The New Philanthropy and Development Aid

Two annual spring gatherings that shape the agenda for foreign aid have just been held. One of these is well known and was widely reported on while the other was largely ignored. Unfortunately, the world has gotten it backwards. The meeting that no one cared about is the one that offers the greatest hope for ending global poverty.

The Joint Development Committee of the World Bank and the IMF met on Sunday, April 13 in Washington, D.C. In their communiqué, finance ministers noted that “most sub-Saharan African countries are off-track to meet the MDGs [Millennium Development Goals]… we urge donors, including the World Bank Group, to increase their support for the poorest countries’ own development priorities.” During the meetings, donors such as the US, Japan, and the EU were encouraged to “harmonize” their development activities in poor nations.

A few days earlier in California’s Silicon Valley, as it has for the past seven years, the Global Philanthropy Forum held its own annual gathering. This community of donors and social investors committed to international causes aims to promote a new kind of global philanthropy that often blurs the line between “non-profit” and “for-profit” approaches. True to many of their Silicon Valley roots, this new generation of philanthropists uses new technologies to link donors and recipients together, to provide better access to information (whether about microcredit availability or rainfall forecasts), and to build social networks in poor communities.

Approximately 800 press credentials were issued for the World Bank-IMF “Spring Meetings,” as they are called. A Nexis search yields over 400 news articles reporting on the meetings. Meanwhile, at the Global Philanthropy Forum few, if any, members of the press were on hand; Nexis turns up not a single major news story on the proceedings (although one blogger did report on the forum’s discussions).

This lopsidedness is unfortunate. In fact, the attendees who came to Silicon Valley last week will likely give more aid to world’s poor this year than the institutions that convened the Spring Meetings. In 2006, the IMF and World Bank disbursed about $24 billion in loans and credits, not counting debt relief. In the same year, American foundations, charities, and philanthropies gave almost $34 billion to international causes. The best hope for the world’s poor lies in the ability of private aid givers to transform the current system of foreign aid, and to develop partnerships with the public sector, to advance the common good.

The private sector has grown from a small player in development assistance to a major, dynamic force, but the world has little noticed. Since 1998 international giving by US-based corporate and independent foundations has doubled. Giving from “mega-charities” such as the Gates, Ford, and Hewlett foundations has been rising steadily but small foundations actually contribute twice as much, and their giving is growing even faster.

More importantly, there is reason to believe that private aid is more effective than official development assistance, and that larger portions of private aid reach the poor. The allocation of private aid is less likely to be based on geo-strategic considerations, and more according to the actual needs of recipients. Because it deals directly with NGOs and civil society, private aid can avoid the corruption associated with developing country governments. Smaller portions of private aid are spent on overhead and administrative costs, and on “technical assistance”—money that often funds contractors and consultants in rich countries.

A word of caution: private aid can make a difference, but it is by no means a panacea for all that ails the world’s poor. For all the amounts that have been granted, there has been little evaluation of the cost-effectiveness of private aid, and there are few examples of privately-funded programs being expanded in ways needed to make a dent in global poverty. The history of global charity has also had its share of scandals involving misappropriations of funds and theft. And the universe of foundations, charities, educational organizations, and private and voluntary organizations may be too crowded and too fragmented to make a real difference on a large scale.

But the new reality of aid is one where private aid will become a larger and larger share of total development assistance. Along with the proliferation of non-traditional aid agencies, the spread of private aid from individuals and from large and small foundations will make “harmonization” harder to achieve.

So what can private aid accomplish? In a nutshell, it can transform the effectiveness of global foreign aid by making it more competitive. For decades, poor developing nations have faced a “take-it-or-leave-it” attitude from international financial institutions and official donors, and were forced to deal exclusively with a particular official bureaucracy on development projects. Private aid now can change all that by providing an alternative channel for development assistance. But to make this competition work, recipient countries must be free to choose whether aid is channeled through an official government project, or through a more efficient NGO provider. Recipients of aid must also be able to rely on “benchmarks” that compare the effectiveness of private and official aid programs.

A competitive aid system also requires a better understanding of what works and what doesn’t. Neither the “demand” side—what the priority needs of the underserved are—nor the “supply” side—who is doing what and for which communities—have been mapped out at the country level. Without that, it is inevitable that both public and private aid providers will fail to provide systemic change, and will fail to help poor nations develop their own capabilities, both of which are needed for sustained poverty reduction. These are the efforts to which the Development Committee and the Global Philanthropy Forum should dedicate themselves, not to the maintenance of the current inflexible foreign aid system, but to its modernization.