Using the marketplace: shopping for development?

Dennis Whittle

‘Systemic problems are not solved by a few smart people … thinking really, really deep thoughts about really, really important things. They are solved when a vibrant and competitive marketplace first tests and then confirms or disproves an array of possibilities and approaches.’
Harvard Business Review, ‘The World Bank’s Innovation Marketplace’[1]

Orphaned himself when Idi Amin’s henchmen killed his father, Father Centurio Olaboro has spent much of his life caring for other orphans. He founded the Great Aubrey School in the Tororo district of rural Uganda which provides food, shelter and education to 384 children who have lost parents to HIV/AIDS. Another 400 local children also attend the school.

But the school needs a dormitory to house its girls, and such a project is very expensive. For people active at local level like Father Olaboro, it can be almost impossible to tap the large mainstream sources of financial assistance. Father Olaboro’s dormitory for orphaned girls is one of the many projects sponsored by GlobalGiving, an organization that functions somewhat like an eBay of development assistance.

But instead of stamp collections, small-scale but high-impact grassroots development projects around the world are posted on the GlobalGiving website (http://www.globalgiving.com). Individuals, corporations or foundations can browse through the project listings, click a button to contribute to their choice of project, then give anything from a few dollars to thousands. The projects that people like most get the most funding. Donors can then communicate with local project leaders and receive updates on the project.

GlobalGiving is essentially an effort to tie together many local efforts for global results. Through its website, it experiments with an innovative new approach to create a market for foreign development assistance and charitable giving. It aims to democratize foreign aid, radicalizing the way that donations are given abroad by increasing the involvement of smaller actors, both on the giving side and on the receiving or project planning side.

Markets or central planning?

Despite the $1 trillion of aid that have flowed to the developing world over the last 40 years, economic growth in many parts has remained stagnant or even negative, and GDP growth is very highly correlated with poverty reduction.[2] Half the world’s population lives on less than $2 per day. In some parts of Africa, HIV/AIDS affects nearly half the population. A billion people cannot even sign their own name. Where are the results from decades of large development projects?

There is a strong parallel between the ways economies succeed or fail, and many of the problems in development assistance. The last few decades have demonstrated clearly and repeatedly that market economies in the long run function better than centrally planned ones. (Of course, markets alone are not a panacea – the experience of the former Soviet Union since the collapse of Communism reveals the importance of a solid policy framework and regulatory and legal capacity.) Strong economies bear witness to a multiplicity of small actors doing the bulk of the work. Small and medium businesses, rather than the largest mega-corporations, are the backbone of the US economy.[3]

Despite these blunt lessons of economic history, foreign aid is conducted through something very much like central planning. Large bilateral donors or international organizations generally work with large projects, often in the tens or hundreds of millions of dollars, for efforts such as sector-wide training and large infrastructure initiatives. Yet vast regions of the world are still mired in poverty and debt.

The ‘emergence’ of a market for aid

In some ways harking back to Adam Smith’s ‘invisible hand’, recent work on theories of ‘emergence’ – the spontaneous production of order from individual actors making many small local decisions that together have global implications – has begun to pervade academic work on topics as diverse as cell biology, city formation, ant colonies and financial markets. The idea is that complex organization can often take place without a leader calling the shots, that the wisdom of the many can be greater than the wisdom of the few.

We see the future of development aid and philanthropy as also having a large element of ‘emergence’. By offering an internet forum for such small projects, GlobalGiving, and other internet marketplaces such as GiveIndia.org in India, provide a place where such projects can coalesce into something much greater. They also become places where people exchange ideas and experience. This grassroots, bottom-up market approach is an underrepresented part of foreign aid that instead should be an important complement to traditional aid.

This approach stemmed from a World Bank initiative in 2000, called the Development Marketplace. The World Bank opened a competition for people all over the world to propose projects in their community and allocated about $5 million to fund the best projects. The response was overwhelming, with over 1,100 proposals. The Bank could not fund them all, but the turnout suggested that there is a vast untapped market of high-impact, grassroots projects.

Participants in the marketplace

This idea relies on the initiative of two sets of actors. First, there are the many local actors, such as Father Olaboro, who know what their communities need and want to find ways to meet those needs. Second, there are the many small donors around the world who want to contribute to small projects overseas. In the US alone, various parts of the private sector – including companies, individuals, foundations, and bequests – gave almost $34 billion to international causes in 2002 – three times the US Government’s official development assistance in 2002 of about $10 billion. However, about 80 per cent of funds given to private philanthropy in general (both domestic and international) finds its way to only 6 per cent of the sector’s organizations. In other words, the many smaller givers are giving mostly to a few large players. Funds are not reaching the many smaller projects that would like to compete.

After a few years of laying the groundwork – fuelled by seed funding and collaboration with the Skoll, Omidyar, Hewlett, Mott and Kellogg Foundations, along with USAID – GlobalGiving has begun targeting donors and creating an awareness of a new marketplace. HP and VISA International joined GlobalGiving early on to help pilot the service and build parts of the internet platform. Since then GlobalGiving has contracted with companies such as the North Face, Applied Materials and DAI. Some of these companies give directly to projects. Others encourage their employees to donate as part of employee giving campaigns, with many companies matching the donations. The North Face has begun a campaign to reach out to its consumers to encourage them to fund projects. Between 2002 and 2003, donations through GlobalGiving tripled, and the figure is likely to grow significantly again between 2003 and 2004. The funds flowing total hundreds of thousands of dollars so far, but the groundwork is being laid for much greater amounts down the road.

Problems of information and trust

With so much private philanthropy, why have we not seen a more decentralized market structure spring up on its own? Perhaps the main barrier has been lack of information and mechanisms to create trust. How can an American who wants to give $20 or $10,000 know about projects such as Father Olaboro’s? How can such a person decide which projects are worth supporting? Or know that her donation will be used for its intended purpose and not go into someone’s pocket?

The problem has been that there has not been a marketplace or a nexus for those who need money and those who want to give it to interact, except by word of mouth. There has been no place to ‘shop’ for projects.

EBay created a marketplace for ordinary people to come together to buy and sell their goods. It revolutionized and democratized the market, adding individual-to-individual transactions to traditional commerce. People across the world can talk to each other and trade despite the challenges of space and time. Problems of not trusting an anonymous stranger on the internet are overcome through buyers’ and sellers’ ability to read others’ reviews of the trustworthiness of their trading partners.

Furthermore, transactions on eBay, which are not coordinated in any centralized way, have coalesced into thriving sub-marketplaces with their own specialized rules, standards and policies, which often mimic standards and regulations created and enforced by the public sector. EBay Motors, for example, is now one of the largest market platforms for selling used cars and automotive equipment in the world, despite the fact that many buyers and sellers never meet in person – and many buyers never see, let alone test-drive, the cars before they buy them. The key is that sellers have a very public and transparent reputation to protect, so they are very careful about selling functional and clean cars and being honest about their condition.

GlobalGiving tries to make a marketplace for development aid viable by overcoming these problems of trust and information. Projects are posted so that people can compare them. They are vetted through recognized development partners, including Ashoka, the Acumen Fund, Schwab Foundation for Social Entrepreneurship, World Bank, UN Equator initiative and World Neighbours, for their feasibility and reliability. Through the website, people who give can communicate via email with the social entrepreneurs they support. It creates a marketplace for a market that already exists.

Types of project funded

An open question is the types of project that will get funded on platforms such as GlobalGiving.com or Give.com (an excellent site specializing in India projects). Some have suggested that these marketplaces are unlikely to generate funding for projects involving social change or advocacy work. Whether this is true depends on the types of donors who use them. Many donors from the general public will probably fund projects with more concrete outcomes, such as a computer classroom or books for students. However, as donors learn more about development, some of them will move towards increased support for capacity-building and advocacy projects. In addition, if these marketplaces are well designed, there is no reason in principle why larger institutional donors such as foundations and aid agencies shouldn’t use them as an effective way to find, fund and follow up on a wide variety of smaller, more grassroots capacity- and policy-related projects around the world.

Others have raised the issue of whether a lot of small grants through platforms such as GlobalGiving can have a systemic effect, or whether they are likely to be scattershot. Steven Johnson, in his recent book Emergence, notes that systems organize themselves ‘when the individual agents in the system pay attention to their immediate neighbours rather than wait for orders from above. They think locally and act locally, but their collective action produces global behaviour.’[4]

Barry Gaberman, Senior Vice President of the Ford Foundation, makes a similar point about the cumulative small actions of small foundations. In the US, he says,

  • ‘there is an increasing tendency for foundations to use the term “strategic philanthropy”. It differs from the way corporations use “strategic” for their programmes, which is primarily to link these programmes to the corporate lines of business. Instead, what foundations mean by use of the term “strategic” is that the grantmaking is purposive, targeted to solving a problem, and developmental. Unfortunately, this phrase applies only to about the top 2,000 largest and, for the most part, staffed foundations in the country.
  • What about the other over 60,000 foundations? Do we really mean to apply a term easily construed as pejorative, such as their being “non-strategic”, to this universe of philanthropies? Because we have no language to describe their grantmaking, that can easily happen. Yet, an alternative hypothesis might be that these small foundations, by funding local projects that are in the mainstream of community life such as libraries, schools bands and little league baseball teams, do more to create and sustain social capital then all the “strategic philanthropy” practitioners put together.’

 

Just as eBay is not the whole of the American economy, so there will be many other components and players in the market for development. But through its internet platform, GlobalGiving, and other similar initiatives, can open up vast possibilities to donors who want to contribute to development projects across the world. The potential is immense.

1 Robert Chapman Wood and Gary Hamel (November 2002) ‘The World Bank’s Innovation Market’, Harvard Business Review.

2 The UN has reported that between 1980 and 2000, per capita GDP in Africa actually shrank by 16 per cent, compared to 52 per cent growth in real GDP per capita in industrialized countries.

3 About 86 per cent of businesses in the US have fewer than 20 employees and about 80 per cent of Americans work for organizations employing fewer than 500 people.

4 Steven Johnson (2002) Emergence: The connected lives of ants, brains, cities, and software Touchstone.

Dennis Whittle is co-founder and CEO of GlobalGiving. He can be contacted at DWhittle@globalgiving.com

Shelly Culbertson is a recent graduate of the Woodrow Wilson School at Princeton University. She can be reached at sculbert@Princeton.edu

See http://www.globalgiving.com

Carnegie Medal rewards philanthropists

At the beginning of the new millennium, the Carnegie foundations – a group of more than 20 foundations established by Scots American Andrew Carnegie over a century ago – inaugurated the Andrew Carnegie Medal of Philanthropy for philanthropists who have made an exceptional contribution to humankind. Nine Carnegie Medals have been awarded to date to such people as Bill Gates, George Soros, David Sainsbury, Irene Diamond and Kazuo Inamori.

On 4 October 2005, the Awards Ceremony and a high-level colloquium on international philanthropy will be held at the new Parliament building in Scotland. Twenty international commentators will lead debates on the challenges for international philanthropy in the 21st century, including Mary Robinson (former President of Ireland and UN Commissioner for Human Rights), Lilia Sherevtsova (Carnegie Moscow Center), Jonathan Porritt (Forum for the Future) and Jane Wales (Global Philanthropy Forum).

These debates will help set the agenda for a Philanthropy Summit, organized by Carnegie and the Scottish-based Hunter Foundation, to be held the following day. Participants will include past and new medal recipients and senior representatives from international bodies.

The Carnegie foundations were endowed with some $15 billion (at current values) to fund work in such fields as the natural sciences, the arts, social development, education, international peace and human rights. They currently support work in Europe, Africa, the Middle East, North and South America, Russia and the CIS, and China.

The Carnegie Medal for Philanthropy Secretariat is provided by the Carnegie United Kingdom Trust, which is administering the overall event. Attendance at the event is by invitation only.

For further information contact Charlie McConnell, Chief Executive of Carnegie in the UK, at charliecukt@dunf.fsnet.co.uk or see http://www.carnegieuktrust.org.uk/news_and_events/philanthropy_medals


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