Public Square

How Effective Is Our Aid?

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Poverty is an extraordinary waste of human potential. The phrases used to describe creation – “let the water teem with living creatures,” “let birds fly above the earth and the expanse of the sky,” “be fruitful and increase in number,” all suggest abundance, profusion, extravagance, even excess.

At the end of every stage of creation, “God saw everything that he had made and it was very good” (Genesis 1:31). In particular, God created human beings in his own image with infinite dignity and incredible potential so that they could steward his creation.

Poverty was not what God intended for the world he created; it came about as a result of human sin described in Genesis 3. It is an affront to the dignity of each person. How can people who struggle to provide basic food, shelter, clothing, and education for themselves find the opportunity to maximize their potential as as the stewards of God’s creation?

As Christians, we are called to fight poverty (Matthew 25: 34-40). But how should we go about it?

How We Use Aid

We believe the evidence suggests that foreign aid as a long-term means of reducing global poverty has failed – though short-term relief is necessary and helpful in the face of emergencies.

In 1990, twelve million children across the globe died before the age of five, most from easily preventable diseases. AIDS killed 2.1 million people every year and was spreading. A quarter of the world did not have access to safe drinking water sources. One billion people were illiterate. About two billion people lived on less than US $1.25 a day.

Today, that number has shrunk to about one and a quarter million people living on $1.25 a day. However, the number of people living on just two dollars a day has yet to diminish, indicating that the development may not be as it seems.

Furthermore, the UN indicates that in terms of the absolute number of people living in slums, the number has grown from 650 in 1990 to an estimate of 863 million currently, though the share of people living in slums has decreased. After more than 50 years of aid racking up a bill of $2.3 trillion, there had until recently been no significant change in Africa’s poverty landscape.

The Limited Role of Aid

Critics of foreign aid ranging from Bauer and Easterly to Jenkins and Moyo have highlighted the failure and unintended consequences of aid. Such critics claim there is no demonstrable relationship between increased foreign aid and poverty reduction. The main reason for this is unforeseen factors that arise from aid.

Bauer and Easterly mention the following as examples of such factors:

  • distortion of markets
  • dependency on donors
  • inflationary effects of huge capital flows
  • misaligned incentives
  • no increase in the tax base
  • undermined accountability between government and its citizens
  • encouragement of the best and brightest in recipient countries to work for the government or NGOs.

These externalities, or unforeseen consequences, can cause serious problems and arise when foreign aid is used to provide long-term development. While aid may, therefore, not be useful in the long-term, there is a role for aid and philanthropy in meeting humanitarian, short term crises.

When events such as tsunamis, earthquakes, floods, droughts, and violent conflicts occur, short-term aid can be extremely useful in helping the country rebuild itself. In these cases, the aid is an answer to a certain obstacle and thus will not have the negative long-term effects listed above.

Small-Medium Enterprises as the Key to Development

So, if foreign aid is not the answer to poverty, what is?

In high-income countries (HICs), the small-medium enterprise (SME) sector contributes more than 51% of the GDP of the country, with 13% coming from the informal sector. The informal sector is the part of the business world that is not subject to government rules, regulations, or taxes. Examples can include everything from babysitting to a owning vegetable stand on the side of the road.

In contrast, for the low-income countries (LICs), the SME sector constitutes only 16% of the GDP while the informal economy is a massive 47%. A corollary to this is that in many LICs, governments do not have a social contract with their citizens. These governments do not depend on the tax revenues from their citizens to run their countries. Instead, they are outward-facing and are more concerned about building relationships with foreign governmental and philanthropic donors than earning the respect and trust of their own citizens.

If we as Christians are truly concerned about helping the poor in low-income countries, it may be most beneficial to focus our efforts on building the small-medium enterprise sector of these countries rather than on long-term aid and handouts. By focusing on enterprise, we are acknowledging each person’s God-given dignity. With the right kind of help, everyone has incredible potential to become financially independent and to become a steward of God’s creation by creating immense value through his or her work.

Leave your comments here.

Editor’s note: This is a continuation our series of excerpts from IFWE’s forthcoming book, For the Least of These: A Biblical Answer to Poverty. This post begins Lord Brian Griffiths’s and Dato Dr. Kim Tan’s chapter entitled “Fighting Poverty through Enterprise,” which examines the effects of aid and various ways of introducing enterprise to the poor as a means of reducing poverty. This post was coauthored by Dato Dr. Kim Tan.

Photo courtesy of the IHH Humanitarian Relief Foundation.

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