Charitable giving: could it work more like a proper free market?

May 2, 2012 by
Filed under: Adam Lent 

It was mentioned to me the other day or maybe I read it (old age is a terrible thing) that a certain charity with a media savvy CEO knew they could boost flagging donations simply by concocting a press release that got said CEO onto the news programmes.  This got me thinking about how poorly the benefits of a free market apply in the world of small donation philanthropy.

The great advantage of an efficient free market is, of course, that consumers can withdraw their custom if a firm provides a poor service or product.  The problem in the charity sector is that the millions who make small donations every year are not actually purchasing the service – that goes instead to the so-called ‘client group’ who have to rely on charity precisely because they do not have the resources to purchase the service themselves.

 The result is that the charity with the greatest success in acquiring small donations is not necessarily the one providing the best service to its ‘client group’ but the one with the most persuasive advertising, the most persistent chuggers or the most high profile CEO.

One way round this, in the old days, would have been to establish an inspection regime with associated league table or kite mark to better inform donors of the charity with the best service.  But in today’s world of ubiquitous social media, I wonder if there is some way of linking up client groups more directly with donors without the need for a bureaucratic intermediary.

Of course, you’d want to avoid the curse of Tripadvisor where one or two disgruntled people damage a decent organisation’s reputation.  Some form of aggregation of response may be the answer there. 

 Maybe such a thing already exists.


  • Andrew McMullon

    Isn’t this what Kiva is all about?

    • Adam Lent

      That’s a bit different to what I had in mind. Given there will always be a role for big organisations like Oxfam etc, I was thinking more about how someone making a donation might be able to assess the best place to make that donation rather than make a direct loan as Kiva enables.

  • dicetrain

    The major issue with this idea is that the people who best know how to judge a certain kind of work is the people who do that sort of work. I have done humanitarian work in the areas around Cape Town and Guadalajara and can tell you from first-hand experience that there are often unexpected issues that you run into. I’ve also talked with plenty of people who do humanitarian work and they all say the same thing.

    There is the concern of adaptability of the workers who are serving. On some level they need to adjust to a life of lesser means, but they also need to remain strong and healthy to be able to persist in their work. Next, there are a great many government regulations that may be imposed, and perhaps some back-door solutions to more cumbersome policies that are legal but you don’t want to broadcast to all. Then, different needs take different measures; there are different methods and goals for community agriculture, education, medical treatment, sexual abuse recovery, etc, etc.

    In the end, you can’t turn it all into a pie chart and just say “Well these people spend the most of the money they raised on those in need” because it’s not always that simple (sorry, Charity Navigator) That isn’t to say you can’t be more efficient than others, and that there aren’t some that are wasteful, but it would be very difficult to have some sort of standard for such a vast array of charities meeting all sorts of different needs in all sorts of different places. Any evaluation will have to be extremely involved and yet will still be mostly subjective in the end.

    • Adam Lent

      Thanks for that very thoughtful comment.  I wasn’t aware of Charity Navigator.  But what I’m suggesting is radically different from that. I can see there are lots of complexities and legitimate questions around this but surely the ultimate aim of any charity is to make the lives of its client group better.  The problem is the majority of donors do not make their donation on the basis of which charity is best at doing that.  What I am suggesting is a mechanism wherby donors can hear directly from the clients about whether a charity genuinely is improving their lives. They could then make an informed choice about which charity to or not to give their donation. In effect, the donor would act far more like a hard-headed proxy consumer on behalf of the client rather than someone responding to smart marketing.

      • dicetrain

        Just to clarify, I didn’t think you were talking about Charity Navigator, I was just using it as an example of possible shortcomings in objective charity evaluations to give a possible donor the right idea of what is required and how well the charity is accomplishing it.

  • TobyChambers

    I am currently working on a Platform for Local organizations to Post up their organization seeking donations and matching with people interested in giving. Similar in style to Net Mums were you sign into  geographic areas local to you. This will allow for more smaller organizations to tap into social Giving and also allow for clients to make recommendations etc.

    Please get in Touch