‘New’ philanthropy and international development

When Warren Buffett donated US$30 billion to the Bill and Melinda Gates Foundation, many commentators heralded a new age of philanthropy in the Carnegie and Rockefeller tradition. The ‘new’ philanthropy is not only global, it is increasingly seen as a significant player in international development.

Resources mobilized by foundations for international aid projects have increased steadily in recent years, and are now estimated at approximately $4 billion to $5 billion annually. Some observers have even claimed that the scale of private donor engagement could rival or overtake official development assistance (ODA). Furthermore, some pundits argue that foundations bring a fresh and innovative approach to development, potentially transforming ‘business as usual’.

A recent study by the Global Public Policy Institute (GPPi), an independent think-tank based in Berlin and Geneva, takes a hard look at these assumptions and paints a more cautious picture. A closer look at the financial data and an analysis of potential growth suggest that while foundations’ financial commitments for development have indeed increased in recent years, they are unlikely to outstrip ODA any time soon. In fact, while financial resources disbursed have increased significantly in recent years (mostly driven by the largest players), the total number of foundations active in development seems to be stagnating. Much of the ‘hype’ around foundation engagement in development seems to come from the significant media attention that some players in this field attract.

An emerging new breed of philanthropists

Recent attention on private donors has also been driven by an emerging new breed of philanthropists. These foundations, often led by technology entrepreneurs, are aspiring to bring a ‘business approach’ to philanthropy. Such ‘philanthrocapitalists’ like to think of themselves as operating as businesses focusing on efficiency, effectiveness, performance goals and (social) returns on investments. Judith Rodin, President of the Rockefeller Foundation, for example, thinks of ‘her foundation’s grants as investments to create sustainable change – a “portfolio”, in her words, in which risk is balanced, dispersed and hedged’.

Applying a business approach to philanthropy is fresh, exciting and appealing to many, but it has also engendered some critical responses. Many critics are arguing that this business approach is merely rhetoric and the realities of growing bureaucracies are turning them into traditional ‘planners’ rather than ‘searchers’. Some critics even doubt whether this approach is new. Susan Berresford, former President of the Ford Foundation, recently argued that differentiating between ‘new’ and ‘old’ philanthropy is a mistake. In her words, ‘the way new philanthropy is characterized in the media often is to say it is more ambitious, more results oriented, and uses business principles more and to great effect. I don’t think there is anything more ambitious about new philanthropy than old philanthropy.’

The challenges ahead

While it is too early to assess the success or failure of this business approach to philanthropy, early analysis suggests that new philanthropists will be confronted with a range of challenges in the years ahead. Three issues stand out.

• First, a strong preference on the part of foundations for supporting technology development as opposed to investing in local delivery mechanisms for known development solutions tends to ignore reality. In fact, many would argue that the solutions for most critical development challenges are known, yet we lack the resources and the political will to roll them out.
• Second, a lack of presence on the ground makes it difficult for foundations to effectively manage growing project portfolios. With few exceptions, foundations lack essential ‘boots on the ground’ for managing complex, large-scale programmes. The fact that foundations in most cases rely on the same international intermediaries for programme delivery as are utilized by government donors at least challenges the notion that foundations bring fresh approaches and innovation to development.
• Third, foundations’ strong preference for vertical programming (as opposed to horizontal programmes, which attempt to be all-encompassing, vertical programmes focus on one issue, for example the Global Fund to fight HIV, Malaria and Tuberculosis) is further complicating the ‘aid architecture’ on the ground in developing countries, adding bureaucracy and increasing transaction costs for government officials and others who engage with these new private donors.

Indeed, foundations need to avoid bureaucratization. For example, Warren Buffett’s generous gift to the Gates Foundation has allowed the endowment to rise to close to $40 billion, and it is expected to rise to $60 billion in the foreseeable future. In terms of expenditures, Gates Foundation’s approximately $1.7 billion total disbursement in 2007 is larger than that of seven of the 22 member countries of the OECD Development Assistance Committee. There will be more people, more structures and thus more layers. This threatens to undermine the foundation’s ability to take risks and be flexible. While some bureaucratization is necessary to maintain quality and accountability, there is a danger that philanthrocapitalists might lose sight of their business backgrounds. Growth needs to be managed responsibly. The Bill and Melinda Gates Foundation as well as other foundations should not evolve into yet another development bureaucracy.

Yet there is one way that foundations could and should mimic traditional donors. This is in accountability and legitimacy. The Gates Foundation has taken a leadership role among donors active in international development by investing in monitoring and evaluation initiatives, and more foundations should do the same. More results, stories of both success and failure, should be published. Foundations should also publish information about how they invest their endowments. Furthermore, many foundations’ boards of trustees do not practise good governance. Internal governance should be strengthened and more transparency introduced.

More research is needed to further clarify these and other questions. One of the key impediments to further analysis is the lack of systematic and comparable data on foundation engagement in international development. Gathering such data (and using it for analysis) is not merely of academic interest, but also a key stepping stone for better information exchange and mutual learning to create better outcomes for the key players engaged in international development.

Robert Marten is a Research Assistant at the Global Public Policy Institute (GPPi), based in Berlin (Germany). Jan Martin Witte is Co-Founder and Associate Director of GPPi, based in Kampala (Uganda). Their emails are rmarten@gppi.net and jmwitte@gppi.net respectively.

For more information
To download Transforming Development: The role of philanthropic foundations in international development cooperation, co-authored by Robert Marten and Jan Martin Witte, go to www.gppi.net/publications