Is Development Aid the New Colonialism?

The big solution to global poverty is smaller than you think, but it requires a new philanthropic strategy to change the way we see ourselves and those we hope to help.

In a forthcoming 2018 annual report from the World Bank, for the first time the relationship between small institutional reforms, like strengthening private property rights, and poverty will be quantified. The findings show that for every five-unit increase in a country’s score on the “Doing Business” report, poverty drops one percentage point. In other words, the easier a government makes it for the poor to exercise their economic rights, the less likely you are to find poverty in that country.

Honest Efforts, Unforeseen Consequences

The implication of this finding is that the poor know better than we do how to lift themselves out of poverty. So why don’t we let them? The answer is because today’s economic development aid juggernaut perpetuates a paternalism that relies too heavily on the technical expertise of outsiders and ignores, at its peril, the tacit knowledge possessed only by local beneficiaries.

Here’s an example: outside experts, representing the Millennium Villages Project, recommended and financially supported new crops and farming methods in a Ugandan village. It worked. Crop yields increased significantly, but the villagers ended up unhappy, even resentful, because there was no market for the crops and they soon rotted. As it turned out, the cost to get trucks to the village to haul the extra load to market exceeded their value. Had the local villagers faced the true cost of this venture and had more control, they likely would have brought their tacit knowledge to bear by further scrutinizing the downstream strategy.

There are countless stories like the Ugandan village venture, despite honest efforts to learn from those mistakes. As a result, the developing world is now littered with the unforeseen consequences of outside experts’ grand plans. What’s perhaps most unsettling is the near unbroken pattern of paternalism that links the knavish colonialism of the past to the seemingly earnest aid industry today.

In 2016, development aid worldwide reached a new peak of $143 billion. This would be encouraging news if development aid helped achieve lasting economic change. It doesn’t. A growing number of high-profile economic development experts, 2015 Nobel Prize winner Angus Deaton among them, now warn that the current aid model for alleviating systemic poverty around the world does more harm than good and must stop.

Of course, turning our backs on the world’s poor feels just as unsettling as realizing that our best philanthropic efforts over the past 60 years may have prevented economic success among those who need it most. We can take some comfort in now recognizing there is a better way.

They Must Lead, We Must Follow

Last year, in India, an independent think tank called Centre for Civil Society pushed for and achieved the elimination of minimum capital requirements for new businesses, a practice that imposes a disproportionate burden on the poor. This change increased India’s score on the World Bank’s “Doing Business” report.

Looking beyond aggregates, this translates to the equivalent of 321,000 people lifting themselves out of poverty. Now, rather than preventing the poor from getting ahead, India has restored an economic right to the people with the necessary knowledge to make lasting progress with the opportunity.

Research shows when poor people relocate to countries with economic rights they thrive. As Harvard development expert Lant Pritchett explains it, “There are no poor people. There are people living in poor places.” This means reforms are needed at home, but not reforms designed by outsiders tied to ai

With its annual budget of roughly $1 million, Center for Civil Society is achieving what billions have not. And there are similar organizations throughout the world doing the same.

For outsiders, private philanthropy in support of those local organizations is the best way to make a big difference as they work to restore economic rights around the world. They must lead. We must follow as we start doing development differently.

Matt Warner is Chief Operating Officer of Atlas Network.

Source: FEE

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The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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