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The International Journal
of Not-for-Profit Law

Volume 4, Issue 4, June 2002

A publication of the International Center for Not-for-Profit Law

Table of Contents

Articles

The Legal Framework for Civil Society in East and Southeast Asia
Barnett F. Baron

A Flaw in Comparative Studies of the Tax Benefits for NGOs in Latin America
Antonio Itriago M. and Miguel
Itriago M

The Principle of Subsidiarity in Italy: It's Meaning as a "Horizontal" Principle and It's Recent Constitutional Recognition
Andrea Maltoni

A Synopsis of Law Reform for Iranian NGOs
Zahra (Sahar) Maranlou

Tax Treatment of NPOs in Macedonia
Prof. Dr. Vesna Pendovska

Competition and Abuse of Association Membership
Assoc. Prof. Ivo Telec

Reviews

Working with the Non-Profit Sector in South Africa
Working with the Non-Profit Sector in Nigeria

By the Charities Aid Foundation / Allavida
Reviewed by Karla Simon

Legal and Organizational Practices in Nonprofit Management
By Pacquale Ferraro
Reviewed by Karla Simon

Promoting Legal and Institutional Frameworks for Corporate Social Responsibility in Peru
By Javier de Belaúnde L. de R., Beatriz Parodi L., and Delia Muñoz M.
Reviewed by ICNL Staff

Social Responsibility: 12 Case Studies from Chile
by Soledad Teixido, Reinalina Chavarri, and Andrea Castro
Reviewed by ICNL Staff

Case Notes

Asia Pacific:
Hong Kong

Newly Independent States: Russia

North Africa:
Egypt

North America:
Canada | United States

Sub-Saharan Africa:
Ethiopia

Western Europe:
United Kingdom

Country Reports

International:
FATF | World Bank

Asia Pacific:
Regional | Australia | Indonesia | Japan | New Zealand

Central and Eastern Europe: Bosnia and Herzegovina | Czech Republic | Hungary | Lithuania | Macedonia | Slovakia

Latin America & The Caribbean: Chile | Peru

Middle East and North Africa: Kuwait

Newly Independent States: Armenia | Azerbaijan | Kyrgyzstan

North America:
Canada | United States

South Asia:
India | Pakistan

Sub-Saharan Africa:
Nigeria | South Africa | Tanzania

Western Europe:
Regional | Belgium | Germany | Italy | United Kingdom

- - - - - - - - - -

Editorial Board

The Legal Framework for Civil Society in East and Southeast Asia

By Barnett F. Baron *

Opening Remarks for a Workshop Held at the Catholic University of America
Washington, April 12, 2002

One of the most important developments in East and Southeast Asia in recent years has been the emergence of a vast array of non-governmental, non-profit, voluntary organizations acting in fields and on issues that until recently were the exclusive domain of the State.  These organizations, often referred to as “civil society,” receive tens of millions of dollars of support from the international development assistance community each year, and in some countries are beginning to receive substantial support from their own citizens and governments.  As NGOs have grown in number and importance, they have begun to play increasingly important roles in the social, economic, and political affairs of their countries. Their further development will depend on many factors, one of which we will be discussing today—the legal and regulatory frameworks under which they operate, or what has been termed their “enabling environment.”

Some NGO advocates argue that NGOs should be permitted to operate without restriction, that they should not be regulated by the State, that they are a manifestation of the universal human rights of free association and free expression. At a more practical level, however, NGOs cannot exist without at least the tacit consent of the State and, to flourish, NGOs require a supportive legal and regulatory environment that can only be provided and guaranteed by the State.

Even while we advocate for more favorable enabling environments, however, we have to acknowledge that good laws and regulations are not enough; a favorable tax code will not by itself create a flourishing nonprofit sector in the absence of governmental and societal acceptance of a legitimate role for nonprofit organizations. A vibrant nonprofit sector requires and emerges from a society that values pluralism, organizational autonomy, and innovation, and that acknowledges the legitimate role of private actors to participate in the formulation and implementation of public policy. Those conditions do not currently exist everywhere in East and Southeast Asia.

In my opening remarks this morning, I would like to put our discussion of legal and regulatory issues into a broader framework, not because I think the legal issues are unimportant, but because they need to be addressed in full recognition of prevailing historical, economic, and political realities. Within this broad context, let me address two questions.

First, how can we explain the explosive growth in the number and significance of non-governmental organizations all across East and Southeast Asia? Second, assuming that we share a desire to strengthen the capacities and public roles of NGOs in East and Southeast Asia, what is needed?

1. Why the explosive growth?

For simplicity’s sake, we can say that two main factors have been primarily responsible for the rapid growth of the nonprofit sector in East and Southeast Asia: an earlier period of massive external support from international development assistance agencies and, more recently, the impact of global and domestic forces that have contributed to profound changes in the relationship between the State and society in a number of Asian countries.

International support

Following the great wave of independence granted to former European colonies all across Africa and Asia in the 1960s, international donor agencies focused their assistance on “nation-building,” which was usually defined as strengthening public institutions (e.g., parliaments, judicial systems, and government bureaucracies), and improving the practice of public administration. By the late 1970s and early 1980s, after these efforts at nation-building were seen to be less effective than hoped, NGOs became the new darlings of the international development community. NGOs were viewed as a convenient way to circumvent the limitations of weak and ineffective states in the delivery of services in such fields as population and maternal/child health, primary health care, agricultural innovation, integrated rural development, and many forms of community mobilization. NGOs were widely assumed to be more innovative, less corrupt, less bureaucratic, more efficient, more cost-effective, and generally more reliable than governments as vehicles for service delivery in these fields.  

In addition to these largely untested assumptions about NGO efficacy,  international donors favored NGOs because many of them were led by a generation of charismatic leaders who commanded wide respect in the international community-- people such as Faisel Abed and Mohammed Yunis in Bangladesh, Akhter Hameed Khan in East Pakistan and later Karachi, and Mechai Viravaidya in Thailand, among others. As Western-educated, charismatic leaders, these pioneers were quickly adopted by international donors as exemplars of the virtue of private voluntary action over the encrusted bureaucracies of Asian governments.   

After 1989, NGOs were endowed with yet another powerful myth, especially those in the forefront of anti-communist, democratic change in Eastern Europe. Solidarity in Poland was the prototype, but it was not long before other democratic champions were discovered or created -- ranging from farmers collectives to church groups, to literary societies, to urban community networks.

The term “civil society” was resurrected at this time, wrenched out-of-context from its roots in Hegel and Marx to become the catch-all term used to describe the catalytic role of NGOs in democratic processes.  The prevailing view among development specialists was “the more NGOs the better,” both for democratization and for the delivery of social services and economic development. Somewhere in this process, the legitimate and possibly even positive role of the State got lost. Even within The Asia Foundation, in some countries -- such as the Philippines -- we gave up completely on the government and devoted all our grant-making to NGOs.

This unconditionally positive assessment of NGOs flew in the face of earlier scholarship within academic political science. Throughout the 1960’s and ‘70s, the prevailing view of the State within the social sciences was that it was a force for nation-building, for overcoming parochial interests, and for constructing viable nations from the accidental conglomerates created by European colonization. Most political science literature in the 1960’s viewed what we now call NGOs as factions or interest groups that were by nature elitist, unaccountable, and often divisive. But by the late 1980’s and early 1990’s, the few voices questioning the axiomatic role of NGOs as the vanguard of democratization were largely unheeded.

In his book Aiding Democracy Abroad ,[1] Thomas Carothers describes the dominant approach of USAID-supported democracy organizations in the decade of the 1990’s. According to Carothers, democracy assistance in the 1990’s rediscovered state institutions and tended to focus “from the top down” on providing training, technical assistance, and hardware to formally organized state institutions, including  the drafting of new constitutions, strengthening judiciaries, legislatures, and local governments. After reviewing this experience, Carothers concludes that these efforts were at best marginally successful and often total failures, because technical solutions cannot prevail against established elites, rampant corruption, and vested political interests. Those who have succeeded in making a dysfunctional system work for them cannot be counted on to change it. And those who do want change often do not agree on the precise nature and direction of the desired change.

Carothers then looks at parallel efforts to promote democracy “from the bottom up,” focusing on support to civil society.  He reviews the historical evolution of the term civil society, noting that its popularity among USAID administrators coincided with US support for anti-communist efforts in Eastern Europe under the Reagan Administration and also with substantial declines in USAID budgets, since one can do more with smaller budgets by supporting NGOs rather than large, complex, and costly state institutions. He notes that USAID’s main focus has been on advocacy NGOs, less on other parts of civil society, such as  religious organizations, labor unions, social and cultural groups, associations based on identity (such as clan or ethnic associations), or service delivery NGOs. Perhaps most insightfully, he notes USAID’s uncritical romance with the “benevolent Tocquevillean vision” of civil society, which Carothers describes as an “idealized, inordinately American” perspective that is not widely shared even in other Western democracies:    a civil society characterized by “the earnest articulation of interests by legions of well-mannered activists who play by the rules, settle conflicts peacefully, and do not break any windows.” (p. 248)

Global and domestic forces

The second cluster of factors explaining the explosive growth of NGOs in East and Southeast Asia includes the process of globalization and the economic crisis that swept across East Asia in 1997/98, ending three decades of unprecedented economic growth.

What the World Bank refers to as the East Asian “economic miracle” was the longest, most sustained, and probably most equitably-shared period of economic growth in recorded history. Between 1965 and 1990, the twenty-three countries of East Asia grew at historically unprecedented rates, averaging 5.5 percent annual growth in real terms.  All countries in the region benefited from growth, but eight were at the core of the “miracle:” Japan, followed by the “Four Tigers” of Hong Kong, Korea, Singapore, and Taiwan; followed in turn by the “newly-industrialized economies” of Indonesia, Malaysia, and Thailand.[2] In comparative terms, these eight countries grew more than twice as fast as the rest of East Asia, roughly three times as fast as Latin America and South Asia, and five times faster than Sub-Saharan Africa. They also significantly outperformed the industrial economies of North America and Europe and the oil-rich Middle East-North Africa region. Between 1960 and 1985, real income per capita increased more than four times in Japan and the Four Tigers and more than doubled in the newly industrialized countries of Southeast Asia.

Throughout this period, East Asia became increasingly and inextricably linked to global markets and the global flow of information and ideas. Beginning in the 1980’s, formidable domestic and global forces began to place heavy strains on historically centralized systems of governance in East Asia, including the rise of increasingly prosperous and demanding middle classes, extraordinary advances in low-cost communications technologies, the globalization of trade and investment, and an exponential increase in the flow of ideas and information on a global scale. Privatization, deregulation, marketization, and related economic trends (currently sloganized in China as the move towards “small government, big society”) have all contributed to a re-thinking of the historically dominant role of central governments in economic and social life.

Key allocation and policy-making functions began to move down to local levels of government, up to regional and international economic institutions, and in many cases, out to the voluntary and nonprofit organizations of civil society. In the process, national governments began to face tremendous pressures to restructure themselves, moving away from the historical model of the “East Asian Developmental State,” with its command and control mode of operating. Reducing direct government expenditures has become a region-wide priority. As a result, new forms of governance are emerging that facilitate and support at least quasi-independent initiatives by individuals, organizations, businesses, and communities lying outside the formal apparatus of the State.[3]

Governments throughout the region quickly acknowledged that they alone cannot solve all problems. One result of this reduction in the role of government is to create more space for both private business and the nonprofit sector.  Especially since the economic crisis of 1997/98, the nonprofit sector is being asked to do more, both by government and by the public, whether it is in terms of job training, care for children and the elderly, AIDS counseling, and various forms of social service provision. In some countrie -- Korea, Indonesia, Philippines, and Japan, for example, more government funds are flowing to local NGOs than ever before, and in some countries, NGO leaders have successfully run for political office or have been appointed to influential positions in government.

We see this sequence of events even in China which, although largely spared from the ravages of the 1997 economic crisis, has been profoundly affected by its integration into the global economy. Chinese leaders recognized that maintaining China = s economic growth is essential to the continued legitimacy of the Party/State and that the role of the non-state sector must expand to ensure continued economic growth. President Jiang Zemin's speech to the 15th Communist Party Congress in September 1997 specifically recognized the need to “cultivate and develop” more “social intermediary organizations.” Six months later, Premier Zhu Rongji told the Ninth National People's Congress that China’s continued economic growth required massive restructuring and downsizing of the state bureaucracy, finding alternative employment for hundreds of thousands of state functionaries, and turning more State functions over to society: all three needs to be addressed in part by the expansion of “social intermediary organizations.”

2. If our goal is to facilitate the further development of the nonprofit sector, what is needed?

Emerging nonprofit organizations in East and Southeast Asia operate within historical, political, and social contexts that are very different from that of the United States.  Throughout the region, the centralized state has historically played the dominant role in defining the public interest, closely controlling the provision of public goods and services, and setting the permissible limits of public participation in policy making and implementation.[4] Consequently, in most of East Asia, popular views of the relative roles of the "public" and "private" sectors -- and their relationship -- differ significantly from those in the United States. The concept of privately funded and privately managed public interest organizations whose scope extends beyond limited charitable mandates (i.e., providing assistance to widows, students, the poor, the sick, or to disaster victims), is neither well-understood nor widely appreciated. The legitimate scope for "private" participation in resolving social issues or in the formulation of public policy is generally perceived to be rather limited, while the State is expected to provide essential public services. Indeed, "private" nonprofit organizations are often greeted with suspicion as to their motives and intentions. In most of the region, government bureaucrats, in particular, almost always believe that they alone have the right to define and protect the “public interest” and usually reject the notion that NGOs or private foundations have a legitimate right to participate in the making of public policy or the implementation of public programs.

This historical context affects the formation and role of civil society organizations in many ways, most immediately in terms of the legal and regulatory environments in which they operate and in the absence of strong traditions of autonomous internal governance.

Elimination of restrictive legal and regulatory environments

In 1999, the Asia Pacific Philanthropy Consortium published Philanthropy and Law in Asia, a comparative study of nonprofit law in ten East Asian societies.[5] Overall, the study found that nonprofit law is incomplete and still evolving in the region. In a few countries, the absence of explicit law provides some political space for the sector, but more frequently, within the dominant civil law tradition of East Asia, the absence of explicit law creates a legal limbo that makes it difficult for nonprofits to formally organize, to raise money, or to advocate on public policy issues.

Moreover, nonprofit law in Asia is evolving out of a national security context rather than a civil liberties context. Existing laws and regulations throughout the region reflect the security concerns of former colonial regimes,   the social control orientation of various types of authoritarian regimes, and the historical tradition in East Asia of state dominance over the economy and society. Although it is typically much easier throughout the region to register and operate a “foundation,” which is a collection of assets, than it is to register an “association,” which is a collection of people, nonprofit organizations throughout the region are generally more heavily regulated than commercial firms.

Moreover, existing laws and regulations are frequently vague, inconsistent, and administered within multiple overlapping jurisdictions.  Often, several different ministries will have the authority to register and supervise nonprofit organizations, each applying its own set of rules and regulations. There is typically a registration authority in the form of a central ministry, such as a Home Ministry, a Ministry of the Interior, a Ministry of Civil Affairs, or a National Cultural Commission, that has the authority to grant or deny formal incorporation and registration to NGOs or foundations.  In addition, supervisory authority is typically vested in functional ministries operating in the same field as the nonprofit organization, such as the ministries of health, human welfare, education, religion, or the environment. In the case of foundations, approval may additionally be required and supervision exercised by the country’s central bank or Ministry of Finance. Each of these authorities may impose its own rules and requirements, which often contradict each other. The net result is that throughout the region, the registration and supervision of NGOs and foundations is characterized by enormous scope for bureaucratic discretion.

The tax treatment of NGOs and other nonprofits varies within the region but in general is not as favorable as in the United States or Western Europe. In most cases, formal incorporation and registration of an NGO automatically confers tax exemption, but the process of obtaining tax deductibility for donors is much more complicated and restrictive.

Finally, throughout the region, governments retain the right to dissolve NGOs and foundations for vague and politically-determined reasons, such as “engaging in acts that harm the public interest” (Korea); “engaging in activities detrimental to the national interest” (China); for “operating against the interests of the state” (Vietnam); “for being managed in a manner contrary to public order, good morals, or the security of the state” (Thailand); or “being used for purposes prejudicial to public peace, welfare, or good order” (Singapore).

Increasing Public Understanding and Support

The presence of favorable laws and regulations is not enough to ensure the vitality of the nonprofit sector.  Unless there is greater public understanding and acceptance of the role and legitimacy of NGOs, NGOs will find it difficult to raise funds from the public, to have public support on the issues for which they advocate, or to attract people to careers in the nonprofit sector.

Earlier this month the Asia Pacific Philanthropy Consortium began publishing the results of a seven country study we conducted over the past two years on fundraising strategies that have been used successfully by NGOs in seven Asian countries. The study had two parts:  household surveys of charitable giving in four countries ( India, Indonesia, Philippines, and Thailand), and the compilation of about 120 case studies of successful NGO fundraising strategies in all seven countries. The surveys in particular produced some interesting findings that hint at problems in the public perceptions of local NGOs in those countries.

  1. In all four countries, most middle to high income households reported making charitable contributions during the preceding year, a pattern similar to that found in developed countries. This confirms once again what we already know: that philanthropy in some form exists in all cultures.
  2. In addition, the average amounts per capita donated to charitable causes are substantial in local terms, equivalent in terms of purchasing power parity to $1610, $1385, and $538, respectively, in Thailand, Philippines, and Indonesia.
  3. There is a similar hierarchy of giving in each country. Individuals were the main recipients of philanthropy (~40%), followed by religious organizations (~35%), then by voluntary organizations (less than 25%).

The surveys suggest that the challenge for voluntary organizations, particularly for development-oriented NGOs, is how – or whether -- they can increase their share of charitable giving from local sources. From the perspective of an NGO fundraiser, we now know that ordinary people in relatively poor countries do make charitable contributions to causes they believe in, but voluntary organizations, even those that provide direct educational and social services, appear on average to receive less than a quarter of those contributions. Even less appears to be donated to development-oriented NGOs.

Is this because NGOs are still not well known to their communities? Is it therefore a matter of public education and better media coverage? Or are there also deeper issues at work, perhaps related to public expectations about the role of the State, or to issues of NGO legitimacy and accountability? The data in this first round of our study do not allow us to address these questions, but we now know that it is not simply a matter of “poor” people not having funds to give, or not having a tradition of charitable giving.  If I were an NGO leader, I would be interested to ask: since local people do give money, why doesn’t more of it come to us? what can I and my organization do to raise our share of the charitable gift market?

Conclusion

Thank you for allowing me to speak this morning.  I have tried to place the rapid growth of the sector within the larger context of political and economic dynamics at the regional and global levels; to allude to some continuing problems in the nonprofit enabling environment; and have suggested the need for greatly increased public understanding and support for the sector if it is to continue to develop with a domestic rather than an international funding base.  There are of course many other issues that will affect the future development of the sector, including the need for more professionalization and staff training, strengthening organizational management, better systems of internal governance, and so on; but our focus today is on the legal and regulatory environment.  I look forward to the country presentations and our discussions.

* Executive Vice President, the Asia Foundation.  Dr. Baron can be reached at bbaron@asiafound.org

[1] Thomas Carothers, Aiding Democracy Abroad: The Learning Curve (Washington: Carnegie Endowment for International Peace, 1999); see also Thomas Carothers and Marina Ottaway (eds), Funding Virtue: Civil Society Aid and Democracy Promotion ( Washington: Carnegie Endowment for International Peace, 2002); and Carothers,  “The End of the Transition Paradigm,” Journal of Democracy, January 2002. Other useful surveys include Larry Diamond, Promoting Democracy in the 1990s: Actors and Instruments, Issues and Imperatives, Report to the Carnegie Commission on Preventing Deadly Violence, December 1995; and Catherine E. Dalpino, Anchoring Third Wave Democracies: Prospects and Problems for US Policy (Washington: Georgetown University, Institute for the Study of Diplomacy, June 1998)

 [2] World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993). China was not included in the World Bank = s study because of the significant differences between it and the other countries in terms of State ownership and control of the economy, the nature of corporate governance and decision-making, and China's then limited reliance on markets. Despite these differences, China's annual economic growth averaged 5.8 percent during the 1980s, and continued at an even higher rate through the 1990s.

[3] These points are further elaborated in Barnett F. Baron (ed), Philanthropy and the Dynamics of Change in East and Southeast Asia (New York: East Asian Institute, Columbia University, 1991); Tadashi Yamamoto (ed), Emerging Civil Society in the Asia Pacific Community (Tokyo and Singapore: Japan Center for International Exchange and the Institute of Southeast Asian Studies, 1995); James W. Morley (ed), Driven by Growth: Political Change in the Asia-Pacific Region (Armonk: M.E. Sharpe, 1993 and 1998); and Lori Vacek, International Conference on Supporting the Nonprofit Sector in Asia (San Francisco: The Asia Foundation, 1998).

[4] The literature on these issues is vast. For an excellent discussion of the Japanese context, see Tadashi Yamamoto, editor), Deciding the Public Good: Governance and Civil Society in Japan (Tokyo: Japan Center for International Exchange, 1999), especially Yoshida Shinichi, “Rethinking the Public Interest in Japan: Civil Society in the Making,” pp. 13 - 50.

[5] Thomas Silk (ed), Philanthropy and Law in Asia (San Francisco: Jossey Bass, 1999). The enitre book is available for free downloading at the APPC website, www.asianphilanthropy.org .

 

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