There was an interesting discussion over at Megan McArdle’s blog about whether or not NGOs retard entrepreneurship in developing countries. Her post was in response to this from Matt Rognlie…

“Africans don’t see a reward system in place for being entrepreneurial. In fact, they view it as a matter of survival, not an opportunity to lift themselves out of poverty. Rather, 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 and even advance further.”

Sammy’s point was simply this. As a struggling businessman creating new start-ups, he could not compete with what NGO’s were paying for some of the best and brightest. And even worse, he said, “by the time the NGO’s are done with them, there isn’t an ounce of entrepreneur left.”

I can definitely echo this fro firsthand experience. As a small private sector company in Uganda, the danger isn’t so much having your staff poached by big multinationals like MTN or Google, but rather the equally large NGOs who, in their mandate to hire local want to ensure they find the best and brightest. Thus skewing the market because it suits their short term needs.

Megan writes…

On the one hand, it’s terrible to think that aid is keeping economies from developing–and this isn’t the only such critique; there are also fears that aid acts like a “resource curse”, insulating political leaders from the need to win public support for their spending, and breeding corruption. On the other hand, I’m not sure I’m quite willing to walk up to a woman dying from malnutrition to tell her that I’m sorry, we’d like to help, only unfortunately it would distort the local economy and so I’m afraid you’ll need to lean into the strike zone and take one for the team.

On the third hand, I’m conscious that in this scenario, I am biased towards the seen harm, rather than the unseen…

Everyone in the sector tends to be biased towards the ‘seen harm’ and good because most donors don’t fund longterm, indirect or implicit results. The adverse effects, as long as they aren’t obvious get ignored. This includes inflation of salaries in the private sector.