Stop throwing cash at poor nations

The international community has donated more than $1.8 trillion to poor countries since 2000 – but this development aid hasn't lifted many people out of poverty. Arguably, it has made some recipient nations poorer.

This is because despite the best of intentions by donors, the aid has bred corruption, fostered dependence and impeded reforms that deliver sustainable economic growth. 

Ending global poverty will require a major shift away from paternalistic "give a man a fish" strategies that presume the poor are helpless on their own. Instead, philanthropists should support civic society groups that help local governments strengthen the rule of law, enforce property rights and cut burdensome regulations.

Clearing away obstacles to entrepreneurship and investment will enable the poor to help themselves. They'll figure out not just "how to fish," but how to create fisheries and other private enterprises that benefit their communities.

Without such reforms, there will be no sustainable economic growth, resulting in enormous amounts of foreign aid largesse being wasted.

Between 1970 and 2000 – a period in which aid to Africa skyrocketed – annual gross domestic product growth per capita on the continent fell from about 2 percent to zero growth, according to a study by an economist at New York University. 

If top-down efforts to fight poverty had little or no role in the biggest poverty reduction in human history, we should not double-down on those strategies.

Consider what happened recently in Malawi, a southeastern African country where more than half the population lives in poverty. In 2013, political leaders and other elites stole $30 million from the treasury, which was loaded with contributions from Western nations.

And in 2012, the United Kingdom suspended $18 million in aid to Uganda after an investigation revealed that leaders of that African nation were using the money improperly.

Even when there is no corruption, anti-poverty initiatives often produce unintended negative consequences.

For example, the Millennium Villages Project sent large amounts of food and other assistance to Dertu in Kenya. The aid drew migrants from all over the region, resulting in overcrowding, social conflict and a breakdown of the village's livestock market. 

Last week the United Nations commemorated the 25th annual International Day for the Eradication of Poverty. It is entirely appropriate to celebrate the decline in global poverty over recent decades. But more important still, we must understand where the progress has been greatest and for what reasons. 

The biggest anti-poverty success stories took place in China and India, where foreign aid was much more modest. 

In China, for example, aid has decreased dramatically, but the proportion of rural people in poverty has declined from more than 50 percent to less than 10 percent. That progress is largely thanks to market reforms that enabled entrepreneurship and propelled economic growth. 

There is a lesson here. If top-down efforts to fight poverty had little or no role in the biggest poverty reduction in human history, we should not double-down on those strategies. The more reliable way to spur economic development, even in the world's poorest regions, is to support local organizations that can achieve reforms that allow the poor to thrive on their own.

One example is the Centre for Civil Society, a think tank in India. Last year, with a modest budget, the group successfully advocated for the elimination of minimum capital requirements on start-ups. The reform will help aspiring entrepreneurs start and grow businesses, enriching themselves and their communities.

Research supported by my organization, Atlas Network, shows that there is a measurable connection between economic progress and measures like property rights and legal protections for businesses. 

That research will be included in the World Bank's forthcoming "Doing Business" report. As a country's "Doing Business" score – the measure of how easy it is to open and operate a firm – increases by five units, the number of people living in poverty drops by one percentage point. 

The world's poor don't need development aid. They need stable, pro-growth regulatory regimes that enable them to earn money, start businesses and invest for the future. The philanthropic community should assist local organizations in fostering such environments. As barriers to growth are removed, the poor will demonstrate that they can eradicate poverty on their own. 

Brad Lips is the CEO of Atlas Network, a Washington, D.C.-based nonprofit championing effective think tank research and advocacy among its 481 partner organizations in 96 countries.