THE BLOG

Social Entrepreneurship Changes Donor & Development Cultures

04/03/2013 05:52 pm ET | Updated Jun 03, 2013

Traditional aid is no longer helpful, as once believed, for two big reasons. Aside from the necessity of emergency relief aid for disasters, aid as a tool for poverty alleviation or even political stability, has proven contradictory, if not disastrous. The first reason is presented by best-selling author of Dead Aid, Dambisa Moyo. Development economist Moyo reviews how traditional aid overlooks the root causes of poverty. Moreover, giving aid is not even efficient as corruption remains, which is highlighted in White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good. No matter how offensive the title, the point remains valid as again described in The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It by Paul Collier.

The Middle East & North Africa region (MENA) has not fared that much better with its traditional donor experience either. Egypt and Jordan received a variety of donor assistance packages from Canada and the U.S. The U.S. has provided much of its donor assistance via Egypt's military sector while Egypt's the wheat industry still faces challenges as they import American wheat due to conditionalized aid that provides more financial gain for the donor than the recipient.

Poverty Alleviation Strategy Includes Entrepreneurship Style and Rhetoric

Why doesn't traditional aid work? According to Collier, governments are pretty dysfunctional in poor societies because nonprofit donors tend to "romanticize" poor societies. In his strong tone he triggers controversy with warnings like, "Don't idealize the poor... which many nonprofits are guilty of doing... it is patronizing... " in his speech for "Locating Social Entrepreneurship in the Global South innovations in Development Aid" sponsored by the Wilson Center, Siemens, and Zeppelin University. Rather than relying on donor support to alleviate poverty in certain MENA countries, and provide sustainable measures, a new philosophy of funding social entrepreneurship is the recommendation. There are a variety of reasons, including the belief that incorporating entrepreneurship practices leads to innovation, which leads to smarter solutions in poverty alleviation.

On a global scale, the mission of a social enterprise is socially oriented like its nonprofit cousins. In fact, the term social entrepreneur seems ubiquitous in the development and donor communities. Forbes magazine now lists top social entrepreneurs in its Impact 30.

Development Culture Also Changes Among Donor Countries

Donor countries, like the U.S., the UK and Canada have noticed the social entrepreneurship potential. Each are revamping their donor agencies to partner with institutions that focus on working with social entrepreneurs.

Previously, USAID has undertaken other approaches to alleviate poverty. From 2010 to 2011, "Aid for Trade" or USAID's program, Trade through Capacity-Building, represented one approach that drew global appeal at the World Trade Organization in Geneva. USAID's latest approach to alleviate poverty leverages the entrepreneurship motivation through Development Innovations Ventures (DIV).

Before that, good governance and institution building emerged as the panacea for poverty alleviation because good governance and strong institutions would empower people to reduce poverty in the Arab world, according to World Bank and OECD research.

Even before the governance "panacea," the panacea for poverty alleviation appeared to be entrepreneurship and small businesses. The "panacea" to boost small businesses and the spirit of entrepreneurship was through NGOs establishing micro-credit programs. Soon after, government aid agencies and multi-lateral donor institutions followed the trend to support micro-credit programs financially and technically. As a result, low-income countries, like Morocco, represented the most participation in terms of active borrowers by 2009, according to the Flagship Inclusion report. Yet, in hindsight, sustainable economic development specialists concluded that it is "an over exaggeration to claim that micro-credit programs have significantly helped to lift the poor out of poverty" as poverty alleviation challenges still persist in MENA countries, like Egypt & Morocco. Digging deeper, a 2010 Carnegie paper highlighted the role of good governance in alleviating poverty in "Morocco's Experience With Poverty Reduction: Lessons for the Arab World." It might be too early to conclude the impact of governance improvement on poverty in cases.

The Canadian International Aid Agency (Cida) merged with its cousin the Ministry of Foreign Affairs & Trade. Not too long ago, the U.S. also collapsed its development aid agency into its foreign affairs agency at the U.S. Department of State. Some may call this "streamlining" -- or aligning governments' investment interests. As if interests across two sectors are not intertwined enough. Canada is considering the range of criticism that has been shared by development economists like Paul Collier, Jeffrey Sachs, and Dambisa Moyo -- who is pushing the development goals through a more hybridized form of alleviating poverty that pulls from entrepreneurship models while "socializing" institutions to absorb private sector principles.

Development Is Politicized, and Militarized

The second reason, which looks more at the changing role of global players. We operate in a multi-polar world where we no longer can use aid to win over developing countries into spheres of political influence. Without the Cold War, the feigned or believed altruism is no longer supplemented by political ideology. Ever notice the similar language and strategy behind the newly framed "Fight Against Extremism"?

Ironically, those that criticize Moyo's criticism of aid miss her point. For example, in Dead Aid, when she writes that "aid fosters a military culture" one critic challenges her conclusion without considering what exactly transpired in Iraq and Afghanistan. Both countries serve as examples of financial aid giving growing dependent on a military culture -- specifically, dependent on maintaining a secure environment, which gave birth to the common practice of hiring private security contractors.

Who Fits New Model of Development?

So who fits this new model of development? Social entrepreneurs, who address social and economic problems, like rapid urbanization, environment, lacking health care, through a market-driven model. Financing social enterprises come in a variety of forms. Social entrepreneurs may charge a fee for their service -- the most basic approach, or apply newer approaches, such as raise capital through "social-impact bonds"

For example, in MENA, the trend may be attributed to the well-deserved attention of pioneers, like Fadi Ghandour, Founder of Aramex, as well as civic engagement activists, like Soraya Salti and Magdy Aziz, their successes have inspired courses at the American University of Cairo to teach social entrepreneurship because of their impact, rather than because of their incomes.

The example serves as an alternative to Moyo's and Collier's criticism. Moyo believes that government donors, in particular, ignore the alternative approaches to addressing social, health, and economic gaps in lesser developed countries. Alternative approaches also include issuing social impact bonds. Social impact bonds are a tool that rewards success with payment as the UK is using to tackle its homelessness problem. This means private investors, who invest a program or service, receive payment if the service achieves its social goal.

Arab countries, like Jordan and Lebanon, represent the test cases since they have traditionally received economic aid but also receive technical assistance, which may offer more prospects if the goal is truly to leverage training opportunities. If the endgame is to help create jobs, and actually succeeds in doing so, then traditional forms of economic aid will truly diminish in its impact and function purely as a political "good-will" gesture. Let's see how social enterprises change the donor culture and development community.

A version of this appeared on the Vancouver Observer.