A case against giving

economics ▪ policy ▪

This post challenged my long-held practice, to wit, never to give to street beggars. More precisely, it challenged me to lay out the assumptions and processes that led me to hold the practice. So, here they are.

As typical with (almost?) all economic arguments, this one has to do with incentives. Although I believe that money isn’t the only incentive influencing a person’s decision to beg (or not to beg), for argument sake, let’s limit our discussion to the financial incentive. For the beggars, this money isn’t free: Beggars have to spend time to obtain money.

Assuming that beggars maximises monetary incentives, a person that decides to take up begging as a job must have weighed their options and decided that begging is the employment with the highest return per unit time given circumstances (i.e., education, existing minimum wage for unskilled labour, and so on). The higher the return, the higher the number of people choosing begging over other types of employment. If you don't believe me, see this article.

Since, for the most part, beggars do not affect others in a negative way – and, often, they even improve others’ welfare by allowing people to substitute their sense of guilt for being unable to help the poor with Rp.5,000 a day – begging is as legitimate a job as any other. It is comparable even to the entertainment industry, which offers nothing more than some subjective amusements that are often of very little value (think of how “valuable” the many infotainment or reality shows really are!).

So, in the same way that I do not wish to support trashy entertainment (by, for instance, sending in those premium SMSs), I do not wish to encourage people to choose begging as an employment. At this stage, it reflects a simple preference: I prefer that begging be reserved for those with no other means of employment; others should try to sharpen their other skills and work elsewhere. I try to do this by minimizing the monetary incentives that beggars can receive at any given day.

But if that’s it, then my reason is simply a matter of preference. However, there is another reason why I think it’s wrong to give to beggars: It encourages the use of children for begging, which reduces the children's time for studying. The more one gives, especially to children, the more likely that these children will spend their time (or be used for) begging instead of studying.

But what about poverty? Didn’t most beggars do it because they are so poor? I am sure that some of them did – but as I said, as the return to begging increases, more people will try to enter into the job market. In fact, the return is quite high: A study mentioned in this article suggested that the gross revenue from begging could be up to Rp.150,000 per day or, assuming a 10-hour work day, about Rp.2,500 per 10 minutes – a quite reasonable estimate for a busy Jakarta intersection. As a comparison, a skilled carpenter gets paid around Rp.50,000 to Rp.100,000 net a day.

With such a high return in an underground economy (where security is an important issue), I have little trouble believing that there must be efforts to organize beggars to avoid continuous conflicts, provide security, or even arrange the “supply” of beggars (particularly from outside of Jakarta). Call these organizations what you want: “mafia”, “preman” or what have you, but they serve a purpose in such a lucrative market.

This is just a hypothesis supported by anecdotal evidence – but a reasonable one at it. If true, however, it is likely that those people doing the begging will only a very small cut from their efforts. This is quite common in organizations that operate in an underground economy (or even in the formal economy): the higher you are in the organizational pyramid, the cut that you received increased geometrically. Freakonomics offered a lucid example in the drug-dealing industry (taken from this paper); anyone reading stories about migrant workers and their organizations will easily reach a similar conclusion.

Again, what about poverty? My concern is that, by ensuring such a high return, we encourage organized begging. Organized begging tends to crowd out the real urban poor that our alms were supposed to help – which is to say, it significantly reduces the amount that actually trickles down to the poor families that, given circumstances, really have no other alternatives to begging. Instead, the money goes to people who were “imported” from outside Jakarta (and those who organised the imports) for the purpose of collecting money in exchange for less guilt for the rich.

So, here is the lesson: To help the poor, you should restrain from giving to ensure that the total amounts of your gifts is so low that (a) it discourages the use of children; and (b) it discourages organised begging. Of course, this is not the only lesson. Another lesson is this: To really help the poor, you really have to want to help the poor – there is no such thing as a free lunch. Which is to say, instead of exchanging guilt with Rp.5,000 a day, perhaps save those Rp.5,000 and each month, give it to an organization that can channel your money to the poor in an accountable manner. I’m sure they are better at helping the poor than those beggar organizations.