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Grading the 2015 Bill and Melinda Gates letter on poverty alleviation

Bill and Melinda Gates in Los Angeles on Sept. 27, 2014. (Kevork Djansezian/Getty Images for EEM World)

Every year Bill and Melinda Gates write an annual letter, laying out a strategy for eliminating poverty and suffering in the world. Here it is for 2015. These letters are a big event for a lot of reasons: They are smart, brief, readable and backed by a huge chunk of cash. This makes them one of the most widely read influential documents on international development every year.

All the more reason to take a critical look and discuss.

The letter addresses questions that look an awful lot like the exams and term papers I require for my development classes at Columbia University. So last year I took the conceit of grading the 2014 letter like an exam. Maybe I’ll make this a tradition.

Last year I gave an A-minus. This sounds good (and it is) but keep in mind that with Ivy League grade inflation that’s practically the median these days.

Now to 2015. As will become clear, I’m far from an expert in all these areas. But I hope this prompts actual experts to weigh in. So here goes.

Bill and Melinda Gates begin with a big bet:

The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And their lives will improve more than anyone else’s.

They make this based on four smaller bets, on four breakthroughs for most people in poor countries:

They will be living longer and in better health. They will have unprecedented opportunities to get an education, eat nutritious food, and benefit from mobile banking. These breakthroughs will be driven by innovation in technology — ranging from new vaccines and hardier crops to much cheaper smartphones and tablets — and by innovations that help deliver those things to more people.

I’ll take each breakthrough in turn. I agree with every one of them. But, to preview, my overall grade is a B. I have three reasons:

  1. Over-claiming: Making big steps sound like monumental leaps
  2. Providing solutions that will work best in the countries that will probably grow anyway
  3. Downplaying the harder barriers these breakthroughs won’t solve

In case you don’t feel like reading the whole long piece, here is the punch line: An A grade for what the world’s richest couple can reasonably do but a C for delivers on the big bet.

All the things we want from development — an end to extreme poverty and suffering — is synonymous with political stability, capable states, industry and financial systems. I can’t see how a country gets from $1,000 to $5,000 a person (let alone $12,000) without them.

The Gates’s priorities — disease eradication, online education, mobile banking and agricultural inputs — simply don’t attack these fundamental elements of development. They take them for granted. Which means they apply to the countries already bounding ahead.

To their credit, the letter attacks the problems that an outside funder can actually achieve and what the Gates Foundation does better than almost anyone else. This sounds like exactly what they should do. It’s why I admire them. But let’s not claim that a few new technologies can make unprecedented and fundamental changes in poverty in 15 years. They’ll make little, useful changes. That makes for a humbler, less exciting letter. But I think it’s the right one to write.

Let’s take the breakthroughs one by one.

Breakthrough one: Disease eradication

Increased investment in health care has led to better coverage with the vaccines and treatments that were already available, and intensified R&D has led to the development of new vaccines and treatments.
… Many poor countries have built strong health care systems in the past 25 years, and in the next 15 years other countries will pick up on their ideas and provide more care — and higher quality care — for newborns and young children.

Where is the important advance here? New vaccines? Or delivering them along with basic health care? One (vaccines) happens in labs, and with Western time and money probably turns into new medicines. Probably. Some of the killers that don’t have vaccines, like malaria or HIV, have proven stubborn, but I imagine (and hope) a breakthrough is possible. This would be huge. I’ve always admired the Gates for throwing money into this kind of research.

If new vaccines are delivered, my guess is that the countries that have strong health care systems will roll them out quickly. In that case, yes, more money will translate into vaccinated children in China and Indonesia and Brazil. But countries that don’t have functioning health systems?

Vaccination campaigns are one of the more simple and straightforward tasks a bureaucracy can do. Polio and guinea worm eradication programs have been around for a long, long while. Universal vaccination is a much simpler government task than, say, a just justice system or a public secondary school system.

And yet the last few miles of vaccination have been hard. One barrier is suspicion and resistance in the parts of the world without states. A few holdouts in Nigeria or Sudan or Central Asia, for instance, can prevent the eradication of diseases. And have.

Most states for most of history have not been benevolent; they’ve been merciless and coercive. The people in these last corners of statelessness are not stateless by accident. They excel at resisting that coercion and outwitting the best planners. And, at the end of the day, universal vaccination is a benevolent kind of coercion.

If I’m right, universal vaccination equals ending statelessness. Possible. But sounds harder now.

Another barrier is better bureaucracies. Delivering vaccines, improving maternal health and reducing child mortality means better public health systems. The poorest, most fragile states simply don’t have these. Look at Liberia and Ebola. They can’t get free rubber gloves from the port to the hospitals.

Yes, this will get better over time. But the historical data tells us we need to think of bureaucratic development in decades, not years. Maybe the Gates Foundation thinks they can also speed this up. That would be exciting. If so, I’d like the letter to tell us about that.

In the meantime, outside organizations can sweep in and vaccinate the population. This is what happens in the South Sudans of the world. It’s not clear this solves the big problem — the absence of basic public health systems. Bypassing the government (as so much humanitarian aid does) could actually slow the development of state capacity, so countries can one day do it themselves.

I say a grade of A for vaccine research, B for delivery expectations.

Breakthrough two: Farming

The world has already developed better fertilizer, and crops that are more productive, nutritious, and drought- and disease resistant; with access to these and other existing technologies, African farmers could theoretically double their yields.

Here, the idea is that new techniques and inputs (like better seeds or fertilizer) will spread, for a new Green Revolution. In the long run, I agree. In the next 15 years? I’m not convinced.

Fertilizer and agricultural extension have been around for a long time. What’s new that will make it work now? Stronger government extension systems? Not there. Mobile technology? Yes. But do we expect farmers to rest fundamental planting decisions on a 140-character version of Wikipedia?

Here’s what I think economics tells us about this problem: Inputs like fertilizer and new seeds require upfront, risky investments to farmers. These are people who have almost no credit and no insurance. So they can’t afford the new technologies available (or even available since 1915 for that matter).

Also, on top of the fact that farming is always risky (think droughts or pests), higher upfront investments raise the stakes. New techniques and inputs are even more risky because it takes time and trial and error to fine tune a new fertilizer or technique to local conditions. For me, it’s hard to imagine a solution that doesn’t include credit and insurance access, plus understanding the quirks of decision-making patterns by poor farmers. But the letter’s solution is different:

Agricultural extension, the process by which farmers get information — what seeds to plant, how to rotate crops to protect their soil, how to get the best prices at market — is complicated and expensive.
… One promising trend is that, as more farmers have access to mobile phones, they are able to receive all sorts of information — from weather reports to current market prices — via text messages.

There is a common denominator to a lot of aid programs, from agricultural extension, to business skills training, to hand-washing campaigns: rich educated elites telling poor people how to behave differently. We love to lecture.

Don’t get me wrong: I actually believe know-it-all lectures work. A little. I’ve seen it happen in my own work with conflict resolution in Liberia. But I don’t think they create 15-year poverty-eradicating breakthroughs.

Here’s my sense of the evidence: Alongside credit and insurance and other things that reduce risk, agricultural extension is terrific. Maybe even by mobile phone. But unless you address the other constraints, information has serious limits.

Also, until your mobile phone can convince you to adopt the perfect technique, successful agricultural extension systems have something in common with public health systems: a need for functioning, professional bureaucracies. Which again don’t exist in the poorest and most fragile states and will take decades to develop.

My grade? I have to say B-minus. This part of the letter sounds too much like the 1960s aid agenda redux (if farmers had mobile phones in the 1960s).

Breakthrough 3: Mobile banking

The reason poor people face these agonizing choices [e.g. foregone medical care] is not just that they don’t have enough assets. They also don’t have access to a bank to help them use their assets effectively. If their savings are in the form of jewelry or livestock, for example, they can’t very well chip off tiny pieces to cover routine daily expenses.
Instead, the poor use financial services that are extremely inefficient. They save by hiding cash around the house or buying commodities that lose value over time.

I agree: Mobile phones are going to expand bank account access, lower transaction fees for money transfers, payments and loans. And increase the security of people’s savings. This is all terrific and important. The Gates Foundation has been one of the biggest and earliest funders here, and it matters. People love this technology.

But is this a transformational technology in terms of poverty alleviation? I don’t see it.

People are poor because they don’t have money, they can’t borrow to make the investments that will pay off in the future and because even if they had that money they might not invest because of the risk.

Once again, a big barrier is credit and insurance. For more, you can’t read a better book than Poor Economics.

Now, mobile banking will probably make credit and insurance a little cheaper and more accessible, if only because financial transaction costs will be lower. But I have a hard time seeing much more than a small change.

How do you get systems of cheap credit and insurance? You have fundamental problems to overcome, that economists call moral hazard (you might slack off if you have insurance) and adverse selection (the best farmers won’t buy insurance). To solve these problems, you want things like credit rating systems, small claims courts, identity cards, ways to prosecute fraud and a host of other things. Mobile banking is only a little piece of the puzzle. Transforming access to finance and insurance is much, much harder than bank accounts.

You also need the average poor person to have a high return on investment. This seems likely in politically stable places, which are growing anyway. But who invests where wars, coups, extortion or banditry are risks? We’re back to the fragile states that will remain stubbornly poor in 15 years.

The grade: A for advancing mobile banking, C for thinking it’s transformative. So B on balance.

Breakthrough 4: Online education

Many of today’s online classes are disconnected from career paths, but that will change too. Suppose you want to be a health worker; you’ll be able to find out what level of math, chemistry, and other subjects you need to meet the requirements, and you’ll be able to do much of the work online. Some content will need to be localized for different places and languages. Yet the basic ideas don’t change; algebra works the same way everywhere.

African researchers can’t access current journal articles. High school math teachers don’t have algebra textbooks to share. Teenagers don’t have trashy novels to consume and miss that opportunity to learn to love reading. I see this as a tragedy.

Now, as with us rich folk, high-speed Internet will probably mean that poor people will mostly watch “Gangnam Style” and porn. Fair enough. But surely a few will watch an economics or algebra video, and this is a good thing.

But, as the letter notes, there’s a missing ingredient:

There is one thing software will never do: replace teachers.

I would have said “replace education systems in general.” This is a big barrier. I really don’t know how much of a dent video courses or e-books will make.

Stepping even further back, one thing underlying this and all the other breakthroughs mentioned: they treat poverty like a supply-side problem. That is, if we supply more of X (information, technology, etc.) people will succeed.

I agree people will do a bit better. But this ignores at least two things. One is that they will leap ahead until they come to a screeching halt at the next constraint. Lack of credit. No insurance. Few effective teachers. Bandits and rebels.

The other is the demand side. People and governments will invest in education when the rewards to education are high in terms of jobs and wages. When there are sufficient jobs so that getting a job after high school is closer to a sure thing than a lottery ticket. Bill Easterly has made this point nicely, among others. He also makes this point in a Politico article Thursday.

The grade: A to end the tragedy of no books, but C for thinking this will transform economies or job opportunities.

My overall take

How can we help the Liberias, Yemens, Afghanistans or El Salvadors of the world become safer, more politically stable, with legitimate social contracts, basic rule of law and capable states with the ability to run a decent health, education, justice and agricultural extension system? This is the big question.

Why? These are the basic requirements of industrialization (among other things). And, unless you’re atop a billion buckets of oil, industrialization is the main way to go from $1,000 to $12,000 a head. This is what’s missing from a letter that charts a way to grand falls in poverty in 15 years: the link to industry and productivity and jobs that have driven the recent episodes of Asian growth.

Instead, the letter focuses on useful innovations and improvements that a tech-money foundation is well placed to do. Bill and Melinda Gates focus on the things they can control. This will speed poverty alleviation a little, especially in the places that are already likely to do well, like Brazil or India or Ethiopia. This will save a lot of lives. I applaud it.

But will it deliver their big bet? I don’t see it. And saying it does distract us from the big question (or so I fear).

By 2030, probably half the world’s poor will live in fragile and conflict-affected places. These are the places that will be hard, maybe impossible, to penetrate with vaccines, the Internet, agricultural extension and online courses. They certainly won’t be industrializing.

If that’s right, then poverty reduction today is an economic and health problem. But poverty eradication in the very near future is a political problem. One we don’t really understand. One that some kinds of aid could undermine, especially if all the health and education programs bypass or undermine weak governments. And one the West might make worse through all the other things we do: shortsighted military interventions, climate change, self-serving diplomacy, anti-terror hysteria and the like.

We don’t know what to do, and we Westerners don’t know if we make it worse when we try to make it better. To me, that sounds like a conversation worth having.

Want to learn more? So do I. In the meantime, a start might be my list of books I think development workers should read, but seldom do. And a deep humility about what is possible.