Wednesday, December 26, 2012

Now we're giving somewhere...  

I am intrigued by the new charity effort started by economists, GiveDirectly. It appears to me serious economic and behavioral research is finally being applied to update what have been quite frankly outdated charity operational models.

The effort has received very good reviews.
Three years later, the four economists expanded their private effort into GiveDirectly, a charity that accepts online donations from the public, as well. Ninety-two cents of every dollar donated to GiveDirectly is transferred to poor households through M-PESA, a cell phone banking service with 11,000 agents working in Kenya. GiveDirectly chooses recipients by targeting homes made of mud or thatch, as opposed to more durable materials, such as cement or iron. The typical family participating in the program lives on just 65 nominal cents-per-person-per-day. Four in ten have had a child go at least a full day without food in the last month.
Initial reports from the field are positive. According to Niehaus, GiveDirectly recipients are spending their payments mostly on food and home improvements that can vastly improve quality of life, such as installing a weatherproof tin roof. Some families have invested in profit-bearing businesses, such as chicken-rearing, agriculture, or the vending of clothes, shoes, or charcoal.
More information on GiveDirectly's impact will be available next year, when an NIH-funded evaluation of the organization's work is complete. Yet already, GiveDirectly is receiving rave reviews. In November, it became one of just three charities to earn a coveted recommendation from GiveWell, a web publication that conducts exhaustive, on-site research of philanthropies. This month, Google awarded GiveDirectly a $2.4 million grant to expand beyond Kenya. Facebook cofounder and media wunderkind Chris Hughes joined the group's board in August. Nevertheless, GiveDirectly remains an outlier in the development arena, perhaps the only organization that distributes private donations, made online, directly to the poor with no strings attached--no requirement to launch a business or to immunize one's child; no distribution of bed nets, solar lanterns, or goats.
The economics might be sound. But the politics within the non-profit world are more complicated. Niehaus, now a professor at the University of San Diego, says other development experts who have tested unconditional cash transfers are enthusiastic about the approach. The trouble is convincing NGOs to invest in such programs beyond the pilot stages.
"We had conversations with people [in the non-profit sector] who said there was a lot of internal resistance to unconditional transfers," Niehaus told me. "If this works, what are we all here for? Why do we have jobs? There's an industry that exists that tries to make decisions for poor people and determine what's best for them. In some ways, that's the industry I came from. But the value of that hasn't been proven."[More]
The last paragraph may be the most important - what if technology and extreme inequality are teaming to make many current philanthropy efforts obsolete? This idea will not be viewed kindly in the vast charity industry.

Much of the resistance is also rooted in our desperate clinging to  Just World view: People are poor for a good reason. Otherwise, we would be wealthy for no good reason as well.
More recently, researchers have explored how people react to poverty through the lens of the just world hypothesis. High belief in a just world is associated with blaming the poor, and low belief in a just world is associated with identifying external causes of poverty including world economic systems, war, and exploitation.[26][27] [More
We also struggle to give up the idea that strings should be attached to charity. Whether repentance, sobriety, employment, etc., all such "riders" assume a "just world" for which there is no evidence whatsoever.

Consequently, the early results, and the later ones this year I hope, seem to substantiate more modern economic theories of development. In fact, economists all over are getting excited about the possibilities that were unimagined before cell-phone service in very poor areas of the globe. 

Marginal Revolution's Tyler Cowen, one of the best-read econobloggers on the Net, has worked on similar premise.
My new book Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist offers a chapter on how to help other people.  In the book I suggest several principles:
1. Cash is often the best form of aid.
2. Give to those who are not expecting it, and,
3. Don’t require the recipients to do anything costly to get the money.
Inequality actually works sort of perversely in our favor for this effort. Our wealth is so much greater than the recipients that even a tiny slice we will barely feel can make enormous quality-of-life changes in lives of absolute poverty.

While it flies in the face of our relatively puritanical fiscal instincts (you can't just hand them money!!), the truth appears to be the opposite. Unlike food aid, the money does not displace local farmers or tradesmen, it multiplies through them. With new microfinance technology, transfers are almost instant and inexpensive.

Best of all, I think, we create more economic actors on the global stage, who act to mitigate via the power of large numbers the concentration of wealth and decision-making by the ultra-rich. We see this happening as China's middle class suddenly exerts enormous sway on markets of all kinds. The effect of the leap to fuller economic participation is even more amazing when starting at the very bottom.

I will monitor the news about these types of efforts, but I think the economists are on to something here. And I think I want to be part of it.

1 comment:

Anonymous said...

As do I John. Thank you.