Grading the annual Bill and Melinda Gates letter on poverty and aid predictions

On Friday the Wall Street Journal previewed the key bits of the annual B&MG letter on aid and development. Today the full letter came out. This is fast becoming one of the more important aid statements each year, if only because it’s the only short and readable one. Fortunately it is often smart as well.

The questions they tackle look an awful lot like some of my Columbia SIPA class exam questions. So how would I grade it?

From the WSJ exceprts:

By 2035, there will be almost no poor countries left in the world. Yes, a few unhappy countries will be held back by war, political realities (such as North Korea) or geography (such as landlocked states in central Africa). But every country in South America, Asia and Central America (except perhaps Haiti) and most in coastal Africa will have become middle-income nations. More than 70% of countries will have a higher per-person income than China does today.

B+. I buy the basic spirit that most countries are growing and, barring any unforeseen disasters, the majority will probably chug along. So I can get behind the idea of less doom and gloom.

Even so, while I’m sure you can make the numbers back these claims, it feels like exuberant optimism when simple optimism would do. I’d feel a lot more confident about proclaiming poor nations will be few in 40 rather than 20 years, especially by the China benchmark.

Here is one hasty calculation from me: By one measure, China has a per capita income (adjusting for the prices of goods) of $9k right now. Two of the best growth prospects in Africa, Kenya and Ethiopia, come in at $1.8k and $1.3k. To reach China’s level in 2035, Kenya would have to grow at about 8% per person a year, and Ethiopia at 10%.

Basically, Kenya and Ethiopia have to grow as fast and unfettered as some of the fastest-growing nations in human history. Impossible? No. Likely? Almost certainly not. But at an ambitious 5% income growth per year (per person) they’ll reach China’s level by about 2050, which is still pretty amazing by historical standards.

Two other reasons to temper our exuberance. First, I’m a bit worried that resource (especially oil) wealth will put a lot of countries over the middle income edge, leaving a number of fairly unequal, unstable states.

There’s also an authoritarian tinge to many of the recent success stories (Ethiopia, for instance) and I fear that will get worse before it gets better. African leaders are paying close attention to Chinese political systems of control, not just economic ones. I’m more optimistic about growth in incomes than freedoms in the next three decades. And ultimately that is what matters.

A slightly more measured tone, clearer numbers, and a word about the uncertainties and risks would have sailed this answer into “A” territory.

Onto the next big point:

One common complaint about foreign aid is that some of it gets wasted on corruption—and of course, some of it does. But the horror stories you hear—where aid just helps a dictator build new palaces—mostly come from a time when aid was designed to win allies for the Cold War rather than to improve people’s lives.

The problem today is much smaller. Small-scale corruption, like a government official who puts in for phony travel expenses, is an inefficiency that amounts to a tax on aid. We should try to reduce it, but we can’t eliminate it, any more than we can eliminate waste from every government program—or from every business, for that matter.

A+. Hurray! Finally a public figure with some sense. And a bold statement given that heads of aid agencies love to prioritize corruption. See here and here if you want my take why their claims are well founded.

Unfortunately, next comes this:

Aid also drives improvements in health, agriculture and infrastructure that correlate strongly with long-run growth. A baby born in 1960 had an 18% chance of dying before her fifth birthday. For a child born today, it is less than 5%. In 2035, it will be 1.6%. We can’t think of any other 75-year improvement in human welfare that would even come close. A waste? Hardly.

C-. The basis of the claim is that aid projects work and we know it. I completely agree. Plenty of aid projects have huge impact.

There’s a paradox, though: even though so many projects work, aid in total doesn’t have the association with growth or development we’d expect to see. Some of the finest minds in development (like Angus Deaton) think aid is fundamentally flawed, with good reasons.

The evidence that aid projects are associated with growth is amazingly absent. This is frustrating for those of us (including me) who believe in aid. My guess is that we throw a lot of good money after bad, and most aid is much more wasteful than it needs to be. But I think aid basically works and can do better. See me challenging Deaton’s pessimism here. Bt make no mistake: This is a leap of faith not evidence.

One answer could be that projects work alone, but that the assembly of so many projects (and so many dollars) perverts or undermines stable, good governance. Here is a good summary of the evidence, and it’s not optimistic.

So the basic problems with B&M’s claim: they gloss over the paradox, the potential political problems, and the strongest evidence against their leap of faith. I found the whole section troublingly misleading compared to the rest of the letter.

Saving lives doesn’t lead to overpopulation. Just the opposite. Creating societies where people enjoy basic health, relative prosperity, fundamental equality and access to contraceptives is the only way to a sustainable world.

A-. Here they are fighting the myth that saving lives leads to overpopulation. I didn’t know this was a popular belief. It seems they are banging their heads against blog commenters. I would be more concerned if they heard it again and again from government ministers. But the A- gives them the benefit of the doubt that a wary American public thinks that aid will dangerously overpopulate the world.

My overall assessment: A-

I nudge it above a B+ because (1) this is a public letter not an exam (so I’ll forgive the absence of some nuance), and (2) the unconventional and daring points (by aid world standards) about who will be poor in 25 years and why corruption is important but second order.

Of course, this is a hasty reading and grading. (Yet, truthfully and shamefully, not half so hasty as most of us professors grade their real exams.)

Readers, what do you think about the letter?