03 January 2012 ~ 6 Comments

Giving things away – when will we learn? (MBAs – take note!)

In business school you are surrounded by people who believe in the power of markets. There are people in my class who are passionate about freeing markets, about scaling enterprises, and about generating profits. Yet some of those SAME people are advocates of giving things away in development work. I have had countless discussions with people who see “aid” as the only way to help “the poor”, and debate with me about why that aid needs to give things away.

I am in Cambodia for a few weeks meeting with our team at PEPY (more for my good than theirs, as I missed them and couldn’t stand being away too long!). Standford University’s MBA program just came through on a learning trip and met with our team at PEPY Tours and I joined for the day as I always enjoy meeting with students, especially groups like this looking to discuss social enterprise. This time, I got into yet another discussion over dinner with an MBA student who was holding the position that if you don’t give things away, you can’t reach all of the people who need it now.

One of her arguments was that “since people don’t have things now, the distribution channels clearly don’t exist to get them what they need.” The problem is, aid is much worse at creating distribution channels, especially long term ones, and any that do exist will be destroyed by giving that same product away. When will our MBA programs start teaching that business in “your country” is based on the same principals as business in “their country”? Imagine if you started your next software company or organic farm or hedge fund, and someone started giving away the exact same goods or services for free to provide aid to the people of America (which, as we all know from our debt levels, we might well need). I bet those MBA’s would be less excited about giving things away if it was their business that was at stake.

Take eggs in Rwanda. This is a fabulous two minute video highlighting an example of a distribution system being destroyed by aid:

I have been away from Cambodia for only 4 months and all of a sudden there are hundreds of small kids bikes with back racks all over the rural country side. I have seen so many aid organization’s bike projects over the years designing “the best new bike for ‘the poor'” and here is a basic small Chinese-made bike which is nearly perfect for the needs and finally reaching these so called “poor”. And why are they everywhere? Not because someone gave them away. I should know, as PEPY used to have a small bike scholarship program in the area before – probably harming markets and surely delaying the purchase of bikes like these. Fortunately we stuck around long enough to learn that we needed to be investing time in people rather than giving away bikes. These small bikes I see today are not available now because of aid but because someone is making money off of selling them and therefor has found a way to make sure that they are available far and wide… and I bet that person didn’t even need an MBA to figure that out.

  • Anonymous

    Re: comments about this from my Facebook post, I wanted to clarify an important point.

    don’t think “aid” is the problem. HOW, is the problem. We can’t just
    give things away to everyone in need as then there won’t be businesses
    or groups in place to provide those things in the future – though of
    course there are tons of exceptions with disasters and extreme cases.
    But AID, can indeed AID people – I just argue for it to largely focus on the
    acquisition of skills and networks from which to build wealth. My Facebook friend commented that aid wasn’t helping the underlying issues in the US welfare system. I would argue that current aid is not, because of HOW it is being administered. Don’t blame the what, blame the how. For US
    welfare programs, mentorship projects, jobs skills training, support to
    re-enter school, post-prison reintegration and psychological support,
    small business development training, etc etc are all what I believe we need to be
    doing to help those people who deserve support to be able to create better
    futures for themselves. Aid CAN help people solve problems – it just
    can’t do it for them. And scaling giving things or money away is way
    easier – so governments love to grasp onto those things which appear
    easy. So, friends, don’t give up on investing time in people – just
    give up on treating people like they aren’t worth investing in.

  • Ed

    awesome job.  thanks for this.  

    i somehow navigated to this and it made me think too. I’m sure a Cambodian definition would be the same  


    I wonder how many even bothered to ask Cambodians what poverty is?  I never asked and have been here 2 years.  I wonder too if I sort of projected my superficial understanding of poverty on to them.  I would always say “wow, your house is so poor, you don’t have this..this..this”.  Maybe, after time, they started to believe me rather than themselves…they sort of “learned” this definition of poverty from our superior American educational system (and culture) and prescribed our own solutions.   

    Man, we are screwing up…thanks for reminding us and challenging us.  

  • http://twitter.com/april_harding April Harding

    Totally agree with the key point here.  And the narrow focus on giving things away is worse wrt health goods and services.  Options for subsidizing the purchase of health goods/ services are rarely considered; and the impact of give-aways on local supply systems are consistently overlooked in health programs. The obvious negative example being malaria bednet programs.
    The video is nice for giving a human story to underscore the point – though it is surprising (perhaps slightly suspect) that any donor would ship eggs from Atlanta to Rwanda. The odds are low that even a portion of the eggs would arrive unspoiled and unbroken.  Cans of tuna maybe……

  • Anonymous

     True, that does seem odd. But my goodness, people do tend to donate odd things on a regular basis! The point is still valid if the eggs were bought in-country though. Like with my example of the bikes, even though we were buying the bikes in Cambodia in another town and distributing them, though we were fueling a bike market in one area, we were inhibiting market-driven models of getting those bikes to that same rural area as, by giving bikes away for free, others couldn’t compete.

  • churchimiqui

    I think whether “aid” is helpful or harmful CAN depend on what is being given or partially subsidized.  To me, certain medical and dental procedures are something that are better done when a child is young and not delayed until adulthood when the child is grown and has a better job than the parents ever did and can afford it (speaking from personal experience here) –especially since there is no guarantee that the child WILL have a better job than the parents ever did (maybe BECAUSE of the medical problem).  I can absolutely support subsidizing (whether fully or partially) some things at the time of greatest need, IF they are things that would otherwise not be available at all to those who need them or to the general public in the area.  Bikes, shoes, eggs–things like that are available at some point to most people in most countries and there is a system to provide them at reasonable prices.  Not all medical procedures fall into that category.  Even those of us in the developed world sometimes have regrets that help was not affordable or otherwise available for us or for our loved ones at the time it was needed, and that by the time it would have been possible to afford, it was too late and the damage was permanent.  So the question for me is, how do we determine which aid falls into which category?

  • http://twitter.com/NickCarroway Nick Carraway

    I would think that anyone that is passionate about the efficiency of markets could easily grasp the potential distortions introduced by giving things away.  In fact, your egg example should be enough. 

    I suppose one could argue that they need capital.  But even there, it is clear that highly subsidized (cheap) capital tends to become misallocated. 

    It sounds like you are advocating giving away intangible types of capital — social capital, intellectual capital, &c.  

    This was quite thought provoking.