Guest Post: An Entrepreneur's Thoughts on Market Incentives & Foreign Aid

This is a guest blog by Chia Han Sheng, Brown University '14, co-founder of MedInternational. You will be excited and optimistic about the passion, compassion, thought, analysis, and implementation of this generation.  See what two not yet 20 year olds were able to do and sustain.

MedInternational was started in 2011 to raise the standard of healthcare in resource-poor regions of the world by sharing and maintaining appropriate hospital technology in these areas, initially Zanzibar, Tanzania.   

Thoughts on Charity, Foreign Aid and Market Incentives - Tanzania

by Chia Han Sheng on Sunday, August 19, 2012

It’s been two months since Jayson and I started work in Zanzibar, Tanzania. Today I am in the Serengeti, a four-hour flight north of Zanzibar. I have come to join my parents who flew up from Singapore for a short break. We are here to hang with lions and wildebeest for a few days.

The time away from work has granted me some valuable space to think, notwithstanding the guilt I feel about abandoning the rest of the team who are working hard in Zanzibar. Over the past three nights, I have met some exciting and intelligent people at dinner, many of whom have provoked these thoughts on charity and foreign aid. Among this group has been a founder of a wildlife foundation, a married Wall Street duo, a management consultant, his digital artist wife, and an urban planner.

It’s funny that at different points of our dinner, we were all drawn to think about how to make nonprofits more financially sustainable, the one that Jayson and I run included. I almost asked for a white board when the conversation got intense. These are my takeaways:

SerengetiCharitable giving is as much about the donor as it is about the recipient. I was talking to a British ENT surgeon that had come to Zanzibar to donate a fairly sophisticated surgical microscope. I gathered that he was quite established in his profession, and that he was satisfied about having flown down to make sure his donation was properly handled. I enjoyed our conversation, he was introspective and raised questions like, “What if I hadn’t spent money on my plane ticket and instead donated that sum to the hospital? Would that have benefited the recipient more?” He also highlighted the fundraising events of another British organization. In these events, participants raise money in the UK before arriving in Zanzibar for a biking marathon around the island. The money raised helps keep hospitals here running. But what if the participants donated the money they had spent on their airfare to the hospitals? Lets say they spend $2500 on airfare and accommodation, and raise $1000 for the hospital. Wouldn’t it be the most socially optimal for them to have donated all $3500 to the hospital and not come down? Imagine how many sachets of Oral Rehydration Salts could be bought with $3500. In Zanzibar it would cover a doctor’s salary for 1.5 years.

I am beginning to learn that charity does not work that way. It may seem obvious, but when I spend all day thinking what is most cost effective and what is the most efficient allocation of resources, it is easy to lose track of the human dimension of charitable giving. It really is as much about the donor as it is about the recipient. That $1000 may never have been donated if the allure of coming to Zanzibar for a marathon was not present, even if it cost the donor $2500 of his own money. There is much in common between this and Dan Pollata’s arguments, which state that nonprofit leaders should be allowed to earn large salaries if it draws in productivity (or funds) that were otherwise unavailable to the social sector.

I am undecided about this. I have been constantly asking myself, if Zanzibar was significantly less comfortable than it is now—if there was no running water where I lived, if food was hard to come by but the need for our work just as present, would I do it? Where do I draw the line? Tomorrow afternoon I am stopping by a friend’s polo club to horse around for a bit. I’ve spent several weekends at some very nice beaches in Zanzibar. Very honestly, these are all great incentives to come back to Tanzania and work. The British biking participants have their marathon that brings them here, Dan Pollatian nonprofit leaders have their large salaries and I will have my polo and beaches. Is such comfort in the face of the destitute right even if I strive to contribute to Zanzibar’s health sector? I wonder how many bottles of Proziquantal medication my Zanzibar beer fund could have bought. How decadent is too decadent? Or should everyone be a Mother Theresa, helping the neediest of the needy, with few rational incentives for oneself. Can everyone be a Mother Theresa?

One of the Wall Street guys at dinner, a highly intelligent man with a PhD from Carnegie Mellon was describing his former job to me. He worked in a firm that supported fixed income investments in emerging markets. One of his main tasks was to structure a hedging derivative that negated foreign exchange risks so that Microfinance institutions could take safer loans from the developed world. I think that microfinance is one of those rare game changing social initiatives that manages to use market forces to drive social change. In that light, you don’t have to be a Mother Theresa to squeeze out as much social benefit as possible from a donation. The entire concept of Microfiance’s social change is not built around redistributing wealth and the associated opportunity costs. Instead it is about effective investments and growth opportunities that hardly require a sacrifice from the wealthy. It’s an oversimplification, but the rich grow and the poor grow financially too.

Another rare example of utilizing market forces to achieve social good can be seen in the Clinton Foundation’s efforts to drive down the prices of HIV Anti-Retrovirals (ARVs). This is a butchered summary, but they essentially consolidated demand and cut out middlemen, allowing suppliers to access larger markets at lower costs. Pharma keeps their money, the poor get ARVs.

Reading about these market driven social endeavors is always exciting. There came a point during our dinner in the Serengeti where we agreed that the trite line “When there’s a will, there’s a way” should be altered to the clunkier but more true “When there’s a will and a market incentive, there’s a way.” This question, of how to morph MED’s work into a social cause fuelled by market forces is something that is on Jayson’s and my mind daily. Surely not every social cause can be squeezed into a market framework, and there will have to be some social endeavors that rely heavily on traditional donor-recipient models. But can we make that transition? How do we do it?

I haven’t quite touched on foreign aid yet, but I think I’ll save that post for another time. This issue of charity, opportunity cost and market incentives is however more personal and has been on my mind since Nepal last year. I guess this tension feels most real as I sit in my safari tent listening to the rain beat overhead, getting ready for an artisanal dinner cooked in the middle of the wilderness…