Let citizens, not the state, decide the allocation of public money to civil society organizations
What is the best way to help others? Basically there are three options:

1. Help myself—directly help others with my time, energy and money
2. Help a charity—give my time and/or money to a charity
3. Help the State—give my money as taxes for the government to provide help

When I ask which of the three ways is better for helping others, the overwhelming majority selects the options 1 and 2.

Hardly anyone chooses the third option of government-run welfare. Between the first two options, usually a younger audience prefers the first one and a more mature one, the second option.

In principle, private welfare is better than state welfare but hardly anyone wants to rely on it in practice.

Could the sensible in principle be made feasible in practice? Is it possible to re-imagine the welfare system where there is assurance of support to all who need it but which also depends more on options 1 and 2? Could we design a system that aligns the practice with the principle?

To guarantee support to all who need it, we cannot rely fully on individual efforts (option 1), we need organized effort (option 2). Instead of relying on the State, we would rely on civil society organizations (CSOs). We need to harness the diversity and depth of CSOs to ensure help for all.

Even the best-run welfare state would be bureaucratic, impersonal and most likely to employ a one-size-fits-all approach. It would lack customization or personalization and it would be unable to provide emotional, moral, socio-psychological or behavioural support. The CSOs could customize support to individual needs and provide not just material but also moral support that an individual requires to get back on his feet. This is the reason CSOs are preferred over welfare bureaucracy.

However, CSOs lack the one critical power that the State has: the power to tax.

Even though CSOs are superior in self-help delivery, we cannot rely on them since their funding is unpredictable. We cannot be certain that they will be able to raise all the necessary funding from philanthropy.

How do we ensure sufficient funding to CSOs? Certainly the funding would have to come from tax revenue. But the direct state funding of CSOs would create myriad problems—corruption, change in focus from the people to the funders, declining independence and effectiveness.

How could we increase public funding of CSOs without state control? Let citizens, not the State, decide the allocation of public money to CSOs. The CSOs receive “public funding”, not “state funding”.

We set a rule that every citizen could allocate x% of her annual tax dues to CSOs. Citizens pay direct and indirect taxes. Theoretically, it is possible to calculate the total of direct and indirect taxes that a citizen pays, so each and every citizen would have some money to allocate to CSOs. For the simplicity of exposition, let us just focus on direct taxes. So at the end of the year, I fill out my tax return and I send a cheque of (1-x)% to the government and “donate” x% of my taxes to CSOs of my choice.

The CSOs would have to compete for these “tax donations” by providing information about their work and effectiveness. A public-private entity, let us call it India Swavalamban Sangathan (ISS), could collect, verify and rate CSOs so that citizens can make informed choices.

One can visualize a variety of aggregators and rating agencies performing the information and guidance role over a period of time. No one agency would have a monopoly on information and rating, and ISS analysis will always be available to citizens.

The government can continue to provide welfare through various transfer and subsidy schemes as it does currently from the remaining tax revenue. Over time, we would be able to compare the effectiveness of state schemes with that of CSOs. As citizens become more involved in understanding the work of CSOs and their impact, many of them may begin to give their own funds to supplement the tax money they allocate, a very important indirect benefit.

The public funding would help CSOs to build scale, specialization, and innovative solutions. Just as companies come in various shapes and sizes, the CSOs would also vary depending on the multitude of local and national factors. Some CSOs would be of the size of a large corporate and some of a start-up. What matters the most is the emergence of an ecosystem of CSOs that is as vibrant, innovative and effective as the ecosystem of enterprises. We would have a “welfare market” to match the “economic market”.

As CSOs get more funding from “tax donations”, they would become the dominant suppliers of welfare. The welfare system or rather the self-help system would rely more and more on the first two of the three options to help others—creating a citizen-taxpayer-led market for welfare.

Published as part of a series on the book Liberalism In India: Past, Present And Future published recently by Centre for Civil Society. The book is a collection of essays written in honour of the late S.V. Raju.

Parth J. Shah is founder president of the Centre for Civil Society.