How aid can help tackle poverty

A group of leading economists recently criticized aid to the poor for failing to address poverty's root causes. But while we wait for politicians to act – and it could be a long wait – it is important to concentrate our spare resources on effective aid that helps poor people lead the best lives they can.

In an essay published last month in The Guardian, 15 leading economists – including the Nobel laureates Angus Deaton, James Heckman, and Joseph Stiglitz – criticized what they call “the ‘aid effectiveness’ craze” on the grounds that it leads us to ignore the root causes of global poverty.

I advocate assessing the effectiveness of aid and providing resources for interventions shown to be highly cost-effective. To that end, I founded The Life You Can Save, an organization that gathers evidence about which charities give donors the most bang for their buck and encourages people to donate to them. The Life You Can Save recommends proven interventions because we think donors are likely to do more good by helping individuals with unmet needs than by aspiring to eliminate the root causes of poverty without a realistic strategy for achieving that goal.

Deaton, Heckman, Stiglitz, and their colleagues begin by telling us that global poverty “remains intractable.” This statement reflects and reinforces the gloomy view that we are not making any progress in reducing poverty.

But that is not the case. The World Bank classifies people as living in “extreme poverty” if they lack the income needed to provide reliably for sufficient food, shelter, and other basic needs. The Bank’s most recent estimate is that there are 768.5 million people, or 10.7% of the world’s population, living in extreme poverty. In a world that produces more than enough to meet everyone’s basic needs, that figure provides no grounds for complacency. But in 1990, more than 35% of the world’s people were living in extreme poverty, and as recently as 2012, the figure was 12.4%. The long-term trend is clearly positive.

Other indicators of human wellbeing debunk the gloomy view. For example, the rate of child mortality has fallen from 93 per 1,000 births to close to 40 since 1990.

The economists’ essay then tells us that the supposed failure to make progress in reducing global poverty comes despite “hundreds of billions of dollars of aid.” No time period is specified, but many readers will assume that the world gives “hundreds of billions of dollars” of aid each year. In 2017, official development assistance (ODA) from all the world’s advanced economies was $146.6 billion, or less than $1 of every $300 earned in these countries.

If all of this money went to the 768.5 million people living in extreme poverty, it would amount to $191 for each of them. In fact, only 45% of ODA even goes to the least developed countries. Much of it goes to programs for which there is little evidence of effectiveness. No wonder that this very modest amount of often-misdirected assistance has yet to end extreme poverty!

The next target for the 15 economists is the use of randomized controlled trials to test whether interventions are effective. These trials, they point out, are expensive. Perhaps, but they are less expensive than continuing to support projects that do no good. Randomized trials are not always applicable, and are not the only way to demonstrate effectiveness. But when they are available, they provide solid evidence that, for example, distributing bed nets to protect children against malaria-bearing mosquitos does save lives – and at a modest cost.

As noted, however, the economists’ major objection to this kind of evidence is that it leads us to focus on “micro-interventions” that do not tackle the underlying causes of poverty. The power of this objection depends on the availability of better alternatives.

What do they suggest? They say the poor need “access to public education and health care” and that there should be coordinated public policies to prevent climate change. To make real progress in agriculture, we must end the excessive subsidies paid by rich countries.

Other recommendations include stopping tax avoidance by multinational companies, regulating tax havens, and developing labor regulations to stop globalization’s “race to the bottom.” To understand which policies work best, we are told, we should draw on underused data and satellite imagery. The ultimate goal is to change the rules of the international economic system to make it “more ecological and fairer for the world’s majority.”

These are laudable aims. But who are the economists addressing? Individuals who donate to charities? Senior officials in government departments responsible for allocating aid? Governments? Only the last of these have the power to make the recommended changes.

If the arguments are addressed to governments, however, would better data lead to better outcomes? On US agricultural subsidies, for example, anyone who has taken an impartial look knows that they harm the global poor and are a huge waste of public funds. Nevertheless, efforts to eliminate them have failed repeatedly, not because of a lack of policy analysis, but because of the political power of the rural states.

The Life You Can Save, like GiveWell and similar organizations, seeks to influence individual donors, encouraging them to think about where they can direct their donations to do the most good. I hope that they will also be active citizens, urging their government to bring about a fairer and more sustainable world. But while we wait for our politicians to tackle the root causes of global poverty – and it could be a long wait – let’s concentrate our spare resources on effective aid that helps people in extreme poverty lead the best lives they can.