Big Business

18 Apr

You’ll forgive me if I come off as a bit less than inspired by Jonathan Starr’s opinion piece in the Wall Street Journal (online Europe edition, April 11, entitled “The ‘Business’ of International Aid).

Starr is obviously not an idiot. It takes him about 2 paragraphs to hit some of the key issues in aid: The Aid Industrial Complex is self-regulated. As a result of this, accountability is generally a challenge; aid providers frequently do too poor a job of actually listening to aid recipients; aid is frequently implemented not in the most efficient manner possible for reasons that are suspect, and so on… I’ve certainly done my share of ranting on some of those same topics on this blog over the past few years.

If you’ve been reading Tales From the Hood for very long you’ll know, however, that he pushes a few of my own personal righteous indignation buttons as well: He describes himself having entered the aid sector in Somalia “Happily ignorant of the aid industry’s modus operandi.” (Unacceptable. Plain unacceptable. That by itself is enough to earn the “dumbass” distinction from me.) Based on a single (and very obscure) exposure to the aid industry he assumes he knows more about the issues than he does in fact and goes on to prescribe some untenable remedies (only fund agencies whose executives are on the ground, in-country? Dude – spend some time in the real world). The real icing on the cake for me is simply the fact that in 2011 a “former financial executive” has the audacity to accuse any other industry of having messed up priorities and internal incentives not in the best interests of it’s own clients and stakeholders.

Beyond specific rant-worthy details, though, The ‘Business’ of International Aid gets at a larger issue which I think needs closer examination: The notion that the Aid Industry as well as aid organizations should all look and behave and perhaps even structure their values in ways more like the for-profit sector.

It’s a seductive idea. It feels like “common sense.” And it’s gaining momentum and currency in Western culture (and maybe others, too) more generally (Donald Trump considering a run for the US presidency in 2012, for example). The basic assumption seems to be that aid is messed up because aid workers are not astute business people. If only we were better at managing our budgets, drove harder bargains, or could boil all that supposed complexity down to a few pithy PowerPoint slides, we’d all be making a bigger dent in world hunger than we are.

And maybe there’s some truth in there. There are many legitimate ways in which the Aid sector can and should behave more like the for-profit world (I’d prefer to say ‘professionally’) than it does. From where I sit there is a lot of room for standardizing and streamlining different processes, both internally within NGOs and across the sector overall, both technically and managerially. As individuals, as agencies and as a global community of practice, we do seem to spend an awful lot of time on things that are difficult to link to life somehow getting better for “the poor.” Certainly there are many transferable skills between the non-profit and the for-profit worlds.

But I think it’s time to remind ourselves of the obvious: Aid is not a for-profit enterprise and NGOs are not businesses.

We may spend our days doing tasks which look and feel an awful lot like those being done by our peers in the for-profit world – sitting in meetings, writing strategy documents… – but let’s not make the mistake of believing that the two worlds are the same. Again, from where I sit, in a cubicle of an NGO, watching new colleagues arrive from the for-profit sector (many of whom I like and respect very much), there seems to be an overarching assumption that the primary difference between our two worlds, managerially and operationally speaking, is simply that NGO salaries are lower. And this is plain incorrect. (And it also leads to a “sacrifice” mentality.)

In his article Starr latches onto the idea of a customer-service approach as if it’s something new. It’s not. Calling “our beneficiaries” (the poor, etc.) our “clients” in an attempt to psyche ourselves into being more responsive to their needs has been around for at least fifteen years.

And you know what? It doesn’t work.

As Shotgun Shack and I (once or twice) and plenty of others have already pointed out, so long as the recipients of aid and those footing the bill for aid are different groups, the recipients of aid will never ever really be “clients” in the for-profit world sense. The donors are the ones with the real power in the aid relationship, and aid recipients (whatever we may call them) have power in the aid relationship, essentially to the extent that it is granted to them by those donors. So while we may from time to time be fortunate enough to have competent donors, let’s not delude ourselves into thinking that it’s any other way.

There is a role for the for-profit sector in International Aid. And there is room for for-profit ways of doing things in the Aid Industry. But let’s remain very clear:

The goals and purposes of Aid and of Business are fundamentally different.

We can’t fix Aid by running it like a business.

21 Responses to “Big Business”

  1. Patrick 18 April, 2011 at 1:00 pm #

    Amen. I’m doing a master of nonprofit administration program rather than an MBA because I know that nonprofits need to be managed differently. And also, to paraphrase Steinbeck, the qualities that make someone a good businessperson don’t necessarily make them a good human being.

  2. terence 18 April, 2011 at 5:01 pm #

    Hear, hear.

    I’ve two replies to those who make the claim that aid agencies should be run more like businesses:

    1. I’ve worked in quite a few private sector organisations, including a major investment bank. Some of them have been run well, some of them have been run really poorly (the investment bank falling into the latter category). The claim that being business-like means being well run and efficient just isn’t true. Plenty of businesses stumble along while being more poorly run than your average aid agency.

    2. If NGOs were to run more like your average business (the real thing as opposed to the idealised image) what they’d be trying to do is escape the nightmare of perfect competition by (a) exploiting information asymmetries, (b) branding themselves as something just a little different from the rest of the pack, and (c) trying to appeal to people’s less rational impulses in the hope of provoking a poorly researched impulse buy.

    Which, of course, is how quite a few (but not all) NGOs do run (to a degree). In the aid game exploiting information asymmetries means making it seem as if your aid works better than it does. And branding means suppressing all bad news so that your NGO brand isn’t tarnished by failure. While the genre of ‘poverty porn’ is all about provoking impulse purchases.

    In saying this I’m not having a go at the NGOs that operate like that. I’m just pointing out that they’re already operating under market discipline, which, as it happens, isn’t a panacea, and often produces perverse incentives.

    • angelica 19 April, 2011 at 9:57 am #

      good (and scary) point!

  3. Greg 18 April, 2011 at 8:29 pm #

    An interesting topic which provides a useful analysis of Starr’s article. A few points which come to mind.

    Much is made of the role of NGOs and not-for-profits in the international aid sector and these organisations do indeed form the popular ‘face’ of the sector (along with the multi-laterals such as UN, etc). However, many both within and outside the sector are unaware of the huge portion of the global aid budget which is contracted (and then further sub-contracted?) to private sector consulting firms (up to 60% of the aid budget in some countries). These for-profit enterprises provide technical assistance and project management consulting services. As with everything, some provide excellent efficiencies and value for money whilst others certainly do not.

    In this context, I think it even more important that NGOs aim for and deliver a distinct service with approaches and methodologies defined to ensure maximum efficacy and impact rather than trying to ape the private sector service providers. For the most part, this is what they are trying to do and in my experience often represent the innovative edge in development practice – with donors and development firms playing catch up to adopt the successful methods of pioneering not-for-profits.

  4. Joe Turner 19 April, 2011 at 12:23 am #

    (playing devil’s advocate) so how do you respond to the idea that for-profits would be more efficient at getting things done?

    • Melissa 19 April, 2011 at 5:51 am #

      I think Greg’s comment about the number of for-profits that already exist in the aid industry forms part of that response. If they were that much more efficient than NGOs, then it would be obvious, especially in the countries with the 60%+ of aid contracts going to for-profits (i.e. those countries would stand out with major aid program successes). I think they have the same issues that the not-for-profits have — some do better than others, but at the end of the day there’s not a huge visible difference.

      • Joe Turner 19 April, 2011 at 7:48 am #

        If that is the case, why would anyone bother running a for-profit development outfit? I don’t understand – surely they’d be better off being a non-profit.

    • angelica 19 April, 2011 at 9:55 am #

      example: a few years back doing food delivery in Colombia. Most NGOs and IGOs delivered to IDPs around the main city areas. rarely anyone delivered food in the most remote, hardest to get to (both for logistical and safety reasons) BECAUSE the cost of getting the food to these places was very “inefficient” (to HQ eyes), it would sometimes cost more to get it there than the the cost of the original item. A larger percentage was lost to looting SO it was the most expensive, the most inefficient, and the most needed, (and most neglected).

      Some things could be past over, like sticking to deadlines, delivering as agreed, etc…

    • terence 19 April, 2011 at 4:05 pm #

      “(playing devil’s advocate) so how do you respond to the idea that for-profits would be more efficient at getting things done?” by pointing out that for-profits really aren’t always that efficient. At least that’s my experience as someone who’s worked for a few of them.

  5. angelica 19 April, 2011 at 9:51 am #

    the more I think about it, the more I think it all boils down to one thing, and ONE thing only: accountability. I worked in the private sector for years first, (I was a freaking banker for gawds sake), and these are different worlds with different variables, some lessons should be learned, and they would be, if someone made people accountable, and a lot of that responsibility lies on the DONORS, yes, you heard right, the ones who decide who is going to get money and HOW they decide who is going to get how much.

    If that was decided on quality and with consistent objectives, if money was (god forbid) actually withdrawn (ever) as a consequence of a less then good delivery…. things would be different.

  6. Ian Thorpe 19 April, 2011 at 11:40 am #

    Great post. I do think there are important things the aid sector can learn from the private sector (and vice versa) but often these are more at a micro or process specific level rather than at a macro level. These can include a range of things like logistics (think UPS, Coca-Cola), product innovation (too many examples to name), use of new technology, venture financing etc.

    But although you can copy or adapt certain processes and approaches from the private sector it doesn’t mean that not for profits and governmental organizations can be run like the private sector. That’s because government and not for profits are created exactly to do things that markets and businesses cannot do. These are the famous “market failures” and are exactly where the incentives that drive business don’t align with the social good. You can argue about where the limits of each approach might best be – but it’s hard to argue that both are not needed and that they are not different.

    The additional challenge in aid work (compared to domestic government) is as you mention that the beneficiaries of aid are not those paying for it, and those that are paying are the ones calling the shots. And those that pay often don’t have a good understanding of (an sometimes not even a desire to know) the needs of beneficiaries. This can lead to very skewed priorities which make aid achieve less than it should (if you start as I do from the premise that aid should be to help beneficiaries).
    Getting aid to work better needs better feedback loops between beneficiaries and donors to help drive better performance- and I hope that the aid industry will move towards them. But even then, aid is still a not for profit business and will and should run differently, and be driven and judged by different benchmarks from the for profit world.

  7. terence 19 April, 2011 at 4:09 pm #

    I always though Amartya Sen put it pretty nicely in his review of Easterly’s White Man’s Burden (read it at http://tinyurl.com/3t9mxro):

    “Perhaps the weakest link in Easterly’s reasoning is his almost complete neglect of the distinctions between different types of economic problems. Easterly is well aware of the efficiency of market delivery when commodities are bought in a market and backed by suitable purchasing power, and he contrasts that with the usual infelicities and inefficiencies in getting aid to those who need it most. But the distinction between the two scenarios lies not only in the different ways of meeting the respective problems, but also in the nature of the problems themselves. There is something deeply misleading in the contrast he draws between them, which seems to have motivated his entire project: “There was no Marshall Plan for Harry Potter, no International Financing Facility for books about underage wizards. It is heartbreaking that global society has evolved a highly efficient way to get entertainment to rich adults and children, while it can’t get twelve-cent medicine to dying poor children.” The disparity in the results is indeed heartbreaking. But jumping from there to arguing that the solution to the latter problem is along the same lines as the solution to the former reflects a misunderstanding of what makes the latter so much more difficult. (That major issue is clearly more important than the minor point that J. K. Rowling was on welfare support and received a grant from the Scottish Arts Council when writing the first Harry Potter novel.)”

  8. Amelia 20 April, 2011 at 2:16 am #

    An important distinction, from my perspective, between profit and not-for-profit, is the moral hazard of taking risks.
    Innovations etc are all well and good, but the amount of investment it takes to ensure an innovation is effective is above what most not-for-profits are allowed (by their donors) to put into a project. Too expensive overheads.

    Secondly, there are times when you can think of a more effective, but less humane, way of doing things. These risks are what makes the automatic assumption that being in a for-profit business and transitioning to not-for-profit will be easy – insulting. Most aid workers are not stupid, nor are they weak. But it is quite different to decide to cut a non-performing sector of a business (Please note, I’m not saying that this is ‘easy’ either) and slash jobs/programmes. It’s quite another to take risks with other people’s lives/livelihoods/protection. The factors that you have to take into account in development and humanitarian aid, are multi-dimensional, complex and long term. That’s not to say I am being direspectful to those in the private sector, but I reckon that on the whole, they don’t have to wonder what will happen to their project in 10 years time. Perhaps they should? Then perhaps us not-for-profit types could go transition to their sector and give them the benefit of our years of juggling the factors/our consciences! (Do you think we could get paid more? In a sacrificial way of course?)

  9. Tanya Cothran 24 April, 2011 at 10:09 am #

    I work for an NGO specifically to NOT work for a for-profit organization. For-profit businesses don’t care at all about employees and try to squeeze every ounce of work and life out of employees, at least at the places I’ve worked. Hopefully for-profits could learn a thing or two about genuine respect for “clients” from NGOs.

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