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  • NEW DEVELOPMENTS IN PHILANTHROPY: HOW PRIVATE FOUNDATIONS ARE CHANGING INTERNATIONAL DEVELOPMENT

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    New Developments in Philanthropy: How Private Foundations are Changing International Development

     

     
     
    International Trade Forum - Issue 4/2009

    In recent decades a broad range of non-state actors ranging from multinational firms to non-governmental organizations (NGOs) have become key players in development finance alongside more traditional players such as official aid agencies and multilateral institutions. More recently, they have been joined by a host of interested parties including social entrepreneurs, former politicians and celebrities, who have used their profile to raise awareness and leverage resources for international aid in developing countries.

    Underpinning these changes has been widespread recognition that the private sector can contribute to development by moving beyond its core role as an engine of economic growth through corporate social investment. Perhaps the most noteworthy aspect of the emerging aid consensus has been increased collaboration between sectors through development-driven public-private partnerships (PPPs).

    The catalyst for many PPPs has been private philanthropic foundations primarily, but not exclusively, based in the United States. One of the US's oldest foundations, the Rockefeller Foundation took the lead incubating the first generation of partnerships, known as product development partnerships (PDPs). More recently, the world's largest private foundation, the Bill & Melinda Gates Foundation, together with others including the William J. Clinton Foundation, has taken up the mantle in fostering large-scale PPPs.

    Private foundations and development-driven PPPs

    It was in the 1990s that the development-driven PPP modality gained traction and has since become the preferred instrument of development policy-makers in fields such as global health and, more recently, agriculture. The popularity and perceived utility of PPPs can be attributed to a convergence of political and economic factors.

    State and multilateral development agencies simply do not have the capacity, or at least the willingness, to combat intractable global problems unilaterally, leading to a search for partners that can offer complementary skills and resources. This has resulted in a mutual dependency between resource-constrained multilateral institutions and private actors who also require partners to execute projects. Arguably these kinds of partnerships may not be possible without foundations, which occupy a unique position within the aid regime as intermediary institutions straddling state-civil society divides. As such, they play an important role in providing philanthropic risk capital for innovative projects that states are unable to fund and can utilize their unique position to broker partnerships between (sometimes adversarial) actors.

    Are PPPs effective?

    PPPs are not without their flaws. They can add to an already overcrowded development space leading to duplication as various multilateral funders, official development assistance (ODA) agencies, NGOs and private players replicate existing offerings. This can add to already overburdened public sectors in developing countries that must devote scarce resources to compliance with the demands of a proliferating number of interested parties. Consequently, this can increase fragmentation in the aid architecture and reduce aid effectiveness - precisely the problem that collaboration is designed to rectify.

    The rise of private aid

    Partnerships financed by private foundations have sparked renewed interest in the role of private philanthropy in international development. The Hudson Institute, a free-market think-tank, based in Washington DC, largely supports this observation. Since 2007, it has published The Index of Global Philanthropy, and the 2008 edition (which relies on 2006 data) notes that private giving from the United States alone amounted to US$ 34.8 billion.(1)

    While ODA has exceeded US$ 100 billion in each of the last four calendar years, Homi Kharas of the Brookings Institution has shown that after debt, technical assistance, administrative costs, food aid and disaster relief are accounted for, only 37 per cent of "total headline aid" is delivered as real "projects and programs on the ground". Kharas's analysis reveals that in reality this figure is probably closer to US$ 38 billion, placing private aid only somewhat below total Organisation for Economic Co-operation and Development ODA flows, which are responsible for the majority share of aid.

    Of this figure, US$ 4 billion (or 2 per cent of total public and private flows) was provided by private foundations; US$ 5.5 billion (or 3 per cent) from corporations; US$ 12.8 billion (7 per cent) emanated from "private and voluntary organizations" (i.e. NGOs); US$ 3.7 billion (2 per cent) from universities or colleges in the form of scholarships and stipends, etc., and US$ 8.8 billion (5 per cent) from religious organizations.(2)

    New directions in philanthropy and development assistance

    The late 1990s and early 2000s were characterized by a period in which "big" philanthropy began to partner with private sector entities, and engage with models such as PPPs. In recent years yet another stage in the evolution of development philanthropy has occurred - the rise of venture philanthropy and social entrepreneurship.

    Some commentators, notably Matthew Bishop of The Economist, assert that we are witnessing a "new golden age of philanthropy". Mr Bishop and his co-author, Michael Green, herald this as the beginning of an age of "philanthrocapitalism" in which a "new generation of billionaires, largely trained in the corporate world, are using big-business-style strategies to tackle seemingly intractable transnational problems".(3)

    This trend has led to an adoption of "business-like" social practices within the development sector that combine business insight with social impact. One area that offers opportunities for linking business to development, sometimes via philanthropy, is the base of the pyramid (BOP). The concept, which was first popularized by C.K. Prahalad and Stuart Hart, states that there is a vast, largely untapped market, among the world's 4 billion poorest consumers who subsist on less than US$ 2 a day.4 As a segment it is often ignored by multinational firms who have historically perceived these consumers as lacking disposable income, sufficient purchasing power, restricted by access to credit and an assessment that they are sluggish adopters of technology.

    Recent interventions challenge these assumptions and seek to satisfy unmet demand among poor communities, while achieving social impact. A whole series of enterprises, sometimes funded with philanthropic start-up capital and seeking to supply goods and services to underserved markets, has begun to surface.

    Acumen Fund, a New York-based non-profit venture philanthropy fund, is perhaps the best-known exponent of this approach (See Patient Capital: A Third Way to Think About Aid). Rather than relying exclusively on direct grants, it seeks out entrepreneurs in marginalized communities in rural villages and urban slums, providing them with a combination of debt and/or equity to scale up their enterprises. The basic premise behind Acumen's approach is twofold and says much about the direction of philanthropy. Firstly, the solution to poverty and intractable development problems cannot be addressed through charity or conventional aid alone, but lies with enterprise. Secondly, these solutions also lie within communities, and philanthropy as a means of addressing causes over symptoms should look to entrepreneurs for solutions.

    As with the PPP model that preceded it, the new BOP path between philanthropy, enterprise and markets is likely to reshape the development landscape by proffering enterprising solutions that attempt to tackle the root causes of poverty. 

    1. Center for Global Prosperity. "The Index of Global Philanthropy 2008." Washington DC: Hudson Institute, 2008.

    2. Kharas, H. "The New Reality of Aid" in Brainard, L. and Chollet, D. (eds.).Global Development 2.0: "Can Philanthropists, the Public, and the Poor Make Poverty History?"Washington DC: Brookings Institution, 2008.

    3. Bishop, M. and Green, M.Philanthrocapitalism: "How the Rich Can Save the World."New York: Bloomsbury Press, 2008. See

    4. Prahalad, C.K. and Hart, S. "The Fortune at the Bottom of the Pyramid"
    in Strategy & Business, 26:115 (2002).