Re: Poverty reduction depends on entrepreneurs, not aid

In the final part of the Globe and Mail's four-part series on "The New Humanitarians", Scott Gilmore of the Peace Dividend Trust makes the case for job growth and entrepreneurship. It is an issue that, he rightly acknowledges, the development industry has too often viewed with undeserved apprehension. But, in making his argument, he casually brushes aside every other sector of aid work and states with confidence that it has had "little direct impact."

First, let's tease out his definition of aid success. He writes that "the stories of failure are illustrated with hydro dams that never worked, crops that never grew and roads that went nowhere". We can dismiss this as simple rhetoric; though I'm sure he could provide countless examples of the failure he describes, one could easily bring up examples that have worked quite well. In the rest of the article, though, one can find his implicit definition of aid efficacy: job growth, GDP growth, and household income. He writes that, gauging by these indicators, "an estimated half-billion or more" have been raised out of poverty. He is correct in saying so, and these successes are to be applauded.

But are these indicators the only yardsticks by which one should measure aid success? I would argue not. There is incredible work being done in the education, health, and environment sectors, to name but a few. My current work is in the health sector in Tanzania. In the last 6 years, the national maternal mortality ratio has dropped from 578 to 454 (per 100,000 births), a 21% reduction; the infant mortality ratio for Southern Zone has dropped significantly from 121 to 68, a 43% reduction.

Are these successes irrelevant? Does a healthy, well educated young adult not count as a "direct impact" of foreign aid spending? I believe that such an outcome is a notable goal in itself and one worth pursuing.

Moreover, I believe that foreign aid investments in such sectors is a necessary pre-condition for the type of economic growth that Gilmore describes. His sole attribution of the GDP, jobs, and household income growth to "entrepreneurs, not aid spending" is post hoc ergo propter hoc fallacious reasoning. Yes, many of the jobs were created by small businesses, and yes, that helped drive the GDP and household income growth. But would such entrepreneurial activity have been possible with an uneducated, moribund workforce? No.

Show me an economy that is thriving, and I'll show you successful previous investments in health care and education.

Incentive to do what?

In a Globe and Mail comment piece, Engineers Without Borders's George Roter argues that a new paradigm for foreign aid is needed (yawn). He calls his proposal "Cash on Delivery": to transfer funds to poor countries only once explicit performance objectives have been met. He writes: "This puts responsibility for achieving results firmly in the hands of recipient countries, providing the flexibility and incentives needed to achieve a goal in the way that makes the most sense."

I don't have time this morning to visit his organisation's website to see if he clarifies his point with a greater word-count. I will just comment on the logical error in his proposal. Foreign aid implies there is an absence of capability to accomplish some objective: not enough doctors, poorly trained teachers, inadequate crop yields, etc. It implies that, through foreign assistance (often money), these objectives can be met and 'development' can occur. If the recipient country already possessed the means to meet said objective, foreign assistance would not be required. Thus, however the donor-recipient-complex conceives of what activities need to be funded (and this is of course highly political), the relationship to accomplish the desired objectives is necessarily aid -> activity -> result.

Roter states that it would be better for the aid industry to sit and watch, and provide money only when the results are met. He thinks this sort of incentive is likely to encourage greater performance. But what is the incentive? If the results are achieved, they were done so without any foreign assistance, since it was withheld until the results had been shown. So is it just a cash transfer for a job well done, a performance bonus like our friends on Wall St.? Such a proposal will not address any of the systemic problems in poor countries.

Roter's piece is short on ideas, but high on rhetoric; I hope I have not made a straw man of his argument.