Don't Give Philanthropy to States; Loan it to Entrepreneurs


So suggests David Wolman in the October Wired. His reasons:

The Tata Group, India's version of Acme and maker of the supercheap Nano automobile, recently introduced a $22 water purifier that works without electricity or running water. (Every few months it needs a new $6 filter.) A big-hearted, philanthropic, and important effort? You bet—cue the somber stats about preventable waterborne diseases. But check out the size of the market for a product like that: Some 900 million people worldwide lack access to clean water, 200 million of them in India alone. Tata is saving lives and making a killing.

That's why, at next year's G-whatever meeting in France, world leaders would do well to rip up those big checks to tin-pot autocrats and channel the cash to startup companies instead. Help those companies make cheap, useful products to sell to the world's poor, who will use them to become less poor, and everybody wins….

Another example: Forty percent of humanity gets by on less than $2 a day, and most of those people are rural farmers. Efficient drip irrigation systems could triple or quadruple their yields while reducing their costs, but manufacturers haven't bothered making drip systems for tiny farms. In 2004, a company called Global Easy Water Product began selling a setup that can be used for small plots. The price: $32.50 per quarter acre. In just two years as a for-profit venture, it has sold more than 250,000 units in India.

"Conventional development economics was always about increasing per capita income to a certain level before people become consumers," says Vijay Govindarajan, a professor at Dartmouth's Tuck School of Business. The new view flips that logic on its head: Providing access to modern technologies by creating supercheap products may, in fact, be the best way to improve economic well-being. For entrepreneurs, the race is on to tap that massive population of penny-wielding consumers-in-waiting….

Tim Harford wrote on the development dilemma for Reason magazine's May 2009 issue.

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  1. Makes sense to me. Microloans and for-profit groups that make products that as a side effect help the poor of the world are, all and all, very good ideas.

  2. “You can sell to the rich and get poor, or sell to the poor and get rich.”-Col. Harland Sanders

  3. Instead, those world leaders will pressure Tata to “donate” their product to the poor. Everyone wins!

    1. how dare tata withhold such lifesaving technology from the needy in the name of profit!!

      isn’t that the argument used against the pharma companies?

  4. Yeah, I read this. Essentially you use the best of modern technology to manufacture, as cheaply as possible, a solution that is okay, but cheap, instead a great solution that’s expensive.

    But we’re back to how capitalism and markets help the most wretched out of poverty, which is something leftists of all varieties have a problem believing. Government is the solution, no matter what the problem. Governments worldwide have done such a bang up job at making Africa a better place, haven’t they? Surely they can replicate that success elsewhere!

    1. Hits the nail on the head.

      All those jobs handing out checks in the foreign service….gone. All the hand wringing types at the NGOs, forced to do something productive.

      I’ll never happen (to the never ending sorror of the poor of the world).

      1. To contact us, dial 6045551212

  5. You’ve gotta wonder how much good that Facebook idiot’s $100 million could have done in something genuinely innovative like this, rather than being flushed down the rathole of the NJ education bureaucracy in the World’s Most Expensive Publicity Stunt.

    And don’t get me started on the Gates Foundation. What a waste of potential. Imagine what that pile of loot could be accomplishing as the capital reserve of a worldwide microcap loan facility, rather than another pile of boodle for NGOs and non-profit kleptoids to waste on conferences and make-work.

    1. i’ve been to some of those conferences

      the money wasn’t wasted, the meals we got were great, really high quality stuff like shrimp hors d’oeuvres, nice champagne, etc.

      they got their money worth

  6. Honestly, most money that gets donated ends up in some bureaucrat’s or dictator’s pocket. Getting it directly where it goes is a job for the marketplace, not the worst distribution system ever created.

    1. I’d be willing to bet* that, if all the “development” money given to governments around the world had just been given directly to the people of those countries, those people would be much better off.

      *”I’d be willing to bet” if I could find someone dumb enough to take the other side of that bet.

      1. The problem, of course, is that if that happened, the governments would seize the donations, anyway.

  7. The issue has always been the security of both your investment and the profits of your investment in these countries.

    If it only cost 6 months income to triple the income of a farm or service, that would be an incredible investment for a capital market.

    Unfortunately, those farms and services are required to operate in the black market (because of fees for government registration or oppressive taxation) and thus cannot participate in a capital market (NPR’s Planet Money and This American Life did a great segment on this recently).

    If not that, then the fear is that if a company starts making a killing with providing goods or services to these small farms, that company will be nationalized (India and Africa have done a great segment on this for quite a few years now).

    If I were a partner in Global Easy Water Product, I would be spending a good portion of my profits lobbying to keep those profits – instead of being nationalized. They should be nervous.

    1. There’s an easy way to avoid being nationalized — keep your company out of the country where you are selling your product. This may mean keeping your HQ (and intellectual property) out of India or distributing your company worldwide so that if part of the company were nationalized, the rest of the company would be safe (and would stop doing business with the nationalized portion).

      Also, you could always just pull out at the mention of nationalization.

  8. It’s easier to get votes when you just give it to the entrepreneurs, uh, unions that is. From my stash 😉

  9. I believe we have foreign aid so politicians wives can have their pictures taken with poor people. Ideally poor children. Makes for a great visual of how compassionate they are.

    1. I’m a little puzzled by this. I mean, wouldn’t they get in a lot of trouble if those pictures with children were made public?


  10. If the government gives a company free money, it will make something no one wants to buy. Case in point: the Chevy Volt.

    1. Better to give that money back to the people it originally came from, so they can decide through demand what products should be made.

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