Thursday, November 19, 2009

When NGOs Compete: Lessons in Fighting Poverty

I admit this post might be a lot to chew on, so grab a cup of coffee, maybe two, and a comfy chair. Recently, while perusing the internet for information on the Waghri and Sikligar – the tribes with which AIC works – I stumbled upon an organization called Ekta. The organization, coincidentally, works in Pune and focuses on health and education for – you guessed it – the Waghri and Sikligar tribes.

I asked Julia, the Austrian CEO of AIC to who I report, if she knew anything about Ekta. She gave me a sort of don’t-get-me-started response. She explained the organization was just being started by Daniel, who had been fired by AIC from his management position for taking AIC information to start Ekta, planning Ekta on paid-AIC time, and a number of other offenses. The other night he came over to the AIC house (caused some commotion), and just a few days after that I saw who I later realized was also him walking with a young Indian woman toward the Sikligar slum. The picture of the storm that was brewing started to become clearer.

This begs the question: What exactly happens when two similar NGOs (non-governmental or non-profit organizations) compete for the same target market? First, let’s think about what happens when two for-profit companies compete. In a completely hypothetical situation, we’ll take McDonald’s and Burger King competing in emerging eastern India cities. The fast-food chains compete on price and quality, whether quality means taste of food, speed of service, or dining atmosphere. In the end, the Indian consumers win because they get the best products at the best price. The winning company - we’ll say McDonald’s because you can't beat a McFlurry - is rewarded with profits, a higher stock price, and more investors. Burger King, the loser, will either die off if it is wholly inadequate in serving the Indian market or hold a smaller share of the market. Either way, the consumer is served, business benefits, and resources are utilized efficiently and effectively.

Now, what about traditional NGOs? AIC and Ekta are both of the traditional NGO mold: take money donated from the rich West, give it to the poor in the developing world. As such, they can't compete on price and instead solely on what free services they offer, and this can cause waste. For example, in addition to the healthcare AIC offers, Ekta offers dental care to lure the Waghri and Sikligar to its organization. AIC refuses to pay for dental because the problems are mostly self-inflicted (e.g. chewing tobacco). This is not efficient for anyone in the long-run – Ekta is flushing good money down the drain (donor funds used ineffectively), AIC becomes a non-factor in the development of these tribes, and most importantly, the Waghri and Sikligar aren't maximizing the long-run improvement in their lives. This certainly isn't the only possible outcome, but you can see how the result is ambiguous when it comes to efficiency and effectiveness. Some organizations might actually try to become more effective, but others might try to just throw more goodies at the target group.

Instead of competing to serve the markets, which we've seen works wonders for resource utilization in the business world, NGOs compete for donations. Certainly, competition for donations in and of itself is partly based on how well an NGO serves its purpose. However, because there is no industry-wide standard for showing results like there is in business, I propose that it's usually those NGOs which are best at advertising themselves - not at achieving a social purpose - that bring home the bacon. Many NGOs appeal to donors with unrepresentative hand-picked stories, selected statistics from a certain projects that may have been completed sometime during the Clinton administration, or an array of heart-rendering pictures with carefully-constructed captions.

I can speak from experience. With the NGO I started, Students for Students, I was constantly worried about “bankable statistics” or pictures we could put in flyers and newsletters. Our service, often times, became a photo shoot out of necessity. I feel comfortable estimating that SforS spent 30-40% of its time fundraising as opposed to providing service. But that’s the nature of the non-profit game. What could we have accomplished with 30-40% more time?

Currently I am in the state of Bihar, and the experience I am having lends itself to a continuation of this conversation in my next post. However, hopefully you are catching on that I feel competition between NGOs generally leads to a suboptimal outcome for everyone involved. Suboptimal certainly does not mean negative (even an NGO having the smallest impact is probably better than nothing), but what if the money channeled to less effective NGOs could be instead sent to the most effective organizations? How would this change the poverty landscape? And if competition between NGOs leads to this ambiguous and possibly wasteful outcome like I propose, is there a better way to approach development?

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