In a free market system, any business depends on public opinion for its existence. Reputation is everything, and a poor reputation will drive away customers faster than anything. That’s why business have to be so careful to cultivate goodwill in the free market. For major corporations like Nike and Coca Cola, the most valuable asset is their brand name.
A fast way to gain goodwill is by helping needy members of the community. Again reducing it to a simple market transaction, the businesses purchase the goodwill of potential customers through the intermediary of the needy person. Then, by patronizing that business, the customers can experience the euphoria from charity, knowing that they helped to support the business that helped the needy person—essentially purchasing the euphoria from the poor person through the intermediary of the business.
In other words, a market-based system of voluntary charity provides incentives even for “greedy corporations” to help the needy. It is in the corporations’ best interests to bolster their reputation by supporting worthy charitable causes in order to add value to their brand in the mind of consumers.
Allowing the economics of voluntary charity to proceed unhindered also works in favor of helping needy individuals and ending poverty. The overall effect of the free market is that needs are satisfied in the most efficient manner possible. Keeping in mind that the charity market is essentially a market for the euphoria that comes from helping people, those who are most likely to receive donations are the ones who make the donors feel like they have made a difference—the ones who can show results.
Thus, the most efficient and effective use of charity money is on people who have a plan, utilize the donations well, and explain the success to the donors. Contrasted with a beggar seen regularly on the street, in the same condition no matter how much money they are given, the more satisfying choice is obvious. In this way, the euphoria of the donors is maximized, and the likelihood that they will donate again generally—and to the efficient receiver, specifically—is also maximized.
For the same reason, fraud is minimized in the voluntary market for charity. If the market is truly for purchasing the euphoria of helping someone, then finding out that you have been cheated will sap the will to give. Ergo, charity organizations may find ways to vet people who claim to be in distress and apply for aid. It seems logical that a person burned at one charity organization is also unlikely to give to another, and so charities would share information about abusers of their services with each other.
Since the existence of a charitable organization is dependent on continued donations, they will do everything they can to prevent fraud. When an organization can just take your money via force—like the state—it doesn’t have to be as careful.