This is the first in a series of posts discussing themes from The Aid Trap by Glenn Hubbard and William Duggan. In chapter 1, the authors say that since the 1960s trillions of dollars in charity aid have failed to make a dent in poverty. They say that the projects run by government agencies and NGOs, funded by charity, have never lifted people out of poverty; it is business that creates the jobs that lift people out of poverty.
The World Bank provides an annual ranking of how easy it is for a local citizen to start and run a business. In the ranking for 2008, the three countries which receive the most aid per local dollar (Sao Tome, Guinea-Bissau and Malawi) were ranked at 163rd, 176th and 127th, respectively, out of 178 countries. There is a strong correlation between how hard it is to run a business and how poor a country is.
The authors say that charity for the purposes of giving people the basic food, clothing, shelter and medicine they need to survive is a good thing, and something that should continue. But aid for economic development needs to be redeployed from its current ineffective and counter-productive uses into support for the business sector. This is an interesting argument, and I will examine it in future posts.