20 July 2005

The peanut that launched a thousand ships

Even more non-moralistic musings on NKF

From today's Parliament proceedings, it appears more certain that the Minister of Health, Khaw Boon Wan, regards further regulations on charities to level up their governance and disclosure as unnecessary. In the wake of NKF's failed suit against Singapore Press Holdings, Balaji, the junior minister for health, stood by NKF, calling it an efficient organisation. Just to let everyone know where the government stands, supposedly, in its ideological crusade to turn everything into a free market?

The right tool for everything?

In the free market, the maximalisation of profit or surplus is the core value and natural behaviour of every firm. It's not the corporate structure of the NKF board, the salary and 12-month bonusese of its CEO, or even the method of fundraising that is fundamentally wrong - the assumption that the NKF should behave like a free market entity and build massive surpluses that is primarily at fault and entirely inappropriate in the charity industry.

The purpose of charity organisations is to raise funds to subsidise a certain group of disprivileged people, or for a particular cause - not to accumulate operating surpluses to the tune of hundreds of millions. A surplus either means that aid is not getting through to people who need it, or an excess amount of funds has been collected, above and beyond the requirements of the charity and its cause. A surplus means that there exists a huge inefficiency in the distribution of charity funds. Worse still, these surpluses are a reward for the effectiveness of NKF's excessive fundraising, and these surpluses are the captured funds of what should've gone to other charities. Beneath the unwavering support from Minister Khaw lies a reluctant understanding of this principle: during his press conference on 14 July, Khaw admitted the possibility that "NKF reserves may be diversified into other causes" - or simply put, the surpluses will be diverted to other charities that need the funds.

The logic of charity fundraising then, is different from free markets. While free market firms should maximise profits and surpluses (although some may choose to maximise revenue or market share), charity organisations should strive for a zero surplus, zero deficit model. It's an easy goal, really. For every charitable cause, there is an identifiable and clearly-bounded population of beneficiaries whose needs are predictable and more or less stable. Calculating the total amount of funds needed wouldn't require a genius.

Singaporeans must remain vigilant

The NKF has been getting away for several years with massive surpluses, inappropriate, fraudulent, yet legal practices - with some knowledge and approval of Parliament. Minister Khaw knew about the massive reserves and defended them last year. Pricewaterhouse Coopers, the government taxman, and the the commissioner for charities have all audited the NKF's books for years and found nothing objectionable or illegal. The government's intervention now is not an admission that its strong support of NKF was wrong, but a political expedient move to quieten the tide of discontent of Singaporeans. Operationally, I expect little to change at the NKF. Legally, the Minister has already said no to urgently-needed regulation.

To the high and mighty, the amount of money involved is peanuts. Singaporeans should be aware that these people will never fight for their interests. What is in the interests of the high and mighty, though, is the continued support of Singaporeans for NKF. NKF is efficient, it has many patients that still require care and funding (presumably having 30 years' worth of surpluses isn't enough), Singaporeans are generous and kindhearted, they say.

My advice to Singaporeans is simple: let the NKF die. Whether the charity industry is a free market or not, other charities will fill in the gap. The refusal of the high and mighty to let NKF go is surprising; even in free markets, firms are always set up and shut down, and no one sheds a tear for them.

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