Foreign Aid Isn’t Charity. It’s an Investment

Monday, June 23, 2014

One of the few bright spots of bipartisanship on Capitol Hill of late has been in global development. The House recently passed a bill to support President Clinton’s Power Africa initiative, which is designed to boost access to electricity across six countries in the region. Both houses also managed to reauthorize PEPFAR—the President’s Emergency Fund for AIDS Relief— which provides antiretrovirals toalmost 7 million people worldwide. The U.S. still ranks near the bottom of the list among rich countries in terms of the generosity of its overseas development program, but these two pieces of legislation at least suggest that altruism and fellow feeling have not completely evaporated in Washington.

Nonetheless, U.S. foreign assistance—and aid programs the world over—face a real challenge. What limited popular support foreign-aid programs enjoy is due mainly to charitable impulses and the warm glow of “doing something” in the face of crisis. Yet new research suggests that this approach to raising funds can do significant collateral damage to the efficiency of assistance we provide. It’s time to view aid as an investment—like spending on roads and schools here in the U.S.—rather than an act of charity. In the long term, that will lead to more effective aid and possibly more assistance overall.

Economists Dean Karlan and Daniel Wood used fundraising letters from the charity Freedom from Hunger to test how information on the organization’s work affected donations. They sent out some fundraising letters that discussed the program’s impact both with a story about an individual beneficiary and as measured by a high-quality independent evaluation. They sent out other letters that only discussed the impact on an individual beneficiary.

Source: Business Week (link opens in a new window)

impact investing, philanthropy