Cost-Effective Compassion: The 10 Most Popular Strategies for Helping the Poor
Concern for the poor is a fundamental pillar of Christian identity and calling, a constant theme throughout the Old and New Testaments (Deut. 15:4; Prov. 14:31; Gal. 2:10; James 2:2-6). A definitive mark of the church throughout history is its members caring for the poor in their midst.
Today, thanks to economic globalization and the Internet, those who want to care for the poor overseas enjoy a plethora of attractive options: sponsoring a child, donating a farm animal, making a small loan to a budding entrepreneur, installing a well in a village, getting a morning caffeine jolt with fair-trade (instead of free-trade) coffee—among others.
But what are the best ways to help those living in developing countries By "best," I mean most effective: things that actually help people rise out of poverty, and that carry with them a sizable "bang for your buck"—programs in which the impact on the poor is significant per donated dollar.
Answering this question proves more difficult than you'd expect.
The Economist's Challenge
Measuring the performance of a for profit institution is straightforward: you look at its profit. Measuring the performance of a nonprofit program is much more difficult. Most relief and development organizations carry out self-assessments and measure impact based on self-studies. But donors (and Christians at large) should know the deficiencies of these self-studies.
For example, many relief and development organizations measure results based on studies that compare outcomes of program participants to those of nonparticipants. Such studies typically yield biased results, because program participants are routinely a self-selected group of motivated individuals who would likely have improved even without the program. In other words, their success cannot be attributed to the program alone.
Other organizations conduct before-and-after studies and interpret the difference as "impact." But this also leads to bias: individuals tend to turn to development programs when they want to improve their lives. Just as the impact of a substance-abuse program cannot be judged by "before and after" outcomes (since the main causal effect is the addict deciding to enter the program), neither can poverty programs be assessed in this way. For example, people take micro-finance loans when they want to improve their lives; in a recent study, we find that 75 percent of the apparent impact of microfinance, based on practitioners' before-and-after observations, is an illusion (although the 25 percent that remains is not insignificant).
Some development programs rely on the perception of impact. But even honest attempts to self-evaluate are affected by what's called "confirmation bias": we naturally gravitate toward evidence that confirms a prior belief, especially a belief about our own effectiveness. People and organizations also suffer from "illusory superiority," which causes us to systematically overestimate our performance. For example, over 90 percent of us believe ourselves to be above-average drivers. (Apparently even those of my own species are not immune: another study found that 68 percent of university faculty rated themselves in the top 25 percent in teaching ability.) Development organizations are run by human beings. Like all of us, they tend to attribute their successes to program effectiveness and their failures to forces outside their control.