Let’s Kill The Aid Industry

Long have I nursed a healthy contempt for the aid industry. As I spent much of a decade wandering around the planet, taking local public transit through poor and/or unstable nations1, I kept encountering aid workers in their flashy white branded 4x4s, and was almost invariably resoundingly unimpressed. As I’ve written elsewhere:

Most development aid is actively harmful. Selling goods for less than production cost is dumping, a business practice condemned as predatory; aid is just dumping with the price set to zero.

The horror stories are legion. Donated clothes decimate local textile industries. Shells of buildings, silted dams, and unfinished “pilot projects” dot the African landscape. Young white people flock to expensive hotels for useless “conferences” that amount to paid exotic vacations. Peace Corps yahoos are flown out at great cost to teach Western hairdressing […] But aid’s worst consequence is the continuation, and amplification, of the attitude that change must always come from outside. My friend Gavin Chait calls it “the recolonization of Africa through aid.”

To be clear, I’m criticizing the $120 billion per year spent on development aid, not disaster aid, which is critically important and saves many lives; furthermore, many medical crises, such as HIV and malaria in sub-Saharan Africa, are essentially ongoing slow-motion disasters. These folks:

(photo credit: yours truly, Port-au-Prince, Haiti, 2007)

are absolutely on the side of the angels.

I believe we in the rich West have both a moral obligation and a practical incentive to help the world’s desperately poor. (After all, you can’t trade with someone who’s broke.) I’m hardly the first to criticize the development-aid industry, and observe that, even more than most industries, it is a hive of waste and bureaucracy, largely devoted to its own self-perpetuation. I accept that some individual aid projects are beneficial, and a few in the industry have of late been trying to innovate; in particular, moving towards simply giving needy recipients cash, in a few specific cases.

That’s a start. But it’s time to move faster towards finishing the job: to wit, eliminating aid as we know it, in favor of simply sending money directly to the poor and letting them spend it as they will. It’s both a moral imperative and the most efficient possible use of aid money.

Again, I’m far from the first to make this argument. But what I don’t see others noting is that we’re rapidly approaching the time when technology finally makes this possible on a massive scale.

Run the numbers. An estimated 2.4 billion people live on less than US$2/day. If we simply sent the today’s aid money to them directly, a family of six would receive an extra $300/year — a huge amount, relative to their baseline of extreme poverty. So why wouldn’t we? If both direct transfers and aid-as-we-know-it are viable options, then the latter essentially consists of taking money away from those who need it the most and giving it to the unelected aid industry instead, to spend on their alleged behalf. How can that possibly be justified?

The only answers boil down to patronizing neo-colonialism: “those weak/ignorant/stupid poor people don’t know how to spend money, so we have to spend it for them.” It’s a distressingly popular argument. Fortunately, recent evidence — including, in particular, an MIT study in western Kenya (PDF) — strongly indicates that this is not the case:

Transfers allow poor households to build assets … Transfers reduce hunger … Transfers do not increase spending on alcohol and tobacco … Transfers increase investment in and revenue from livestock and small businesses … Transfers increase psychological well-being of recipients and their families … We find suggestive evidence that cash transfers reduce domestic violence and increase female empowerment in both recipient households and other households in the same village.

I think even most aid workers would agree, if pressed, that cash transfers to the people who (by definition) need money above all else are vastly preferable to haphazard aid projects, which may or may not help, and/or supporting corrupt governments / bureaucratic multilateral institutions. But can we actually make that happen? Sure, it may work in a carefully designed study in a single small village in Kenya, but the $128 billion question is — as it is so often these days — how does this scale?

Actually it’s already scaling, on a national level. Brazil’s Bolsa Familia is a much-lauded direct-cash-transfer program which reaches an estimated 46 million. Earlier this year India launched a direct-transfer program tied to its Unique ID biometric identification scheme; hundreds of millions have already been registered. If these two famously fractious nations can implement direct cash transfers, then why can’t that extend to international aid?

In many places the tools are already in place. All you’d really need, technically, is a mobile banking network — Kenya’s M-Pesa is the most famous and most successful example, but there are a myriad of others around the world — combined with an international payment processor like Xoom or (soon enough, I expect) Stripe.

I suppose you’d want to add biometric identification if you were worried about widespread fraud, eg with something like a one-time Touch ID registration at an M-Pesa booth. But for the most part, all we really need to do is follow mobile phones as they metastasize around the world into the hands of even the poorest people, and extend the reach of mobile banking in nations where it’s not yet as widespread as M-Pesa is in Kenya.

Let me address a few possible objections:

  • Remember, we’re talking about $120 billion a year in total aid; relative to that sum, the setup and maintenance costs for direct transfers would not be at all prohibitive.
  • Should the transfers be conditional (eg only go to families who keep their children in school) or unconditional? This is an issue about which reasonable people can disagree, but I side with the unconditional camp, because the differences in outcome seem fairly minimal, and unconditional transfers will be much easier to scale.
  • It’s true that we’d be eliminating the infrastructure projects built by aid — but if that same amount of money started bubbling up from the poor, rather than trickling down from the rich, communities and governments would be able finance those themselves. (I could also be convinced that replacing aid to NGOs and governments with direct cash transfers, but leaving eg World Bank contributions alone, would be a good first step.)
  • Yes, recipients’ governments would be able to tax this money — but there would be fewer layers of corruption and middlemen than exist now in most poor countries, and direct cash transfers would be far more transparent. Donors could credibly threaten to turn off the money tap if too much was taxed and wasted. Also, governments taxing income is no bad thing, as long as they are somewhat accountable to their populace…and being reliant on money which actually comes from their citizens, rather than directly from foreign governments, would drastically increase that accountability.
  • What’s more, this would also improve people’s opinions of the rich world; instead of citizens seeing Western money propping up their often-corrupt governments, that money would come directly to them.
  • Biometric identification of recipients, and master lists of accounts, are worrying potential surveillance-state tools, but this can be mitigated with the right technology (eg, off the top of my head, hashing fingerprints with passwords and storing those hashes rather than actual fingerprints.)
  • To forestall potential local-currency hyperinflation (I’m still scarred by witnessing prices double in a few weeks during my last stint in Zimbabwe) I’d be inclined to investigate the possibility of transferring money, and maintaining accounts in, foreign/hard currency. Or, OK, fine, true believers, maybe someday Bitcoin or the like, but not until it settles down.
  • Of course this change would be detrimental to some people, not least aid workers. The question is whether it would be a significant benefit for the world as a whole.

Software is eating the world; the technological mantra of our age. I for one am in favor of it eating that white elephant called the aid industry, as soon as possible —

— and while we’re at it, let’s take a real, hard, serious look at implementing an unconditional basic income scheme in the West, too. Efficiency — and moral obligation — may not begin at home…but let’s hope it returns here eventually.

Image credit: Wikimedia.

1 I have ridden battered taxis, creaking colonial-era trains, overcrowded minibuses, and pickup trucks laden with livestock through Albania, Colombia, the Congo, Ethiopia, Guatemala, Haiti, Mali, Myanmar, Papua New Guinea, Rwanda, Tibet, and Zimbabwe, to name a few nations in no particular order.