How to make global poverty history

There are two schools of thought on this question--and the chasm that divides them is deep and wide.

One group of people believe the answer lies in spending a whole lot of money on schools, clinics, and new drugs in poor countries. What keeps poor people poor is that--well, they are too poor to help themselves. So the best thing that we can do is increase the resources they have command over.

But then there are those who think that poverty is caused by not inadequate resources--which is after all sort of tautological--but with inadequate opportunities. People do not invest in education or in health, or save enough, because they do not see enough (private) returns to doing so. So the way to get them to climb from poverty is to enhance the incentives that they face to help themselves and their community. 

If you are the first kind of person, you think development proceeds one school, one clinic, or one project at a time, and emphasize foreign aid as a key part of the solution. If you are the second kind of person, you believe development happens one policy reform at a time, and you think the answer lies in improving the market and policy environment that poor people face.

People in the first group have names like Bono, Angelina Jolie, Bob Geldof, Bill Gates, John Edwards, and Jeffrey Sachs. People in the second group have names like Abhijit Banerjee, Tim Besley, Francesco Caselli, Esther Duflo, Lant Pritchett, and Mark Rosenzweig. Guess which point of view gets the bulk of media coverage and of public attention.

To be sure, there are many differences of views among the development economists that belong in the second group. Some of these economists emphasize policies directed at economic growth, while others stress health and education interventions. Some believe governments are the problem, while others think markets have a way of going wrong even when governments are not screwing things up. There are also important methodological debates within this group on how to "do" proper development research. But these differences reflect the vitality of the field and the diversity of approaches it houses.

Which is why it is a pity that the general public sees hears so little from the second group. Mention global poverty, and most people start thinking of debt relief, foreign aid, and (perhaps) cheap pharmaceuticals. Never mind that most development economists do not think these are where the real action is. Hey, Bono makes for much better copy.      

Bono and company deserve great credit for the enormous success they have had in consciousness raising, and for bringing Africa to the center of attention in the rich countries.  But it is time that the outreach made a better connection with the research.

Comments

[terence]

And I'd like to put my hand up as being in the third camp: believers in a global social contract.

We should give more aid not because it can improve economic growth (although the majority of recent research appears to show that, on balance, it does*) but because a relatively tiny fraction of rich country GDP could provide basic health care, sanitation and primary education to almost everyone on Earth. These things are good in their own right, not just because they may aid economic development. In our own countries we have welfare systems not because they enhance growth (although they may do) but because to not have them would be ethically indefensible. And, globally, we are now wealthy enough that we could afford to offer a basic safety net for the same reason - to not do so is wrong. That's why I'm in favour of more aid. I'm in favour of debt relief for similar reasons.
___________________
* And the limitation of almost all of this research is that it lumps good aid with bad; if we could get over this methodological hurdle the results might be even more positive.

[R Mutt]

I think Bono has a more sophisticated grasp of the situation than some people think. From this article:
http://commentisfree.guardian.co.uk/bono/2006/05/this_should_be_africas_century.html

The old Africa is a picture of despair and appeals for emergency supplies; the new Africa is a picture of opportunity and the need for seedcorn capital to develop these chances into sustainable growth.

...

Some countries - Lesotho, for example - need immediate injections of cash to deal with the Aids pandemic. Some landlocked countries, such as Rwanda, need an infrastructure to help them compete. Some countries in the early stages of development need to fight for reform of trade laws at the Doha round of the World Trade Organisation. (In Mali, for example, the cost of cotton on the world market can make or break the people). And other countries, Nigeria among them, need to follow the prescriptive advice of anti-corruption campaigners such as their finance minister, Ngozi Okonjo-Iweala, because levels of transparency will, in a very real way, be the measure of success.

[Fredrik Gustafsson]

I have a fourth category: those who believe aid will work given good policies (e.g. Burnside & Dollar). Not to be confused with those that believe that aid always creates bad incentives, institutions and policies.

[Christian]

Mr Bono is also known by tax haven specialists as the person who moved his assets to Holland in order to avoid a small tax increase in his native Ireland.
Aid is great but with other people's money !

[bob]

Completely agree with the points made in blog.

A major part of the problem is the glacial pace at which development institutions and NGOs reform their practices, in the face of the increasing weight of evidence provided by the likes of the people you name in the second group.

Even at DFID, which is seen as one of the best development institutions, I know from friends who work there that the most effective way to get promoted is still to be involved in managing a big development contract - regardless of what the outcome of the project is. My own experience of being involved in an unnamed development agency project a few years back, was that at least 70% of the “aid” was spent on international consultant fees, administration, big jeeps and offices. In fairness many of these agencies have to follow a set of procedures given that they are spending public money, however it is difficult to justify calls to increase aid when so little of it ever reaches the hands of those who need it.

I suppose as you infer these institutions will only reform when they come under political pressure to do so from the likes of the people named in the second group - perhaps someone should send Angelina Jolie and Bono a copy of the Elusive Quest for Growth.

Having said all this what would be the role of the major development institutions without the focus on increasing their budgets and delivering more aid?

[unarmed]

Developing countries are basically buckets full of holes: Sure, if you keep a constant flow of water going into the bucket faster than the leakage occuring through the holes, the level is gonna go up. Take away the hose, and the level goes down again. If you don't plug the holes, you may not be completely wasting water, but you're sure using it inefficiently as hell, and it won't do much good in the long-run.

[Marius]

In debates about 'best strategies for developing countries' I am always wondering which countries actually have managed to raise their living standards from 'developing' to 'developed'. This depends of course on the definition of those terms, but I guess that's a relevant issue too.

The only clear-cut examples I can think of are the Asian tigers, and of those Singapore and Hongkong are hardly real countries.
Other examples might lie in some European countries like Greece, Ireland, the Baltic states, but I am not sure how 'underdeveloped' these countries used to be compared with, say, present-day Kenya, India or Brazil.

i would say this lack of useful examples is a major problem in any debate about the best way to help developing countries. We know a lot of policies that do not work, or not as good as planned, and the few good examples are hardly applicable to other situations.

[ben]

I think it's important to realize that ideas do not get translated into policy in a vacuum, though. I agree that the problems in Africa stem more from structural factors, but I also believe that foreign aid can and does help in some ways. In a first-best world, the attention of policymakers and donors would be focused on sorting through the arguments of your "second group" in order to collectively take the most sensible approach possible to development. But we don't live in the first best world. And in this second best world, maybe the fact that the marginal impact of the "first group's" policies is much smaller is offset by the fact that the "first group" can accomplish much bigger absolute gains.

Put differently, someone who is able to convince developed countries to commit billions more than they would otherwise by exaggerating the importance of foreign aid is doing a lot of good... quite possibly just as much (if not more) good than someone from the second group who advocates smarter policies, but whose ideas will inevitably find a smaller audience.

I think there's a place in the world for both groups, but before the second decries the first too vehemently it's worth bearing in mind that without your Bonos and your Jeffery Sachses and other out there pounding the political pavement, it wouldn't be long before there wasn't any foreign aid at all.

[Ruben Martinez]

I would differentiate between short-run, middle-run and long-run strategies. Regarding the short-run strategy people from the first group are working there, that kind of aid is needed to stop people dying because of circumstances directly related with poverty, not doing so is unethical, we are not doing enough or as much as we can yet, so I guess we have been unethical all this time. Concerning the long-run strategy I think people from the second group are the ones how are doing the job, they have the ideas that would generate a turning point in history, they do not appear in front page magazines, have not been nominated for the Nobel peace prize, do not get applauses and ovations; but their work is the one that is going to make the difference between keep feeding them and help them to be able to feed by themselves at the end of the day. The middle-run strategy is the one that I am worried about, it is going to be the link between the current situation and the future with or without poverty as a problem, in the middle-run is where poverty fighting can turn into an old fad without future or into a stronger global phenomena with a future without poverty. I think in the middle-run is where both groups have to work together to build a stronger strategy and to charge batteries to keep working. I think of both groups as complements and not substitutes, unfortunately resources are limited and that makes then turn into substitutes, so who is working to keep them as complements? Who is thinking and working as part of both groups? Who is going to make the difference in the middle-run? The one doing that job would be a Nobel peace prize worth applauding.

[Celo]

Nothing says that all the camps can't coexist. There is a role to be played by all the points you raised, and I suspect that, like HIV, you can have much more success by using a multi-pronged approach to development.

And I disagree that we should be getting more media attention to "camp 2". This would, I believe, tend to dilute the academic discourse and move people away from technical issues to political ones.

Nah...lets stay under the radar.

[terence]

One other point in defense of Sachs is that he's learnt the Galbraithian lesson on the intersection between perfect economics and the real world. He realises is that part of the fight *is* getting people like Bono on your side so that you can shape policy. And if being an advocate involves smoothing over some of the complexities of the real work then so be it. Of course, there's still the chance that he's more than just smoothed over inconsistencies and is actually willfully blind to larger problems with what he prescribes (I'm not a huge fan myself), but if other development economists don't like disproportionate voice he gets, perhaps they could think about how best to strengthen their own.

Bob,

New Zealand's aid agency is an example of one that went from being run of the mill to Scandanvianesque in its performance. That's not to say they're perfect but it would be an interesting study, I think, trying to determine what precipitated the improvement.

[derrida derider]

Ever hear of the fallacy of the excluded middle? Aid and pro-growth polices aren't mutually exclusive. It's true that money is not a sufficient condition to end poverty, but it is a necessary one.

Just as in richer countries, the secret of growth is to set things up so that the most reliable way for an ambitious person to get rich and/or powerful is to create something rather than steal it. But that's a lot easier to do amongst people who are reasonably healthy and educated, which is where aid comes in.

[raj yashwant]

There is a view from Strategy Guru C.K Prahlad on Poverty Eradication. I think this is the right view: "

Private-sector businesses, especially MNCs (and large local firms that emulate their MNC competitors), also suffer from a deeply etched dominant logic of their own, which restricts their ability to see a vibrant market opportunity at the BOP … Although the dominant logic and its implications are clear, it is our goal in this book to challenge and provide counterpoints. For example, BOP markets enable firms to challenge their perspectives on cost. We will show that a 10 to 200 times advantage (compared to the cost structures that are oriented to the top of the pyramid markets) is possible if firms innovate from the BOP up and do not follow the traditional practice of serving the BOP markets by making minor changes to the products created for the top of the pyramid.

Most charitable organizations also believe that the private sector is greedy and uncaring and that corporations cannot be trusted with the problems of poverty alleviation. From this perspective, profit motive and poverty alleviation do not mix easily or well. Aid agencies have come full circle in their own thinking. From aid focused on large infrastructure projects and public spending on education and health, they are also moving toward a belief that private-sector involvement is a crucial ingredient to poverty alleviation.
Historically, governments, aid agencies, nongovernmental organizations (NGOs), large firms, and the organized (formal and legal as opposed to extralegal) business sector all seem to have reached an implicit agreement: Market-based solutions cannot lead to poverty reduction and economic development. The dominant logic of each group restricts its ability to see the market opportunities at the BOP. The dominant logic of each group is different, but the conclusions are similar. During the last decade, each group has been searching for ways out of this self-imposed intellectual trap. To eradicate poverty, we have to break this implicit compact through a BOP-oriented involvement of the private sector.

We have to change our long-held beliefs about the BOP – our genetic code, if you will. The barrier that each group has to cross is different, but difficult nonetheless. However, once we cross the intellectual barrier, the opportunities become obvious. The BOP market also represents a major engine of growth and global trade, as we illustrate in our subsequent stories of MNCs and private firms from around the world.

[Justin Rietz]

While I agree with several of the comments that the Sachs camp has been beneficial in bringing more attention to the problem of poverty around the world, I don't believe that his current efforts will result in long-run change.

There are a multitude of reasons for this, but two strike me as key. First, Sachs and Co. don’t believe that corrupt governments are a major part of the problem. My gut feel from personal experiences in developing countries is that this is willful blindness, pure and simple. I don’t like to make rant-like statements without lengthy backup, but I’m working “offline” on a project to address this specific issue and so will spare everyone my diatribe (for now ;-) )

My second concern has already been expressed in previous comments – basically, the standard “teach a man to fish…” argument. Initial feedback from some of the participants in the Millennium Villages (from an Economist article, I believe, to which I unfortunately don’t have the link right now) is that they are wonderful projects and extremely helpful to the community, but won’t be self-sustaining.

Dani, one person you didn’t mention in your member list of the second group is William Easterly. Any reason for this? (just curious).

Raj, just caught your comment - very good, thanks.

[Simon Lester]

I don't know about Bono, Angelina Jolie, Bob Geldof, or John Edwards, but I'm quite sure that Bill Gates and Jeffrey Sachs would consider themselves part of both groups.

[Daniel C O'Neill]

Marius is "always wondering which countries actually have managed to raise their living standards from 'developing' to 'developed'."
That's easy: all developed countries have raised their living standards from "developing" to "developed".

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