New evidence suggests that the global charity model, to help people help themselves temporarily rather than to create a sustained pool of redistributed funds, has provided an insufficient response to the challenges preventing MDG progress.
The 'poverty trap' is being perpetuated rather than broken
First, the 'poverty trap' is being perpetuated rather than broken, as can be seen from the growing body of literature on this topic,[
14] including work by those seeking to understand long-term growth failure in very poor countries, from the perspective of convergence and divergence in the global economy,[
15,
16] and from those with an interest in self-reinforcing inefficient equilibria, often linked to institutional failure, that prevent countries escaping from poverty [
17]. An additional factor is lack of resilience in the face of emerging economic and environmental crises [
18,
19]. The UN Millennium Update report (2009) reveals that progress towards the MDGs is threatened by the recurrent reality of natural and man-made disasters creating turmoil for the poorest. Recurrent instability in the global economic marketplace has undermined the benefits of global charity repeatedly,[
20] as seen previously during the Russian and Asian economic crises [
21‐
24].
The persistence of this poverty trap has many reasons, but one fundamental etiology is the failure to support those who lose out in the creative and destructive processes of the global market [
25]. In a global competitive market, strong players are allowed or even encouraged to invest their market gains in ways that give them future comparative advantage, such as education, research and development, and infrastructure: all factors contributing to further economic growth. If left unchecked, however, comparative advantages accumulate within the hands of a few families and companies, leading to further exclusion of those who were already losing out in the creative and destructive processes of the market [
26]. Importantly, David Ricardo's theory of comparative advantage, the basis of modern free trade theory and the idea of trade as a mutually beneficial activity, assumed a fully competitive marketplace without the ongoing within-firm trading systems and oligopoly/monopoly or trade rule-bending mechanisms that are currently exhibited in the modern economic and political system [
27]. The current system does not correct the so-called 'backwash effects' of global centers of economic growth (such as the United States, Western Europe, and increasingly Brazil, Russia, India, China, and South Africa): these centers attract capital and human resources from their remote peripheries and bend the rules to their advantage, but the fruits of their growth do not return to the periphery [
26].
Within rich countries, systems have been established to protect those who have failed in the market place, for example by providing unemployment assistance to tide over those people who try to start a business but fail, enabling them to survive until they return to employment. These systems encourage or even force the most advantaged groups to share their gains with everyone else, especially those with initial disadvantages, at least to a certain extent. Through taxation and government spending, the advantages of the strongest players contribute to building up comparative advantages for the entire population, in particular by protecting those individuals who have failed in the market place. They also protect people against so-called catastrophic health expenditures, and provide early childhood education to their children, attempting to safeguard equality of opportunity. Government-encouraged measures cause so-called 'spread effects' of economic growth centers [
26]. However, in a global economy, the winners and the losers are often in different countries and the system of social protection extends only to the national border: although backwash effects of economic growth centers cross borders, spread effects rarely cross borders. For every dollar of aid to Africa, about 2.4 dollars leaves Africa in the form of illicit financial flows [
28]. According to other estimates, up to 40% of the private wealth of inhabitants of Africa is invested in other parts of the world--legally or illegally [
29]. This capital flight is in addition to debt repayments of over $3 trillion generated when international banks lent to governments that were often directed by colonial and post-colonial dictators who were put in place to provide natural resources and labor to western states [
30].
As another example of the globalised nature of risks, the recent food crisis left many poor farmers unable to sell their crops after a drop in prices (which, some economists argue, rose from the speculative actions of investors in rich countries);[
20,
31] these farmers lacked an insurance system that would give them time to develop a "comparative advantage" in another form of productive labor. Their countries are not only too poor to finance such initiatives; even after a large increases in aid, recurrent market failures and natural disasters can overwhelm an entire country's capital accumulation (as seen recently in Greece), requiring aid from other countries.
Current international support mechanisms, such as the International Monetary Fund, have so far failed to protect populations from the social consequences of economic instability and backwash effects, often because they are pushing countries towards becoming "self-sufficient" so quickly that they force them to reduce their remaining social welfare funds [
32‐
35]. Short-term disadvantage accumulates--leading to chronic poverty, lack of education, lack of health care, and poor nutrition. No short-term increase in aid can counterbalance the powerful global forces that continue to create losers; aid as currently designed is therefore inevitably slated to fail.
International assistance does not reach the poorest
Second, a recent series of reports has revealed that much aid is not reaching the poor, not just because of corrupt governments, but because of diversion of aid for other purposes and macroeconomic conditions imposed on poor country governments [
34,
36,
37]. Based on the assumption that flows of aid are unreliable, major global financial institutions have directed Ministries of Finance to build up reserves, maintaining overall budget levels unchanged (rather than increasing the health budget when new aid is received) [
38,
39]. The consequences are apparent in the finding that each additional $1 dollar of health aid adds only about $0.37 to health budgets in recipient countries, and < $0.01 (complete displacement) in countries that under the advisorship of the International Monetary Fund (when analyzed using the Organization of Economic Cooperation and Development's aid database) [
36,
37,
40].
International assistance is misaligned with the actual needs of populations
Fourth, aid being allocated by donors is misaligned with the actual needs of populations, in spite of repeated donor commitments to align aid with domestic needs (a frustration captured in their decision to amend practices set out in the 2005 Paris Declaration and 2008 Accra Agenda) [
41,
42]. The current system of resource allocation has failed to respond to the interconnected risks that threaten progress. One example is that chronic (long-term) health problems and their underlying social and economic determinants of health are least likely to be addressed by current aid programs, yet have recently been shown to be critical determinants of progress towards the MDGs [
5,
43]. Furthermore, aid is volatile, and systems to pool funds to address the long-term social and economic factors most affecting MDG progress, such as the Sector-Wide Approach, have had limited success due in part to volatility and unpredictable commitments [
44]. Many current donations are subject to such extensive conditionalities and earmarking as to be of limited utility, and focus so much on short-term measureable outcomes that longer-term results seem elusive.
Looking at the reality of one of the poorest countries in the world, Ethiopia, helps understanding how these challenges come together and explain difficulties achieving the MDGs:
-
Ethiopia is a country of 80 million people with an average Gross Domestic Product (GDP) of US$244 per person per year and a total health expenditure level of $9 per person per year. To meet minimum health requirements related to the MDGs, the country would need to achieve a level of health expenditure of $40 per person per year according to the WHO.
-
The first obstacle in meeting this need is international community support, which would have to amount to $2.4 billion per year ($30, multiplied by 80 million people), gradually decreasing in line with falling need. At present, no avenue exists to provide funds on this scale for health system development, and no aid channel has proven sustainable at such a high level given shifting interest from external donors, who already account for 42% of total health expenditure in the country.
-
The second challenge for the Government of Ethiopia is to be convinced that it can sustain this level of health expenditure, from domestic revenue, within a reasonable time. That would require economic growth of more than 400% over the next 10 years, to obtain an average GDP of $1,333 per person per year in 2020; it would also require government revenue to increase to 20% of GDP ($266 per person per year) and require the allocation of government revenue to health to increase to 15% ($40 per person per year). At present, such budgetary change is at odds with international financing institution recommendations, which specify to the Ministry of Health not to increase health budgets upon receipt of new aid, given the unreliability of prior aid disbursements historically.
-
This specifies the third challenge: that the major institutions making recommendations (often binding by virtue of other loan agreements) to the Ministry, particular the World Bank and the International Monetary Fund, would have to be convinced that the first and second condition will be fulfilled, otherwise the increased expenditure would not be allowed due to fears that it would lead to new building projects and initiatives that would then go bankrupt as unreliable aid dried-up (the phrase "not be allowed" comes from the World Bank's document 'Health Financing Revisited: A Practitioner's Guide') [
11]. Hence, current aid systems lack of mechanism for sustainable financing to produce effective system-wide improvements to public health, even though they aim to achieve the system-wide Goals specified in the MDGs, and ultimately achieve sustainable growth of poor countries.
In light of these limitations, some critics of the current aid system suggest that the 'Big Push' approach will not solve the problems the MDGs seek to eliminate; dispirited by current obstacles, they argue aid is not part of the solution, but is becoming the problem because of its distortions of domestic priorities and interference with markets [
8,
45‐
47]. These critics suggest that progress could be achieved much faster by getting rid of aid altogether, although others have suggested that these arguments rely on distortion of data to suit pro-privatization agendas [
30].