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Andrew Bannecker

It is no secret that all of our governments are, to varying degrees, broke. This state of affairs has arisen for a number of reasons: global economic challenges, financial market instability, changing demographics and, primarily, governments that can't seem to stop spending beyond their means. The high current level of government deficits and debt is going to take time to pay off, which will affect our economy and our society in many ways. One impact is that government funding of not-for-profits and charities will continue to decline significantly for the foreseeable future, and the competition for scarce funding resources will be fiercer than ever.

It is fairly well-known that large corporations are big funders of the arts and charities as their names and big-dollar donations are typically emblazoned on buildings, hospital wards and fund-raising campaigns. The Sony Centre for the Performing Arts and the Four Seasons Centre for the Performing Arts, both in Toronto, are but two examples. What is less known is the role small and medium-sized businesses (SMBs) play in supporting their favourite causes in their communities and beyond. Although the individual dollar amounts may be much smaller, they add up to a significant sum that can help charities and others offset the loss of funds from government.

The Canadian Federation of Independent Business has done research on this issue over the years, and it has consistently found a high level of charitable activity in the SMB sector. One study showed that fully three-quarters of small firms make financial donations to charities or other non-profit activities in their communities, and about the same proportion donate goods and services. About 60% sponsor local sports teams, and half promote local charities and donate their own time. One-quarter of the businesses surveyed also donated employees' time. Only 1 per cent of the businesses reported that they had no involvement in community causes. This is a pretty compelling level of participation.

The sector that gave the most back to its communities was retail and hospitality. Another consistent finding was that business owners gave priority to participating in causes within their local communities. It was also interesting to note that through the recent recession, the level of participation did not drop off even though these firms were making less money. Comments from some of the business owners indicated that their activity levels actually increased during the recession as they believed the need was much greater.

It is unfortunate to see worthy charities and other causes struggling because funds from governments have declined or vanished, hitting groups such as United Way quite hard. But there may be a silver lining in this cloud. There is a considerable body of research on the growth of the social welfare state throughout the 20th century that suggests private sector donations declined as government took a larger role in funding these causes. As individuals and companies, large and small, were being asked to pay higher taxes to fund the social welfare state, it follows that there would be less money for private donations. Research also shows that private donors tend to be more effective and efficient at getting to the truly needy than bureaucratic governments. There is an attitudinal aspect to this as well. When people see governments stepping in to areas they haven't been involved with before, it is human nature to think that the area is taken care of, and that non-government players don't have to worry about it.

The shrinking role of government in the charitable and non-profit sectors will certainly cause some disruption. But past experience suggests it is also likely to spur increases in donations in the more efficient, focused private sector, and that SMBs will be important participants in this process. Governments can help accelerate it by considering more generous tax treatment for charitable giving. In the longer run, these developments might lead to a better outcome for charities.

Only 1 per cent of the businesses reported that they had no involvement in community causes.

Catherine Swift is chair of the board  of the Canadian Federation of Independent Business. CFIB represents 108,000 small and medium-sized businesses in Canada.

Special to The Globe and Mail

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Editors note: An earlier online version of this story incorrectly stated  Catherine Swift's title. This online version has been corrected.