According to a report by the U.N. Food and Agriculture Organization, approximately 842 million people worldwide are malnourished, while the number of chronically hungry people is increasing at a rate of nearly 5 million a year.
Traditional approaches to solving poverty and hunger, including providing financial aid to governments in poor countries, have proven to be remarkably ineffective. Part of the reason why these strategies have failed is because the aid effort has never been adequate and has nearly always come burdened with specific demands for economic ‘reform’. Other reasons include the fact that the aid effort has never been followed closely by reduction in agricultural subsidies to allow for sustainable prices of Africa’s agricultural produce, or that developed countries have never implemented any sort of comprehensive banking reform that will inhibit the growth of the bank accounts of Africa’s corrupt leaders.
Then there is also the simple fact that the task of tackling poverty is enormously challenging given the variety of social, economic, and political problems like corruption, environmental degradation, crippling debt, gender, and racial inequalities etc. that dog poor nations. While all of the above reasons ring true, the larger problem with the aid effort is the fact that it focuses on a “top-down” approach to problem solving, an approach that is not appropriate for corrupt governments or countries with high levels of violence or significant political cleavages.
Corruption and other inefficiencies in aid distribution have gotten a lot of attention recently from policy wonks. The Bush administration came up with the idea of a ‘Millenium Challenge Account’ that would dole out money based on how a poor country performed on a variety of indicators like corruption etc. The idea indeed was wonderful. The magic bullet was supposed to give countries an incentive to reform so as to become eligible for money.
Except the plan didn’t work. Most of the money remains unspent tucked in some bank account. Some would argue that that’s a wonderful result – at least the U.S. saved some money, and the money didn’t end up enriching the Robert Mugabe enterprise or similar morons. The plan failed because it was based on the delusional policy that gave incentive to governments that were the most corrupt and otherwise the least likely to reform. Even aside from that, the fact remains that corruption is strongly correlated to poverty. So to solve one – poverty – by basing aid on corruption levels is a failed enterprise for nearly all poor countries have catastrophic levels of corruption.
The reason why the Millennium Challenge Account failed is indicative of the wider malaise afflicting top-down approaches. We need to radically rethink how to “do aid”. If success of micro-credit arm of Bangladeshi firm Grameen is anything to go by, the answer is in ramping up money available for micro-credit schemes.
Lack of access to low interest credit is stifling growth rates in many villages and keeping rural populations under high debt burden and often contributing to ‘famines’. (Generally markets are full but people are unable to afford the food.) Often times there are no banks in rural areas, and their job is done by moneylenders who often charge exorbitant interest rates on egregiously limiting terms from the largely illiterate population. More money should be earmarked for micro-credit so that people can start a business or pay off their debt without having to pay back a principal balance with a high interest rate attached to it. More international aid should be allocated to accommodate people who need small loans at low interest rates.
Another similar micro-credit strategy includes providing farmers with farm animals or seeds at a nominal interest rate. This approach currently led by Heifer has been fairly successful.
While problems with infrastructure will create bottlenecks as economies start to grow, the approach defined above is a great medium-term strategy to alleviate poverty.