Last night was my last night in Ramallah, and I spent the evening with a group of 6 or 7 people. We had hot dogs (SO MUCH BETTER than American hot dogs, by the way), played Mafia, and tried to play Never Have I Ever until the group fell apart into a bunch of side discussions.
It was late and I still haven’t completely adjusted to the time change, so I was starting to drift off a little bit. But then I heard something that woke me right up. Someone (changing his name to Ahmed) said:
“I’m suspicious of these startups popping up everywhere in Palestine.”
I asked him to tell me more. He went on to say that he was worried that these startups were too focused on individualism, and not focused enough on the good of the community.
As we continued the conversation, I suggested that there were many ways startups contributed to the community - solving local problems (example: Yesterday I met with a company that was replicating Lyft and Uber… but in Gaza), contributing to the local economy by creating new jobs and bringing in revenue from sources outside the community, and the potential of liquidity events increasing class mobility.
That all made sense to Ahmed, and that’s when we got to his real concern: Foreign NGOs (non-government organizations. Basically, non-profits).
Lets jump straight to an example. An American NGO has a bunch of money - a combination of personal and corporate donations and government aid) - and they want to help farmers in Palestine. The NGO approaches Farmer John and offers him $5,000 USD so he can buy some new equipment, a few extra cows, and rebuild his barn. In an ideal world, Farmer John would take that money, boost production of his farm, and increase his revenue.
In reality, what apparently tends to happen is Farmer John gets an extra $5,000, then just stops working on his farm because he was suddenly given a year’s worth of money. Then his neighbor, Farmer Tom, gets pissed that slaving away in the fields all day while Farmer John is sitting back enjoying his lemonade. So Farmer Tom applies for NGO money, gets it, and then stops working too. Pretty soon, you’ve got a big problem.
As much as I hate to admit it, people don’t always make the most rational, logical decisions.
The solutions to this problem are pretty obvious though. What if the NGO just gave Farmer John and Tom the cows and the equipment? Donating “things” rather than money prevents misuse of funds.
Well, Ahmed explained that a few things happen here:
The NGO brings in a bunch of John Deere tractors and plows, scientifically advanced American paint that lasts 10x longer, and a few genetically modified cows that produce 3x more milk. Farmer John starts using this equipment… but what happens to the local tractor and plow industry? The local painters? The local cow sellers? If the NGO is bringing in equipment and supplies, it can put local providers out of business. Then everyone becomes dependent on the NGO for supplies, which destroys the local economy.
(Another quick example you’ve probably heard of - for every pair of shoes you buy from Tom’s, they donate one to those in need. But what happens to the local cobbler industry? Why would people pay for shoes from the cobbler if they could just get them for free from Tom’s? So the cobblers go out of business.)
“Ah," you say. "We can fix this. Just have the NGO buy the equipment locally.” Makes a lot of sense. But as the NGO’s are pumping money into the economy, it encourages the local businesses to produce a lot more of what the NGOs want to buy and to raise their prices. If you have an outsider with a tremendous amount of money who wants to buy a lot of widgets, the correct response as a business is to increase widget production. That comes at a cost of producing less gizmos, but you can charge 3x more for widgets, and you’re selling 10x more of them, so you’re sitting pretty.
But what happens when a local farmer needs a gizmo? They’re much harder to find. And what happens if a farmer who isn’t taking NGO supplies wants a widget? It’s 3x more expensive. So, that farmer is forced to partner with and become dependent on the NGO to provide the equipment they need.
The problem is exacerbated when the equipment the NGO wants to provide isn’t aligned with the needs of the community. Ahmed told me a story of how an NGO came in and gave a bunch of farmers big machines to make cheese. So the farmers bought some extra cows and tried to use the machine. They weren’t really trained on how to use it (another big problem we won't go into: lack of followthrough), so of course it broke. And they definitely didn’t know how to fix it, so it just sat there. The NGO could report back that it was successful in its mission to bring cheese machines to Palestinian farmers... but it ended up a waste.
This wasted effort and money is actually huge problem. Ahmed told me about how every five years, an NGO comes in and repaves a bunch of roads in Ramallah. But… those roads didn’t need repaving. In fact, those roads didn’t even really need to be built (they were built by an NGO). There’s a huge disconnect between the missions of the NGOs and the actual needs in the community.
These are all big problems, but according to Ahmed the biggest artifact of NGOs providing free goods and services everywhere is that it creates a lack of a strong work ethic and a borderline sense of entitlement. Where is the urgency and the internal desire to work hard and build something sustainable if it’s so easy to get free money from NGOs?
So Ahmed was suspicious of startups, and of the foreign NGOs supporting startups. Throughout our conversation, I think I convinced him that startups are perhaps the one industry where his concerns don’t apply. As long as the foreign NGO money is simulating seed and venture stage investments, it’s serving the purpose of jumpstarting the investment scene here. The startups are then bringing money into the region in the form of revenue, and once there are a few exits, an angel investor scene will emerge, replacing the NGOs. The system becomes self sustaining.
The core problem, and I highlighted the phrase several times throughout this post, is that the NGOs are designed - on purpose or accidentally - so people become dependent on them. And that’s not healthy or sustainable.
I left Palestine this morning and took a train to Haifa, Israel. I found an Airbnb here, and the picture above is the view. I seem to have a knack for staying in places with awesome views… Next few days are vacation and relaxing. I’m pissed that I left my Kindle on the airplane, so I don’t have a great way to read on the beach. But… I have heard there’s great surfing here, so I’m going to head out and find that now.