This is the eleventh in a series of posts discussing themes from The Aid Trap by Glenn Hubbard and William Duggan. In Chapter 4, the authors make some observations on the scale of world poverty and the cost of their proposals for addressing it. They say that the total amount given in aid each year is something in excess of $100 billion. According to the statistics they have used, there are 1.4 billion people living on less than $1.25 per year. Thus current aid is around 20 cents per day per person living below the World Bank’s poverty line.
Recently there have been calls for doubling of foreign aid. If it was possible to distribute the money to all those people in a cost-free manner, it would increase their daily income by another 20 cents, no doubt a big improvement for many, but still a vast distance from actually eliminating poverty. To get the poorest people to an income of $2000 per year (again assuming an impossibly costless distribution system), it would be necessary to increase aid by 14 times. Even then poverty will not have been eliminated. It is not possible to eliminate poverty by means of charity; poverty can only be eliminated when the poor have sustainable opportunities to improve their own circumstances.
The authors propose funding their new “Marshall Plan” by diverting 11 percent of current aid (i.e. $11 billion per year) over a period of 10 years. One percent would go to an endowment fund which makes grants to cover the costs of business training conferences, and the other ten percent would be loaned to businesses in the recipient countries, with the repaid funds subsequently being spent on commercial infrastructure.