Is giving money to poor countries doing more harm than good?

BY Gregory Clark  July 14, 2014 at 9:18 AM EDT
Aid is delivered in Doruma, Democratic Republic of Congo in 2009. Photo by Flickr user Julien Harneis.

Aid is delivered in Doruma, Democratic Republic of Congo in 2009. Photo by Flickr user Julien Harneis.

Editor’s Note: If economic growth is determined by a certain set of personality traits that are either culturally or genetically transmitted, as economic historian Gregory Clark told Paul Solman seven years ago, how do you help those societies that haven’t experienced economic growth?

In the fifth and final part of Paul’s never-before published conversation with Clark about his 2007 book, “A Farewell to Alms,” he asked Clark to forget the book and go off script to ponder some of the policy questions his thesis — not to mention the name of his book — provokes.

Clark.A farewell to alms

But first, a review of Clark’s view of economic history, as we’ve presented it on Making Sen$e over the past week. In the beginning of human history, we were hunter-gatherers, living a pretty good life — better, in fact, than life in pre-industrial England. That’s because, as Clark explained in part one of his interview with Paul, the world was governed by a “Malthusian” economic view where population was constrained by the limited resources available to keep humans alive. In that world, having more violence and more space to move in hunter-gatherer society was preferable to dying a slow diseased death in cramped London. When death struck, there were more resources available to the surviving hunter-gatherers.

But that changed with the onset of the Industrial Revolution, when rapid growth made the West rich. The English broke out of the “Malthusian trap.” But how, and why them?

Much of the dismal science credits economic growth in the early 1800s to societies like England having institutions — both market and political — to facilitate that growth. Clark challenged that assumption, instead explaining that human personalities changed dramatically from the hunter-gatherer era to the 1800s. It was like kids learning to pass the marshmallow test, but on a massive scale, Clark explained in part two; learning to be patient, to delay instant gratification, coupled with being materially-driven, mixed well with capitalism. The people with these traits not only did better for themselves, but en masse, they did better for their economy. What set England apart then, Clark argued in part three, is “the survival of the richest.” Part four takes the Darwinian component further, suggesting that the traits that are predictive of success could be transmitted genetically.

But with a book called “A Farewell to Alms,” Paul wanted to know what all this economic history means for the future: how should rich countries be helping poor ones, and is there really any relationship between wealth and happiness and between democracy and economic growth? That’s where we pick up today.

– Making Sen$e Editor


Paul Solman: So what are these qualities you’re talking about that lead to economic success?

Greg Clark: Hard work, patience, willingness to invest for the long run, education, willingness to calculate profit and loss, and also willingness to try new things, to change the technique in search of better results.

Paul Solman: What are the implications this explanation? Policy-wise? You call the book “A Farewell to Alms.” Why?

Greg Clark: In part, the title is that way because it’s a pun, but also it’s to express the liberation of modern societies from this material constraint that held for so long and dominated human existence all through history.

Paul Solman: See, I completely misunderstood that. I’ve read the book more thoroughly than most people.

Greg Clark: You thought that I was saying, “don’t give aid to the poor anymore,” right? Which was absolutely not the thought going into this.

Paul Solman: Maybe it’s subliminal because you don’t believe in giving aid to the poor, right?

Greg Clark: Okay, in terms of policy implications for the modern world, there’s a couple of aspects of the book that bear on the modern world. The first is that there’s been a lot of debate recently about how to help Africa. We’re in this kind of appalling state in the modern world where there is a widening gap between our riches and poverty, and it’s closer and closer to us, but the gap is forever wider.

Clearly, we’ve got to try and do something to close this gap, and recently, there’s been a lot of publicity given to books by Jeff Sachs and Paul Collier, calling for different solutions to the problems of Africa. And so the only caveat that my book wanted to emphasize there was that many of of these societies still don’t seem to have escaped this Malthusian trap. Policies to improve governance, improve sanitation, deliver more health care — a lot of those could actually have no effect on people’s welfare, or even make people worse off than they were before.

“Exposure to all the riches of modern technology has actually resulted in some societies in Africa that we think are amongst the poorest people who ever lived.”

Exposure to all the riches of modern technology has actually resulted in some societies in Africa that we think are amongst the poorest people who ever lived.

My book is not saying let’s not do anything. What it’s saying is that the key to the development of any of these societies is industrialization, or it’s providing modern industrial goods, and then if you want to devote money to these societies, it may well be much better to prioritize that. The other things will follow. …Like China, it’s managed to lift people out of poverty through that force of industrialization, and that’s the key puzzle about somewhere like modern Africa which is at those incredibly low-weight rates. Why is it not possible for modern enterprise to operate better?

Paul Solman: So you mean Bill and Melinda Gates are doing more harm than good by keeping people alive longer so that their standard of living goes down?

Greg Clark: I’m not saying that that is happening. I’m saying it’s possible that their efforts will actually result in lower standards of living for some of these societies.

These societies have extraordinary rapid rates of population growth. They’re still largely agrarian. There are more and more people per acre of land in many of these African societies, and if people can survive on less food, less housing, it may just be that the population will simply expand to an even greater extent within the society.

So all it’s saying is that given what we know of the Malthusian world, in designing aid, there’s a natural tendency to think I need to help people with their immediate needs, and those are the most important things, and that will be how I will change these people’s lives.

My book says that the way people’s lives globally were changed was by economic growth coming to these societies, and that help before growth may not be any help at all…

There are some societies where we can identify hunter-gatherers — Aboriginal, Australia — where you can clearly see that this society is struggling with the modern world, where they’re in an institutional context in Australia, where everything should be set up for growth and for success.

Paul Solman: If it’s genetic and you have to develop these traits of patience and so forth in order to survive in this modern world, crazy as it may be, then what hope is there except those genes dying out or intermarrying with really patient people so that your joint kids are patient enough to make it in an Australian society?

Greg Clark: So what I want to emphasize here is the book is a work of description, by and large. It’s trying to understand the various processes in the world. It really is careful not to get into a lot of prescription, and there’s absolutely nothing in terms of looking at the book which would have any of these suggestions in it.

Paul Solman: Forget the book. I’m just asking you.

Greg Clark: Right. One of the great surprises of economic growth has been that as far as we can tell, we’re no happier than the hunter-gatherers. If you look across modern societies, within societies, which people are happier? It all seems to be based on your comparative position. As we’ve got richer and richer, we’re not getting happier. If we look across the road, very poor societies are actually still societies where people report relatively high levels of happiness.

“One of the great surprises of economic growth has been that as far as we can tell, we’re no happier than the hunter-gatherers.”

The bizarre thing is there’s no reason to think that — even though we live for 75 years, we’ve consumed as much food as we want every day, we have 2,000 square feet of housing — we’re any happier in our day-to-day life than hunter-gatherers who lived an average 35 years, got a meal a day if they were lucky, and had shelter where they could. And so what that says is, in part, there’s no reason to think that our characteristics — the characteristics of the envious who may have inherited the earth — are characteristics that we should particularly prize or privilege.

We’ve got more material stuff now than we know what to do with. I’m not saying that this is a world we’ve created, that we should particularly prize or think of as having a particularly high value.

Paul Solman: Well, wait – so then one policy prescription could be that anybody watching this should go on a zen retreat, or cultivate ways of countering this envy gene that makes us less happy than we would be if we were foragers.

Greg Clark: No, if you’re asking the question, “In modern society how do I make myself happier?” the evidence from work of Dick Easterlin is very clear – get more money.

Paul Solman: Because you’re comparing yourself –

Greg Clark: To other people. Get a bigger house, get more material goods than your neighbors. That’s absolutely the case, right. But people like Robert Frank and others have emphasized that it is something that we now have to grapple with, which is that we’ve produced material affluence on the assumption that that was going to be linked to human happiness at a global level, and what we’ve observed is that that’s not the case.

Now, there are lots of other reasons for having this material affluence. One thing is, for example, I’m very interested in knowledge and science, and this allows us to do stuff that we could never have done before. It allows us to smash atoms together at speeds we would never have heard of before. But it turns out, there’s no reason to think of that as being connected with improving human welfare, at least as modern economies are currently constructed. The new frontier of economics would be to think of how to reconnect material affluence with actual human satisfaction.

Paul Solman: You keep saying institutions. What are these institutions that the economics profession believes are paramount to economic growth?

Greg Clark: Economists have a strong belief that if you give people the right incentives, good results will come economically. And what that means is that people get to keep the income they produce, they have security of property, they have freedom to transact with whomever they wish. They have a legal system that will enforce contracts. They have a government that intervenes minimally in the economy, but keeps everyone honest, and these are the kind of institutions that economists think are guarantors of economic growth.

Paul Solman: The assumption we go by here is that democracy and free markets are inextricably linked. You’re voting your dollars in one case, voting at the ballot box in the other, and that that combination will, all else equal, do really well for you in terms of material growth.

“I really do not think in any inherent way that democracy is a prerequisite for growth.”

Greg Clark: There are many reasons for preferring democracies over other forms of government. But I think the long history of economic growth suggests that the link between democracy and growth is a very weak one, and modern China is just a startling counter-example to this process, and then similarly India, which had a functioning democracy, but no growth for many years after independence shows that the link between these two is just really not established.

Paul Solman: But isn’t it inevitable that you’ll have democracy if you have economic growth?

Greg Clark: There has been a convergence of high income societies towards a democratic model, and so I would expect that other societies would move in that direction as well. But I really do not think in any inherent way that democracy is a prerequisite for growth.