Charitable giving, while well-intentioned, can have the unintended consequence of stifling sustainable economic development in the very areas it is meant to be supporting. That’s why it’s important to identify those models of social entrepreneurship that deliver meaningful, lasting impact to communities in need.
Global economy, global support
Regardless of underemployment and student loan inundation, our society and arguably the whole world, is getting richer. Yet, despite the increase in global wealth, poverty still plagues a sizable part of the world. To many, it seems like capitalism has fallen short of its mission to increase the quality of life for everyone.
Consequently, corporate charities and non-governmental organizations have attempted to take up the slack. Individuals and corporations have made “social responsibility” the new norm as “entitled” millennials, who are actually the most generous generation, and corporations start directing their extra cash toward social causes.
Well-intentioned, but misguided
Charitable giving and socially creative business models, like the “buy one, give one” concept, oftentimes fail to create durable systems that promote wealth production through entrepreneurship. Instead, it can snuff out local markets for goods and services, keeping poor areas in an ongoing state of dependency.
In “Poverty, Inc.,” a recent documentary available on Netflix, director and producer Michael Matheson Miller brings light the to the unintended consequences of this ineffective form of charitable giving.
The documentary’s premise is illustrated simply with the story of a Rwandan entrepreneur starting his egg-farm business. As business was picking up, a good-hearted American church came through with a bunch of free eggs for the starving locals.
Although this helped the locals for a short period of time, it ran the egg-farmer out of business. So, when the church decided to redirect its efforts to other causes, the egg-farmer, who had been out-competed by foreign aid, was not able to mobilize his crippled egg biz.
Sustainable entrepreneurship is the key
The underlying theme of “free goods” disrupting local markets is repeatedly emphasized throughout the documentary. It takes on different players, organizations, governments, and supposed social enterprises.
For example, Tom’s Shoes and other enterprises that employ the “one-for-one” model are enthusiastically praised as a creative way to give to the less fortunate. Unfortunately, it essentially follows the egg-farming story, where the distribution of free shoes to needy communities effectively drives potential suppliers out of the market.
Methods for success
Alternatively, social enterprises like Kouzin Dlo are good examples of business ventures that attack the social problem while promoting wealth creation and sustained economic growth within the community. This enterprise employs female micro-entrepreneurs as sales agents who distribute a low-cost household water treatment product to poor areas across Haiti.
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In addition, it offers educational services by sharing the importance of chlorine and clean water. The local entrepreneurs make a profit and grow the business. Yes, please!
Poor areas also tend to scare off lenders of capital, due to the lackluster institutions that have contributed to their impoverished state. That being said, having access to capital is crucial to economic development and wealth creation, or in other words, you need money to make money.
Accion, a global non-profit, has been providing capital to entrepreneurs who have gotten the economic short-end of the stick since 1961. Kiva, another microfinance social enterprise, also helps build credit by lending out small loans to folks in destitute areas. Building credit the opens the doors acquiring capital and fostering long-term economic growth.
Our take
Like many of those interviewed in the Miller’s documentary, we are definitely not condemning the act of giving.
To be sure, most of these organizations are attempting to positively impact these resource-starved areas in dire need of the essentials. However, it’s vital to pay close attention to the unintended consequences of our genuinely well-intentioned aid efforts.
Blindly giving to charities that provide unsustainable solutions to deep-rooted problems oftentimes end up hindering entrepreneurs from creating genuine economic growth. Instead, we need to focus our efforts on supporting those locally driven endeavors that promote long-term solutions.
Be sure to head over to Charity Navigator and do some research into how your money is being put to use.
Header image: Shutterstock
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