Owen Barder has a great post today on what we know about the effectiveness of foreign aid. Broadly, the answer is that we don’t know much, but that what we do doesn’t support the strong claim that aid lifts people out of poverty.
But the really right answer, to steal a turn of phrase from Colin Powell, is that we shouldn’t really care about that strong claim. The most salient fact about the poor is, by definition, that they are poor – their incomes, and therefore their consumption of crucial goods like nutrition and education, are low right now. Improved hope for the future is a great thing, but we shouldn’t feel bad about “merely” helping people enhance their current consumption.
The example of microcredit is a good one. Microlenders have been more active than most aid organizations in subjecting their practices to rigorous evaluation. The jury is still out, but so far we can at least say that the impact of microcredit on business development and poverty has been slower and more muted than we had hoped. However, because microloans reduce the cost of credit for borrowers, they amount to a subsidy for current consumption – and because that subsidy is still priced, it’s a pretty well-targeted one.
According to Barder, people are pretty happy supporting aid to help the less fortunate get by right now. Maybe we should shift the microcredit narrative from “develops businesses to lift people out of poverty” to the more accurate, and still appealing, “helps folks cover emergency expenses like medical costs, so they can keep going to work and avoid falling into destitution.”