This sounds great, and I'm certainly interested in following their progress.
I am curious what the effects are on those who don't receive the transfers. (Those who don't meet the requirements, or live in neighboring towns, for instance.) While I'm certainly not saying it outweighs the positive effects, there must be some negative unintended consequences. Someone uses the funds to start a business, which is enough to make an existing business in the field unprofitable for instance. I wonder how much research has gone into those types of side effects.
My understanding is also that direct cash infusions can have undesirable macro effects - basically Dutch Disease caused by aid money instead of natural resources. Again I'm curious to what extent those effects are understood.
If anyone has knowledge or links to resources along those lines, please share! I did find this somewhat more critical review[1] but it still just focuses on the recipients, rather than knock-on effects.
It's been a popular idea in econ circles for a while that giving poor people cash helps them more than giving them other forms of aid. There's less overhead, and it allows them to buy what they need, instead of what other people think they need.
Obviously there's potential for abuse, but that's the case with regular aid, too, and it doesn't end up making a big difference. Also maybe not entirely fair, but it's a net gain, which is better than no gain at all.
Google can probably find better references, but here are a couple of links backing the idea:
Thanks. From that page, the part that most directly addresses my concerns is this:
> Do grants distort local markets? It seems possible to us that a large infusion of cash into an area could alter economic opportunities for both recipients and non-recipients. Such effects could be positive (for example by spurring investment and job creation or by increasing the availability of retail goods) or negative (for example, by leading primarily to local inflation). The limited evidence addressing this issue in the RCT of GiveDirectly's program in Rarieda[1] and the broader literature on cash transfers points to no distortion. There is an ongoing RCT[2] of GiveDirectly's program that is testing for macroeconomic effects.
Not a ton of concrete results as yet, especially for the larger macroeconomic effects, but at least from that one study the local effects appear to be minor. Certainly more research would be valuable.
The big problem with these studies and local economies is that results are likely to depend very much on localised factors such as proximity to larger markets, not to mention what proportion of the village actually receives the handout, and how much of the existing village economy revolves around people with more wealth than the handout recipients. I think it's pretty much impossible to give a definitive yes/no answer.
It's also worth pointing out that the "minor effects" are minor because they're not statistically significant for the sample rather than because they're not necessarily there. Haushofer and Shapiro, for example, finds that whilst recipients spend $36/month more, comparably poor non-recipients in a village spend $7.5 per month less. The sample size and volatility means the latter part of result isn't statistically significant, but on the other hand it is more consistent with the effects on the poor that didn't receive handouts in these particular villages being negative, and indeed if only a fifth of the village received the subsidy it's even consistent with the benefits being entirely positional, even though the dispersal of the losses amongst a larger population makes it difficult to precisely gauge.
I'm personally suspicious of most charity and aid, so I can see the same questions asked about most aid programmes. Their core claim seems to be that its less distorting than traditional charity aid programmes and I can readily believe that.
Absolutely. I'm just thinking that with many traditional programs the focus is on infrastructure, which directly helps to address both of these issues. (It is shared by everyone, at least in a local region, so doesn't tend to have negative consequences on those who don't receive aid. And because it doesn't directly involve injecting cash into the economy, Dutch disease is less of a concern.) That said, many of those programs certainly do have drawbacks, as discussed in the OP. So even with potential shortcomings, this approach might be better. I'm hoping to learn more to make a more informed decision as to whether that's likely the case.
That's a very good question. I'd add one other thing that interests me - aside unintended economic consequences, are there unintended social consequences? I can for example imagine people who are also poor but not enough to be eligible for a grant simply becoming jealous of their neighbors who lifted themselves up thanks to GD's help, especially if the relative change of social status within the village or town was significant. After all, people are just people, and there were already hints of reactions typical in context of lottery winnings, namely family and friends suddenly showing up and asking for loans.
If there are any studies about how direct donations affect social dynamics within a community, I'd be very interested to read them.
Unfortunate to see uninformed pessimistic speculation voted to the top, when GD is one of the most analyzed and transparent charities in the world.
GD gives to the poorest, like raising the minimum wage. They don't make anyone richer than a neighbor.
The SSI article is a hit piece with dodgy math, written by a competitor. It claims that a $1 gift that findances $1 of consumption PLUS $.80 investment profit is somehow a negative return. Ignoring the fact that the baseline for poverty relief is $0 investment profit.
jbniche points out: "Just think the impact that would have had if it had been divided up and given directly to each Haitian adult. The adult population of Haiti is roughly 6 million, so we're talking about almost $100 per adult Haitian. Roughly, it's about 1/8 of the per capita GDP of Haiti.
Imagine what you could if you were a poor American and received 1/8 of the American per capita GDP after a disaster (~6000 USD). That's a new roof, or a replacement vehicle, etc.
It's not life changing, but it would have been very significant, and massive in scale."
and the article supports his point, saying that "A 2013 study in Uganda found that people who received cash enjoyed a 49 percent earnings boost after two years, and a 41 percent increase after four years, compared to people who hadn't gotten a transfer. Another study in Sri Lanka found rates of return averaging 80 percent after five years. In Uganda, not only were the cash recipients better off, but their number of hours worked and labor productivity actually increased."
But for smaller amounts (like the U$ 100 proposed), "One program gave $200 to at-risk Liberian men who were either homeless or who made their income from dealing drugs or stealing. The lead researcher, Chris Blattman, summarized the findings in an op-ed in The New York Times:
"Almost no men wasted [the money]. In the months after they got the cash, most dressed, ate and lived better. Unlike the Ugandans, however, whose new businesses kept growing, the Liberian men were back where they started a year later. Two hundred dollars was not enough to turn them into businessmen. But it brought them a better life for a while, which is the fundamental goal of any welfare program. We also tested a counseling program to reduce crime and violence. It worked a little on its own, but had the largest impact when combined with cash.""
Development and emergency response are very different problems. $100 or even $6000 isn't useful if there's no way to get to the things you need to buy, or if local scarcity pushes prices for bare necessities obscenely high. Vaccinations, blankets and tents, food, etc. can be hard to find in a disaster-stricken area. Heck, even finding a way to get at the money can be difficult if the roads and electricity are out.
(I'm not defending the Red Cross, but I would unsurprised if "just give them money" is less effective in the case of disaster relief than in the case of development.)
I'm not having any problem and not feeling ashamed at all defending the Red Cross instead.
If you just give poor people any money in Port au Prince after the earthquake, you simply atract predators that will beat and steal those people living in the streets easily, collecting all this money in the blink of an eye. Rich people in Haiti did not seem to care much for the bad luck of the poor people either.
Not sure how the non profits work, but aren't there laws to force them to publish all their fundraising data and expenses data? Last week there was an article on how a cancer nonprofit raised tens of millions of dollars, only to be swindled by the family running it. They were during it for a while before getting caught.
I think this and other efforts are pretty clearly demonstrating that this doesn't necessarily happen.
EDIT: Not to say it can't happen, but I'm pretty tired of this quasi-religious assertion that giving money to poor people will just inflate that money into meaninglessness, particularly when it has repeatedly not happened.
But rapid price inflation for certain goods seems much more likely in the context of a natural disaster. Without a coordinated response, for a certain amount of time there will only be X tents reachable from the affected area, where # of people who need tents >> X. Ditto for vaccines and non-perishable food. Absent (enforced) price controls or incredibly nimble infrastructure repair, rampant price inflation for bare essentials seems more likely than not.
(edit to avoid further confusion: The point of this post is simply to point out that local economies behave very differently after a disaster. In particular, if you need X of something in order for people to not die and you only have << X available (perhaps 0), then cash handouts aren't really helpful in the short-term.)
Show me cases of price gouging for vaccines during an outbreak, or tents during a disaster or whatever. (And not just isolated assholes attempting to profiteer, either — because there's always going to be "that guy" — but systemic inflation.)
Otherwise, all I'm hearing is a lot of "seems" and "shoulds", which sounds pretty belief-based to me, particularly when I keep seeing evidence to the contrary.
WRT vaccines in particular, please read my post as charitably as possible within the surrounding context of the thread -- I can only invest so much time in internet commenting and sometime my grammar isn't perfectly unambiguous. Sorry :-). To help crystallize the point I was making, I edited my parent comment.
In general, as long as we're being pedantic, I suppose that "completely unavailable" -- meaning you can't locally buy a vaccine even for infinite money -- is a rather degenerate form of price inflation. And vaccine stores can be ruined by power outages, which are common during natural disasters.
Edit: Also, my parent comment states "price inflation for bare essentials [immediately following a disaster]", not "systemic inflation" in the sense of a country or region's entire economy. Cash handouts may very well be an effective mechanism for providing long-term redevelopment aid to an area effected by a natural disaster; in fact, that's essentially what happens with insurance payouts when middle class areas of the US are hit by disasters. But redevelopment is quite different from emergency response, which is what this thread is about.
(Note that inflation was systemic, because Uber basically became the entire market. Yellow cabs, which couldn't inflate their prices, just stayed home.)
No matter how much economic denialism you want to engage in, you still can't magically make scarce things plentiful. Similarly, I can complain about how much my server monitoring sucks, but that doesn't mean my latency isn't high.
I don't think your Uber example counts. Yes, they were paying 2x to drivers, in order to get them out on the road and meeting the needs of their users, but they were charging riders 1x.
The other example is closer to what I'm looking for, but I'm not convinced it's entirely what I'm talking about, either. Yes, there was a (broadly) localized price increase, but it was in the context of a global price up-trend (which can be blamed on biofuels as much as it can poor harvests).
Your cited article points out that global corn prices, for example, were up 84%, and had doubled (or, up 100%) in the horn of Africa. (About which, btw: we're talking about one of the most lawless places on the planet. I very much doubt the usual rules of economics apply unmodified in such an environment.) Those aren't egregiously divergent price increases.
"Later this morning we will be reverting back to standard Surge Pricing for riders..."
I'm not sure why you believe the "lawlessness" of a region changes the laws of arithmetic. Scarcity is scarcity, regardless of whether the UN refuses to recognize your government.
Maybe it's simpler to put it into an example: if there are exactly 3 loaves of bread on the only grocery store's shelf, then handing 100 locals $1,000 each does nothing to ensure that everyone will get fed. In that case, perhaps it makes more sense to use that money to deliver a large truck full of food to everyone.
So it's important to have a clear idea of what is and isn't needed when trying to help people and that can depend very strongly on the circumstances they face.
This is Econ 101. What else do you expect a skyrocketing demand meeting a just-destroyed and rapidly plummeting supply to do?
I think the onus is on you to somehow demonstrate that the price of goods would not be affected by such a blindingly obvious combination of supply and demand changes.
I have no idea where you think this "evidence" is coming from that somehow in a disaster prices don't rise. If they don't, it would only because the entire market has been destroyed and "prices" don't even apply anymore.
New England during a bad winter... During the bad ice storms a few years ago that left many areas, including mine, without power for a week+, things like generators, kerosene lamps and heaters, etc.. ranged from several times more expensive than usual to unavailable.
During this past winter when ice dams were a massive issue in MA, national chain hardware stores were trucking in roof rakes and selling them for $150+ (normal prices of around $25-30).
In development that's true. When it comes to natural disasters, though, the problem is not just that the people don't have money, but that they also don't have anything to buy even if they had money. It's hard to grasp for us living in a developed country, but it is possible for everyday things to just not be available.
Which just dovetails with my thoughts after reading the Red Cross article. How much more effective could they have been if they had used the money to start a "non-profit incubator" in Haiti. They could have increased funding to successful organizations, cut off funding to unsuccessful ones, and possibly found ways to get around the numerous issues plaguing non-profits that could then be shared with other NGOs.
What they needed was to provide resources, tools and support to the locals to solve their problems. I think it's more 'first-world' to bring in foreigners to solve their problems for them.
The article directly talks about how the Red Cross did a very poor job of hiring locals, especially in positions responsible for making choices, and had a tendency to dismiss their value.
I read a comparison of the Liberia to Uganda, Kenya examples before that said its because Liberia('s slums) are at a worse of starting point. For the programs to be effective it needs to target extreme poor who still at least have access to infrastructure and resources to develop. If that isn't there then charity would be more effective in developing those things.
Maybe the solution is to give money to people who are poor and either working or not able to, and give a decent paying job to everyone else.
Edited to add: and looking at the concerns of one of the aid recipients, something should probably also be done about radio programmes spreading conspiracy theories about devil worshipping aid workers.
> Edited to add: and looking at the concerns of one of the aid recipients, something should probably also be done about radio programmes spreading conspiracy theories about devil worshipping aid workers.
I don't have any idea what and how can be done with that, given that the first world's situation is much, much worse in that regard. Most of what the media does is regurgitate bullshit about everything; we may not have "devil worshipers", but we do have "big pharma".
going by that logic US should just have given Afghanistan and Iraq people those $2T+ the US spent on the wars there instead... Given 33M population of the each of the both countries, it would be just meager $30K/person (half a Hellfire)
I'm not sure why you're being down-voted. $2T in well-placed handouts seems like a pretty effective way to win "hearts and minds". The test mentioned at the end of the article ("would just handing citizens of this country the cost of a war be more effective at regime change than toppling the regime?") seems like a good initial test when evaluating whether war is necessary.
In general, soft power as an alternative to hard power is a serious question in national security strategy -- trhway's comment is not a troll, it's something security/IR researchers and policy makers take quite seriously.
I don't see much wrong with that logic; frankly, it sounds to me like much better solution than what's happening now. And if they really, really need to kill some people, then Operation Penny-Drop still sounds much better than what they do now.
An American architect tried building a school in post-earthquake Haiti. He struggled for a while with growing cost estimates, finding materials, and cutting through corruption and bureaucracy. At the end he thought that just giving them cash would have been better.
> If you could turn back the clock would you just write a check to all the parents of the kids who go to that school?
A detail popped out at me: that they picked people based on the material of their roof. Organics get money, metal doesn't.
I predict a "fashion" trend in the poor architecture of the region to eschew better roofs even if you can afford one.
I also think that an editor of a newspaper in Kenya and Uganda should do a cartoon where a villager uses his GiveDirectly money to buy a better roof, and then the company takes the money back and accuses the villager of fraud.
I know you're joking, but buying better roofs is actually the most common thing for recipients to do with the money. Metal roofs require so much less upkeep that they're a very good investment, saving a lot of time in avoided maintenance over many years.
Change "roof" to "food". Giving money only to people who don't have enough food to eat isn't a perverse incentive: there's little point in going hungry to get money; any money you get will be spent on food before anything else.
Not that easy. Roof was picked up probably because it's obvious and unambiguous - you literally only have to take one look at a house to know whether or not it's eligible. "Food" is not a well-defined metric, and whatever particular proxy for "food" you'd use, it seems to me that that proxy is much easier to manipulate than roof material.
As for perverse incentives, GP is right that as the news spread, people may save the money they have instead of investing it in a roof in a hope of getting additional money from GiveDirectly in the near future. That's, unfortunately, human behaviour 101. So in time, they'll have to change the criteria they use for distributing grants, and the article hints that they're thinking about it already.
Uh, that's not what I meant, though I guess my comment wasn't clear enough.
I'm not saying they should change the criteria to food security/malnutrition/etc. I'm saying that,
1) suppose the criteria was food-related; people wouldn't likely game the system by voluntarily not getting food because, well, eating is pretty high on people's list of desires.
(there are food-related metrics like "reported food consumption" and "malnutrition" that are used to assess the performance of GiveDirectly and charity/aid/welfare programs in general. They are well-defined, even if subject to manipulation. In any case, I understand that the roof criteria is more practical at the enrolment phase)
2) analogously, people aren't likely gaming the system by keeping non-metal roofs, as having good shelter is also very high on most people's list. In fact, one of the most common ways recipients spend the grant money is getting an iron roof.
Also, it's not like having a non-metal roof automatically entitles you to a grant, as this is isn't a nation-wide government program.
GiveDirectly is considering changing requirements not because they think they're including too many (relatively) high-income families with non-metal roofs, but because they might be excluding some people who live in metal-roof houses but are still poor.
If we grant your condition of the grant being small relative to the value of the roof, the following scenario might play out.
Suppose GD will give 10 if you have not upgraded your roof.
Suppose a roof costs 100 and benefits you 150.
Suppose fertilizer costs 100 and benefits you 145.
In the absence of any potential GD grant then buying a new roof is both socially optimal and the thing the farmer is incentivized to do.
But with the potential for a GD grant then buying a new roof is still the socially optimal choice, but the farmer is no longer incentivized to do it. Thus, a farmer might forgo buying a new roof in the hopes of securing a cash reward, which is inefficient.
@5% average yearly return, Bill Gates + Warren Buffet could do this for 8 million people a year, every year, forever, and not eat a cent into their initial capital.
Gates&Buffet are both very invested in philanthropy and extremely data oriented. If they were made aware by someone they actually listen to, they just might do it.
Those 8 million will no longer have to worry about feeding themselves, educating their children, paying their rent. They can create. A % will create businesses to take advantage of the money flow, supporting themselves and their communities, paying taxes, jobs, export.
Over a single generation you could move from 5% literacy to 95%, for 8 million families. That's a lot of kids and a lot of creators. Fewer babies next gen too if history is right.
Those 8 million will essentially have their greatest fears and worries removed and replaced with joy and freedom. Just imagine the possibilities.
Gates and Buffet will know all about GiveDirectly, and direct cash transfers more broadly. GiveDirectly was the GiveWell recommended charity for most of last year. Effective altruism is a relatively small space, and GiveWell is very prominent in it.
Reading the interview you link it's pretty clear that the kind of aid Shikwati is arguing against is very different than the kind GiveDirectly does. For example:
A portion of the corn often goes directly into the
hands of unscrupulous politicians who then pass it
on to their own tribe to boost their next election
campaign. Another portion of the shipment ends up
on the black market where the corn is dumped at
extremely low prices. Local farmers may as well
put down their hoes right away; no one can compete
with the UN's World Food Program.
Shikwati objects to food dumping, which is a serious way that an activity we classify under "aid" can be harmful: it supports governmental corruption and undercuts farmers and businesses. But identifying individual poor households and transferring money to them directly, with strong monitoring and evaluation, is so different that calling them both "aid" is kind of misleading.
Let me give you an example. In africa there used to be a great many tailors. This was a profession that was viable and quite respected on the continent long after the western world had gone to pre-made clothes. In part this was because the country had not modernized. Then the aid came. The aid came in many forms, but one of the forms was millions upon millions of T-shirts and jeans. The entire profession of being a tailor has been eliminated (of course except for the very rich people.)
I'm not saying africans should be tailors, but pointing out that aid distorts the market, and distorts the economy and can undermine it if it's not well thought out.
This is what Bono was saying and this is one of the lessons that GiveDirectly seems to have learned.
It is easy to see the taylors who go out of business, it is a lot more difficult to see the million upon millions of people those millions upon millions of jeans are now keeping warm.
If we go from aid to commerce the tailors won't come back, but billions upon billions of consumer items will flood into Africa. As the country gets richer there is going to be at least a 300 million women who aspire to owning a washing machine, a generator (or other source of power) and indoor pluming. Say what you want about capitalism and industrialization, but short of something like a first contact with the Culture, no other system on the planet can satisfy those needs. And they deserve to be satisfied.
In the case of buying a product you can evaluate the product directly. This is much harder with charity, so you can look at their financial efficiency to see if your money is helping people or helping the operators of the "charity" to get rich.
When I get home I'm going to read the article thoroughly and do some digging. I've heard of organized charities failing miserably but this sounds too good to be true.
For background, GiveWell is a meta-charity that evaluates charities by the amount of suffering they reduce per dollar. It was started by former hedge-fund managers and highly transparent, and about as rigorous as you can get in this field.
They publish all of their research, for both their "top charities" research and their more long-term Open Philanthropy Project division (which researches more abstract threats like labor migration, AIs becoming evil, land use regulation, scientific research funding, and more). There's a wealth of knowledge there for anyone interested in making the world a better place through altruism.
Randomised Controlled Trials aren't at all novel or unusual in international development, despite what the article says. (though some of the parties conducting them aren't particularly inclined to share the data, especially the microfinance guys...)
The margin for error in these studies is high. The study notes that their relative measure of "women's empowerment"[1] for women whose neighbours received money increased by a similar degree to the food security of people that actually did receive money. Plausible? The only viable causal mechanism the survey authors and I can think of that leads women who haven't received any money to be more "empowered" as a result of a few neighbours receiving it is the spreading of rumours that aid money is linked to people treat their women (something randomised study authors would really prefer didn't happen. Subjects trying to second-guess the surveyors' intentions is a big problem) The only other hypothesis that seems to fit is secular trends or differences in village behaviour contaminating the study results, despite the best efforts to control for them. Either way that result is unhelpful, not least because it puts into perspective the surprisingly small proportionate increase in food security
Taking the statistics at face value, they strongly suggest the recipients don't waste the money and don't have it stolen from them, but the non-cherry-picked stats aren't as spectacular as the article makes out
Ultimately, it shows that households receiving $287 in cash had $278 more in wealth later on. Their businesses are larger but generate no more profit than before. People receiving a total of $1085 are only $531 better off in assets and actually have slightly worse returns on the businesses than the people who received lower handouts[2]
The one thing this wealth does enable people to do is consume more, quite a lot more ($40 more for people previously spending presumably because they have less need for savings or debt repayments. Whether this pattern continues further into the future (and how that affects their income/assets) isn't studied.
Effects on the other villagers' income and wealth appeared negative, but not to a statistically significant degree.
I'm reasonably convinced that at this end of the scale the cash transfers are better than the more fashionable approach of loaning the small amounts of money (with high overheads and commensurately high interest payment burdens on the recipients) but the study supports the view that its a band-aid rather than a solution.
[1]which, reading the full text, is actually a measure of reduced domestic abuse
[2]whilst not statistically significant, the result that larger handouts resulted in a smaller increase in revenue is unhelpful
Most people, including startups , will inefficiently spend if they get too much money in one series of funding. Cash flush can make you rush to purchase. Better to have a good plan before raising more funds.
Consumption isn't so bad to be worthless. At this level , consumption includes stuff life increased food for better health , which isn't reported in ROI. And a slightly silly analogy: Britain's elevate handouts kept many people afloat but generated one $billion profit enterprise (Harry Potter)
For background, GiveWell is the most prominent charity evaluator in the effective altruism space, and does much closer inspection of its recommended charities than anyone else. They're highly data-driven and fully transparent. They not only vet the charities expenditures, but the core mission itself to ensure it's a highly effective way at reducing suffering: http://www.givewell.org/international/top-charities/give-dir...
You can rest assured that GiveDirectly has been well-vetted.
It feels odd to call this a startup instead of a charity or non-profit. The normal goals of a startup vs a charity, which seems a better description for the things this company/group is doing, don't match well to me (edit in italics: forgot to finish writing this sentence). Nothing particularly wrong with calling it a startup I guess, just strikes me as odd.
This seems to be part of a larger turn towards more data and study driven aid than was the standard. Hopefully the larger nation state players can get around to using aid programs to reap longer term improvements vs the current short term and occasionally overall harmful effects some programs have been reported to create.
"Startup" by its very definition is simply a company in its early phases. Whether it's a for-profit corporation or a non-profit corporation, the challenges, at a high level, are largely the same. At a lower level, they vary just as much between for-profit and non-profit as two for-profits in different industries vary.
I don't buy that definition. I prefer Steve Blank's suggestion that startups are companies set up to identify repeatable and scaleable business models. This could extend to a charity as easily as any other kind of business.
That's the Valley redefinition of a startup. You don't need rapid growth to be a startup. "A startup company or startup is a business in the form of a company, a partnership or temporary organization designed to search for a repeatable and scalable business model."[0]
Nor do you need to be a for-profit business to seek rapid growth. If we're going to measure based on "rapid growth", GiveDirectly has been a far more successful startup than most YC companies.
Not at all. There are clear examples of when rapid growth has been neither repeatable nor scalable and the companies had to fold precisely because they grew too fast.
Backblaze is a great example of a company that could not have grown any more rapidly than it did. If they had, they would not have been able to source enough drives to continue and would have been faced with some difficult decisions.
Rapid growth is a great goal in some industries. But in others, a long, slow ramp up is better. That doesn't mean you can't have startups in those industries.
If a company isn't seeking (relatively) rapid growth, it doesn't need a scalable business model.
That's why the local pizza join that just opened isn't a startup. They might be new, but they have no plans for innovating on their business model to reach larger scale.
I see nothing in the words "repeatable" or "scalable" that has to mean "rapid". To me a repeatable and scalable business model means one that can grow, and that isn't a one-time opportunity.
I guess the word rapid is ambiguous. Most chain restaurants have repeatable and scalable business models and as such count as startups, even if it takes ages for them to reach multinational status. However they're still rapid growth relative to the vast majority of fine dining restaurants that are unusual if they have more than one location. The repeatability and the scalability make them rapid growth because it's the assembly line approach to expanding the business.
What is an example of a repeatable and scalable business that is not rapid growth, relative to other businesses in the industry?
I usually prefer the general, English meaning of a word to apply unless there's a particularly compelling case for abusing the word, or the context conveys that specialized technical nomenclature should be expected rather than the generic meaning. The OP is a news article with a general audience, so I see no problem with applying the generic English meaning of the word "startup", which simply denotes something that's starting. The original English word does not necessarily connote speed.
Why do you think a charity isn't a business? They still have revenues and expenses, employees, marketing, growth, a product to deliver. The only fundamental difference is that their owners don't take dividends or distributions from the business.
I think you are thinking of nonprofit organizations. Charities don't have to be nonprofit organizations[1], and nonprofit organizations are often not charities.
While technically true, for-profit charities are much less common. Moreover, it's just another step along the spectrum, where for-profit charities, unlike non-profits, are allowed to take distributions, but unlike for-profit corporations, have no obligation to create value for shareholders. (Yes, this is also overlooking privately-held companies, but again, they're just another step on the spectrum.)
Regardless, the main point is that charity or not, for-profit or non-profit, they're all still fundamentally businesses and should be run accordingly.
The Oxford English Dictionary defines it more generally: "An instance of ‘starting up’; spec. the action or process of starting up a series of operations, a piece of machinery, a business, etc."
"And despite some skepticism, GiveDirectly's financial support is growing (from $5.5 million in 2013 to an expected $40-50 million this year), driven in large part by younger donors working in tech or finance, according to Niehaus."
My issue with charities being called startups is more in the for-profit vs charitable goals. Companies have goals that just don't jive with the goals of a good charity. If we take a definition based purely around 'designed to grow fast' yes it can fit. There's just more connotation to the word startup than the purely growth based definition Paul Graham puts forward.
addendum edit: There's nothing inherently wrong with the 'designed to grow fast' definition, it just doesn't sit quite right (with me) applied to charitable orgs because of the additional meaning I talked about above.
> We’d been thinking about this for a while. We had a hypothesis that many newly founded nonprofits could benefit from the same techniques we use to help startups. We tested this with Watsi in the Winter 2013 batch and it worked wonderfully. They did all the same things as the other startups, including present at Demo Day (which is after all a room with lots of rich people in it).
> Since some people were confused when we funded Watsi, I’d better clarify that the money we’re putting into the nonprofits will be a charitable donation, rather than an investment in the narrow sense. We won’t have any financial interest in them.
Well, the quoted parts explicitly distinguishes between "startups" and "nonprofits", pointing out the latter may "benefit from the same techniques [they] use to help" the former.
These are very salient points, especially given that right now many of the advancements (from a technical and methodological perspective) established from GiveDirectly's early Kenya and Uganda programs are furthered by a spin-off known as Segovia (http://www.thesegovia.com/product/). Perhaps this is the startup behind the scenes that's more inline with the startups brought up on HN.
> It feels odd to call this a startup instead of a charity or non-profit.
Everybody is spinning their small business or new charity as a `startup`. Maybe culturally they are aligned with startup principles but my idea of startup was a small group of people looking to shake things up (a market, a technology, etc) rapidly, grow fast and cash out.
A guy selling shaving cream on etsy is not a startup by this definition.
I think that's part of it. Working on or being a startup brings a certain cachet to it and is more likely to get media attention vs just being a new small business or new charity. A normal new business calling itself a startup doesn't strike me as oddly as charity based groups. At least with a normal for-profit business the goals are roughly aligned and similar whether you're looking for the explosive growth or long term growth and stability, you're still in it to make money instead of charities which should be operating completely opposite.
GiveDirectly does monthly in some areas and semi-annually in others [1]. They are also conducting an RCT on allowing recipients to choose their preferred transfer schedule [2].
This is a very patronizing and disrespectful attitude, not to mention a wrong one, based probably on an assumption that those people are poor in the first place because of being "financially irresponsible". If anything, poor people are usually much better at managing money that those well-off, because they only have so little of it and are one mistake short of starving to death.
This seems to be just one of those misconceptions like drug abuse, which AFAIR studies actually found more common in well-off people than in poor ones.
Given that most startups fail, one could consider the whole startup ecosystem a form of charity that, hopefully, produces enough wealthy people to keep the wheels turning. With luck, some of the beneficiaries of GiveDirectly prosper enough to start their own charity some day. The ultimate Y-combinator function?
A program that gives money to the poor creates a disincentive to get out of poverty through work. The welfare gain from the poor having more money should be weighed against the welfare loss of their working and saving less.
Suggesting that people living in a mud hut in Uganda can realistically reach a better standard of life simply through working, displays an astonishingly blinkered view of the world. The majority of people there don't have access to resources required to "pull themselves up by their bootstraps".
Economies before were different from economies today. It may be possible that whatever worked naturally when everyone was "living in the mud huts" doesn't work in today's globalized environment. And no, no matter how poor you are, you can't ignore that the rest of the world is much more developed; there's no practical way to isolate your economy until you get on your feet.
That's why it's important that it's a one-time donation, not a recurring additional paycheck. If you give 'the poor' an additional paycheck, yes, it will have an impact on the willingness to work and save. If you give them a one-time donation, on the other hand, they can use it to improve their lives in the longer term, without reducing work. That's what the data (as quoted in the article) shows.
I believe the reasoning for why that should be goes back to the cycle of poverty (http://en.wikipedia.org/wiki/Cycle_of_poverty). It's harder to make more money if you don't already have more money. By giving a one-time lump sum, you give people the opportunity to dig themselves out of that hole. Eating better, dressing better, buying things that last longer, these all have big impacts on how much one can save and earn. Even getting some basic education helps enormous amounts.
In the end, it might even lead to people being more willing to work harder and actively save more money.
What's important is that it be an unconditional donation, not that it not be recurring. Yes, a one-time gift is (usually) not contingent, but you can also have recurring unconditional income that's not means tested.
Take out the means testing, and you remove the incentive not to work. They can still work, and, if anything, it lets people get out of the psychological hole where they have to make decisions that aren't utility-optimizing in the long term just in order to survive.
> That's why it's important that it's a one-time donation, not a recurring additional paycheck
It can only be a one-time donation if no one ever does this again, so that's basically saying, "it's important that this whole model of charity never becomes so dominant as to give people multiple kicks at different cans of the same type."
The problem with long-term poverty is rarely lack of money as such. It is lack of access to capital (which is a different issue) and most importantly lack of the rule of law (which makes access to both money and capital difficult.)
There are charities that promote the rule of law (Amnesty, World Justice Project) that are more likely to change things in the long run than charities that respond to immediate needs (athough I'm all in favour of people supporting both.)
Yes, but if the program becomes well known and expands in scale, some poor people may think there is a chance they will become grant recipients, and this could affect their work effort.
I do! But it's from the article and it supports the opposite conclusion:
> Longer-term research into anti-poverty interventions is rare, but it exists for cash transfers. A 2013 study in Uganda found that people who received cash enjoyed a 49 percent earnings boost after two years, and a 41 percent increase after four years, compared to people who hadn't gotten a transfer. Another study in Sri Lanka found rates of return averaging 80 percent after five years. In Uganda, not only were the cash recipients better off, but their number of hours worked and labor productivity actually increased.
There are multiple ways to give money. The way the US does it in some cases, where earning 5K more in a given year can cost 10K in benefits, does creates a perverse incentive. The way this charity does it, you get 1K and that's it; it does not create perverse incentives.
Consider the following example. In one example, a person receives X a week to help, but the aid rolls back when they get a job, M dollars less of aid for each dollar earned. So a job comes along where they can earn Y dollars for 40 hours of work. We could call M the means testing coefficient or something fancy like that.
Say that M is 1, and Y < X. In this case, they will now spend 40 hours of their week for no immediate benefit. Having a job may lead to possible longer term benefits (say beginning a career where eventually Y > X), but the cost of 40 hours of their life a week for such little possible benefit would make not working the better choice.
If X > Y, but only by a small amount, and M is 1, then they will see some small benefit, but spread over 40 hours it may still not make the job worth it.
And if M > 1 and Y < X, it would actually be harmful to get a job.
On the other hand, say that M was .25. In this case, taking the job would almost always be beneficial, despite the relationship between X and Y.
As for this charity in question, M is 0 (but the aid lasts only for a year). It is the least likely to cause any such harm to getting a job (except for when M is negative, which is to say the more you earn, the more aid you get, which oddly enough happens in some cases of corporate welfare).
Yeah, I saw that conclusion, and I've seen several like it before. :)
The question was my way of suggesting that the comment I was referencing was probably unsubstantiated - while still giving him a chance to come up with data if he happened to have any.
What about monthly over a single year like this startup is doing? As long as you ensure that the receiving family knows it will only last a set duration.
I think that allows families to learn to better manage their money and not blow it on a single large purchase, and also prevents disincentive to stop working entirely.
Again, all of your wild assumptions are covered in the article. If they're only getting one payout, and they're already barely scraping by, they're hardly about to stop working. It helps them get a leg up.
As the article mentioned, some folks would prefer to receive the money in a few payments so that they're less likely to have family members come begging, but some prefer it all at once so they can allocate it to a big project.
I am curious what the effects are on those who don't receive the transfers. (Those who don't meet the requirements, or live in neighboring towns, for instance.) While I'm certainly not saying it outweighs the positive effects, there must be some negative unintended consequences. Someone uses the funds to start a business, which is enough to make an existing business in the field unprofitable for instance. I wonder how much research has gone into those types of side effects.
My understanding is also that direct cash infusions can have undesirable macro effects - basically Dutch Disease caused by aid money instead of natural resources. Again I'm curious to what extent those effects are understood.
If anyone has knowledge or links to resources along those lines, please share! I did find this somewhat more critical review[1] but it still just focuses on the recipients, rather than knock-on effects.
[1] http://www.ssireview.org/blog/entry/givedirectly_not_so_fast