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Bhagwan Chowdhry Headshot

Productivity and Philanthropy

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There is a wonderful organization called Skip1.org with a creative and very simple motto: "Skip something. Feed a child."

The introductory video shows a young couple in a fancy restaurant who decide to skip their meal. The waitress takes their plates, goes through a door and on the other side of the door you see a poor village with two hungry children who are happy to get the meal that the couple in the restaurant skipped. Powerful message, indeed. After all, it wouldn't be so difficult for many of us to skip a meal, an expensive Starbucks coffee, a game of golf or a soda and popcorn at the movies (and we may even shed a pound or two in the process).

Skip1 PSA "Restaurant" [Francis & Lisa Chan Version] from Skip1 on Vimeo.

However, the Skip1 video grossly underestimates the potential impact of skipping something. It suggests that when you skip a meal, you get to feed one child somewhere. The incredible fact is that if you skip just one meal, you can feed a child in a poor developing country for one hundred days!

Let us look at some numbers: Imagine that you and your girlfriend decide to skip going to the movies, just once, saving $24 for movie tickets and say another $10 for soda and popcorn -- instead, you decide to eat fruit and cereal with milk and stream a movie from Netflix on your large screen TV with your state-of-the-art surround sound system (marginal cost, about $3) -- You saved $31. This is what it costs an amazing organization called Akshaya Patra to feed a mid-day lunch to a child in school in India for an entire year. Really! The average cost of a nutritious meal prepared and served by Akshaya Patra is about 5 rupees, which is approximately 11 cents. Clearly, Akshaya Patra is using extremely efficient and mechanized processes for preparing meals and distributing them to schools.

There is, however, something else beyond Akshaya Patra's efficiency that is at work here. It's a fact that in a country like India you can buy more food and services for a dollar than what a dollar buys in a country like the U.S. -- five to ten times more (probably many of you who have traveled to poor countries have undoubtedly seen this difference first hand). Why is that? Economists label it differences in purchasing power across countries. But labeling something is not the same thing as understanding it. The question of why local goods and services (but not iPods or cameras) are cheaper in poor countries than they are rich countries still remains. An immediate possibility is that labor costs and wages are smaller in poor countries -- which, of course, raises the next question: why are wages lower in poor countries?

Wages are determined by productivity. The reason why wages are much higher in the U.S. than they are in poorer countries is because the productivity is high in the U.S. The fact that the U.S. has large amounts of physical (i.e., machines, technology) and human capital (educated and skilled population) helps boost labor productivity. You might wonder what is so different about serving food in a restaurant in the U.S. versus a restaurant in India. Not much, probably. So, why does a waiter in Los Angeles earn more than a waiter in Mumbai? It's because the people who eat in the Los Angeles restaurants are on average more productive than those who eat in Mumbai's restaurants. So, it's the differences in the productivity of the most productive people -- engineers, businessmen, lawyers, investment bankers (yes, I know what you are thinking) -- that lifts the wages of others.

So, if you are fortunate enough to live in a country where productivity is high and, as a result, wages are also high, what can you do to help poor people? You could quit your high-paying job and volunteer for a socially-conscious organization. You could take some time-off from work and feed the poor and the homeless. Yes, you could do all that and it probably would help assuage your guilt and make you feel better about yourself. But you could help the poor more, much more, if you continue to do what you do best for which the society is willing to pay you the maximum you can earn, and then donate part of what you have earned to organizations that are the most efficient at helping the poor worldwide, because that is what they do best. This is what Matthew Bishop and Michael Green would call Philanthrocapitalism: Do what you do best and share.