Breakthrough Charity Idea: Give Money to Poor People

Happy Monday, everyone. Today's short post centers on two podcasts I recently listened to on NPR, which followed a charity called GiveDirectly that has a simple mission: to give money directly to those in need. Instead of providing training or equipment or performing work or building schools...what if you just gave money to poor people? The simple idea is based on an old economic principle: people know what they need, and how to best get what they need, better than anyone else. Give them money and you not only get the best results--it also dramatically simplifies the charity process. And the concept is being put into action: GiveDirectly is giving away $5M this year.

I won't ruin the podcasts as they are both excellent shows worth listening to. Here is the short podcast from Planet Money, summarizing the concept; and here is the slightly longer podcast on This American Life. But I want to just discuss the idea, as my wife and I did, each of us coming to a different conclusion.

Why Giving Money Might Be a Good Idea
I find this kind of charity to be a lot like micro-credit, just without the loan. The genius of micro-credit is that it provides relatively small amounts of money to individuals with no access to credit and/or no collateral. These small funds are often used to start small businesses, and these businesses often are the means by which the impoverished break out of poverty. Access to credit gives the recipients unprecedented economic mobility: the injection of cash, in many cases, creates a much higher income than would otherwise be possible.

But what if you simply removed the obligation to pay back the money, as well as the process of vetting loan applications? What if you just gave poor people the money instead, no strings attached?

Additionally, charities are often focused on a relatively singular idea. DebtandtheGirl recently wrote about a charity that saves women from sex slavery. A friend of mine worked on Mercy Ships, an organization that sails a floating hospital around the world and gives medical care to those in need. However, the specificity of these organization's missions means that some needs just aren't a good fit with the charity. Giving cash widens the scope: money is more flexible & inclusive than medical care or a center to house abused women.

Why Giving Money Might Not be a Good Idea
My wife rightly noted that people, poor or not, might not necessarily have the best ideas on what to do with a life-changing amount of cash. Even if they do have good ideas, some might not know how to follow through on them regardless of their income level. And we know that lottery winners are terrible at managing huge sums money. Why should we assume that poor people in Kenya would be very good at managing what, to them, is a life-changing sum of money?

Mrs. Done by Forty also noted that knowledge and guidance are things that, logically, should actually help if your mission is to give out money. Besides the cost of transportation and salaries, giving knowledge is relatively cheap: it costs nothing to have a conversation. Printing pamphlets or books or sending emails with helpful attachments, for all intents and purposes, is not that expensive. Why not give cash and guidance?

The Pushback
As you might imagine, traditional charities are not that receptive to this idea. The premise of GiveDirectly is that charities would better help people if they completely gave up their mission, their training, their staff, and infrastructure...and simply acted as a benevolent ATM machine. It challenges their very existence by suggesting that all the good things they do might simply be reducing the effectiveness of the money their donors provide.

The founders of GiveDirectly respond with a simple request. Let's see the argument for why a charity can do more with a dollar than a poor person can do with it themselves. Let's set up an experiment with a control group, and see which approach works best.  However, this sort of data is not easily available, and some traditional charities balk at the idea of using the recipients of their charity as a baseline in an economist's experiment. These are very poor people with real needs; throwing them into a randomized experiment might not be entirely ethical.

What do you think, readers? Can the simple idea of giving money possibly be the best solution? Or are the root causes of poverty simply too complex to be solved by handing out cash?

*Photo is from epSos.de at Flickr Creative Commons