The Economics Of Giving

With the festive season upon us, it feels only right that our thoughts turn to helping those less fortunate. Already in Britain, 8 out of 10 people have participated in some kind of charitable giving this year, and it is estimated that the UK will have donated more than £10.6 billion to charity by the end of 2015. But how many of us know with any real certainty where our money is going, or how many people will actually see the benefit? Such are the questions posed at the latest Intelligent Squared debate, entitled ‘Effective Altruism: A Better Way To Lead An Ethical Life’. Chaired by the BBC’s Kamal Ahmed, the panel includes economist and author Will MacAskill, and priest and columnist Giles Fraser.


Photo credit: Natasha Alipour-Faridani | Intelligence Squared

MacAskill wants to disrupt the way we give to charity. The average British giver donates £14 each month, with no idea where or how that money is spent. MacAskill doesn’t give monthly, but yearly. Specifically, he gives away everything he earns over £20,000 to causes which he has meticulously researched. He encourages more people to take this approach to their own altruism, suggesting 10% of an annual salary as a reasonable donation figure to give to organisations which make a measurable difference.

“There’s a structural problem when it comes to doing good, which is the lack of feedback mechanisms,” he says. “If you buy a laptop… you know immediately what you’ve bought, and you can assess whether that was worth your money or not. When it comes to donating, you just give the money to this organisation, and never really find out what that money was used for.”

This blind faith in the charity sector is more than just wasteful on our parts, argues MacAskill; it is also damaging to the people we are ostensibly trying to help. He cites the Roundabout Playpump as a high profile example; a clean water project which attracted celebrity support and widespread coverage with the PR gold of smiling, impoverished children at play, but proved to be even more troublesome than the original hand-pumped wells.

Too often, MacAskill says, aid is given out from upon high with no consulting or engagement with local communities. Projects which work are the ones that look practically at issues beyond the immediate. For instance, when economists looked at improving school attendance in sub-Saharan Africa, it was found that distributing inexpensive de-worming tablets had more of an impact than simply providing textbooks, as it meant children were well enough to actually go to school. Ten years later, these schoolchildren had grown up and were making a contribution to the local economy.

There are three questions which MacAskill believes we should all ask ourselves when deciding how and where to give our money.

  1. How many people are going to benefit, and by how much? Charity usually falls into one of two camps, says MacAskill; extending life, or improving overall quality of life. He challenges more charities to publish reports on exactly how effective they are against these vital metrics.
  2. Is this the most effective thing I can do? If you could buy one year’s worth of life-saving medication for one person, or 100 potentially life-saving mosquito nets, which would you choose? After all, they’re both worth funding. But by distributing bed nets, MacAskill argues, you have 100 times as much impact in terms of measured improvement in people’s lives.
  3. Is this area neglected? Giving to disaster relief can be construed as a waste of money, he says, as these efforts already receive disproportionate funding thanks to publicity. “The issue is that [relief] attracts far more funding than what I call on-going disasters, like the hundreds and thousands of people dying from malaria, tuberculosis and HIV/AIDS.”

Giles Fraser concedes that MacAskill’s approach to altruism is rooted in a genuine desire to do good, but that his “hard-headed utilitarianism” doesn’t factor in the human emotion that plays such a central role in giving. He posits a burning building scenario wherein there is a child in one room, and a Picasso in the other. Would you rescue the child from certain death, or save the Picasso, which you could then sell for a fortune in order to save thousands of children in the developing world?

While MacAskill says he would save the Picasso, others might be more conflicted. This is the problem with “heartless” altruism, says Fraser; “If you try to eliminate the emotional aspect of why people give, I think you’ll find less people wanting to give. You might be good at the distribution bit, but you won’t be so good at the money-raising bit… If we all turned over to effective altruism, and it turned out that the pot to be used effectively would be considerably smaller because you weren’t engaging our sympathies, then the problem with effective altruism is that it’s not being effective.”

MacAskill interprets the Picasso scenario as another question, namely, do you believe the life of a child in another country isn’t worth as much as a child in Britain. “It’s a more cultivated sense of sympathy,” he says. “You’re just empathising with the person right there in front of you, whereas the person willing to reflect on those arguments is able to empathise with people on the other side of the world, who are just as in need of help. So yes, I would save the Picasso, and I know it sounds weird, but that’s because we live in a very weird world where money is so powerful.”

Fraser acknowledges that we need to be more rational and engaged with our giving, but still believes that “the immediate and the present have a call upon our sympathies which can’t survive cost benefit analysis.” But what happens when consumers become inured to traditionally emotive appeals? Mark Goldring, CEO of Oxfam, pipes up from the audience to highlight that there is an increasing level of demand for reports on impact, instead of the usual PR. Oxfam is in the minority of charities that publishes effectiveness reviews on its website; Goldring applauds MacAskill’s call for more organisations to change how they communicate with the public, but doesn’t entirely agree with his “pound for pound” philosophy.

Of course, no matter how critical and conscientious people are in their giving, donations alone will not fix some of the systemic problems inherent to poverty — the political structures which permit and even benefit from such conditions need to be challenged too. MacAskill agrees that there are some areas where even the most discerning donation will achieve very little; he calls the current refugee situation “one of the strongest cases for political action over charitable donation.”

These thorny issues aside, MacAskill generally advocates removing emotion from giving, and implementing a triage model where you address cases in order of urgency. “Of course be sympathetic,” he says. “Wanting to save the life of the person in front of you is admirable, but how do you channel that in an unjust world?” He likens his 10% giving approach to being able to save a child from a burning building every year for the rest of your life. Essentially, he says, you would be a superhero.

If you are unsure after reading this of where to donate, GiveWell publishes detailed effectiveness reports on a number of charities.

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