What happens when you give away unlimited power?


What happens when you give away unlimited power?

According to different estimates, Americans give anywhere from $200BN – $300BN+ each year in charitable giving each year. According to this source, the United States donated slightly more than $316BN in 2013, with a year-over-year increase of about 3.5%— more than twice the level of inflation.
 

That’s a big number, and a relatively unique one as well. According to the World Giving Index, Americans are among the most charitable nations on the planet, ranking fifth out of 160 countries surveyed in 2012. (In case you’re wondering, the US followed Australia, Ireland, Canada and New Zealand, respectively). You can read the full report here.
 

Maybe that makes you feel warm and tingly, but what does that have to do with unlimited power, and why are you still reading?

 

You see, the majority of charitable giving comes in the form of “restricted” giving, and at first glance, this makes sense. When Haiti needed help rebuilding its infrastructure, Non-Governmental Organizations (NGOs) raised money from the US, swooped in, and delivered funds in order to direct tasks like re-building roads, hospitals and things of that nature.
 

This form of charitable giving is one of the most common, and for a long time it made sense. There’s a strong chance that you’ve given to feed the starving in Africa or help Typhoon victims of Indonesia or the Philippians to get food and shelter. Assuming you’ve made donations like this (or similar to this), it’s unlikely you jumped on a plane with food and blankets in hand; chances are that you donated to a reputable organization you knew (maybe the Red Cross), which then filtered funds to smaller NGOs until the funds reached the intended beneficiaries.
 

Here’s the problem with that model: Some people think the current model of charitable giving might not work.

 

Years after unprecedented resources flowed into Haiti, progress is slow, and many are questioning whether NGOs are helping or hurting. This debate is not new, and has existed among many African states for years; slowly, several developing nations have delivered a not-so-subtle message: We know what we need best. If your money comes with strings attached, we don’t want it.
 

At least one organization agrees.
 

GiveWell operates under a simple premise: People operate out of their own interests, and they know how to help themselves best. To that end, they’ve developed a pretty radical giving model. GiveWell gives large cash grants directly to those in need with no strings attached.
 

This brings us to our opening question: What happens when you give someone unlimited power?

 

What happens when you give someone the cash equivalent of one month or even one year of his or her local wages? Most NGOs and charitable giving experts believed that poor, uneducated people in need from developing nations would squander the money—spending it on drugs, alcohol or frivolous purchases. So the founders of GirvWell decided that they would run an empirical test. They went to villages in Kenya and provided cash grants directly to remote villagers and then waited to see what would happen. NPR has a pretty good podcast outlining what was done here.
 

As referenced in the podcast, and as published in this MIT publication the overwhelming majority of grant recipients did pretty well with the money they received. In most cases, the funds were used to make structural investments that helped families to elevate themselves slightly out of poverty. When villagers were surveyed, the follow-up interviews lasted over six hours, and researchers found that the results were quite positive. Children in families who received these unrestricted cash grants went to bed hungry more than 40% less often. Typical investments included things like buying live stock or installing a roof on a mud hut.
 

This effort is remarkable for at least three reasons:

  1. The traditional model of charitable giving has existed for as long as anyone can remember, and has never been questioned or challenge.
  2.  

  3. GiveWell’s new model was openly critical of the traditional method, but from a scientific point of view; the organization never said it new best; it only questioned the status quo
  4.  

  5. GiveWell constructed a scientifically valid experiment in advance to test whether its model of charitable giving would deliver results, and how those results might compare to the traditional model

 

In my opinion, there are some valuable lessons to be learned here. If you’re reading this, chances are that you manage people; you might be a parent. In either case, on a daily basis, your job is to direct the efforts of others. In my own experiences, I’ve always tried to motivate others, set a shared expectation of what success looks like and then empower them to achieve that success on their own. This is as true of my childrens’ efforts to clean their room as it is of a colleague’s efforts to launch a new business initiative.
 

This is in contrast to a micro-management approach, and one I always thought was superior. I think that GiveWell’s empirical study of what happens when you do similar things to people far less fortunate demonstrates that the model works. Interesting food for thought.
 

Like what you read? Feel free to subscribe to my Lateral Thinking Newsletter. I try to blog once a week, and my entries are delivered once a month to your inbox. Registration is free, and I will never share your email address. You can register here.
 

Tags: ,