The Principles of Morality and Transparency in the Third Sector

Universidade Lusófona

Lisbon School of Administration

• We are in an especially dangerous period of the economic and social history of the most developed countries, where economic and social adjustments are being made at the same time as we define geostrategic rebalancing at a global level, which forces us to a special reflection on the mechanisms of good government.

• The solidarity sector implies trust.

• And it is not worth considering the moral superiority of the Third Sector by its conscience and volunteering, because previous absolute social responses proved to be false and caused severe humanitarian disasters.

• This was the case of the socialist response unmasked by Ludwig von Mises long time ago. The inevitable failure of the centralized government of the economy

• The crisis of 1929/1932 that the market has flaws and the Keynesians believed that public initiative, albeit occasional, could be the answer .

• Stagflation killed the interventionist dreams of Keynesianism in the 70s in the same way that this crisis proves that there is a limit to public investment through borrowing. Keynes did not consider the fact that the creditors do not want to lend more money to a state already indebted, as we see actually in Portugal.

• We now see again as the public intervention during this crisis only increased the public deficits and exacerbated the problem of the sustainability of the euro and the dollar, making the financial and banking crisis in a sovereign debt crisis and economic recession, increasing inequality and poverty.

• The moral problem of monetarism is that everything that is not efficient must die and thus we create an underemployment equilibrium, which requires social and political responses.

• The State is not the answer to underemployment and there are political limits to structural reforms and further consolidation.

• To intend to adopt the model of Chinese business in Europe to prevent the relocation of a company, as it is already starting to happen in Italy or in Galicia, in the fashion sector, puts at risk the legal framework of labor and the tax models that support the post-welfare state - that many still advocate in Europe – but it opens the way for what I have called the Guarantee Social State or the Americans call Agency State, in which the economic model is more liberal and less regulated, while the State, which is no longer producer and dealer, is committed to its essential economic function of fighting poverty, guaranteeing everyone access to basic social rights.

• The moral advantage of capitalism is that all economic players are on an equal position on the market, so there is the possibility of competition in the price formation.

• But when the State tries to intervene, unbalancing the market or correcting its failures, what always happens is that it improves the condition of the wealthier (minority interests), increasing poverty and it becomes indebted, it increases taxes and causes unequal competition in fundraising.

• The lack of market economy and so many times of minimum conditions of competition, safety or stability, because of the lack of certain production factors (including capital or legal reinforcement of work contract) - but happens too in most poor’s countries in Africa because there is no market at all - creates not only opportunities, but demands to solidarity economy as the better possible response.

• If the Solidarity Economy gains a new dimension in this crisis, as a economic solution for the new privatizations on Health, Education and Social Security - while the sector is also in crisis because of the reduction of its financial resources, for instances in Portugal and Spain – it is important to pay greater attention to the mechanisms of formation of the economic solidarity decision and its governance.

• New forms of organization of knowledge in societies based on Social Innovation in Nonprofit Organizations and Social Entrepreneurship also requires a moral and legal clarity.

Why?

• - Due to a question of trust, without which the sector does not have the resources.

• And here it is important to strengthen the behavioral mechanisms so that the social and solidarity ethics is not just a vague principle without content.

• The Solidarity Economy does not have the natural controls of capitalism - where no single company controls the price - or the regulatory mechanisms to correct market failures.

• And so, today more than ever, it is important to take on ethical imperatives in the social administration.

We year zero of Solidarity Ethics!

• Ethics in business (1980s)

• The philosophical question is not new: when Antigone defies King Creon, her uncle, to go and bury her brother, she knew that she was challenging the law, but that would honor the son of her mother and her family name. It was the Natural Law prior to the Positive Law itself.

• Thus we have a moral imperative of transparency and probity resulting from the Law and Public Order and, on the other hand, a requirement of the very nature of things and that in the current economic and financial framework is an assumption of the Third Sector.

• The content of the principle implies that the social agent and the institution of the Third Sector as a human being or a legal person respectively, endowed with the legal capacity to act, must necessarily distinguish Good from Evil, the honest from the dishonest.

• And when they acting, they cannot disregard the ethical element in their behavior.

• So not only they will have to decide between legal and illegal, just and unjust, profitable and not profitable, sustainable and unsustainable, efficient and inefficient, convenient and inconvenient, opportune and inopportune, but also between honest and dishonest.

• Due to considerations of law and morality, the actions of the 3th sector will not only have to obey the law but also the ethics of the institution itself, because not everything that is legal is honest, as the Romans said - non omne quod licet honestum est.

• The common morality is imposed on man for his outward conduct; the moral solidarity is imposed on the agent of the Third Sector and its institutions for its internal conduct, as required by each institution and the purpose of its action: the common good.

Law

• First, we must establish the autonomy itself of the sector: the Third Sector is the one that is not public and it not private, in the conventional sense of those expressions; but keeps a relationship with both; in that it derives its own identity from the combination between the latter’s method and the former’s purpose.

Law• Secondly, there are general principles of law applicable

to all the families of Public Law and Private and commercial Law.

• Any State Principles of Economic Public Law is applicable to all Economic Sectors that coexist in a legal system, namely the Principle of Legality and Social Equality.

• The Principles of Legality and Social Equality include the Principle of Morality.

• And in this way the Principle of Morality cannot be absent from the regulatory right of the social economy, a fortiori, by the Economic Public Law.

• As a principle of the Economic Public Law, the Principle of Morality is present in the regulatory law as a general principle of Law and in particular in the Regulatory Law of the Social and Solidarity Sector, as expressly happens with the recent Spanish legislation of the sector as the one that is being prepared in Portugal.

• On the other hand, the very idea of the Third Sector often implies in the face of the creativity of private solutions, the absence of the regulator and the market with its limits, implying therefore a greater demand for public accountability, common sense in resource management and above all a clear moral distinction between good and evil as necessary limit.

Law

• Third. The Social Law cannot be restrictive in the sense that the only thing that is permitted is what is authorized by the law, but is based on the creativity and innovation in the social sector. In its origin there is the Constitutional Principle of the Free Initiative for Private Sector and for the Solidarity Sector.

Law

• Four: the taxation of the entities of the third sector. These civil society organizations are not companies and they cannot be treated as such, especially in less developed countries, since international donors do not recognize tax obligations and are unwilling to afford them.

• But the exceptions of the third Sector involve a clear accountability and public scrutiny of the destiny of resources and above all - the criteria off efficiency of the sector.

• The Principle of Social Morality, expressed or not expressed in the architecture of Constitutional Law of any State, shapes the entire solidarity economic activity, including the Principle of Fairness - that is the principle of ensuring transparency of actions and activities of the social economy institutions

Law

• Five: controls of the legality and efficiency of public resources given to the Third Sector, and the the criminalization of immoral and illegal acts such as economic participation in business, crimes against property (such as theft, robbery, extortion, damage, etc.) crimes against the Public Administration or against the Public Finances, etc..

• Unfortunately most legal frameworks don’t have the criminalization of the corruption in the Third Sector organizations, as are de non profit organizations.

Proposals

• The criminalization of active and passive corruption and embezzlement in a Third Sector entity or by agent or officer of the Third Sector;

• Obligation to publish on the official website of the entity the budgets of the revenues and expenditure of the Social Sector entities duly approved before the start of the fiscal year; The budgets should include the economic classification of the revenues and the functional economic and organizational classification of the expenses and must be approved by the assembly of cooperative members or by the General Council of the solidarity organization or its trustees in the case of a Foundation.

• Obligation to publish the profit and loss account, the balance sheet and social balance on the official online site of the entity until the third month of the year following the fiscal year, including the following elements:

• a)Total number of people supported or cases of intervention (with characterization)

• b)Total number of paid workers (number of people or full-time equivalent)• c) Total number of volunteer workers (number of workers and its full-time

equivalent)• d) Total value of remunerations distributed• e) Total values of other operating expenses• f) Total economic value of volunteer work• g) Total value of gross operating surplus• h) Total gross value added• i) Structure of income

– Sales of goods and services– Contributions of members– Donations and patronage– Public financing

• Strengthening of the supervision of revenue and expenditure in the Social Sector, including the requirement of certification of accounts by Chartered Accountants or Chartered Auditors. In the case of very small organizations or those that are civil or even informal companies the supervision actions should be self-regulating and aim at the good practices and improvement of management instead of punishment.

• All organizations should justify in an online report all the expenses made and to be made in the previous year before approving the new budget for the following year.

• All the Social Sector entities should be identified in a national record published online and all the fund-raising operations should be registered, whenever possible with the issuance of invoice.

• To identify in the same public record all public donations and all the donations registered with tax purposes (patronage and other tax benefits) by companies or individuals.

• To identify in the same public record all public donations and all the donations registered with tax purposes for all public-social partnerships, in particular in the areas of health, education, sports, child support and social solidarity.

• Identification in a central online record of the employees of one or more organizations of the Third Sector and that are thereby paid by one or more solidarity entity.

• Code of conduct or law of incompatibilities that expressly prohibits that those who collaborate in the solidarity sector cannot be at the same time an officer or director in private companies or Public Direct, Indirect or Independent Administration bodies that compete or relate directly or indirectly in the economic and social sector in which the solidarity entity acts.

• The creation of the obligation of all board members and directors of solidarity entities to publish in the solidarity entity’s official website their assets and their tax return every year. (Some people advocate the accountability at the end of the mandates, but that is close to the legal concept of Intrusion that existed in the Philippine Ordinations - XVI sec.- and that was terminated by modern law )

• The monitoring and study of new forms of social intervention whenever there is public funding in the Solidarity Sector and in public-social partnerships, namely the new corporate forms of public foundations with private social revenue (and with the corresponding administrative and financial autonomy), the private foundations with the appointment of public managers, public and municipal cooperatives etc. (These institutions came to greatly extend the dependence of the Social Sector on political clienteles and they are creating a true promiscuity between the political agents and the traditional social agents).

• The obligation of public tenders - with early publication of the contract and following the requirements of public procurement - to contract in the social sector above a certain amount, the direct adjudication must be justified, with publication of the adjudication and the justification in the official website of the social entity, under penalty of nullity.

• Create a self-regulatory entity of the Third Sector to monitor the application of good practices and good governance and monitor the efficiency of the various entities of the Third Sector through, for example, a barometer of the management efficiency of the Third Sector and a rating of the effectiveness of the Social Economy entities that allow donors to have a quick and certified assessment / information of the entities to which they will make funds available. (And right information in real time is essential to the trust that the sector needs to maintain its ability to finance with private funds).

• Establishment of a Code of Social Practice with the good practices of the sector and that includes the requirement for a complaints book.

Without this legislative initiatives the Solidarity Sector will fall into discredit.Thank You

• Barcelona, September 16th, 2011