Economics of NGO's | Issue 24

Economics: When NGOs do more harm than good

Non-governmental organisations. You might have heard of some, the big ones being The Red Cross or the World Wildlife Fund. They exist to bring improvement to whomever they choose to serve and act as solution providers for many socio-economic and environmental problems. Many primarily rely on donations for funding, be it from the likes of you and me, or the Bill Gates’ of the world. 

The NGOs that we may consider to be the most altruistic of them all may be the aid providers. Those that swoop in during times of crisis or simply try to improve the lives of those in developing countries. However, a by product of their intervention has proven to have detrimental consequences.

In a single word: competition. Now in a free market, competition is almost always a good thing. Take Apple and Samsung. Both tech companies vie for the attention and money of the consumers, us. To do this, the two must out do each other or else profits will tank. That means impressing us, convincing us that one product is better than the other. Ideally that would drive both companies to make the best product possible at the lowest prices to win over consumers. 

Economists have narrowed competition down to be one of the best ways to get optimal results. However, take our tech giant company scenario and replace Samsung with a large NGO from a developed country and Apple with the local entrepreneurs of a developing country. Instead of phones, each are competing for employees. The NGO is often able to pay a larger salary to prospective employees than the local entrepreneur. This may sound good in the sense that employees are better off, but this puts the domestic businessmen in a tough situation.

This exact situation is happening in many African countries with a large NGO presence. In Ethiopia, one IT Entrepreneur describes how:

“Africans don’t see a reward system in place for being entrepreneurial...what they learn at a very early age, is that in order to make good money, they should learn to speak English incredibly well and then maybe, just maybe, they can get a job driving for an NGO. In a few years, if they play their cards right, they might be able to land an NGO job as a project manager.” 

Essentially NGOs are paying salaries to employees that local businessmen can’t match, meaning that the NGOs claim the best and brightest and leave regional enterprises to struggle. When NGOs crush local businesses and siphon the talent pool, what follows is an economy that can’t stand on it’s own two feet. 

This article first appeared in Issue 24, 2016.
Posted 12:09pm Saturday 24th September 2016 by Danielle Pintacasi.