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A Bold New Strategy for Smart Aid

Matthew Bishop
Matthew Bishop is the U.S. Business Editor of The Economist and, with Michael Green, he is co-author of the book, Philanthrocapitalism: How the Rich Can Save the World. He tweets at @mattbish

The Clinton Global Initiative's fifth birthday celebration this week may be a less glitzy affair than in previous years but it marks an amazing comeback. Last year the Obama administration actually thought about having it shut down as a price of Mrs. Clinton becoming Secretary of State, fearful that Bill's schmoozing of wealthy philanthropists could compromise his wife's role as America's top diplomat. Now, Obama is going to be topping the bill, outshining the A-list celebrities, heads of state and corporate titans who pack the hall for the annual "Philanthropy Oscars."

Yet the most important speech at the event may not be delivered by either the current or the former president but by Mrs. Clinton herself. She has said the State Department is going to forge new partnerships with philanthropists to achieve America's foreign policy goals (and has already started work on a new initiative around the Middle East peace process). Her speech is an opportunity to announce a radical new departure in the way America gives aid.

The aid business in crisis. The past year may have been tough for the world's richest countries, but it has been far harder for the poorest. Markets for exports have slumped as rich consumers have reined in their spending. Government budgets are creaking under the strain of the global recession and foreign aid is threatening to dry up. At the same time, the intellectual attack on aid has escalated, led by the author of "Dead Aid", the African economist, Dambisa Moyo.

The CGI has become the showcase for those who believe Moyo is wrong and that aid can be effective. The CGI is not about the old government-to-government aid model. Its members aim to deliver smart aid, based on partnerships between business, philanthropists, and social entrepreneurs. Mrs. Clinton's speech is the perfect opportunity to show that government is ready to work with the CGI crowd to rethink how it does aid.

One promising, for-profit solution to poverty is to take the model of microfinance -- one of the more resilient corners of banking during the financial crisis -- and extend it to improve education, health care, clean water and sanitation. Loan-based investments can be more sustainable than traditional aid or charity, because they tap the far larger sums available in the capital markets and are not dependent on the whims of political leaders or budgetary wrangling. Some in government may be reluctant to give up their near monopoly on aid but it is long overdue.

A second opportunity is to get the public more involved in the aid business. New giving organizations such as Kiva have demonstrated how the public can play an effective role in allocating money to needy people. Government should be doing all it can to encourage his type of mass philanthrocapitalism that levers the generosity of the American people and taps into the wisdom of crowds. It is time for government aid to be made more democratic by letting Kiva and others like it distribute some of the tax dollars.

Finally, Mrs. Clinton should seize the opportunity to turn the aid business on its head and pass control from the bureaucrats to the poor people themselves. Technology such as the internet and the mobile phone are now widespread in the developing world, so why not use these tools to give a greater voice in aid spending to the people the money is intended to help? Much aid has gone to waste because of a lack of feedback from the intended beneficiaries. Imagine how the best technology entrepreneurs could transform the aid business, in the same way that they have changed the media, by giving the poor a say in how the aid billions are spent.

The Obama Administration has made all the right noises about making government smarter by working more with the philanthrocapitalists. At home, the creation of a White House Office of Social Innovation was a welcome first move, yet it is still to be seen whether this will amount to much more than a new source of grant funding for the nonprofit sector. The big win is in remaking government through innovative partnerships with the private sector. Mrs Clinton has been mulling over what to do with USAID for nearly a year. What better opportunity than the CGI to announce a bold new strategy for smart aid?

By Matthew Bishop with Michael Green

 |  September 23, 2009; 5:57 AM ET |  Category:  Foreign Affairs Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Most of us have the best intentions,including Secretary Clinton.I do believe American "aid" is now being distributed, not by the state dept., but as of Rumsfeld and company aid is controlled by the military. Explains why Hilary is looking for a new funding source.The pentagon has been given tons of dollars for aid as the state dept has been starved of funds.I say, take some of the billions from the pentagon and let the state dept give out aid as an civilian governmental agency.The pentagon has no reason to be dealing with aid to foriegn countries.

Posted by: rtsbt | September 24, 2009 2:38 AM

Totally idiotic premise and post. The more appropriate question would how can we use capitalism to throw the scums into the jail.

Posted by: kevin1231 | September 23, 2009 11:21 PM

When's the last time she passed a drug test? I mean, I know she can smell money through 10 feet of solid steel, but is she on dope, or what? How about some domestic aid, lady? You've got people that are on the verge of making their own tents in preparation for living in them right here in the United States, and you're worried about people in other countries? I see.

Why doesn't Hillary publish her own magazine, and get a TV show, like Oprah, then she can hand out the proceeds from that for whatever philantrhopic purposes? Oh, but the Clinton plan involves Other People's Money, not hers. Right? Right? How much of her accumulated bread is she spreading upon the waters, there? Inquiring minds want to know!

Posted by: walkerbert | September 23, 2009 8:51 PM

"The CGI has become the showcase for those who believe Moyo is wrong and that aid can be effective."

I believe you are misreading Dambisa Moyo's thesis. Dead Aid calls for an end to government to government aid transfers, which produce very little economic value. The aid that Secretary of State Clinton advocates - private sector for profit investment to individual entrepreneurs fits nicely into Ms. Moyo's prescription. Though microfinance and social enterprise has it's limitations - mainly scale, it does have a place in promoting bottom up development. Ultimately, the private sector in developing countries must look the international capital and debt markets to finance growth.

Posted by: hbrooks69 | September 23, 2009 5:33 PM

Dear Wash Post writer,

It's SECRETARY CLINTON. Show some respect.

Posted by: TAH1 | September 23, 2009 3:22 PM

There is nothing new or innovative in this idea. Philanthropy has been the mainstay of aid far longer than governments have been involved. The writer seems to think that the US government is somehow standing in the way of innovative private solutions to humanitarian and development needs. I don't know how he thinks how the US government is even capable of doing anything like that. But the evidence is clear that agencies like USAID are actively seeking to promote public-private solutions and not the reverse.

Posted by: rtandrew | September 23, 2009 2:57 PM

At a time of world economic crisis built through the enthusiasms of transnational business and finance, it certainly requires a steely ideological resolve and rigourous lack of circumspection to imagine that privatising international development is the answer to global poverty. If the US Governemnt wishes to utilize some of the resources of the extremely wealthy to help achieve its foreign policy goals, let it insist that they pay a fair share of tax rather than form philanthropic partnerships with the rich.

Posted by: whynottryagain | September 23, 2009 11:32 AM

For-profit poverty solutions, great idea if you are a for-profit poverty solution provider, kind of like health insurance companies being the vehicle by which we deliver access to health care.

The rich should be as concerned as everyone else about the trends, especially if they care about their grandchildren. It's a question of sustainability. Kind of hard to benefit long term from a Ponzi economy if you've decimated your base. Greed has its limits and unfettered, it creates a world no one should want to live in.

Posted by: SarahBB | September 23, 2009 10:55 AM

It is terrific to see this view on aid expressed in this forum. Most people involved, including western NGOs - arguably those whose jobs would be affected - agree that the current aid model needs to be completely changed. The author hit on the key point: only the for-profit model can truly build local enterprises to directly support changes (e.g. basic technologies for clean water, sanitation, and energy). As it is now, the so-called 'capacity building' support by the current aid has not been sustainable; there simply is no economic incentive at local settings. Mrs. Clinton should get USAID to adopt recommendations from its commissioned report by the National Research Council "The Fundamental Role of Science and Technology in International Development: An Imperative for the U.S. Agency for International Development," www.nap.edu/catalog.php?record_id=11583

Posted by: dattam03 | September 23, 2009 9:12 AM

I am wondering why this isn't at work here in this nation? Micro lending is the "teaching one to fish" for the next generation of entrepreneurs. And it is refreshing to read an article that is pro capitalism. If we favor it for other nations, why is it becoming so out of favor in our own?

Posted by: beebop1 | September 23, 2009 8:39 AM

I concur and feel you have outlined all the pertinent points. AID has been for the most part snaffled up by whomsoever controls the levers of the State. L'Etat C'est Moi applies.

Tha arrival of the Mobile Phone upends this Financial Architecture. In Kenya there were 15,000 ten years ago and now there are more than 17.4m. You can neatly sidestep the Bureaucracy that sits atop the Continent waiting to Bilk the system and drill down to each Indiviual. Its a disjunctive and important moment. So in situations of extremis, You can effectively reach the Individual.

AID is a system that stifles Entrepreneurship. This African Continent is full of Entrepreneurs. There is a market wherever you turn.

We now have the wherewithal [as you have so well delineated] to unleash this Spirit.

Aly-Khan Satchu
Twitter alykhansatchu

Posted by: alykhansatchu | September 23, 2009 7:16 AM

I am happy to see this article. For the past several years the JFR Foundation has been wroking to develop models that embrace profit-making businesses to generate funds to support low income elders. Global aging, particularly the rapid pace in developing countries and rising care costs in the US (and other countires such as Japan and the European Union) will force us to rethink how to finance support of vulnerable populations.

Posted by: kwilson1 | September 23, 2009 6:51 AM

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