Private capital plays an increasingly important role in assisting the world’s poor, and in spurring development.

Carol Adelman is a senior fellow and director of Hudson Institute’s Center for Global Prosperity specializing in international development and public policy, private giving to developing countries, foreign aid, and global health policy.

Even as rock stars and G8 leaders identify increased government aid as the key to assisting the world’s poor, such assistance continues to decline in importance for the developing world. Private capital flows and private philanthropy — including remittances from immigrants sent back to their countries of origin — that address traditional needs such as education, housing, and health care now dwarf official government assistance. In addition, imaginative public-private partnerships, the dramatic growth of Internet giving, and new technologies together have shaped a new assistance landscape. Governments must understand this and tailor their contributions accordingly to help the poor more effectively.

The 2007 Index of Global Philanthropy, prepared by Hudson Institute’s Center for Global Prosperity, shows that in 2005 (the latest available complete data) Americans gave $95 billion to the developing world through the private sector, including foundations, corporations, private and voluntary organizations, colleges and universities, and religious institutions, as well as through volunteer time and remittances. [http://gpr.hudson.org/files/publications/IndexGlobalPhilanthropy2007.pdf] This is nearly three and one-half times U.S. official aid. American companies invested and lent another $69 billion in private capital. These private efforts constituted some 86 percent of U.S. total economic flows to developing countries.

The magnitude of this private-sector engagement and the documented success of private-sector approaches and innovative public-private partnerships suggest that traditional foreign aid models need a fresh look. Marshall Plan-era programs that deliver assistance primarily through host governments, often through expensive consultants and cumbersome administrative infrastructures, are outdated and often inefficient. These traditional foreign aid programs were devised for a world in which private investments in and private international philanthropy toward the developing world were minimal.

Measuring U.S. international assistance solely by government aid thus distorts the quantity and the effectiveness of American generosity to poor nations. When we add our private giving to our government’s official foreign aid, we can better understand the true dimensions of U.S. assistance. When we examine the nature and substance of private-sector assistance, we see approaches that frequently work better — by capitalizing on global markets, by employing technology linking private donors directly with needy people, by cutting the cost of delivering assistance, and by improving the quality of what is delivered.

A Get-It-Done Approach

Case studies of these private-sector and other “new model” efforts reveal practical expressions of the American ideals of personal responsibility, localized and commonsense solutions, and the individual as change agent. Today’s donors are hands-on and results-driven. They want measurable outcomes accomplished with local partners; they are impatient with arcane criteria that get in the way of actually helping people. “Hometown associations” of immigrants who pool their money to assist directly their former communities are having a direct and dramatic impact. Colleges and universities across the United States provide scholarship assistance that dwarfs government-funded programs. Business schools are teaching venture philanthropy models in which nonprofit organizations are helping people in developing countries start businesses, create jobs, and make a profit. Pharmaceutical companies and medical products manufacturers provide billions annually in medical training programs and in-kind assistance to the developing world. New foundations and charities are taking a fresh look at administrative infrastructure, decision making, and assessment of results

The Index’s review of U.S. private-sector giving confirms that Americans continue to be both innovative and practical as they aid the world’s poor through individual and communal efforts, through nonprofit organizations and for-profit companies, and through a kaleidoscope of new platforms and relationships.

The Bill and Melinda Gates Foundation exemplifies the new approach. In 2005, the foundation — the world’s largest philanthropic institution — increased its giving for global health, including more than $436 million in grants through its Grand Challenges in Global Health. This public-private partnership supports research projects involving scientists in 33 countries to create deliverable technologies for the developing world: health technology that is easy to transport, easy to use, and effective. Grand Challenges is a partnership between the Gates Foundation and the U.S. government’s National Institutes of Health. In addition, the British Wellcome Trust provided $27 million and the Canadian Institutes of Health Research provided $4.5 million. Grand Challenges illustrates an ideal international public-private partnership: It leverages public and private funds, and it brings together each sector’s unique talents and skills and applies them to critical global development needs.

To achieve its goal “… that all people — no matter where they live — get the chance to live a healthy, productive life,” the Gates Foundation has adopted a practical, get-it-done approach. Where government-based one-size-fits-all efforts fail, the foundation instead assembles the right partners and the specific expertise required to solve a given problem. Depending on the issue, the foundation might work with governments, nonprofit organizations, businesses, or individuals — whatever is necessary to get the job done. These efforts have created new incentives for corporate involvement and redefined traditional public-private boundaries, all in the name of having “the greatest impact for the most people.” [http://www.gatesfoundation.org/AboutUs/Announcements/Announce-070109.htm]

Breaking Down Borders

Over the past two decades, new kinds of international and institutional relationships have emerged to help the needy in the developing world, breaking down borders between donor countries and recipients and boundaries between nonprofit and business models. In rural Africa, transporting the sick to appropriate medical facilities can be a serious issue. Official assistance programs had spent significant amounts purchasing vehicles for this purpose, but trained drivers were lacking and the vehicles were either underutilized or failing for want of required maintenance.

Enter California native Randy Mamola, a Grand Prix motorcycle racing star, and his colleagues Andrea and Barry Coleman. Examining carefully local needs and circumstances, and often working with local public health officials and national governments, the trio founded the U.K.-based Riders for Health. The organization raised private donations to fund training for drivers and other necessary experts in Uganda, Gambia, and Lesotho. Today, Riders for Health is managed completely by African teams, and it maintains two- and four-wheeled vehicles that deliver health care services to nearly 11 million people across Africa.

An AIDS patient from the Makoni district in Zimbabwe explains how the Uhuru — a special motorcycle developed by Riders for Health to function on all types of off-road terrain — made life easier for him and his family: “Before the Uhuru, it used to be a nightmare to get to the hospital. My family had to go and hire a vehicle to pick me up from home and transport me to the hospital. …”

The Uhuru has also allowed medical teams to deliver substantive aid to treat preventable diseases. One study, conducted by Riders for Health and local public health officials in Zimbabwe, documented a 20 percent decrease in new malaria cases in the Binga District, where Riders was active. Binga’s neighboring districts continued to suffer from increasing rates of infection.

The Technology Advantage

Applied technology is another area in which new approaches and partnerships are having a profound effect on assistance to the developing world, including delivery and use of remittances. These payments from immigrants to their families in their home countries help enormously in lifting people in the developing world from poverty. New technologies are allowing more of every remitted dollar to reach its intended recipient by reducing transmission costs, channeling more remittances into investment, and “banking the unbanked” — integrating poor people into the financial sector through savings and credit accounts.

Cross-border electronic payment systems are among the increasing number of options to avoid the relatively high costs of funds transfers. The U.S. Federal Reserve Bank, for instance, now links its automated transfer system with its Mexican counterpart under the U.S.-Mexican Partnership for Prosperity. Fees for electronic money transfers between the United States and Mexico have dropped to $0.67 per transaction. Remittance services encourage senders and receivers to move from cash-to-cash to account-to-account transactions, allowing senders and recipients to accumulate capital, earn interest, and take out loans for business investment.

Americans often emphasize individual initiative, independence, and personal responsibility as core values. We see these values at work as Americans employ the Internet to reinvent global philanthropy. Potential donors and recipients find one another through blogs and social networking sites, where low-cost and no-cost direct links are plentiful and publicity is “viral,” spreading rapidly through the World Wide Web. Virtual volunteers reach out to publicize needs and to attract new donors. With secure means to use credit cards, donors can give directly to their preferred causes. Donors, potential volunteers, and recipient organizations can browse gateway sites such as change.org, dosomething.org, and firstgiving.com to identify worthy causes for their donations and for volunteering opportunities, or to list their projects for potential donors.

A Closer Partnership

These are just a few examples of how private-sector efficiency helps create prosperity in the developing world. Government foreign aid should, to the greatest extent possible, merge with private projects and local institutions, particularly the growing number of community foundations in the developing world. These increased more than 25 percent between 2000 and 2005. Vajiraya Buasari, the head of a local philanthropy in Thailand, says that his organization can tackle problems successfully because “we are a nongovernmental organization, take quick action, spend wisely, and are accountable.”

By partnering more directly with local institutions in the developing world, the United States and other government donors subject their efforts to a crucial market test. Publicly funded projects that attract private funds and volunteers are more likely to produce solid results and to prove sustainable. Such partnerships can provide aid that reaches people directly, builds peer-to-peer relationships, and creates lasting institutions with the greatest potential to address the daunting challenges of world poverty, health, the environment, and individual rights.

The opinions expressed in this article do not necessarily reflect the views or policies of the U.S. government.