Some 700 million people currently live in extreme poverty — on less than $1.90 per day. By one estimate, closing this poverty gap, and ending extreme global poverty, would take $90 billion annually. Aid institutions such as the World Bank, USAID, and DFID currently spend $140 billion each year, and private giving to international development adds to this sum (it was $23 billion in the US alone in 2017). To top it off, developing country governments do not sit idly by — most invest billions in economic development and poverty reduction, often vastly more than is provided by international aid.
Global poverty is a solvable problem. The total funding given for international development and poverty reduction each year is already much greater than the extreme poverty gap. So why does it persist?
Partly because the majority of resources allocated to economic development are not focused on today’s problems — the majority of funding goes to support services that might eventually reduce poverty and hardship, such as health, education and infrastructure, with comparatively little dedicated to ending immediate hardships caused by a lack of money.
Perhaps this is a reasonable approach — with limited resources if it is cheaper to end future poverty (e.g., through health investments, education and the like) than current poverty (which requires direct transfers to low-income people) it would make sense to focus on long-term poverty reduction. What this approach misses, however, is that current and long-term poverty reduction are not the same problem: the people who will not be poor due to long-term investment are different people to those who might die poor in the meantime. Further, this approach assumes that donors see short and long-run poverty as the same problem, and are willing to contribute only a fixed amount to solve the overarching problem of “poverty.”
We decided to test this latter assumption. Specifically, we wanted to see if individual donors had a single budget that they are willing to allocate to poverty reduction, or whether they grasped the duality of short and long-term poverty and responded in proportion to the magnitude of various needs.
We conducted several experiments using the Mturk platform, which facilitates social science research among other uses. More than 230 people, approximately 75% of whom had given at least $1 to charitable causes in the last year, responded to our surveys. The hypothesis we tested was whether donors would donate more if given the opportunity to contribute to both short and long-term poverty reduction, than they would if given the opportunity to contribute only to long-term poverty reduction.
In the first experiment we asked respondents to allocate $30 to various charitable options: an organization providing educational services in India, an organization dedicated to providing clean water in Africa and an organization providing insecticide treated bed nets to prevent malaria. This was an incentivized choice, meaning the choices of one randomly selected respondent would determine real charitable donations, making it in the interest of the respondent to answer according to their real views. When faced with these option, donors roughly split their donation between the charities, with the average donation per charity being $10.
For a separate group of randomly determined respondents, when they were asked if they wanted to donate to a particular organization, they were also told they could allocate some of their donation to give cash directly to people living on less than $2 a day to alleviate the immediate harms of poverty, like hunger and sickness. When given this option, donors allocated an average of $8 to each long-term charitable cause and $6 to cash transfers. This suggests that
donors care almost as much about alleviating the immediate harms of poverty as supporting interventions that reduce long-term poverty, like education and improved health.
One concern about the first experiment is that people have a default of splitting their charitable contributions over all the options they are presented with (e.g., if they know about 5 charities they will give 1/5th of their donations to each, but if they know about 10 charities they will give 1/10th of their donations to each). To address this concern, we ran a second experiment. In this experiment, people were told that they had $1 to give to charity. Thirty percent of any amount they did not give to charity would go to them — so while they had an incentive to give, their giving choices also cost them money, exactly like in the real world. Respondents were either given a choice to give to a single charity focused on health (reducing malaria in the developing world), or given the choice to give to a single charity as well as send money directly to people living on less than $2 a day in Kenya. The direct giving option was enabled by Spare, an organization launched by Busara, dedicated to identifying ways to channel more resources to ending immediate poverty.
Here’s what we found:
- When given a chance to give just to reduce malaria, people give an average of $0.36.
- When given a chance to support malaria prevention and reduce poverty directly with cash transfers, people give an average of $0.54 — or 50% more. Specifically, they give an average of $0.30 to the malaria prevention cause and $0.24 to direct poverty reduction through cash transfers.
What this means is that donors do distinguish between various causes, and give more in proportion to greater need. For a charity focused just on maximizing the resources dedicated to its current causes, asking for donations to reduce the immediate poverty faced by people worldwide will reduce its ‘core’ funding by 20%, but at the same time it will increase total giving to support overall poverty reduction by 50%.
This suggests that charities don’t need to make a 1-for-1 trade-off between focusing on a specific long-term strategy to reduce poverty and alleviating immediate poverty. They can do both just by asking.
PS: if you would like to make a direct dent in global poverty this Giving Tuesday, visit Spare.