Foreign Aid for a Frugal Age
There are international development programs that actually do help the world’s poorest people. Dean Karlan can show you the proof.
As they prepared to take control of the House of Representatives, congressional Republicans were also getting ready to take on foreign aid — with a scalpel or a meat-ax, depending on how one parsed words. U.S. Rep. Ileana Ros-Lehtinen, conservative South Florida Republican and incoming House Foreign Affairs Committee chair, told Agence France-Presse she wants “to cut the U.S. State Department and foreign aid budgets and use U.S. contributions to force reforms in multilateral organizations like the United Nations.” And Foreign Policy magazine suggested that Rep. Kay Granger — a Texan who is aiming for the chairmanship of the State and Foreign Operations Appropriations Subcommittee and would, ergo, have influence over State Department funding — “is of a similar mind.”
I’d like to help these two congresswomen succeed in their new jobs by introducing them to Dean Karlan, a professor of economics at Yale University and the president/founder of Innovations for Poverty Action. (If you haven’t already encountered it, IPA is a remarkable nonprofit that “creates and evaluates solutions to social and development problems, and works to scale up successful ideas through implementation and dissemination to policymakers, practitioners, investors and donors.”) Actually, though, before the congresswomen meet Karlan, I’d like to introduce them to his new book, More Than Good Intentions, a sprightly read that offers many eye-opening, real-world examples of how international development aid can actually work.
The book (co-authored by researcher Jacob Appel, who appears to have visited every worthy aid program on the planet) is subtitled How a New Economics Is Helping to Solve Global Poverty, and its focus on real-world manifestations of behavioral economics — the irrational things people do in trying to make ends meet — is what makes the reading sprightly. Time after time, well-intentioned development organizations offer programs to help poor people dancing on the cliff of economic disaster — and the people often just keep dancing because, well, they’re people and not hyper-rational “econs” who do a classical cost-benefit analysis ahead of every financial decision.
More Than Good Intentions builds off the behavioral economics ideas widely publicized in Nudge, the Richard Thaler/Cass Sunstein book that explains how people can be encouraged to make better decisions by a society that makes good decisions easier to reach than bad ones. (Prototypical example: Students eat more fresh fruit and vegetable sticks when they are put in an appealing display next to the cafeteria cash register.) But Karlan’s book combines a keen sense of the quirks of behavioral economics with an insistence on the rigorous scientific testing of international development programs, using random, controlled trials to see whether the programs improve people’s lives.
The first sections of the book are fascinating, if less cheerful than the rest, as they take the shine off a category of aid that has been a darling of the development sector: micro-credit. In 2006, the Nobel Peace Prize went to Bangladeshi economist Muhammad Yunus and the Grameen Bank, which Yunus created, for their work over three decades to, as the Norwegian Nobel Committee put it, “create economic and social development from below.”
“Lasting peace cannot be achieved,” the committee opined, “unless large population groups find ways in which to break out of poverty. Micro-credit is one such means.”
Micro-credit programs — which offer small-scale loans to people (often women) in developing countries who then start or expand small-scale businesses — have spread to reach some 155 million people. More Than Good Intentions does not conclude that the micro-credit movement is a failure, but through a series of studies Karlan does show that, as he put it in a recent phone conversation with me, micro-credit “is the poster child for programs that are oversold.” In random, controlled trials aimed at testing the efficacy of several micro-lending programs, he finds that there are, indeed, amazing success stories, people who have taken small loans and, through entrepreneurial skill and hard work, lifted themselves out of poverty. But the studies show that this result isn’t the most common, that — as anyone with much experience in the for-profit world might guess — a poor population in a developing nation with a rudimentary educational system is unlikely to contain a far higher percentage of brilliant entrepreneurs than the general population of a richer, better-educated country.
But More Than Good Intentions doesn’t debunk international development mythology just for the sake of debunking. It tries, instead, to find a middle way between continuing to invest billions of dollars in aid programs with long, sad histories of accomplishing little and giving up on development aid as inherently ineffective. Overall, then, this is an international development gospel, a book full of good news about programs that make every dollar count and actually, provably help the developing world’s poor save money, protect themselves from disaster, get educated and improve their health. The book is especially good at describing how and why micro-savings programs have been a success in Africa and Asia, giving poor people in remote areas access to simple banking products. And when they get access to savings accounts, studies show, poor people really will save, creating the financial cushions that help them get past the inevitable financial crises of life.
Karlan’s book is also captivating in its discussion of the need for international aid programs to be — and don’t laugh until I have a chance to explain — marketed. Using as an example the Snuggie — a blanket with sleeves that no one needed until millions saw TV ads and bought it — Karlan makes a counterintuitive but powerful point: Many development programs could help people in need but don’t, simply because needy people don’t know enough about them. For example, rainfall insurance helps poor farmers make it through dry years in India, leaving them economically far better off over time, but farmers have been loath to buy policies. A controlled study, however, found that when insurance agents met farmers face to face, the likelihood of them buying the insurance increased by two-thirds. The low acceptance rate wasn’t the fault of the insurance program; it was the result of poor marketing.
I almost hate to say it about a book as well written, deeply researched and carefully thought out as this, but More Than Good Intentions is itself partly a marketing effort. Still, it’s marketing in the public interest. With conservative Republicans coming to power in the U.S. House and the U.S. public debt approaching $14 trillion, proposals to increase the U.S. government’s foreign aid budget have, essentially, zero chance of success. The State Department’s recently released Quadrennial Diplomacy and Development Review acknowledges this fiscal reality by styling itself, in some ways, as a reform document. “What we’re trying to say to Congress is, we get it,” Anne-Marie Slaughter, State Department policy-planning director, told The Christian Science Monitor. “We realize we’ve got to prove to you and to the American people that we are good stewards of your money.”
But the best market to tap for increased investment in developing countries may not be Congress. As More Than Good Intentions notes, “[i]ndividual donors in America contribute over $200 billion to charity every year, three times as much as the sum of all corporations, foundations and bequests.” From my vantage, most recent foreign-assistance marketing to ordinary Americans has involved sob stories and celebrities. I cry when children go hungry and enjoy both U2 and good-looking women in lingerie, but I don’t think Bono and Madonna are sufficient to persuade ordinary America to open its collective pocketbook.
I do think more Americans will support international aid programs if the sales pitch is focused on effectiveness and efficiency. The last chapter of More Than Good Intentions presents a “takeaway” of seven ideas that have stood up to rigorous evaluation. They include:
• Micro-savings programs, like one that provided women in Kenya basic savings accounts — and wound up greatly improving their economic lives.
• Deworming programs in Africa that drastically increased school attendance at extraordinarily low cost.
• Tutoring programs and reading camps conducted outside the classroom that produced “knockout” improvements in student performance in India.
• Programs that distributed chlorine, free of charge, at water collection points in Africa and, ergo, reduced diarrheal disease.
• Programs that persuaded farmers in Kenya to increase productivity in a simple, low-cost/free way: At harvest time, when they were flush with money, the farmers were given the chance to pre-pay for fertilizer to be delivered for the next crop.
I’m hoping Americans outside the government will read More Than Good Intentions as an entertaining on-ramp to a public-service highway that Innovations for Poverty Action will continue to extend. As Karlan noted in our interview, because it’s so hard for ordinary people to sort through what does and doesn’t work in aid programs, IPA has started an Impact Fund (Poverty-Action.org/provenimpact). The fund will identify, on a rolling basis, types of development programs that have been proven to work. It’s already grown Karlan’s seven takeaways to eight “tested and proven” methods for helping the poor that you don’t have to be a giant foundation or a congressman to support.
Still, I would like representatives Ros-Lehtinen and Granger to take a look at More Than Good Intentions or, at least, to assign a staffer to brief them on it. The book seethes with the scientific rigor and fact-based optimism that ought to exemplify American foreign aid. And the behavioral economics tweaks it describes should be of at least passing interest to conservatives looking for results with limited government intervention, not just in foreign aid but across the gamut of domestic social programs that might be made more effective through scientific testing and the occasional, well-placed nudge.