It is likely that bigger and more well-established agencies will be better able to answer these questions than smaller ones, though these do not have to be international agencies. This is an important observation as it suggests that bigger, more experienced, and more independent organizations with a greater range and depth of skills and deeper knowledge of the countries in which they are working are more likely to make wiser choices about how to deploy their funds than are smaller and newer agencies, which are often run and staffed by people with little development and country experience. It should be added that there are not only many competent nationally based poverty-focused organizations but that many of these have a better understanding of poverty and especially how it might be eradicated faster than do some international agencies. Also, it must not be thought that it is only the bigger agencies that do good development work: many smaller, especially locally based, agencies perform very valuable work. Additionally, a number of smaller agencies set up by people now living in the industrialized world but based on a deep understanding of the local communities in need—such as Send a Cow—continue to have a significant impact. The challenge is finding out about them.
Thoughts from Roger C. Riddell, a Non-Executive Director at Oxford Policy Management, writing in a special issue of "Ethics and International Affairs" (HT: themonkeycage)
4 comments:
I passionately disagree. This rests on two assumptions. First, it assumes positive returns to scale among NGOs. I think this is almost certainly true at the micro level: when you visit a rural community, it is more cost-effective to provide vaccines and deworming pills than just vaccines. However, I believe (without knowing) that the default assumption of positive returns to scale is one of the great fallacies of our time. Exactly how is it that aggregating smaller communities lowers average cost or increases average quality? I find it equally likely that smaller NGOs cannot answer such questions because they are too busy being cost effective. Answering a trivially-sized donor's questions is a low ROI activity. Surely, the sea of Mom-and-Daughter orphanages are not effective, and they may even represent the median small NGO, but that does not mean that large NGO are effective -- they are just ineffective at a larger scale.
Second, this assumes that a clear theory of change in the corporate fundraising department is an indicator of more effective work on the ground. I find it more likely that a clear theory of change at the corporate level is an indicator of having hired consultants to draw on a whiteboard -- an expense which a small, cost-effective NGO might go without. Organizational alignment is not easy.
How to find an NGO to support is a function of three things: 1) your ability to review academic literature on impact and cost effectiveness; 2) the amount that you are giving; and 3) the outcome you are passionate about.
If do not have the time or skill to critically review impact literature, I would argue that you should not be finding an NGO to support. Let someone else ask the questions. Give to Givewell's top charities. Or, diversify your investments and use Givewell, but also start learning about cost effectiveness through tinkering causes Givewell doesn't cover in depth..
If you are giving a very small amount, I would argue that you should also use Givewell, who can direct bundle donations into a gift large enough to have a programmatic impact. Certainly do not go around asking organizations to answer your questions if you are making a $50 gift. If you are giving a moderately sized amount (eg, 50k-1m), I would consider giving at least a portion to a start-up organization. There are far too few effective organizations out there. Funding a start up (who can answer those questions, and more) might result in zero impact if the organization folds, but what impact is another 100k for WorldVision really going to have? Large NGOs are almost entirely funded by government grants -- let them stay that way, and help to found the next VillageReach or OneAcre fund. Finally, if your charitable giving portfolio is large (e.g., >$1 m annually), fund scale ups, replications, innovation-focused individuals, and system change.
Finally, if what you really care about is something other than finding the most cost-effective, poverty reducing organization, have at it.
Doesn't bulk-purchasing get you economies of scale? And fixed overheads? Isn't that why large firms are more profitable than small ones?
Bulk purchasing of what? Your largest expenses is probably labor. No bulk efficiency there. Even if you think there are bulk efficiencies (which I think might be true in a single country but not across countries) that would justify achieving the minimum scale necessary to quality for the bulk price, but no large.
What fixed overheads? In the big picture, all costs are variable. Studies of mergers have shown that the fixed costs that were supposedly going to be spread across a larger base have a nasty tendency to rise in proportion to the base. Fixed overhead exists at the small scale, but not at the international level.
Are large firms really more profitable? I would be surprised if they were. If they are, it's probably survivor bias. Without positive selection due to low profitability, I would argue that this does not necessarily hold in the NGO world. It is easier to evaluate a program when it is piloting or when it is scaling. All of the large NGOs achieved scale well before impact evaluations were mainstream and were not subject to the impact selection that emerging NGOs face.
What about the increased principle-agent costs of many diverse country offices? The higher executive pay? Legal costs? Low margin product lines (i.e., diversifying out of stuff that works)? For every story of a cost that is supposed to go down with size, there exists a story of a cost that could go up with size.
Point taken. Is there any statistical evidence on firm size and profitability?
I actually think its much easier for new NGOs to have low impact than for big old NGOs, because the big ones get so much external scrutiny. How many start-up NGOs really have to and are capable of demonstrating impact?
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