A tale of two approaches: Philanthropy vs Foreign Aid


Igor Makarov


In the past century, massive strides have been made in raising living standards for all people. For perhaps the first time in history, the vast majority of children (95 per cent) survive their first five years of life. Further, since 1978, China alone has lifted over 800 million people out of poverty.

While there is much to celebrate, there is much still to be done. For instance, around 10.7 per cent of the world population still lives on less than $2 per day; in 2013, that was approximately 767 million people.

Herein lies the question: how best to reach those left behind by the rising tide of globalisation? How best to spread some of the wealth, or perhaps empower them to join the world economy? Should we entrust governments and foreign aid, or perhaps turn to private philanthropy?

What is foreign aid?
For a nation-state, foreign aid is a critical component of soft power. By funding effective, life-saving programmes in areas like public health, education, and sanitation, a country can help build positive perceptions abroad.

There’s also evidence that foreign aid works. In an article for the Brookings Institution, researcher Steve Radelet cites a wide range of successful initiatives, from the President’s Emergency Plan for AIDS Relief (PEPFAR) to the President’s Malaria Initiative (PMI), most of which are run through the US Agency for International Development (USAID).

Both PEPFAR and PMI touched millions of lives for the better. A four-year study on PEPFAR, conducted by the Institutes of Medicine, proves that the program significantly reduced AIDS outbreaks and strengthened public health infrastructure worldwide. The PMI has also reduced malarial infections by 50 percent since 2000, saving close to 7 million lives worldwide.

Still, foreign aid is vulnerable to political winds; changing administrations and policies can leave programmes to wither and die on the vine.

The case for philanthropy
On the other hand, philanthropy is often perceived as better-funded, more effective, and more responsive than government-sponsored foreign aid.

One challenge for the government is coordination: because most governments are large bureaucracies with many disparate departments, foreign aid initiatives can often be run out of a dizzying array of different offices, some at cross-purposes.

In addition private philanthropy seems to far outpace foreign aid. As of 2014, international private giving reached $801 billion, according to the Index of Global Philanthropy, while governments worldwide contributed just over $100 billion.

It’s also true that charities are more nimble and agile than Big Government: they’re more easily able to adapt to on-the-ground conditions, unencumbered by the strings that many official bodies attach to their cash.

The limits of philanthropy
Yet that’s not to say philanthropy is perfect, either. For one, the lack of bureaucratic barriers (and the accountability that comes with them) equals less transparency. While foreign aid may be subject to political whims, philanthropy rests largely on the preferences and values of the individual donors. And because charity is private giving and donation, it’s not always subject to regulatory oversight. As with any project involving large sums of money, the potential for abuse and corruption is certainly there.

Even Bill Gates, himself a noted philanthropist, has supported foreign aid for a variety of reasons. For one, Gates notes, foreign aid can help make your home nation safer.

More importantly, Gates doesn’t believe philanthropy can cover a drastic cut in foreign aid budgets.

Ultimately, it seems that foreign aid and philanthropy are most effective when they exist alongside each other in a complicated (yet productive) relationship — philanthropy sponsoring innovative approaches while nations carry out day-to-day work.

Igor Makarov is the President at ARETI Group.

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