The global debate on foreign agent laws follows a familiar pattern. Governments claim they are defending sovereignty and transparency. Civil society organisations and international observers warn of creeping authoritarianism. Both sides are partly right, and both miss the actual problem. The real vulnerability is not foreign funding; it is the absence of domestic funding.

Across emerging democracies – from Central America to Sub-Saharan Africa and the post-Soviet space – independent media, think tanks and civic watchdogs rely overwhelmingly on external grants. This dependence is not ideological, but rather structural. And it hands political actors a weapon that is cheap to wield and difficult to parry: when civil society is funded from abroad, it is easy to portray it as foreign. This framing may be misleading and dishonest, but it is politically effective. It works.

A market failure with political consequences

Strip the politics away and what remains is a fairly ordinary market failure. Public-interest journalism, policy analysis and civic oversight generate genuine social value: they hold institutions accountable, improve governance, sustain informed public debate. But they rarely generate sustainable commercial returns, especially in smaller or politically polarised markets. Left to market forces alone, these sectors are chronically underfunded or simply disappear.

In established democracies with wealthier population, a combination of domestic philanthropy, tax incentives and entrenched civic culture fills some of that gap. Individuals, foundations and businesses support non-profit media and civil society not as charity but as investments in the broader democratic ecosystem. In many emerging democracies – and, as recent global trends suggest, even in some consolidated ones – these mechanisms are weak or simply do not exist.

The result is an imbalance: the civil society exists, but operates without a meaningful financial connection to the society it is supposed to represent.

A permanent state of emergency

There is a historical logic to how this happened. After the Soviet bloc collapsed, international donors stepped in to build democratic institutions from scratch. They funded everything – civic education, independent journalism, policy research. Entire sectors that would not otherwise have emerged. The external support was not merely useful; it was constitutive.

But what began as a necessary intervention gradually became a permanent model: emergency architecture became core infrastructure. Given that the funding came from abroad, organisations had limited incentive (and opportunity) to build domestic financial bases. Over time, many became highly skilled at navigating international grant cycles and less interested in growing local funding networks, membership structures and grassroots mobilisation. This even produced a class of organisations often dubbed as “grant-eaters”, at the expense of broader social anchoring. No surprise that the populist actors capitalise on this exact insulation.

The consequence is not illegitimacy, but vulnerability, and it was predictable.

Relying entirely on international geopolitical priorities leaves local civil society vulnerable to shifting donor focus. A change of government or a strategic pivot in Washington or Brussels can instantly dry up funding for critical regional oversight mechanisms (as the recent dismantling of USAID has made painfully clear).

Fundamental questions

Most arguments about NGOs focus on the wrong question: whether foreign funding is acceptable. It is acceptable and fully legitimate. The right to receive international support is well established in international law and remains essential, particularly for human rights defenders operating under pressure. But as a long-term model, external funding simply is not enough.

So, the real question is not whether foreign funding is legitimate or not. The problem is that there is no domestic alternative.

In many countries, there are no meaningful tax incentives for charitable giving, no culture of structured philanthropy, no mechanisms that allow citizens and businesses to support civic organisations at any real scale. Civil society is not rooted in the local economy because the institutional framework to support it does not exist.

When organisations depend almost entirely on external grants, they become easy targets for political narratives that question their allegiance: narratives that, however cynical or exaggerated, resonate because they contain a structural grain of truth. Civil society, in these contexts, is doing essential work while “floating” without an anchor.

The media squeeze

These dynamics clearly emerge in the media sector. In polarised information environments, the space is typically split between state-aligned outlets and commercially driven media tied to political or business interests. Independent, non-commercial journalism, focused on policy and accountability rather than outrage, struggles to find solid ground. It does not fail because of poor quality or weak demand, but because the market does not reward it and domestic philanthropy fails to fill the void.

This is a classic market failure, but with political consequences. When serious journalism cannot sustain itself commercially and lacks domestic philanthropic support, it becomes dependent on external funding, or it disappears.

Beyond partial solutions

A constructive democratic agenda must focus on structural remedies: creating the economic incentives within the domestic arena that have historically underpinned philanthropy in mature democracies. The goal is a domestic financial ecosystem for civil society, one that does not rely on a handful of wealthy patrons, which would merely trade state capture for oligarchic capture, but on transparent legal mechanisms that give both the broader public and the business community genuine incentives to fund civic life.

Given that the problem is structural, the solution must be structural as well. There are viable models, albeit not without flaws.

In the late 1990s and early 2000s, the post-communist Central European countries faced similar dynamics. The institutional solution was the introduction of the percentage tax allocation system, pioneered effectively by Slovakia’s income tax framework, under which taxpayers direct a small share of their income tax, typically one or two percent, to registered nonprofits or public-interest media of their choice.

The mechanism is simple, but it fundamentally changes the relationship between civil society, the state and the public in three ways.

First, it decentralises funding decisions: it is the citizen, not the state, that selects which organisations receive support. This directly defuses the populist accusation that public money is being used by elites to subsidise partisan cronies.

Second, it enables civic engagement without out-of-pocket costs: a meaningful distinction in transitional economies where disposable income is limited and asking citizens to donate directly to think tanks or independent journals is simply not realistic. People are not being asked for additional money, just to choose where already-paid taxes go.

Third, it fosters a corporate-civic realignment: by allowing businesses to direct a portion of their tax liability toward local initiatives, the framework ties commercial interests to institutional stability, transparency and community welfare, rather than to political favor.

Slovakia introduced this system in 2002, and by the mid-2000s thousands of organisations were receiving allocations. While the model spread across the region, Slovakia’s current situation is a sobering corrective to easy optimism. The 2% assignment mechanism remains structurally intact, but the state has found other levers. By cutting supplementary public grants and redirecting state-controlled funds toward government-aligned entities, authorities have effectively defunded independent organisations working in human rights, environmental protection and culture, without ever touching the formal architecture of the allocation system.

The lesson is not that the model failed. It is that the model is necessary but not sufficient. Structural funding mechanisms can create a domestic financial foundation for civil society, but they cannot, on their own, protect it from a government determined to apply pressure through other channels. Civil society can be turned into a locally supported public good, but the models that enable this need to be strengthened, and the political conditions that allow them to function need to be actively defended.

An inside look

These constraints are not theoretical, but operational. In regions like the South Caucasus, building sustainable media platforms for independent analysis remains a constant challenge. The Caucasian Journal, a multilingual, non-commercial platform based in Tbilisi, was built to provide policy-oriented analysis across a fragmented regional information space, cutting through polarised narratives to focus on practical questions about governance, cooperation and institutional development. Operating in an environment without structured domestic funding makes the underlying problem immediately concrete. Sustaining independent platforms requires relying on short-term international grants and voluntary contributions. Long-term planning is perpetually difficult. Institutional continuity is never guaranteed.

The constraint is not intellectual capacity, it is economic structure. When civil society must constantly justify its existence to foreign donors rather than being structurally integrated into the domestic economy, its institutional permanence remains fragile.

Design, not just defense

Defending civil society against restrictive legislation is necessary, but it is not sufficient.

As long as the underlying financial architecture stays unchanged, the same vulnerabilities will persist. Civil society will keep depending on external funding, and political actors will keep exploiting this dependence. The most effective shift is from defense to design: introducing tax incentives for individual and corporate giving, creating percentage-based allocation systems, modernising legal frameworks to support transparent domestic philanthropy. International donors have a role here too. They should not only fund projects but actively encourage the systemic reforms that would allow civil society to put down real financial roots.

The controversy over foreign agent laws will not disappear. But focusing on the laws themselves is treating symptoms. The deeper problem is that in too many emerging democracies, civil society operates without a domestic economic foundation. That makes it both indispensable and permanently exposed.

Democracy can not be permanently outsourced. If civil society is funded from abroad, it will always be politically vulnerable at home. The answer is not less international support, but building the domestic ownership that makes that support sustainable and, eventually, less necessary. That requires more than political will, it requires institutional design. Until this system is created, the cycle will repeat itself: external funding, political backlash, defensive responses. Breaking the cycle means fixing the system that made the debate inevitable in the first place.

*Alexander Kaffka is editor-in-chief of Caucasian Journal