We like to think that we’re good people, even if we’re not spending money on good causes, and we like to think that people with money are greedy, even if they are spending money on good causes.
In reality, the best way to do good is with money. Every year, about 40% of Americans don’t give to charity at all. One reason is that charities are charging 11% fees on average, but another reason is that there aren’t many opportunities to invest in social entrepreneurs abroad.
If there were, there wouldn’t be such a massive economic disparity in the world. For instance, every few hours, American startups raise as much money as African startups raise in a year. The best way to help social entrepreneurs in developing economies isn’t with thoughts and prayers, it’s with cash.
Indeed, running out of cash is the second most common reason startups fail, even in developed countries. The situation can’t be much better in developing countries. In fact, 71% of the world’s population lives on less than $10 a day.
It’s clear that money and impact are inherently linked. There is nothing you can do for someone in a developing country that’s as powerful as sending money, and there’s nothing they can do that’s as powerful as spending that money on a social project.
And this is a good thing. The free market is an incredibly efficient system, at least compared to charities and governments deciding where the money goes. Besides the inefficiency, governments don’t make it a priority. The US government, for instance, spends only 1% of its budget on foreign aid, so it’s hardly even a concern.
While there’s no consensus on the exact cause of inefficiency in foreign aid, research points to the fact that foreign aid is akin to donations, on a government-level. As we’ve seen, charities aren’t exactly the most efficient organizations.
Since governments and charities have failed, it’s up to us to solve these global crises.