The elimination of poverty

By Martin Wolf

Financial Times

Published: February 16 2005

Here are two propositions: first, the elimination of destitution, disease and deprivation is taking too long; second, additional assistance to the world's poorest countries is easily affordable. The important question is whether that aid can be well used.

Some argue that aid merely allows bad governments to ignore the wishes of their populations and avoid necessary reforms. Others seem to believe that extra aid is sure to deliver improvements in desired outcomes. Neither of these extremes is right. Even in Africa much aid has delivered high rates of return, once one allows for adverse external shocks, conflict, the burden of disease and poor agro-climatic conditions.* But there are also many examples of great waste: Tanzania's socialist experiment of the 1970s comes to mind. Mobutu Sese Seko's Zaire is a far worse case.

Many of the world's poorest countries offer extremely difficult environments for development. What are today called (somewhat euphemistically) "fragile states" are home to about 15 per cent of the world's population and contain one-third of those living in extreme poverty. Prominent on any list of such states are Afghanistan, Angola, the Democratic Republic of Congo, Myanmar, Niger, Nigeria, Somalia and Sudan. Six of them are in sub-Saharan Africa.

Sub-Saharan Africa is also, not coincidentally, the region whose ability to achieve the Millennium Development Goals is most in doubt (see charts). On current trends, east Asia and Pacific will eliminate extreme poverty by 2015 and hit most other targets. But in sub-Saharan Africa as a whole conditions are getting worse, or at best barely improving, in almost every salient area.

Fortunately, there are success stories in sub-Saharan Africa. The World Bank lists Benin, Burkina Faso, Ethiopia, Madagascar, Mali, Mauritania, Mozambique, Tanzania and Uganda (with combined populations of 200m) as countries with relatively good policies that are capable of absorbing substantially more aid.** Mozambique has been receiving about one-quarter of gross domestic product in aid. Its real income per head also rose 4.3 per cent a year between 1990 and 2001. Uganda, another heavily aided country, achieved growth of income per head of 3.6 per cent over the same period.

So how, then, are we to ensure that increases in aid are to be reasonably well used to achieve the improvements in human well-being that we seek? I offer five rules and two dilemmas.

Rule one: give tolerably governed countries the aid needed to achieve the internationally agreed goals. Anything short of that is hypocrisy. If a desperately poor country has a reasonable government and tolerable policies, it should receive the assistance it needs to implement agreed investments and programmes.

Rule two: make open agreements that can be monitored. Detailed conditionality rarely works. That is today's consensus. Although too stark, it has a great deal of truth. Governments cannot be forced to do what they do not wish to do. They will cheat. But they should do what they promise. So let them put down their promises in detail and then monitor them.

Rule three: use markets. One of the most innovative and effective approaches to delivery is "social marketing" - the use of market mechanisms to deliver subsidised goods, such as condoms, water treatment systems, anti-malaria bed nets. Population Services International, the leading organisation in this field, has had remarkable successes. In Malawi, for example, the proportion of children under five covered by nets jumped from 8 per cent in 2000 to 55 per cent in 2004. In Tanzania, nets have been sold, with similar success, through subsidised commercial channels.***

Rule four: make aid predictable, untied and, provided the recipient's commitments are met, sustained. If countries are to engage in long-term spending, they need to know the aid will be there. The only qualification is the need to provide cushions against short-term economic instability, particularly shocks to the terms of trade.

Rule five: remember policy. Many campaigners view trade liberalisation, privatisation and budgetary discipline as anathema. They are wrong. It is more important, not less important, for the poorest countries to avoid the waste inherent in high and variable protection against imports, inefficient state monopolies and macroeconomic instability. It is particularly silly to combine greatly increased aid with higher protection against imports, since additional aid must mean a bigger trade deficit.

This, then, is the approach to be taken with reasonably well-governed countries that can absorb more aid. This leaves two dilemmas. One is that the quickest way to reduce poverty is to shift aid towards India and Bangladesh from other low-income countries. These countries receive low levels of aid per head, but have enormous numbers of people in poverty and reasonable administrative capacity. A better solution is to transfer aid from over-aided middle-income countries that need it far less.

The bigger dilemma is what to do about fragile or failing states. These are, by definition, the places where money is most likely to be ill-used. They are also, by definition, the places where the concentration of desperately poor people is set to rise over time. This is a huge challenge, to which we have few good answers, but it must not divert attention from what we can do: help those already prepared to help themselves. With luck, examples of success will themselves turn at least some of the failing states around.

What we must do is our best. We can not justify doing less. The aim is to eliminate the extremes of poverty and despair that continue to disfigure our world. Additional aid is certainly not the answer on its own. But it has to be part of the answer. Let us resolve to give aid, properly directed and monitored, a chance. Few can question the ends. We must will the means.

*Mick Foster, The Case for Increased Aid, December 2003, www.odi.org.uk;
**Supporting Sound Policies with Adequate and Appropriate Financing, September 12 2003;
***Rose Nathan et al, Mosquito Nets and the Poor: Can Social Marketing Redress Inequities in Access?, Tropical Medicine and International Health, October 2004.

Sources for charts: UN (Investing in Development, 2005)