Global Policy Forum

Philanthropic Foundations Bring New Challenges to Aid Debate

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 Private foundations are becoming increasingly involved in providing aid and investing in foreign development projects. In 2009, global private philanthropy was $53 bn, and official government development assistance was $120bn. While private foundations often have an efficient method of raising money and delivering aid, they lack transparency and accountability.

By Mark Tran

November 9, 2011

Over the past decade, private foundations have emerged as increasingly potent players in the fight against poverty alongside official development aid.

According a Hudson Institute report, total official development assistance was $120bn in 2009, while global philanthropy amounted to $53bn. Private capital investment ($228bn) forms the largest financial flow from richer to poorer countries, while remittances ($174bn) were the second largest flow.

With foreign aid budgets under increasing pressure, the significance of these other flows can only grow. But the growth of philanthropic giving brings its own challenges in the aid effectiveness debate, which will be the subject of the Busan conference in South Korea at the end of the month, a follow-up to previous conferences in Paris and Accra.

As Dr Noshua Watson, a research fellow at the Institute of Development Studies at Sussex University, told the international development select committee recently that philanthropy could provide a real source of innovation in development. Without the political accountability and economic spending constraints that most donors face, she argued, foundations are better placed to take on more risk and foster new approaches and partnerships.

The flipside, however, according to Watson, is a lack of accountability and transparency. A lack of publicly available information on the aims, objectives and decision-making processes of private foundations goes against the grain of Paris and Accra with their emphasis on transparency, accountability and policy coherence. This issue was raised at a hearing of the parliamentary development committee on Tuesday, which featured Jeff Raikes, chief executive of the Bill & Melinda Gates foundation.

Asked why the foundation focuses on vaccines rather than pit latrines, Raikes said the foundation invested in hi-tech and lo-tech, but said that the foundation's emphasis was on innovation.

"We are big believers that both are needed," said Raikes. "We do think that we have a particular core competency and comparative advantage in scientific and technology-based interventions, but we do believe in both and actually we fund both... You mention pit latrines and believe it or not, we fund pit latrines."

There is also very little data available on philanthropic giving and the impact of private foundations' investments on development outcomes, said Watson, with definite implications for development co-operation. Increasingly, aid donors from the US and the EU acknowledge the importance of harmonising development efforts, ideally working within the budget systems of aid recipients, or "development partners", in the preferred phrase. There is a case, then, for harmonising official development assistance with giving from foundations.

The role of philanthropic organisations will come under close examination in a two-week conference in Bellagio, Italy, starting on Wednesday, which will bring together experts to thrash out an action plan for strengthening and co-ordinating collaboration between philanthropists and those working in international development. Participants in the Bellagio Initiative include Caroline Anstey, managing director of the World Bank, Samia Yaba Nkrumah, leader of the Convention People's party in Ghana, and Xiulan Zhang from Beijing Normal University.

A theme of the discussions will be the concept of human wellbeing, an alternative and broader measure of human development to more conventional ones such as economic indicators.

"At the heart of the wellbeing approach is the recognition that we all aspire to live well together, to be content with the things that we have, the relationships that enable us to achieve our goals, and our feelings that we have about how well we are doing in life," said Professor Allister McGregor from IDS, a key promoter of the wellbeing concept.

The Arab spring has given a boost to the wellbeing concept as development experts have realised with a jolt that conventional economic indicators such as GDP do not tell the whole story about development – far from it. The buzzword is now inclusive growth, which is not far from the concept of wellbeing.

Both Tunisia and Egypt over the last 10 years recorded impressive growth in GDP and national income. However, as Alex Evans and Jules Evans pointed out in a paper for the Bellagio Initiative: "These countries' average life satisfaction scores, as measured by Gallup ... started to decline from 2005 on, and fell precipitously from 2007 to 2008. In this sense, the satisfaction scores were arguably a better predictor of the social unrest that later engulfed these countries than purely financial measurements."

Meanwhile, the UK's Office for National Statistics last week published a list of 10 indicators of wellbeing, including health, education, income, work and trust in politicians. There will be a three-month consultation before a final list is published.

Among the questions likely to be asked are: "Do you feel your life is worthwhile? How satisfied are you with your husband, wife or partner? Are you happy with your job?"


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