Why Is Global Poverty Still So Widespread?

As the most recent figures show that foundation giving to international causes has been booming, the hundreds of donors and other nonprofit leaders gathering in Washington this week for the Eighth Annual Global Philanthropy Forum Conference might have reason to be pleased. But they will probably also have on their minds a recent spate of books, including several by veterans of international aid organizations, that cast doubt on the effectiveness of their efforts, especially in Africa.

Despite their sometimes harsh tone and overly broad conclusions, the criticism in those books deserves to be taken seriously. For all the assistance — from philanthropy as well as from governments — that has been given to help the world’s poorest countries, progress will continue to be fleeting unless some radical rethinking of government and private programs occurs.

The most recent, and most uncompromising, criticism comes from Dambisa Moyo, a Zambian-born and Oxford-trained economist, who has worked at the World Bank and in Goldman Sachs’s London office on African issues. In Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, she argues that foreign assistance “is no longer part of the problem — in fact, aid is the problem.” African countries would be much better off if such help were sharply reduced, she says.

The reason, she argues, is that foreign assistance encourages dependency in the countries that receive it. When it is not simply stolen outright and stashed in foreign banks by corrupt leaders, aid serves as a readily available source of revenue for all sorts of government projects, some perhaps worthwhile, but most a waste of money, if they are completed at all.

Moreover, just as diamond mines, oil fields, and other natural resources do, sizable sums of money coming from abroad can lead to fights over control, perhaps even civil wars, which have been particularly prevalent in Africa. Such support can also weaken local currencies, spurring inflation and undercutting international trade.

Despite increased emphasis lately on attaching conditions (such as better financial reporting) to grants and loans, donors rarely hold recipients accountable. To the contrary, countries that remain impoverished after receiving large amounts of help are often prime candidates for more assistance. Indeed, charges Ms. Moyo, since it gives donors an excuse for doing more work, they themselves have an interest in perpetuating this cycle of “aid dependency.”

Although most of her analysis deals with programs run by countries and intergovernmental groups (such as the World Bank), Ms. Moyo includes the legions of people who work for nonprofit aid groups in her indictment.

Celebrities, such as Bono and Bob Geldof, are treated with particular scorn on the grounds that they consider providing more help to Africa to be a moral imperative. To Ms. Moyo, both government and private donors ought to be more concerned about supporting what is likely to work, and that does not, in her view, include adding substantially to the trillion dollars she estimates Africa has received in grants and loans since the 1950s, with little to show for it.

This is a common theme in all the recent appraisals of international assistance. Although other writers, such as Paul Collier and William Easterly (both World Bank alumni, too), may not be as ill-disposed toward foreign aid as Ms. Moyo is, none see much value in it, except perhaps in particular situations, such as the aftermath of a civil war. They agree that Western donors need to change what they have been doing if Africa’s dismal economic and social problems are to be solved.

Not surprisingly, international grant makers have reacted defensively to many of these charges. Ms. Moyo, for example, has been accused of overlooking key accomplishments (such as improved treatment for AIDS and malaria victims), exaggerating well-known problems (such as the contribution of foreign assistance to political corruption), and failing to recognize that today’s donors have learned — and are trying to apply — the lessons of the past to make their efforts more effective. Especially at a time when private bond markets and foreign corporate investment (which Ms. Moyo extols as desirable sources of finance) are more restricted, a substantial reduction in grants and loans, most donors would predict, is likely to worsen conditions in the impoverished countries of Africa and elsewhere.

Still, the economy is not apt to remain in the doldrums forever. Ms. Moyo and others are undoubtedly right in emphasizing that Africa’s future will have a lot more to do with its attractiveness to global capitalism than to global philanthropy. Both government and private donors need to examine their grant and loan programs closely to ensure that they are fostering healthy climates for business, including by encouraging free trade (especially in agricultural and manufactured products) and discouraging excessive regulation (especially the kinds of environmental and labor standards that wealthier countries can afford). Donors might even look for ways to develop the kinds of strategic partnerships with corporations that Bill Gates has termed “creative capitalism.”

Philanthropists could also invest their money in efforts to help Africa and countries in other regions increase their middle classes.

Although some might disagree, Ms. Moyo touts microfinance organizations, such as the Grameen Bank, as useful ways to foster small and medium-size businesses. Foundations and other donors have already been contributing to their growth and could do more.

Far less common have been efforts to enhance the flow of remittances, money paid by emigrants to relatives or organizations in their home countries, which could be used not only for consumption but also for starting or expanding businesses, or obtaining an education.

In 2006, according to the Hudson Institute’s Index of Global Philanthropy, these kinds of contributions exceeded government aid and international grant making combined in the United States. Yet philanthropists have paid relatively little attention to them, and a variety of legal and financial obstacles have made transferring money more difficult, especially in Africa, which receives far less in remittances than Asia or Latin America.

Discussing how to change that would be a worthy topic at this month’s conference. But following more accustomed paths, even if they are dressed up as “social investment” rather than foreign aid, only increases the risk that the greater philanthropic funds now available for international development will be as unproductive as those already spent.

Leslie Lenkowsky is professor of public affairs and philanthropic studies at the Center on Philanthropy at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.