Official Aid -- Not the Only Game in Town

A recent article by Raj Desai and Homi Kharas of the Brookings Institution – The New Philanthropy and Development Aid -- serves to highlight some of the complexities and paradoxes of foreign aid in the 21st century. The writers point out that some 800 press credentials were issued for the April 12-13 meeting of the World Bank and IMF, which generated over 400 news articles, while a meeting a few days prior of the Global Philanthropy Forum in California’s Silicon Valley generated no news stories. Yet the amount of aid disbursed by American foundations, charities and philanthropies in 2006 for international causes – $34 billion, all in the form of grants -- is $10 billion greater than the total grant and loan disbursements by the Bank and IMF for that year.

Other studies point out that for the U.S., private philanthropy – i.e., not including remittances and private investment and lending -- surpasses Official Development Assistance (ODA). And while large “mega-charities” like Gates, Ford and Hewlett foundations garner most of the publicity, small foundations actually contribute twice as much and their role is growing more rapidly.

According to the authors, there is reason to believe that private aid is more effective than ODA: it is more likely to be based on actual needs rather than geo-strategic considerations, and it is not bound by congressional earmarks and procurement restrictions. For these reasons, plus its increasing quantity, such aid will increasingly compete for the attention of researchers and developing country governments with the more traditional providers of aid.

It is here, according to the authors, that private philanthropic efforts can be particularly effective, by making aid more competitive, providing alternative channels and approaches, illuminating issues and opportunities. But for this to work, there must be agreed benchmarks that compare the effectiveness of private philanthropic and official aid flows -- i.e., the ground rules for the competition need to be made clear.

Whether through increased competition or increased collaboration, or (most likely) some combination of the two, it’s clear that we’re in a new era of global development, one in which private philanthropies will play an increasing role. Official donors need to take note.