Why aid organizations should focus on making rich people happy, not making poor people less hungry.
- By Daniel AltmanDaniel Altman is the owner of North Yard Analytics LLC, a sports data consulting firm, and an adjunct associate professor of economics at New York University’s Stern School of Business.
Is the fight against poverty still worth fighting? In the past eight years, the end of "extreme" poverty — those living on about $1.25 a day, when purchasing power is factored in — has gone from a possibility to a prediction. If it does come to pass, it will not only prolong hundreds of millions of lives but could also be considered humankind’s greatest achievement. Okay, then what?
Even if extreme poverty is eradicated, a lot of people will still look very poor to residents of high-income economies. There may be a few places in rich countries where you’ll be able to get by on $1.25 a day, but not many. And plenty of people will still feel poor even after they escape extreme poverty — especially when they’re bombarded by ads, television series, and movies showing how the other half live.
Moreover, the most recent research on income and happiness suggests that fighting non-extreme poverty may be just as important to the world’s wellbeing as fighting extreme poverty. The link between income and happiness is strong in countries around the globe, and it persists through fairly high levels of income — above $100,000 a year in the highest-earning countries measured. Perhaps most importantly, the link follows a logarithmic-linear function that is remarkably consistent across countries: the amount of happiness added by increasing incomes by a fixed percentage stays constant as incomes rise.
So, even if the lives of poor farmers and sweatshop workers are improved beyond the level of mere subsistence, further boosts in their material living standards would continue to make them feel better off. Put another way, absolute increases in income will always make people happier, even if their incomes still compare unfavorably to those of their fellow citizens.
All of this sounds like good news for the aid industry. Tens of thousands of people work for the World Bank, the United Nations Development Program, and countless smaller organizations in the fight against poverty. In the past, they have asked governments of rich countries to devote 0.7 percent of gross domestic product — about $200 billion a year in the United States and European Union alone — to fight poverty. For comparison, the global industry for manufacturing automation is worth about the same amount. But if money can make people happy at all income levels, is fighting poverty really the best way to spend it?
Consider a simple comparison. An increase of 10 percent in American incomes would be roughly $5,000 a year per person. In the Democratic Republic of Congo, the same 10 percent raise would amount to just $25 a year. The population of the United States is roughly four times that of the Democratic Republic of the Congo, however, so in principle the world should work four times as hard to achieve the higher incomes in the United States. In either case, a 10 percent raise could, on average, increase happiness by the same amount. The difference is that such an increase in the United States would affect four times as many people.
This may seem perverse — wouldn’t it be much easier to achieve higher incomes for the Congolese? Maybe. After all, you could simply give each of them $25 for about $1.9 billion, the cost of a single offshore oil platform. But making that increase in income stick is much harder, especially in a country that has struggled with border conflicts and poor governance. To push incomes up by 10 percent permanently, the cost might be much higher.
This, in a nutshell, is the central problem of the fight against poverty. The aid industry has gotten pretty good at identifying programs that can help a small number of people at a time to escape poverty. But big changes in living standards, by contrast, tend to depend on shifts in political institutions, such as legal and regulatory systems, and the overall growth of the private sector.
The aid industry recognizes this problem, which is why it’s obsessed with the notion of "scale." Virtually every donor is looking for "scalable" solutions to poverty, yet most organizations whose mission is to fight poverty are ill equipped for expansion. The organizations that best understand how to grow are for-profit companies, but the aid industry doesn’t want to be too much like them or surrender its work to them. Right now, improving the incomes of 75 million or so Congolese (the way the aid industry knows how) would probably require a bevy of small programs costing many billions of dollars.
Shouldn’t this still be a priority, especially since the Congolese are starting from a much lower level of living standards? The answer would likely be "yes" from people who take the Rawlsian view of social welfare, that society should try to maximize the living standards of the people on its lowest rung. Yet this notion is at odds with the mission of at least one enormous aid organization.
The slogan of the Bill & Melinda Gates Foundation is that every human life has equal value. This suggests a simple utilitarian, rather than Rawlsian, view of the world. In other words, every human life is worth the same, and so is its happiness. Making rich people happier by increasing their incomes by 10 percent is therefore just as valuable as making poor people happier by doing the same for them.
Given this axiom, the aid industry may be focusing on the wrong problems. Pouring those same billions from the example above into, say, scientific research in the United States might not raise incomes by 10 percent, but it might still raise them more than the money would in the Democratic Republic of the Congo. And hey — the United States, the world’s wealthiest big country, still has tens of millions of people who occasionally go hungry. If the aid industry really does believe that every human life has equal value, then it’s time to replace the fight against poverty with the fight for higher aggregate happiness, wherever it might be created. If not, then it’s time for some new slogans.