Despite the financial setbacks faced by many in 2020, charitable giving rose to an all-time high. Global giving statistics aren’t collected, but in the United States people donated a record $471 billion dollars to charitable organizations, the equivalent of 2.25% of the county’s GDP for that year.
Increased giving is great news, and it’s an encouraging signal of how willing people have been to help each other in the face of what has been a chaotic, and for many, devastating, year. However, it unfortunately can’t be assumed that every dollar that goes toward charity ends up doing the good that the giver intended. Not all charitable organizations and projects are created equal; though many are indeed helpful, others are less effective at making a meaningful difference in the long term, instead only improving conditions for those they help in the short run. And some projects can even be downright harmful, especially where they encourage systems of dependence between low-income communities and wealthy donors.
Charitable organizations almost always have good intentions and should be sincerely applauded for trying to make a difference. However, they need to be thoughtful about their actions and strategies. Here are three questions these organizations can ask themselves to help ensure their projects are effective at creating positive, enduring change for the people and communities they serve.
- What would happen if donations stopped tomorrow?
In my previous blog, I wrote about witnessing an ill-fated project to build a hospital when I lived in Accra, Ghana. A major nonprofit organization had funded its construction, but, unfortunately, the funding for staffing and running the hospital didn’t arrive, and the large building was simply left sitting empty. Not only did the community not benefit from the hospital, but the project left a permanent reminder of the failure that damaged the trust of the community in nonprofits and other institutions.
The obvious vulnerability of donation-funded projects is that they depend on the goodwill of others to keep operations running. For that reason, organizations that rely exclusively on donations need to be careful when attempting to develop a long-term fix for a perennial problem like community healthcare, which needs to have a sustainable mechanism to ensure it can last. Instead, they may ideally be better suited to deliver aid within a relatively short, time-bound period.
- Is the organization addressing the root cause of the problem or just its symptoms?
A few years ago, an acquaintance of mine developed serious back pain. The first physician he saw prescribed some pain medications, which helped some, but the problem didn’t go away. Next, my friend decided to consult a second physician who asked him questions about his lifestyle and daily routines. It turned out that my friend carried a thick wallet in his back pocket, and since he sat most of the day while working a desk job, this created an uneven sitting surface that forced his spine to bend unnaturally for hours at a time. Instead of treating his symptoms, the second doctor focused on identifying the root cause of the problem and was able to offer a cure.
Too often, charitable organizations do the development equivalent of giving pain medicine without seeking out the underlying cause of the pain. They usually focus exclusively on treating the visible symptoms of poverty, such as hunger or the lack of good healthcare, rather than identifying its root causes. But alleviation from poverty’s symptoms shouldn’t be the goal; addressing the reasons why communities struggle to become prosperous should, which will drive poverty and its myriad symptoms away for good. Creating prosperity is not the same thing as alleviating poverty, and it requires a different approach, including spurring innovation, creating good jobs, and removing the underlying barriers that prevent people from accessing the goods and services they need.
- Do the organization’s activities help or hinder the creation of a market?
A few years ago, Toms, a shoe company, got into hot water for its promise to donate an additional pair of shoes to children in need each time it sold a pair of shoes. The company and its charitable program may indeed have had good intentions, but it was unintentionally hindering the ability of people and businesses in low-income communities to solve their own problems in sustainable ways. By donating free shoes, Toms was lowering the demand for local shoe producers and making local economies dependent on the free shoes it provided. This prevented the creation of local jobs and obstructed the development of any kind of long-term solution to the problem. In other words, Toms’ free shoes initiative, which it eventually did away with in 2019, was preventing a needed market for affordable shoes from being created.
A better solution is to encourage market-creating innovation, which helps make expensive, inaccessible products become affordable and accessible for average people. A brilliant example of this is Brazil’s Havaianas flip flops which created a thriving new market for simple, affordable footwear that met the needs of people in lower-income regions of the country. This new market created thousands of jobs and helped propel those communities toward prosperity.
Or take Drinkwell, an organization that’s transforming Bangladesh’s clean water crisis into an entrepreneurial opportunity. Rather than simply using donations to dig wells and build filtration systems, Drinkwell partners with local entrepreneurs. The organization provides entrepreneurs with affordable, efficient water filtration systems, which they then use to supply affordable, clean water to their communities. By creating a new market for clean water, Drinkwell not only creates new jobs, but also a system of incentives and value creation to ensure the “Water ATMs” that entrepreneurs set up continue to operate in the long term, rather than simply breaking down when their parts wear out, as happens with so many donated wells. Not all solutions need to follow the exact same blueprint, but they all need to encourage, rather than discourage, the creation of new markets that will ultimately produce prosperity.
Charitable giving is a good thing, and donation-funded projects can certainly do a lot to help people in need. Building new markets and creating prosperity can take time, so charitable organizations can serve an important role as a stop-gap solution to alleviate suffering until economies can grow more prosperous. But people living in poverty need more than resources; they need innovative new systems that will create prosperity in their communities. Charitable organizations need to make sure they are being thoughtful about their projects and activities. By taking the time to reflect on these three questions, they can be more sure that they are complimenting and encouraging the creation of prosperity.
