Your post is implicitly referencing the lack of institutions. There are some awesome papers by Acemoglu and co-authors, as well as La Porta and friends, on this topic (i.e., institutions and law – they are all based, one way or the other, on Douglas North’s work). Education is actually one of the best social goods to provide (this is b/c the returns significantly outweigh the costs), but society only sees those realized benefits under the right institutional structure.

What’s interesting, though, is that all the new literature (as well as your post) seems to suggest that growth is, fundamentally, a politically-driven phenomenon. As a corollary, that’s why foreign aid has been so ineffective – it’s like treating HIV with a condom, not the right tool.

Cheers from cali

Phil, I think you’re creating an unneccessary dichotomy. Maybe the debate should be over WHICH aid can break the poverty cycle, not whether it does.
Its true– foreign aid hasn’t made a dent in poverty. But I’m reluctant to write it off altogether. I think the most relevant critique to take from Easterly’s book is that too many aid projects lack measurable outcomes, consistency, oversight, and intelligence. They don’t really know what they’re doing, and they don’t stick around long enough to find out it isn’t working. To be cliched: its not what you spend, its how you spend it.**

Airlifting in mosquito nets made by US companies keeping US profits (hello USAID’s nepotism…) is not going to make the poor any less poor in 5 years.
Throwing up huge new school buildings in communities that can’t pay for electricity won’t help either. But training and continuously paying teachers for say, 20 years–long enough for a cohort of children to get a real education, not just basic literacy–might do the trick. I don’t know of any group that has followed through on that kind of commitment, or kept real data on such a project. If there has been such a thing, I would love to hear about it.

could we frame the debate as quality vs quanity? and could we decide into which category sach’s millenium villages fall?

**if you want to go off on a tangent…analagous arguments can be made for education in the US…there are isolated private, charter and parochial schools in poor urban environments that all outperform their public counterparts, and often do so at a fraction of the cost. yet we continue to pour money into the same broken system….

“Education is expensive and a benefit of wealth, so to some extent, this is a story of ‘they’re poor because they’re poor.’ ”

The idea of whether “they’re poor because they’re poor” is a contentious and hugely important debate when discussing the role of development aid.

On one hand you have Jeffrey Sachs (author of “The End of Poverty”) who claims that the existence of poverty traps justifies a massive developmental aid initiative. The logic goes like: If the poverty trap is cyclical and reinforces itself, the only way to spring people from the poverty trap is to … give them money or services. They can not do it on their own. Free markets can not get them out of poverty. But when you give them a hand out of the poverty quicksand, they can start climbing up the so-called “development ladder.” Without that initial spurt of aid, they are stuck.

On the other hand, Sach’s nemesis William Easterly disagrees. Easterly points to the failure of $2.3 trillion in foreign aid to bring countries out of the poverty trap and questions whether the poverty trap even exists (!!). He points out that poverty traps should reveal themselves in the data. Your ability to move up the development ladder should be a function of where you start out. Surprisingly, there are some studies that indicate this is not the case. But my sense is the jury is still out.

For Sach’s POV:
http://www.sciam.com/article.cfm?id=breaking-the-poverty-trap-extended&sc=I100322

For Easterly’s POV: http://www.nyu.edu/fas/institute/dri/Easterly/File/AfricasPovertyTrap_WSJ032307.pdf

if you’re having trouble seeing the costs of poor governance, maybe it is helpful to think of both lack of trust in enterprise and the lack of education as the result of bad policy:

Beginning with the former, you say there is a lack of long-term investment. This probably is explained in part by policy volatility, from tax codes to export/import licensing regulation.

The later is the result of the high cost – often measured as opportunity cost – of education to poor, and particularly rural, families. An excellent case study (although in Mexico) is Paul Schultz’s “School subsidies for the poor: evaluating the Mexican Progresa poverty program”.