Practical analysis for investment professionals
27 October 2017

Weekend Reads: Understanding Haiti and the Business of Philanthropy

The basic premise behind Karl Marx’s economic theories was that “in contrast to all previous historical epochs capitalism is a system of ‘generalised commodity production’ in which the workers’ abstracted labour power itself became a commodity to be traded,” Peter Thompson wrote.

So labor is a commodity and those who have the means can trade in it. Very often those who have the means are those who have the money. And those who have the money also tend to have the power. That’s how Marx saw economics in its basest form. It’s a story as old as time and it has played out again and again in countries around the globe.

I just spent a week in Haiti. It’s the poorest country in the Western Hemisphere and among the poorest on the planet. In 2014, the per capita GDP was $846, and of the country ‘s 10.4 million people, six million, or 59%, lived below the national poverty line of $2.41 per day, and 2.5 million — about one in five — beneath the national extreme poverty line of $1.23 per day.

I was part of a construction team working to convert an orphanage erected after the catastrophic 2010 earthquake into a primary school in hopes of boosting education for the children of Ft. Liberté. This was my second trip to the country, and I can tell you, it is a nation that confounds me.

If there is any economic policy in Haiti, I couldn’t see it. And while the rate of extreme poverty has been in decline, falling from 31% in 2000 to 24% in 2012, most of the growth has occurred in the cities, mainly Port-au-Prince. So in the countryside, where more than half of the population lives, the rate of extreme poverty has barely budged.

For the people, surviving one day at a time appears to be the main goal, and any economic incentive is focused on that. Day labor is the primary means of earning an income, whether in construction, farming, or some other venture. Haiti doesn’t have many natural exports, so labor is the largest commodity. But it is a haphazard form of labor. People cobble together whatever they can for the present job, with little thought of what will sustain in the long term. And because there is such a surplus of workers, those who do the hiring can name their price.

Yet in spite of the chaos of the country, the people I met there are some of the most resilient, beautiful people I know. Their smiles are wide and they hope and believe that tomorrow will be better. Circumstances that would bring me to my knees are met with a grace that I would be hard-pressed to summon.

To understand how Haiti landed in its present state, you have to look back at its history: a convoluted mess of “slavery, revolution, debt, deforestation, corruption, exploitation, and violence,” according to the historian Alex von Tunzelmann. “Haiti: A Long Descent to Hell” charts the country’s path, from its discovery by Christopher Columbus in 1492, colonization by the French, the dictatorships of Papa Doc and Baby Doc Duvalier, through to its present state.

Neither its geography nor its climate has helped its plight. Haiti sits on the major fault line separating the Caribbean and North American tectonic plates, so is prone to earthquakes and frequent hurricanes. Add to this the current “poverty, illiteracy, overcrowding, no infrastructure, environmental disaster, and large areas without the rule of law,” and you have what von Tunzelmann calls “a perfect storm. . . . a catastrophe beyond our worst imagination.”

The fraught relationship between Haiti and its neighbor, the Dominican Republic, hasn’t helped either.

I often wonder what I can do to help these people who have so little. How do you help a nation that cannot help itself? In the aftermath of the 2010 earthquake, $13.34 billion in aid was earmarked to be dispersed through 2020, according to the United Nations. Yet in 2012, two years after the earthquake, not even half of that had been released. Where did the money go?

This is a problem with international aid: “Taxpayers in rich countries dislike their cash being spent on Mercedes-Benzes. So donors strive to send the right sort of aid to the places where it will do the most good,” an Economist writer observes. How are they doing? In Haiti, not so well. Of the 1.5 million people who were in temporary camps in 2010, 95% have moved, but many of those have yet to find permanent housing. At least 200,000 people in the Port-au-Prince area are still without running water, electricity, or sanitation. The Economist writer describes foreign aid as “failing” in Haiti:

“It is as co-ordinated as a demolition derby. Much goes neither to poor people nor to well-run countries, and on some measures, the targeting is getting worse. [. . .] Donors would probably do more good by concentrating on a few projects in a few countries [but] knowledge and the willingness to change are not the same.”

Yet people do want to help in times of disaster. We are a generous lot. We just need to know how to do it so that it brings the greatest benefit to those who need it. Monetary donations rather than goods are most effective, says Juanita Rilling, the former director of the Center for International Disaster Information. “The thinking is that these people have lost everything, so they must NEED everything,” she observes. “So people SEND everything. You know, any donation is crazy if it’s not needed. People have donated prom gowns and wigs and tiger costumes and pumpkins, and frostbite cream to Rwanda, and used teabags, ’cause you can always get another cup of tea.” In the aftermath of the Sandy Hook Elementary School shootings, roughly 67,000 teddy bears landed in Newtown, Connecticut. Many were eventually sent elsewhere.

Transparency into how the donation is used is paramount. Following Hurricane Harvey, thousands donated to the American Red Cross to assist the relief efforts. Yet the Red Cross doesn’t disclose what proportion of the donations go toward actually helping the storm victims. In fact, one study found that a quarter, or $124 million, of donations to the Red Cross for Haitian earthquake relief in 2010 was spent on administrative expenses. Know where your donated money is going and find those organizations that are most transparent.

In Puerto Rico, Mercy Corps is handing out $100 in cash to those needing assistance after Hurricane Maria: “House by house, the group is feeling out what $100 can do for 2,800 hard-hit families across the island.” As Jill Morehead, head of Mercy Corps’s relief efforts on the island said, “Cash helps give people back dignity and choice for determining their most basic needs, in addition to supporting local markets and small businesses.”

Other than direct cash, donor-advised funds (DAFs) are growing in popularity as a philanthropic tool. In 2010, around 180,000 DAFs controlled about $34 billion in assets. By 2015, those numbers had soared to over 270,000 DAFs and $80 billion. DAFs function like bank accounts but are nonprofit entities. Deposits are irrevocable, and the assets held in the funds can only flow to charities. Donations are invested by the DAF and grow tax-free. Critics argue that the tax breaks provided by DAFs are chiefly a boon to the wealthy and that their lack of transparency is an invitation to abuse. So it’s not quite clear that DAFs actually help funnel more funds to those in need.

So to return to my original thought: Those who have the means are those who have the money. And those who have the money also have the power. What is true for a country appears also to be true in philanthropy.

In 2011, then-New York City mayor Michael Bloomberg made the largest donation in the history of the Sierra Club, giving $50 million to its Beyond Coal project. The initiative’s purpose was to close coal-fueled power plants throughout the United States. Environmentalists applauded the news. Coal miners not so much. So what does this have to do with power? As Alana Semuels wrote, “the gifts come at a time when government is shrinking, and when, in some cases, philanthropic dollars replace or supplant government functions. That can mean that it’s philanthropists who decide what scientific issues are researched, what types of schools exist in communities, and what initiatives get on ballots.” David Callahan, the founder and editor of the website Inside Philanthropy, and author of The Givers: Money, Power, and Philanthropy in a New Gilded Age, observes, “there’s no question that with money comes power and influence.”

This can make a person feel small and ineffective in the face of such need and such influence. How can we possibly help? Start small and go wherever your heart is led.

“You may never know what results come of your action, but if you do nothing there will be no result,” Mahatma Gandhi said. Words to live by.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/jcamilobernal

About the Author(s)
Susan Hoover, JD

Susan Hoover was the editor of Connexions, the CFA Society Leader newsletter, and the digital editor of Enterprising Investor at CFA Institute. Prior to CFA Institute, Hoover worked for McCallum & Kudravetz, PC, and the US Department of the Navy in real estate and labor law. Hoover earned the CFA Institute Investment Foundations™ Certificate and holds a BA degree from Lehigh University and a JD degree from the Washington College of Law, American University.

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