Building an Economically Efficient Charity

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."


Still, GiveDirectly has a lot of work to do to overcome donor resistance to the idea of free money for the poor, much of it based on stereotypes. In the United States, abject poverty and homelessness are often correlated with mental illness and addiction, but that is not the case in rural Kenya where, as Niehaus says, most people are poor simply "because they were born in Africa." Research shows developing world cash transfers are unlikely to be spent on "temptation goods" like tobacco or beer, and the MIT economist Esther Duflo has demonstrated that in South Africa, poor people save or invest more than half of their social welfare payments. The average American, meanwhile, saves less than five percent of his or her income, no matter what its source.

In its report on GiveDirectly, GiveWell flagged several potential weaknesses of its model, most of which the organization is addressing. Because many, but not all, poor Kenyan households own a cell phone that can be used to access M-PESA payments, GiveDirectly provides a SIM card to which the cash transfers can be wired. Each month, the recipient takes his or her cell phone or SIM card to an M-PESA agent, who then distributes the cash in $200 increments. Recipients are able to make this trip in an average of 42 minutes, spending just 64 cents on transportation.

Initially, GiveDirectly worked with village elders to target potential recipients living in subpar housing. But in at least one case, an elder planted friends or relatives with adequate housing in other people's homes with mud or thatch roofs, in order to funnel payments to preferred individuals. GiveDirectly has since stopped relying on village elders to identify potential recipients. The larger effect of GiveDirectly payments on social tensions and jealousies within villages and families remains unknown, though studies of other cash-transfer schemes show few negative results. The ongoing randomized evaluation of GiveDirectly will consider whether it is more socially beneficial to target the poorest households within one village, or to provide payments to an entire village, including those who may be less poor. Research from Duflo and other economists suggests mothers and grandmothers are more likely to spend assets on children's wellbeing than fathers and grandfathers, so the evaluation will also look at any differences between how GiveDirectly's male and female recipients spend their payments.

Unconditional cash transfers to individuals do little to address the structural factors responsible for poverty, such as government corruption, gender discrimination, and the lack of quality jobs, schools, and health care. Those problems need not just philanthropic, but also political and macroeconomic solutions, pursued by governments, private industry, and the non-profit sector working in tandem. Yet if your concern as an individual donor is making life easier and more fulfilling for the poor, GiveDirectly's model warrants close consideration. I donated $200, in part because, after seven years of reporting on American poverty, I'm familiar with the critique that many aid efforts impose needless bureaucratic burdens and constraints on poor people's lives, when what they really need is financial savings: the type of flexible spending power that allows a family to address a problem, like a leaky roof or broken-down car, in a timely and effective manner, before it spirals into a crisis with dire outcomes for health, education, and employment.

"I find the international philanthropic sector very frustrating as a donor," Niehaus says. "We would like to promote much more transparency, and we would like people to ask [when they are making a donation], does this philanthropy have a convincing case that they can do more good with the money than a person would do for themselves?"

Tags: charity, donations, givedirectly, holiday giving

    • Dana Goldstein
    • Dana Goldstein is a Brooklyn-based journalist covering education, public health, economic mobility, and women’s issues. She is a contributing writer to The Nation and The Daily Beast, and in 2010 was a recipient of the Spencer Fellowship in Education Journalism, a competitive award supporting the long-form work of mid-career e...

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