Austin Bay Blog

If you want to mitigate poverty in sub-Saharan Africa, attack corruption. Systemically attacking corruption means instituting a democratic rule of law– and that includes property rights. Robert Robb makes this point in a superb essay running in the Arizona Republic.

Robb has dones his research:

the Group of Eight summit last week, the news was the big things the big boys pledged to do to relieve African poverty.

The major developed countries - the United States, Canada, Britain, Germany, France, Italy, Russia and Japan - would forgive even more governmental debt and double development assistance to Africa, reaching $50 billion a year by 2010.

There actually isn’t anything much new in this news. Over the past 40 years, Africa has been given an estimated $450 billion in foreign aid. Yet incomes have remained stagnant and poverty rates heartbreakingly high.

Three months earlier, a much smaller initiative took place that went virtually unnoticed. Yet it actually holds much more hope of alleviating poverty in Africa than all the big pledges of the big boys.

It was a grant from President Bush’s Millennium Challenge Corporation to Madagascar. Bush has recognized the futility of the government-to-government aid for big projects approach, and sought to change the way in which the U.S. dispenses economic development assistance.

Aid would be given only to countries adopting governmental reforms conducive to democratic capitalism. The Millennium Challenge Corporation, named after the lofty U.N. goal adopted at the turn of the century to largely eradicate worldwide poverty by 2015, was established to render the scrutiny and make the grants.

The Bush initiative has been widely panned. Bush pledged $5 billion a year for it but has not pushed for full funding. Over the past two years, Congress has appropriated just $2.5 billion total. But the Bush administration hasn’t been able to spend hardly any of even that.

In fact, the grant to Madagascar, made this April, was the first. And it was small potatoes, just around $110 million.

But about a third of the money is for a land titling project, and therein lies the hope.

When the Bush Administration asked Madagascar’s government to think “broadly” (suggest a systemic approach to improving its economy) the Madagascan government discovered this:

What the people wanted most was legal entitlement to what they owned and controlled.

Less than 7 percent of land in Madagascar is legally titled. The government has a backlog of 200,000 title requests, but processes only about 1,500 a year.

This should come as no surprise to readers of Peruvian economist Hernando de Soto.

And it is thus no surprise to Robb:

As a result, rural subsidence farmers don’t have the capital or the incentive to improve or protect the land upon which they work. This is also environmentally disadvantageous, since it promotes a practice of exhausting land and then moving on.

That the poor in Madagascar wanted, first and foremost, legally protected property rights illuminates the insight of Peruvian economist Hernando de Soto, most clearly explicated in his book, The Mystery of Capitalism. De Soto has inventoried the assets the poor in developing countries already control, and they are considerable. But, because the poor do not usually have legally protected property rights to what they possess, they are what he calls dead capital - they cannot be leveraged for economic improvement.

Robb slams some naysayers who deserve slamming:

Compared to the big ideas of the big boys, this may seem like a small thing. In fact, the New York Times, in an editorial, positively turned up its nose at the Madagascar grant, lecturing that “real growth cannot exclude the basics,” such as running water, clinics and schools.

But truly eradicating poverty requires unleashing the productive capacity of the poor. And for that, legally protected property rights are the most fundamental “basic” of all.

Has developmental aid money been wasted in the past? Yes, money has been wasted by the shipload. This column from March 2002 adds some background.

Key points:

It’s a deceptive estimate, but nevertheless an estimate with too many zeros to ignore.

Since 1950, America and its allies have spent a cool trillion in U.S. dollars on anti-poverty and economic programs in poor and developing nations. Even though it’s over a five decade span, that’s a stack of tax dollars — from plumbers, school teachers, you, me — dedicated to improving the economic and social conditions of this planet’s impoverished, ill and starving.

Let’s first deal with the deceptive component of the cash pile. World War II didn’t quite end. Instead of fading, the front lines froze in Central Europe, producing the Cold War — a military, economic and political siege engaging Soviet East and Allied West.

The Truman and Eisenhower administrations saw “foreign aid” as a strategic weapon. Aid dollars — for food, for basic infrastructure, for industrial development — could fortify weak nations vulnerable to Soviet intrigue. Propping up the economy of a nation targeted by a Soviet-backed “liberation front” made strategic sense, politically and, yes, militarily.

Money could also buy other forms of “strategic influence,” like the support of Third World elites. Who dared call it bribery, if the check came from the U.S. Treasury?

But when dealing with local autocrats, the potentates and presidents-for-life in the hard corners of post-colonial Africa, South and Central America, and Asia, Washington and the West didn’t stress financial accountability. If money thwarted Soviet subversion, or bought a U.N. vote, that sufficed.

Gobs of developmental aid, gurgling through corrupt Third World autocracies, became personal deposits in Swiss bank accounts. Of course, aid wasn’t the only source of cash for the various Mobutus, Suhartos, and Mugabes — endemic corruption stunted business development and sapped non-governmental aid. Imagine Enron and Global Crossing as being the national government (with regulatory and police power), as well as secretive business enterprises. The term “banana republic” provides a fruit logo for the condition. “Kleptocracy” — rule by systemic thieves — is the gut description.

So that’s part of the cool trillion’s trail.

A visit to my NormBlog profile will find me answering this question by Dr. Geras : Can you name a work of non-fiction which has had a major and lasting influence on how you think about the world?

My reply:

Hernando de Soto’s The Other Path. I’d always favoured individual property rights and reward for individual effort and initiative. De Soto’s study of Incan Indians ignoring the corrupt, ‘colonial’ Peruvian government and working for themselves added intellectual firepower. It gave me new hope for tackling endemic poverty.

DeSoto was savaged by the Left when “The Other Path” appeared in the mid-1980s. But time has vindicated DeSoto and his work.