Critic of systematic development aid and evolution of measurement of poverty

Nowadays, poverty alleviation is a backbone of human development strategies which put poor people at the center of the lens. The first Millennium Development Goals (MDG) established in 2000 is to halve the number of individuals living with less than USD 1.0 per day by 2015 (UNDP 2012a).

Development aid

According to Dambisa MOYO, there are 3 types of aid to be distinguished: Humanitarian, charity- based, and systematic aid (MOYO 2009:7-9). Our argumentation will be narrowed down to the third one. Systematic aid includes bilateral and multilateral transfers. The figures of systematic aid are colossal. Indeed, in the past 50 years, global aid for development reached above USD 1 trillion. But regional disparities have to be noticed. From the European Union for example, 97 per cent of the total aid went in African, Caribbean, Pacific countries (ACP) (MOYO 2009:35).

Generally, it can be said that there is a tradition of aid from Western economies. From the British colonizers for example, granting funds for the development of infrastructures and several successive acts, guarantying for example the funding of extension programs and research stations, especially in the field of agriculture, were provided to African colonies. After the Second World War and the process of decolonization, the influence of Western economies on developing countries was growing and the paradigm of aid is still present. The myth of aid developed with the success of the Marshall Plan strengthens the belief that foreign aid is a solution for economic development. In addition, the oil crisis of 1973 along with the inflation and the associated drops in growth rates anchored the existing trend that foreign financial aid is the only necessary condition for development. In the 60´s, aid was allocated for the industrialization of the economies whereas a shift occurred in the 70´s towards tackling poverty. In the early 80´s, 50 per cent of the aid was poverty focused (MOYO 2009:10-28). It is important to keep in mind that the sums allocated for the Marshall Plan never reached the figures of actual aid in terms of percentage of GDP for the beneficiaries. Currently, foreign aid accounts for about 15 per cent of African countries´ GDP, against 2.5 per cent for European countries in the context of the Marshall Plan (MOYO 2009:36).

Pro-poor growth

This concept cannot be considered independently from poverty alleviation strategies. In the reflection about poverty and inequalities, pro-poor growth embodies the trickle-down approach to serve growth efficiency and equity. The mission of pro-poor growth is to help poor people meet their basic needs instead of struggling for survival. This approach puts the poorest part of the population of a country at the center of the development strategies through the promotion of their potential.

This approach is based on two acknowledgements. On the one hand, the level of initial inequalities influences the fight against poverty. The higher the initial inequalities, the less benefits of growth will be allocated to poor people. Thus, growth does not necessary contribute to poverty alleviation. On the other hand, inequalities do not solely refer to income. Inequalities in the access to infrastructures and public goods or to social services are likely to be an impediment for poor people to benefit from the opportunities of growth (RAVALLION 2004). Therefore by putting poor people at the center of the policies, poverty alleviation should be guaranteed and bring sustainable development for the target groups. This strategy has found significant echoes worldwide and it was documented by several major institutions such as the United Nations or the Organization for Economic Co-operation and Development. In addition, poverty reduction strategy papers have flourished to illustrate countries’ national plans to tackle poverty.

Dead Aid

The discourse of ‘dead aid’ described by MOYO is provocative. However it puts us in front of a bitter reality. The time frame between 1970 and 1998 corresponds to the peak of aid flowing to Africa, but not to a significant related improvement. On the contrary, during this period, poverty jumped from 11 per cent to 66 per cent in the African continent (MOYO 2009:47). Several critics were addressed towards systematic aid. Despite the efforts of multilateral agencies (United Nations, World Bank) in the 90´s and the promotion of good governance and democracy, endemic corruption is still a scourge for most of the African countries. This fact combined with high administration costs and an outrageous inherited bureaucracy participated to the ineffectiveness of aid. For example in Uganda in the 90´s, only 20 cents of every dollar spent by the government reached the schools that were selected for financial support (MOYO 2009:53).
Systematic aid is also likely to discourage private enterprises. MOYO calls this fact the ‘micro-macro paradox’. For instance by flooding the market with free mosquito nets, international NGOs compete with local mosquito net producers and make local production unprofitable (MOYO 2009:44). MOYO also talks about a vicious circle of non-conditional governmental aid. Indeed, by granting loans without conditions, entrepreneurship is not promoted. ‘African governments view aid as a permanent, consistent source of income and have no reason to believe that the flow won´t continue into the indefinite future’, she argues (MOYO 2009:36). According to her, aid perpetuates underdevelopment also by enforcing corruptive attitudes. In a recent report, the UNDP estimates that in 2008, the net Official Development Assistance flows exceeded 10 per cent of the GDP in 26 developing countries, most of them accounted to the Least Developed Countries (LDCs) (UNDP 2011:8). In times of instability where the frequencies and intensities of economic crises are increasing to such an extent that one is wondering about their systemic occurrence, aid cannot be taken for granted any more. Governments from the south cannot rely on donors from industrialized countries any longer. On the donor side, aid is concentrating on fewer countries and allocated for chosen MDGs, which reinforces this trend (UNDP 2011a). In a consultation draft about international development, the OECD concedes that aid might neither be predictable nor sufficient in most of the cases and deplores ‘transmission losses in aid’ (OECD 2010:1). USD 10 to 25 billion is not predictable and USD 2 to 12 billion is chronically lacking for the financing of development projects (OECD 2010:1). Developing countries are also largely vulnerable to economic crisis in the context of integrated world economy. In most cases, their revenues depend on the highly volatile export of primary commodities. ‘Two-thirds of (low-income) countries are cutting budget allocations in 2010 to one or more of the priority pro-poor sectors of education, health, agriculture, and social protection, just at a time when they need to massively increase such spending’ (KYRILI and MARTIN 2010:4).

Consequences are already tangible. As a result of the latest economic crisis, the income per capita dropped from 20 per cent for 390 millions of people in Sub-Saharan Africa. To reverse the tendency and not to compromise the achievement of the Millennium Development Goals, the MDG Acceleration Framework (MAF) was created by the United Nations Development Programme (UNDP) in 2010. This means that more money will be allocated to the Millennium Development Goals. Indeed, USD 1 billion flows annually to the purpose of the MDGs. But money alone is not the only way for development. The emphasis of development actors is put on people’s empowerment and participation, which goes beyond the sole allocation of funds to reach the Millennium Development Goals. The UNDP reminds the goal beyond the Millennium Development Goals which is: ‘sustaining progress in health-, hunger- and education-related MDGs builds human capabilities that empower people to actively participate in the economic, political and social arena to affect policies that influence their lives’ (UNDP 2011:5).

New indicators

In the discourses about human development, the pursuit of growth was at the center of the preoccupations. From this time on, what mattered was what could be measured. But although the economic success of some countries was associated with low poverty rates, this relation cannot be generalized. On the contrary, the same level of human development can be seen in countries laying poles apart in terms of GDP as shown in the figure 1 in the following paragraphs. It means that economic growth is an instrument of human development but human development cannot be only limited to the race for growth. This paradigm was repeatedly denounced by Amartya SEN. Yet, human development still needs to be measured and for a long time the question was how to measure it. SEN was involved in the evolution of the different human development indicators (FUKUDA-PARR 2003). In the current context, one also has to focus on the effects of economic crisis on the world´s most vulnerable population (not only in terms of income) and the capability of this population to withstand them. In addition, people have to face new challenges such as energy crisis, food insecurity and climate change. There is no doubt that vulnerability is a multidimensional concept and needs multidimensional indicators of measurement (UNDP 2011).

Beyond GDP and measurement of income poverty

If pro-poor growth is the way chosen for development, an adequate indicator to measure human poverty (resp. welfare) has to be established. As we already discussed, the GDP per capita has been the reference for years because it gives information about the living standards of the population. Even if the level of income is still an indicator of welfare or poverty today, it is not sufficient to give a satisfying comparison between countries or people within the country. On the one hand, GDP ‘measures everything in short, except which makes life worthwhile’, says Robert F. KENEDY (1968). It measures all negative externalities of one society without including central elements such as education.

The Gross National Product of the United States is the largest in the world, but that GNP, if we should judge our nation by that, counts air pollution and cigarette advertising and ambulances to clear the highways of carnage. It counts special locks for our doors and jail that break them. It counts the destruction of our redwoods and the loss of our natural wonder and chaotic sprawl. It counts napalm and the cost of a nuclear warhead and armored cars that fight riots in our streets. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country.

What´s more, GDP does not report about inequalities within the society, social exclusion or social conflicts. This measurement had to be completed with other (development) indicators.

Human Development Index (HDI)

The HDI was proposed in the first Human Development Report of the UNDP in 1990. Beyond the measurement of development in materialistic terms, the HDI addresses the issue of how economic welfare participates or fails to participate in the improvement of human development. Thus, the HDI combines both economic and social indicators to measure respectively the level of health, education and standard of living in one country. The following indicators are included in the HDI (UNDP 2012e):

  • health: life expectancy at birth
  • education: expected years of schooling for children and mean years of schooling for a 25 years old person
  • living standards: GNI per capita (Global National Income)

The index as quantitative measurement offers the opportunity to draw a comparison between countries and to identify on which dimension priorities have to be set, in order to reach development goals. It can also provide, by comparing the GNI per capita with the HDI, information about the efficiency of the development policies of a country and redistribution of growth incomes. But it also has its weaknesses. As represented in the graph below (figure 1), two countries with a close HDI are likely to show completely different figures in terms of GNI per capita, which stresses out the question of efficiency of resource (growth) allocations.

Figure 1: Comparison HDI and income Sierra Leone-Liberia. Source: UNDP 2013.

Figure 1: Comparison HDI and income Sierra Leone-Liberia. Source: UNDP 2013.

Nevertheless, after 20 years of implementation, the HDI also shows its limits. First, the HDI does not report short term changes and it is unlikely to be a relevant monitoring tool for individual poverty reduction plans. For example, life expectancy and years of schooling are indicators that are not likely to change within a short period of time. Secondly, it might be too simplistic and it fails to tackle gender, regional or ethnical issues. That is why the disaggregated HDI was implemented in 2006. But it is only available for a few countries (UNDP 2012b).

Multidimensional Poverty Index (MPI)

The MPI was created in July 2010 by the UNDP, 20 years after the publication of the HDI (ALKIRE and SANTOS 2010). It addresses the multiple deprivations trapping people in poverty, which were not included by the previous indexes but were claimed by several renowned economists such as SEN. He mentioned that the first step is ‘to acknowledge that deprivations of very different kinds have to be accommodated within a general overarching framework’ (SEN 1999:4). The three dimensions of this indicator echo with the HDI. But instead of four indicators, the MPI uses 10 indicators as shown on the right side of figure 2. This leads to a more specific analysis. Like the HDI, the MPI also integrates the quantitative approach of the GDP which is included in the indicator ‘assets’. It uses the household as unit of analysis.

Figure 2: Components of the Multidimensional Poverty Index. Source: ALKIRE and SANTOS 2010.

Figure 2: Components of the Multidimensional Poverty Index. Source: ALKIRE and SANTOS 2010.

MPI data come to the same conclusions as income based standards. Indeed, Sub Saharan Africa shows the greatest deprivations and the highest number of poor people. This is also the region displaying the lowest income per capita. In the 37 Sub Saharan countries, around 458 million out of the 710 million people living in this area are listed as poor, regarding the average MPI. This means that poverty and deprivation affect almost 65 per cent of the total population of the Sub Saharan countries (ALKIRE and SANTOS 2010:44). This figure reflects an alarming reality. However, the statistics are not homogeneous. For example, according to the MPI, only 3 per cent of South Africans are considered as poor compared to 93 per cent of the Nigerian population (ALKIRE and SANTOS 2010:46). The highest recorded deprivations for the Sub Saharan population are the low living standards (third dimension of the MPI).

As shown in figure 4, the MPI gives a more accurate version of human development status than the USD 1.25 poverty line does. Indeed, the MPI captures basic services and infrastructures that the income poverty headcount fails to record. Indicated in figure 4, the amount of people below the poverty threshold (black curve) is fluctuating among the Sub Sahara region that is mostly displayed on the left side of the diagram. However, deprivations seem to be a common denominator for every Sub Saharan African countries in a more-or-less high proportion.

Figure 3: Dimensions, indicators, cutoffs and weights of the MPI. Source: ALKIRE and SANTOS 2010:15.

Figure 3: Dimensions, indicators, cutoffs and weights of the MPI. Source: ALKIRE and SANTOS 2010:15.

MPI data come to the same conclusions as income based standards. Indeed, Sub Saharan Africa shows the greatest deprivations and the highest number of poor people. This is also the region displaying the lowest income per capita. In the 37 Sub Saharan countries, around 458 million out of the 710 million people living in this area are listed as poor, regarding the average MPI. This means that poverty and deprivation affect almost 65 per cent of the total population of the Sub Saharan countries (ALKIRE and SANTOS 2010:44). This figure reflects an alarming reality. However, the statistics are not homogeneous. For example, according to the MPI, only 3 per cent of South Africans are considered as poor compared to 93 per cent of the Nigerian population (ALKIRE and SANTOS 2010:46). The highest recorded deprivations for the Sub Saharan population are the low living standards (third dimension of the MPI).

As shown in figure 4, the MPI gives a more accurate version of human development status than the USD 1.25 poverty line does. Indeed, the MPI captures basic services and infrastructures that the income poverty headcount fails to record. Indicated in figure 4, the amount of people below the poverty threshold (black curve) is fluctuating among the Sub Sahara region that is mostly displayed on the left side of the diagram. However, deprivations seem to be a common denominator for every Sub Saharan African countries in a more-or-less high proportion.

Figure 4: MPI vs. income poverty. Source: ALKIRE and SANTOS 2010:30.

Figure 4: MPI vs. income poverty. Source: ALKIRE and SANTOS 2010:30.

We can draw the conclusion that the MPI, more than a simple indicator, stresses out the lack of assets and the elements of vulnerability of the surveyed households, and gives a precious picture of the reality, that policy makers will be able to use.

Sources

  • ALKIRE, Sabina and Maria Emma SANTOS (2010): Acute Multidimensional Poverty: A new Index for Developing Countries. Human Development Research Paper 2010/11, United Nations Development Programme, New York City/United States http://hdr.undp.org/en/reports/global/hdr2010/papers/HDRP_2010_11.pdf (access 10/2012)
  • FUKUDA-PARR, Sakiko (2003): The Human Development Paradigm: Operationalizing Sens´s Ideas on Capabilities- in Feminist Economics 9, pp 301-317 http://www.ibero.edu.mx/humanismocristiano/seminario_capability/pdf/11.pdf (access 08/2012)
  • KENNEDY, Robert F. (1968): Remarks of Robert F. Kennedy at the University of Kansas, March 18, 1968. http://www.jfklibrary.org/Research/Ready-Reference/RFK-Speeches/Remarks-of-Robert-F-Kennedy-at-the-University-of-Kansas-March-18-1968.aspx (access 08/2012)
  • KYRILI, Katerina and Matthew MARTIN (2010): The Impact of the Global Economic Crisis on the Budgets of Low-Income Countries. http://www.oxfam.de/sites/www.oxfam.de/files/the_impact_of_the_economic_crisis_on_the_budget_of_low-income_countries.pdf (access 10/2012)
  • MOYO, Dambisa (2009): Dead Aid, Why Aid is not working and How there is a Better Way for Africa. Farrar, Straus and Giroux, New York, pp188
  • OECD (2010): Global governance for international development: Who´s in charge? Development brief, Consultation draft. KILLEN Brenda and ROGERSON Andrew for the Organization for Economic Co-operation and Development, Paris/France http://www.oecd.org/development/effectiveness/45569897.pdf (access 10/2012)
  • RAVALLION, Martin (2004): Pro-Poor Growth: A Primer http://web.usal.es/~bustillo/RavallionPPGPrimer.pdf (access 07/2011)
  • SEN, Amartya Kumar (1999): A Decade of Human Development. Keynote speech, first Global Forum on Human Development 29-31 July 1999, New York http://hdr.undp.org/en/media/Aper cent20Decadeper cent20ofper cent20Humanper cent20Development.pdf (access 10/2012)
  • UNDP (2011): Towards Human Resilience: Sustaining MDG progress in an age of economic uncertainty. United Nations Development Programme, New York City/United States http://www.undp.org/content/dam/undp/library/Povertyper cent20Reduction/Towards_SustainingMDG_Web1005.pdf (access 08/2012)
  • UNDP (2012a): Eradicate extreme hunger and poverty. Targets for MDG1. United Nations Development Programme, New York City/United States http://www.undp.org/content/undp/en/home/mdgoverview/mdg_goals/mdg1/ (access 09/2012)
  • UNDP (2012b): Human Development Index. United Nations Development Programme, New York City/United States http://hdr.undp.org/en/statistics/hdi/ (access 10/2012)
  • UNDP (2013): What does the Human Development Index (HDI) tell us? http://hdr.undp.org/en/statistics/gni/ (access 01/2013)

Birgit Gasser

Birgit Gasser studierte Internationale Entwicklung und Psychologie an der Universität Wien und schrieb ihre Diplomarbeit über EZA in Konfliktsituationen.

Comments are closed