Do development agencies need to look more like the private sector?

December 19, 2008

     By Duncan Green     

NGOs and others in the development sector spend a good deal of time beating themselves up about their many failings (listed in loving detail in the book). Recently, however, the private sector has picked up the baseball bat and got stuck in – arguing that all we need to do is adopt lean, efficient market approaches, instead of all that fuzzy, inefficient, participatory NGO nonsense.

Some have decided to show us directly how its done – resulting in a plethora of ‘social enterprises’, ‘social entrepreneurs’ and ‘philanthrocapitalists’ getting into development, both as whizzy ‘bottom of the pyramid’ businesses, and as funding agencies – the most celebrated being the Gates Foundation, well on the way to becoming a major aid donor in its own right. Now Michael Edwards of the Ford Foundation seems to have decided to fight back.

Edwards’ well-written and engaging pamphlet, ‘Just Another Emperor? The Myths and Realities of Philanthrocapitalism’  provides a useful survey of the evidence, and an impassioned defence of a different way of ‘doing development’ focused on issues of power and transformation, rather than market efficiency.

Edwards identifies three distinguishing features in what is a broad and diffuse philanthrocapitalist movement:
· Very large sums of money committed to philanthropy, mainly the result of the remarkable profits earned by a small number of individuals in the IT and finance sectors during the 1990s and 2000s;
· A belief that methods drawn from business can solve social problems and are superior to the other methods in use in the public sector and in civil society;
· A claim that these methods can achieve the transformation of society, rather than increased access to socially-beneficial goods and services.

He then looks at the admittedly patchy evidence for the last two claims, and finds ‘First, that it is perfectly possible to use the market to extend access to useful goods and services. Second, that few of these efforts have any substantial, long-term, broad-based impact on social transformation, with the possible exception of micro-credit. The reason is pretty obvious: systemic change involves social movements, politics and the state, which these experiments generally ignore.’

But he goes further and worries about the impact of market-infatuation on civil society organizations, citing an intriguing Stanford Business School study of 12000 environmental NGOs that found that “pragmatic” organizations failed more often than “pure” ones (i.e., those that did not compromise their principles to attract more revenue or profile), partly because their supporters preferred it that way. As a result, membership and fundraising is increasing in pure organizations and falling in pragmatic ones. “Social movements are most effective when they are purest, most radical, and most disorganized”, it concluded. (Irritatingly, the Stanford paper only seems to be available on subscription here  – nothing very open source about that!)

Looking further back, Edwards points out that ‘There is also plenty of experience among organizations that started off with a social purpose and steadily lost it as they became more embedded in the market: this was the experience of many of the mutuals, micro-credit organizations, and building societies that flourished in Europe in the nineteenth and twentieth centuries. They were certainly trying to “blend value”—but over time one type of value tended to squeeze out the others.’

From this he concludes that ‘the world needs more civil society influence on business, not the other way around —more cooperation not competition, more collective action not individualism, and a greater willingness to work together to change the fundamental structures that keep most people poor. Would philanthrocapitalism have helped to finance the civil rights movement in the U.S.? I hope so, but it wasn’t “data-driven,” it didn’t operate through competition, it couldn’t generate much revenue, and it didn’t measure its impact in terms of the numbers of people who were served each day, yet it changed the world forever.’

Edwards’ wages are of course paid by a previous generation of philanthrocapitalists –Henry and Edsel Ford set up the Ford Foundation in 1936. Edwards sees positive signs that some of the new IT-based wave (like the Gates Foundation) are going through a similar learning curve to the more established foundations, as they realize that development is about the messy world of institutions, power, politics and conflict, not just about the efficient delivery of goods and services. Compare the websites of Ford and Gates if you want to see the distance they have to travel.


December 19, 2008
Duncan Green