It is also the title of a book by William Easterly about why the west’s efforts to aid the rest of the world have done so much ill, and produced so little good. Easterly is an NYU economics professor and a former research economist at the World Bank. Here is a summary of his findings.
$2.3 trillion has been spent in aid, and there are very few results to show for it. There is an attitude that ‘whites know best’. There is no ‘answer’ to poverty. It is a very complicated combination of political, social, historical, institutional, and technical dimensions. Yet more and more people in the rich nations understandably want to help. Yet the rich do not understand the poor, and they want to do ‘anything’ to help. Unfortunately, more often than not the ‘anything’ efforts are not effective. Aid is not effectively reaching the poor. The chance of aid agencies significantly contributing to poverty is like a cow’s chance of winning the Kentucky Derby.
There was plenty of despotism and viciousness before the west arrived in Africa. And imperialism did not facilitate economic development. It did create some of the conditions for today’s failed states. Some of these pre-conditions were: bad governments, mayhem sowed with chaotic de-colonialism, and arbitrary borders. These borders made it hard to achieve popular legitimacy with diverse populations. Modern governments are often comprised of an independence agitator, an army, and a foreign aid budget. Current calls for neo-colonialism will not work either.
Bad governments in Africa are the primary explanation for much of the poverty. Democracies enhance bottom up businesses by supplying rules, contracts, and property rights. The west cannot make governments better. Roots of this trouble are deep and complex. In fact, aid agencies need bad governments so the aid agencies can stay in business. Aid agencies give aid to both democracies and corrupt governments.
The ‘war on terror’ does not work to reduce poverty. The army has no feedback mechanism or accountability for economic change. They are insulated from needs of the poor, and cannot ascertain their interests. The army cannot expect reliable feedback at gunpoint. And the poor have no say in military presence. The face of structural economic readjustment with an army/navy behind it is a 24 year old American contractor put in charge of creating a free market. A case study in Guatemala revealed USAID training rural leaders, the CIA training military counterinsurgency troops, then the CIA trained military killing 750 of the rural leaders.
‘Aid’ has almost no effect on economic growth and poverty reduction. Although there are a few cases of successes: education, infant mortality. Generally, aid is not getting to the poor, and the poor have no influence with which to hold funding agencies accountable. High levels of aid, or ‘big pushes’ with lots of money, do not work. The incentive is for government bureaucracies to satisfy aid donors, not the poor clients. Also, there are too many agents with too many objectives to hold anyone accountable. The International Monetary Fund (IMF) is the world’s most powerful creditor. Yet it lacks of accountability, needs to simplify relations with poor countries and eliminate intrusive, complex conditionality, and to shed its excessive self confidence.
There are examples of successful development without aid; South.Korea, China, Taiwan, India, Hong Kong, and Mauritius. Instead of aid, these countries have used attributes such as self reliance, exploration, borrowing ideas, good institutions, technology, and responding to market needs. Corruption precludes success.
Free markets are the key to poverty reduction. Experimental steps to address unique problems in every country will surface interventions that work. Examples of current markets that work are cellphones and the Internet. Trust is necessary to conduct to conduct business. Property rights are important.
So what is needed make individuals, not governments, better off?
- Use incentives. Reward success, penalize failure. Insist on responsibility & accountability for actions
- Use market forces. Understand needs of the poor. Constantly experiment, search for what works. Verify with evaluation. Use feedback. Use outside evaluators.
- Simply fund and implement the basics such as road maintenance, schools. Do NOT rely on dysfunctional governments.
- Coordinate the work of the many NGOs
- Involve the poor. Give them control of aid agencies. Offer them development vouchers to be used with a variety of NGOs. This would incent NGO’s to become more efficient (one study found that a 1meter square of school space actually cost $878, whereas it should have cost $130)
- Hold regional competitions for effective aid projects, with reward given to most effective programs (externally judged)
References
“The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profit” – CKPrahalad
GlobalGiving.com – ebay like project funding
MIT Poverty Action Lab