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This article was published 23/12/2016 (1606 days ago), so information in it may no longer be current.
Christmastime is here, and many people make charitable donations on behalf of themselves or in lieu of gifts to loved ones. The decision of where to donate money is straightforward for many people — they have favourite charities (medical research, local food bank, etc.) that benefit from their donations regularly. Other people, particularly those who donate to international causes, struggle with how to allocate their charitable donations in a way that best helps those in need.
This is where the sophisticated marketing campaigns of international charities come into play in efforts to attract your money to their cause. You may recall recent campaigns such as "Because I am a girl" or "One goat can change everything." A tour of prominent charities’ websites displays catalogues from which well-intentioned donors can choose their preferred gifts. Options include "Goats plus two hens and a rooster" and "End violence against women."
Closer inspection of how the money is spent reveals your dollars won’t necessarily be used to buy the items as advertised in the catalogue, but may be pooled with other donations to support projects in related areas such as food security or education. These targeted appeals are intended to tug at one’s heartstrings — it’s more appealing to donate money to educate a seven-year-old girl whose face you can see on a web page than to donate to a fund that vaguely supports education initiatives in a poor community.
There is a wide range of ways charities support aid recipients, from mosquito-proof bed nets to food rations to shoes (all "in-kind" gifts) and, more recently, with cash. Charities traditionally have provided in-kind aid, and Canadian food aid is a prominent example. The solution to the problem of hungry people in foreign countries seemed obvious to grain-rich Canadians — send food.
The federal government historically funded the purchase and transportation of several hundred-thousand tonnes of wheat from Canada to recipients overseas. This changed dramatically in recent years, as we have learned growing and processing wheat in Canada, putting it on ships and then delivering it overseas is a very inefficient way to help hungry people. Such deliveries are slow to arrive and typically more expensive than food that can usually be bought near the recipients. They may not appeal to the tastes and dietary customs of aid recipients.
Canada now donates almost all of its food assistance as cash, with which the World Food Programme and other implementing partners buy food closer to recipients. This important policy change is due, in large part, to lobbying efforts by Winnipeg’s Canadian Foodgrains Bank, which educated policy-makers on how to better allocate food aid budgets.
Recent innovations have taken this idea one step further; many charitable organizations now provide cash transfers to recipients instead of sending in-kind donations. Even hungry people are often best served by providing them with cash that can be used to buy food in local markets, not by sending food.
Some organizations provide exclusively cash, operating under the premise that to justify providing anything other than cash, we must establish that: 1) the donor knows better what is needed than the recipient; 2) whatever is needed is not available locally; or 3) the donor can provide what is needed faster or cheaper. It is difficult to satisfy these criteria in many circumstances. There is also evidence that providing in-kind donations (used clothing and food) can negatively impact the development of local markets for these products.
Giving cash to poor recipients may seem cold and impersonal, but a growing mountain of evidence demonstrates cash transfers can have significant and lasting effects on the health and welfare of aid recipients. Recipients might spend some of that cash on a goat or on wheat, but some of it might be spent on tuition at a private school or on agricultural tools.
The key is the money is spent on things deemed important by the recipient, not by distant administrators. Cash transfers have been shown, in many cases, to reduce poverty more effectively than gifts of livestock and other in-kind products, and at a much lower cost to donors. More efficient use of aid dollars means more recipients can be assisted with the same aid budget. Givewell, an organization that reviews and rates charities, compares the cost efficiency of organizations to a benchmark charity that gives exclusively cash, Give Directly.
Cash transfers differ from microfinance programs (which provide small loans to recipients in hopes of spurring entrepreneurial investments) in that there is no expectation cash transfers will be repaid. Microfinance programs were popular in recent years because it was believed that lending — instead of giving — money to recipients would induce responsible spending and investment. Unfortunately, after 20 years of experience and evaluation, most studies have found that these programs do not reduce poverty. Microfinance appears to be another idea whose potential was overstated.
It is worth noting the bogeyman of cash transfers being wasted, or spent on vices such as alcohol and cigarettes, is just that — a bogeyman. Most studies show these transfers are not spent on vices. The money is spent in ways recipients believe will improve their quality of life.
So does this mean that one shouldn’t donate to a charity that provides recipients with a goat? One way to approach that question is to boil it down to: would a family be better off with a goat than without? Probably, yes.
A better way to approach that question is to rephrase it: would the same family be better off with the cash equivalent (or less) of all the costs associated with providing them with a goat (acquiring the goat, transporting the goat, training the family to care for the goat, etc.) than they would be with a goat? The best evidence tells us that yes, they almost certainly would be. There may be some families whose lives would be most improved by a goat, but that number of families is small. Better to give them cash, and let the family decide what to do with it.
At the end of the day, one is faced with the choice of where to donate money. It’s not helpful, or realistic, to make this decision based on the cost-benefit returns of different charitable donations. We don’t have enough information to make these calculations (though Givewell provides some guidance). Even if we did, charity is an act of the heart, not of cost-benefit calculus. I choose charities that resonate with me, but I keep the following guidelines in mind:
1. Have realistic expectations. My donations can have positive impacts on the health and welfare of some recipients, but the effects will be marginal. Aid will not have transformational effects on poverty. Any organization that tells you otherwise is selling snake oil. Two important exceptions are donations during humanitarian crises (which can alleviate immediate threats to life and health) and global health campaigns such as deworming and childhood immunizations (which are widely considered to be aid success stories).
2. Choose charities that provide aid as effectively as possible. Recent evidence suggests this might mean donating to charities that provide cash transfers instead of providing in-kind donations (shoes, glasses, goats). Cash isn’t always best, but recent evidence suggests it is better than existing alternatives in many circumstances.
3. Don’t put too much weight on "metrics" such as share of donations spent on overhead. There are bad apples (bloated or corrupt charities) out there, but the emphasis on reducing administrative costs is overstated. Changing the way aid is provided to recipients will go a lot further toward reducing poverty than will reducing the CEO’s salary.
Charity and foreign aid cannot lift communities out of poverty; such transformational change requires institutional — and homegrown — changes in poor communities and countries. But Christmas donations can improve the quality of life for recipients, and decades of experience and research have taught us some interventions are more effective than others.
Ryan Cardwell is an associate professor in the department of agribusiness and agricultural economics at the University of Manitoba.