Read: “A revolution in global aid to the poor”
08 Jul 2010
It takes a bold person to title a book “Just Give Money to the Poor.” It sounds like a naff idea. Surely some organization must be needed to help a country develop, so that somehow the money goes toward roads and schools rather than just toward food and clothes—right?
But somehow it’s worked, at least in some cases, the book claims. The Guardian’s review of the book says:
A couple of years ago, Oxfam tried the idea out in a few villages in Vietnam. Charity workers gave the equivalent of three years’ wages in one go to more than 400 families. When they returned they found that poverty had dropped through the floor, with most of the money spent sensibly on food or fertilisers, seeds and cows. But older people had put some cash towards coffins, explaining that funerals were a major expense. And one group had built a communal house, to practise yoga.
Sounds like the benefits of microcredit—but without the credit part.
(Incidentally, I’ve heard that in some places, microcredit is kind of maxxed-out, or grew too fast. So loans were being pushed on people who didn’t know how or weren’t motivated to build businesses that would help them earn more and repay the debt. Or maybe people just got caught up in the idea, and saw their neighbors benefiting from microcredit, and thought they could do it, too. Either way, the default rate has gone up for some microcredit banks—so I’ve heard—meaning microcredit might not be the cure-all that some make it sound like.)
I guess the “just give money away” idea works, at least in the short run, because it has a multiplier effect: People spend money on clothes, say, and then more clothes shops appear to serve that demand, clothes factories get more business, etc. That’s the magic of capitalism that free marketeers are so fond of. Of course there’s an element of truth in this—it does work—but it seems unlikely to change the rampant inequality, corruption, and so on that plagues many poor countries.
How this “give money to the poor” strategy would scale up, though, I’m not sure. From reading Paul Collier’s The Bottom Billion, I know that strange things can happen to a country if it doesn’t properly manage the money crossing its borders—both coming and going. When a country strikes it rich with natural resources, it can suffer from Dutch disease, where as the money comes rolling in for the resources—say, oil—then the local manufacturing sector declines.
If a sizeable chunk of the world’s aid money—about $100 billion a year—went straight into the pockets of the poor, could it cause Dutch disease?
I don’t know, but my guess is no. Aid money is a drop in the barrel compared to the oil revenues that have apparently triggered Dutch disease. The same goes for other resources, like gold or timber. Aid money simply doesn’t amount to much, unless it’s targeted properly. Maybe poor people’s wallets really are a bull’s eye we should aim for.