Development aid organizations should be constricted less but scrutinized more

By Mark Hager.

Published on October 09, 2015 with No Comments


Sri Lanka needs closer scrutiny of international non-govern- mental organizations (INGOs). No, we should not revive the previous government’s meddling in the form of visa denials and delays, travel restrictions, security force surveillance and so on, all vaguely justified under the pretext that INGOs were somehow supporters of terrorism. Government’s regulatory and control hands should rest much more lightly on the INGO sector, which will continue for the foreseeable future to play a meaningful role in social and economic develop- ment here. Because of that key role, however, both the NGO Secretariat and the press—not to mention the private sector and civil society—should pursue and publicize more critical discus- sion on the substance of INGO interventions.

Neither government nor the press feels any natural interest in investigating how worthwhile INGO interven- tions may be. The money, after all, comes from donor country taxpayers, not out of Sri Lankan pockets. Who cares if that money is spent wisely and well? It helps beneficiaries presumably, it creates some domestic jobs at least, and it does no harm in any case, right? Press coverage tends heavily toward feel-good stories on ribbon-cutting launches and successful (self-reported) achievement of targets. Ill-con- sidered and failed projects are yesterday’s news and reporting on them would require serious investigation. Since an obvious incentive for such investigation seems lacking, I would like to suggest some. Besides highlight- ing poorly-spent tax money from donor countries (who cares?), it might create some pressure toward wiser expenditure both here and elsewhere. Through critical analysis of past and  prospective initiatives, it might also: 1) cut waste of government and private funds and energy in support of dubious projects (Sri Lankan resources are sometimes at stake, in other words); 2) cut waste of beneficiary time and energy participating in such projects; and 3) in some cases, prevent outright damage to beneficiaries.

NGOs do not face the kind of market competition that forces private firms toward sound practices. If left largely alone by governments, as they should be, this means that substantial discipline toward sound practices must come from their own organizational professionalism.

Dubious and unsuccessful interven- tions stem from various causes, among them unsound theory, ideological proclivities, inadequate capacity and competition for funding. INGOs do not face the kind of market competition that forces private firms toward sound practices. If left largely alone by government as they should be, this means that substantial discipline toward sound practices must come from their own organizational professionalism. Because of limited space, I highlight here just two problems—economic sub-literacy and poor attention to local circumstance—worrisome insofar as they characterize the sector generally, not just the organizations discussed.

One problem lies with bouts of economic illiteracy. I worked for an INGO which boasts in its current country strategy of an earlier economic development initiative of ‘cutting out’ the ‘middleman.’ (My terminology.) The INGO promoted direct links and meetings between primary producers and retailers, thereby ‘cutting out the middlemen,’ such as intermediate wholesalers and distributors. Because middlemen make a profit, according to this intervention’s logic, they extract a slice of revenue from primary produc- ers, who could secure higher prices if freed from the middleman’s exploit- ative squeeze.

Um, no. The logic defies several crucial truths. Prices received by primary producers are set by supply and demand. They will rise only if supply shrinks or demand rises. The identity and nature of the buyer has nothing to do with it. Unless the middleman holds monopoly power somehow—and there is no reason to presuppose that such an exceptional circumstance would prevail generally—he cannot dictate exploit- atively low prices to primary producers. If he tries to do so, someone will come along and outbid him. It follows that retailers buying directly from primary producers will pay no more for raw products than middlemen do. Why would they?

Middlemen perform services in the supply chain—e.g., sorting, grad- ing, storing, preserving, packaging, transporting, marketing, analyzing opportunities and implementing value- added transformation—for which they get paid. If a middleman gets ‘cut out,’ whatever services he performed will have to be taken up by primary produc- ers, retailers or both (or other middle- men, of course). If work gets taken up by primary producers, they will secure increased incomes, to be sure. This will happen, however, not because their raw product commands a higher price but because they are now doing more work: providing services, not just the raw product. There is no reason to presup- pose that they will be particularly good at performing those services or that doing so will be more advantageous to them than other income-supplement- ing activities they might take up.

It is reasonable to assume that mid- dlemen hold their positions because they are good and efficient at what they do. Sometimes, of course, this is not true and their replacement through ex- tra work by producers, retailers, both, or other middlemen will yield efficiency gains. But market competition will force such gains through to consumers in the form of lower prices, not to pro- ducers in the form of higher prices for raw product. Economic literature—the technical term for ‘cutting out middle- men’ is ‘disintermediation’—confirms this.

Fearing professional embarrass- ment, I attempted to excise ‘exploitative middleman’ passages from the country strategy, but I was overruled by my supervisor. He was probably right. The  intervention in question had, after all, been approved and funded by a major donor. I later heard a high official of that donor organization propound the ‘exploitative middleman’ thesis, which I suspect enjoys wide credence in the development aid sector (as well as else- where). The scandal is that pronounce- ments and interventions based on that thesis are not a professional embarrass- ment within the sector.

Knowledge of local situations is rightly deemed crucial to effective aid, as is mobilizing the knowledge of local beneficiaries and institutions. But NGOs are bureaucracies and context sensitivity is too often honoured only in the breach, prey to managerial box-ticking.

Interestingly enough, the INGO discussed above sponsors another intervention relevant to the topic. It has a subsidiary organization in a former conflict zone, created to provide services—event venues, internet, infor- mation sharing and coordination—to domestic non-governmental organi- zations (NGOs). Though supported partially from grants, this subsidiary is envisioned as partly self-sustaining in finance. It charges its clients for venue use, internet and so on. A more inter- esting dimension of its financial plan, however, is that the subsidiary will buy craft items from local producers and sell them to Colombo retailers, keep- ing a profit margin for itself. In other words, the subsidiary is setting itself up as a middleman. This initiative has been supported by the same donor that funded the above-described interven- tion in cutting out the middleman.

As indicated above, I do not find anything inherently wrong with the subsidiary’s middleman initiative. It’s great if craft producers in lagging areas can market their products in Colombo with effective assistance from middle- men. I leave for philosophers the ques- tion whether the subsidiary compro- mises a fiduciary relationship with its clients by engaging in commerce with them. I do wonder, however, whether a(n) NGO will prove competent in the  middleman role. Aside from knowl- edge and experience, entrepreneurial middlemen have profit to motivate and guide them. No such motive and guide applies among inexperienced NGO employees who secure revenues, if suc- cessful, not for themselves but for their organization.

Another INGO failing lies in con- text insensitivity. Scholarly literature and INGO promotional material both lay great stress on context sensitivity in development aid. Knowledge of local situations is rightly deemed crucial to effective aid, as is mobilizing the  knowledge of local beneficiaries and institutions. But NGOs are bureaucra- cies and context sensitivity is too often honoured only in the breach, prey to managerial box-ticking.

In the same INGO discussed above, for example, I sat in attendance while my supervisor drew up by-laws for the subsidiary discussed above. Though the subsidiary was to be a domestic Sri Lankan organization, he cut-pasted its by-laws from those of the parent orga- nization, located in a distant foreign capital. He spent less than an hour. He could not be persuaded to familiarize himself with domestic laws and regula- tions on NGOs and limited guarantee companies, nor to ponder which of those two organizational forms might be more advantageous. He did not consider whether, under domestic law, organizations could be ‘members’ of the subsidiary, whether employees of the parent organization could hold board seats or offices in the daughter, or whether schedules and rules for meetings and multi-stage elections drawn from the parent’s by-laws were appropriate for a far-flung membership dependent on poor transportation.

I came away worried about the sub- sidiary’s possible legal non-compliance as well as its needlessly burdensome organizational template. I’m not sure how, but Sri Lanka’s government and press—again, with support from civil society and the private sector—should do more to investigate, evaluate and publicize context-insensitive INGO practices.

A graduate of Harvard Law School, Mark Hager lives in Pelawatte with his family. He consults on complex legal and technical writ- ing challenges.


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