As aid shrinks, top philanthropies test new ways to spur economic growth

A year after Open Philanthropy announced it would begin funding efforts to accelerate economic growth in low- and middle-income countries, details of that strategy are coming into focus. Trade disruptions, automation, and shrinking aid budgets have prevented countries from seeing the kind of economic growth that has lifted hundreds of millions of people out of poverty in countries such as India and China. Now Open Philanthropy is testing how private philanthropy can help countries get back on a growth path amid global headwinds. The San Francisco-based organization was founded by billionaire couple Dustin Moskovitz and Cari Tuna, and is known for its data-driven approach to cost-effective giving. “That’s a really hard thing to pull off, and we don't think we come with any special sauce about how to do that,” Justin Sandefur, senior program officer for economic growth in low- and middle-income countries at Open Philanthropy, said on Thursday at Devex’s event on the sidelines of the World Bank-International Monetary Fund annual meetings. “But in the spirit of placing these big bets on things that would be truly transformative, that conversation about how other countries could achieve that kind of growth acceleration feels like the biggest conversation in development to us, and the one that we don't want to avoid.” Sandefur joined Megan O’Donnell, senior program officer for development policy and finance at the Gates Foundation, to discuss how philanthropy can support inclusive growth at a moment when aid budgets are shrinking and traditional economic playbooks are under strain. Rethinking the old growth model For Sandefur, the case for this work is clear. Over the last four decades, global poverty reduction has been driven almost entirely by growth accelerations in large developing countries that have transformed economies as well as living standards. But the formula that powered those success stories may no longer apply, Sandefur explained. “There’s a real question about whether or not the traditional strategy that led to rapid growth — in a China, in an India, in a Vietnam, in a Bangladesh, which has really been around kind of export-oriented, manufacturing-led growth — whether that model still exists as an escalator for low-income countries today,” he said. The rise of automation, combined with the question of whether China will make space for other countries to move into the manufacturing arena, leaves many countries searching for new ways to generate jobs, attract investment, and build industries. O’Donnell said this is where philanthropy can play a crucial bridging role: helping countries draw on lessons from “micro” interventions to inform “macro” policymaking. She cited women’s labor force participation in India, which has not kept pace with the country’s economic growth, as “a concrete example of how far an economy is able to sort of progress according to an old model, but where we now need to get creative and innovative and think a bit outside the box.” Philanthropy, she added, can help bring evidence from interventions such as reliable child care, safe transport, and flexible work arrangements into conversations among those shaping fiscal policy and budget priorities — ensuring that growth strategies also expand opportunity and inclusion. A new kind of philanthropic experiment At first glance, Open Philanthropy’s move into the economic growth arena — a partnership with the Livelihood Impact Fund, starting with at least $40 million over three years — might seem like a departure from its typical grantmaking approach. The organization selects causes based on a combination of factors familiar to followers of effective altruism: importance, neglectedness, and tractability. Most of Open Philanthropy’s global health and development grantmaking — over $1.23 billion so far — has gone to organizations recommended by GiveWell, a nonprofit organization that identifies cost-effective giving opportunities. That has resulted in major grants for interventions where the direct link between funding and impact is clear, such as vitamin A supplementation and insecticide-treated bed net distribution, which have been proven to save lives at scale. Economic growth, by contrast, is more difficult to measure or attribute. Still, Open Philanthropy is bringing its “hits-based” giving to this work — accepting that most efforts may fail, but that even one breakthrough could justify the risk many times over. Earlier this month, the Modernizing Foreign Assistance Network announced that it had received a major grant from Open Philanthropy for its work on bipartisan solutions for U.S. aid effectiveness. This marked another example of a funder best known for backing causes where impact is easy to measure taking on complex work with uncertain — but potentially transformative — payoffs. “We try to hold ourselves to a really high bar in terms of what we think is going to be the social rate of return on things we do,” Sandefur said. “But we do that by looking for things that we think are going to be kind of mega transformational hits, and expecting that our portfolio is going to include a lot of zeros that go with that.” Expanding into the economic growth arena means stepping beyond proven interventions and randomized control trials — and accepting a different kind of uncertainty, where meaningful progress depends on country leadership and actions beyond any donor’s control. Sandefur said the organization is working with economists who do policy advisory work at the macro level, and looking for countries that already have a political consensus around ambitious, growth-oriented reform, so they can help to provide them with the expertise and resources they need to act on those agendas. What philanthropy can — and can’t — do Despite the growing influence of philanthropy, Sandefur is quick to acknowledge the sector’s limits. That’s particularly the case when it comes to the Gates Foundation and Open Philanthropy, two institutions spending down billions much quicker than most of their peers. “We don’t want to pretend we matter too much,” he said. “The sums of money that we’re talking about in the philanthropic sector pale in comparison to the numbers being bandied about, you know in meetings like this week, as it should be.” Still, philanthropy can act where others can’t. Sandefur noted that funders have the flexibility to test new ideas and push policy agendas that multilateral institutions may avoid — from supporting pro-growth reforms at the country level to advocating for policies that expand market access. He pointed to Open Philanthropy’s enthusiasm for the renewal of the African Growth and Opportunity Act, which gives African countries duty-free, quota-free access to U.S. markets. Both Sandefur and O’Donnell reflected on how major philanthropies are shaping development — not only through direct grantmaking, but by influencing the priorities of institutions such as the World Bank and International Monetary Fund. For example, as the World Bank pivots toward more and better jobs, the Gates Foundation is working to ensure that it does not overlook who the job holders are. This week, O’Donnell is traveling to Nairobi, Kenya, for meetings on how to integrate time-use data into macroeconomic policymaking — a step toward making visible the unpaid work, especially care work, that traditional growth metrics overlook. When gross domestic product, or GDP, was first developed, she noted, unpaid domestic and care work were excluded largely because they were considered too difficult to measure. “None of those excuses are true anymore,” O’Donnell said. Kenya, she added, has run time-use surveys, then used the data to design policies addressing productivity constraints, particularly for women. Leaders from the country will share those lessons this week with regional counterparts from Ethiopia, South Africa, Uganda, and beyond. Sandefur, meanwhile, warned that the "billions to trillions” mantra can distract from the harder questions about growth strategy. “Great, let’s talk about moving billions of dollars,” he said. “But I don’t think that gets us off the hook for the hard conversations about what that growth strategy is and where exactly that money is going.”