The Accountability of Market-Oriented Development Organizations

The Accountability of Market-Oriented Development Organizations

AlineWachner, Zeppelin University

The Accountability of Market-Oriented Development Organizations
In the last decades, development aid has faced significant problems of legitimacy, as progress at achieving internationally set goals has not yet been satisfactory. “Aid effectiveness literature” has therefore emerged as a critical debate on development practices (e.g. Easterly, 2007; Moyo, 2009; Sachs, 2005). One argument of criticizers is that the target group itself, that is, poor and underprivileged people in developing countries, has been ignored in the design of development approaches (Banerjee and Duflo, 2011). Therefore, the concepts of “empowerment”, “right-based approaches” and “downward accountability” of development organizations have been emphasized by academics and practitioners with Civil Society Organizations (CSO) and local NGOs playing a central role (e.g. Kilby, 2006; O’Dwyer and Unerman, 2010; Ebrahim, 2003). Due to their local embedment, their small size and their institutional independence, they are attributed with higher flexibility and responsiveness to the needs of beneficiaries. However, research on NGOs suggests that although they often strive at integrating beneficiaries in their strategic and operative decisions, in fact, upward accountability, that is, accountability towards donors, foundations and governments is still dominant (Ebrahim, 2003).

Additionally, we find new players and approaches in development work, which have raised significant expectations, particularly among academics and the donor community: Bottom of the Pyramid approaches (Prahalad, 2006), Social Business (Yunus, 2010), Social Entrepreneurship (Bornstein, 2007), Public Private Partnerships (Salamon, 2002), etc. Although these approaches differ from each other, they share one aspect usually common to the private sector: market orientation.

This paper argues that although the discussion on market-oriented development approaches is to some extent developed, and so is the one on NGOs’ accountability, no research has yet analyzed the specific accountability of market-oriented local organizations with hybrid objectives. Aiming at both social and economic value creation, market-oriented organizations and/or their investors often strive for a so-called “double bottom line” which implies a change in accountability relationships. First, investing in organizations instead of donating introduces a new dynamic in the relationship between recipient organizations and funders (upward accountability) as it emphasizes the importance of financial efficiency. Second, seeing beneficiaries as customers instead of victims possibly increases the importance of beneficiaries’ preferences and needs as they become essential to the organizations’ performance (downward accountability).

However, this paper argues that market-oriented approaches with hybrid missions are at very high risk of a mission shift and therefore need to precisely reflect on their accountability mechanisms. This is particularly the case for approaches dealing with vulnerable population such as poor people in developing countries. In 2010, the concept of microcredit, which has often been cited as a revolutionary invention in development aid (Robinson, 2001) and is certainly the most popular market-oriented development approach, has proven his susceptibility by falling into disrepute. The Mexican bank Compartamos as well as the Indian microfinance institution SKS significantly contributed to the global wave of indignation by going public and attracting huge private investments seeking profit.

This example suggests that research on the specific accountability requirements of market-oriented local organizations in development work is crucial for the advancement and practicability of the concept and therefore potentially for new effective development policies. By giving a review of both literature streams, development literature and accountability literature, the paper will first point out concrete research gaps and then propose a theoretical grid for further research on the accountability of market-oriented local organizations in developing countries.
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