Grading the annual Bill and Melinda Gates letter on poverty and aid predictions

On Friday the Wall Street Journal previewed the key bits of the annual B&MG letter on aid and development. Today the full letter came out. This is fast becoming one of the more important aid statements each year, if only because it’s the only short and readable one. Fortunately it is often smart as well.

The questions they tackle look an awful lot like some of my Columbia SIPA class exam questions. So how would I grade it?

From the WSJ exceprts:

By 2035, there will be almost no poor countries left in the world. Yes, a few unhappy countries will be held back by war, political realities (such as North Korea) or geography (such as landlocked states in central Africa). But every country in South America, Asia and Central America (except perhaps Haiti) and most in coastal Africa will have become middle-income nations. More than 70% of countries will have a higher per-person income than China does today.

B+. I buy the basic spirit that most countries are growing and, barring any unforeseen disasters, the majority will probably chug along. So I can get behind the idea of less doom and gloom.

Even so, while I’m sure you can make the numbers back these claims, it feels like exuberant optimism when simple optimism would do. I’d feel a lot more confident about proclaiming poor nations will be few in 40 rather than 20 years, especially by the China benchmark.

Here is one hasty calculation from me: By one measure, China has a per capita income (adjusting for the prices of goods) of $9k right now. Two of the best growth prospects in Africa, Kenya and Ethiopia, come in at $1.8k and $1.3k. To reach China’s level in 2035, Kenya would have to grow at about 8% per person a year, and Ethiopia at 10%.

Basically, Kenya and Ethiopia have to grow as fast and unfettered as some of the fastest-growing nations in human history. Impossible? No. Likely? Almost certainly not. But at an ambitious 5% income growth per year (per person) they’ll reach China’s level by about 2050, which is still pretty amazing by historical standards.

Two other reasons to temper our exuberance. First, I’m a bit worried that resource (especially oil) wealth will put a lot of countries over the middle income edge, leaving a number of fairly unequal, unstable states.

There’s also an authoritarian tinge to many of the recent success stories (Ethiopia, for instance) and I fear that will get worse before it gets better. African leaders are paying close attention to Chinese political systems of control, not just economic ones. I’m more optimistic about growth in incomes than freedoms in the next three decades. And ultimately that is what matters.

A slightly more measured tone, clearer numbers, and a word about the uncertainties and risks would have sailed this answer into “A” territory.

Onto the next big point:

One common complaint about foreign aid is that some of it gets wasted on corruption—and of course, some of it does. But the horror stories you hear—where aid just helps a dictator build new palaces—mostly come from a time when aid was designed to win allies for the Cold War rather than to improve people’s lives.

The problem today is much smaller. Small-scale corruption, like a government official who puts in for phony travel expenses, is an inefficiency that amounts to a tax on aid. We should try to reduce it, but we can’t eliminate it, any more than we can eliminate waste from every government program—or from every business, for that matter.

A+. Hurray! Finally a public figure with some sense. And a bold statement given that heads of aid agencies love to prioritize corruption. See here and here if you want my take why their claims are well founded.

Unfortunately, next comes this:

Aid also drives improvements in health, agriculture and infrastructure that correlate strongly with long-run growth. A baby born in 1960 had an 18% chance of dying before her fifth birthday. For a child born today, it is less than 5%. In 2035, it will be 1.6%. We can’t think of any other 75-year improvement in human welfare that would even come close. A waste? Hardly.

C-. The basis of the claim is that aid projects work and we know it. I completely agree. Plenty of aid projects have huge impact.

There’s a paradox, though: even though so many projects work, aid in total doesn’t have the association with growth or development we’d expect to see. Some of the finest minds in development (like Angus Deaton) think aid is fundamentally flawed, with good reasons.

The evidence that aid projects are associated with growth is amazingly absent. This is frustrating for those of us (including me) who believe in aid. My guess is that we throw a lot of good money after bad, and most aid is much more wasteful than it needs to be. But I think aid basically works and can do better. See me challenging Deaton’s pessimism here. Bt make no mistake: This is a leap of faith not evidence.

One answer could be that projects work alone, but that the assembly of so many projects (and so many dollars) perverts or undermines stable, good governance. Here is a good summary of the evidence, and it’s not optimistic.

So the basic problems with B&M’s claim: they gloss over the paradox, the potential political problems, and the strongest evidence against their leap of faith. I found the whole section troublingly misleading compared to the rest of the letter.

Saving lives doesn’t lead to overpopulation. Just the opposite. Creating societies where people enjoy basic health, relative prosperity, fundamental equality and access to contraceptives is the only way to a sustainable world.

A-. Here they are fighting the myth that saving lives leads to overpopulation. I didn’t know this was a popular belief. It seems they are banging their heads against blog commenters. I would be more concerned if they heard it again and again from government ministers. But the A- gives them the benefit of the doubt that a wary American public thinks that aid will dangerously overpopulate the world.

My overall assessment: A-

I nudge it above a B+ because (1) this is a public letter not an exam (so I’ll forgive the absence of some nuance), and (2) the unconventional and daring points (by aid world standards) about who will be poor in 25 years and why corruption is important but second order.

Of course, this is a hasty reading and grading. (Yet, truthfully and shamefully, not half so hasty as most of us professors grade their real exams.)

Readers, what do you think about the letter?

16 Responses

  1. Rather than “aid”, it should be “investment” >> in orgs that are designed to make a local profit making & selling local stuff to local customers.
    With the “aid” part being loan/equity plus some training and (on-line? off-site?) coaching / advising of the local owner-managers.

  2. I think the Gates should buy Monsanto and ship it to Africa and run it as a charity.
    According to one.org, aid spent on agriculture is twice as effective in reducing poverty as aid spent on other areas. Yet development aid spend on agriculture has been slashed over recent years.
    http://www.one.org/international/issues/agriculture
    Development has lost focus on where to get more return for your money in reducing poverty: agriculture. It really is such a no-brainer that it shows what is wrong with development.

  3. I disagree with Gates and you regarding corruption being an inefficient tax. It is impossible to measure the impact of bribery and other corruption, but a corrupt official who demands a few dollars to issue a passport, or to issue a building permit to a disabled person who needs a ramp to access their house, is the same person who takes a few hundred dollars to look the other way when criminal gangs are transporting kidnap victims between dark houses, or exporting the drugs that help fund organized crime. Every act of bribery and every theft, no matter what the size, undermines the foundation of fairness and ethics and creates the fear, anger and financial motivation for large scale corruption.

  4. Is that really a claim you want to make? That income only matters insofar as it is a means to increased freedom? Perhaps if we take a broad definition of freedom. But I suspect a decent proportion of people would take a $2,000 per year income and Chinese-style political repression over $500 per year and all the freedom to express themselves they could buy with it.

    I would say they’re both really, fundamentally important and that they don’t necessarily move together, but they often do.

  6. “I’m more optimistic about growth in incomes than freedoms in the next three decades. And ultimately that is what matters.”

    I was overall impressed with your post, but I’m a little curious about that statement. Maybe I’m misunderstanding your point here, but isn’t income is only as useful as what you can do with it? That is to say, what is the point of living in a state (let’s refer back to China, for example) where incomes are rising but self-expression is limited?

    I also think you point to a particularly cogent point with regards to the oncoming economic transition into countries with a growing middle class and more apparent inequalities. I feel that the model of ‘equal” countries as opposed to “non-poor” countries should be the goal of future development funders such as BMGF.

  7. I think both Gates and Blattman are being a bit blithe on the issue of corruption–or at least constraining the issue to an unhelpfully narrow conception of corruption. I agree that the problem of graft or illegally channeling public funds into private bank accounts is a pretty minor problem in the overall scheme of things.

    But if we think of corruption in the broader sense of subverting democracy and making holders of public office accountable to people other than the public they purport to represent, I think that not only is corruption a serious problem, but that aid bears a large part of the blame. If you consider the US congress, for example, few people would hesitate to label as “corrupt” a system whereby lobbyists, special interests, and wealthy individual shower congressmen with cash and other perks in return for their votes on key issues. This system is entirely legal, but obviously corrupt.

    Similarly, political leaders in developing countries have a pretty good sense of what actions will please donors and what actions will piss them off. It’s not necessary that a donor receive a quid pro quo agreement in exchange for aid money. The mere promise (or threat) of all that money automatically makes decisionmakers in recipient countries more attuned to the preferences of donors than to their own citizens.

    Gates wants to downplay the issue of corruption for the same reason Wall Street and the petroleum lobby want to play down the need for campaign finance reform. Cui bono?

  8. I think you are too soft on them regarding their claims about poverty reduction in the next 20 years. In the last 50 years, Kenya has had 8 years of +8% growth, if we are counting somewhat generously. And none in the last 30 years. So why would we imagine that will suddenly change to 20+ years of sustained 8% growth?

    More importantly, a point I emphasize to students is the qualifier “barring any unforeseen disasters.” I imagine that you could have written similar claims about Argentina in the 1920s, Brazil in the 1950s/1960s, etc. etc. You point this out, but I think their failure to acknowledge this is worthy of a lower grade.

  9. Nice refreshing comment. I’d add this to it:
    Myth 1: Segregation and centralization are a common setting in poor countries. So the question of “what’s a poor country” should not only be addresses by generalized GDPs that work for developed countries with more or less equal distribution of public and private assets (I’m not a communist :-), but also look at the distribution among population.
    And, living in Africa now for many years, I might assume a growth in, let’s say, overmotivated religious activities, but I am far from knowing the truth here – yet seems like either a myth or fact that’s worth considering.

  13. Is it fair to say that glossed over the problem of lack of growth correlation from aid, since he states “Critics are right to say there is no definitive proof that aid drives economic growth.”? And then goes on to provide a sensible counter, that there is far more difficulty in establishing the macro-correlations, so the micro-factors are more trustworthy.

  14. Did the pictures strike anybody else as a little strange? Shanghai depicted as this smoggy polluted place in 1978 and today as some bright sunny place. Or the picture of Mexico City. Comparing the Central District today with a neighborhood in 1986 isn’t really a fair comparison. But I guess if they are trying to refute this strawman of overpopulation, showing misleading pictures isn’t such a big deal.