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Potential Pitfalls in Private Aid: A Cautionary Note for Non-Governmental Assistance

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Lessons on Foreign Aid and Economic Development

Abstract

This chapter highlights the increasing utilization of private aid in economic development. While there is a broad appeal for using private development assistance over official development assistance, limitations to effectiveness do remain. Those who view private aid as a cure-all for development and humanitarian projects may assume too much. Private aid faces many of the same or similar issues as official aid. An understanding of these particular challenges is important for those who desire to improve the condition of those abroad, and a cautious approach is advised.

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Notes

  1. 1.

    Private philanthropy here includes giving from foundations, corporations, private and voluntary organizations (PVOs), universities and colleges, and religious organizations (Adelman 2009: 25; The Index of Global Philanthropy and Remittances 2016: 9). Per Development Initiatives (2016: 1), “Private development assistance includes all international concessional resource flows voluntarily transferred from private sources for international development. These flows are the private finance channelled through NGOs, foundations and corporate philanthropic activities. Other terms used interchangeably with private development assistance include international private giving, international philanthropy, voluntary giving, private development aid, and private development cooperation.”

  2. 2.

    Commercial, or private capital flows, include resource items such as foreign direct investment, commercial long-term debt, short-term debt, and portfolio equity rather than money given specifically as philanthropic assistance. According to Development Initiatives (2018: 3), “commercial long-term debt was the largest single resource flow in 2016” signifying that these types of flows often come in the form of loans to developing countries.

  3. 3.

    Remittances are treated separately from private philanthropy as “the World Bank and other studies are clear that the funds sent back by migrants to their families and to community development projects are one of the strongest poverty reduction forces in poor countries” (Adelman 2009: 23).

  4. 4.

    It should be noted that private aid research often has qualifying statements regarding both the ability to circumvent governments and achieve efficiency gains, some of which will be discussed below. For example, the donors’ use or non-use of poor country government mechanisms is in part determined by the quality of those mechanisms (Knack 2014).

  5. 5.

    Add to this effect the legal need for NGOs to report to official channels and agencies, who operate in an administrative and bureaucratic manner, and the shift toward mimicry of bureaucracy becomes even more pronounced (Bebbington 2005: 939).

  6. 6.

    The aid effectiveness is generally difficult to measure for private or official aid. If aid goes to where it is “most effective” the effectiveness may also be a function of capability for resolving the issue, growth or humanitarian, that the country already possessed (Flores and Nooruddin 2009).

  7. 7.

    The lack of coordination, and its subsequent lack of communication, also led to NGOs unknowingly funding the rearmament of aggressors that perpetrated the original refugee crisis (Chandler 2001; Cooley and Ron 2002; Terry 2002).

  8. 8.

    For example, a 2016 report by NGO Monitor shows that for 27 NGOs it sampled between 2012 and 2014, 65% of funding came directly or indirectly form government sources, 34% came from private sources, and for 1% the source remained unclear (NGO Monitor 2016). Stoianova (2013: 16) similarly notes: “On average, 98% of ICRC [The International Committee of the Red Cross] financing comes from institutional donors and a mere 2% is raised from private donors” though that relationship does flip in favor of private funding for the International Federation of Red Cross and Red Crescent Societies (Stoianova 2013: 14) and the American Red Cross (Kapur and Whittle 2010: 1145).

  9. 9.

    According to Smith (1990: 48), one of the early non-military funding programs was used to send surplus agricultural products overseas to keep farm prices high, culminating officially in the Agricultural Act of 1949.

  10. 10.

    As an interesting example of organizations avoiding this bias, consider Doctors Without Borders (Médecins sans Frontières), an NGO that is “explicit in their mission and principles that they are funded independently, and operate independently…and the fact that they are not funded by any governments” (Peterson 2014: 90).

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  1. Radford University, Radford, VA, USA

    Thomas K. Duncan

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    Nabamita Dutta

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    Claudia R. Williamson

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Duncan, T.K. (2019). Potential Pitfalls in Private Aid: A Cautionary Note for Non-Governmental Assistance. In: Dutta, N., Williamson, C.R. (eds) Lessons on Foreign Aid and Economic Development. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-22121-8_11

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