Philanthropy

Last week’s release of the 2008 Index of Global Philanthropy by the Hudson Institute, Center for Global Propsperity showed the power that private money is having on the world of philanthropy.  Citing that in 2006 government aid equaled less that 25% of the all economic dealings with developing countries - with private flows making up the majority of the money contributed. 

Numbers cited from ODA reflect an on-going discussion that developed countries should do more, to give more - with the U.S. giving the most in real terms in 2006 with $23.5 billion, but as a percentage of their GNI, Sweden, Luxembourg, and Norway lead the list.  The Index tributes the growth of public-private partnerships, rise of social entrepreneurship, increasing prominance of religous organizations, and effect of remittance flows to be the current driving forces in today’s global philanthropy. 

Focusing on U.S. economic engagement in developing countries, ODA equalled only 12% of the $192b in total economic engagement in 2006.  Potentially more interesting is that the traditional definition of philanthropy - foundations, corporations, universities, voluntary & religous organizations - only equated to 18% of this total.  Most of the economic engagement was found in U.S. remittances and U.S. private capital flows.

Two striking points emerge from this data:

1) Private flows are important - as many economists have highlighted in discussions over development.  Investing in developing countries is important for sustainable growth.  However, with its $23.5b the U.S. government (and governments around the world) have important roles to play.  Positive emphasis on this type of private investment does not mean that it can accomplish everything - government funding must continue (and must be encouraged to continue).

2) The Index’s correct citing of the rise of social entrepreneurship, venture philanthropy (and a myriad of other terms) is what makes this sector so interesting, right now.  Increasingly, new and innovative ways are being used to to reach beneficiaries in developing countries.  There is power behind private money - and yet, the rigors of accountability are still not firmly in place.  When you consider the very large spectrum of methods for giving, donating, and intervening - coupled with the infinite number of interest areas, it should be alarming that there are no clearly defined rules on what private money must disclose and no clear basis for how to behave.

Carol Adelman (Director, Center for Global Properity) talks about the significance of the 2008 Index in the Financial Times  -the need for this type of data and the challenge to improve the trends we are seeing.  From my vantage point, while we can’t yet claim to have the answers to solving all economic and development problems - more data in the area of global philanthropy is certainly welcome. 

And to restore any faith you’ve recently lost, the Index provides over seventy pages of the progress being made by dedicated people and organizations to solve the many areas of inequity in our world.

According to a survey of Latin American immigrants, the number of people sending remittances home to Latin America has fallen significantly in only a few years. In 2006 73 percent of immigrants from the region sent money home, but now it is only half. The fall is credited to anti-immigrant sentiment in the US that makes people afraid to call attention to themselves. The dollar amounts have also fallen, and the weak dollar is making the remittances that do go through less valuable.

A new IMF Working Paper has found an association between remittances a country receives, and the deterioration of institutional quality in that country. It seems counter intuitive but basically they are saying that if citizens have more non-taxable income, there is less incentive for the government to spend its own resources on those citizens. The government is then more likely to blow their money on private jets and whatever else it is corrupt leaders buy (diamond mines?). The authors say it works similarly to the oil curse, which says that natural resource-rich countries are more likely to be corrupt.

As Cho points out on his blog, New Zambia, showing association doesn’t prove causality, and there could easily be other factors that explain both of these phenomena.  But it’s a fascinating idea. If we assume that the prevailing wisdom is correct and institutions are a vital part of economic development, this report would suggest the match institution building programs with our efforts to make remittances easier to transfer.

This paper written for the UN Research Institute for Social Development reviews empirical studies on the effects of remittances in developing countries. The conclusion is that they have the potential to spark overall development, but that social policies and economic reforms are required to allow this potential to be realized. It sounds like common sense when you say it like that, but a lot of good points sound obvious after somebody says them.

The paper explains that because remittances only directly benefit those with family members who are willing and able to migrate it is difficult for them to have broad societal impact. In order for the money to affect development, new policies are necessary, but those targeted at remittances are necessarily limited in scope. You can make it cheaper and easier to remit money, for example, but this only increases the quantity of remittances to that same limited group of people. Plans to collectivize remittances are, in the words of the paper’s author “rather naive”.

Therefore the only policies choices left are “general development policies aimed at restoring political trust, creating a stable investment climate and offering social protection to people.” In other words, remittances can create synergy with traditional development projects, but they can’t replace private philanthropy, ODA, and local government/community action.

The paper isn’t terribly long, but it also isn’t written in a style intended for a broad audience. (Example sentence: “The significant empirical and theoretical advances that have been made over the past several decades highlight the fundamentally heterogeneous nature of migration-remittance-development interactions, as well as their contingency on spatial and temporal scales of analysis, which should forestall any blanket assertions on this issue.”) If you’re willing to slog through this kind of prose, I recommend giving it a look.

I’ve been meaning to post about remittances - the money that migrant workers send home - because they are specifically mentioned in the Great Decisions Show You don’t hear that much about them, because they aren’t usually used to fund giant initiatives, but they already account for more than Official Development Assistance.

But when I began my research I found that a very smart person named Thor just wrote about it on his blog, Don8 Aid, and did a terrific job covering the issue. With luck I’ll someday have something to add, but for now, Thor makes a persuasive argument that remittances should be encouraged by aid agencies through lowered transaction costs.