A provocative question has been bouncing around a few blogs recently. It takes various forms:
- “Is philanthropy killing Africa?” — R. Todd Johnson, whose answer seems to be a resounding “yes.”
- “Is philanthropy killing business in Africa?” — Chris Blattman, who offers no judgment but is still met with a barrage of comments.
- “Are NGOs Killing African Entrepreneurship?” — Megan McArdle, who only concludes that, “Aid is the most depressing topic in economics.”
Whatever the phrasing, if you keep the word “killing” in there, it leads to somewhat lively discussions. I want to inject some nuance. But first…
Let’s review the charges.
Todd uses several anecdotes to illustrate how the “NGO economy” is (a) crowding out private business with subsidized services/products, and (b) killing the entrepreneurial spirit by offering attractive employment opportunities.
That’s certainly plausible. Of course, these concerns also apply to government services. Neither NGOs nor government agencies should supply education, health care, security, etc. if the private market can provide it just as well. Todd asserts that, “much (perhaps most) of what is done in the developing world through non-profits and NGO’s, could actually be accomplished through a business model, even if it would be harder to raise investment funding.” But isn’t that exactly the problem? That the private market isn’t providing certain goods? Governments and NGOs step in precisely because investment funding is chasing other, more lucrative opportunities.
One could argue that NGOs go too far. With poor (or no) needs assessment, NGOs may be spending resources on activities better left to the private sector. Chris points to a related lesson from Todd’s anecdotes: “If tallying the benefits of an NGO program, it’s good to look on the other side of the ledger.” So consider the negative and unintended impacts as well as the positive ones.
Let’s also break the question apart.
I want to rephrase the other blog titles more reasonably (i.e. with less murder), and deal with each piece.
- Does NGO/philanthropic activity in developing countries have a negative impact on the local private sector? Sure. Todd’s anecdotes illustrate the negative impacts. Then again, everything in this world can be described in terms of negative and positive impacts. This question is actually kind of boring. It’s more interesting to ask…
- Does that negative impact outweigh the positive impact of whatever interventions the NGOs run? In some circumstances, yes. In others, no. But it’s very hard to know which circumstance you’re facing, either in advance or after the fact. Let’s suppose there were a way to know. Then we would have to ask…
- What are we going to do about it? That’s always the hardest question. Todd’s post does a great job of raising concerns, but the phrasing of the question paints the whole NGO/philanthropy sector with a negative brush. That line of thinking might reduce the overall funding to the sector, with no guarantee that only bad programs would get cut.
Here’s the nuance: Are we talking about individual NGOs, or NGOs as a whole?
The economic footprint of any given NGO is pretty small, so it would be hard to argue that individual NGOs are guilty of the above. Todd may be right that the NGO economy as a whole is guilty. Unfortunately, that makes it much harder for any given NGO to do a balanced assessment of its program, as suggested by Chris. If the NGO economy is at fault, then any given NGO needs to know what every other NGO is doing, and what the government is doing, and what the private sector is capable of.
That makes this is a collective action problem.
The private sector has markets and prices to coordinate activity. The NGO/philanthropic sector has donors and their whims. It’s not surprising that the latter has trouble making efficient allocations: its role is to fill in when efficiency fails. So how can it do that better?
A good step is trying to inject greater rigor into needs assessments and program evaluations, which groups like IPA/J-PAL attempt. I have a minor concern about going too far and creating false precision when we quantify the unquantifiable, but I still think it’s much better than the opposite. My bigger concern, and more relevant to this discussion: I’m not sure how IPA/J-PAL can test the combined impact of multiple interventions. The collective action problem remains.
An obvious suggestion for improvement would be better coordination. I’ve grown cynical about such efforts at the national/international levels, where there are too many actors and donors (each with their own incentives) for coordinating mechanisms to have serious impact. Maybe the solution lies in coordination at the local level; after all, the negative impacts seem to be microeconomic rather than macroeconomic. So the mechanism might look something like an association of NGOs operating in a given locality (whether they are local or international NGOs) that would assess the combined impact on the local economy, and provide a forum for members to coordinate.
I have to be honest, I’m making this up as I go. Maybe someone can chime in on whether such associations exist, and how effective they are? Or maybe it just happens informally?
UPDATE: Here are some resources I have found more recently on coordination.