The Business of Human Suffering: Charity's Transparent Fraud
Written by Tavie Meier | Illustrated by Elizabeth Stilwell
Imagine if someone said, “I wish there’d be an earthquake that destroys the lives and homes of thousands so we can give money to them.”
That’s messed up, right?
For-Profit/Non-Profit: The Same, But Different
A charity, by nature of its own mission, shouldn’t want to exist. Fundamentally, its existence hinges on people suffering from natural disasters or societal ailments like systematic oppression and war. The people who receive their charitable services function as their "consumers." This dynamic is often overlooked because charities don’t receive money from their consumers, but instead appeal to donors for the funds to deliver services.
The perversity of this economic model means that, to meet the demand that is human suffering, charities supply aid for consumption. A noble effort to be sure, but one that has been normalized within the non-profit industry, with organizations supplying aid for years, even decades, as well as mishandling funds. Charities leverage this demand in order to extract money from donors because without it, their projects, jobs, and services wouldn’t exist. But what should happen when there is a lack of demand for charity?
In the for-profit industry, when there’s no consumer demand for a product or service, businesses shut down. In order for a business to sustain itself, it requires consumers to buy what it's selling. For-profit businesses want money from their consumers; in order to survive in a competitive market, they need a good product and happy customers.
Conversely, charities should exist so their consumers can eventually sustain themselves. Markets will not exert the same pressure on non-profits, so it's entirely possible for several charities to deliver the same services despite poorly-executed missions and underserved consumers. If a charity does its job to perfection (or even just very well), it will reduce the demand both for its services and the amount of donor funds needed. Unlike for-profit businesses, charities should explain how, someday, their success will put them out of business.
When there is a lack of demand, charities that work only to keep their doors open are, at best wasting money, and at worst perpetuating the social problems they originally formed to fix.
Who’s Doing It Wrong?
When NPR and ProPublica ran an investigation on The Red Cross’ response to the Haitian earthquake in 2011, they found the organization raised an unprecedented $500 million to build six homes. They also found most of the staggering sum went to administration and non-service line items, and The Red Cross kept raising money after it had enough to complete emergency aid services — the organization’s mission — in order to pay off their $100 million deficit. To do this, they marketed development projects to donors and then failed to follow through with their promises.
The Red Cross’ need to sustain itself trumped the genuine needs of their consumers, leaving earthquake victims underserved and out of luck. Jean Jean Flaubert, the Haitian project manager for the Campeche neighborhood project, stated,
What the Red Cross told us is that they are coming here to change Campeche. Totally change it…. Now I do not understand the change that they are talking about. I think the Red Cross is working for themselves.
This is, by no means, a “third world problem.” Flaubert’s sentiment about The Red Cross was solidified after Hurricane Sandy when 40% of available rescue vehicles were diverted to serve as backdrops for news conferences.
Outside of disaster relief, there’s a much bigger charitable structure that has enjoyed increasing donations year after year…after year, after year. In 2014, Americans set records for donating to charitable causes, most of which went to traditional charities. This model is so deeply-embedded in our giving culture that most people don’t look twice at its effectiveness.
Cambodia, one of the world’s poorest nations, attracted 450 INGOs (international non-governmental organizations) in the 1990s. Recently, Oxfam advocated for exit strategies to phase themselves and other INGOs out of the country. In this 2014 Phnom Penh Post article, Kevin Ponniah reports:
“If we INGOs are not thinking about our role in the future, we are not helping Cambodia,” said Sophavy Ty, an Oxfam program director.
The INGO study says that while such groups still have an important role to play, the development situation that drew about 450 INGOs to the Kingdom in the first place – Cambodians desperately in need of basic assistance – has changed..
“International NGOs should not be looking for a lifelong job in any country, and Cambodia is the same.”
World Vision, another INGO, wholeheartedly disagrees. Chris MacQueen, Director of Strategy at World Vision’s Cambodia office stated,
While malnutrition in children under five hangs static at 40%, and more than 230,000 children are forcibly involved in the worst forms of child labor…and while 50% of children by grade six are functionally illiterate…we will focus on the job at hand.
Chris’ “job at hand” has existed for nearly 23 years (since the UN’s 1993 occupation). If MacQueen’s statistics are to be taken at face value, then he’s actually advertising World Vision’s failure. The 450 INGOs need to reassess the services they’re offering their consumers, especially if malnutrition in children is “hanging static.”
Even with full financial transparency provided to us by sites like Charity Navigator, and news publications being increasingly more critical of charity, they are written through the donor’s gaze, addressing ways for people to get the most bang for their charitable buck. In fact, Charity Navigator rates both the Red Cross and World Vision with 4/4 stars for “accountability and transparency,” and has no feature to measure an organization’s impact on their consumers.
As a donor, I can annually give to programs that keep detailed financial records and release annual reports telling me where my money is being spent. My contribution will help consumers stay alive until the next round of giving, but even if I pay for one meal, one set of school supplies, or one surgery, the consumers are still living in the same circumstances that made them need help in the first place. I will be funding an organization that’s participating in the accepted system of treading water for their own survival, providing the equivalent of bandages or pain medication to conceal the true ailment: systematic poverty.
So, why do charities work this way? Why do we believe soliciting ongoing donations is healthy for organizations, donors, and consumers? After a decade of charity work, I’ve realized it boils down to trust. For some reason, we believe consumers aren’t to be trusted with their own livelihoods, so charities offer heavily-controlled programs that have little room for change. Why change something that’s historically been regularly funded? The consumers are the last authorities — after donors, board directors, and program staff — to decide what’s in their own best interests.
For example, one of Red Cross’ Haiti-based project manager positions was reserved for a foreigner. This person “was entitled to allowances for housing, food and other expenses, home leave trips, R&R four times a year, and relocation expenses. In all, it added up to $140,000.” Conversely, The Red Cross compensated a senior Haitian engineer (the top local position) just $42,000.
According to NPR:
In a 2011 memo, the then-director of the Haiti program, Judith St. Fort, wrote that senior managers had made "very disturbing" remarks disparaging Haitian employees. St. Fort, who is Haitian-American, wrote that the comments included "he is the only hard working one among them" and "the ones that we have hired are not strong, so we probably should not pay close attention to Haitian CVs."
ProPublica’s report also says:
A few key National employees have resigned due to their discontentment about the work environment created by Sr. Management. The implication that talented, smart, competent Haitians cannot be found in Haiti has to be dispelled, if we are going to give Haitians a chance to be part of rebuilding Haiti.
Living and working in Cambodia, I’ve learned the cultural differences between foreign and local staff can be immense and alienating. The complete lack of interest of many expatriate leaders to assimilate by learning the language, eating traditional food, or following proper customs leads to poor morale among local staff. Unproductivity is due to unhappiness, not laziness, which is no different than our 9 to 5 jobs in the United States. Unfortunately, field programs default to the person who controls the budget, who is too often a foreigner, even though organizations with proven, measurable impact are usually led by locals.
While The Red Cross was finding ways to use its newly raised funds on itself, smaller organizations built 9,000 homes, complete with running water, electricity, indoor bathrooms, and kitchens. The head of one of Global Shelter Cluster’s Haiti projects was John Wildy Marcelin, a Haitian engineer who said, “All this work that you are looking at now, the calculation was made by Haitian people, Haitian engineers, Haitian architects, Haitian foremen…We know what to do.”
Who’s Doing It Right?
It comes as no shock organizations with consumer-focused models are considered innovators in their field. In fact, one of these organizations won a Nobel Peace Prize in 2006. Professor Muhammad Yunus, founder of the Grameen Bank, pioneered micro-financing for persons living in extreme poverty. His philosophy is that financial credit is a human right and the only people who know how to better the lives of the poor are the poor themselves. He’s stated:
Are poor people loan worthy? Does the world still wait for evidence? Does it care? I keep saying that poverty is not created by poor people; poverty is created by the institutions we have built around us. We must go back to the drawing board to redesign those institutions so they do not discriminate against the poor as they do now.
The Grameen Bank holds a 98% loan recovery rate, and when a client doesn’t pay it back, Yunus doesn’t ask what’s wrong with her, but what could the bank have done differently to help her? The organization has spent over 20 years fine-tuning its model to best serve their consumers’ unique, individual needs by adapting to different roles such as money lender, community organizer, and confidence-builder.
Taking it a step further, GiveDirectly gives one-time, unconditional cash transfers to people living in extreme poverty. Not only have they achieved a coveted spot in GiveWell’s Top Charities, but they did it despite heavy criticism from some of the world’s largest aid organizations. Carol Bellamy, former Director for UNICEF, told NPR the consumers would spend the money on “gambling and alcohol.”
One of GiveDirectly’s co-founders, Michael Faye, luckily, isn’t as closed-minded. He told New York Times Magazine:
This puts the choice in the hands of the poor, and not me… And the truth is, I don’t think I have a very good sense of what the poor need.
If GiveDirectly’s model proved viable, then it’d be a massive blow to traditional charitable models that disguise stagnant results as long-term missions.
It turns out, it is viable. Some might even say favorable. An independent study published by Princeton University discovered they didn’t spend the money on alcohol or gambling as Bellamy predicted; consumers who received lump sums spent the cash on immediate needs such as new metal roofing, school fees for their children, and food. In addition, many consumers invested their funds into small businesses, so individual earnings increased by 34% and chronic hunger decreased by 42%.
Beyond GiveDirectly’s tangible, heavily researched results, they’ve found an efficient giving model where there are no secret administration expenses or line items (usually lumped into “program expenses”). The consumers are receiving 91% of the money that’s processed through the organization, which should make it incredibly appealing to donors who are looking for the so-called bang for their charitable buck.
Some may wonder if giving unconditional cash is sustainable. Give Directly answers the question in their FAQs, but with a subtle twist:
Usually when the word "sustainable" is applied to charity, it means that a gift "keeps on giving" and that donors need not continue to make gifts to the same recipient. Since many GiveDirectly grant recipients use some or all of the money to invest in small enterprises, many of GiveDirectly's grants are "sustainable." Indeed, one study of unconditional cash transfers in Mexico found that that household incomes increased by between 1.5 and 2.6 times the amount of the transfers due to the returns from increased investment, suggesting that cash transfers are more than sustainable.
Instead of discussing how it, as a charity, is sustainable, they discuss how their contributions will help consumers sustain themselves. If they were to complete their mission and eradicate global poverty — in 10, 50, or 100 years — the way in which their financial reporting is set up wouldn’t allow for funds to discreetly shift from cash transfers to administration expenses. They would, theoretically, shut down because there’d no longer be a demand for their services.
What’s the Solution?
Does this mean the answer to all of the world’s problems is simply “give poor people money”? Maybe. That’s the point of using the scientific method to scrutinize a hypothesis. It can improve upon its failures and keep testing its victories.
Until those victories are far-reaching to every consumer on the planet, it’s laudable when outsiders are critical of the non-profit industry. Studying finances or writing exposés will help donors give wisely, but those efforts are useless if organizations are transparently spending money on ineffectual, outdated programming.
Dismantling traditional charity won’t come easy. In reality, what I’m proposing is for everyone in the non-profit industry to literally work themselves out of their jobs. Charities must realize consumers are the foremost experts on what they need, and the current model of “serve and be served” is a proverbial hamster wheel of fundraising, spending, PR, fundraising, ad infinitum.
Instead, they must ask, “how may I serve you?”, because the next generation should not be receiving the same services as the previous. If they are, then there’s a huge, expensive flaw in the giving structure. It means non-profits are keeping consumers from sustaining themselves, proving those organizations to be self-serving businesses, not effective charities.
Tavie Meier is owner of MadeFAIR, an online ethical clothing shop based between her hometown, Denver, Colorado and adopted town, Sihanoukville, Cambodia, where she’s lived and worked for the last three and a half years. Armed with a degree in anthropology from CU Boulder, she worked in the non-profit sector for ten years before founding MadeFAIR, a retailer which partners with ethical fashion labels, small businesses, and artisan workshops that ensure their employees receive fair wages plus use sustainable, repurposed, and biodegradable materials in their products as often as possible.