Bad Aid

Business,Technology September 26, 2011 7:13 pm

Organic growth is the goal of any economy. Regrettably, such development is lacking in certain parts of the world. In an effort to fill this void, many well-meaning individuals seek to provide impoverished areas with in-kind donations—goods and services given freely which could be given cash values. This may seem appropriate, if not commendable, but unfortunately many in-kind donation schemes are bad aid—aid which creates more harm for its beneficiaries than good.

The poster child for the in-kind donation model is TOMS, a shoe company which has gained substantial popularity for its socially conscious business model. TOMS allows its customers to donate through personal consumption with a one-for-one model, giving one pair of shoes to impoverished children for each pair purchased. The hope is that by freely giving shoes away, the gap between the haves and have-nots might be bridged.

Unfortunately, it’s not that simple. Often, such methods of giving do more to suppress the economic growth of targeted areas than they do to help. Clothing donations have a consistent record of damaging local economies, specifically textile industries.

Economist Garth Frazer of the University of Toronto found a significant negative correlation between donations and production, concluding that imported used clothing has “a negative impact on apparel production in Africa, explaining roughly 40 percent of the decline in production and 50 percent of the decline in employment” from 1981 to 2000. According to The Nation, between 1992 and 2006 “543,000 textile workers lost their jobs” in Nigeria, as over 150 companies shut down after being undercut by outside
aid. As journalist Nick Wadhams argued in TIME, “Flooding the market with free goods could bankrupt the people who already sell them… Many countries’ textile industries collapsed under the weight of secondhand clothing imports that were introduced in the 1970s and 80s.”

These numbers mean thousands of jobs were lost due to well-meaning donors unintentionally preventing the beneficiaries of their aid from providing for themselves. Such damage to the textile industry is particularly dangerous because this sector is the first rung of the ladder for industrialization.

Aid watchdogs, such as Good Intentions Are Not Enough, have documented the availability of locally-made shoes and sandals throughout the developing world. Anywhere you go, sandals are available for low prices from local merchants. The makers of these products, experts tend to agree, should be supported to grow organically, not undercut by impulsive and misinformed giving by Western consumers. But the popular aid fads of today ignore this, incorrectly believing that simply giving a pair of shoes will make a lasting difference.

It is essential to consider the effects of economic interactions involving the poor to ensure that more harm than good isn’t being done to those in need. The desire to help is commendable, but in-kind donations are not the best ways to make a positive impact. By injecting outside goods at prices which undercut local merchants, TOMS and similar donation schemes prevent these sellers from earning a living and helping build their local economy from the ground up, stifling the organic growth these communities so desperately need.

Illustration by Dadu Shin