house-rich-cash-poorWith 1.59 trillion in revenue, and over $300 billion dollars in charitable and government contributions in the US alone, there is no doubt that charity is big business. So vast is the charitable sector, that it has drawn the ire of a famous son who has labeled our noble pursuits the charitable-industrial complex.

Whether a career in the social sector is noble or not, the bigger question is whether one's efforts result in the intended change.

As one who makes his living as part of the charitable industrial complex, I can't help but wonder if we wouldn't be better off skipping writing me checks and instead giving money directly to those who need it most. That's the thinking of Give Directly, a nonprofit that simply gives money away to people in the developing world.

Cash transfers are not new, the US government has long transferred cash through various types of welfare programs to those living in poverty. The difference between traditional cash transfers and Give Directly's approach is that Give Directly provides money unconditionally, whereas traditional approaches have provided money on condition a recipient completes certain tasks, like keeping their kids in school.

Cash Transfer Equivalency

I first started thinking critically about how much money it costs to implement social programs while completing a fellowship with a financial intermediary in graduate school. We were giving out large amounts of money, and there was a lot of doubt around what social return on investment we were getting.

One particular grant request was from a nonprofit that planned to hold a musical event for low-income children. The event (I guess) sounded like an okay idea, but some simple math revealed an outrageous price per expected participant. It would have been cheaper to have sent these kids to a Bieber concert.

This realization lead me to a fairly simple evaluation standard. If the purpose of a social intervention is to improve a program recipient's life, shouldn't that recipient at least value that intervention equal to its cash equivalent?

More formally, I devised a Cash Transfer Equivalency (CTE) metric, which is a simple social investment standard whereby the cost per person of the social intervention should be less than the value of transferring the same amount of cash to a program target.

Using the CTE, one would simply ask a program's intended recipient how much they would be willing to pay to receive a social program. You then get a simple ratio, the amount the recipient is willing to pay over the program cost per person. If the ratio exceeds one, the intervention produces a surplus for the beneficiary, as they value the program more than the program costs.

Given the motion around beneficiary feedback, it seems logical that we would get feedback not just on how much a program recipient likes a program, but how much (if anything) they would be willing to pay for a program if they had the means.

My guess is the CTE is beneficiary feedback that would scare the hell out of a lot of organizations.