26 August 2006
Nonprofits and Foreign Aid
General agreement that government is an inefficient, not to say ineffective, purveyor of U.S. foreign aid policy and funds led to the increasing role of nonprofit organizations in our international assistance programs, particularly since the 1970s. According to the GAO by 2000 over 50% of USAID obligations were made to nongovernmental organizations, rather than directly to foreign governments, international organizations, or other agencies. The Urban Institute has pointed out that government grants accounted only for 20% of the $15 billion in international NGO revenues in 2003, with 71% coming from private sources. If, however, the majority of those private contributions were tax deductible against a marginal tax rate of, say, 25%, then the government contributed in effect another $3 billion to NGOs’ international operations, or 40% of the total.
Nonprofits are supposed to be insulated from competing market-driven objectives in carrying out their policy goals overseas. However, as the government has become an increasingly dominant source of their revenues, it has unavoidably determined the direction of those goals. Not only must their programs be perceived as supportive of volatile political trends, they are also subject to unspoken pressure to preserve demand for their programs’ effects. If the long life of a NGO is dependent on poverty as the root cause of the need for its services, how enthusiastically will it work to eradicate it?
It’s not certain that nonprofits will more reliably accomplish the goals of U.S. foreign aid, even though it is probable that they will be more cost effective even when they fail. The danger is that nonprofits will try to extend their own longevity in order to avoid becoming supernumeraries.
General agreement that government is an inefficient, not to say ineffective, purveyor of U.S. foreign aid policy and funds led to the increasing role of nonprofit organizations in our international assistance programs, particularly since the 1970s. According to the GAO by 2000 over 50% of USAID obligations were made to nongovernmental organizations, rather than directly to foreign governments, international organizations, or other agencies. The Urban Institute has pointed out that government grants accounted only for 20% of the $15 billion in international NGO revenues in 2003, with 71% coming from private sources. If, however, the majority of those private contributions were tax deductible against a marginal tax rate of, say, 25%, then the government contributed in effect another $3 billion to NGOs’ international operations, or 40% of the total.
Nonprofits are supposed to be insulated from competing market-driven objectives in carrying out their policy goals overseas. However, as the government has become an increasingly dominant source of their revenues, it has unavoidably determined the direction of those goals. Not only must their programs be perceived as supportive of volatile political trends, they are also subject to unspoken pressure to preserve demand for their programs’ effects. If the long life of a NGO is dependent on poverty as the root cause of the need for its services, how enthusiastically will it work to eradicate it?
It’s not certain that nonprofits will more reliably accomplish the goals of U.S. foreign aid, even though it is probable that they will be more cost effective even when they fail. The danger is that nonprofits will try to extend their own longevity in order to avoid becoming supernumeraries.
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