EVENTS

Date:	Wednesday, December 7, 2005
Time:	9:45 AM -- 3:30 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

December 2005

NGOs: Indispensable or Unaccountable?

 

Government and international aid agencies from the U.S. Agency for International Development (USAID) to the United Nations Development Programme (UNDP) have come to depend on nongovernmental organizations (NGOs) to implement their development policy programs. Corporations are increasingly expected to consult with NGOs prior to making investments in the developing world. Yet the long-term impact and effectiveness of NGOs are largely unknown. Does the U.S. government rely too much on NGOs in its aid efforts? Or are NGOs the only way to stop corrupt governments from lining their pockets with aid money? What should the relationship between corporations and NGOs be? How well have NGOs performed, in practice, in combating poverty or responding to natural disasters, such as last year’s tsunami in Southeast Asia? These and other questions were the subject of a major conference on December 7 organized by “NGO Watch,” a joint collaboration of AEI and the Federalist Society.

The Honorable Jim Kolbe (R-Ariz.)
U.S. House of Representatives

In the past, governments have been reluctant to hold NGOs accountable for their actions, but NGOs need to be held accountable because they play an important role in the delivery of foreign assistance from the United States. NGOs are viewed as effective when there are visible improvements in health and education standards, as well as an increase in the spread of economic prosperity and democracy.

However, true measures of the impact of U.S.-funded interventions are seen in the results of these programs. For example, do U.S. investments have any impact at all on democracy and, if so, how is this measured? This question, along with others relating to aid effectiveness, is difficult to answer due to the diversity of outcomes, culture, governance, and international relations in each of the developing countries.

The number of NGOs focusing on international development has risen steadily since the 1960s. This phenomenon came about as USAID downsized its staff disproportionately to the amount of funds it was receiving. Hence, USAID turned to the NGO community to staff and implement development assistance around the world.

In addition to NGOs, there are five other major models used for implementing foreign assistance. These include: (1) for-profit companies; (2) direct budget support to foreign governments; (3) targeted budget support; (4) grants or contracts with local NGOs; and (5) third party procurement, which is a mechanism that involves grants to international organizations. Unfortunately, there is no explicit approach to decide which model will provide the most effective use of foreign assistance.

The ultimate goal of foreign assistance should be to implement tools that will allow the recipient country to sustain a prosperous economy. One key way to achieve this is through trade liberalization. Open markets, coupled with foreign assistance, will not only enable countries to relieve their debt burden, but also allow them to forge their own economic opportunities. The most effective tool for achieving economic prosperity is to utilize the private sector.

Panel I: Getting More Bang for the Buck? U.S. Funding of NGOs

John Gardner
Formerly of the U.S. Agency for International Development

In recent decades, USAID has been collaborating more with both domestic and foreign NGOs.

A major focus of USAID has been the Global Fund to Fight AIDS, Tuberculosis, and Malaria. This fund is a unique public-private partnership, and its structure revolves around governments engaging in a collaborative process with civil society in order to develop a national strategy. Unfortunately, government dominance has overshadowed the efforts of civil society to take part in fighting these diseases and in representing those suffering from the diseases. Therefore USAID has encouraged NGOs to work with civil society in order to achieve their goals for the Global Fund.

Finally, another major focus of USAID is to guarantee that their funds do not get diverted towards terrorism financing. To prevent this from occurring USAID developed a certification, based on UN convention, which NGOs must adopt to ensure that their funds do not get distributed to terrorists. USAID has had great success in encouraging its grantees to adopt this.

Chad Dobson
Oxfam American

Throughout the past sixty years Oxfam has evolved into an organization with many objectives, including three major objectives: to deliver water and sanitation in emergency situations, to provide traditional development assistance, and to assist in devising policies.

Over the years, Oxfam has developed many reports to measure the success of it efforts. For example, this month Oxfam published a “Tsunami Accountability Report”. This report discusses how Oxfam is spending the $278 million it received from private donations. Through their work with the tsunami effort, Oxfam has learned that nobody was prepared to deal with a disaster of this size and to work with such a large sum of funds. Oxfam has also discovered that it is difficult to coordinate activities between so many groups, especially when common standards are not already in place to coordinate the relief effort.

Moreover, in 1997 Oxfam produced a major paper, in collaboration with the Red Cross and several other humanitarian organizations, which includes a humanitarian charter and minimum standards for disaster response.

Finally last May for an Organisation for Economic Co-operation and Development (OECD) meeting on aid effectiveness, Oxfam released their report entitled “Millstone or Milestone? What Rich Countries Must Do In Paris to Make Aid Work for Poor People.” This report cited many deficiencies concerning aid, such as the fact that only 20 percent of aid money was being distributed to the poorest and that the amount of aid pledged is usually much less than what is delivered. Finally, NGOs, government agencies, and institutions need to address issues such as transparency and security; otherwise, they will have difficultly providing assistance abroad.

Jim Kaiser
Committee on Government Reform

The Subcommittee on Criminal Justice, Drug Policy, and Human Resources has focused its efforts on enforcing an anti-prostitution/sex trafficking law passed in 2003, which international organizations and domestic NGOs operating internationally are subject to.

The most recent investigation concerns the NGO CARE USA. The subcommittee has evidence that CARE has for sometime been funding an organization in India called Durbar, whose primary objective is to promote the legalization of prostitution. CARE’s stance is that it cannot reach the prostitution demographic and help prevent of sexually transmitted diseases without collaborating with organizations that advocate the legalization of prostitution. In response, the subcommittee argues that U.S. taxpayers do not want their money being distributed to any organization that even indirectly supports the legalization of prostitution. Further, this type of foreign assistance paints a negative picture of the United States to the international community.

Further, the subcommittee deals with the issue of accountability. The level of accountability required by U.S. organizations advocating drug prevention is much higher than that of foreign countries. In order to encourage greater accountability the subcommittee suggests that foreign aid should primarily be granted to NGOs that directly provide service to the target group. Secondly, an online database should be created that keeps track of which organizations are receiving funds and what those funds are being used for.

Paul V. Applegarth
German Marshall Fund, formerly of the Millennium Challenge Corporation

NGOs have a high level of expertise and intellectual capital that enables them to provide constructive advice and assistance to foreign countries. There is a direct correlation between the presence of pro-democracy NGOs in countries and those same countries being selected for the Millennium Challenge Account (MCA). The primary reason behind this phenomenon is that pro-democracy NGOs advocate good governance, which is a major criterion of MCA eligibility.

There are a couple of issues NGOs should consider for the future. First, they should try to distribute their expertise and insight back to the donor community. Secondly, NGOs should focus on priorities that are of primary concern to the recipient country and allow them to take ownership of these priorities.

Furthermore, there are several considerations NGOs should take into account when implementing on the ground programs: (1) The focus of long-term assistance must be to build capacity in the recipient country. The ultimate objective of NGOs, concerning capacity building, should be to transfer the delivery and management of their assistance to local institutions. (2) NGOs should set up performance measures in order to judge the effectiveness of their programs. (3) NGOs should link the results of their programs to specific targets. (4) Lastly, NGOs should continue educating officials in the U.S. administration on development issues. 

John Sullivan
Center for International Private Enterprise

NGOs can be categorized into four groups: those who are mission-driven; charity-driven;  development-driven; or funded by a major donor, mission-driven, and overtly political (i.e. the Soros Foundation).

USAID has developed a set of common standards to measure their effectiveness, including their ability to bring about transformational development, to strengthen fragile states, to provide humanitarian relief, to support strategic states, and to deal with global issues such as HIV/AIDS.

Donors, such as USAID, constantly grapple with the issue of providing aid via contractors or grants to NGOs. The primary difference is that contractors view donors as the client whereas NGOs, especially mission-driven ones, view the host country as the client. Hence, donors have greater control when they contract work as opposed to when they distribute grants to NGOs.

NGOs are most efficient when their mission is closely tied to the task at hand. Moreover, NGOs must be transparent and accountable in order for their programs to be effective. Lastly, mission-driven NGOs perform best when they are asked to take an active role in designing the assistance program.

The donor community needs to take note of the growing importance of markets because they play an ever more important role in encouraging economic growth and reducing poverty.

Panel II: NGOs and Oil--Beyond Confrontation?
 
Morton Winston
Amnesty International

When I started working on these issues the 1990s, none of the majors in the extractive industry had human rights principles or policies. At present, more than ninety-two major companies, such as British Petroleum and ExxonMobil, have human rights policies, and some have gone further and have developed human rights training programs for their employees. A few have gone on to the stage of compliance monitoring. Among the benefits these companies have experienced as a result of adopting such policies are: positive impacts on stakeholder relations with contractors, local communities, and host governments; minimizing operational disruptions; better public relations; positive impact on investor confidence and share value; and improved employee morale and loyalty.
    
What are the key lessons we can draw from past examples of NGO/transnational corporation (TNC) collaboration? Increasingly, TNCs need to be able to demonstrate that they not only deliver good products, but also that they are accountable to external stakeholders for the social and environmental impacts of the processes by which they produce their products. The legitimacy of enterprises of all kinds depends upon securing the trust of the public, and both TNCs and NGOs must learn how to become more transparent and accountable if they wish to be trusted by the public and regarded as legitimate. Ironically, NGOs may be the saviors of twenty-first-century capitalism. By prodding TNCs to address these concerns, TNCs will become better able to secure the public trust upon which their legitimacy ultimately depends.
 
Nick Nichols
Center for the Defense of Free Enterprise

The question before us is whether NGOs and the corporations that extract natural resources are beyond confrontation. In my view, the real question that the extractive industries must address is whether the clamor for Corporate Social Responsibility (CSR) is truly about social responsibility, or whether it is about socialism revisited.

Fortunately, there are still some corporate warriors on the battlefield who subscribe to Milton Friedman’s dictum that the social responsibility of business is simply to maximize the rate of return to the general shareholders, consistent with the law. The bottom line for these tried-and-true capitalists is that millions, if not billions, of corporate dollars are being diverted from investors and redistributed elsewhere--not by duly constituted governments, but as a result of the power of extortion wielded by wealthy activist groups who are accountable to no one but themselves. So the net-net of this spectacularly undemocratic process is that many activist NGOs are now being allowed to execute corporate coup d’etats for the purpose of dictating business policies and behavior based on their vision of what is sustainable, equitable, and fair for the rest of us. Their preferred targets are the oil, mining, and forestry industries.

The 100 million Americans who have investments in the stock market need relevant information about how their investments are being shanghaied by the CSR movement how their power as investors is being subverted by the NGOs, and how their money (including their tax dollars) is being used by the NGOs and the corporate appeasers to undermine free enterprise and the global economy. This is advocacy of the kind employed by the Free Enterprise Action Fund (FEAF). Perhaps it is also time to cast a wider net when it comes to social responsibility.

Give the activists a taste of their own medicine. By that I mean hold the activist NGOs to the same standards of accountability and transparency that apply to publicly traded corporations. After all, the nonprofit sector is big business. Nonprofits solicit and receive much of their revenue from the public, just like publicly traded companies. A Johns Hopkins University study of the sector in thirty-five countries estimates that the combined annual expenditure by non profits at $1.3 trillion.
 
Andre Madec
Exxon Mobil Corporation

Why do we engage with NGOs? In the developing world the explanation is easy and simple. When you have weak governments, you do have basic local administrative services that have been provided often by NGOs for a long time. They have earned the trust of local people and are natural conduits when doing consultation of local community; they are speaking on behalf of local communities. It is different in developed countries.

I want to examine two kinds of interactions between NGOs and Exxon Mobil. In the policy area there is the EITI, an initiative promoted by governments, business and NGOs. It encourages oil companies and governments to report publicly the payment transfers which are made between governments and oil companies. And it is a successful initiative. Kazakhstan, Azerbaijan, and Nigeria have embraced the initiative. For two of them the reports of the payments made by the oil and mining companies are available to civil society and are made public. Voluntary Principles for Security and Human Rights define clear common goals with NGOs and governments: as an oil company, we need to protect our employees working in conflict areas, and at the same time we and the government need to respect human rights. A common initiative was launched in Nigeria between NGOs, companies, and Western governments to tell the Nigerian government that it needs to train and set standards for its security forces. This is not something that the NGOs and the businesses can do by themselves. These are common goals we set together and agree to work on together.

Community relations activities: We see ourselves as corporate citizens in communities we are in. We cannot have first-world facilities disconnected to the often third-world communities we live in. We need to provide some assistance to the community. If you are improving the health of employees, they work better. There is a return on that activity, using the skills and presence of local NGOs that have earned the trust. I would like to give just an example of payback. When we looked for a route for the pipeline, we talked to World Wildlife Fund (WWF). When we made public our interest in the Chad-Cameroon project, there was a campaign against that pipeline launched by U.S. NGOs. One of them claimed that the pipeline is going to disturb the habitat of the black rhino (a highly endangered specie). WWW said there was no rhino in this region. This was the end of the story. They are the credibility we needed. So we can have payback.

Very often, non local based NGOs pretend to represent the expectations of local communities, when actually they only represent their own expectations. It was clear when we had dialogue with 250 NGOs for the Chad-Cameroon project. All of them wanted to have access to the project development opportunities, and they were careful to make sure to profit their local communities. They were looking forward to the project. Yet some U.S./EU-based NGOs did not want to have any kind of involvement in this project.

I want to suggest a new category of NGOs, the CONGOs (confrontational NGOs). Let us take the example of climate change. As a corporation, we are the subject of campaigns and boycotts, naming and shaming about climate change. We have dialogue with lots of NGOs about climate change. But with some of them we cannot sit down at the table, because if we do not embrace the Kyoto Protocol today, and if we do not sign up some other conventions, they will not come on the table and will keep naming and shaming us.

F. Wallace Hays
F. Wallace Hays and Associates

I worked on several energy projects on former USSR countries. I want to concentrate on the BTC project and the financing issue. This is a 1,700-kilometer pipeline. It is a non-OPEC, non-Middle East pipeline that is producing 1 millions barrels a day.
 
This project has a transparent legal structure. British Petroleum (BP)--the leader of the consortium--started with the premise that it wanted to create a model project and to demonstrate that the business can be conducted with human rights and as a model for corporate governance. But, why do companies seek partnership with international financial institutions. 1) If they have weak partners and lack legal protection, they seek IFI support largely for risk mitigation reasons. In turn, Western governments and IFIs frequently seek advice of NGOs.

BP as a corporation made discussion with NGOs a priority even before the project started in 2003. BP has had consultation with different types of NGOs. BP wanted to avoid a non-productive dynamics with the companies on one hand and NGOs on the other, and the U.S. government and the IFIs in the middle. BP launched a Caspian development advisory panel to advise BP on NGO issues, in an impartial way (www.caspiandevelopmentandexport.com). BP also made a commitment to go above and beyond the IFIs payment transfers disclosure requirement. For example, it launched a regional review project that analyzed larger oil-driven development issues. It analyzed security, environment, transparency and human right issues, and acted to address NGO concerns in these areas. As a result, BP has had a very positive relation with NGOs. It has improved health care in the region, helped set-up transport infrastructures, and developed training programs for its employees and the local population. That is why the NGOs are important.

BP agrees that NGOs have expertise and help mitigate risks. The IFIs require NGO monitoring of the extractive project. The system is not prefect, but BP submitted over 11,000 documents, many of them used by NGOs to criticize BP. But the project is transparent.
 
Daniel F. Feldman
Foley Hoag LLP

There are business reasons for the evolution of CSR other than philanthropy. There are hard-core business principles that underline the evolution of CSR. The business community said that it needed to protect itself against legal risks--such as the Alien Tort Act--that have been increasingly used to help companies operating outside the United States. Also, companies are concerned by congressional investigations.

Companies also want to hedge against reputational risks. The reputation cost is too high for many companies. It does not come from NGO actions only, but also through actions by hostile shareholders, attacks on corporation properties, etc. There are also positive drivers such as the reduction of the threat to corporate reputations. In other words, we need to look at the way that global business has changed over two decades. We live in an age of globalizations and interdependencies. We have to understand the emergence of the CSR in this context.

We define CSR as a business concept in which corporations seek to responsibly address social and environmental factors arising in the course of business, including human rights issues, through support for international norms and sustainable practices, these are human labor rights, governance issues (transparency and ethics and anti-corruption). In this age of globalization, with increased transparency and more rapid communications, CSR helps to augment free enterprise.

In the context of the BP project, we did work with Amnesty International (AI). As Wallace Hays said, the BTC was meant as a model project in terms of transparency. The consortium set the stage and built credibility with a whole range of stakeholders from the outset. That it is in part why they have been so successful. They had a good record on the issue of consultation with stakeholders. They met with 450 communities and 30,000 landowners in twenty months. We helped BTC to develop a special human rights and transparency law, the PLR, which supplements existing law. It goes beyond the EU and the World Bank standards. It was launched following the AI campaign and consultation in 2003. BP worked with AI as much as possible and made three or four concrete commitments that helped to resolve the campaign. It put together a joint statement, signed by all three host governments, that guarantees human and labor rights and makes and explicit support for declarations of human rights, such as the OECD Human Rights Convention.

Regarding the project security aspect, BP encouraged the adoption of the Voluntary Principles. Through the joint statement that all three of the host countries signed on to promoting the voluntary principles along the course of the BTC, the project met the U.S. and UK standards and the request of the NGOs community. We are now doing the second and third phase: operationalization and implementation of these principles. BP signed a deed poll, a legally binding contract under UK law that guarantees human rights and various environmental rights. It also protects the rights of all three governments to protect and promote HR and the environment.

Through innovative legal arrangements and by sitting down and talking to NGOs, IFIs, and national governments, BP set a real standard for what can be done for transparency in the extractive industry.

AEI research assistant Flavius Mihaies and AEI intern Sapna Thakkar prepared this summary.