A Hayekian Challenge For Charities

Debris in the streets of the Port-au-Prince ne...
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One of the most famous works by the economist Friedrich Hayek is his short essay, The Use of Knowledge in Society. In it he explains that an economy exists not merely to solve a known problem of scarcity, slotting x number of pegs into y number of holes, but rather as an enormously complex machine for transmitting knowledge from distant individuals. The problem that any economy exists to solve, then, is created because

the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess…it is a problem of the utilization of knowledge which is not given to anyone in its totality.

This problem, of course, exists in all economies. But, as this recent disaster in Haiti has shown, the dangers of complexity are hardly restricted to the private sector:

The earthquake in Haiti sparked one of the biggest international aid efforts the world has seen, but the sheer number of charities involved caused problems with communication and coordination…With dozens of charities operating all over Haiti, there was a risk of their work overlapping. The UN operated a cluster system based around areas of need – for example, water or shelter – so that charities could share information, collaborate and set common standards on, say, the cost of materials. But the clusters have brought their own problems.

Hayek’s solution to this problem for economies is the price system, a set of numbers continuously in flux and decided by millions if not billions of bidders, changes in demand, the ease of manufacture and many other factors. But while this may work for the incentivized capitalists of the private sector, the more convoluted incentives and operations of the public sector make this a difficult trick to pull off. So, what are some practical ways to make charities do a better job coordinating?

1. Have the UN devote more resources to making communication efficient, and inclusive. The common supposition that low overhead is a good sign when choosing charities is misplaced; often the reverse it true. So invest in efficient communication and incentivize participation – say, give $5000 to charities over a certain size which join.

2. Learn from some similar examples. For instance, the US military currently has a problem coordinating drone strikes: there’s just too much data. But they’re coping with this using some relatively simple social networking tools and wikis. Now, I don’t think anyone is of the opinion that the UN is as efficient an organization as the US military – but they could certainly pivot off these ideas by trying to improve coordination with these technologies.

3. Look to technologies down the line. This is definitely a little utopian, but with enough information flowing in, organizations may in the future be able to take advantage of IBM’s question-answering computer. This machine, known as Watson, is good enough to go toe-to-toe with Jeopardy! greats, and is being considered for use in extreme scenarios like answering split-second medical questions in an emergency room. Why not have it collate information during disaster relief? For instance, if one group is currently working on freeing earthquake victims in one sector of Port-au-Prince, they could let Watson know with a GPS and time stamp, along with a status line. Then if another group is looking for the best place to find people, Watson could at least narrow the field. Again, this solution is fraught with problems. But it might be the best of a bad set of options.

Now, I realize the irony of these answers – they’re totally anti-Hayek. They’re centralized, bureaucratic, and try to deal with the problem of knowledge by consolidating it in one place. I just think streamlining a centralized database may be our only choice. But, just in case, here are two answers Hayek may have liked better:

4. Create cash prizes to distribute for verifiable goals. As with many free market ideas, many people will strongly dislike this one. It seems to make mercenaries out of altruists, and it may indeed open the door for fraud. Still, creating incentives for verifiable goals like people with access to potable water, vaccines given, people in acceptable housing, etc. may be extremely useful to push aid organizations on. This has numerous dangers like those mentioned above as well as possibly leaving non-incentivized goals under-pursued. Nevertheless, on a limited scale this may drive organizations to better work.

5. Create prediction markets to establish answers to pertinent aid questions. When will those five wells be dug? When can permanent housing be expected to be finished in this quadrant? Should we fund nutrition packs or local farmers in the coming month? As Robin Hanson argues, prediction markets – forums where parties can place bets on certain outcomes – can be very effective in situations like these, because these are exactly the sort of questions that make interset groups fight for their organization over the greater good. Making the choosers have clear, definable upside if they are correct and downside if they’re wrong makes the choice more trustworthy.

I’m sure there are many more ways to help coordinate in these difficult situations. But by applying some of these lessons we may hope to avoid tragedies like this and move more in this direction, of incremental improvements in very tragic circumstances.

Hat tip: Good Intentions are Not Enough, Matt Yglesias, Marginal Revolution


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