All Wrong On Poverty & Aid

Friday, March 30, 2012

IT is our claim that the debates on poverty and aid have gone off the rails. On poverty, it is too narrow, quibbling about a few percentage points above or below some historical number.

On aid, it is too broad, arguing whether it is helpful or harmful in its totality. These are important issues and we need to get the big picture right if the public discourse is to make any sense.

Let us start with poverty. We are hobbled by the fact that our understanding of poverty alleviation is borrowed from elsewhere without much adaptation to our context. This has led us down unrewarding paths much like prescriptions based on flawed diagnoses.

An example should make this clear. Imagine a community of 100 people in which 10 are homeless. Many ways can be found to house the homeless in such a situation. These can include borrowing by the state, progressive taxation of the better off, charitable social action by the affluent, or assistance by an external donor.

Now imagine another community of 100 in which 90 are homeless. None of the above mechanisms are likely to work. Some other recourse would need to be found that would focus on generating the wealth to be allocated to housing the homeless.

On poverty, our models are derived from societies where only small minorities are deemed poor in an absolute sense. We are copying solutions that work in such societies and applying them to situations where the majority is blighted with absolute poverty. No amount of alleviation funds or income-support programmes can cope with situations in which the majority is poor no matter how well-off the non-poor may be. Simple arithmetic can reveal how financially absurd such approaches are.

The only solution in such situations is to generate wealth to raise the living standards of the economically marginalised. An essential aspect of this is employment creation that yields higher incomes for marginalised families. Not any form of employment would yield the desired results in our context.

We can see in India that even extended periods of wealth generation concentrated in high-tech services yield very slow gains in poverty alleviation. In contrast, the town and village enterprises favoured by China in the 1980s were much more effective in reducing poverty.

This brings us to aid. We know from East Asia that aid has been an effective ingredient in recipes yielding rapid growth. In contrast, it has been much less effective in South Asia. Why doesn’t aid work here?

Source: (link opens in a new window)

Impact Assessment
Impact Assessment, poverty