The Institutional Ecology of NGOs: Applying Hansmann to International Development

Article excerpt

ABSTRACT

While initially heralded as the "magic bullet" for development, NGOs have come under increasing criticism for their failure to deliver "development" as promised. Despite the plethora of new critiques, little systematic work has theorized how NGOs actually operate within the least developed countries as economic and social institutions, and what structural conditions are necessary for NGOs to operate successfully. Drawing on existing theories of the nonprofit form in a functioning three-sector economy, the Article argues the absence of certain economic conditions has a negative impact on NGO efficiency and efficacy. For NGOs to succeed, they must exist in an economy with a functional state and private sector. Attempts to use NGOs as substitutes for private and public institutions damage the NGO sector and its objectives. The absence of functioning private and governmental sectors not only weakens NGOs but actually impedes the development of these other sectors and perpetuates institutional failures. The concentration of human capital in the NGO sector diverts human resources away from more economically productive forms of entrepreneurship. Additionally, the channeling of funding and human capital into the NGO sector weakens the state, limiting its capacity and credibility. By attempting to bypass weak institutions and create viable development partners, donors are actually contributing to the continued weakness of the organizations they are building and to those in other crucial sectors.

I. INTRODUCTION

By most measures the international community of "developed" nations has failed at the development business.1 Large-scale development experiments have been mostly unsuccessful, leaving shattered economies and disillusioned populations in their wake.2 With the failure of the structural adjustment programs of the 1980s, donors have come to accept the view that there might be more to development than macroeconomics-and that for any development policy to take hold, institutions within the country must take ownership both of its principles and its execution. Across continents, countries with good leadership have better track records of development, even when their policies have diverged from development orthodoxy. The Asian tigers, for example, rejected the development orthodoxy and have joined the ranks of the developed nations, not just in GDP per capita, but across a wide range of social indicators.3 Botswana has distinguished itself among subSaharan countries with its record of good governance and sustained economic growth. In the 1990s and in the new century, the development focus has shifted from ends to means, as donors work to establish strong institutions to promote a broad range of economic and social goals-from creating macroeconomic stability, to reducing gender inequality, to alleviating poverty, and halting the spread of HIV and AIDS.

Institutional development has also proven difficult. Donors blame the failure of these programs on the administrative and political weakness, ineptitude, and corruption of recipient governments. Recipient governments place the responsibility on donors for weakening the capacity of the state in the name of structural adjustment and conditionality.4 Left without viable institutional partners (and with new appreciation for their significance in the development process) international donors have come, in recent decades, to focus on indigenous non-governmental organizations (NGOs) as potential institutional leaders in development. Frustrated with the weak performance of recipient governments, donors have redirected foreign aid flows into the NGO sector, and the NGO sector in both donor and recipient countries has grown exponentially to meet the increased demand.5

In their early years, NGOs found favor among development practitioners on both the political left and right, as institutional substitutes for the weak state and for a weak private sector. …