Tuesday, December 8, 2009

Private Sector Leverages Comparative Advantage to Fight Slavery

As former lead diplomat and interagency coordinator in the federal government to fight human trafficking, I had the privilege to learn a ton about an often ignored, discounted, or misunderstood crime and abuse. From a woman I met in Romania who got TB as a sex trafficking victim in the UK, to the young woman I met in Bangkok who was subject to beating in a secluded Thai seafood processing factory after fleeing repressive Burma, human trafficking is about gross exploitation.

Sometimes it’s about moving across borders, but often it is not. Never having crossed any borders, the U.S.-citizen teenagers who are prostituted throughout America and the people of disadvantaged castes trapped in bonded labor in rice mills and brick kilns in India are human trafficking victims by dint of domestic law and U.N. protocols. “Trafficking” refers to the human trade – treating people as pure commodities robbed of freedom and equal dignity.

Eschewing jargon, human trafficking is best seen as slavery -- typically without chains, but slavery nonetheless.

While the public sector has much to do to help victims and punish their traffickers, so much is to be done by other actors.

I’m now the Executive Director and CEO of Polaris Project, named after the North Star which, with the help of ordinary citizens, guided slaves to freedom in the Underground Railroad. Polaris Project is devoted to breaking the backbone of traffickers in America by reducing the profit and raising the risk. The U.S. government has turned to us as a nimble NGO capable of running the primary national human trafficking hotline (1-888-3737-888) (http://nhtrc.polarisproject.org/ ) We serve as a catalyst in the anti-trafficking movement, from the essential micro level of victim services to the macro level of reforming laws and their implementation.

Not just nonprofits, but funders and investors outside of government are essential to the ultimate goal in fighting slavery today: abolition rather than mere mitigation and regulation.

Some philanthropic funders have entered this space. Humanity United funds anti-trafficking nonprofits and the leading coalition Alliance to End Slavery and Trafficking (aptly named ATEST, summoning the image of faithful witness to crimes against human dignity). Additionally, the NoVo Foundation, led by Jennifer and Peter Buffett, has committed to supporting work to empower women and girls against the dehumanization of sex trafficking. (Full disclosure: both fund Polaris Project.) Within a two-week period this autumn, Polaris Project was featured at the Clinton Global Initiative Annual Meeting where President Clinton highlighted human trafficking as a problem deserving action. Polaris Project was recognized for its anti-trafficking work in the U.S. and Japan and for the commitment it made to be an exemplar for the world. I also had the opportunity to speak at the annual meeting during the more politically conservative Philanthropy Roundtable. Yet there’s still a largely untapped opportunity for philanthropy to help the goal of abolition.

Businesses have a part to play too. First, they need to implement in deeds a kind of Hippocratic Oath to do no harm. They mustn’t wittingly or unwittingly spur on human trafficking. In the area of labor, businesses should make supply chains more accountable. The Department of Labor has given them a tool by promulgating a report on countries in which various sectors are tainted by forced labor and onerous child labor. Moreover, there need to be more businesses like Manpower Inc. who admirably seeks to eliminate shark-like labor recruiters who help enslave people through lies, seized passports, and usurious debt.

Businesses should also avert enabling human trafficking for sex—whether airlines and hotels work to not facilitate sex tourism; landlords rebuff brothels; or internet advertisers refuse to allow commercial sex (and with it, sex trafficking) to be promoted by their businesses.

Businesses can contribute to philanthropy against trafficking, and often have comparative advantages to bring to the fight. Just take three partners of Polaris Project:

The direct financial support, legal and technical advice, and research services of LexisNexis – is part of the company’s significant commitment to advancing the Rule of Law around the world. LexisNexis Risk & Information Analytics Group worked with Polaris Project to develop and implement a new web-based system that allows all employees of our national human trafficking hotline to access the same information in real time. It allows employees to service those in need by being able to field and respond to hotline calls more quickly and provide up-to-date, accurate information about local resources and service providers.

In late 2008, Wyndham Hotel Group generously donated one million Rewards points to Polaris Project. We utilize these points to provide emergency hotel stays to victims of human trafficking. Wyndham Hotel Group provides the first step in the recovery process for these victims who have nowhere else to turn. The support of Wyndham Hotel Group is so vital to victims of human trafficking that the Wyndham Hotel Group and Polaris Project relationship was listed in the 2009 Trafficking in Person (TIP) report released by the Secretary of State, Hillary Rodham Clinton last June.

And the aforementioned Manpower recently signed a partnership MOU with Polaris Project. Polaris Project will help Manpower employees gain more expertise on human trafficking in the labor market, and in turn Manpower will help Polaris Project by offering job training and job placement for victims we serve in places like Washington, DC; Newark, NJ; and Tokyo, Japan.
Philanthropists and businesses have slowly entered the fight to end human trafficking. But only when their role matches that in fields like development, international education, HIV/AIDS, and domestic violence will we have the hope of realizing the goal of a world without slavery.

By Ambassador Mark P. Lagon
Mark P. Lagon, PhD. is Executive Director and CEO of Polaris Project, a leading anti-human trafficking nonprofit, running the 1-888-3737-888 national hotline. He was formerly Ambassador-at-Large to Combat Trafficking in Persons at the Department of State.

Thursday, December 3, 2009

Leave the "overhead" to Santa

You're a savvy spender. You use the internet to compare prices, and in a tight economy, you're likely to spend a little time finding and settling on the best price to maximize your budget. Given your smart spending habits, you probably are thinking that the charity most deserving of your money this season is the one that spends the least amount on administrative costs. Before you visit Charity Navigator to see which group can divine the lowest overhead ratio, STOP! Let's think about this a minute.

If you had a choice this Christmas of giving to an organization that frees 10 girls from sex slavery in India and spends 10% on overhead costs or a group that rescues and rehabilitates 100 girls from the same desperate situation but spends 20% on overhead, I bet you'd choose the one that has the greater impact but spends a little more on overhead.

Overhead ratios are popular proxies for measuring efficiency. Especially when the charities you're interested in supporting are in developing countries. It's one thing to be able to see the impact of the local YMCA in the community but a whole other issue when you want to give to an organization in Zimbabwe that you can't see, where you know the government is corrupt, and with whom you may not have any personal relationships but where you know the need is great. It's not that these overhead ratios are a bad idea--it makes sense that you would want to contribute to an organization that spends more on children in need than on mailing out fund-raising letters. But efficiency measures miss the point and are often incorrectly calculated. What we really want is to give to organizations that are effective in changing people's lives for good. The trouble with this aspiration is that it's hard to figure out who is really effective at rehabilitating trafficked girls, healing sick people, eliminating homelessness or eradicating poverty.

When you think about giving to charity, it's my guess that you first give to causes you care about, to organizations you believe in or to programs that your friends ask you to support. If you have any largesse left after reading heart-tugging stories that pull at your wallet, it's possible that you might be looking for some way to compare various charities and decide which ones you will support.

This giving season, leave the "overhead" to Santa as he navigates his way down your chimney, and look for organizations who report on results, find user-reviews of non-profits at greatnonprofits.org, globalgiving.com, myphilanthropedia.org or givewell.net, and support organizations who work to measure, as best they can, the tangible ways that people's lives or the systems that impact them are changed.

Heidi Metcalf
Senior Fellow & Deputy Director
Center for Global Prosperity

Tuesday, December 1, 2009

The true cost of the public health approach to HIV/AIDS

This year’s World AIDS Day is particularly timely, arriving a day after World Health Organization recommends a “phase out” of one of its main ARV drugs: Stavudine.

The WHO promotes the public health approach to global AIDS: treat as many as possible, as quickly as possible, as cheaply as possible. In fact, all UN agencies and many NGOs followed WHO's lead and promoted a public health approach as well. In the public health approach, the interventions are designed to be quick, inexpensive, and cover as many people as possible--as in epidemics for infectious and parasitic diseases. On the other hand, in a clinical approach, medical records are the standard method for recording a patient's response to a therapy.

Now, some 4 million patients are under Antiretroviral (ARV) treatment, yet neither WHO nor any other UN agency has any patients' outcome data of a clinical nature to show for the billions expended--until yesterday. On November 30, the
WHO's press release recommended that "countries phase out the use of Stavudine, or 4dt, because of its long term, irreversible side-effects." Stavudine is one of the components of the triple dose combination ARV from India identified as the "backbone" of WHO's '3 by 5' program, launched in December 2003. Stavudine, in single or combination forms, is also one of the most widely used ARVs in Africa.

The triple dose combination ARV was licensed by the Drugs Controller General (India) as a 'formulation' on 26 July, 2001, with several conditions for its use. Among them:
1. "Warning": To be sold by retail as the prescription of a Registered Medical Practitioner only";
2. No reference in the advertisement or medical literature is made that the government has approved the drug.
WHO subordinated both conditions: the first by recommending that tens of thousands of community health workers (not registered medical practitioners) be trained to deliver ARVs and the second by lending its considerable institutional legitimacy to ARV formulations from India which hadn't been approved by any stringent regulatory authority.

Yesterday, the WHO recommended a phase out of this drug due to its long term, irreversible side-effects. If a clinical approach had been used in AIDS treatment, then we would know that patients were having adverse reactions to Stavudine because the medical records would reveal the progress of treatment or lack thereof. Clinicians would then change the therapy and monitor patients to see how they were responding.

To make matters worse, while the WHO has recommended the phase-out of Stavudine, it has not suggested a drug re-call, a standard practice of R&D companies in Japan, the EU, Australia, and the US. With a considerable pipe-line of Stavudine in process, how many more patients must suffer "irreversible side effects" in the absence of a drug re-call?

What is the cost for medical treatment of those affected with "irreversible side-effects" from its use? Did WHO recommend, according to the UN's Universal Declaration on Human Rights, that 'patient consent forms' be secured before Stavudine was administered? Given Stavudine's extensive use in Africa, it is likely that the long term medical care costs for these patients will be larger than the ARV treatment costs for the remainder of patients that were fortunate enough not to have followed WHO's original recommendation of December 2003.

How will AIDS treatment be sustained in the face of such irresponsible treatment protocols?

Stavudine should be the wake-up call for all agencies involved in the treatment of global AIDS. The best thing that the Global Fund can do to improve treatment of AIDS patients is to abandon the public health approach and adopt a clinical health approach. In the short-run, it may be more expensive, but as Stavudine has shown, in the long run it will be greatly less expensive.

Jeremiah Norris
Senior Fellow
Hudson Institute
Center for Science in Public Policy

Thursday, November 12, 2009

The New USAID Administrator: Transactional or Transformational?

As the Obama Administration’s pick for USAID Administrator, Dr. Rajiv Shah is highly credentialed and experienced in the field of foreign assistance and development as well as in the political ways of the world. The question I have for him is whether he will be a transactional or a transformational leader? Will he continue business as usual or finally do the much needed makeover of foreign aid - one that recognizes that the developing world and the delivery of foreign assistance have fundamentally changed, now needing an entirely new government aid business model. (See my previous work with Nick Eberstadt in the Weekly Standard, or in AEI’s Development Policy Outlook.)

If he listens to the concerns of most in the development field, he’ll be transactional – busy moving boxes on organizational charts at USAID and throughout the rest of the government, fighting for more money and people, trying to make USAID a preeminent and independent agency, and decrying the number of USG offices that dispense foreign aid and the lack of coordination therein. In short, he'll be focusing on much loved topics among government officials and the contractors and NGOs who receive billions of USAID dollars.

The topics, however, are of little concern to the people in poor nations. They would much prefer a transformational leader who views developing countries and the people in them as partners, not “recipients,” who expects those partners to have local ownership in aid projects by contributing their own resources and time, and who demands the utmost transparency and accountability in the management of aid funds. They would prefer a leader who focuses on the results of a project in the field, who surveys people in developing countries on what their problems are and how USAID projects could be improved, who provides funds for locally identified problems which will vary from country to country and not necessarily fit into all the earmarks and special interests in Washington, DC.

U.S. Government foreign aid is now a minority shareholder – only 9 percent in the total U.S. financial flows to the developing world. Philanthropy, private investment and remittances make up the rest and dwarf USAID’s budget. This is the new reality of how assistance and investment to the developing world is being delivered. The new USAID Administrator should open up the USAID bidding process to the thousands of privately funded programs by foundations, corporations, PVOs, religious organizations, and individuals, so they can more easily compete with their ongoing successful initiatives or their new innovative ideas.

Most importantly, the new USAID Administrator - to be transformational - needs to understand that the current USAID business model is very broken. By that I don’t mean broken organizational charts, lines of reporting, coordination or morale. (All the new USAID Administrator has to do is read up on what
African and other leaders, have been saying about our foreign aid to know that they don’t care which government aid agency is providing resources, or whether Dr. Shah or Deputy Secretary Jack Lew is signing off on projects, or whether aid officers are demoralized or not.)

They care about being a real partner in USAID projects, having their own skilled, local talent used in projects, and having money spent to develop local capacity and institutions so that they can help themselves and graduate from foreign aid the future. They prefer this demand driven assistance versus the predominant top down project design process where USAID gives huge awards to expensive contractors with high overheads, who then write a lot of reports, make a lot of trips, and hold a lot of meetings with astonishingly poor evaluation of results. (See previous work by
Bill Easterly, Raj Desai and Homi Kharas.) President Obama expressed his concerns on how "western consultants and administrative costs end up gobbling huge percentages of our aid overall." Also, in this same AllAfrica.com radio address he has noted the importance of demand driven ideas, good governance, and value of investment in addition to aid.

Once the broken business model is fixed, the government aid development community won’t have to call for new organization charts, new seats at the National Security Council, or elevating the topic of “development” as a core pillar of U.S. foreign policy. All this will miraculously happen when there are results that everyone can see and that are delivered at reasonable costs. USAID slipped onto the back burner because it lost its way and didn’t adjust to a new developing world with local talent to work with and a large and vibrant private sector engaging in innovative, faster and more efficient ways of delivering foreign aid. Its new role is still very important – as a convener of resources, helping to identify and support those private and public programs that are working and to bring them into countries that need them - to work with local talent.

Dr. Shah, leave the org charts alone and just find 12 good people who share a new vision for foreign aid, hire them, and get on with it. Nothing raises the stature of any USG agency than projects that work.

Carol Adelman
Director & Senior Fellow
Center for Global Prosperity

Tuesday, November 3, 2009

Where are the outcomes behind health aid?

The Bill and Melinda Gates Foundation have initiated a new endeavor called: Living Proof Project. Through it, they intend to show that American aid has materially improved the health of people in the developing world, and that Americans should see that their investments are working.

Prof. William Easterly's blog,
AidWatch, has criticized the Gates Foundation, mainly on the grounds that its positive contentions about aid are based on WHO data showing improvements in reductions in malaria incidence rates. The Foundation uses the WHO 2008 World Malaria Report as justification and proof that aid has produced positive outcomes. Initially, before the Report was published, WHO's director for malaria programming, stated that there were significant success in a number of countries. But then his report was never finalized and its specific claims were contradicted by WHO's own September 2008 World Malaria Report, by which time the director was no longer chief WHO's chief of malaria programming. Nonetheless, the Gates Foundation continued using his positive data, and it has surfaced in its Living Proof Project.

The larger question, though, is: does health aid affect health outcomes? Over the past few years, studies by competent organizations have wrestled with this issue. In 2001, the World Bank's Development Research Group published a
report showing "that the major driver on reductions in infant mortality is economic and educational: public health investments account for 5% of this decline."

In 2007, the International Monetary Fund released
a policy paper on health aid and infant mortality. It found that "despite the vast empirical literature considering the effects of foreign aid on growth, there is little systematic evidence on how aid effects health, and none at all on how health aid affects health."

In 2000,
the Bulletin of WHO discussed a 1997 examination of cross-national variation in child and infant mortality, finding that "95% of the differences could be explained by differences in income, income distribution, women's education, ethnicity, and religious activities."

A global health study which appeared
in Social Sciences and Medicine found that "public spending on health was statistically insignificant at conventional levels and total public spending explained less than one-tenth of the observed differences."

On evaluations of health projects, it is rare to find any of them based on base line departure points and control groups. Without these, we don't know what effect, for instance, a USAID health program has vis-a-vis other donors working in the same sector in the same country, and within that, if there has been a reduction in infant mortality, what portion of that can be assigned to the public sector vis-a-vis the private sector. For instance, according to the 2007
World Health Report, in Kenya, 78% of all national health expenditures are in the private sector. When there are improvements in infant mortality or maternal mortality, where does the credit lie?

Lastly, when there are health improvements, can they really be attributed to health inputs? Beginning some 30 years ago, USAID funded a rural electrification program in Bangladesh through the
U. S. National Rural Electric Cooperative Association. In 2007, a local research group in Bangladesh conducted an evaluation, using a control group (those homes not in the cooperative). The cooperative had 21 million members. The evaluation found that cooperative members' households had significant reductions in infant mortality, maternal mortality, increases in literacy, land ownership, higher educational levels, female education, and job acquisition. Although Bangladesh is one of the poorest countries in the world, it has reduced infant mortality rates by two-thirds--accompanied by an equal reduction in official aid flows.

In the form of public-private partnerships, those are living proof projects that were initiated by non-governmental organizations in which American’s can find reason for pride. Some 30 years ago, Merck started
a program to combat river blindness. It donated all the therapies required in whatever amounts needed, for the needed duration, into perpetuity. Today, some 20 different public and private organizations participate in this program which has prevented blindness in tens of millions of people, main children living in Africa. A World Bank Evaluation showed that once villagers were able to return to abandoned lands, 17 million hectares were returned to agricultural production, enough to feed 25 million people.

Returning to the Gates Foundation - the goals established by the Living Proof Project are laudable. However, they need to be matched by empirical-based studies that prove information on what the Gates Foundation has set out to show the American people and the world at large.

Jeremiah Norris
Senior Fellow
Hudson Institute
Center for Science in Public Policy

Tuesday, October 27, 2009

The road international development, on a bike

With energy prices rising and the obesity epidemic growing, more and more Americans are getting out of their cars and onto their bicycles. The convenience and affordability of bicycles attracts everybody from college students to CEOs. Ironically, in the US where automobiles were conceived, the population is beginning to embrace the “less developed” form of transportation. And while bicycle popularity is growing in the states, it’s also growing abroad, perhaps even in tandem. The number of international development organizations who focus their work around this two-wheeled locomotive is rising, and rightly so.

CGP recently had one of its interns research the number of bicycle oriented international development organizations. The multitude of these organizations was surprising. Just from a quick search, the intern found nearly 30 non-profits who base their international development work on distributing this method of transportation. Organizations such as the
Village Bicycle Project, Bikes without Borders, and Bikes of the World are not only alike in their bicycle oriented development projects, but also these non-profits are largely surviving on donations and volunteer work. The model is quite similar across the board, the organizations collect donated bikes, bike parts and other useful bike related materials, and send them overseas to underserved populations in developing countries. The organizations who collect the bicycles in the U.S. often partner with local non-profits in developing countries to distribute the bikes to populations in need. Depending on the organization, bicycles are either donated to their recipient, or better yet sold at a low cost. Selling the bicycles not only creates sustainability of the programs, but also ownership of the bikes. Some organizations, such as Pedals for Progress partner with local microfinance organizations to sell bikes and link them with business development, while organizations such as Bamboosero have launched entire bicycle based businesses in developing countries by promoting the production and sale of bamboo bikes. Another organization, Pepy Ride, not only provides bicycles for children to ride to school, but is supported through the bicycle tours it gives to tourists in Cambodia, where the organization operates. The bikes provided by all these organizations not only allow kids to go to school and parents to get to work, but some even serve as taxis, ambulances, and cargo transportation.

CGP focuses on promoting best practices in international development, and oddly enough most bicycle related non-profits serve as a good models for such practices. The works of these organizations rely on volunteers, donations, and have low-overhead costs. The organizations in the US form partnerships with local organizations in developing countries. The programs are efficient, environmentally friendly, and promote entrepreneurship. While bikes maybe the answer to the developed world’s obesity problem, they are certainly one of the keys to sustainable economic growth in the developing world.

-Yulya Spantchak
Research Associate
Center for Global Prosperity

Tuesday, October 20, 2009

Half the Sky and Women Donors

Kristof and WuDunn’s Half the Sky takes me back to Mumbai and Colombo and Beijing and Tegucigalpa where I’ve listened to stories from women who have suffered--many of whom live to tell their story with a mind-blowing hope that gives me confidence to believe in a destructive force of good that will ultimately strip the power from the evil that tortured them.

Half the Sky guts you with the ravaged vulnerabilities of women and girls but builds a rousing case that women’s power as “economic catalysts” can transform the world.

Kristof and WuDunn focus on unlocking the economic power of women in poverty, and this must happen. But women in poverty have allies in their sisters with resources all over the globe. These woman have been a major source fueling the increase in giving to many of the international causes that rescue and care for the women who tell their stories in Half the Sky.

Turns out that a particularly loyal group of donors are professional women in their late 30’s. According to research by Daryl Upsall and Owen Watkins and reported in the Chronicle of Philanthropy 38-40 year old professional females have staying power as compared to a large percentage of 20-something donors who gave after face-to-face recruitment but stopped giving within the first year.

Human trafficking, gender-based violence and maternal mortality—abuses on which Half the Sky focuses—are complicated, messy and require multi-faceted, multi-sectoral responses.

Donor fatigue can be a threat to sensationalized causes like these that succeed in cashing in on short-lived emotionally driven contributions. Perhaps the faithfulness of this new donor makes her an ally to be cultivated by thoughtful organizations committed to the long-haul. Additionally, many donors are guilty of a willingness to only fund new projects, perhaps this cohort of generous and committed professional women are also more likely to be contributors who stick to longer term efforts freeing up organizational capacity and giving effective organizations the ability to out-run, out-wait and out-maneuver the evil that victimizes with a seemingly bottomless supply of creativity.

-Heidi Metcalf Little
Deputy Director
Center for Global Prosperity

Tuesday, October 13, 2009

Looking at our neighbors as the health care debate continues on

On October 6th, 2009 the Center for Science in Public Policy at the Hudson Institute held a panel discussion on the concept of Health Cooperatives. A uniting issue with health cooperatives is the public’s lack of familiarity and understanding of the concept. To give perspective on the U.S health care plan, Jerry Norris opened the conference by giving examples of cooperatives abroad.

In the 1920s, mutual aid societies or
cooperatives were formed in Japan to organize healthcare services for agricultural workers. After WWII, the U.S. Occupation authorities used the cooperative model to design what is now known as Japan’s National Health Insurance System. In the late 1970s, USAID helped South Korea to reform its healthcare program. Cooperative principles were again used in the design of demonstration projects. Subsequently, South Korea followed the Japanese model and promoted a national health insurance program which now covers almost 90% of its population.

One of the largest health cooperatives in the world is in Brazil and is called
UNIMED. UNIMED has approximately 18 million members across the country and provides a comprehensive set of health services ranging from primary to tertiary care on a prepaid basis. The urban health cooperative in Sao Paulo covered some 6 million of the city’s poorest citizens and with roots in the public sector, it’s private sector metamorphosis provides an interesting contrast and context to the current US healthcare debate.

In 1998, a new Secretary of Health was appointed by the Mayor of Sao Paulo. The Secretary was an engineer with no experience in health. The Secretary concluded that any reform he instituted could not be worse than the existing public system. He made an offer that the public physicians could not refuse—go private with cooperatives: “I will pay you three times what you now earn; you can elect your own presidents for each cooperative; you will have the sole authority to hire and fire all personnel; and you can do your own procurements, but in return for this, I want only one concession from you, you will have to work.”

Over a period four months, staff from Harvard Medical School evaluated this urban cooperative in Sao Paul and confirmed that it did provide a level of services which equaled anything that could be found in the private sector and that these services were being provided at no greater cost than if all the cooperative members were still covered by public finance.

While the conference went on to discuss health cooperative viability in the U.S, it is through these stories that the public can gain a better idea of the history health cooperatives have had throughout the world. The example of cooperatives created in Brazil are particularly interesting because it shows the opposite transition to what many would like to see happen in the United States.

As many Americans are unfamiliar with the concept of health cooperatives it is helpful to look at our neighbors and draw on others experiences. No one country’s healthcare system is perfect, but in the quest for reform, it is important to look at all different models and experiences.

To read more about health cooperative conference and their viability as an alternative to the public plan, go to:

-Kacie Marano
Hudson Insitute
Center for Science in Public Policy

Tuesday, October 6, 2009

Beyond Philanthropy, to Social Investment

Last week the Bill and Melinda Gates Foundation announced the launching of a social investment fund which will provide loan financing to both non-profits and businesses. $400 million is allotted to this new endeavor, and investments will begin by the end of 2009. Social investment, put simply, is an investment that has both a financial and a social return. The measurement of social returns is a topic that deserves its own blog post, but the point here is that social investment is on the rise. Other foundations, such as Skoll, have begun focusing on investing in social entrepreneurs or in funding social enterprise funds, deviating from the typical grant giving role of a foundation. Likewise, the Calvert Foundation claims to “focus on investment capital, rather than conventional philanthropy” in addressing social problems.

The recent move by Gates is indicative of an overall growth in socially responsible investing (SRI) which is seen both in the typically philanthropic world of foundations and in the corporate world.
The Social Investment Forum in its 2007 annual report noted that SRI has risen from $639 billion in 1995 to $2.71 trillion in 2007, a growth of over 300%. According to the report, a large growth of this trend in the US is attributable to the growing concern over climate change, which has increased investment in green technology and alternative fuel research. The growth in SRI is significant both domestically and internationally.

Internationally, the expansion of microfinance organizations has provided a channel for social investment where a social and a capital return is produced. Beyond microfinance, social investment in international development is also targeting small and medium enterprises. Private equity firms such as
SpringHill Equity Partners provide capital specifically in emerging markets where financial returns are lower, however those returns are accompanied by “measurable social benefits”. The Africa Middle Market Fund, while still waiting on capital, aspires to do similar work in by investing in African businesses and producing both a financial return and social improvement.

Development in the past has been dominated by foreign aid, philanthropy, and to a certain degree foreign direct investment. While philanthropy and FDI lie on two opposite ends of a spectrum, and social investment may finally be the long-awaited middle ground.

-Yulya Spantchak
Research Associate
Center of Global Prosperity

Tuesday, September 29, 2009

Is the recession transforming philanthropy?

Yesterday evening, the editor of the Chronicle of Philanthropy, Stacy Palmer, was interviewed briefly on NPR regarding the recession’s impact on giving. While the outlook is fairly grim even for last year when charitable donations decreased, Ms. Palmer did note that the recession is forcing donors to be pickier with their donations. Donors are starting to increase their focus on outcomes when choosing where to give.

Could the financial squeeze of the recession create a new paradigm in giving?
Philanthrocapitalism has been a hot topic after the publication of Matthew Bishop’s and Michael Green’s book by the same title. Venture philanthropists such as Bill Gates have called for philanthropy to become more like for-profit capital markets that yield results on investment. Whether the market model actually works for philanthropy is still a question under debate. Many claim that people give with their hearts not with their minds, and so the need to see impact and a return on giving is less of a worry for a philanthropist as opposed to an investor. Yet during this recession, the reoccurring theme shows that the decline in giving is accompanied by a reassessment of giving, with an increased focus on impact donations. Will the recession transform all philanthropists to philanthrocapitalists on a smaller scale?

While the long-tern impacts of the recession are still to be determined, it will be interesting to see whether certain types of giving will be more dependent on the economic situation compared to others.
Recent research shows that tax policy has different impacts on charity and non-profit donations depending on the type of work the organizations do. Specifically, donations to charities that appeal to higher human needs such as the arts, or environmental causes tend to have high tax-price elasticity, meaning that tax incentives increase the donations to these charities. While organizations that cater to basic human needs such as hunger and poverty relief tend to be inelastic to tax incentives. This implies that people still give with their heart, but only to selective causes. Perhaps a similar elasticity trend will surface between the nation’s economic condition and giving, where donations to basic need organization will remain relatively stable, while donations to organizations that provide higher needs will become outcome-driven.

-Yulya Spantchak
Research Associate
Center of Global Prosperity

Tuesday, September 22, 2009

GDP is a Measurement of Apples to Bricks

Last week FT.com commented on Joseph Stiglitz’s denouncement of GDP as an indicator of economic progress and prosperity. Of the economic sectors, this is most evident in global health, in which the U.S. expends 16% of GNP while France only spends 11% on health.

As long as GDP remains the sum total of all goods and services in any one sector, what is counted in the U.S. is quite different than in France. For instance, the U.S. counts the costs of mal-practice insurance and awards to plaintiffs; depreciation on plant and equipment on accelerated 5-year schedules; R&D in its pharmaceutical and vaccine industries; and the clinical expenditures of incoming French citizens to American specialty centers, as well as hundreds of thousands of other foreign citizens.

France subsidizes the R&D components of its pharmaceutical sector. Moreover, France regulates drug prices at launch and subsequent rates of increase. U.S. pharmaceutical companies must accept the mandated prices or risk losing market share. To compensate, they sell the same products at higher prices to U.S. citizens, thus subsidizing French patients.

Professor Stiglitz is correct: what we measure affects what we do. GDP is a determinant of foreign aid resource flows to poor countries. The "cult of figures" rewards those with low GDPs. However, these figures only include economic output in their formal sectors, leaving out the greater levels in their informal sectors.

As Einstein once famously said: all that counts isn't counted and all that is counted doesn't count.

-Jeremiah Norris
Senior Fellow
Center for Science in Public Policy

Tuesday, September 15, 2009

Microcredit – not a silver bullet, but still a tool.

Microcredit, or small loans to poor people, was made most famous by Mohammad Yunus who founded Grameen Bank in Bangladesh in 1983 and made group lending and village banking household terms in international development. The field grew to microfinance, which applies to not only loans, but a wider set of financial products including microinsurance and savings products. For decades now, microfinance was seen as a silver bullet in fighting poverty, improving gender equality, and even decreasing children’s school drop out rate. The field grew from a few established organizations such as Grameen Bank, FINCA International, ACCION, and Opportunity International, to numerous organizations both international and local providing similar services to low-income populations globally. Microfinance received accolades from nearly everybody: international organizations, development workers, governments, and academics. With only occasional critiques regarding the high interest rates, the field grew exponentially. Yet, only recently have the true effects of microfinance been tested.

Thus far two randomized studies critically examined the impact of microfinance on poverty alleviation:
The miracle of microfinance? Evidence from a randomized evaluation by MIT’s Poverty Lab
Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to estimate the Impacts in Manila by Dean Karlan and Jonathan Zinman at Yale and Dartmouth.

The overall results were disappointing at best. Bloggers actively discussed the results, and microfinance quickly fell off the pedestal it sat upon for decades. Essentially, neither study found microcredit (the papers looked at microcredit specifically, not a broad range of financial services) to be all that effective in poverty alleviation, improving health, promoting gender equality or increasing access to education. However, these are not the ultimate findings, and as in all academic papers, it is worthwhile to delve into the details.

The first study showed that households that received loans increased their expenditure on durable goods, and decreased their expenditure on “temptation goods” such as alcohol or tobacco. The increase spending on durable goods was especially seen in households that already owned a business, or were likely to start a business. Households without a business did not increase spending on durable goods after receiving the loan. Likewise, households with the highest propensity to start a business or ones that already own businesses decreased their spending on temptation goods, while households without businesses increased their temptation spending. The claims that microfinance increases access to education, changes gender roles, and improves health were not supported by these findings.

The second study’s results by Dean Karlan and Jonathan Zinman indicate that microcredit is not an effective tool in helping the poorest of the poor escape poverty. Microcredit did increase overall borrowing of the household. However, the households that borrowed from the microfinance institution were more likely to borrow from the formal sector. The return on business profit was larger for the higher income borrowers than lower, and it was much higher for male borrowers than female. Because microfinance traditionally targets women, these results are not only surprising, but should be considered by MFIs in their lending schemes. The results of this paper included findings which were contradictory to the Poverty Lab’s paper. Karlan’s paper found an increase in school enrollment within the household, especially the households where the male received the loan, while the Poverty Lab’s study found no such effect on education. Also, Karlan’s paper found no observable changes in consumption patters, and no impact on capital inputs into the business, while the main finding of the Poverty Lab’s research was an increase in durable good expenditures. As with the first study, no positive changes in health were observed.

At the end of the day, both studies produced mixed results and neither of these studies discredited microcredit entirely. Intuitively, loans should not be distributed randomly, but to groups or individuals who have the greatest chance of repayment. Thus providing loans to individuals who have an entrepreneurial drive and who already own a business makes logical sense. Whether those individuals are considered the poorest of the poor is a different manner. Microcredit is not a silver bullet, nor should it be. However, based on the Poverty Lab’s analysis it does promote durable good expenditure and allows people to invest in their businesses leading to a healthier economy overall. Microcredit seems to be the most helpful to individuals who have an entrepreneurial personality, and that is not an all inclusive category. Its main role is to give credit where there was none to people who have the drive and ability to use it. So no, microcredit is not a silver bullet, but nevertheless it remains a useful tool in international development.

-Yulya Spantchak
Research Associate
Center for Global Prosperity

Tuesday, September 8, 2009

Trends in Religious Giving

The 2009 Index on Global Philanthropy and Remittances reported that US congregations gave $8.6B to relief and development in developing countries in 2007, making religious organizations the second largest private contributor to causes in the developing world.

Research from the Center on Philanthropy at Indiana University made available through the
Giving USA Foundation indicates that recessions historically have not had much effect on religious giving. Religious congregations remain the largest destination for American’s generosity even during economic slowdowns, and when adjusted for inflation during recessions, religious giving decreases -0.1% compared to an average 2.8% growth in non-recession years.

While giving levels within religious communities are likely to remain relatively stable throughout the recession, other, more missional shifts may be in play that influence the direction and ultimately the impact of the giving from religious organizations.

Next week, a group of several hundred individuals, families and foundations who give over $200,000 annually to Christian ministries will come together in Arizona for an annual conference called
The Gathering to learn from and support each other.

Fred Smith, President of The Gathering, observes that historically, the focus of international giving from US religious communities, particularly evangelical communities, has been to projects focused on evangelism. He observes an increased interest from younger generations of evangelical givers to tackle thorny social justice problems like hunger, trafficking, domestic violence and other issues around health and education.

While evangelical Christians may be beginning to shift their focus of giving towards more relief and development activities, multilateral institutions like the World Bank and bilateral aid agencies like USAID are also just beginning to understand the dimensions of giving from private sources, including from the religious community. Thirty four percent of the $8.6B given by religious organizations in the US in 2007 to developing countries went to educational projects as compared to 4% of the $3.3B given by US foundations to education in the developing world.

While Evangelicals curiously observe the movements of the Obama Administration, the Obama Administration is clear that with regards to foreign aid, the private sector is a critical partner for public diplomacy as well as development. Religious organizations, foundations and even congregations are not necessarily new partners to the US government, however these private actors are sizeable, dependable, committed, and potentially changing their focus to becoming a different kind of partner or ally to overseas development assistance. This shift may be worrisome to the old guard of the faithful but welcomed by the younger generations.

-Heidi Metcalf
Deputy Director
Center for Global Prosperity

Tuesday, September 1, 2009

Capitalizing on the demographic dividend

On August 27th, the Economist published an article on Africa’s population and demographics titled “The Baby Bonanza”. In this piece, the authors describe the “demographic dividend” which is predicted to occur in Africa as a result of the demographic transition to a larger working-age population. The term, “demographic dividend”, was first coined by David Bloom, who emphasized the importance of demography to economic growth. Bloom attributed a large portion of the economic growth of East Asia in 1965-1990 to the region’s large working-age population, which led to the increase in productivity. On the other hand the slow growth of Africa during the same period was at least partially attributed to its large dependent population. Thus East Asia was able to cash in on its demographic dividend, while Africa was not.

However, this may change. If the United Nations predictions are, in fact, true, then the fertility rate in sub-Saharan Africa could drop to three by 2030 (it is currently estimated at five children per woman). The drop in fertility rate with the already present growth in the middle class has the potential to increase the working-age population which in turn could increase economic growth in the continent. To capitalize on the demographic dividend, a proper environment is needed. Currently, Africa is facing food and farming land shortages, deforestation, an HIV/AIDS epidemic, conflict, and institutional corruption. Needless to say, none of these factors are conducive to economic growth. On the other hand, the rapid spread of technology and innovation throughout the continent whether in agricultural developments or in education, may help Africa to capitalize on its demographic dividend. In addition to the potential for technology to help Africa capitalize on its working-age population, proper policies in foreign aid can also contribute to the dividend if donor governments start to take demography into account.

Bloom emphasized
three policies that can increase the demographic dividend (i.e. the economic growth resulting from a large working-age population): public health improvements to catalyze the demographic transition; family-planning programs to accelerate the demographic transition; and reformed labor markets and increased rule of law to allow business to exploit the demographic opportunities.

There are ways to integrate some of his suggestions into foreign aid policy. For example, in regards to the public health perspective, a larger increase in the working age population may also call for broader health programs that include chronic diseases and preventive measure to extend life. The third policy, which strives to maximize the use of the working-age population, calls not only for labor-market flexibility, but also for good governance. US foreign aid policy can play a huge role in improving rule of law by asking for accountability from recipient governments. With an accountable government in place, private investment, both foreign direct investment and investment in small and medium enterprises, is more likely to flow and successfully generate business growth which can capitalize on the working age population.

The short window of opportunity for a nation to capitalize on its demographic transition requires timely action and a favorable business environment. Donor governments, including the US, can help ensure that such an environment exists by taking demography into account when making policy.

-Yulya Spantchak

Research Associate
Center for Global Prosperity

Tuesday, August 25, 2009

Remittance flows during the recession

When the Hudson Institute’s Center for Global Prosperity came to press in May with its annual Index of Global Philanthropy and Remittances, it was optimistic regarding the recession’s impact on philanthropic and remittance flows to developing countries. While the data in the Index focused on 2007 giving to the developing world (the most recent data available at the time), the Index and the Center did make some predictions regarding the recession’s impact on giving and remittance flows for 2009.

With respect to remittances, the Center predicted that this flow would remain the lifeline to developing countries. At the time, the World Bank’s most recent estimates suggested that remittances would decline by 5-9% in 2009. Dilip Ratha at the WB then changed that prediction to 7-10% in July. Nevertheless, even the high margin of 10% still seems feeble compared to the devastation caused by failures in financial institutions and the recession’s effects on exports and capital flows. Although the Center’s estimates are supported by the World Bank, during the launch of the Index, CGP was often addressed with concerns during presentations and talks regarding its relatively positive outlook regarding remittances. While time will prove the true change in remittance flows, most recent 2009 data show mixed results that vary by country, but continue to support the notion that remittances are a relatively stable financial flow during hard economic times.

In Latin America, a region where remittances were expected to be most affected by the financial crisis abroad, the decrease in remittance flows has indeed occurred, but modestly. In Guatemala, Banco de Guatemala has reported $1.59 billion in remittances from January to May of this year, which is a $0.17 billion decrease from this time last year. For those who prefer percentages, that’s a 10% decline if you round up, falling in line with the WB estimates. Similar trends are observed in other LAC nations. In Honduras, the Central Bank of Honduras (BCH) expects a 0% growth in remittances for 2009, compared to an 8%-9% growth observed in 2008. However, this prediction is a decline in growth, not a decline in flows. In the Philippines, a country where remittances make up at least 10% of its GDP, Bangko Sentral ng Philipinas (BSP) reported increasing remittance as compared to the same time last year. Granted the reported increase was only 2% for the month of April with an estimated 0% growth for 2009, compared to 13.7% growth for 2008. However, these flows continued to increase in June, and were up by 3.3% from the year before, reaching $1.5 billion. According to the BSP, the continuing migration of new Filipinos out of the country is offsetting the effects of the job loss of the current migrants abroad.

While still noting a decline in 2009 remittance flows, the most recent Migration Brief from the WB predicts a rebound in remittances to positive growth in 2010. One of the contributing variables to this rebound is the recent recovery in the construction sector in the US, which caused the greatest loss in migrant employment.

So what can be expected during the rest of 2009 and 2010?

Previous research has mainly focused on remittance inflows with respect to the receiving nation’s economic situation, and limited literature exists regarding the impact of the sending nation’s economic downturn on remittance flows. Most recently, the Overseas Development Institute (ODI) in London produced a paper titled
The Global Financial Crisis and Remittances, which includes a comprehensive literature review on remittances and economic indicators as well as an analysis of the past economic crisis on remittance outflows and inflows.

The ODI paper analyzed past systemic banking crises on remittance outflows and inflows, and made predictions for the current financial crisis. Their results, while slightly more negative than the World Bank’s predictions, nevertheless suggest that remittances will continue to be the more resilient financial flow to developing countries during the economic downturn. According to ODI, based on remittance outflow estimates, remittances could drop between 8% and 22% in 2009. Based on inflow data and analysis, the predicted decrease is only 5-8%. Unsurprisingly, this analysis predicts that nations in Latin America and East Asia and the Pacific will have the largest decrease in flows, while regions less reliant on flows from high income countries will remain resilient. Encouragingly, this paper reports that during previous financial crises, decreases in remittance flows were short lived, with flows quickly returning to pre-crisis levels. The current data has already demonstrated a similar trend.

Thus, both the previous analysis and the most recent predictions support the idea that remittances will remain relatively resilient. In the international development sphere, this news is both encouraging and calming, especially in light of the recession’s impact on decreased demand for exports from developing countries.

-Yulya Spantchak

Research Associate

Center for Global Prosperity