What I’ve Been Reading

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1. A Farewell to Alms – a fascinating book, by Gregory Clark, with a number of competing and slippery theses. Its main points:

– Growth is very, very hard. Most gains in living standards were wiped out through population growth – this changed only in Britain and the US starting in the late 1700s. Why this changed is the central question of economic history, and very poorly understood. Clark posits that institutions have much less to do with this than is commonly assumed and that the institutions of medieval England were actually more conducive to growth than modern highly taxed and regulated OECD countries. Overall I’d say that even with some interesting stats Clark presents the violence, uncertainty and infrastructural weaknesses of pre-18th century societies were still important constraints on growth.

– One possible reason for the shift is that the rich had many more children than the poor possibly resulting in a gain in cultural or genetic factors that made labor more efficient. A lot of doubt has been shed on this thesis.

– The Great Divergence between the rich and poor societies (which, as Clark says, has led to a 40:1 difference in living standards between the richest and poorest countries) can be explained through differences in labor efficiency. These differences have grown through time; in combination with the necessity of attention to detail that modern manufacturing demands this explains why much of Africa has been left out of the huge gains in technology and trade. When you add in Paul Collier’s explanation of the untapped labor of Asia (see below) this presents a somewhat grim picture for Africa. Still, Clark fails to present a compelling understanding of why there are these huge differences in efficiency beyond falling back on “cultural” differences.

Ultimately, a rewarding read but Clark fails to really lock down his points well and as David Henderson has said this seems overall more useful as throwing explanations into the pile than presenting a clean and novel narrative of growth.

2.  The Bottom Billion – Paul Collier’s stripped down explanation of his “empirical” work on poverty, civil war and development generally. His points are very concise and many, from an economic perspective, are intuitively correct. He identifies several traps which keep the bottom billion, as he calls the lowest tier of economies which have stagnated over the past 30 years, from making strides away from indigence. While I’d have concerns, as Will Easterly does, about the certainty that any economist can have in numbers generated through these complicated regressions and vast studies, their general trends do seem to show heavily that aid as a solution cannot be much more than a bulwark. They may indeed have staunched the wounds but they cannot foster growth. Africa, which holds most of the bottom billion, is facing traps such as untapped labor in Asia, landlockedness and many other factors which need to be addressed from the interior through education, government reform and a focus on infrastructure. Unfortunately, as with many of these books, its solutions are not nearly as convincing as its critiques.

3. When Brute Force Fails – A quick read, this book packs a logical take with intelligent takeaways. Its main points:

– We need to consider punishment not as a benefit but as a cost. Having 1% of our population jailed is an untenable situation, and a heavy weight on society.

-We are well beyond the point of diminishing returns with incarceration. A focus on quick, certain and light punishments will stigmatize criminals and also increase the perceived costs of crime.

– Structural changes, like letting schools start and end later, can affect behavior in very positive ways. This is also covered in Nudge.

-There are some massive and unexpected side effects to certain programs. Lead reduction, for example, has apparently decreased crime by, at conservative estimates, 5%. As above I’d be skeptical about these types of claims but still something to be aware of.

What’s the takeaway from these books for aid? Focus on small projects that can be scaled up. In developing countries we need to be always working on health, saving lives at the margin. Even if we can’t prompt growth we can still, with as little as $1000, save a life.

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• A brilliant review of Paul Collier’s The Bottom Billion and Wars, Guns and Votes (loomnie.com)

How to Evaluate a Fundraising Project

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Charitable fundraising is a simple concept: collect cash for a specific cause or organization. The money is then used to pay for something that is severely needed, such as medical aid and scholarships for underprivileged students, or to simply keep an organization operational.

There are two basic questions to ask when evaluating a fundraising endeavor:

1. What are the funds used for?
2. How is the money raised?

For the first question, we encounter a number of dilemmas. There are a wide range of opinions around what causes are most important, what the world’s pressing needs are, and why you should care about everything from overfishing in Japan to the lack of educational resources for teachers in your local schools.

Forget what others are rallying you to care about. When deciding if funds are going to the right place, it really depends on what you are passionate about.

Once you have focused on a specific cause, the evaluation can begin. There are a whole host of Non-Governmental Organizations (NGOs), government programs, and other large fundraising efforts that have been raising and spending enormous amounts of money for the past few decades.

Bill Easterly, in his incredible book, The White Man’s Burden, provides chapters of analysis of the World Bank, the International Monetary Fund, and other large global efforts to combat global poverty. One thing that he constantly stresses is the lack of practical results from such large efforts. One case he cites as an example are malaria nets. Intended to protect children while they sleep, many nets are currently being used for fishing because the distribution is improperly managed.

What does this mean for you? Its important to note that even very large organizations do not always do things well. Executives working in New York don’t know how to meet the needs of a rural farmer in Ghana. Check that the organization you work with can prove that their efforts are making an impact. If they can’t show you what the funds are accomplishing, then why donate to them in the first place?

Unfortunately, most organizations are not able to show how their funds will directly serve their stated cause. One major exception to this rule is Charity Water. They are committed to transparency,  provide data on all projects, utilize Google Maps to show where there projects are happening, and even put their financial reports on their website for anyone to look over! There are many organizations that can learn a lot from Charity Water.

For evaluating the methods of raising money, there are a number of great online resources that evaluate large organizations. Charity Navigator is the leader in the field.

To answer our second question, we start to get a bit more technical. There are tons of metrics that are used in the business world that can be applied here, so let’s go over two basics:

1. Expenses vs. Income: In the business world, this is what is called profit. If you spend more than you make, you aren’t doing a very good job. Especially for charitable causes, where a large percentage of your income comes in through donations (which are 100% pure profit), it shouldn’t be too difficult to be “profitable.”
2. Fundraising Costs as % of Total Expenses: If you are evaluating an organization that fundraisers and provides direct aid, this is an invaluable metric. A good range can vary widely depending on the type of cause, fundraising models, and size of the charity. However, when fundraising costs seem to be a large chunk, such as with these non-profits on charity Navigator’s Top Ten Inefficient Fundraisers, something is seriously wrong.

Remember, there are tons of ways to go about this. These are just a few things you can quickly do to make sure that your efforts are having maximum effect. Also, if you cannot find an organization for your cause that meets the criteria mentioned above, then maybe you should think about starting your own. Just a thought.

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