The 2015 Nobel Memorial Prize in Economics goes to Princeton professor, Angus Deaton.
Deaton has made a career and a big reputation by studying how markets work. How wealth is created and distributed and eventually how it is redistributed. His work has some insights that run counter to our current culture.
Consider this thought from his book, The Great Escape, “when the institutional conditions for development are present, aid is not needed” He further points out that “When those conditions are not present, aid is ineffective, disruptive and tends to keep bad governments in power”
The idea that aid is disruptive is counter to the more conventional idea that we have a moral obligation to help others. Deacon implies that we have a moral obligation to help others develop the kinds of infrastructure and culture that permits development.
His observation applies to more than foreign aid. If aid prevents the formation of working economic and social structures should we examine all forms of aid rather than just foreign aid?
Top-down planning universally fails despite its apparently sound ideas. People everywhere must not only have aid when and how appropriate, they must learn how to build and participate in a functioning society of which economics is a significant part.
In simple terms, poor people need to learn new skills. Help by way of monetary aid delays, possibly disables, that learning. “We need to do something!” is not a useful basis for action. Unfortunately it makes the people who call for the aid feel better. The fact that it harms is beyond their ability to accept and the real problem.
Deaton says foreign aid hurts. The obvious question becomes how does any programmed monetary aid help the recipient. Is it different with local poverty? Does aid help or hinder the development of the people?
For some people, aid is necessary. For others it is a lifestyle choice. For those that need it and will always need it, make it workable. A person who is paralyzed or mentally incapable of looking after themselves deserves our help. For the others, aid should be contingent on their learning how society works and how they can contribute.
We cannot demand the highest possible level of functioning, but we can ask for a reasonable effort. Contribute to society to the limit of your ability is a more appropriate purpose than learn how welfare works.
The problem is that once on the system, it is risky to move away from it. Some people with skill and ambition become trapped. There is no intermediate step. It would be like like jumping from high school baseball to the major leagues. Money should be allocated to a minor league system to develop able citizens.
Sometimes not starting to “help” is the best way. The National Parks Board in the US asks people to not feed the bears.
“It will make them dependent and they will not learn how to look after themselves.”
Not so different with other mammals.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.