Welfare State Retrenchment and the Nonprofit Sector: The Problems, Policies, and Politics of Canadian Housing

Introduction

Throughout the 1980s, neoconservative governments—fueled by the conviction that the delivery of goods and services is more efficient when left in the hands of the nongovernmental sector, and that nonprofits are more sensitive to personal and individual needs because they are not bound by “bureaucratic” and “majoritarian” constraints—called upon volunteer activity to substitute for the state in many areas of social policy. ¹ This doctrine viewed “the relationship between government and the nonprofit sector in terms that are close to what economists would call a zero-sum game.” ² Advocates of this position believed that once the welfare state dissipated most social welfare activities would be (re)supplied through the expansion of the third sector. Despite the prominence of these beliefs, the evidence overwhelmingly suggests otherwise. ³

Figure 1.

National Sources of Nonprofit Revenues

Nonprofit and voluntary organizations commonly “invoke the positive images of community, voluntarism, civic dependability and neighbor-helping-neighbor,” but their role in providing services for governments in the post-World War II period puts these images at variance with contemporary reality. ⁴ Throughout this period, the welfare state contributed to the development of a strong association between government and the third sector. As Pifer observes, “the growth of government spending did not make the non-governmental sector redundant and anachronistic but, in fact, stimulated its growth and led to the development of a broad partnership between the two.” ⁵ In both Canada and the United States, nonprofit organizations that provide “humanistic services” rely more heavily on government finances than on any other source of revenue. ⁶ Figure 1 shows that even in states with highly developed welfare systems, nonprofit organizations deliver many services that government finances. ⁷ Because government funds have become a crucial component in third-sector revenues, nonprofit organizations are unlikely to maintain current levels of service, not to mention increase activity through periods of welfare state retrenchment. ⁸

The nonprofit sector occupies a central place in the debate over the future of welfare policy, but the increased attention is not based on a clear understanding of the third sector or its capabilities. Improving our knowledge and understanding of this sector is not only a matter of academic and theoretical interest, but also is an urgent policy concern. In the face of welfare state retrenchment, nonprofit organizations will not automatically fill the void left by government retrenchment. There are many policy areas where third-sector organizations have not and likely will not expand to compensate for welfare cuts, as many neoconservative governments anticipated in the 1980s.

This is particularly true in the area of nonprofit housing. Housing nonprofits require substantial revenues for ongoing administrative funds and project capital, as well as low-interest loans for predevelopment financing, property acquisition, and construction. However, the interest in providing low-income housing precludes most traditional sources of private financing, and nonprofits must rely—almost exclusively—on the public sector. ⁹

The attributes that make the provision of social housing in the absence of state aid unlikely also make the case atypical. Nonetheless, the case reinforces the main point that the relationship between the state and nonprofit organizations is not static, but dynamic, and contingent on the policy field, the time period, and the institutional regime in question. The neoconservative tradition and its implementation has to be understood within the confines of a nation’s history and institutions, especially where the role of the nonprofit sector in the economy and society is concerned. ¹⁰

A historical perspective of Canadian housing shows how problem, policy, and political streams are linked in important ways over time, and how stages of innovation from earlier periods can effect each of these streams at subsequent periods. The process of innovation renders some interpretations of problems more plausible than others and makes some solutions more politically viable than others. ¹¹ Periods of institutional change and innovation are important because they transform the constraints in which actors make strategic choices and because they can “reshape the very goals and ideas that animate political...