Philanthropy Is Weird

How to make budget choices for someone else's budget?

I’ve started making significant donations to various organizations working on climate change. (Well, hopefully working against climate change.) My goal of course is to make as much of a difference as possible, within my budget. For six months I’ve been getting advice, doing research, talking to organizations. While I’m not by any means “done” learning, I’ve made a shortlist of worthwhile groups. Now I need to decide how much to give each one, and that turns out to be really, really weird.

For one thing, the whole interpersonal aspect is bizarre. I’m meeting with leaders, people who are dedicated, accomplished, doing important work; I feel bad taking up their time. But from their perspective it’s worthwhile, because as a society we don’t have any better way of funding these projects. And I wind up in this weird position of power: I can choose to support their work, or not, with no repercussions.

Once I’ve decided who to support, things get even weirder. The organization is doing great policy work, or supporting important research, or something. Or at least, I think so? Their website looks good, they’ve produced a meaty annual report, their projects resonate with me, people whose opinions I respect are supporting them, I’ve spoken with someone from the team and they made a good impression. Time to donate! But I can’t just say “yes, I’d like to purchase one donation, please.” I have to come up with a number.

I have my shortlist of organizations. I’ve set a budget. I could just divide it evenly? Well, no, I’ll need to do better than that:

• It’s only January. I’ll certainly find more causes worth supporting this year. But there’s important work that needs funding today. So I need to make decisions now, without knowing what I’ll find later.

• All of these organizations are doing important work, but probably not equally important.

• If an organization is likely to reach their fundraising target without my help, then my dollars might do more good elsewhere. Presumably my search has been biased toward groups that are particularly well-known, so my shortlist may be especially prone to this.

Why is this so hard? Is there something special about philanthropy that makes budgeting especially difficult?

Most Resources Are Allocated By Feedback

As a society, we are constantly making decisions about how to allocate resources. It’s so ingrained that we often don’t realize we’re doing it.

Suppose I walk into a store and see a jacket I like… how does the clerk know whether it’s OK for me to walk out with that jacket? Obviously, “if I pay for it”. This is simultaneously banal and profound. The clerk doesn’t need to worry about how much other stuff I’ve bought at other stores, how hard I work, or how much I’ve saved. All of that is automatically tracked in my bank balance. If I ask for too much stuff, I’ll run out of money and have to scale back.

Suppose I need breakfast cereal, but I’m not sure which retailer is most efficient at sourcing, stocking, and delivering Chocolate Frosted Sugar Bombs. I don’t have to conduct a detailed analysis of supply chain management at online groceries. I can just go to the Walmart and Amazon websites and see which one shows the lower price. Whichever provider is more efficient will naturally get more business.

Back at the clothing store, the manager needs to decide how many clerks to hire. But this sorts itself out as well. Too many, and the store will lose money; too few, and customers won’t get good service. There’s clear feedback leading to a more or less “correct” answer.

To be clear, I’m not trying to be an apologist for unbridled free-market capitalism. The system has problems! Income inequality, excessive consumerism, honestly I’m nervous even starting this list because I’ll get in trouble for whatever failing I forget to denounce. But the system is generally good at the basic mechanics of efficiently allocating resources.

Philanthropy: 100% Feedback-Free

Google “feed a hungry child”, and you will be bombarded with charities. In a development which I didn’t see coming but seems obvious in retrospect, the first four results – despite being for domains ending in “.org” – are all ads:

Do these organizations, collectively, raise enough money to feed all the hungry children? Presumably not. What is the mechanism for increasing their budget so that everyone can get fed? There isn’t one. (They can issue funding appeals, buy keyword ads for “hungry child”, etc., but if that were sufficient then there would be a lot fewer hungry children in the world.)

Suppose a charity actually raises too much money – more than is needed for the region they’re serving. How do donors know to direct their contributions elsewhere? They probably don’t.

Presumably, some charities are more efficient than others at turning dollars into well-targeted meals. What mechanism directs donors to the most efficient charities? Not much. Sure, there are organizations that evaluate charities, and some donors try to do research, but this is all a lot more difficult and less calibrated than a quick price comparison between Walmart and Amazon.

All of the normal feedback loops that we take for granted elsewhere in the economy, are missing when it comes to philanthropy. To the extent that the system works at all, it’s because the participants – charity executives, foundation staff, donors – are working really hard to steer things in a good direction. Even so there are plenty of examples where it doesn’t work, where resources go to programs that are appealing and familiar, rather than important and effective.

Distance From The End Beneficiary

In each example I gave about resources being allocated via feedback, decisions are made by the people affected by those decisions. When I decide to buy a jacket, I’m buying it for myself or a family member. (Ha ha, as if anyone in my family would or should trust me to buy them clothes.) When Walmart posts prices, they’re basing that on their ability to make a profit. When a store manager hires clerks, she’s doing it based on the needs of her store.

This promotes efficiency; when we’re making decisions on our own behalf, we can generally make good decisions. (Yeah yeah, not always. I said generally.) Less obviously, it also allows us to coordinate as a society, via market mechanisms. If there are three grocery chains in a region, they will collectively stock a reasonable amount of food, based on the traffic in each store.

People complain about governments being inefficient. One reason is that in government, decisions are separated from the person impacted. The person designing the form for renewing your car registration (mostly) doesn’t have to fill out that form, and they certainly don’t have to worry about losing business to a competing Department of Motor Vehicles. There’s no tight feedback loop. But there is at least some feedback, via the ballot box. And governments do provide coordination; the DMV may be inefficient, but it manages to evenly distribute offices around the state.

In a philanthropic organization, the feedback loop is missing entirely. Feedback from beneficiaries to a charity operator is incidental at best, and there is no mechanism at all for feedback from the beneficiary to a typical donor.

Philanthropy also suffers from a coordination problem. If several grocery chains target the same region, they’ll naturally sort themselves out in terms of store locations and amount of food to stock. If several organizations are targeting the same issue, there is no mechanism for ensuring that they avoid overlap or collectively scale their efforts to match the need. Meanwhile at the donor level, there is no mechanism for collectively distributing funds across organizations.

In the software industry, it’s an adage that enterprise software – think, “the system a Fortune 500 employee would use to fill out an expense report” – is always terrible, because the people who pay for it are not the people who use it. Well, the people who fund a charitable organization are not the people who rely on it.

More Organization, But Not Too Much

To recap, the challenges with philanthropy:

• There’s no budgetary coordination across donors

• Individual donors don’t have the resources to make informed decisions

• There’s no feedback loop from beneficiaries to donors

I think the ideal way to address the challenges of philanthropy would be to need less of it. Of course, philanthropy is a wonderful thing. It’s a way of getting things done when other branches of society are dropping the ball. It can bring out people’s best aspects, and help them feel good about themselves. Anyone can just jump in and do whatever they believe is worth doing, if they can find the resources. But it’s inherently disorganized. As I see it, government is needed to do the things that private enterprise won’t (because there’s no profit motive), and charities are needed when governments drop the ball. If we had better policies to motivate private enterprise, and a more effective government, there’d be fewer gaps to be filled by charity.

So in many cases, the most effective form of philanthropy may be policy work to eliminate the need for philanthropy. The ozone layer was saved through policy changes (see, Montreal Protocol). Government subsidies were enormously helpful in promoting solar power and electric vehicles. Tesla was built on government incentives and market forces (though I imagine some of the earlier work that enabled something like Tesla to come about on may have been supported by philanthropy).

When philanthropy is needed, it would be nice to have more coordination. There are attempts at this: donor’s circles, organizations that evaluate and rate charities, and recommenders like Giving Green and GiveWell. I think there is a lot of room to do more here.

At the same time, we don’t want to get too organized. A sufficiently coordinated philanthropic sector would just be another layer of government, politicized and echo-chambered, overly focused on certain ideas. Somewhere there’s a happy-medium level of organization; but we’ve got a ways to go to get there.

Does “Pick a Round Number” Count As a Strategy?

I just wrote a lot of words (and if you got this far, apparently you have read them!), but I’m no closer to knowing how to allocate dollars.

In principle, one might argue that I should put everything into one charity: whichever one seems to be most efficient, best aligned with my values, etc. But intuitively, that seems wrong. Why?

One might argue that evaluating charities is difficult, and I don’t have much experience, so I shouldn’t be very confident in my identification of the best charity. This is absolutely true! However, I’m not sure it follows that I ought to spread my bets. My pick for “most effective charity” might be flawed, but my runner-up picks are even more likely to be flawed.

A better argument, I think, is that one learns by doing. The money I give this year is not all of the money I will ever give. By donating to multiple organizations, I’ll naturally follow their work, see what they accomplish, and hopefully be able to make more-informed choices next year.

Which still doesn’t tell me how much to give! The only course I’ve come up with is to just pick a round number, and give that much to each organization on my current shortlist. That’s awfully unscientific, but at least it’s a start. And finding some way to make a start is usually better than throwing up your hands and doing nothing at all.