The huge gap between the world’s richest and poorest countries remains one of the great moral dilemmas for the West. It also presents one of the greatest challenges for development economics. Do we really know how to help countries overcome poverty?
In his eloquently written and deeply researched new book, Angus Deaton of Princeton University, United States, urges caution. For those interested in world poverty, it is unquestionably the most important book on development assistance to appear in a long time.
Deaton suggests that far too often Western aid serves to assuage the donors’ guilt, rather than improve the recipients’ plight. This is particularly the case when naïve assistance serves to reinforce a dysfunctional status quo.
For starters, assessing and implementing aid policy requires developing tools to gauge accurately where the need is greatest. Economists have developed some useful indicators, but they are vastly less precise than politicians and the media seem to understand.
Most experts agree that at least one billion people on the planet live in desperate circumstances, resembling conditions that prevailed hundreds of years ago. Our failure to alleviate their plight is morally reprehensible.
But, where exactly is the greatest concentration of poor people?
Data is hard to come by and even harder to interpret. Attempts to convert national incomes into a common denominator are fraught with complications.
For example, the “hydraulic model” of aid – the idea that if we simply pumped in more aid, better results would gush out – ignores the fact that funds are often fungible. Even if aid is narrowly targeted at say, food or health, a government can simply economise on expenditures that it might have made anyway and redirect them elsewhere – for example, to the military.
Direct delivery of medical help is one of the best options, but it can still be a huge drain on already scarce local resources – hospitals, doctors and nurses. An influx of Western non-profits often takes talent away from nascent businesses that could help the country long after the organisations reset their priorities and move on.
Indeed, there is a striking parallel between the problems caused by aid inflows and the “natural resource curse” (or “Dutch disease” – as it is termed in Western countries), whereby inflows into one economic sector – typically oil or minerals – drive up economy-wide prices (including the exchange rate), rendering other sectors uncompetitive. Moreover, a great deal of this aid is delivered in kind and for strategic reasons, often supporting ineffective and kleptocratic governments.
In general, Western countries developed without receiving any aid. Perhaps America’s post-World War II Marshall Plan in Europe is an exception, but that aid was intended more for reconstruction than for development.
China and India, too, have succeeded in lifting hundreds of millions of people out of poverty with relatively little Western aid (particularly China). Aid providers, therefore, must be extremely careful not to interfere with political and social forces that, over time, can generate organic – and therefore longer lasting – internal change.
Another intellectually fashionable approach is to conduct small randomised trials to examine, say, the effectiveness of school-attendance incentives or immunisation campaigns. Deaton rightly argues that this approach, now enshrined in World Bank procedures, is of very little use for understanding how to help a country develop more broadly.
The results are often specific to a particular country’s circumstances, and there is no reason to presume that they would scale up when fully confronted with a developing country’s governance problems. The fact that people in several African countries appear to be worse off now than in 1960 is far more related to despotism and internal conflict than it is to the effectiveness of aid-delivery programs.
Despite these caveats, for most of mankind, now is a better time than ever before to be alive. The path to development remains for others to follow. Highly targeted Western aid and advice can help, but donors must take more care not to stand in the way of the beneficiaries in assisting them.
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