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The Aid Trap

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The Aid Trap

Hard Truths About Ending Poverty

Columbia UP,

15 min read
10 take-aways
Audio & text

What's inside?

Giving poor countries money makes them dependent. Promoting business development actually helps them develop.

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Prosperous nations today spend more than $100 billion annually on aid to developing countries. Still, according to the World Bank “1.4 billion people live on less than $1.25 per day.” Columbia University Business School academics R. Glenn Hubbard and William Duggan warn against funneling more money to corrupt governments and tinpot dictators for development projects that never materialize. Instead, they propose “a new Marshall Plan for the world’s poorest nations.” Like the original Marshall Plan that helped European countries rebuild their economies after World War II, the new program would focus on loans to help local businesses get off the ground. The authors thoroughly discuss where alternative plans have failed and are not shy about presenting the foreseeable obstacles and obvious downsides of their own plan. They explain in detail how to launch it, what institutions would be in charge and how they’d have to function. The authors even particularize the financing scheme by providing a detailed budget in the appendix. getAbstract recommends this vital, thoughtful, interesting proposal on how rich nations can help poor nations lift their people out of poverty.


The “Charity Trap”

Churches, organizations and good-hearted people worldwide, including such high-profile celebrities as rock star Bono and actress Angelina Jolie, contribute time, money and prayers to help eliminate poverty and improve conditions in developing nations. But these well-meaning benefactors fall into the “charity trap” when they assume that donations alone can solve the undeveloped world’s problems. They ignore the fact that their riches stem from business, not aid. Unfortunately, when poor countries and their citizens become dependent on charity and foreign aid, their local business sectors cannot thrive. If you are a poor person in such a country today, your best bet is to get appointed to a governmental position (funded by foreign aid) or to secure a job through a nongovernmental organization (funded by charity). This beats working for yourself as a farmer or artisan, but then your government has no need to develop a business sector.

“The Roots of Prosperity in the Modern World”

Throughout worldwide history, the business sector always has been the main driver in eliminating poverty. But it has never developed without obstacles. Competing ...

About the Authors

R. Glenn Hubbard is the dean of Columbia University’s Business School. From 2001 to 2003, he headed the Council of Economic Advisers. William Duggan, a senior lecturer in strategy at the school, has vast foreign-aid experience.

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