The figures
- there’s great news: the proportion of people living in extreme economic poverty, i.e. on less than $1.25/ day (at 2005 prices, adjusted for purchasing power parity) had dropped worldwide from 52% in 1981 to 26% in 2005

- the bad news: there are great regional disparities – China and East Asia in general, which used to be the poorest in the 80s (80% of the population affected by extreme poverty) have reduced their percentage of poor drastically (18% in 2005); however, sub-Saharan African has kept its poverty rate unchanged in the last 40 years, at about 50% of its population. Moreover, because of population increase, in absolute numbers the number of the poor has doubled (from 200 million in 1981 to 380 million in 2005)

Causes of Poverty
- colonial causes (economists like Daron Acemoglu and others prove that the institutions left behind by European colonists have persisted till nowadays and have influenced poverty levels; where colonists left “bad” rules in place (i.e. no protection for private property, etc), low economic development and ultimately stagnation occured
- regional characteristics (type of climate – exposure to flooding and typhoons, etc)
- community-level characteristics (level of education, level of services)
- household characteristics (women empowerment) 

These causes also act as effects (you are poor because you are not educated and because you are not educated you remain power) so the problem gets more complicated! Tana! The poverty cycle!

The solutions

1. Foreign aid (main proponent: Jeffrey Sachs; & Bono!)
No developed country (with the exception of the Nordic countries) has actually ever fulfilled its international commitments of giving 0.7% of the National Gross Income to developing countries. We’ve never given enough aid and we’ve given low quality aid (technical assistance, food aid, etc). Poor countries are caught in a poverty trap (they are poor because they lack the basic necessities of health, education, and infrastructure, and because they are poor, they cannot invest in these basic necessities). The role of financing assistance is to close this gap and help burdened countries get started. Poor countries need $130 billion more aid by 2050.

2. No aid! Create markets and economic activity! (main proponent: William Easterly) 
Aid agencies lack transparency and clear objectives. Aid is fragmented (the worldwide aid budget is split between am multitude of donors and projects and you cannot scale up success). Aid is similar to central planning, top-down solutions. Aid doesn’t work. Instead, you need to have bottom-up piecemeal solutions – create, through microcredits, functioning markets in poor communities and help the poor help themselves. Once more and more economic agents appear, countries will break out of poverty. 

3. Liberalize trade! (main proponent: the International Monetary Fund)
IMF statistics prove that free trade remains a cornerstone institution for economic development.  Critics (Dani Rodrick) say that free trade opportunities have only limited ability to trigger growth, because of inequities in the international trade system. If we liberalize agricultural trade, poor nations lose and the winners are taxpayers in rich nations (because they don’t have to pay taxes any longer).

4. Create good institutions (proponent: the IMF)
Following on Acemoglu’s proof that institutions (i.e. good rules of the game) are the key to growth), fans of these arrangements say we need to help the poor have stronger property rights, lower corruption, have better governance. Raising institutional quality has an exponential impact on economic growth. Institutions create a level playing field and both labour and capital are protected. These institutions have, however, to follow the number 1 tenet of macroeconomic stability. The whole macroecononomic stability mantra is criticized by Joseph Stiglitz, former head of the World Bank, who says it is too narrow and doesn’t have longer term growth in view. Instead, it only un-necessarily burdens transition countries.

5. Synthesis/ aka “Do It All!” (proponent: Paul Collier)
To really help the poor, the West needs to get as serious about it as Americans have been towards war-wrecked Europe in the 40s. There are 50 failed states in the world (the homelands of the “bottom billion”) and we have to help them via aid, reversing our trade policies, reversing our security policy and strengthening their governance and institutions (including by forcing our own multinationals to abide by fair practices). However, it could be that “doing it all” sort of means “we don’t really know what to do”.

This is the puzzle my friends. Looking forward to your creative thinking!