See my revised analysis (November 11, 2019 update) here. I thank you for your feedback.
Following the recent debate on the effectiveness of systemic interventions, I assert that investments in global trade may be effectively altruistic. If quantified, the impacts of investments in world commerce facilitation may outcompete the effects of funding GiveWell’s charities by unit amounts.
Unlike investments in GiveWell’s charities, financing trade advancement of developing nations enables individuals who live in emerging economies to gain commercial competitiveness and thus join a virtuous cycle of income growth. An increased income enables the beneficiaries to purchase health-related goods and services which are currently provided by GiveWell’s charities. Further, internationally competitive domestic industries enable beneficiaries to find better employment and find market for their informal businesses.
Trade investments cannot be directly quantified by the quality-adjusted life year (QALY) measure. This is because Health-related quality of life (HRQoL) has not been associated with income. However, GiveWell reports that decreased poverty is valued higher than improved health. I rely on literature estimates that value a QALY as 50% of GDP per capita of that nation.[i]
Investing in the negotiation of trade policies favorable to developing countries may present large returns on investment. For example, passing a bill through a registered lobbying firm in the United States costs about $200,000/bill.[ii] [iii] Assume that this bill contributes to a policy that reinstitutes the Generalized System of Preference (GSP) for India from which the United States withdrew in June. This will contribute $300 million to India.[iv]
This number assumes that other nations are not able to export to the United States in lieu of India, due to the lack of international competitiveness of their industries. Thus, the $300,000 million is assumed to be a pure efficiency loss, entirely borne by India.
In 2018, India’s GDP per capita was $2016.[v] That makes $2016 x 50% = $1008 per QALY. $300 million/$1008 = 298 000 (~300,000) QALYs. The cost per QALY is thus 200,000/300,000 = $0.66 per QALY. That is about $0.66 x 69.165 = $46 per statistical quality life (the life expectancy is India is 69.165 years[vi]). Lobbying for favorable trade policy is thus much more cost-effective than donating malaria nets thought Against Malaria Foundation (which provides a quality life for $3,337.06).[vii]
Further, enabling emerging economies to grow their trade capacities may be also cost-effective in the long term. For example, assume that developing and implementing a “one-stop shop” import-export window costs $1,000,000 for a single nation. Further, assume that this would make importing and exporting 1% more efficient. This increased efficiency may take place due to reduction of red tape (paperwork substituted by electronic forms), decreases in travel time that is required to obtain export and import clearances (visiting one government office instead of several bureaus), and facilitation of obtaining trade information.
Additionally, assume that over the next ten years, this nation will export $1,000 million and import $2,300 million annually. These values are based on trade data of Malawi. Malawi exported $1,080 million worth of products in 2015 and imported $2,312 million of goods and services in that year.[viii]
Therefore, due to the “one-stop shop” cross-border trade investment, over the course of ten years, a nation will be able to sell $1,000 million/year x 1% x 10 years = $100 million more products abroad and import additional $2,300 million/year x 1% x 10 years $230 million worth of goods and services from foreign nations. In total, the nation will gain $100 million + $230 million = $330 million.
Since this nation is small, it can be assumed that the increases in exports will all accrue to domestic sellers without affecting world prices. Additionally, presume that the extra imports also benefit to the investing country in their entirety. Either the increased efficiency of import facilities reduces the price for consumers, increasing the consumers’ real income, or the reduced trade barrier enables domestic producers to source cheaper inputs from abroad, making their production more efficient. The increased production efficiency may attract foreign direct investment and further boost the domestic economy. However, I am not taking these possible secondary impacts into account.
Supposing that the GDP per capita (purchasing power parity adjusted) in the investing nation is $1,300 (based on $1,309, the 2018 value for Malawi[ix]), a QALY in that nation is valued at $1,300 x 50% = $650. This value may grow slightly over the next ten years, e.g. to an average of $850.
Thus, the $330 million efficiency gains provide $330 million/$850/QALY = 388,000 quality life-years equivalents. With an initial investment of $1,000,000, a single QALY in that nation costs $1,000,000/388,000 = $2.58. That is $2.58 x 70 = $180 per healthy life. (Life expectancy in that nation is assumed to be 70 years on average over the next 10 years. This is based on the 2017 value of 63.279 for Malawi[x]).
Impact divestments, or diverting funds from purely profit-motivated investments to impact ventures, which enjoy the bottom lines of profit as well as of social and/or environmental return, may also outcompete GiveWell’s charities.
According to the United Nations Development Programme, 60% of impact investors accept returns on par with market returns.[xi] The consulting firm McKinsey estimates finds impact investment returns “comparable to market rate returns.”[xii] Assume that these values are adjusted for risk.
Shifting purely for-profit investments into impact investments does not reduce the investors’ wellbeing if these two types of financial allocation yield the same fiscal returns, adjusted for risk. However, divesting into impact brings additional benefit to those affected by this investment. Since at least 60% of impact investment enjoys market returns, then at least 60% of funds invested globally improve wellbeing of affected individuals without an additional cost.
This value assumes non-diminishing marginal returns on impact investment. This may not be an unreasonable assumption, given the unexplored consumer potential (which grows, rather than decreases with increased wealth) in underserved markets, such as those in impoverished areas.
Additionally, impact investment may yield the highest overall (socio-environmental) return in the poorest markets. However, these markets may provide the smallest return to the investor. Thus, effective altruists may invest into markets of different affluence depending on the relative values these individuals associate to their wealth (and ability to re-invest themselves) to that of others.[xiii]
Unlike impact investment, which offers financial returns to investors, non-profit support of trade competitiveness of disadvantaged groups and nations provides returns to others exclusively. Non-profit market competitiveness may also prove effectively altruistic.
For example, One Acre Fund (OAF), which is supported by TheLifeYouCanSave, describes a 248% return on investment.[xiv] However, the beneficiaries, farmers in developing countries, as opposed to the investors, accrue the entirety of these investments. The 248% value considers all expenses and the medium-term increases of incomes of the benefiting farmers but neglects the environmental impacts of the investments and economic spillover effects. Both of the unaccounted factors are likely positive.
Thus, investing into trade competitiveness of disadvantaged groups may provide quality life years at a negative overall cost, although these investments prevent altruistically-minded individuals from re-investing their returns themselves.
Publishing pro-corporate social responsibility (pro-CSR) agenda in major media costs $44,000 per year.[xv] If one article is published in a year in an outlet which enjoys 62 million readers per year,[xvi] and if every 1,000th reader is influenced to spend additional $10 on socially responsible purchases, on average, every dollar invested generates (62 million readers/1,000 x $10 per reader)/$44,000 = $1.41 of CSR-conscious spending. This constitutes a 141% return on investment. This return may carry vast economic spillovers alongside the supply chain.
Thus, investing in international trade may be more effectively altruistic than donating to GiveWell’s charities. Negotiation of trade policies favorable to developing countries, supporting emerging economies’ trade governments, for-profit impact divesting, non-profit advancement of competitiveness of disadvantaged groups, and corporate social responsibility advocacy may all provide a higher number of quality life-years than organizations recommended by GiveWell, per unit amount spent.
This is my hypothesis. If you agree, please help me mobilize the global community to pursue cost-effective international development through trade. If you disagree, please provide constructive criticism. If you have any questions, ask. If you know other cost effective-trade-based development specialists, please refer me to these. I welcome any comments below as well as personal messages through the platform.
[ii] Lee Drutman, The Business of America Is Lobbying: How Corporations Became Politicized and Politics Became More Corporate, 1 edition (Oxford ; New York, NY: Oxford University Press, 2015), 86–87.
[iii] Williams, “182: I’m a Reformed Lobbyist. Ask Me Anything,” DecodeDC, February 23, 2017, https://omny.fm/shows/decodedc/182-im-a-reformed-lobbyist-ask-me-anything.
[iv] “Trump Terminates Preferential Trade Status for India under GSP,” The Hindu Businessline, accessed October 7, 2019, https://www.thehindubusinessline.com/economy/trump-terminates-preferential-trade-status-for-india-under-gsp/article27398318.ece.
[v] “GDP per Capita (Current US$) - India,” The World Bank Group, accessed October 7, 2019, https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=IN.
[vi] “Life Expectancy at Birth, Total (Years) - India,” The World Bank, accessed October 14, 2019, https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=IN.
[vii] Chris Weller, “The World’s Best Charity Can Save a Life for $3,337.06,” Business Insider, July 29, 2015, https://www.businessinsider.com/the-worlds-best-charity-can-save-a-life-for-333706-and-thats-a-steal-2015-7.
[viii] “Malawi Trade at a Glance: Most Recent Values,” World Integrated Trade Solution, accessed October 14, 2019, https://wits.worldbank.org/countrysnapshot/en/MWI/textview.
[ix] “GDP per Capita, PPP (Current International $) - Malawi,” The World Bank, accessed October 14, 2019, https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?locations=MW.
[x] “Life Expectancy at Birth, Total (Years) - Malawi,” The World Bank, accessed October 14, 2019, https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=MW.
[xi] “Impact Investment,” United Nations Development Programme, accessed September 15, 2019, https://www.sdfinance.undp.org/content/sdfinance/en/home/solutions/impact-investment.html.
[xii] “Impact Investment.”
[xiii] William MacAskill, “Effective Altruism: Introduction,” Essays in Philosophy 18, no. 1 (January 31, 2017), http://dx.doi.org/10.7710/1526-0569.1580.
[xvi] “Bloomberg Media,” Bloomberg Finance, accessed October 14, 2019, https://www.bloomberg.com/impact/products/bloomberg-media/.