountains of documentation, and the data collected is not related to revenue from satisfied customers. And it is often the case that the consumer and the client are not the same. Rothbard describes the non-profit firm:

The second type of market institution—after the business firm—is the voluntary nonprofit membership organization: the bridge club, lodge, ideological organization, or charitable agency. Here, too, income and benefit are cognate. Income is no longer divided between investors and consumers. All income is obtained from members, either in the form of regular dues or systematic or occasional donations. The purpose of the organization is not to earn a monetary profit, but to pursue various purposes desired by the income-paying members. In a sense, then, the members are the “consumers,” except that they consume the services of the organization not by purchasing a product but by helping the organization pursue its goals. The member- donors are at the same time the consumers and the investors, the consumers and the makers of the production decisions. The organization will employ as much of its resources as the member-consumer-donors desire to contribute to the pursuit of their goals.

In the case of a non-profit that operates solely on private donations, Rothbard is correct. But government funding, in the form of public grants, muddles up the utility of price calculations. It is no longer a matter of a business serving its consumers; it is now a matter of a business collecting data to track how grant money is spent and to whom it is used for. And indeed, non-profits of this nature must also proactively collect data to show a need for more grant money.

Austin’s yearly Point-In-Time Count is a good example of this. Do-gooders travel out to campsites and underpasses to find potential clients, collect their demographics, and assure them that their needs will be met. This data is then presented for the purpose of gaining more grant monies for said non-profits, and so the tax-payer foots the bill for needs. There is no consumer, no consumer demand; there is only client need. And thus the elegant mechanism of price calculation, based on the reality of supplying consumers with what they demand, is pushed aside for unwieldy bureaucracy.

The observation I have drawn from these experiences is the following:

A. Clients, not consumers, have needs rather than demand. They do not pay for services. The consumers are private donors who, unfortunately, have their donated money utilized side-by-side with government grants. This must be seen as a distortion of an otherwise cut-and-dry exchange interaction, since a portion of the service is now being subsidized by an outside entity.
B. Price calculation is no longer possible in the truest sense due to the influx of grant money and due to the fact that consumer demand is (wholly or partially) removed from the equation. Hence a further distortion is taking place; consumer demand is being replaced by the interpretation of demographic statistics.
C. People are now being employed in positions not made available by consumer demand. People are being employed in positions that are based on government grants, which are enabled by statistics and self-reported need. There is no natural market price for this labor, which creates an unnatural demand for said social workers. Their wages are no longer dictated by the ability to satisfy consumer demand.

If I am right, then it is to our detriment to leave social services in the hands of government. It is just as detrimental to infuse private funds and public funds. It complicates the already complex matter of helping our fellow creatures. It confuses clients, consumers, and employees alike. It would behoove us to move to a fully private form of charity. I add, in closing, that this observation only came to me after reading Human Action by Ludwig von Mises. One passage in that work is especially poignant, which I now leave for the reader to contemplate.

Bureaucratic management, as distinguished from profit management, is the method applied in the conduct of administrative affairs, the result of which has no cash value on the market. The successful performance of the duties entrusted to the care of a police department is of the greatest importance for the preservation of social cooperation and benefits each member of society. But it has no price on the market, it cannot be bought or sold; it can therefore not be confronted with the expenses incurred in the endeavors to secure it. It results in gains, but these gains are not reflected in profits liable to expression in terms of money. The methods of economic calculation, and especially those of double-entry bookkeeping, are not applicable to them. Success or failure of a police department’s activities cannot be ascertained according to the arithmetical procedures of profit-seeking business. No accountant can establish whether or not a police department or one of its subdivisions has succeeded.
The amount of money to be expended in every branch of profit-seeking business is determined by the behavior of the consumers. If the automobile industry were to treble the capital employed, it would certainly improve the services it renders to the public. There would be more cars available. But this expansion of the industry would withhold capital from other branches of production in which it could fill more urgent wants of the consumers. This fact would render the expansion of the automobile industry unprofitable and increase profits in other branches of business. In their endeavors to strive after the highest profit obtainable, entrepreneurs are forced to allocate to each branch of business only as much capital as can be employed in it without impairing the satisfaction of more urgent wants of the consumers. Thus the entrepreneurial activities are automatically, as it were, directed by the consumers’ wishes as they are reflected in the price structure of consumers’ goods.