The developed world’s approach to humanitarian aid is broken. Western countries have followed the same model for decades, with little to show for the billions of dollars that they spent to try to alleviate poverty. The award-winning documentary Poverty, Inc. explores the numerous ways current humanitarian policies fail the poor. In what follows, Poverty, Inc.’s director Michael Matheson Miller put forward a more effective approach and reveals the real winners of the first world’s attempts to help residents of developing nations.
Jared Meyer: Can you summarize how the developed world views humanitarian aid? What is misguided about this view?
Michael Matheson Miller: I think that the underlying problem is that despite benevolent will, we tend to treat people as objects—objects of our charity, our pity, and our compassion—instead of as subjects and the leaders of their own development story. We then combine this objectification with social engineering and end up using the developing world as a lab for experiments by western technocrats.
Politicians, celebrities, and religious leaders promote the widely accepted, hard to eradicate idea that if the United States or Europe gave more aid or were more generous we could eradicate extreme poverty forever. This will not succeed. Impoverished people are poor not because they lack stuff—they are poor because they lack the institutions of justice that would enable them to create prosperity for their families and communities. In short, we are asking the wrong question. We should not be working to alleviate poverty through donations. We should instead focus on the conditions that enable people to generate wealth.
JM: There has to be more driving this system than misplaced good intentions. Who are the real winners from the aid approach to fighting poverty?
MM: There are a couple of things happening. It is not simply misplaced good intentions, but a deeper misunderstanding about the foundations of justice that enable economies to develop, such as clear title to land and property rights, access to justice in the courts, and the ability to register a business and participate in the formal economy. We have spent billions of dollars on education, infrastructure, and healthcare, all of which are important, but these goods are the result of wealth before they become a cause.
Secondly, as with any industry, the poverty industry has incentives to stay in business and expand its reach . I am not suggesting a conspiracy, simply basic economic incentives. This is a clear case of the public choice theory applying to development organizations.
Part of the problem is that with the current model of development the poverty industry creates incentives for governments in the developing world to not build the intuitions of justice that would enable their people to create prosperity. As some of the commentators in the film explain, work in the poverty industry can be very lucrative, so there are obviously conflicting incentives.
JM: Poverty, Inc. is critical of the “buy-one-give-one” model popularized by TOMS Shoes. I always assumed that giving away free goods to low-income communities allows people to spend their scarce resources elsewhere. This leads to a net benefit, even after accounting for the loss of some local jobs (such as cobblers in the case of TOMS Shoes). Why are you not a supporter of this model?
MM: First, let me say I respect the entrepreneurial attitude of Blake Mycoskie, TOMS’s founder. At the same time, one of the problems with his model is that, although it has generated great success for TOMS, it is not innovative in terms of new ways of addressing poverty. This reality goes far beyond Mycoskie and his company and extends to what the film refers to as the “social fact” of the industry. TOMS is doing the same thing that churches and private charities have done for a thousand years—giving away shoes to poor children. Our primary critique is that TOMS perpetuates a broken model of development. Tweaking a broken system is not real innovation.
But to your question: giving away free things in poor communities is a complex issue that can be beneficial in some cases and harmful in others. Sometimes the net benefit is positive, but often it is outweighed by the long term social and economic costs.
In situations where there are generally consistent, or at least predictable, influxes of free goods, producers in recipient countries can and should shift their production to other things and the loss of jobs can be outweighed by the long-term benefit. However, as we see with TOMS, charities, NGOs, and foreign aid, these donations are often sporadic and unpredictable, and local producers have little ability to predict when donations will arrive or stop. This is why the market process, driven by individuals and entrepreneurs is much more efficient at providing goods and services for the poor. The price system creates a feedback loop of information that enables people to make better decisions.
Finally, it is important to remember that TOMS and others give away free goods in the name of promoting economic development. But as Ghanaian software entrepreneur Herman Chinery-Hesse points out in the film, no one has ever heard of a country that became wealthy on aid or charity. What creates widespread distribution of wealth and prosperity are free and competitive market economies. When free things delay the development of a commercial society, it keeps countries dependent on aid. This ends up politicizing life, as the late development economist Peter Bauer explained.
JM: Most people realize that there are major problems with U.S. agricultural policy. Your film looks at how U.S. rice subsidies affect Haitian farmers. Could you explain how our current system enriches Big Ag and harms developing countries?
MM: As we discuss in the film, Europe and the United States subsidize domestic agriculture, often overproduce, and then send the surplus as foreign aid or sell it at low cost to foreign markets—all in the name of assistance and promoting economic development. This puts farmers out of business and delays the development of local economies.
This practice needs to end—and doing so should be politically possible. Conservatives tend to be suspicious of government intervention, and progressives tend to be suspicious of big corporations. Yet, one thing we wanted to show in Poverty, Inc. was that foreign aid is deeply connected to crony capitalism. As we explain, out of the billion dollars of U.S. agricultural aid, 70% went to three large companies . Competition is not the problem, cronyism is.
JM: There are many moving scenes in Poverty, Inc. What story that you encountered best encapsulates the positive potential of a new approach to empowering people in the developing world?
MM: One experience that stands out was when I was interviewing a Haitian business developer, Daniel Jean Louis, and I showed him a clip from a TOMS commercial in which Mycoskie explained the one-for-one model and his desire to be a “never going away benefactor.”
I expected Daniel to critique the economic elements of TOMS philanthropic model. Instead Jean Louis said, “saying [Mycoskie] wants to provide shoes for life is implying that he wants children to be without shoes so he can provide them—no one wants to be a beggar for life.”
I had never noticed this perspective, but it connected to the main theme of the film, that poor people are not objects of charity and do not want to be treated as such. Poor people are not somehow radically different from us. They want to be the directors of their own lives—just as we do. The real issue is not lack of material things, but exclusion from the necessary foundations of economic development.
JM: Poverty, Inc. is a powerful, necessary reevaluation of the developed world’s approach to fighting poverty . The central insight of public choice economics is that public organizations such as charities and governments face constant pressure to extend their influence and “market share.” This explains why the poverty industry has, for the most part, refused to update its approach since at least the aftermath of World War II.
Make no mistake, charitable giving and the desire to help the needy are both important and praiseworthy. But the developed world is doing more harm than benefit by focusing on providing material goods instead of encouraging the strong institutions that actually lead to the economic growth that enables prosperity.
This piece originally appeared on Forbes
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Jared Meyer is a fellow at the Manhattan Institute's Economics21. Follow him on Twitter here.
This piece originally appeared in Forbes