Oct 16, 2011
Every year the super bowl has a loser, and every year pre-printed t-shirts celebrating that team as the winner are rendered useless. So every year those t-shirts are donated to people in developing countries, and every year (at least recently) this leads to claims by the aid community that this is a horrible program: they don’t need our t-shirts; it hurts the local textile industry; cash would be better; etc etc. This argument applies to many other in-kind aid programs, including most notably US food aid worth billions of dollars per year. See long list here of relevant posts from one of the flare-ups.
My colleague Dean Karlan discussed the issue rationally earlier this year, but let’s take a closer look at the tradeoffs involved. As usual, it all comes down to picking the correct counterfactual. I can imagine roughly five possibilities, taking the t-shirts as an example (but with obvious analogues for food or anything else):
- A: do nothing
- B: donate the t-shirts as currently happens
- C: instead buy equivalent t-shirts locally and donate them
- D: give the cash equivalent of what it would cost to buy the shirts locally
- E: give as cash the costs of administering the t-shirt aid program
Note that E would take include all the managerial and shipping costs, as well as perhaps any meager revenue that could be generated by selling the shirts in the US (possibly as rags as Dean suggests, or pillow filler, or whatever). Rough calculations by others suggests that D and E are approximately the same amount in this case, so for simplicity I will treat them as a single possibility. But note that this needn’t be the case in general (and either could be larger); presumably E is the more appropriate counterfactual, but many people seem to imagine D as the natural alternative.
My first claim is that B is clearly better than A, which not everyone appears to agree with. Basically we are adding positive net value to society X, so we must be making society X better off. Now it’s quite possible that some members of that society (e.g. textile manufacturers and t-shirt vendors) will be made worse off, just as getting rid of farm subsidies in the US will make farmers worse off. But in both cases the net gain is positive, and frankly in both cases the losers almost certainly have higher average income than the winners (poor recipients of free t-shirts in one case; typical taxpayers in the other), so inequality will be reduced as well.
The only argument I can see on the other side is that in-kind aid not only hurts current local industry, it depresses the long-term industrial capacity of the society, making them ‘dependent’ on aid and unable to move forward on their own. This is possibly true for some goods, but very unlikely for clothing or food. There is basically no chance that local economies will actually regress in their ability to produce such staples, in part because there is no chance that aid will actually displace all local production in either area. So if they can spend more productive capacity in the next decade or two on other things (education, health, etc) while receiving e.g. food aid, I have no doubt they will be better placed to return to own production in the future.
Next we compare B and C, which most people see as a no-contest win for C, since it yields the same t-shirts for the poor while also supporting local industry. That’s true, and it probably is better, but note that both B and C distort the local t-shirt market, since in both cases more t-shirts enter the market than would otherwise be the case. That increases total welfare but in either case also produces a deadweight loss, and we can’t be certain which loss is smaller.
But even assuming that C is better, the main problem of course is that (as with D and E), this option isn’t on the table in most cases. The NFL is not about to pay local producers to make local t-shirts instead of having the super-bowl-winner ones ready to go, nor is the US gov’t going to buy food overseas just to give away. Yes, this means they’re being hypocritical if they describe their programs as primarily focused on aid rather than as expedient for themselves, but that doesn’t imply that the programs are useless as aid or that we should criticize them (unless they are actually displacing cash aid, which I’ll discuss briefly below).
Finally we compare D/E to B/C, cash vs in-kind aid. Here I (and most economists) would agree with the development bloggers that cash is almost always better than a t-shirt or food or anything else, since it automatically gives more options. I wouldn’t go so far as to say that the t-shirts are useless or unwanted (much less the food!), since that’s simply not true, but an equivalent cash amount lets the recipient decide what he or she most needs at that moment. However, note that not everyone feels this way. In particular, some philosophers are wary of cash grants and believe that in some sense forcing people to fulfill basic needs like healthy food and health care will make them better off than giving them cash. For the most part I don’t agree, but there’s a substantive argument on the other side, and under some circumstances I think it holds water.
So what about the practical matter of [inefficient but still valuable] in-kind donations crowding out cash? For the NFL t-shirts and US gov’t food, this seems like a non-issue: realistically there is almost no chance that they would have given money instead. However, for individual level in-kind programs (such as Toms shoes or the yoga mats and teddy bears cited in the links at the beginning), this is a real concern. Of course it’s an empirical question, and as far as I know there isn’t a lot of research on it, so anything that I or anyone else says is speculation and should be taken with a few grains of salt. My guess is that it will be messy and unclear – probably for some items (food, clothing/shoes) that people spend money on anyway, the in-kind aid will help on the whole, while for others (teddy bears, clowns) it won’t be such a good idea… especially if the relevant organizations really were willing to donate some of the corresponding admin costs as cash. But I’d rather not demonize any aid programs purely on that basis, if only because the data simply isn’t there and no one knows for sure.
[update: if you want to donate money to those in need in a transparent and direct manner, I recommend this site; I have met one of the founders but have no links to it myself]