The Truth About Foreign Aid

…That could be the title of a new 3-part BBC podcast, “The Truth About NGOs“. This documentary explores whether and how should NGOs be politically involved, as well as the consequences of having a large international NGO sector in a developing country. The first episode begins with a focus on Malawi, and how the LGBT rights movement has been buoyed by NGOs and their foreign donors. It’s an interesting piece, though this is not about “NGOs”, per se – it is also about the powerful influence of donors on their grantees, and even in this podcast, the politics of state-level aid are discussed. NGOs, the actors on the ground, are only one part of the puzzle.

The podcast is probably nothing new for NGO policy wonks – the discussion of whether organizations are influenced by or beholden to their funders and donors is an age old discussion. Same goes for failed, poorly designed and implemented development projects that never see the light of day and/or disappoint and anger communities. Or the notion that some NGOs only pay lip service to the notion of “participation” (the podcast actually defines “dragonfly skimming” and “helicopter consultancy.”)

In spite of going down some already well trodden paths, the podcast raises some interesting points concerning the role of NGOs in perpetuating the poverty they seek to alleviate. (I can already hear my aid/development colleagues’ feathers getting ruffled, but bear with me.) While this probably merits much more than a few sentences on this blog or a few minutes in a podcast, one of the more interesting notions explored by the podcast is the idea that international NGOs are “depoliticizing” poverty. ” I thought this line, by Firoze Manji, editor in chief of Pambazuka News, was spot on: “If the NGOs participate in the process of alleviating the nasty parts of becoming poor, they are actually colluding. It comes back to saying being brave enough to take on the “politics of impoverishement”. Either you fight that, or you’re part of the problem.”

The question posed at the end of the podcast is whether NGOs should focus on “on advocacy, on leverage, rather than delivery of aid.” What do you think? There are obviously circumstances where this might not make sense, in particular in emergency situations where NGOs provide life-saving aid. But beyond that, is advocacy, rather than aid delivery, the future of NGOs?

Listen to the podcast here.

Bananas from Jersey: How the world is losing trillions to tax havens

This post was originally published on UN Dispatch on November 30, 2011.

Since the economic collapse of 2008 and the ensuing recession, increasingly more attention is being paid to corporate accountability. Recently, the Occupy movement has brought into sharp relief some of the discontent with poor corporate citizenship. If you pay close enough attention, there have been many stories in the media exposing unfair – sometimes illegal – corporate practices and how they are affecting the overall health of the economy. We’ve learned, for example, how G.E. – America’s largest corporation – avoided paying any taxes in the United States in 2010 – thanks to the “clever use” of tax breaks and offshore accounting. While Republican presidential hopefuls will have you believe that reducing corporate tax rates is the best way to boost the economy, American corporate tax rates haven’t been this low (35%) since before the Second World War. Meanwhile, the United States is struggling to figure out how to cut a soaring budget deficit and continue financing key health care and welfare programs.

This situation, however, is not unique to the United States or the industrialized world. Indeed, a recent report by Eurodad (European Network on Debt & Development) finds that developing nations lose more than a trillion (yes, trillion) dollars of potential tax revenue every year because of corporate tax evasion.

The UK-based Tax Justice Network also recently published a report to highlight the negative effects of tax dodging by multinational corporations, and launched a new campaign “Tackle Tax Havens (By the way, their website, www.tackletaxhavens.com, offers myriad resources, information and data about tax evasion – I highly recommend checking it out.) Their reportshows that tax evasion costs 145 countries, representing over 98% of world GDP, more than US$3.1 trillion annually.

As noted in the executive summary of the Eurodad report, “the international community has repeatedly stressed the need to mobilise domestic resources in developing countries, as the most sustainable way of financing development and ending aid dependency […] The cross border nature of multinational companies’operations combined with the absence of adequate transparency regulations have very damaging implications for a country’s ability to mobilise domestic resources.” Mobilizing resources through taxation is not just critical for developing countries’ ability to finance development: it is, in fact, one of the most fundamental functions of modern, sovereign states – developing or industrialized. Drawing a parallel with the way in which the United States is weak on corporate tax enforcement allows us to see the depth of the problem of tax evasion.

While we continue to think about how developing nations can finance programs to support economic and social development, it’s clear that the issue of corporate tax evasion must be addressed. In the extractive industry, efforts such as the Extractive Industry Transparency Initiative, begin to deal with this issue, but the voluntary nature of the EITI, and the lack of enforcement mechanisms, make it an imperfect solution. Dealing with tax havens is a third rail issue. Similarly, attempting to close tax loopholes for multinational corporations is practically political suicide. The globalized nature of this problem suggests that bold, concerted action will need to take place – nothing less than the viability and sustainability of our economic and financial systems are at stake.

Can Inequality Fuel Revolutions?

This post was originally published on UN Dispatch. Many people shared comments and thoughts via Twitter and Google +, thank you very much for engaging. The title of this post has a question mark because I really think of this as a question – can inequality fuel revolutions? Let me know what you think in the comments!

Continue reading “Can Inequality Fuel Revolutions?”

Is EDUN a success?

In 2008, as part of a conference goodie-bag, I received an EDUN t-shirt. The shirt’s tags indicated my shirt was made in Peru, from organic Peruvian cotton. The small pamphlet attached to it noted that the company, started by Bono and his wife Ali Hewson, was focused on sustainable, ethical and eco-friendly fashions. I remember liking the shirt and the story behind it, especially because my job at the time had me focusing on economic development for small-holder farmers in rural Peru. I liked the idea that not only was the organic cotton produced in Peru, but instead of being exported as a raw material, the value-added product was created there in Peruvian factories, thus enhancing economic returns locally.

Me and my Peruvian-made EDUN shirt

EDUN’s mission though, according to Ali Hewson is to make a profit — not because the executive board needs the money but to demonstrate to other entrepreneurs that it’s possible to do so in developing countries, paying fair wages and relying on local raw material entirely processed and manufactured by local labor, from start to finish.

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An article entitled “Out of Africa, Into Asia” in Friday’s Wall Street Journal explains how the company decided to move a majority of the production to China because of various issues with the manufacturers in the developing world, particularly in Africa. Delivery delays and quality problems were affecting the clothing line to the point where the company hosted “a party in the dark, at the chic cabaret venue The Box, to draw attention away from the clothes.”

According to the WSJ:

After putting around $20 million of their own money into the still-unprofitable brand, Bono and Ms. Hewson sold 49% of the company last year to LVMH Moët Hennessy Louis Vuitton for about $7.8 million. LVMH, the world’s largest luxury conglomerate, helped the company recruit new management and a new designer (Mr. Gregory left in 2007), and then tried to convince the founders to expand their sourcing horizons.

Currently, 15% of EDUN’s products are manufactured in Africa; this particular point led to an interesting conversation on Twitter about whether this means that EDUN is succeeding in its mission, or if in fact it has failed to accomplish what it set out to do. Some argued that EDUN was proving that it was possible to run a for-profit enterprise with a strong commitment to fair and ethical practices. Others – myself included – questioned whether EDUN could be considered successful given how much it seems to be deviating from its original intent.

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I can relate to both sides of the argument here. Bono and his wife set out on a creative enterprise which they hope can become a model. As Hewson told the WSJ in 2009, EDUN is supposed to demonstrate that a for-profit business can be successful and ethical at the same time. This in turn can encourage other businesses to adopt new practices: sourcing products (and not just raw materials) from factories with strong labor and environmental standards in developing countries. These are obviously laudable goals that should be supported. However, my concern lies with the fact that Bono and Hewson didn’t actually prove that this was possible through EDUN, given all the issues they encountered in making their vision a reality.

In EDUN’s “mission” section of their website, it seems rather obvious that the focus is strongly on Africa. A rather tedious and unoriginal video of schoolchildren dancing in a school in the slum of Kibera and a slideshow of nameless organic cotton farmers adorn the webpage, along with a “Made in Africa”section, ominously subtitled “coming soon…”

The mission statement talks about about two partnerships: one with the aforementioned school in Kibera, and the Conservation Cotton Initiative in Northern Uganda with Invisible Children (everyone’s favorite advocacy organization) and the Wildlife Conservation Society. Leaving aside the merits of these two initiatives, they do speak to the rather small-scale scope of EDUN’s impact on African manufacturing. Which is precisely why I find it difficult to construe EDUN as a success: they have only very partially achieved their goal of having their fashion clothing line produced in African factories.

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In the WSJ article, Ali Hewson makes it clear where EDUN’s priorities lie: “we focused too much on the mission in the beginning. It’s the clothes, it’s the product. It’s a fashion company. That needs to be first and foremost.” Now this makes perfect business sense – a good company sells quality, in-demand products at the lowest possible cost in order to maximize revenues. What this suggests, though, is that the fair trade aspect of the mission – while still present – is not a priority. This is reflected in the decision to source a majority of products from China, with only a nominal portion coming from Africa. Furthermore, as EDUN’s website suggests, their efforts in Africa seem to be informed by somewhat vague principles and guidelines.

The problem is that EDUN, under these circumstances, is hardly demonstrating that “doing good while doing well” is a viable way to run a business. In fact, I’d argue quite the opposite. Their initial focus on product marketing (through celebrity ad campaigns and thanks to Bono’s superstar status) rather than on developing a viable, sustainable business model eventually forced them to rethink their model. This is particularly frustrating because EDUN could have easily sought to do its homework properly and anticipate the predictable problems they ran into. Saundra Schimmelpfennig wrote about this exact topic last year, and there are hundreds of entrepreneurs in the same space whose counsel could have been sought.

EDUN failed to learn the lessons of their predecessors’ mistakes in order to make their model succeed has they originally intended. Instead of proving that their business model was viable, they seem to have proved exactly the opposite. If it Bono hadn’t had the ability to throw $20mm of his own money into the company when it was suffering financially, if he didn’t have the kind of prestige that would make LVMH purchase the flailing, unprofitable company, I highly doubt EDUN would still exist today.

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I’m one to be supportive of daring entrepreneurship, both social and commercial, and I do have a lot of respect for people who have the courage to throw their energy into creating a successful enterprise. That said, when it comes to EDUN, I feel that the efforts were superficial, in more ways than one. Had EDUN done better research, they might have come up with a better model than what led them to be pretty much ashamed of the clothes that came from Africa (cf. the party in the dark to draw attention away from the clothes – for a fashion company!?) I don’t think anyone considering investing in African business would look to Bono and EDUN’s example as a model for success… In fact, I would imagine that looking at EDUN would discourage potential investors.

It seems that we don’t hold Bono to the same standards we hold non-rock star entrepreneurs. His mere trying to succeed appears to be enough to endear him to his supporters. Frankly, I feel Bono doesn’t deserve much praise here. If he was truly committed to supporting African cotton farmers, sellers and manufacturers, he could have invested in a few small or medium size clothing factories, for example. Industry in the developing world needs capital and improved operational standards, and there are several organizations which focus precisely on achieving this. The Grassroots Business Fund, for instance, makes equity, quasi-equity, and debt investments in the $250,000 – $1,000,000 range in agricultural and artisanal businesses, as well as access to finance and BoP services.

I understand: EDUN is a fashion clothes line, not an aid project. Fair enough. But then let’s see this for what it really is: one among many lines of clothing designed and marketed by a celebrity, with an ethical “twist.” To say that EDUN is a “game-changing” initiative is giving much too much credit to an enterprise which essentially failed to accomplish the mission it set out for itself.