How to Eliminate Poverty
The solution is development, which requires an economic transformation.
A Hypothetical Interview: Part 3
You say that development aid makes America more secure in the long-term, and you seem to be implying that other forms of foreign aid do not do that. What exactly makes development aid different, for example, from transactional aid?
All the other forms of aid are focused on the immediate. Will we save lives today with humanitarian aid? Will we stop a disease outbreak now with public health aid before it reaches America’s shores? We will gain overfly rights for our military aircraft if we bribe a government with transactional aid? These are all immediate, short-term considerations.
There’s only one kind of aid that is forward looking, for the long term. Development aid lays a foundation. There won’t be results right away, but development aid does prevent problems from happening later.
How does development aid work?
If development aid is fully successful, a country’s social and economic institutions are transformed so that they begin to function in ways that allow that country’s citizens to meet their aspirations for a better life, both for themselves and for their next generation. If that happens, we can expect that country to become full partners on the world stage, allies, not enemies.
Countries in which citizens are becoming increasingly prosperous are not good hosts for terrorists. Their youth are busy realizing their aspirations for a better life, and don’t have time for fundamentalist ideological appeals to take up arms against America. With good-paying jobs available within such countries, there’s no incentive for people to come to America illegally as refugees.
You say that development aid starts by transforming a country’s social and economic institutions. What exactly is being transformed? How does that happen?
You’re asking for a definition of institutions.
Yes. I think when most people hear the word “institution” they think something like the Smithsonian Institution, or maybe the National Institutes of Health.
Well, those are institutions, yes, though it’s more accurate to say that they are quite complicated bundles of institutions — meta-institutions, or high-level institutions — designed to achieve a particular objective. Development aid focuses on a country’s more basic institutions.
Let’s take the Smithsonian as an example. It has a charter, which is a kind of institution. That charter is registered under a set of laws governing charitable foundations; those laws are a kind of institution. The Smithsonian keeps its cash in a bank which is part of a banking system, which is a kind of institution. The Smithsonian invests the rest of its money in bonds and equities, all part of a well organized marketplace for such things, another kind of institution.
The basic institutions within a country are the rules we live by, at all levels, written as well as unwritten, though the most important ones in a modern economy are all written. They’re rules, not things. When you stand in front of the Air and Space Museum of the Smithsonian Institution, it’s not the building. Instead, think of all the rules and regulations of the country as a whole that allow such an organization to come into being, to be stable, and to flourish.
There was a TV show some years ago on PBS called Connections. It’s a bit like that, right?
Great show. But they were focused on technological development rather than on institutional development. A technology is a technique along with the institutions that make that technique usable.
In Connections they talked about how you can’t have a light bulb until you first have electricity. Before you can have electricity, you first have to understand magnets. And so on.
For our purposes, that light bulb, which is just a “technique”, only becomes truly useful once you have a set of institutions in place. For example, it would be helpful to have standards for light bulb socket sizes, and a standardized voltage. Standards are a kind of institution, a bit like laws, except no one is required to follow them. We follow standards voluntarily because they work.
And there won’t be electricity to power those light bulbs without rules in place to assure people pay the electricity bill. Maybe the rule is that if you’re 30 days late in payment, the electricity will be shut off. Or maybe the rule is that you have to pay in advance by inserting a coin or a prepaid card into a meter. Or maybe the rule is that the electricity company can take you to court and have a sheriff enforce payment. Whatever the rule is, that’s an example of a particular institution.
So, not quite like the PBS show Connections, but similar in some ways. I’ve got a better analogy for you.
You might remember Barack Obama got in trouble because he dared to say that the man who built a business out West didn’t do it alone. I call it the Marlboro Man story. You know, that image of the cowboy on a horse, on a ridge, in profile against the setting sun. Beautiful.
But it’s never existed. It’s a fairy tale. Obama should have doubled down hard on that one.
Bottom line: That businessman out West was simply naive to think he had done it alone. Sure, he worked hard. But all around him were institutions that made his work pay off. He had railroads and interstate highways to deliver the supplies he needed to make his products, and then to carry his products to market. He had the electric grid, the state police and the courts to protect his property. He had credit cards and a highly sophisticated banking system to safeguard his money and to expand his market. He probably even had an agreement with the local government to widen some roads and put in a traffic light so that his goods and supplies could get in and out more easily.
Take that same businessman and plop him down in a country with inadequate institutional development, where the banks don’t function properly, where goods shipped from China might take three months to arrive, where the courts can’t be trusted, and where the police are trusted even less. He’s highly unlikely to succeed in that environment.
On the other hand, take a struggling business person from a country with inadequate institutional development, but then plop that person down in the United States. Chances are that person will succeed, and remarkably so.
What’s the difference? It’s not so much about the individuals involved, though of course they matter. What’s most important is a country’s institutional development.
You’re suggesting development aid begins by taking a look at these institutions that are a kind of foundation for the economy to perform well, that help people to succeed.
“Foundation” is the right word. Institutions are the foundation. Development aid can focus a bit on shoring up the foundations for what’s already happening in a country, helping to improve efficiency. But it should be even more focused on building new foundations for even better things, expanding what’s possible.
Sounds like “nation building”.
The term “nation building” is code for destruction. It’s usually blinded by an ideology that says what works for us must work for everyone, which of course is sheer foolishness. Nation building has come to mean sweeping away all that came before, and starting with a clean slate. That’s almost always a mistake. That’s throwing out the baby with the bath water.
Development aid begins by looking carefully at what’s working and what’s not working. It’s about functionality, not ideology. Nothing gets swept away unless it can be replaced with something better.
I used to work on telecommunications development, and an official in the American Embassy in Senegal told me I needed to develop a plan to privatize Senegal’s state-owned cellular telephone company. I pointed out to this American official that Senegal’s cellular telephone company was one of the most successful in Africa. Shoeshine boys in Senegal all had cell phones. The American official was not persuaded. He insisted that the company be privatized. I did not agree. I was not invited back. That’s what I mean by ideology over functionality.
Jeffrey this was an outstanding summary of what effective sustainable development aid and assistance should look like and how it supports our national security extremely well in so many ways….reducing or preventing conflict, terrorism, refugee problems etc, as well as how it be benefits America and Americans by increasing and expanding American markets, opportunities for American businesses, and thus can increase the average Americans’ standards and quality of life without substantially raising taxes or expanding government assistance programs. The opportunity cost to America and Americans by not continuing and following the approach and the focus you described in your interview is in the trillions of dollars in the long-term in terms lost public and private revenue, income, American jobs and the substantial high costs of America dealing with conflict, terrorism, and other security related issues in comparison to the current national debt amount which could have been significantly lower if not non existent and replaced with positive growth that could have been used to advanced America’s development and all Americans quality of life too. Hopefully in relooking at development assistance will include the development of education and orientation of Congressional members,their staff as well as US departments, and key private sector associations of what, why, and how sustainable development support and interventions should be developed and implemented to ensure a “win-win” for all stakeholders and beneficiaries including the American people.