Friday, March 27, 2009

Freakonomics: The problem with non-profits - A response

This was written in response to an article that appeared in the New York Times Opinion column Freakonomics. The article is titled


My comment:

1. Salaries need to be paid. And if you give peanuts, you will only get monkeys.

2. The problem with non-profits lies elsewhere hidden in issues of accountability and connected to this is the demands of donors to “perform” (whereas there is no objective definition of what that performance is nor an indicator to measure it) and the resultant misuse (not corruption, just ill management) of a valuable resource such as money, specially in poor countries.

The latter, in my belief is a much much larger problem for charities, and will require a sea change in philosophy and practice.

I think it is pretty clear and does not need elaboration at all.

Lately, though, through my various affiliations with charities (some started by private sector and some by the development sector) I am more and more convinced that the only type of development that seem not to waste this valuable resource is the one initiated by the private sector.. I am a private sector entrepreneur, and put 10% of profits into charity.. when I do my charity, I want every penny to go to the cause, in a right responsible way, and since it is my hard earned money (OK, my organisations hard earned money) I will make damn well sure that it is accounted for and is done right (at least, from my understanding of what is right and wrong)

- Raj Gyawali

The author suggest the following in his post

I am writing to suggest a blog topic about a book I recently finished reading called Uncharitable [by Dan Pallotta]. Uncharitable concludes that the constraints society places on non-profits leave them unable to solve the great social problems of the world. The book argues for the capitalization of philanthropy, including: competitive wages to attract the best applicants, increasing spending on advertising to build demand for philanthropy, and allowing investors to purchase stocks in non-profit organizations so philanthropy is not capital barren.

One of the key points of the book is that the method we currently use to evaluate charities, through efficiency ratios, provides no information about the effectiveness of an individual charity and leads an organization to focus exclusively on the short term (at the cost of long-term planning) and develop extreme risk-averse preferences (which leaves them unwilling to take risks which could lead to innovations).

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The comments eventually stray to the problems of non-profits and the wastage through high salaries etc.

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