What's worse: state or charity?

In case you've missed it, there's been quite a furore about this article by Martin Brookes, Director of Research at New Philanthropy Capital. In it he calls for the creation of a "non-departmental public body under the auspices of the Cabinet Office" to be "concerned with assessing and improving the performance of charities".

His argument is:

• Most other private and public bodies have their performance scrutinised
• If charity is about more than assuaging guilt then we should care about its outcomes
• 'Charity' is not a homogeneous group and we should discriminate between them
• Charity's purpose and origin is not so different from other sectors of society that it should escape accountability
• Analysing charity performance is not too hard or beyond available methodology
• Lack of scrutiny is not healthy to the taxpayer or donor
• Informed donors will pick their charities better and so make more impact
• Greater public scrutiny is anyway inevitable
• Charities are overly sceptical of outsiders' involvement for irrelevant reasons: they work hard to get funding and feel perpetually beleaguered

It's an interesting article, much of which is impossible to disagree with.

However, the mistake Martin makes is to think that the state regulation is the best mechanism for holding charity to public account. This for three reasons.

Firstly, the state is often even less effective than the charitable sector. Although regulatory bodies such as Ofgem and Ofcom (which Martin cites) are usually considered better than other government departments, they too are steeped in the public service ethos of inefficiency, lack of vision and slow responsiveness.

Secondly the comparison with the private sector is invalid because most businesses are actually regulated by their shareholders or other investors, more than by state regulatory bodies as Martin suggests. In those few industries (such as utilities) in which there is state regulation, it is largely to ensure that the companies remain competitive, rather than assess their productivity per se.

Thirdly and most importantly the state, private sector and charitable sector exist together in a stable tripartite relationship with which it would be foolish to tamper. Ultimately taxpayers should monitor government, investors monitor business and donors monitor charity. There may be some cross-over but where possible this should be conducted through open debate in the public media, rather than through institutionalised structures of control.

If assessment of the performance of charities is handed over to the state it will stifle the growing willingness among donors to hold charities to account. If people begin to feel (as many already do) that the charitable sector is simply an arm of government then public donations will fall and the state will be left as the only player - an obviously unhealthy situation.

Most of Martin's argument is correct and he must be applauded for speaking out on the issue. But my feeling is that the government would instead do better to actively support the third sector in being more open with the public. Rather than regulate charities' performance themselves, the Cabinet Office should cajole them to regularly publish details of their activities and support them in setting up rigorous accountability standards.