Monitor Series: An End to Poverty (Part V)

from the March 14, 2008 edition

Practical steps to end poverty

Provided we have the will, where would we begin? How can you help?

By Mark Lange

San Francisco - In this series, we've unpacked popular myths about extreme poverty. We've looked at how we've gotten stuck. We've laid out some key levers for change. And we've considered the consequences of success. The developed world, well-motivated governments, and civil society among the last billion poor clearly have the means to eliminate extreme poverty in one lifetime.

So, provided we have the will, where would we begin?

We'd start by focusing rich-world financial and technical resources on the worst-off. Today wealthy nations and institutions sprinkle too little public money in too many countries like magic dust. Devoting disproportionate aid funding to countries that don't desperately need it is an ethical failure that should be turned on its head.

We'd make aid transfers to lawless regimes only after specific political, military, and humanitarian milestones were met, not based on promises too often broken. To get more aid directly into the hands of people under the worst governance, we'd spend less on general budget support, more on specific project funding, and far more on individual vouchers redeemable at local markets, aid agencies, and NGOs for food, medicines, visits from health workers, seeds, equipment.

We'd build and integrate better online professional clearinghouses for projects, effective practices, technical experts, and people at work in these nations, such as the Global Development Commons launched by Henrietta Fore at the US Agency for International Development (USAID).

We'd raise our standards on what we measure and manage. Donors, aid agencies, and NGOs would run controlled project trials wherever feasible, and careful statistical analysis where not – funding what works, reworking what doesn't, and amply rewarding people for working across organizations to deliver country-based results.

We'd get over the "scandal" that a quarter of aid is technical assistance, decried because recipient countries don't get cash. Such skills are painfully absent among the last billion, whose educated tend to emigrate. In fact, we'd fund more and better technical assistance – especially in agriculture, property rights, banking, and governance.

The leadership and citizens of African countries, particularly those adjoining landlocked and desperately poor nations, would take bolder steps to diversify their economies, create new markets across borders, cut "protective" tariffs and red tape, clamp down on spurious "fees" that enrich bureaucrats, and implement reforms of their own to avert having terms dictated by wealthy donor nations.

We'd push harder on labor standards by giving the International Labor Organization some real authority to ensure that wealth from business and resource development does more than enrich local elites. A national minimum wage was made law in the US to preempt bottom-fishing in the poorest regions. Given the global nature of markets now, it's time to negotiate an international minimum wage, pegged to purchasing power parity for a basic basket of subsistence goods.

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Monitor Series: An End to Poverty (Part IV)

from the March 13, 2008 edition

The risks of fighting poverty too well

China's example raises tough questions about the real-world consequences of getting it right.

By Mark Lange

San Francisco - It's not difficult to imagine a world without extreme poverty. It would seem natural in an age with more broad-gauged wealth than has ever been seen in human history. But as the recent history of China shows, the prospect raises some tough questions.

Are the world's institutions actually ready for the massive shift entailed by lifting the last 1 billion people out of poverty? Do we fully understand the political and resource implications of being "too successful," as many believe and some fear China has been?

A closer look at China is important, because it's an extraordinary case. From 1981 to 2001, 400 million people there lifted themselves out of extreme poverty. Their numbers as a share of population fell from 53 to just 8 percent. Effectively, 80 percent of the world's progress in ending abject poverty has happened in China, independent of foreign aid.

Most of China's gains, according to the World Bank, registered in the first half of the 1980s, when rural families – impoverished after being forced into collective and incentive-free agriculture – were allowed to take responsibility for their farming. The encouraging lesson here is that astute agricultural development can be a life-saving first rung on the ladder to more diversified industry and export-driven growth.

But raising the floor raises new challenges. As absolute poverty in China declines, inequality is rising rapidly. If revolutions often grow in the shadow of rising expectations, the implications for China's remarkable progress are clear. An expanding and restive middle class may tolerate Beijing's restrictive governance only as long as the money flows. A significant slowdown could augur instability.

And for the rest of the world, China's breakthrough has brought serious if predictable environmental consequences, particularly an explosion in greenhouse gases. It's also triggered intense competition for resources, particularly oil, the pursuit of which has prompted China's lush sponsorship of the most savage and dysfunctional bottom-billion regimes in the world, from Angola to Sudan to Zimbabwe.

It's ironic, but for the last billion China has proved to be the most inspiring example and a direct brake on progress: First, by bringing in state investment that perpetuates many of the poorest nations' worst governance problems; and second, given China's seemingly endless supply of workers, by making it harder for poor nations to contribute labor and trade in world markets. Policymakers haven't learned how to mitigate these and many other unintended consequences of success.

Even if China's success in alleviating extreme poverty didn't present massive new challenges, many of the world's economic and aid institutions are themselves unwittingly set up to resist progress. Like almost any other organization, aid agencies, nongovernmental organizations, and contractors suffer from an inherent conflict of interest: They exist to run projects and perpetuate themselves – not to put themselves out of business. While individuals are deeply passionate about progress, institutions like things as they are – the bigger the problem, the bigger the operating budget.

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Monitor Series: An End to Poverty (Part III)

from the March 12, 2008 edition

What it takes to open a door for the poor

Big levers are within reach, but tend to be overlooked or controversial.

By Mark Lange

San Francisco - The real work of lifting the last billion out of poverty, the experienced and the expert will tell you, happens country by country, village by village: Digging wells, delivering bed nets, building schools. Faced with this reality, the greatest asset anyone from a wealthy nation might bring to the challenge of eradicating extreme poverty is a healthy balance of audacity and humility. Not to mention a refusal to mistake cynicism for sophistication.

Big levers for working the problem are within reach, but tend to be overlooked in practice or to be controversial in the popular mind. While no universal solutions apply, and no one claims to have all the answers, decades of hard-earned experience between rich and poor nations suggest a few fundamentals:

Change from within must be driven by brave people in the country, to assure the relevance, acceptance, and success of any assistance or reform.

Governments that support transparency, audits, strong judicial systems, a free press, and a professional civil service deserve direct support. For those that don't, ownership by civil society is critical. Without it, aid transfers to the worst governments shield the inept, enrich the corrupt, and entrench the brutal. A jaw-dropping 40 percent of weapons budgets in Africa are inadvertently financed by foreign aid. In the worst cases, the West needs to listen, think, and act more locally, getting more help directly to the people who need it, rather than through government-to-government transfers.

Property rights create jobs and self-sufficiency.

Westerners can secure loans with land, buildings, and other assets to start businesses and prosper. The last billion can't, which is unacceptable. The world's poor are sitting on untapped assets of $9.3 trillion, according to economist Hernando de Soto. That's 40 times the foreign aid received throughout the world since 1945. Setting up property systems to support enterprise is something the West learned to do 200 years ago, and must learn to teach.

Micro- and small-business lending challenges the idea that enterprise is a uniquely "Western" value.

When ingenious nongovernmental organizations and lenders such as Grameen Bank in Bangladesh make small loans for small-scale garment and food-processing businesses, generally to women, self-sufficiency flourishes. The loans are audited and community-based, with default rates a fraction of the International Monetary Fund's tragically bad big-loan performance. For self-sustaining enterprise, small really is beautiful.

Trade beats aid.

Good trade policy is hard to visualize through a prism of the rich oppressing the poor. Yet abolishing all barriers to trade in goods and services could increase global income by $2.8 trillion and lift 320 million people out of poverty by 2015, according to a 2002 World Bank statement. Yes, globalization must be better managed and regulated, but not through trade barriers. Protectionism is stealing, from every side. Trade and growth offer a path to dignity and self-sufficiency.

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Monitor Series: An End to Poverty (Part II)

from the March 11, 2008 edition

Why so much aid for the poor has made so little difference

Is poverty cultural or technical? Such debates shouldn't impede progress.

By Mark Lange

San Francisco - Is poverty a problem of policy or destiny? Experts tend to pull in one of two directions. Some focus on the social fundamentals for prosperity. Others, on the technical and financial requirements for sustainable growth.

It's cultural.

In this view, policy is beside the point. Harvard political scientist Robert Putnam says that "social capital" – how closely people in a community are connected – supports the basis for trust essential to commerce. 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.

It's technical.

Others say the developed world has the policy tools poor countries need and the obligation to show them how to use them. While specific proposals vary, 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.

Whichever side of this debate you're drawn to, it is clear that decades of effort and at least $2 trillion spent by rich countries since 1945 to bring development "to" the world's poorest have delivered, at best, mixed results. 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.

The first place to push – for both cultural and technical reinvention – is not in the poor nations' ethics or economies, but in the developed world's institutions. The West's efforts to help the last billion still resound with echoes of the Marshall Plan, a top-down approach that worked wonders after World War II in educated, formerly wealthy societies, where centralized planning and imported capital made the critical difference. This approach is ineffective now – not to mention damaging to the morale of committed people in these troubled countries.

Aid institutions too often pursue disconnected agendas. For every development success story, there's another about exporting plans and resources irrelevant to needs. Excelling at raising money, uncertain about results. Struggling to coordinate 21 US agencies and 50 operating units that deliver aid. Subsidizing (through clenched teeth) shameless kleptocracies and grotesque dictators. Funding fiascoes, such as $5 billion spent since 1979 on Nigeria's Ajaokuta steel mill, which has yet to produce any steel.

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Monitor Series: An End to Poverty (Part I)

from the March 10, 2008 edition

A First Step for the Global Poor – Shatter Six Myths

Abject poverty takes a terrible toll. We can stop it. But we must start by separating fact from fiction.

By Mark Lange

Could it be possible to eradicate abject poverty in one lifetime? Ever since it was first asked, the question has seemed an improbable wish – a salve for the heart, untenable to the mind. But today, the answer is as clear as it is imperative: Yes.

The idea that every living person can have the basics essential to human survival – and from there, begin to climb the ladder of economic development – is a prospect within reach. It does not require a master plan that solves all the world's problems. It does demand that wealthy nations change their approach in ways both subtle and significant.

It also means that the world's poorest – the last billion people who barely survive on the equivalent of less than $1 a day – must turn from lifetimes of bleak experience and look with higher expectations toward what is possible.

Today, the "average" person on the edge of survival is a child. Within the next hour, 1,200 more of them will perish. There are no easy solutions. But there is a clear path toward progress.

What's mistaken

Let's start by unpacking a few myths that impair popular thinking about global poverty.

It's an intractable problem.

Not so. 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 diverging exception is sub-Saharan Africa, where rich nations must operate differently – and can.

There are too many impoverished people to help.

A bogus excuse. Historically, the world's poorest covered the globe. That's no longer the case. The mid-tier developing world in much of South and Central Asia is steadily and remarkably rising in prosperity. 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.

Moral obligation is enough.

Apparently not. Alleviating suffering, the prevailing call-to-action among the G-8, nongovernmental organizations (NGOs), and celebrities, has not compelled adequate action on the part of developed nations. We need reasons that engage a broader political spectrum. Humanitarian, labor, and environmental goals must be joined with economic and geopolitical priorities, each in service to the other.

The boys of the last billion, fodder for African warlords and Saudi-funded extremist madrassahs, are prone to carrying chaos across borders. Post-9/11 terrorpolitik makes ending extreme poverty a security priority. The left responds to the promise of a more compassionate world; the right, to the threat of a more violent one. We must enlist both.

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