Aid: Is it the answer to Poverty Alleviation?

from The Global Politician

Bhuwan Thapaliya

In the 1950s and 60s, economists argued that rapid economic growth was the key to escape from underdevelopment, because growth advanced the critical social indicators: income, employment, education, health, as well as political and economic modernization. However, beginning in the 1970s, policy makers put the brakes on funding for growth, while in the work of a new school of development economists, growth strategies fell completely out of favor [1]

Meanwhile, The World Bank now suggests that early development economists had it right by putting first priority on economic growth. The key ingredient in underdevelopment is poverty. Growth in income and the alleviation of scarcity produce improvements in the quality of life across a broad set of indicators. We may have wasted several decades by placing growth at the bottom of our priorities. [2]

According to the UN report, there are over 1.2 billion people worldwide who live on less than one dollar a day. The UN goal to reduce world poverty by 50 percent by 2015 does not appear to be achievable. Poverty is likely to grow at frightening speed, because most of the 2 billion people to be born between now and 2025 will be born in the poorer countries.

And analyst says if advanced countries do nothing to reduce the economic and social distances between countries, poverty will blossom. According to them, the wealthy nations must put in the resources needed to do serious developmental work, and they must keep working the problem until the results are assured. They must lift the bottom of the human condition to improve the quality of life for everybody. If they make an honest effort to help the poor their effort won’t be wasted for sure.

West’s unsuccessful aid effort.

But research shows that The West’s efforts to aid the rest have been even less successful. The evidence is severe: $568 billion spent on aid to Africa , and yet the typical African country no richer today than 40 years ago. Isn’t this a parody?

West is helping the poor nations but these poor nation’s are hit by the worst tragedy because the West already spent $2.3 trillion on foreign aid over the last 5 decades and still had not managed to get 12-cent medicines to children to prevent half of all malaria deaths. [3]

The West spent $2.3 trillion and still had not managed to get $4 bed nets to poor families. The West spent $2.3 trillion and still had not managed to get $3 to each new mother to prevent 5 million child deaths. The West spent $2.3 trillion and poor children’s are still suffering. It’s a tragedy that so much well-meaning compassion did not bring these results for needy people, as per the development reports as compiled by the media. [4]

Poverty: The menace.

So considering this fact, it is not often wise to blame the outside world alone. It is essential that the economical and socio-cultural structure of the society should also be taken into consideration while the reasons of poverty are explained. There is no second argument. They should help the poor. But they should try to solve the problem of poverty by not only giving charity to the poor. This will not help them in the long run. The proper aim should be to try and reconstruct society on such a basis that poverty will be impossible.

Furthermore, over the years, social scientists have identified a wide range of factors which help determine the causes of poverty. Corruption causes poverty, by draining scarce funds away from those most in need. Internal conflicts disrupt economic growth and moreover increased global military spending diverts spending from social and economic development. And the unbalanced sharing of income in the society is one of the most important factors of poverty. The worst element is that the psychological impact of the poverty will be felt for more than a generation. Aid donors must consider these grave realities before flooring billions of dollars worth of aid in the poverty ridden nations.

It is ironic, given that one of the leading causes of poverty is internal violence and the acts of domestic terrorism are making the world’s poorest nations poorer. The effects of violence on a poverty ridden country such as Nepal and Somalia are simply devastating, and no amount of free trade agreements alone can begin to offset this problem. Never has it been more important for the humanity together to agree how we can build a better kind of world sans abysmal poverty. The new world order will have to address these fundamental global challenges.

Poor nations should act.

But let us be realistic. World can do nothing if the poor nations, themselves do not work towards growth and depend on aid evermore. I agree, being poor nation, with capital deficiency, they don’t have capital to save and then ultimately invest, and without investment there won’t be growth of whatsoever but at least they must realize that they cannot be beggars forever.

They must have a positive mind set and start thinking that the lasting economic development can be achieved through growth and growth only. Aid is no doubt important for a poor nation but they must use it as an impetus for future growth. With growing independence of many developing countries and with the workout of the Marshall Plan, the scope of foreign aid has become more significant but on the other hand, it has made the poor world more dependent toward the West.

Growth via Home Grown Efforts.

And moreover, the poor nations should remember that economic development happens, not through aid, but through the homegrown efforts of entrepreneurs and social and political reformers. For instance ponder over the development of India and China . While the West was agonizing over a few tens of billion dollars in aid, the citizens of India and China raised their own incomes by $715 billion by their own efforts in free markets.

Ok. For a moment, let’s forget the vast economic achievements of China and India and let us go back to the year 1997 and focus more on what Mexico achieved.

In 1997, the Mexican Deputy Minister of Finance, a well-known economist named Santiago Levy, came up with an innovative program to help poor people help themselves. Called PROGRESA (Programa Nacional de Educación, Salud y Alimentación).

The program provides cash grants to mothers if they keep their children in school, participate in health education programs, and bring the kids to health clinics for nutrition supplements and regular checkups.

Since the Mexican federal budget didn’t have enough money to reach everyone, Levy doled out the scarce funds in a way that the program could be scientifically evaluated. The program randomly selected two hundred and fifty-three villages to get the benefits, with another two hundred and fifty-three villages (not yet getting benefits) chosen as comparators.

Data was collected on all 506 villages before and after the beginning of the program. The Mexican government gave the task of evaluating the program to the International Food Policy Research Institute (IFPRI), who commissioned academic studies of the program’s effects.

The academic findings confirmed that the program worked. Children receiving PROGRESA benefits had a 23 percent reduction in the incidence of illness, a 1-4 percent increase in height, and an 18 percent reduction in anemia. Adults had 19 percent fewer days lost to illness. There was a 3.4 percent increase in enrollment for all students in grades 1 through 8; the increase was largest among girls who had completed grade 6, at 14.8 percent. [5]

Lesson for the poor nations.

The program was such a clearly documented success; and by 2000 PROGRESA was reaching 10 percent of the families in Mexico and had a budget of $800 million. The Mexican government expanded it to cover the urban poor and most importantly similar programs began in neighboring countries with support from the World Bank. [6]

Now, if Mexico can reap fruit from PROGRESA then why cannot Sub Sahara Africa and South Asia from similar other programs? The truth is, they can. But for that to happen, the government of these nations along with the aid agencies should realize that aid alone cannot achieve economic growth and stable development.
Hence, they must start concentrating on building the socio-political system to achieve rational economic growth because in these poor nations economic growth benefits only a small portion of the population ,sometimes making the poor even poorer. Yet, from a statistical standpoint, this is recorded as economic progress. So rational growth is the cry of this hour, and not just growth. Poor nations of this world must make rational growth their main mantra, if they are to alleviate their poverty and break the vicious circle of underdevelopment syndrome.

Notes

[1]. [2] Terrell E. Arnold, “Fighting The Real War on Terrorism, Rense.com, Feb 2, 2002.
[3] [4]William Easterly , Why Doesn’t Aid Work?, Cato Unbound, April 3, 2006
[5]Jon Egan, "Mexico's Welfare Revolution," BBC News online, Friday, October 15, 1999.
[6] Duflo and Kremer 2004.