Business is the Greatest Charity

Summary: William Easterly's “The White Man’s Burden” highlights the inefficiency of charitable aid, citing the failure of $2.3 trillion in aid to Africa over 50 years. In contrast, the commercial success of delivering 9 million copies of Harry Potter exemplifies effective market mechanisms. The essay outlines four reasons why charity often fails: lack of feedback mechanisms, principal-agent problems, reliance on ineffective governments, and fostering dependency. It argues that business, driven by efficiency and clear standards, often does more to improve welfare than traditional charitable efforts.

I recently read a book called The White Man’s Burden (2006) by William Easterly, a professor of economics at New York University and a former World Bank economist. We know the World Bank is not a regular bank but an international poverty alleviation organization that provides aid to impoverished countries to help them achieve prosperity.

How effective has this aid been? Not very. Easterly notes in his book that over the past 50 years, Western aid to Africa has totaled $2.3 trillion, yet it couldn’t provide 12 cents to each child to cut malaria deaths in half. That is, if each child received 12 cents for a vaccine, malaria deaths could be halved, but it didn’t happen.

If $3 had reached the hands of women, child mortality could also be halved, but that didn't happen. If each family received $3 to buy mosquito nets, many diseases could be avoided, but it didn’t happen.

1. The Harry Potter Commercial Miracle

On July 16, 2005, the UK and the US managed to deliver 9 million copies of Harry Potter to readers. Bookstores never ran out of stock, and if they did, they quickly replenished. There was no need for a "Harry Potter Marshall Plan"; it just got done.

Economics professor Xue Zhaofeng from Peking University felt this deeply. He happened to be in the US on that day and went to a bookstore at midnight to buy the latest Harry Potter with friends. Seeing the crowds and long queues, they left. The next morning, the lines were gone, everyone had their books, and shelves were fully stocked. By 2 PM, online reviews of the book were already posted. For something as trivial as entertainment, the West was incredibly efficient.

In contrast, efforts to help African children, a serious matter, were inefficient. Why?

It’s not about the strength of compassion. We can’t say World Bank officials have weaker compassion, nor that UK and US publishers have stronger compassion. Human compassion is generally similar. The difference lies in the effectiveness of charitable versus commercial models.

2. Four Major Reasons Why Charitable Poverty Alleviation is Ineffective

In practice, at least four reasons make charitable poverty alleviation less effective:

a. Lack of Feedback Mechanism: The market has a good feedback mechanism, while charitable actions lack this. For example, if I sell you a bowl of beef noodles for 10 yuan, you can choose to buy it again or not based on satisfaction. If you don’t, I must improve quality or lower costs to survive. In charity, if I give you a bowl of free beef noodles, you’ll take it regardless of quality, and I won’t know if I did well.

   In business, it’s easy to identify who’s good at it based on clear standards—profits. In charity, there’s no clear standard to judge efficiency or effectiveness. If given a scholarship, would you give it to a poor and smart child or a poor and less intelligent child? There’s no clear standard here.

b. Principal-Agent Problem:Those in charge of charity often spend others' money, leading to less diligence.

c. Entrusting the Wrong Parties: Many regions are poor due to their governments, yet international aid often goes to these very governments, potentially worsening the situation.

d. Dependence Effect:Continuous aid can create dependency, making people less willing to try for themselves.

Despite these issues, business is a crucial means of improving welfare. Consider how many items you own are from those who love you versus those who just want to earn your money without knowing or loving you. Most come from the latter. In essence, we rely daily on the charity of strangers—business.