Helping the Poor Around the World

by Russ Roberts on January 6, 2005

in Charity, Trade

The tsunami tragedy has people talking about whether the rich countries of the world will now finally do something about helping the poor countries.  The idea is that we’ll be shocked out of our lethargy and finally do something.  This argument assumes no one trying now.  But unfortunately, we have been trying for a long time with very little success.  William Easterly sums it up nicely in a depressing but accurate essay in Foreign Policy:

While aid advocates have been effective in increasing aid flows (if all foreign aid given since 1950 had been invested in US Treasury Bills, the cumulative assets of poor countries by 2001 would have amounted to $2.3 trillion), the goal of increased living standards and reduced poverty in the typical poor country has not been attained. In response (and fitting in with the campaign to estimate aid requirements of achieving certain goals) aid agencies have tended to redefine their mission as being more one of disbursing money than achieving economic development. Thus, such aid agencies have established a tradition of focusing on the volume rather than the effectiveness of aid.

The problem isn’t lack of effort, it’s lack of results.  And the reason for that unfortunately, is that most poor countries are not really poor, as I heard Arye Hillman explain it.  His point is that the richest people in the poorest countries live as well as the richest people in the richest countries.  The real problem is that in most so-called poor countries, the powerful people, the government and their friends, live at the expense of the rest of society.  Some people actually claim this is the way the US works.  These glass-is-always-almost-totally empty types have never been to Iraq in the old days or Zimbabwe under Mugabe or Cuba under Castro or any other place where a true thugocracy is in place.  In such places, sending money, unfortunately, rarely helps the poor.  It gets diverted in creative ways to those in power.

The best way to help those countries is to encourage reforms that disperse power either through political change or economic change.  A good place is to start is to lower trade barriers as today’s Wall Street Journal (sr) suggests.

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