NGOs & Developmental Economics – Do Traditional NGOs Fulfil Their "Job Descriptions"?

When I first learned about Non-Governmental Organizations – abbreviated as NGOs – in developmental economics, they struck me as organizations that fill in the gap to promote fairness and equity, something that the free market simply cannot achieve due to the characteristics of complete capitalism – effective yet inhumane.

Before I worked closely with some of the largest NGOs and even started one myself, I had the impression that NGOs operated in a straightforward manner: they typically initiate a project by setting an end goal, then raise funds by selling cookies or "rizz roses" (while larger NGOs attract more attention from the public and raised more funds). Eventually, they use the money to help the poor, either by donating directly or by hiring people to take care of them.

While from a distance, NGOs' work model seemed surprisingly easy to understand, especially when compared to other private companies of comparable sizes, I want to point out that most NGOs nowadays no longer operate in this simple manner. This seemingly perfect model has both its advantages and disadvantages, and NGOs may not fulfill its "job description" perfectly as we assumed.

Allocative inefficiency in the service industry - demand side

The market for NGO services is most similar to the market of government direct provisions or the market of long-run aggregate supply and demand under classical economic theories. The similarity of both economic theories is that the supply of service is determined by the suppliers - whether it is the government's decision to provide or the private firms' ability to supply. The market for NGOs is even more chaotic than these two markets, as there is not a single index that denotes perfectly the exact demand, and NGOs have to constantly identify the demand in the market to determine the optimum quantity of services to provide.

Long run AS curve

Then this brings us to the question: how well can NGOs, especially the international NGOs with significant influence, identify the demand for their services?

My answer: It depends, but most of the time, their ability to identify demand is poorer than we might expect. Is it sounding unexpected? Let me explain.

First of all, small NGO startups have clearly shown higher abilities to identify niche demands, such as my Singaporean-founded predecessor ToiletRollSg Laura Lee: Youth Environmentalist in Singapore Saves the Earth One Recycled Toilet Roll at a Time (everydaypeople.sg); these small NGOs are forced to have their niche against large NGOs, hence they tend to start after identifying a demand and solve the problem more creatively.

On the other hand, multinational NGOs may not be as adept as small startups in identifying demand. Take MSF, for example; Medecins Sans Frontiers, or Doctors Without Borders, operates more than 20 national branches globally. The one I worked with in 2022, MSF Norway (you can find my past experiences here: Volunteering in MSF - MSF Explained (anthrolearner.com)), single-handedly raised over $40 million in 2022. This substantial size necessitated the employment of over 100 people to simply manage the organization, and this size brings about much more inflexibility compared to small NGOs.

Oslo, the capital

If there is an emerging social group in need of assistance, such as the refugees from the Russo-Ukrainian conflict, it will take significantly more time for MSF to identify the demand because the workforce operates in offices located in different countries and there is information loss in the midst of information transmission. Furthermore, it will take significantly longer time for MSF to reallocate the budget and volunteering doctors than smaller NGOs.

The conference room for cross-branch meetings

Another key point to take away is that the demand for a certain service only arises when it is brought to the attention of NGOs. The needs of the voiceless are not ones that NGOs will necessarily address. As a real-life example, I once interviewed a Ukrainian refugee named Tkachenko Alex. He was a proud father diagnosed with colon cancer in 2019. After becoming a refugee, he struggled to find an engineering job and simply asked me if I could help him find one at MSF. I relayed this request to my boss, Syed, but he explained that MSF couldn't hire him or provide aid due to the need for fund reallocation, which was under the control of management, not the volunteers. I have encountered individuals like Alex more often than one might expect, and their voices go unheard by NGOs because they are not given a platform. To large NGOs, people like Alex are often neglected, and their needs are not recognized.

Therefore, if we channel our efforts into providing such platform, we can give the voiceless voices. ESpero (a few coders and me) once collaborated on the project Safeway with an Israeli NGO to land a map that guides the refugees to weekly updated shelters, food, medical supplies, and more. The map currently contains up-to-date information about 10,000 NGOs. Code4Ukraine: Israeli developers doing their part to help those affected by the war (geektime.com) This is a small step in solving the misinformation in the market, and I hope that the opinions expressed in this article will be recognized by more people in the future and that Alex's voice will eventually be heard.

Competitions among NGOs - supply side

Not only is there the issue of misinformation on the demand side, but there are also issues on the supply side. It is irrational to simply assume that there is no competition in the industry. Even when it comes to helping each other, we as humans compete, as it is part of our nature.

First of all, NGOs compete with the local government. As mentioned in KellogInsight Why Well-Meaning NGOs Sometimes Do More Harm than Good (northwestern.edu), when NGOs enter low-income, rural villages, they tend to siphon the talent away from existing governmental service programs by high salaries. This gives rise to two potential risks:

1. If the NGOs' services proved to be more effective or at a similar level, they do pay more to their volunteers and essentially raise all the additional funds from the local villages. The cost to service actually increases. Additionally, people who had relied on governmental services, i.e. members of the dominant party, will suffer regardless.

2. NGOs do a subpar job

It is observed that instead of filling the gap, NGOs sometimes reinvent the wheel. When that happens, the villages they help are usually worse off in the long term,

Secondly, NGOs compete with NGOs. Some people know that I started my nonprofit ESpero as a NFT project The Story of ESpero (anthrolearner.com) to raise funds. I eventually ended this project precisely due to competitions. In order to attract the public attention for purchase, one needs to be able to afford a large sum of money for marketing (usually $12k minimum per month). Even if one can afford that sum at the beginning and manage to raise funds after break-even, not of single penny of the marketing fee goes to the people one is trying to help, and the same is happening daily with every other fundraising NFT projects out there.

How traditional NGOs function - Take MSF as an example

International NGOs have evolved beyond the days of fundraising through cookies and neighborhood lemonades. Nowadays, these large organizations secure funding through substantial investments in traditional marketing—by "traditional," I mean methods from the 20th century, such as telemarketing, TV ads, and door-to-door campaigns.

Let's delve into how this fundraising approach works.

First and foremost, Médecins Sans Frontières (MSF) deploys over 50 volunteers to visit homes in Oslo, introducing people to their work and persuading them to make their initial donations. It's customary for Norwegian families to allocate a small portion of their income to support social causes, so they usually agree to contribute.

Typical country roads for door-to-door fundraising volunteers

Consequently, MSF maintains a substantial database of donors who have contributed over the past 40 years—comprising hundreds of thousands of individuals. The telemarketing team, consisting of 13 individuals, including my best friend in Norway, contacts each donor, encouraging them to make regular donations to ensure a consistent income stream.

Furthermore, MSF conducts TV campaigns on NRK telethon every October 24th to increase brand awareness among the audience.

The funds raised are then distributed among various MSF branches to support various projects.

The advantage of this entire fundraising model is that, despite its outdated methods—such as relying on cold-calling donors for 75% of its income (which I've done a few times myself)—it generates a stable and reliable income that sustains this massive organization.

However, there are significant drawbacks as well. Firstly, the lack of innovation and heavy reliance on conventional marketing discourage most of the younger generation from considering careers in nonprofits. Moreover, the organization's immense size indicates inefficiency; having just 100 volunteers to raise funds and manage the corporation, with fewer than 20 actual doctors, represents an unusually skewed ratio. This ratio suggests that a significant proportion of funds is allocated to management in a developed country.

Let's say we are reinventing the wheel - how do we do that?

By making a nonprofit job more exciting and innovative. Currently, the most reliable ways to do it are through technical innovations and change of organizational structure. For example, most of the work in ESpero was done online ESpero 2022 in a Nutshell (anthrolearner.com). By fostering collaborations across borders via online workspaces, one can make actual impacts. This working pattern has proved to be exciting for most of our volunteers, as we are able to grow our networks and generate new ideas across borders.

Another way to do it is through a patented technical innovation, such as finding alternative food sources for the underprivileged Entrepreneurship - Turning vision into reality (rp.edu.sg). By introducing more technical volunteers, an organization can make unconventional changes to the society, rather than mass accumulation of donors.

Apathy arises from specialization & expansion

Last but not least, I would like to share a personal takeaway from my short time running a youth nonprofit.

Last year, we received a collaboration invitation from the University of California San Diego to create a series of online artworks to promote the protection of marine life. When I first got in touch with this idea, I was thrilled. As an ocean lover, I had once lived in North Carolina where the beach was only 10 minutes away. At night, I would watch the sea turtles lay their eggs on the sand with my friends, and we would protect the baby sea turtles on their way to the water by chasing away the birds that fed on them. The idea of conserving ocean life evoked one of my best memories, but back in 2022, our main issue was helping to alleviate the refugee crisis. Our specialization was meant to assist those who deserved help, but it also limited us from helping everyone due to our organization's mission description and logical constraints. Expansion has a similar effect. A large NGO takes away even more opportunities from its volunteers to assist those they intend to help.

It is only logical to stay focused on the target, but when it comes to humanitarian work, target-oriented work can also be inhumane, and this is one of the biggest misfortunes volunteers will experience.