The link between philanthropic freedom and better development

By Lean Alfred Santos 25 June 2015

Young beneficiaries of a Save the Children initiative in Pakistan, where the international organization was banned and later allowed to operate. How important is a free philanthropic and civil society environment to countries’ efforts to achieve inclusive and sustainable development? Photo by: Save the Children / CC BY-NC-ND

After banning — and later allowing — Save the Children to operate in Pakistan amid allegations that the aid group was working against national interests, government officials are now pushing for a new legislation called the Foreign Contributions Act to better monitor these organizations after reports revealed 65 percent of their funding are unaccounted for.

While efforts from the South Asian nation have been escalating the past few months to regulate nongovernmental organizations, several civil society experts believe such legislation may prove detrimental to the country’s development progress as it may “choke” the operations and growth of these groups.

But how important is a free philanthropic and civil society environment to countries’ efforts to achieve inclusive and sustainable development?

Carol Adelman, director of the Hudson Institute’s Center for Global Prosperity, explained that allowing individuals and groups to thrive and contribute to a country’s growth makes for a more concerted and unified development process.

“The vast majority of the developed economies’ engagement with the developing world is private,” Adelman told Devex, explaining that this engagement includes philanthropy, remittances and private capital investments. “There are new organizations, community foundations and businesses that are increasingly [going into development].”

While multilateral and bilateral contributions to development still play a significant role in lifting people out of poverty, she said there is a window of opportunity for civil society and the private sector to do more. Right now, 80 percent of the entire economic engagement of the “global north” in the “global south” is from these groups, while the rest is from official development assistance — an entirely opposite scenario 40 years ago.

This shift has prompted the Washington, D.C.-based organization to release the first philanthropic freedom index because, according to Adelman, “we need to measure” the rising profile of philanthropic and civil society contributions to development and “make sure that countries are not putting restrictions on them to keep them from growing.”

Central to measuring this “freedom” is looking at the countries’ legal policies and regulatory frameworks that may affect operations of individuals and groups contributing to development programs. These regulations include the process of donating or establishing an organization as well as the fiscal and financial incentives for individuals and organizations working in the local domain — something Adelman hope more countries can address.

“[Governments] need to understand that they are doing their citizens a disservice if they do not have an open philanthropic freedom regime,” she said. “Policies and laws matter [and] they make a difference in the lives of citizens and the growth of civil society.”

‘Balancing act’

Despite the call for freer philanthropic and civil society environments, Adelman said there is a growing “trend among countries [that use] laws to prohibit illicit financial flows, drug money, terrorist funding or any illegal ventures.”

And Pakistan is not alone in this effort. The governments of China and Cambodia, for example, have been pursuing legislation that, in the eyes of local civil society groups, would restrict NGOs from doing what they do best: help people achieve better lives.

But not only do countries have their own reasons for proposing such laws, there is basis for them to do so as well. In 2012, an intergovernmental body focused on combating money laundering called the Financial Action Task Force released Recommendation 8, which allows governments to propose legislation to regulate NGO financing and prevent these groups from funding illegal activities, such as terrorism.

Adelman stressed such laws can have a negative impact on the operations of philanthropic groups and civil society organizations. A “balancing act” is therefore needed — especially by the government — to maximize development cooperation among all stakeholders and drive positive change in beneficiary communities, without putting national interests at risk.

“NGOs have to report and they have to be reviewed [while being] compliant with regulations to make sure they don’t do illegal activities,” she said. “On the other hand, we [also] have to be able to find ways where countries can figure out who are the good guys and who are the bad so we’re not penalizing the legitimate [ones] from operating, registering and receiving money easily from [individuals and] organizations abroad.”

Outliers

As expected, developed and rich economies — led by the Netherlands, the United States and Germany — top the philanthropic freedom index ranking. But there are outliers in the list.

The Philippines, for example, ranked 19th out of the 64 surveyed countries. Among the top 20 countries in the index, the country has the lowest gross domestic product per capita at less than $3,000. It is also one of only four developing countries that made it into the top 20.

Adelman attributed the Southeast Asian nation’s robust civil society and philanthropic environment to laws and policies that allow NGOs to thrive and businesses and individuals to contribute more to development programs.

“[The Philippines has] very open laws for financial flows to come in and it is easy to start up an NGO [while] the government encourages them with good tax incentives,” she said. During post-Haiyan relief and recovery operations, for instance, NGOs had the ability to act quickly as they were not burdened by funding restrictions. This, for Adelman, proves that “philanthropic freedom saves lives.”

The Philippines’ lax legislation, particularly the ease in which NGOs can be established and registered, has its downside. A prime example of this are widespread allegations involving several high-ranking public officials of embezzling billions of pesos through dummy NGOs that were, on paper, existing and operating in the Southeast Asian nation.

Qatar and Saudi Arabia are among the outliers as well. Despite having among the highest per capita incomes in the world, they ranked 63 and 64 in the index, respectively. Adelman said this indicates one thing: Philanthropic freedom is not directly proportional to a country’s wealth.

“It is important to note that higher-income countries do score higher and is arguably positively correlated,” she concluded. “But it isn’t an absolute requirement that you have to be rich to have a good philanthropic freedom environment.”

Do you think a freer philanthropic and civil society environment can help a country achieve inclusive and sustainable development? Let us know by leaving a comment below.

Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.

About the author

Lean 2
Lean Alfred Santos@DevexLeanAS

Lean Alfred Santos is a Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. Prior to joining Devex, he covered Philippine and international business and economic news, sports and politics. Lean is based in Manila.


Join the Discussion