Markets or goals?

Peter Gregory writes:

The UN ratified its Sustainable Development Goals (SDGs) a month ago. $US2.5 trillion of foreign aid spending between 2015 and 2030 will be devoted to achieving them. UN Secretary-General Ban-Ki Moon says they are a plan “for ending poverty in all its dimensions, irreversibly, everywhere, and leaving no one behind”. He is wrong. The SDGs are inefficient, driven by politics and misdiagnose poverty.

Unfortunately, it is poor people themselves who will suffer as a result of foreign aid programs that are less effective than they could be. 

The SDGs are supposed to build on the work of the Millennium Development Goals (MDGs) which expired this year having run since 2000. But whereas the MDGs consisted of 8 goals with 18 targets, the SDGs consist of 17 goals with 169 targets.

The SDGs fall into the trap common amongst big multilateral foreign aid organisations of trying to fix everything, rather than working in the areas where they can have the biggest impact. In attempting to be everything for everyone, the SDGs have only succeeded in becoming a disparate wish-list for the development community.

As a result, the 169 targets are both too ambitious and too specific. For example, goal 1.1 seeks to “eradicate extreme poverty for all people everywhere” whilst goal 14.9 wants to “provide access of small-scale artisanal fishers to marine resources and markets”.

I reckon anything more than 10 targets and you have no chance of achieving them.

To overcome this problem, Danish economist Bjorn Lomborg constructed a rigorous cost-benefit analysis on each of the SDG targets. He whittled the list of 169 down to just the 19 most impactful targets.

That is not a hard-nosed ‘economic rationalist’ approach to foreign aid. It is about to trying to ensure development has the greatest impact for the people who need it. Foreign aid can’t fix everything but as development economist William Easterly says, it can help some people some of the time. The fact that the SDG process is political and ideological means the kind of foreign aid the goals offer isn’t as helpful to poor people as it could be.  

So aid can help some people some of the time.

Poor people are poor because they have been prevented from participating in free markets. This is because free markets are the best drivers of economic growth, which in turn provides access to health, education and other things the SDGs are trying to achieve.

Yep. By poor we don’t mean $20,000 a year poor, but $500 a year poor.

No country has developed successfully without some measure of free markets. The evidence of this is absolutely manifest in the last few decades. 

In China, free market reforms such as allowing international trade, removing barriers to private enterprise and reducing state control of agriculture have lifted 680 million people out of poverty since 1980. Furthermore, World Bank economist Martin Ravallion believes economic growth in other developing countries has lifted 280 million people out of poverty since 2000.

The embrace of markets by China and India did far more to lift people out of poverty than the UN goals.

A recent study found that the economic liberalisation in India has partially eroded the caste system. Increased female entrepreneurship precipitated by microfinance has been shown to reduce domestic violence and gender discrimination. Swedish economists recently found that countries with greater economic freedom were more likely to have greater tolerance of gay people.

Liberal markets can lead to liberal countries.

The Lomberg study is interesting also. They found:

Freer trade from completing the World Trade Organization’s Doha agreement would return more than $2,000 of extra value for each dollar spent to retrain and compensate displaced workers. It would lift 160 million people out of extreme poverty, giving every person in the developing world an extra $1,000 in income every year by 2030. By comparison, money transfers—paying the poorest people enough to lift them out of poverty—would have huge administrative challenges and institutional deficiencies, with benefits of only $5 for every dollar spent.

Free trade is hugely more effective than aid.

Boosting the availability of preschool is an exceptional development target. Tripling access in sub-Saharan Africa would have benefits worth more than $30 for every dollar spent, because of improved future earnings and other social benefits, such as instilling an interest in learning in children when they are very young.

One of the more useful things you can do.