The main focus of the recent Make Poverty History campaign was a call for increased government aid to under-developed nations, but there may be a better way to help the poor. When government aid is provided to developing countries, the connection between the ultimate donors taxpayers - and those receiving help is tenuous in the extreme. If I vote for an increase in taxes, to fund development aid, the extra money will be gathered by the Inland Revenue and passed to a UK Government department. The UK government may then pay the money to a multi-national agency which, in turn, will feed it through the developing country government to be spent, after a further series of bureaucratic steps, on projects designed to help the poor. It is not surprising that a recent aid project to fund Ugandan schools saw only 13% of the money reach the schools themselves. It is also not surprising that there are genuine concerns about the institutional effects of aid. If over-powerful, corrupt governments are a major cause of poverty, then aid can entrench and give more power to the very institutions that create poverty.
Indeed, the lines of accountability in the case of such aid-financed projects are very tenuous indeed or perhaps non-existent, or even perverse. When politicians make the case to voters for increased aid, they generally do so on the grounds that the recipients of aid are very poor. It is almost unknown for politicians to justify more aid on the grounds of the success of previous projects that have been financed by aid. Taxpayers and voters are unable to hold governments to account for the success, or otherwise, of aid projects. Charities behave very differently. When appealing for our money and time, which is voluntarily given, they have to demonstrate how successful they have been with past donations. Charities measure their success in terms of how much they deliver whereas governments measure their success in terms of how much they spend.
It was, perhaps, surprising that, in the Make Poverty History campaign, there was barely a whisper about the benefits that might flow from philanthropy and Christian charity: particularly given the involvement of churches in the campaign.
Philanthropy can be far more effective in helping the poor. It involves direct help given by people to the intended beneficiaries. It works from the bottom up. It by-passes the rich and politically powerful who cause so many problems for poor people in poor countries. A charity may, of course, stand between the donor and recipient as an intermediary, but philanthropy involves the provision of direct help and we can be pretty sure that the assistance given will efficiently reach the intended beneficiary.
Why did the Make Poverty History Campaign focus on aid rather than philanthropy to address the problems of the worlds poor? One explanation is that, in the economic jargon, philanthropy involves free riders. You might dig deep to help the poor, but your neighbour might choose not to bother. The more you help the poor, the less your neighbour needs to help. Everybody leaves it to everybody else and there is less philanthropy than might be ideal. Whether we rationalise it this way or not, we may feel helpless how can our little bit help eliminate the terrible scar of world poverty?
In fact, all the little acts of philanthropy and some big ones add up to a great deal. One single US charity, the Rotary Club, financed over one fifth of the cost of eliminating polio in the world. Another Rotary project, Rotarians Against Malaria illustrates the effectiveness of on-the-ground philanthropy. Malaria kills more than one million children a year. The provision of mosquito nets impregnated with insecticide to 50% of the people living in a given village can lead to massive reductions in malaria in that village. The nets cost £2.50 and last about five years. When US Rotary became involved with a project in Ghana to distribute mosquito nets, they were ordered, manufactured, shipped half way across the world and distributed at a cost of 15 pence each less than 10% of the lowest cost ever recorded in any previous project. In this particular project every single net was personally recorded as having reached its intended recipient. Rotary claim that their main contribution was not money, but on-the-ground philanthropy and entrepreneurship that led to money being spent wisely.
Indeed, this is an important point. Charities use a wide range of talent as well as money to pursue their objectives. Donations of time whether in the donor country or in the recipients country - are as important as donations of money. People who donate time, like those who donate money, do not want to see their efforts wasted. Those who assist charities also have a wide range of entrepreneurial skills and this ensures that many charities nurture small-scale entrepreneurship and thus encourage sustainable economic development.
Data on the total amount of philanthropy are pretty scarce in Europe, though it seems clear that European citizens are much less generous than US citizens. But, there is reasonably good information on US philanthropy, thanks partly to a Hudson Institute research project. The total volunteer time given to developing countries by US citizens in 2004 was equivalent to 135,000 full time workers.
The Hudson Institute cites another example of the link between entrepreneurship and philanthropy: that of Worldstock.com. This was set up by the Chief Executive of Overstock.com who noticed on a travelling break in Asia that wonderful hand-made products, that would fetch a premium price in the West, could hardly provide a subsistence income to their makers in Asia. Overstock.com set up an online store and supply chain management facilities, on a not-for-profit basis, that now sells quality handmade products from developing countries to customers throughout the world.
So much for the effectiveness of philanthropy, what about its size? Again, it is difficult to find figures for Europe, but total US private assistance to developing countries is 3? times the level of US government aid. Indeed, remarkably, it is nearly as high as the total of all aid provided to developing countries by every government in the world. US colleges and universities spend more on scholarships for students for developing countries alone than eleven major OECD country governments each spend on foreign aid in total. When a culture of philanthropy develops in a country, the generosity of individuals can achieve an amazing amount of good.
An increasingly important aspect of private foreign aid flows are those arising from the remittances of migrant workers. In many developed countries these are greater than government aid flows and in many developing countries, remittances are greater than foreign aid receipts. Remittances are very well spent as they are direct transfers from better off members of a family to less well off members of the same family, normally in a poor country. Typically they are spent on food, healthcare and clothing in times of hardship, but also on education and to provide small-scale investment to help family businesses get off the ground. It is typical for migrants to send about 10% of their incomes home, which can then provide up to 80% of incomes for the family the migrants left behind. It is suggested in the Hudson Institute report that remittances from migrants have helped reduce the number of people in absolute poverty in Guatemala by 20%.
The call to charity is a most important Christian calling. Pope Benedict emphasised the duty of Christian charity in his first encyclical and he emphasised that this duty exists regardless of the underlying cause of the need we are trying to meet. The evidence is becoming clearer that the individual acts of charity, to which we are all called, add up not just to a significant relief of human suffering but also to a very important contribution to economic development in the poorest countries.
Philip Booth is Editorial and Programme Director of the Institute of Economic Affairs
See also the following IEA publications that can be downloaded free:
A Tribute to Peter Baeur
The Poverty of Development Economics