Tuesday, March 11, 2008

How (not) to win the war on global poverty

The CS Monitor is running a series on global poverty (A first step for the global poor - Shatter six myths, Why so much aid for the poor has made so little difference, The best levers for lifting the last billion) . The series argues that this problem can be dealt with, questions the effectiveness of aid and provides suggestions on the road forward.

What follows is a few  snippets from these articles. Some facts on poverty:
  • In 1981, 1.5 billion people survived on less than $1 a day, according to World Bank household surveys. By 2001, that number had dropped 27 percent, to just over 1 billion. That means well over 400 million people no longer face the lethal burden of extreme poverty.
  • The last billion who suffer extreme poverty are concentrated in fewer than 60 very small sub-Saharan, Asian, and Latin American countries, which means we've never been in a better position to eradicate it.
There are very different viewpoints on poverty:
  • Economist Gregory Clark of the University of California argues  that prosperous societies grow their economies through Industrial Revolution values such as patience, hard work, innovation, and education. Some cultures support such values, some don't, and they certainly can't be imported or master-planned.Implication: Some poverty is permanent. (See Clark's book A Farewell to Alms: A Brief Economic History of the World)
  • ...development economists such as Paul Collier, Jeffrey Sachs, and Joseph Stiglitz argue that wealthy nations know how to create the conditions for accountable governance, open markets, capital formation, low taxes, reliable institutions, and regulatory frameworks with courts to enforce them. Implication: The right combination of solutions is (almost) within reach.
Has aid delivered?
  • A World Bank study by Craig Burnside and David Dollar found a positive impact in countries with good fiscal, monetary, and trade policies. 
  • Later analysis by William Easterly, and Raghuram Rajan at the International Monetary Fund, indicates zero impact from Western aid on growth in poor nations – with or without sound policies. Possibly these countries would have done worse without aid. Certainly, we can do better. (See related article by Rajan & Subramain on the absence of a convincing relationship between aid and growth. Clue: real exchange rate overvaluation due to inflows).
  • Seventy percent of the last billion live in Africa, yet in 2008 only a third of all US government direct aid will go there. (This is progress: In 2001 it was only 8 percent.) Instead, Israel and Egypt together get 10 times the US direct aid that Darfur does. Russia gets as much as 20 sub-Saharan nations combined. Ireland gets 167 times what the Central African Republic does. 
We have a moral duty to care for the poorest and weakest. We also have a duty to make this work as effectively as possible. When people live in abject poverty it is a shame. Relative poverty is a given, but if absolute poverty persists in a richer and richer world, the rich will have to shoulder some of the impact. To blame all of the bottom billion for not having certain values is blatant. To acknowledge that aid flows do not create the desired effects is a necessary first step towards an approach that works better. 

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