5 principles for effective charity

Who am I to be writing about poverty?

The question gives me pause as I begin writing, the sweet aroma of my $3 espresso rising to my nostrils, reawakening me to the prosperity we breath as if it were nothing.

But that’s the beauty of documentary film. I’m not here to play expert. I’m here to make introductions. We shot over 200 interviews in 20 countries making Poverty, Inc. (available March 1st); now we have the honor of connecting you to some of the inspiring people who have shaped our perspectives.

Meet Alex Georges and Jean Ronel Noel, co-founders of Haitian solar panel start-up Enersa, employing over 60 men and women, many from the gang-ridden streets of Cité Soleil. Their dream is to light Haiti’s streets with renewable energy. In a power scarce nation where 80 percent of kids in orphanages have living parents who can’t afford to care for them, companies like Enersa are keeping families together and building the tax base.

Be honest: when you think Haitian entrepreneurship, do you think high-tech photovoltaics?

Enersa’s facility withstood the 2010 earthquake, and soaring energy demand due to the downed power infrastructure presented a growth opportunity for the company. But the crisis had triggered a tsunami of donated solar panels from abroad, destroying the competitive landscape of the local economy.

“It comes from a good heart,” says Mr. Georges. “People had this conception that, ‘Oh, in Haiti, there’s nothing, so I have to come with everything.’ We really suffered from that perception. From an average before the earthquake of 50 streetlights a month, from January to June we sold five.” But for the patience of their primary lender, Fonkoze, they would have lost everything.

Similar stories abound in Haiti, which locals pejoratively refer to as “The Republic of NGOs.” We visited a pharmaceutical company forced to make layoffs after losing an entire product line of hand sanitizer, a former backpack maker wiped out by truckloads of free backpacks stuffed with school supplies by American kids at justice conferences, a peanut butter entrepreneur dismayed by the specter of a megachurch shipping 28,000 jars of peanut butter to his peanut-rich area proud of its locally produced “mamba.”

In market economics, this type of activity is known as predatory pricing or “dumping.”

“It’s hard to get people to buy from here when the white men donate,” says Ghanaian metal engineer Ntim Asamoah, whose 22-person outfit manufacturers medical devices for local hospitals and struggles to stay afloat when medical missions come in with free equipment. “If they want to donate, then they should come and buy from here, then donate.”

Writing this piece, three pairs of TOMS Shoes have strolled by, punctuating the disconnect.

TOMS founder Blake Mycoskie explains the “sustainability” of his highly profitable one-for-one model as follows: “As long as I continue selling shoes, these kids will have shoes the rest of their lives.” Blake has inspired a generation of social entrepreneurs following suit.

“Saying he wants to provide shoes for kids for all of their lives,” responds Haitian professor Daniel Jean-Louis tensely in Poverty, Inc., “is implying that he would want them to stay without shoes for life so he can give them shoes. No one in Haiti wants to be a beggar for life.”

And therein lies the deeper cultural problem with TOMS’ popularity as one of the flagships for social entrepreneurship: it lends credence to the idea that flooding local markets with free stuff is a good idea as long as we can find a way to do it forever. Do we really want a world in which all the needs of people in black and brown countries are benevolently gifted by wealthy foreigners?

It’s become chic to dismiss TOMS as little more than a corporate gimmick, not representative of the more sophisticated values of the aid community, but awards and recognition from the State Department, Bill Gates, and the Clinton Global Initiative (including former President Clinton himself) are revealing. Blake’s model hasn’t been corrected by the establishment; it has been championed by it.

At least TOMS and other independent actors have the opportunity to change. When government funds are in play, buying local is prohibited by law.

“Our current system today is completely tied to purchasing U.S. commodities,” explains Danielle Mutone-Smith of USAID to Tom Paulson, writing for Humanosphere on USAID’s attempts at procurement reform, stalled by the “iron triangle” of special interests: big agriculture and manufacturing, big shipping, and big NGOs (with the noteworthy exception of CARE), who reap millions in revenue from the “monetization” of gifts-in-kind i.e. the revenue generating resale of commodities in emerging markets.

We often think “smarter aid” involves lowering overheads and boosting efficiency to reach people more directly. But we see our “help” can actually be most problematic when it does reach the people. It’s not impersonal economics. When we undermine local employment-generating enterprises, children suffer.

“I’ve estimated with 250 employees we’re helping at least 750 children, possibly 2,000 if you consider they’re supporting their entire families,” says Shelley Clay, whose original plan to start an orphanage in Haiti evolved into an artisan company designed to address the underlying economic realities leading to child relinquishment. “There’s no orphanage that can sustain care for 750 children.”

We tend to compartmentalize business as something separate from public health, education, food, shelter, and other social needs. But when a single, ethics-infused business is thriving locally, the impact on all of these is far greater than any combination of NGOs and multilaterals can provide.

Business is by no means a panacea that promises utopia. But statistically, it is the normative way in which most people rise out of poverty. Any efforts to fight poverty must therefore focus at least tangentially, if not directly, on strengthening the ecosystem of the local marketplace, or at the very least not polluting it.

This isn’t to say that everyone should be an entrepreneur (a common flaw in the microcredit community) or that we should all be going into business. Business may make up the metaphorical bricks of economic development, but we also need the mortar of a strong civil society and meaningful but limited government authority to uphold key institutions of justice such as property rights, rule of law, and freedom.

Indeed, poverty is infinitely complex and there are no convenient singularities. The project of Poverty, Inc. is embrace that complexity and eschew silver bullets. “It’s easy to have a heart for the poor,” says development expert Michael Fairbanks in the film. “But can we have a mind for the poor? That’s the challenge.”

In this spirit, here are a few reminders I’ve made for myself personally:

First, do no harm. Think beyond the short term benefits of “fast-food charity” like TOMS, which can undermine local economies and cultures.

Second, think beyond microfinance to Small-Medium Enterprises (SMEs) like Enersa. These are the real employment generators. Our friends in developing countries are doing world class things, not just making baskets and jewelry.

Third, think beyond “teach a man to fish.” What if he doesn’t have access to the pond? When he catches the fish, does he live forever as a subsistence fisherman or can he access wider networks of productivity and exchange that allow him to flourish? Pay attention to the broader ecosystem and the institutions of justice that facilitate inclusion.

Fourth, de-compartmentalize your charitable impulse. Think beyond “What nonprofits do I want to support?” to “What companies do I want to support?” Utilize the democratic function of the market economy to “vote” for companies that share my values — i.e. providing services and products that make the world a better place, honoring the dignity of all human beings, and practicing environmental stewardship.

Fifth, embrace learning as action. Use resources like Poverty, Inc. to step into the shoes of other people, then continuing thinking beyond.