Addicted to misery?

by David Zetland, S. V. Ciriacy-Wantrup Fellow in Natural Resource Economics & Political Economy, UC Berkeley

While Bill and others were messing around with the New Yorker piece on Chinese development, they overlooked another piece in the same issue that may be even more significant (!) than debates over China's growth.

In "Alms Dealers" [sub reqd] Philip Gourevitch reviews Linda Polman's book, "The Crisis Caravan: What’s Wrong with Humanitarian Aid?" The central thesis of this book (as presented in the review) is that the people who deliver aid are addicted to horror stories and starving kids, and this addiction is fed by those who benefit from aid, whether they be local leaders, militias committing atrocities or even victims who don't wear their prosthetic legs because they can get more attention with their stumps.

This thesis has always made sense to me (see this this and this at my day-job blog, aguanomics). Polman is merely putting data (multiple anecdotes) to the theory.

Here's the simple version: If people give you money because of A, then you don't do anything to stop A. Even better, make A bigger so you get more money. Here's the refined version: Bruce Yandle's theory of Baptists and Bootleggers holds that Bootleggers quietly cheer Baptists' efforts to close liquor stores on the Lord's Day. Closed stores mean less competition for Bootleggers selling booze from their, uh, boots.

Although Baptists and Bootleggers may not be explicitly cooperating, they are seeking the same thing (a ban on legal alcohol sales) for totally opposite reasons. The Baptists are deluded into thinking that the ban will end alcohol drinking; the Bootleggers know that the ban is good for business and their profits.

Now, let's reword that for aid: "The Baptists Activists are deluded into thinking that the ban aid money will end alcohol drinking poverty; the Bootleggers warlords and corrupt politicians know that the ban aid money is good for business and their profits."

Who suffers? Drinkers pay more for their illegal booze, and they are not better off. Tax payers pay higher taxes, and aid beneficiaries are not better off.

What's interesting in Polman's book is the way that Bootleggers warlords and crooked politicians are actively making poor people worse off, to raise their profile and increase the flow of "do something!" money funneled through the Angelina-Bono-Geldof-Sachs pipeline.

I covered a number of these issues, focussing on the discretion that middlemen (aid workers and bankers) have in choosing what actions to take and how much effort to exert in my Public Choice article, "Save the Poor. Shoot some Bankers" [open access], but I was not cynical enough to endogenize poverty. Polman's claim that the people in the aid business are actively worsening things for aid recipients, to give themselves job security and more money, is dangerous and damning, but it is fair game for testing evidence for and against.

Even if we give the World Bank, USAID and NGOs a free pass as pure Baptists, then we still have to worry about cynical warlords and politicians who cut off arms and starve their people to keep themselves at the top of the news hour and as beneficiaries of  well-meaning donors who want to do something.

Photo credits (top to bottom): World Bank, USAID, UN