The hidden dangers of charity
- Ivo Vegter
- 19 Jun 2012 12:50 (South Africa)
Charity has a great deal of emotional appeal, as well as practical value. I indulge in occasional charitable acts myself. However, it pays to think long and hard about its wider implications. Good intentions, they say, pave roads to fairly undesirable long-term outcomes.
It is easy to witness a sad state of affairs and act on the urge to “do something” about it. See a hungry child? Feed it. See a cold man on the street? Clothe him. See a sick woman with nowhere to turn? Pay for a doctor’s visit. Do something. Anything. Can you stand by and do nothing?
These clichés are as vapid as the instincts are heartfelt. Throughout history, people and organised social groups – be they churches, associations, companies or governments – have engaged in charitable work of some sort.
Some time ago, I mentioned a charity event I was supporting. An incurable socialist troll responded that my charity was depriving the free market of an opportunity to supply the need at a profit.
It was meant as a sarcastic joke, suggesting that my charity amounts to a concession that free-market principles aren’t all that.
Of course, one can easily justify charity in terms of purely self-interested individualist philosophy: a stronger and more prosperous society is essential for an individual to succeed. One can’t get selling to people who are broke, or hiring people who are stupid. It benefits even cold-hearted capitalists (as the insulting caricature goes) when those around them prosper.
However, the comment was closer to the mark than the troll probably intended.
Charity should never be entered into lightly. The economic impact of charity extends far beyond enriching someone who suffers deprivation as a result of abuse, poverty or disease.
Take, for example, a drive to collect warm clothes for the poor and homeless in winter. Everyone feels the cold, sees the need, and sympathises with those who struggle to adequately provide for themselves. So, relatively well-off people buy some stuff, or gather some unneeded extras from their closets, to donate to the poor.
So far, so good. The well-off feel generous for a while and the poor get something to feel thankful for. On both sides, some will handle the emotion with more grace than others. But now, let’s think a bit further, about the economic consequences of such an act.
When you’re poor, you have to watch every cent. You have to budget carefully, prioritise necessities, and make sure that what little money you are able to earn (or receive as a welfare grant) stretches as far as possible. If a poor person knows that they can rely on private charity for a cup of soup and a roll twice a week, or a blanket every winter, they have no reason to budget for this. The consequence is that, next year, they may well find themselves in exactly the same boat, needing exactly the same charity. In fact, they might choose to be in the same boat, since they’d rather save their own money for the things charity does not provide. Charity reduces the motive of necessity for being productive, turning a temporary misfortune into a permanent structural problem.
For a number of charity recipients, the generosity of their community solves a very real problem that could not otherwise be solved. Some do save that money to spend it on more nutritious food, essential healthcare, or their children’s education. It would be cruel to begrudge them that. For some, however, it does not solve an unavoidable problem. Too many recipients save that money only to spend it on goods and services that really ought to have a lower priority. Sometimes, the charity of the rich indirectly funds drink, drugs, toys and cigarettes.
The economic impact of trapping people in aid dependency or, worse, encouraging outright exploitation of the generosity of others is a significant risk. If not carefully managed and closely monitored, that risk can overwhelm any good a charity project does.
The economic impact of charity is not limited to its recipients, however. An even more important hidden danger is to undermine the capacity of the local economy to provide society’s needs.
In an ideal world, even the poor are catered for by manufacturers and merchants. You might prefer to drive a big car, but cheap cars, scooters and bicycles serve the lower end of the market, and the taxi industry caters to people who can’t afford even those luxuries. You might prefer designer clothes, but budget stores and second-hand dealers cater for those who can’t afford to be fussy.
The world is not ideal, of course, and some people can’t afford even the most inexpensive necessities of life. It would be nice to know that this number is as low as possible, instead of being inflated by the structural unemployment caused by the government’s economic policies, but even if it were, there would be a small minority of people who for reasons outside their control truly can’t provide for themselves.
However, by supplying such people with goods and services from elsewhere, the low-end businesses that try to cater for the poor get undercut. How can a second-hand store compete with free clothing? How can a budget supermarket compete with free food?
If you’re offering free internet access to a community, or free books, or free extra maths lessons, what is the impact on the companies who might otherwise be in a position to supply these services? They will be left with a smaller addressable market, which raises their unit cost. This, in turn, can keep prices permanently out of reach of the poor, which makes charity self-perpetuating.
If your company offers to paint a school, a shelter, or a clinic, how do you think the painter who sits on the side of the road begging for work feels about that? Does it really benefit the local economy to have highly paid engineers, salespeople and managers spend their time working as amateur painters? And if local professional painters sit unemployed, will they be in a position to take the next urgent community need into their own hands?
This effect is well known in international aid. When a country faces starvation, the need to save lives is urgent and immediate. The emotional appeal of poster children is strong. The problem is that Bono-branded food donations undercut domestic farmers. How can they compete with free food, when they’re already struggling with droughts, pests and other causes of low crop yields? Charity robs the local agriculture sector of the very income it needs to invest in fertiliser, better seed stock or irrigation. Out of business or under-capitalised, they end up unable to prevent a famine the next time a hard season comes around.
If you are going to give to the poor, it is much smarter not to cut those businesses that ought to be able to supply them out of the loop. If there is a need for warm clothes, go out of your way to buy them from the cheapest discount supermarkets or second-hand stores, located in the area where the charity is to be distributed. Short term, a fluffy blanket from a fashionable outlet (if not traded for a cheap blanket and some cigarettes) might help someone. Long term, it is perverse to enrich the shareholders of an upmarket shop in the rich part of town, while the cut-price supermarket at the taxi rank struggles or the thrift shop in the township goes under.
The knock-on effect doesn’t end there. If the shop catering to the poor makes less money or goes under, it will employ fewer people. It will buy less stock from suppliers, which in turn may have to cut back on staff. This ripple effect undermines the very infrastructure on which prosperity is built. It increases poverty, rather than reducing it. That is exactly the opposite of what the kind-hearted donors had in mind, one must suppose.
The cynical will observe that charity can even be used as an anti-competitive weapon. If you’re trying to dominate a market in order to maintain pricing power, it might pay handsomely to make a few strategic donations. You look wonderfully caring to your rich customers, while at the same time you undercut competitors that sell blankets at half the price you do. Some “corporate social responsibility” is just predatory pricing on steroids.
The most harmful kind of charity comes from government itself. It requisitions money by force from those who earn it, and distributes it through vast, one-size-fits-all programmes. Every welfare programme, from child grants to public education, suffers from these problems. They are inefficient, expensive to administer, crippled by bureaucracy, corrupted by lazy gravy-train riders, vulnerable to misappropriation, and opaque to oversight. They entrench perverse incentives on the part of recipients, and undermine local economies that ought to be able to supply (and employ) the poor.
Many people who work in government or non-profit circles are inclined to view growth in social welfare spending as a good thing. It is the exact opposite. Social welfare programmes ought to be considered successful if the need for them declines. As finance minister Pravin Gordhan said in his budget speech: “Government has expanded social assistance to households over the past decade, but employment and economic growth have to be the main future drivers of income growth and poverty reduction.”
In the business sector, a vibrant ecosystem of small entrepreneurial firms form the bedrock of the economy, stimulating growth, creating employment, rewarding success and punishing failure.
Likewise, charity is at its most healthy and effective when it consists of many small, local and private ventures. Such people have focus and know local conditions. They know how to support local business while helping the poor to prosper. Like with badly run companies, which are soon abandoned by watchful investors, badly run charity projects will get shunned by donors who have active oversight and a real choice over how their money gets spent. Such failures create space for better “competition” to succeed.
If you’re going to donate to charity, think hard about it. When you start thinking about it, it is startling how many apparently charitable acts turn out not to be worth doing. There is no easy substitute for hands-on charity in your local community, so you can choose how your time or money is best spent. How it is done is just as important as what is done. Just writing a cheque, sending a premium text message, or dropping off a baby blanket at a collection point might make you look generous or assuage your guilt. It might even have short-term benefits.
But think deeply about the unintended consequences of a particular act of charity, to make sure that limited resources are applied to optimum effect, while minimising the unseen harm caused by doing good. In the long run, charity can make poverty worse rather than better. DM
- Do Malema's followers understand ‘agrarian reform’?
- Look ma, I'm defending Shell's record in Nigeria!
- Any weather is evidence for global warming
- U-turn prof finds his fracking fears are avoidable
- Ramphele et al: The world according to angry feminists
- On HIV/Aids and scary-big numbers
- Cherry-picking ‘grey literature’ on rhino horn
- 350,000 reasons to kill a black rhino
- Eight myths about libertarians
- New Year’s resolutions for other people
- All I want for Christmas is a fire pool
- In defence of Donald Trump
- My old South African flag
- Fearful Fukushima fiction fatigue
- Do we tolerate private sector corruption?
- In defence of a lion killer
- Save the rare wine and endangered craft beer
- Forever blowing bubbles: shale gas economics
- Promotion and Protection of Investment Bill: When “certainty” means “wait and see”
- This land is my land: a revolution
- The launch of SA's Libertarian Party: herding cats in time for 2014
- The African case against the ICC
- The fossil fuel subsidy myth
- Think of the little fishies!
- The hilariously misunderstood libertarian
- The sickly history of sweeteners
- Pants on fire, but they’re not mine
- The obstructionism of shale gas activists
- How mind-numbing numbers whip up fear
- Why pick on Khanyi Dhlomo?
- Half-measures will fail the rhino
- Malema’s righteous anger... and naïve confusion
- Lottery licence to go to one lucky winner
- Vaccinations: when the state stabs the people
- Do reusable shopping bags kill people?
- The long walk to serfdom
- The Karoo desperately needs development
- The trials of Samson Shuttleworth
- The girl who kicked the hornet’s nest
- Raping the discourse about rape
- Who is the reasonable man?
- Fracking: Debating a big deal
- Who needs the Queen’s English?
- Electric cars: Taking from the poor to give to the rich
- Business Licensing Bill: An indefensible defence
- Red-tape tourism
- The Big Business Bribery Bill
- On Thatcher and society, Vavi and the market
- Extinction: Let’s make up numbers and panic!
- Feeding the world is getting easier
- Stop talking shit: Build your own toilet
- Climate change is pseudo-science
- Anti-competitive competition law
- The Department of Less Government
- An open letter to President Zuma
- In defence of Kim Kardashian
- The world’s weirdest wildlife sanctuary
- Boycott calls are simple-minded
- In defence of vegans
- The population explosion implodes
- Environmental backpedalling picks up pace
- How Mangaung can help and hinder entrepreneurs
- The elusive libertarian enclave
- The Gathering: Ivo Vegter
- The hidden overemployment crisis
- The case for constructive environmentalism
- Privatise the Western Cape's shacks
- Tenders: Not open to employees or their families
- Hurricanes fuel climate sensationalism
- Next: Gross-out warnings on food
- No new deal: The failure of Zumanomics
- Benoni has a bright idea
- Was I wrong about acid rain?
- Public food gardens: Where dumb ideas thrive
- Rethinking the costly food label madness
- Give hunting a chance
- Fracking gets green light, but here's the risk
- Socialists, bless 'em, visit Cape Town
- Buy a 1Time ticket now
- Give the ANC credit where credit is due
- The myth of the competent apartheid government
- It's a disaster that 'peak oil' is not a disaster
- No Gravy: a label for sustainable business
- This lightbulb's going to blow
- Smokers? Get 'em up against the wall!
- Inflating the obesity scare
- Bring a Shotgun to School Day
- GMOs: Hacking genes to feed the world
- The hidden dangers of charity
- Fracking: the unread paper debated
- Fracking: The “U-turn” paper nobody has read
- Eco-cronyism is as dangerous as any other
- SKA: Be grateful Karoo residents didn't object
- Energy: Get cracking on fracking
- Fair trade, unfair trade-off
- Casual labour is only bad for Vavi's unions
- 'Externalities', the catch-all justification for regulation
- 'Externalities', the catch-all justification for regulation
- How do we fix our dismal education?
- Barter: the rebirth of sound money
- Rights are not entitlements
- Debunking 'limits to growth' inanities
- Tax: Why align with "most other countries"?
- Newspaper sensationalism doesn't help rhinos
- Rolling Stone reprises Gasland's fracking fantasies
- Cosatu's manipulative march move
- Why do 16 million people not constitute an economy?
- The age of smear politics
- Does fracking cause earthquakes?
- The Chinese model is morbidly obese
- Green tech: doubling down on a losing bet
- Rape, pornography, and hell's grannies
- Petrol taxes won't hurt the poor
- Jailtime mooted for bad weather warnings
- Let's ban bans, and start with CITES
- In defence of overpaid sport stars
- On the death of Kim Jong-Il
- COP17: Let's ban fire
- Cancer gets you when nothing else can
- COP17: The 'party on' agenda
- COP17: The Blue Line of Death
- New seven natural inanities
- Occupiers' anger is all that makes sense
- The Luddites and Technocrats live on
- Malema marches for economic slavery
- Profitable purveyors of pudendal prettiness
- Sense? Us?
- If they want rhino horn, let's sell them some
- "Stimulate" economy by ending telco abuses
- Executive pay makes nobody poorer
- Malema's real persecution
- Mogoeng: Lock up your daughters
- Don't mandate insurance, deregulate healthcare
- I sympathise with Malema's persecution complex
- Short selling: panicked pols ban proof of failure
- Don't blame those who saw it coming
- What's obscene about profit?
- In defence of Bombela
- Dear president Zuma, you are not above the law
- The economics of love
- Treasure the Karoo? Ban the SKA!
- Malema is right, you know
- Gautrain's PPP: political patronage profiteering
- Kumi Naidoo is no hero
- LeadSA fails to lead when it matters
- No logo means carte blanche
- The drug war: dopey but dangerous
- A response to fracking critics
- Don't vote. It's your right.
- Welcome Walmart
- If you're happy and you know it clap your hands
- Buy local, support poverty
- Ubuntu, the free-market way
- Karoo fracking scandal exposed!
- I'm ashamed for my profession
- The bill of bunkum
- Being gay: a brand new concept!
- Who's afraid of the nuclear wolf?
- The nationalisation canard
- Ogilvy should grow a spine
- The new robber barons
- A classy revolution: Why we cared
- Bombastic Bombela balks
- Liberty is more than mere democracy
- Gautrain has a law unto itself
- The irony of 'services for all'
- How to hire a hitman in SA
- Arrive alive and neurotic
- The oppression of taxis
- Protection of Information Bill and why WikiLeaks is so dangerous
- Fifa, Russia and Qatar deserve each other
- One day, we'll all hate WikiLeaks
- The cycling mafia strikes again
- What Julius got for Christmas
- Let's return the beads
- Away with fascist seat belt laws
- Tintin Mbeki in the Sudan
- How the ANC can make everyone happy
- Currency: the race to the bottom.
- Hurrah for national healthcare!
- Give Zimbabweans citizenship
- Carte Blanche has no carte blanche
- That finger-licking, lip-smacking taste
- Bomb the barbaric lot already
- Green tax: another raid is coming
- Do strikers deserve anything?
- The media will lose this battle
- Global warmism needs a fisking
- A glass half-full
- Go ahead, have a baby
- Stop the handouts - end xenophobia
- The right to fire
- FIFA's heart of darkness
- Have some self-respect
- I ordered an orange skirt
- Secretly, Match blames South Africa
- The stupendous Gautrain: a rare marvel!
- The Fifa conquistadors are coming!
- What's wrong with everyone?
- Leave poor BP alone
- The destructive power of government
- The bonsai economy
- The darkness of Africa
- Who is ripping off whom?
- Anatomy of a whitewash
- While FIFA takes over, we fight
- The pointless pretence of Earth Hour
- Ten reasons to reject climate alarmism
- Really, boycott the FIFA farce
- The climate dominoes fall
- Lessons in ethics from Dick Cheney
- Screw the consumer
- In defence of bankers
- Break the banking cartel
- Julius Malema, the walking contradiction
- Boycott FIFA
- Climate clarity
- In defence of Boney M
- Pray Copenhagen fails
- Capitalism is not unkind
- Climate fraud kills people
- Pop goes the hot air balloon
- Peace, love and schadenfreude
- The irony of the left
- Too late to cool it?
- Going cold turkey