Privatize Foreign Aid?

Monday, July 9, 2007

No subject has occupied more time at international conclaves than foreign aid. It’s been called North-South transfers, debt forgiveness and the .7% solution. Back in 2005, Tony Blair’s G-8 summit pledged $25 billion annually in new government assistance to Africa by 2010 on top of the $25 billion a year already in the pipeline. The G-8 is nowhere near meeting that commitment. So how about this alternative? Turn all foreign assistance over to the private sector.

That’s already happening in the U.S., with good results, as reported in the recently released 2007 Index of Global Philanthropy.

Published by the Hudson Institute, the philanthropy index is a remarkable compendium of private help for developing nations. It reports that in 2005 Americans donated some $95 billion in cash, goods and volunteer time to the developing world. Add the $27.6 billion in U.S. official development aid, and total U.S. giving in 2005 was nearly $123 billion.

U.S. foundations sent $2.2 billion overseas in 2005, with nearly 55% of it going to health programs in the developing world. U.S. corporations gave $5.1 billion, with Africa a big beneficiary of U.S. corporate philanthropy. Bristol-Myers Squibb, for instance, “worked with the government of Botswana to build Africa’s first pediatric AIDS hospital in Gaborone, collaborating with Baylor College of Medicine.” Gifts-in-kind and volunteerism are both playing a greater role in corporate giving.

Private voluntary organizations gave $13.4 billion in foreign aid that year. The Hudson index draws special attention to the importance and effectiveness of many smaller volunteer groups that depend on private generosity and engage in people-to-people problem solving in Africa, Asia and Latin America.

Universities and colleges gave $4.6 billion internationally. Religious organizations sent even more — $5.4 billion. The single largest source of U.S. private giving abroad in 2005 — $61.7 billion — were remittances sent by workers in the U.S. back home to families and communities.

All this generosity counters the claim the U.S. isn’t pulling its weight in foreign aid. When private aid is added to official assistance, U.S. giving to developing countries comes to .98% of gross national income, putting it well above “the .7% solution” that international aid lobbyists have decided is fair. It puts the U.S. well ahead of France, Germany, Japan and 12 other countries in the Group of 22.

This year the index also examines the instruments that governments claim as official “aid.” Get this: Countries now include the cancellation of Third World debt and decades of interest build-up — “often more than double the principal” — in official aid calculations. In 2005, debt and interest write-offs accounted for more than 20% of “aid” from Austria, Germany, Italy, the U.K., France, Japan and Spain. Other sources of what the index calls “phantom aid” are donor-country spending on refugees and on students from the developing world.

The Hudson report is food for thought. Yes, the wealthy world must attempt to pull lagging nations into the expanding global economy. But an aid system that duns middle-income taxpayers for cash that is routed through Beltway contractors and into often corrupt Third World governments isn’t the only way to do this. Those middle-class taxpayers seem to know how to give effectively on their own, and they have every incentive to be more careful and efficient with their own money. The report finds that while a moderately priced U.S. government consultant working in a developing country costs $300,000 per year, the private sector hires the same skilled professional at just over $100,000.

In a speech to a Family Foundations conference last year, former AOL Chairman Steve Case spoke of a “new entrepreneurial, collaborative kind of philanthropy” that would combine “the innovation of the business world, the passion and humanity of the non-profit world and the inclusive, networked culture of the digital world to generate transformative change.” It’s a truism now to say that everything changes, which means it’s past time to recognize that private giving can do more than the old models of government foreign aid.

Source: Wall Street Journal (link opens in a new window)