How much money gets to the ground?

There has been much discussion of the effectiveness of aid and philanthropy recently.

You can think about this issue in two ways - efficiency and effectiveness.

Efficiency is how much of the money gets to the actual project. Here are some thoughts on efficiency:

• Before I left the World Bank, I did an informal survey of my colleagues, and the consensus was that about 25% of the money gets to the actual grassroots on average. The rest is taken up through the costs incurred by various layers that the money goes through, including the central government, provincial government, local government, etc. Note that these costs do not imply corruption, just the costs of reviews, planning, salaries, etc.
• This may sound bad, but it is actually par for the course. Many people do not realize that, according to the Chronicle of Philanthropy, the cost of fundraising via direct mail or telephone solicitations averages about 50-66% of the total raised, leaving. Some organizations do much better than this, but many also do worse! Small organizations have particularly high fundraising costs because of the high fixed costs of direct mailing and telephone campaigns.
• We have taken on a huge challenge at GlobalGiving. We are committed to charging only a 10% facilitation fee. When you add in certain bank charges, this means that we can usually get 85% to 90% of the money to the ground.

Effectiveness is how well the project helps people once it is implemented. Even if you get 100% of the money to the ground, the project is not effective if it is poorly designed. Here is a posting that discusses effectiveness of design.

The Death of Bullet Points....

A friend complained to me the other day about a terrible presentation that she had seen recently. What was extraordinary about the presentation was its ordinariness - a long series of bullet-pointed powerpoint slides that went on endlessly. In addition, the main points were at the end, long after my friend had given up and left the meeting.

Some months ago, Mari pointed me to a great site called Presentation Zen. This is now one of my favorites sites on the web. This site (really a blog) is compiled by Garr Reynolds, who used to be at Apple and currently is at Kansai Gaidai University where he teaches Marketing and Multimedia Presentation Design. The site is basically a compilation and analysis of superb presentations that Garr has seen (along with a few terrible ones). Some presentations use only images, such as this one by Al Gore. I have seen this one in person and can vouch for how powerful it is.

I also like the "Takahashi Method", which basically consists of putting one word, letter or symbol - in giant type - on each slide. I tried this about six months ago, and it had a big effect on the audience.

If you make presentations and are interested in getting your message out and across more effectively, check this site out.

Can it be ALL bottom-up?

People often ask me if bottom-up systems like GlobalGiving can totally replace top-down systems like the World Bank and USAID. Here is a response that I posted in a related discussion on Omidyar.net:

The short answer is that it takes both types of system. The analogy I often use is that of a well functioning economy. The healthiest economies around the world are market-oriented, but they also have significant public sectors.

The numbers vary, but a rule of thumb is that about 2/3 of the resources of an economy are allocated through the private sector, and about 1/3 through the public sector. The private sector is comprised of millions of small and large companies that listen to consumers and try to produce goods and services that consumers want. To flourish, private companies and consumers all need a well run public sector to provide public goods such as policies, laws, large infrastructure, basic social goods (including some education), etc.

Currently the aid sector is dominated by public sector institutions. Broadly, public aid to developing countries is about $80 billion, and private aid (ie regular people, companies, and organizations) is about $20 billion. The ratios are reversed compared to a well functioning market economy. (I worked in Russia for five years, so I saw first hand how badly the public sector functions in a situation like this!)

So I think the goal should be to change this balance and make it 2/3 private and 1/3 public over time. The goal should not be to get rid of the public sector institutions, but rather to have them focus on the policy framework, infrastructure, and other public goods. The private aid sector would focus on the millions of small-scale projects out there, driven by the demands and needs of the people on the ground.

Some ask whether the private aid sector has the resources to redress the current imbalance. The answer is yes, over time - and even faster if public institutions were willing to deeply innovate. Last year, individuals in the US gave away about $200 billion. So there is a lot of leeway to increase the amount of private aid going overseas from its current level of $20 billion.

Our own experience at GlobalGiving is that once people find out that they can find, fund, and follow up on overseas projects, they are very happy to be able to do so. And although it is early days, the fact that a few million dollars have flowed to several hundred projects through our site makes us optimistic that private aid overseas can increase steadily.

In terms of innovating in the public sector, in the year 2000, we did a little experiment at the World Bank called the Development Marketplace. It allowed community groups to submit projects directly, and then allowed non-profit and other private sector people to help make allocation decisions. This program has allocated tens of millions of dollars over the past few years - and has surfaced many superb ideas and backed outstanding community leaders. What if we upped that program to tens of billions of dollars?

Bill Easterly has taken these ideas a step further and suggested that public agencies should be required to give out aid vouchers to community groups around the world. The community groups could then use the voucher to "shop" at different aid agencies for the programs they wanted. Now THAT would shake things up! (And what would happen if private agencies could compete with public agencies for those vouchers?)

"Anyone who says that are not using it is lying."

Earlier I posted about a session at PCForum this year where the founder of Facebook spoke.

More recently I read an excellent article about the rise of Facebook.com by John Cassidy in the New Yorker. In the article, Facebook founder Zuckerberg argues that the secret of Facebook's success is how it gives each user total control over what personal detailsthat they display to every other person. This allows people to form a web of very nuanced networks, revealing different amounts of information to different people - just like they would in real life.

Last night I met with a group of 15 high school students who are interning on Capitol Hill here in Washington for the spring term.

I was stunned that **every single one of them** uses Facebook, and they said that anyone at their school who claims not to is lying. One girl, a senior, said that she had decided that very day to try to go cold turkey and quit, but that she was not sure she would succeed.

Wow.

$6 can change a life

I did a lot of graduate work on cost-benefit analysis, and spent a large part of my early career doing cost-benefit analysis for projects and programs. I got disillusioned because of two big problems.

• Conceptual: There are big problems comapring apples and oranges. These problems are compounded because different people value apples and oranges differently, and different people place a different value on an apple today versus two apples tomorrow.


• Usefulness: I found that despite the tens (or hundreds) of millions of dollars we spent on evaluation at the World Bank, the lessons learned were adopted very slowly.

But it is important not to throw the baby out with the bathwater. Sometimes it is useful to compare costs and benefits at a very general level just as a reality check on where funds are flowing. To this end, we have started doing some analysis on projects funded through GlobalGiving, because we believe it will be useful to donors.

We decided to start with the imperfect metric of "the cost of positively improving one person's life." This metric is very crude, and the data are still limited, but it is a start. Here are the initial results. In the last couple of years, it has cost about $6 to improve a person's life through projects funded on GlobalGiving.

When Eli and I were visiting Geneva Global recently, we found that they were coming up with siimilar cost numbers.

Within this, there are wide variations. For example, economic development projects cost more, and health, education, and human rights projects cost less. As mentioned, these are not directly comparable, because projects in one sector may have a greater impact on a person's life, or that impact may last longer.

Based on what we have to date, we estimate that more than 500,000 people's lives have been improved in some way through the 700+ projects funded on GlobalGiving.

We will continue to work on the numbers and over time will provide more details as we get more data.

Indonesia Earthquake

My heart goes out to the Indonesian people affected by the recent earthquake in Indonesia. I travelled extensively in that area in 1984, and then I lived in Jakarta from 1987 through 1992. The Indonesians have been through so much over the past ten years - a huge financial crisis, a political revolution (where they finally kicked out Suharto), the tsunami, and now this.

The aid community and government are getting better at responding quickly, but this earthquake will still affect hundreds of thousands of people for years to come (on top of the 5,000+ who have died). Fortunately, we are entering a stage of history where it is now possible for us to reach across the ocean to help these families. To help through GlobalGiving, go here:

Provide Relief to Indonesian Earthquake Victims Provide medical and housing assistance to the victims of the Indonesia earthquake, which hit May 26. Immediate needs include medical care, food, and shelter. Theme: Health | Location: Indonesia | Need: $25,000

Ethan's Heart is in Accra

Ethan Zuckerman writes one of the best blogs on Africa out there, called My Heart's in Acra. Full of interesting content, insights, conundrums, and humor. While in college, Ethan was a founder of Tripod, and since then he has devoted much of his time to entrepreneurial approaches to international development. First, he founded GeekCorps, and now spends a lot of time on this blog.

One of my favorite recent posts is about a request he received from Nigeria to help fund a project there, and about how he tried to determine whether it is bona fide. We face this issue at GlobalGiving all the time. The challenge is how to help give grassroots maximize access, while weeding out the bad guys - and to do it at a cost that is not prohibitive.

Note: When Mari Kuraishi and I started GlobalGiving several years back, we schlepped our team up to Massachusetts to see Ethan, who spent a full day with us trying to get us prepared for the challenge ahead. His advice was invaluable. To the extent that we have accomplished anything since then (including facilitating $3 million of donations to 700+ grassroots projects), Ethan deserves significant credit. (As for our shortcomings, which are many, those belong to us alone.)

Remittances are larger than Philanthropy

The Wall Street Journal (5/13/06) reports on a study by the Hudson Institute on the size of international giving and remittances ("remittances" are funds sent by immigrats or migrant workers back to their family and friends abroad). While I don't always agree with all the conclusions and policy implications of the study, it does have good data about the extraordinary amount of private financial flows from the US to countries overseas. Here is an excerpt from the WSJ column:

...Then there is the charity from the U.S. private sector. In 2004, the latest year for which many numbers are available, Americans -- through schools, religious institutions, companies, foundations and families -- gave at least $71 billion to the developing world, more than three times what the government gave. The index authors say it is impossible to capture all giving, so if they've erred it's on the low side.

Almost $10 billion came from private groups, $4.5 billion from religious organizations and nearly $5 billion from corporations. But perhaps the most impressive private giving, and arguably the most efficient, is in the category of individual remittances, which the index puts at $47 billion in 2004. According to the authors, "The massive amounts of money sent home by immigrants and temporary workers -- involving little or no overhead and filling people's basic needs directly -- is changing the landscape of development and donor agencies."

US Philanthropy is huge

Here is a breakdown of philanthropy numbers in the US, with thanks to Mark Grimes via Omidyar.net. Note that the total amount of philanthropy going overseas (which is distributed through the different categories below) is about $20 billion by my estimate, based on work by Susan Raymond and Carol Adelman at the Hudson Institute. ( Note that this does not include an estimated $47 billion in remittances sent by workers in the US to their families and communities aborad, which is another form of private aid - see also Adelman's work).

From the Giving USA 2005 Annual Report

$248.52 billion given, here's the estimated breakdown per recipient organization type

1:	religious org, 88.3 billion, 35.5% of total
2:	educational institutions, 33.84 billion, 13.6% of total
3:	health orgs, 21.95 billion, 8.8% of total
4:	human services orgs, 19.17 billion, 7.7% of total
5:	arts, culture and humanities orgs, 13.99 billion, 5.6% of total
6:	public society benefit orgs, 12.96 billion, 5.2% of total
7:	environment/animal orgs, 7.61 billion, 3.1% of total
8:	international affair orgs, 5.34 billion, 2.1% of total
9:	foundations, 24 billion, 9.7% of total
10:	deduction carryover and unallocated giving, 21.36 billion, 8.6% of total

Small is Big

Sometimes people ask me whether small organizations operating at the grassroots level can make a systemic difference.

The answer is: Definitely.

Consider the US economy, which for all its problems in the most vibrant in the world.

Small businesses in the US account for 99.7 percent of all employers, pay 44 percent of the entire US payroll, generate 60 to 80 percent of net new jobs in the US annually, and create more than half of all US GDP.

Furthermore, small businesses produce 13x more patents than larger businesses. And those patents are twice as likely to be among the most cited.

And consider this: even the largest of US companies were small businesses when they began. That includes eBay, Amazon, Google, MySpace, and on and on.

Do all small businesses end up becoming big or contributing to growth and innovation? Of course not. At least half of them fail in the first four years of their existence. The good thing about the US economy - and others like it - is that it encourages lots of experimentation, and failure is generally not a stigma (as long as there was no fraud). Small business owners who fail often dust off their pants and try again. And again.

What are the implications for international development?

Source: Small Business Administration, "Small Business by the Numbers," 2003