All Wrong on Poverty and Aid

By Anjum Altaf and Samia Altaf

It is our claim that the debates on poverty and aid have gone off the rails. On poverty, it is too narrow, quibbling about a few percentage points above or below some historical number. On aid, it is too broad, arguing whether it is helpful or harmful in its totality. These are important issues and we need to get the big picture right if the public discourse is to make any sense.

Let us start with poverty. We are hobbled by the fact that our understanding of poverty alleviation is borrowed from elsewhere without much adaptation to our context. This has led us down unrewarding paths much like prescriptions based on flawed diagnoses. An example should make this clear. Imagine a community of 100 people in which 10 are homeless. Many ways can be found to house the homeless in such a situation.These can include borrowing by the state, progressive taxation of the better off, charitable social action by the affluent, or assistance by an external donor. Now imagine another community of 100 in which 90 are homeless. None of the above mechanisms are likely to work. Some other recourse would need to be found that would focus on generating the wealth to be allocated to housing the homeless.

On poverty, our models are derived from societies where only small minorities are deemed poor in an absolute sense. We are copying solutions that work in such societies and applying them to situations where the majority is blighted with absolute poverty. No amount of alleviation funds or income support programs can cope with situations in which the majority is poor no matter how well off the non-poor may be. Simple arithmetic can reveal how financially absurd such approaches are.

The only solution in such situations is to generate wealth to raise the living standards of the economically marginalized. An essential aspect of this is employment creation that yields higher incomes for marginalized families. Not any form of employment would yield the desired results in our context. We can see in India that even extended periods of wealth generation concentrated in high-tech services yield very slow gains in poverty alleviation. In contrast, the town and village enterprises favored by China in the 1980s were much more effective in reducing poverty.

This brings us to aid. We know from East Asia that aid has been an effective ingredient in recipes yielding rapid growth. In contrast, it has been much less effective in South Asia. Why doesn’t aid work here? First, as mentioned above, the use of aid for direct poverty alleviation and income support is a fool’s errand. Its persistence is a comment on the intellectual bankruptcy of our intelligentsia. Second, the use of aid for service delivery is equally misguided. Any aid that has to be siphoned through long bureaucratic chains would leak away without robust mechanisms of accountability. The continued deterioration of our public education and health systems, the recipients of huge amounts of aid, should have told us that long ago. Third, the use of aid for improving governance and capacity building in institutions where incentives are hopelessly skewed is like praying for rain.

The persistence of these misallocations points to the strong incentives for arrangements that yield windfall gains to many of the non-poor in the name of the poor. Grants and concessional loans can benefit Pakistan provided they are directed to wealth generation and employment creation for the poor. In terms of design, in a system riddled with corruption and lack of accountability, aid has to avoid programs and projects dependent on long and diffused bureaucratic chains. It has to be focused on discrete, perhaps turn-key, investments critical to spurring the wealth generation dynamic. These could include dams, power generation plants, irrigation channels, farm-to-market roads, and the like.

Some mention of the kind of wealth generation appropriate for Pakistan at present can be initiated here although it needs a fuller discussion. Given that half its labor force is still in agriculture which has been a major source of resilience in difficult economic conditions, the sector should be the obvious focus of attention. Even otherwise, there is little chance that Pakistani manufacturing can become internationally competitive quickly in the prevailing global and domestic environment. And with half the population functionally illiterate, there is little that growth in high-end services, useful as it is in its own right, can do to yield a significant contribution to employment generation. Trickle-down, if it ever happens, would take too long; the more likely outcome is what Arundhati Roy has famously termed “gush-up.”

An analysis and adaptation of the early Chinese experience is warranted. It was focused squarely on rural growth, the reform of incentives to farmers, modernization of agriculture, and facilitation of town and village enterprises servicing agriculture and manufacturing goods for the poor with rising incomes. This triggered the upward spiral that strengthened demand for investments in human and physical capital providing the foundation for subsequent urban industrial development.

Given that a huge pool of capital seeking productive investments exists in our immediate neighborhood in the food-deficit Gulf states, the conditions are ripe for a win-win partnership that could modernize Pakistani agriculture, use aid effectively, and help the country grow its way out of poverty. If we get this big picture right, subject it to critical analysis, and rally public support round its implications, we can break the logjam of the present and launch the dynamic that could carry us to a more prosperous future.

Anjum Altaf is Dean of the School of Humanities, Social Sciences and Law at the Lahore University of Management Sciences. Samia Altaf is the author of So Much Aid, So Little Development: Stories from Pakistan, Johns Hopkins University Press, 2011. This op-ed appeared in Dawn on March 29, 2012 and is reproduced here with permission of the authors.  

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23 Responses to “All Wrong on Poverty and Aid”

  1. Sakuntala Narasimhan Says:

    Excellent writing and analysis. There has been a lot of ‘hulla’ in India, over the planning commission’s claim last month, that poverty had been ‘reduced” by so many percentage points — an exercise that involved lowering the ‘poverty line” to Rs 26, and declaring that so many families had risen over this line (Rs 26 cannot even buy one meal, at current prices, and activists and academics have been rightly indignant about this tactic of “measurement”. The Planning Commission;’s Montek Singh Ahluwalia has had to backtrack, and try to justify the ‘poverty line’ manouvres… It is time we generated a groundswell of academic-activism oriented move to oppose developmental ‘models’ that are clearly inappropriate for Asia.

    • Anil Kala Says:

      I don’t think Rs 26 is a bad number. Of course it cannot buy a decent meal but one can certainly cook a meal. Think of it this way, a collection of five individuals at Rs 130 a day can not only survive but also provide free education their to children. It translates to Rs 3900/- per month. The security guard in my society gets this amount (4000), he sends back Rs 3000/- back home in UP survives on Rs 1000/- which even covers his daily dose of tobacco.

      I don’t think modernization of agriculture is right thing to generate employment. The moment you modernize agriculture it will stop generating employment.

      • Anjum Altaf Says:

        Anil: The lack of a decent meal, repeated over time, would have negative consequences, wouldn’t it? Is it a coincidence that half of Indian children are malnutritioned?

        Two Indians tested the poverty lines and their experience is recorded here: http://india.blogs.nytimes.com/2011/10/20/living-like-the-other-half/

        On agriculture, what is the flip side of the argument? If it is made more backward would that solve the employment problem? In my view, a modernized agriculture might employ less people per hectare in farming itself but that loss would be more than compensated by the growth of jobs in agriculture related services.

  2. Naseer Ahmad Says:

    Excellent piece of writing, lucid, well grounded in reality and very relevant to south asia. I agree with Sakuntala about the tweaking of numbers by the Planning Commision of India – those were my thoughts also, as I listened to the defense of this change in the poverty line.

  3. Mansoor Toor Says:

    Excellent analysis and opinion.

    Would any one get the message in Pakistan?

    We have so many people with great ideas.The challenge is to get these ideas implemented by influencing the “Power fulls” who have vested interests. The people of Pakistan are powerless and that is the tragedy. It may sound pessimistic but it is a reality !

  4. Zach Warren Says:

    Well said. I hope a critical mass of minds and leaders work together to break that logjam. That movement from dependence to independence hasn’t been helped by aid dollars in Afghanistan…

    Are there efforts to increase trade between Pakistan and the Gulf? That region is indeed a food desert. When I worked in Qatar I was always surprised not to see more products from Pakistan, though I didn’t have any numbers on it. What I do know is that Afghanistan continues to be dependent on Pakistan’s wheat production, even after the aftermath of the floods, and on basic goods like eggs (which, as an aside, rather miraculously make it across bumpy roads uncracked — clearly, there are many willing to take on risks for export). I saw several attempts to increase the number of chicken farms in Afghanistan by aid dollars – none were expedient, riddled with hurdles as you describe.

  5. راہنورد شوق Says:

    It is high time to call a spade a spade. The investment in the two main areas pointed out in the article -agriculture and small enterprise- is not available except through the usual unwieldy aid bureaucracy. One might as well start talking about the non-kosher topic of diverting some of the resources stuck up in the defence sectors towards development.

    • Anjum Altaf Says:

      Rahnavard: First, The article made clear in its opening sentence that it was about aid and poverty. The issue of reallocating allocations for defence to development is a separate one and deserves its own analysis. Second, if the two investments mentioned in the article are not possible without recourse to unwieldy bureaucracy, it is not clear what is to be gained by reallocating defence money to them. Third, it is not clear why the investments are not possible without recourse to unwieldy aid bureaucracy. As an extreme approach eliminating most bureaucracy, the article had suggested turnkey investments.

  6. skynut Says:

    A very ‘sensible approach’ indeed, however, little chance of any strategy, no matter how good it looks logically on paper, to be implemented as part of a Development Programme for Pakistan.

    Do check the following by Joseph Stiglitz. aritlcle in the Vanity Fair. ‘Of the 1% by the 1%, for the 1 %.’

    http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

    Although the context is USA, but the concept is capitalism.

    Poverty Alleviation, for what ? To ensure a healthy and more efficient stock to serve the Powerful?

    We the elite, in Pakistan are at present too crude, too primitive to realize this.

    Aid from abroad does attempt to facilitate …but enough has been written to help understand why it fails ?

    If this is what we want, I agree with Mansoor Toor, what is important is to educate and enlighten our elite, on the ‘utility’, of this endevour.

    As Dr Akhtar Hameed Khan used to say…Either you Reform as the english did or get your heads chopped off like the French.

    For those societies which do not understand, as Stiglitz mentions in his last para….it might be too late.

    All indications in Pakistan leads one to think, reform is near impossible.

    • Anjum Altaf Says:

      Skynut: There can be two perspectives given the situation in Pakistan. First, if there is no chance of any strategy being implemented, no matter how good, then one should do nothing. Second, one should separate the search for the most appropriate strategy from the task of its implementation. The former is an intellectual exercise; the latter is a political effort. Both are needed in what is always a process that takes time.

      Take the example of health care strategy in the US. The Clinton Administration assembled the best expertise in the country to put together a policy but failed in the implementation. The Obama administration learnt from that, crafted another policy, and managed to get past the first hurdle in its implementation. It is a fact of political life the implementation is based on give and take; some part of the policy has to be ceded in order for the remaining to get through. But this does not imply that the intellectual effort to formulate an appropriate policy is useless.

      The article was a modest effort to contribute to the discussion of what an appropriate growth policy for Pakistan might be in the given circumstances. To reject it because it does not also provide a magic wand for its implementation is not reasonable.

  7. Anupam Says:

    Excellent, thoughtful piece as always on this blog. And so simply and clearly stated to be accessible to anyone who cares to read.

    A dilemma is how do we get more people to care to read. Then after they read, to care.

    • Anjum Altaf Says:

      Anupam: Thanks. Both parts of the dilemma are difficult, the second more than the first. I suppose we can get more people to read if everyone who likes the article forwards it with a recommendation to others who might be interested. The new technology needs to be leveraged to the extent possible. Ideas need to be in circulation in anticipation of the time when enough people are forced to care, perhaps for completely unrelated reasons, and start searching for remedies that make sense. In the meantime, those who do care can keep debating the ideas to enrich the discussion.

  8. Anil Kala Says:

    Anjum we are talking poverty not some middle class life style. A decent meal may not be necessarily healthy meal and cooked meal can be wholesome all the time. This number comes in the context of planning for poverty which is a gigantic problem in India and in that context I said Rs 26 is a reasonable number. I don’t think Montek Singh Ahluwalia is an idiot. Besides malnutrition isn’t solely poverty related, a lot of it comes from lack of education and eating habits. Some upper/middle class folks can easily be be malnourished.

    I don’t need to read experience of a couple of MIT blokes about surviving as I have already given a real example. In any case the experiment is senseless because these city blokes can never match surviving skills of real people.

    I merely suggested that modernization of agriculture will not result in net addition of employment. I may be wrong.

    • Anjum Altaf Says:

      Anil: In this case the proof of the pudding is in the not eating. We can start from the generally acknowledged fact that half of Indian children are malnutritioned, perhaps the highest incidence in the world. Now this malnutrition can be attributed to a number of factors – lack of food, lack of education, poor eating habits – but I doubt that lack of food will turn out to be an insignificant contributor because the incidence amongst the middle/upper class is much, much lower. If so, the case is made that Rs. 26 does not yield adequate nutrition. Add the fact that at this income the resistance to disease is low. If the principal earner is sick for a week, what happens to the food intake of the family in the absence of health insurance? Rs. 26 does not take into account these kinds of shocks to the income stream.

      Your comment about the MIT ‘blokes’ invites many rejoinders. By that token, Montek Sigh Ahluwalia is also an Oxford bloke. At least the MIT blokes have attempted something that MSA has not – putting the theory to the test of reality. So in this case, I feel they are ahead. Montek Singh is not an idiot but then neither are the MIT blokes. The latter have gone further in my view and I admire them for the effort. And how do you define ‘real’ people? Their surviving skills are nothing more than another name for slow and premature death – just look at the life expectancy of those below the poverty line.

    • Anil Kala Says:

      Look, I am not saying Rs 26 is a comfortable number but it is a start. There is gigantic problem of poverty so first we have to focus on the most needy, the people on the edge, some of them dying of starvation and in utter state of deprivation. The resources are limited therefore we have to draw a line and say ok we will focus first on those who are below Rs 26 and then the rest will be taken care of later. It is ok for the political leaders make rhetorical statements that Rs 26 can’t buy a decent meal but these people don’t buy meals, they buy grains and cook meal.

      Yes Anjum, the proof is in not eating the pudding. There is large chunk of Indian population which is not getting even Rs 26 a day on average. But a lot of above Rs 26 group can be educated to have healthy meals. Rs 26 is average income which takes into consideration unrewarding days compensated by rewarding days, why else it is average?

      It appears to me that you have a lot more faith in the story of fellows from MIT than in an example related by a fellow like me having municipal school back ground but it still is a fact. Let me assure you there are tens of thousands of them sending back Rs 2500 to Rs 4000 back home and by this man’s own account his children are going to school although off and on but of their own choice due to assured steady income. May be they are not getting milk but their mother add a little more water in rice, drains it after cooked and feeds this rich syrup to children, the same with daal.

      The reason I rejected MIT fellows story is simply because they don’t begin with the same skill as people in such situation. Think of it this way, in a Discovery channel program they sent a group of ten individuals to live out life of Stone Age people. My question; is the degree of difficulty felt by these people would be same as the degree of difficulty felt by real stone age people in coping with such environment? It took them more than an hour to put up a fire, which the experts said, original Stone Age folks would have done in five minutes.

      • Anjum Altaf Says:

        Anil: We agree that there is gigantic problem of poverty and that one has to focus on the bottom, on those who do not even earn Rs. 26 a day. But in what way are the resources limited? How do we reach that conclusion? What has higher priority than that objective?

        And is Rs.26 per day, which is more than many earn, adequate? Here are stories of people who earn more that makes one question the judgement:

        http://www.thehindu.com/opinion/columns/Harsh_Mander/article3290891.ece?homepage=true

        Also, Rs. 26 is not, in my view, an average in the sense you mean; it is what is needed every day. Thus getting Rs. 26 every day is not equivalent to getting nothing for three weeks and then getting Rs. 728 in the fourth because by that time the person would have starved to death. Of course, there are hypothetical situations in which the person would have savings or could borrow against future incomes. But we know these are unlikely; the poor can save with difficulty, they don’t have collateral, and informal loans carry interest rates that can turn them into bonded laborers.

        Regarding the MIT fellows, I place some credence in their experience because it is not akin to living like stone age people. The poor live among us; they light a fire in exactly the same way – they just have less money and they have learnt to make do with it. What we need to look at more is the nature of this making do. My feeling is that this living cannot be termed sustainable; if it were, we would not have the incidence of malnutrition that we do. It is a process of dying slowly just as a firm goes bankrupt slowly if it does not continue to earn enough to cover its costs – one day it goes out of business. The difference in the life expectancy of the poor and the not-poor should convince us that such is the case.

      • Anil Kala Says:

        It appears to me that your approach to Rs 26 a day survival and my approach are different therefore we are reaching different conclusion. You are considering Rs 26 on individual basis while I consider it on collective basis. It is the same with MIT fellows experiment. After you were incensed at my comment I tried to read the story and stopped reading immediately when I read they were trying to eke out a living on Rs 100 a day basis. Two individuals @ Rs 100 a day would be Rs 6000 a month. These fellows were not cooking, they were buying meals; not shaving but going to barber for shave, generally trying to live off packaged things no wonder the amount was inadequate. Now let me tell you the real story…

        There are two security guards in our building employed at Rs 4000 a month. Seems cruel and also illegal (they run 12 hours shifts no weekly offs) but this is the reality. But they have little to do, nobody expects them to put up a fight with thieves or intruders, their main job is to open the gate for cars to come in go out and salute the members of managing committee. In addition they have to run the pump to lift water to tank on terrace when supply is received early in the morning from corporation usually 4-5 O’clock. One fellow sleeps on his chair at the small room at the gate. Nobody expects them to remain awake through the night. These two guards live together on Rs 2000/- a month. They cook their meals. This in Bombay and believe me they are well fed, wear reasonable clothes. If those MIT guys find life unsustainable in Rs 6000/- a month in Bangalore then I would call it gimmickry to draw attention and see their name in newspaper.

        • Anjum Altaf Says:

          Anil: First things first: If I communicated the impression that I was incensed, I am to blame. I find this discussion very useful. Clearly we are approaching this from different vantage points and need to keep talking to see if we can zero in on the real issues.

          It is a technical point that the poverty line (Rs. 26 per capita per day) is specified on an individual basis. Its application is on a collective basis. For example, a family of eight (head of household, wife, four children, two parents) would need a daily income of Rs. 208 (a monthly income of Rs. 6,240) to be at the poverty line. If the head of household is the single wage-earner, he would have to earn this entire amount. If there are other earners in the family, the earnings would be pooled. That is where a lot of child labor comes in – poverty forces a choice that compromises future prospects perpetuating the cycle of poverty.

          I look at this issue by starting from the observable reality. If 50 percent of the children in India are suffering from malnutrition, either they are not eating enough or they are eating wrong, or both. It can be argued that all of these constitute people below Rs. 26 per capita per day but I would be skeptical of that claim. This is an empirical point that can be verified.

          Regarding the security guards, do you know how long they have been at this job? Could it be that these are disposable human beings (from Marx’s reserve army of labor) who are just replaced frequently when they die without our noticing it? Or are they being pushed into other ways of supplementing their incomes that we don’t know about?

          And finally, I see a lot of poor people buying and not cooking meals and going to roadside barbers for shaves. Many male wage earners living away from their families don’t cook, don’t have a place to cook, or don’t have the energy to do so.

        • Anil Kala Says:

          I see that you are bringing in new elements into discussion therefore let me clarify what I am trying to prove. All I am trying to say is that average Rs 26 a day per person for a house hold is life sustainable income. The underlying assumption is that money will be used judiciously. In many families the bread winner spends a quarter of income on booze and as you have pointed out many poor buy meals but that does not make Rs 26 a day income unsustainable for those who use the resources judiciously. It seems your focus is how to beat Rs 26 a day whereas my focus is how to make the two ends meet within that amount. Yes it will not work in cases where a fellow his to live all by himself but then these cases will belong to child labor, adults rare get Rs 26 a day wages, at least in towns.

          I know at least on of the security guard for past three years. Yes they have supplementary income from washing cars and also a months salary as yearly bonus in Diwali but they lose a months wage when they go home in summer. The fact however remains that they mange in Rs 2000/- month, of course they don’t have to spend anything on shelter, water or electricity.

          • Anjum Altaf Says:

            Anil: There are two points, one technical and the other empirical.

            First, I agree that the daily urban adult wage is higher than Rs. 26. But most adults have families with non-working members (children, old parents, etc.). So the total household wage has to average out to Rs. 26 per family member per day to be at the poverty line.

            Second, the question comes down to the following: Is Rs. 26 per capita per day, if used judiciously, a life sustaining income? This would depend on what we mean by sustainability in this case. If the health of the family members does not deteriorate over a period of years on this income, it could be argued that the income is a life sustaining one. If, on the other hand, the body runs down, is impaired in any way, and terminates prematurely, the income would not be considered sustaining. Which of these is more true is an empirical question for researchers. Some student of Amartya Sen must have examined this kind of question. I keep coming back to the point that the incidence of malnutrition in India argues for the latter.

  9. Anjum Altaf Says:

    Here is a good perspective on the basics of poverty reduction along with evidence of what has been happening in India:

    “Distributive politics fuelled by borrowing is not ‘inclusive growth’ even if it can be sustained, which it can never be. Moreover, it is far from being democratic in a meaningful way. The success of democracy in India will be judged by the availability of public goods.”

    Public Goods as the Way to Welfare:

    http://www.thehindu.com/opinion/lead/article3336675.ece?homepage=true

  10. Anjum Altaf Says:

    A useful anaysis of aid:

    “aid flows tend to create dependency and weaken the incentives for people to engage in business and trade, economic activities that rely upon contracts. Where aid triggers rent-seeking activities like corruption or fraud, it is also likely to reduce trust among strangers.”

    http://nyudri.org/2012/04/18/dont-help-me-trust-me-your-african-coffee-producer/

  11. Anjum Altaf Says:

    Aid Alone Will Not Help by Philip Stevens (Nov. 17, 2009)

    Despite record levels of foreign aid for health, almost no progress is being made in improving child mortality in the poorest parts of sub-Saharan Africa. Many countries are going backwards.

    This is not surprising. The UN and British government – egged on by NGOs and activists – has bet the house on the daft idea that if western governments transfer enough money to governments in poor countries, health systems will magically improve and medicines will get to sick kids.

    As far as strategies go, this is a turkey.

    Once it makes it to the recipient government, what happens to that money is anyone’s guess. There is almost no data on how aid money makes its way through recipient health systems.

    We do know, however, that much of it is lost to corruption – from ministers skimming off their share of grants, to local health workers charging patients for nominally “free” services.

    Then the Western consultants and NGOs need to take their cut: how else can they afford the fabled white Land Cruisers that infest African cities?

    When some aid money does make it to local clinics, World Bank research shows it is most often the educated, urban classes who benefits, rather than the rural poor for whom it is really intended.

    To cap it all, the influence of Western NGOs on donors has also meant that “fashionable” diseases such as HIV get the lion’s share of funding, to the detriment of less high profile problems such as pneumonia, which kill many, many more.

    And when the data comes in showing that this spending inevitably has made no impact on disease, NGOs use it as justification to lobby for yet more aid. And so the depressing circle continues.

    In the short-term, donors could spend taxpayer’s money more wisely by bypassing governments altogether, instead putting health services out to competitive tendering amongst the voluntary or private sectors. Where this has been tried, for instance in Cambodia, the results have been startling.

    In the long term, though, we can’t hope to improve child mortality by simply beefing up aid. There is no way western aid agencies can fund a clean water supply, health services and a decent daily meal for every child in Africa. Even if such a thing were logistically possible, such large inflows of hard foreign currency would wreak havoc on fragile local economies.

    In the end, the only way to solve child mortality is by fostering economic growth. Before the Industrial Revolution, Britain’s children also died in droves. But the wealth generated by economic growth allowed us to clean up the water supply, move to clean fuels, improve diet and universalise vaccination– a story repeated in every developed country, and now in places like China, India and Brazil.

    The economist Peter Bauer famously described foreign aid as “an excellent method for transferring money from poor people in rich countries to rich people in poor countries.”

    While the intention of those who call for an increase in aid is undoubtedly noble, there is simply no logic in sticking to a strategy that is so manifestly at odds with reality.

    Philip Stevens is a Senior Fellow at the International Policy Network. He is an expert on global health policy, and has written widely on AIDS, malaria, health systems, pharmaceutical innovation and counterfeit medicines. Philip has also held research positions at the Adam Smith Institute and Reform in London, and spent several years as a management consultant. He holds degrees from the London School of Economics and Durham University.

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