What’s Wrong With 'Poverty, Inc.'? A Critical Review

If no country has been able to provide well-paid jobs to everyone, how can a poor economy with limited resources do that for everyone?

As a development economist, I share here my views on the famous documentary “Poverty, Inc.”

On the positive side, the documentary does a good job in making some points for an audience unfamiliar with economic development, such as the idea that dependency does not end poverty, or that current foreign aid (money flows between governments) has “unintended consequences that do more harm than good.” However, both ideas are not new. The much quoted “teach a human to fish” is an idea associated with many philosophers, including Maimonides (about 850 years ago). On the other hand, criticism of the structure of current foreign aid is a relatively old idea in the development literature. Perhaps the best points made by the documentary are the arguments against the heavily subsidized agriculture in rich countries and that Nongovernmental Organizations (NGOs) can do a better job if they base their strategies on effective communications with local entities, although this idea is not a new either.

What are, then, the problems with this documentary? Many. Firstly, the development literature has two main perspectives; namely, the conservative and the progressive. Omitting a whole branch of argumentation can carry “unintended consequences,” such as misinforming that unfamiliar audience. Besides mentioning supranational entities, the documentary did not expose crucial structural problems: there is no serious analysis on geopolitics, global power relations, or class issues, among others. A class analysis would not, for instance, stress that “NGOs need the poor to exist” but that “the rich need the poor to exist”.

The dominant arguments in the documentary are those from the Austrian school and from “new” institutionalism, both of which argue that the main development problems in poor countries are their poor rule of law and lack of property rights. No mention is made of “old” institutionalism that can help the poor countries such as global labor standards and a global framework for debt restructuring, among others. In an interview, the co-producer gave the example of China as a case where a freer state has led to development. Did China become a neoliberal state or strongly protect intellectual property (a sign of good institutions for these schools of thought)? China has benefited from trade (not from free trade), from “reverse engineering” (not from property rights), and from a strong state that heavily intervenes in the market and even blocked some multinational companies that do not adhere to their demands. In fact, in 2017 China ranked worse in property rights than Botswana.

Can the “miracle” of the Asian Tigers (Taiwan, Hong Kong, South Korea, and Singapore) be attributed to “property rights”? No. Do economies with “strong” institutions have higher entrepreneurship levels than economies with weak institutions? No. Take the case of Puerto Rico, a colony subject to the“strong” U.S. legal system, where entrepreneurship (approximated by the rate of established business ownership) is weaker than in Peru and Guatemala, countries often criticized for having weak institutions. I agree with the documentary that higher entrepreneurship is needed to develop nations, but the means to create a solid entrepreneurial capacity are far beyond just “property rights.” In fact, one can argue that excessive property rights can make “more harm than good” in poor countries: the literature has found that how intellectual property has affected public health and that, “international patent law is another structural factor with dire implications for ART (antiretroviral therapy) in resource-poor settings”. For some reason, the U.S. and its multinationals are one of the largest lobbyists for property rights, not the poor countries. To help poor countries, we need deep reforms in the global market and property rights would not significantly contribute to change the status quo.

Secondly, the documentary mixed foreign aid with all kinds of NGOs to state that NGOs do “more harm than good” because by gifting food or clothes they are harming local producers. I agree with the documentary that NGOs are not the development strategy and that many large NGOs can make better use of their funding. However, the documentary failed to recognize that the key question for understanding the difference between good and bad foreign assistance is the same one we must ask in the case of foreign direct investment: does this foreign intervention substitute (displace) or complement local capacity? Distributing eggs to a rural community that produces eggs substitute local capacity. An NGO that provides access to vaccines in rural communities complements local efforts to fight against old and curable diseases.

When Food for the Poor constructed houses in a desolated and rural area such as Saltadere (Haiti) for poor families (which put wealth in hands of these families), does that discourage any local producers? No. Actually, some local workers learn construction skills on these types of projects. Take the case of the Ethiopian Women Lawyers Association (EWLA), that has won important cases with the funds provided by NGOs.

The documentary also failed to mention that charity is necessary for some populations. Few to none can do property rights and global trade to improve the conditions of the sick and the drug addicts that live in the streets, among other population that cannot work.

In the case of foreign aid, the film discards it categorically. What we need is to restructure foreign aid. For instance, instead of bringing food from abroad, use that money to buy food locally, enhancing the weak aggregate demand that many battered economies have. One must keep in mind that most of the world income is concentrated in a few Northern countries and is virtually impossible to have a world where all the countries are rich. Without a global government that taxes the rich countries and redistributes to poor countries, some of the existing channels available for redistributing income are: receiving remittances, exporting more than importing from the North, and attracting foreign transfers, among others. Foreign aid and remittances are not the development solution but if they are well-structured, they can complement local capabilities in poor nations.

Thirdly, not all countries that receive shoes or clothes are producing them locally and most of the apparel manufactured in poor countries is made by exporting multinationals, therefore, not consumed locally. An academic study shows that in-kind transfers do not harm local purchases. Furthermore, second-hand clothes are one of the few items that Haitian farmers can sell (to complement their produce sales) to Dominicans in the binational market (a one-day free market that takes place every week in the frontier between these countries). Middle- and high-income consumers will consume new clothes from multinationals because of prestige, but if they would buy some used clothes from poor local merchants, that would help development more than buying new clothes from multinationals.

Fourthly, by basing their arguments on anecdotes, the documentary also enters what economists call the “fallacy of composition”. For instance, asking one physician about his living conditions abroad is not representative of all physicians working for NGOs. Physicians working for $1,000 per month with Doctors Without Borders in very endangered places in Syria and Sudan are anonymous heroes that give up a comfortable life in their home countries and that may earn less than people associated to this documentary.

Another example is when the documentary shows innovators from developing countries without acknowledging that they were among the few privileged residents of these countries that could receive a good education. Innovation requires high quality education, but many rural areas in many poor countries do not even have a free university or free secondary schools for the poor. NGOs and local states can work together to provide higher access to education.

The film argues through examples that “good jobs are the solution.” No one would disagree. However, the big question remains unaddressed: If no country has been able to provide well-paid jobs to everyone, how can a poor economy with limited resources do that for everyone?

I believe that solidarity is better than indifference, and that the ultimate causes of poverty are in the structure of the system, not in the few people that are trying to counteract the system with their available tools. By providing superficial recommendations and pointing fingers at the wrong factors, I believe that this documentary does “more harm than good”.