The Case against Donations: Short-Term Gratification for Long-Term Damage
As noted in a previous blog post, one of the most admirable feature of American society is its charitability. Not only is there ingrained culture of charitable giving among a significant portion of the local populace, there are physical institutions, ranging from tax reductions on donations to multiple large nationwide organizations that take in donations, that allow people to act upon their charitability in highly convenient fashion. The result is a highly efficient and productive charity sector. On global rankings for charitability as measured by percent income donated, America consistently rank at the top of the table.
A significant portion of that charity is earmarked for foreign locales. As much as inner-city ghettos in American urban areas struggle with unending cycles of institutional poverty, violence, and low socioeconomic development indicative of Third World countries rather than the First, the suburban middle- and upper-classes, the bulk of the American individual donors, seem to be convinced that the sufferings of inner-city Americans is nothing compared to the poverty of people in the average African village, for instance. While the belief is true to an extent, it has the side effect of making donation to foreign locales less strings-attached.
The massive inflow of donations to the foreign locales then, as I argued in the past as well, tend to reduce the level of industrialization for those particular locales. By providing products with practically no purchase costs (donated items just need to be shipped to different places), donated products outcompete anything that can be locally manufactured, leading to widespread deindustrialization and loss of manufacturing jobs. Any government efforts to reverse such deindustrialization, through limitations of secondhand product imports, tend to benefit cheap foreign producers exclusively, as the local manufacturing ecosystem is already lost.
Under the problem of causing deindustrialization in destinations for donations lies a bigger, more general issue toward the very concept of donating. That is the entrenched belief that donation realistically opens doors for problem-solving, and that to give away money or products for free can kickstart a process by which the unfortunate can work themselves to become more well-off in the future. It is easy to see where that belief comes from. Often, donors donate based on secondhand information of the places they are donating to. Few has any concrete desires to visit, much less live, in places where their donations will go to.
Charities, receiving donations, make every effort to create a belief that the donations are making concrete differences in people's lives. Postcards will be sent out with pictures of kids being able to eat and attend school, families being able to buy clothes and start small businesses, all happy and full of kind words for the donors. Donors, looking at such reactions, are bound to conclude that their money is creating lasting impacts to people's lives. A sense of instant gratification sets in from "helping people." The immediate satisfaction leads them to continue donating, much to the benefits of the charities receiving the money.
The psychology of how donors think about their donations incentivize charities to skew their project portfolios to ones that allow for short-term impact. To avail themselves to more donations to run more projects, charities must focus on projects that can create immediate presentable results, so that they can attract more donations by publicizing those results. Projects that may have much bigger, long-term results, but too long-term for the attention span of the donors, are much less likely to be pursued. The result is fast turnaround of donation money and its usage, ensuring quick wins that can fed back to the donors.
But if there is anything to be learned about developmental differences among societies from reading Guns, Germs, and Steel, it is that the advantages of creating certain institutions, whether it be enforcement of contract, private ownership, or free-market economy, are not immediately apparent. Sometimes the positive effects of those institutions are only seen generations later, when other complementary institutions are developed and utilized to bring about the true benefits of those institutions. Those who invested in creation of those institutions may not be able to see the benefits within their lifetimes.
Yet, it goes without saying that the majority of wealthy countries today are wealthy because of those institutions, and many impoverished ones are either without them or had them for such a short period of time that they are still learning how to handle them properly. The fact that donors and charities are not incentivized to invest in these long-term institution-building for the lack of immediate benefits poses a major problem for donation recipients. It makes donation-receiving societies much more prone to aid dependency as there is no effort to develop alternatives to getting free money.
Furthermore, because charities and donors are looking for immediate presentable results, to get them fast, they might inadvertently weaken already-fragile local institutions as well. Getting the money out to farmers may mean bypassing local authorities (often by bribing them) for their approval. Getting more kids educated may mean taking students from mediocre public schools to put them in private ones rather than strengthening those mediocre schools. By acting fast, charities tend to create their own placeholder institutions that locales become more dependent upon but have little control of.
All the above is not arguing for complete end of donations per se. For countries that lack competitive exports that can be used to foreign capital to develop the domestic economy, donations is often the only way to procure enough resources to move the country forward. But there should be more recognition of how donations can actually be in the long-term damaging to people and societies that they are supposed to help. Today, because of charities' overzealous efforts to pander to the joy of donation among people in wealthy countries, those words of caution are simply not present.
A significant portion of that charity is earmarked for foreign locales. As much as inner-city ghettos in American urban areas struggle with unending cycles of institutional poverty, violence, and low socioeconomic development indicative of Third World countries rather than the First, the suburban middle- and upper-classes, the bulk of the American individual donors, seem to be convinced that the sufferings of inner-city Americans is nothing compared to the poverty of people in the average African village, for instance. While the belief is true to an extent, it has the side effect of making donation to foreign locales less strings-attached.
The massive inflow of donations to the foreign locales then, as I argued in the past as well, tend to reduce the level of industrialization for those particular locales. By providing products with practically no purchase costs (donated items just need to be shipped to different places), donated products outcompete anything that can be locally manufactured, leading to widespread deindustrialization and loss of manufacturing jobs. Any government efforts to reverse such deindustrialization, through limitations of secondhand product imports, tend to benefit cheap foreign producers exclusively, as the local manufacturing ecosystem is already lost.
Under the problem of causing deindustrialization in destinations for donations lies a bigger, more general issue toward the very concept of donating. That is the entrenched belief that donation realistically opens doors for problem-solving, and that to give away money or products for free can kickstart a process by which the unfortunate can work themselves to become more well-off in the future. It is easy to see where that belief comes from. Often, donors donate based on secondhand information of the places they are donating to. Few has any concrete desires to visit, much less live, in places where their donations will go to.
Charities, receiving donations, make every effort to create a belief that the donations are making concrete differences in people's lives. Postcards will be sent out with pictures of kids being able to eat and attend school, families being able to buy clothes and start small businesses, all happy and full of kind words for the donors. Donors, looking at such reactions, are bound to conclude that their money is creating lasting impacts to people's lives. A sense of instant gratification sets in from "helping people." The immediate satisfaction leads them to continue donating, much to the benefits of the charities receiving the money.
The psychology of how donors think about their donations incentivize charities to skew their project portfolios to ones that allow for short-term impact. To avail themselves to more donations to run more projects, charities must focus on projects that can create immediate presentable results, so that they can attract more donations by publicizing those results. Projects that may have much bigger, long-term results, but too long-term for the attention span of the donors, are much less likely to be pursued. The result is fast turnaround of donation money and its usage, ensuring quick wins that can fed back to the donors.
But if there is anything to be learned about developmental differences among societies from reading Guns, Germs, and Steel, it is that the advantages of creating certain institutions, whether it be enforcement of contract, private ownership, or free-market economy, are not immediately apparent. Sometimes the positive effects of those institutions are only seen generations later, when other complementary institutions are developed and utilized to bring about the true benefits of those institutions. Those who invested in creation of those institutions may not be able to see the benefits within their lifetimes.
Yet, it goes without saying that the majority of wealthy countries today are wealthy because of those institutions, and many impoverished ones are either without them or had them for such a short period of time that they are still learning how to handle them properly. The fact that donors and charities are not incentivized to invest in these long-term institution-building for the lack of immediate benefits poses a major problem for donation recipients. It makes donation-receiving societies much more prone to aid dependency as there is no effort to develop alternatives to getting free money.
Furthermore, because charities and donors are looking for immediate presentable results, to get them fast, they might inadvertently weaken already-fragile local institutions as well. Getting the money out to farmers may mean bypassing local authorities (often by bribing them) for their approval. Getting more kids educated may mean taking students from mediocre public schools to put them in private ones rather than strengthening those mediocre schools. By acting fast, charities tend to create their own placeholder institutions that locales become more dependent upon but have little control of.
All the above is not arguing for complete end of donations per se. For countries that lack competitive exports that can be used to foreign capital to develop the domestic economy, donations is often the only way to procure enough resources to move the country forward. But there should be more recognition of how donations can actually be in the long-term damaging to people and societies that they are supposed to help. Today, because of charities' overzealous efforts to pander to the joy of donation among people in wealthy countries, those words of caution are simply not present.
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