The Ego Economy
How to stop taking and start giving
Several years ago, I sat with a family of Burmese farmers on the wooden floor of their two-room house, sharing eggs and rice and discussing their improved eggplant crop yields. It was my second day working with a local nonprofit, and felt thrilled as I thought about the impact I would have over my ten week term.
Only now, looking back, I’ve questioned my own motivations. I was there to help, but I was also there for my own experience. If I hadn’t gone abroad, that nonprofit could have used what it had paid me on its already successful program, providing loans to several dozen farmer families to help lift them out of poverty. I could have stayed at my desk job in America, and earned more money to donate to that nonprofit or even directly to farmers like the ones I had met.
But I did what felt good, rather than what was the most good. When we support nonprofits, how much of what we consider giving is actually consuming for our own benefit?
Is what we consider ‘giving’ is actually taking?
Much of the nonprofit sector is a global economy we have created where we pay to feel good. Let’s call this the Ego Economy. The nonprofits that make us feel the best win — we (often) give them the most resources. The Ego Economy is the resources we spend on trying to not feel powerless in the face of need, on feeling close to a community, on removing guilt, and on buying hope.
Why is philanthropy so tied to personal benefits?
After returning from Burma, my conclusion was that we don’t give based on data because it’s too hard to find that data. I’ve spent the last two years trying to change that — and our solution has not been successful. I collaborated with developers and designers to build a company that aims to make it easy for donors to find high impact nonprofits with multiple cause areas, a beautiful user experience, and a fast checkout process. Donors told us how ‘interesting’ this work was — but when it came time to give, many went back to the charities they were already supporting.
We realized that, even when presented with data, we typically give to serve our ego. It’s human nature to seek out personal connection and feeling good. When we give our time and money, our ego comes into play. What are the consequences? Let’s look at giving both time and giving money to understand the issues.
Our ego gets in the way of effectively volunteering.
The economic value of volunteering is often actually negative. It’s often more costly to a nonprofit to manage volunteers than the economic value we provide. Consider a typical example: volunteering at a soup kitchen. A nonprofit must hire a volunteer coordinator, create a fun and engaging role for us, parade their beneficiaries in front of us, and fill in if we choose to not show up in the last moment. All of these elements are costly — often more so than the value we add.
Why does the nonprofit make these roles available to us? In business terms, this would be considered a customer acquisition cost — the nonprofit believes once you get involved, you’ll ‘buy’ more goods from them, by donating due to your personal connection. Studies show when we volunteer and work with an organization, we give more — 56% of donors report giving because of personal ties or cases where they can ‘see the difference.’
In indirect terms, we use our time ineffectively, and selfishly, when we volunteer, because we’re (usually) spending time on lower skilled work for our own motivation. Here’s a simple rule of thumb — if you aren’t being paid for that type of work by the profit sector, you are probably consuming, not giving. For example, a doctor serving Doctors without Borders is probably net positive; a doctor working at a soup kitchen is net negative. Sure, the doctor might say, “I’m doing good, I’m serving soup!” But ask yourself: what if I had worked overtime a few hours at my regular paid job instead, and donated my extra income? Serving soup is not your competitive advantage in the global economy. Had you worked and donated your extra income instead, that soup kitchen could hire less skilled workers than you, for far more hours than you volunteered, and give jobs to those who actually need them. But your desire to volunteer isn’t logical — you’re there to consume.
The second issue with volunteering is our ego biases how we seek out volunteer positions. We seek organizations that will make us feel good, rather than the ones that do the most good. We look for organizations that are convenient to us, or that have a role we’ll enjoy. We’re not doing rigorous analysis as to which organization is most effective globally at addressing those issues, but we’re limited to those where we can help and swayed by those that will give us a great experience. Once we get involved personally, as mentioned, we tend to give more to those organizations. So we are (perhaps subconsciously) getting involved with organizations based on our own personal needs, and then giving to those organizations where we built a connection. Volunteering is usually about doing what feels good, rather than doing what is good.
Our ego gets in the way of effectively donating.
Imagine a nonprofit founder, Ryan, tells you, “I started an amazing organization that’s ending hunger in East Africa. We’re sending powdered milk to children in need. Our organization is extremely effective — of every $100 you donate, 100% goes directly to buying, shipping, and distributing milk. Will you join us?” This sounds familiar, we’ve all heard this story before. But let’s take a hard look at the three ways in which our egos get in the way of being effective.
Wasted layers
By providing goods or services to those in need, the economic value of our contribution gets significantly diluted. Consider nonprofits who spend all of their budget on their programs, like this example. (For a discussion on why overhead is an illogical thing to measure, read on here.) This doesn’t tell you the economic value of milk actually reaching those in need, or if they are actually effective in ending hunger. Say for every $100, $10 is spent on milk, $50 is spent on global shipping and transport, and $40 is spent on last mile distribution. That means the rural poor are only getting $10 in value from each $100 donated — the other $90 is lost on salaries and costs of running this nonprofit.
A patronizing approach to doing good
The second issue with donating is that these types of programs and services are driven by a paternalistic view: “We know what people need, and we are going to provide it!” In this case, it turns out that many of the recipients of this powdered milk in Africa are actually lactose intolerant. One of the worst things you can do to a person who is malnourished is provide a substance that provides further diarrhea. But this actually happened. In the 1990s, we sent thousands of metric tons of powdered milk to Africa, including to regions with varying degrees of lactose intolerance. Over 90% of some regions, such as Botswana and Namibia, are lactose malabsorbent. If someone realized they shouldn’t drink that milk, they were left 10 cents worth of powdered milk for every dollar donated. When looking at the true impact of a program, many are a complete loss, if not harmful.
Much of philanthropy consists of stories like this one. We think we know what those poorer than us need — we build wells that can’t be used, or used clothes donations that kill local economies, or bed nets for malaria that are actually used for fishing. This paternalistic view is driven by our own egos, where we think of ourselves as those who know (or perhaps ‘we are learning’ at the expense of wasted dollars) rather than doing good.
Ego driven decisions
Ryan’s story sounds familiar because we’ve all heard it. Many of us have that one nonprofit we love and support, often times because we have a personal connection — the founder told us her story personally, we saw their work on the ground, we want access to that board, we want to impress others at that charity auction. But how much of your decision to fund that nonprofit was driven by those personal feelings, rather than a deep, analytical review of their overall impact? When we pursue inspiration and feeling good, we’re not doing good.
How to stop taking and start giving
Now, there is some hope. Being aware of when you are consuming, versus when you are giving, is the first step. It’s ok to consume. We know when we experience a personal connection and inspiration, we open our check books wider. But, when you do want to give, give effectively.
An opportunity to end extreme poverty
Recently, one intervention has emerged as a way to truly remove ego and have impact, without wasted layers or patriarchal views. It’s what economists call unrestricted cash transfers. Developing countries have utilized these tools for years but only recently new technology has made it possible for us as individual donors to do this. Nonprofits such as Give Directly who use this method have had astonishing results: for every $100 donated, they can transfer $90 in cash to the poor. And every family that receives $1000 gets a boost in income just one year later of $270. Charity Elevator GiveWell has ranked this group as one of the top charities several years in a row, and the analytical Effective Altruism Global Summit has featured their founder.
We have before us a tremendous opportunity.
Right now, roughly one in ten people (702 million) live in extreme poverty around the world. That means they live on a basket of goods worth to them in their local currency less than our equivalent of $1.90 per day. That’s less than half a Starbucks coffee. And today, individuals and private foundations donate enough cash and resources to more than double the income of every person living in extreme poverty, if we gave directly, or used direct cash transfers as a minimum benchmark for every nonprofit to prove they outperform. (Source: calculations from America, Europe and global major gifts.)
So this holiday season, when you give, consider if you actually giving, or if you are consuming, and participating in the Ego Economy. If you do give, give with impact. Either give directly, or use that as your minimum bar for impact — it’s one that’s surprisingly difficult to beat. Together, we can change the world.
Author Angela Rastegar Campbell, founder and CEO of Agora for Good, recently shared these thoughts in a TEDx talk.
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