The Aid Trap: Hard Truths About Ending Poverty (Columbia Business School Publishing) [Hardcover]

R. Glenn Hubbard (Author), William Duggan (Author)

Book Description

Publication Date: August 31, 2009 | ISBN-10: 0231145624 | ISBN-13: 978-0231145626

Over the past twenty years more citizens in China and India have raised themselves out of poverty than anywhere else at any time in history. They accomplished this through the local business sector—the leading source of prosperity for all rich countries. In most of Africa and other poor regions the business sector is weak, but foreign aid continues to fund government and NGOs. Switching aid to the local business sector in order to cultivate a middle class is the oldest, surest, and only way to eliminate poverty in poor countries.

A bold fusion of ethics and smart business, The Aid Trap shows how the same energy, goodwill, and money that we devote to charity can help local business thrive. R. Glenn Hubbard and William Duggan, two leading scholars in business and finance, demonstrate that by diverting a major share of charitable aid into the local business sector of poor countries, citizens can take the lead in the growth of their own economies. Although the aid system supports noble goals, a local well-digging company cannot compete with a foreign charity that digs wells for free. By investing in that local company a sustainable system of development can take root.

Editorial Reviews

From Publishers Weekly

Hubbard and Duggan, respectively dean and lecturer at Columbia Business School, make the case that current foreign aid and Third World projects—particularly in Africa—aren't working and that the developed world must rethink how it allots aid money. The authors dissect (and disagree) with the U.N.'s Millennium Goals strategy for attacking poverty, pet project of Jeffrey Sachs and a host of celebrities. They condemn the strategy as a charity trap, that perverts local economies and keeps corrupt leaders rich. The authors contend that poor countries can attain prosperity and self-sufficiency only if aid money goes to cultivating a functioning business sector. Microfinance, they say, is working but stops short; they propose something much more ambitious: a new Marshall Plan, an almost prohibitively daunting task given the vast differences among developing countries, the controls each puts on business and the input required from other developed nations. But the plainly stated thesis and the authors' willingness to confront conventional wisdom and examine and energetically attack the problem are refreshing and necessary. (Sept.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

Review

Anyone who wants to end poverty should take seriously the powerful and provocative arguments of The Aid Trap. Even if R. Glenn Hubbard and William Duggan don't convince you to embrace their new Marshall Plan, you will come away with a deeper appreciation for the limits of charity, the dangers of top-down planning, and the importance of creating a vibrant and open business sector.

(J. Gregory Dees, Center for the Advancement of Social Entrepreneurship, Duke University's Fuqua School of Business )

R. Glenn Hubbard and William Duggan make a persuasive case that international aid flows have been grossly misdirected. In trying to do good, those in the developed world may actually have ended up doing substantial harm to the developing world. Hubbard and Duggan instead argue that aid flows should be redirected towards encouraging business and entrepreneurship. This is a timely and readable book about how to solve one of the most challenging problems of our time.

(Raghuram G. Rajan, The University of Chicago Booth School of Business )

The authors' willingness to confront conventional wisdom and examine and energetically attack the problem are refreshing and necessary.

(Publishers Weekly 7/6/09)

The Aid Trap is not about the failure of conventional aid but provides the outline of a solution that can work if taken seriously. It is that rare prescriptive book, and the world must pay attention.

(Muhammad Yunus, winner of the Nobel Peace Prize )

Glenn Hubbard and William Duggan's considered analysis of The Aid Trap adds a new and important dimension to the on-going development debate. This book, grounded in logic and supported by evidence, presents reasonable and sustainable steps that will move Africa forward.

(Dambisa Moyo, author of Dead Aid: Why Aid In Not Working and How There Is a Better Way for Africa )

A few years ago, we in Mauritius set out to make it easier for our own people and foreign companies to do business in our country. The result has been far more prosperity for our people. Other countries want to learn from our experience. I am pleased to see that there is now a book that can help. The Aid Trap makes a strong case and offers concrete steps for countries not to rely exclusively on the aid world and join the business world instead. I hope this book has a wide impact on the minds, hearts, and actions of national leaders, multinational and local businesses, aid agencies, and concerned citizens around the world.

(Honorable Navinchandra Ramgoolam, Prime Minister of Mauritius )

Offers a different and logical, if emotionally counter-intuitive, approach to foreign aid.

(Sarah Lynch Forbes 9/30/09)

The authors point to the burgeoning economies of China and India as evidence that thriving businesses are the key to ending poverty.

(Chronicle of Philanthropy 10/15/09)

The Aid Trap articulates a constructive set of ideas about how to reform foreign aid.

(Economist 12/17/2009)

The Aid Trap does a good job of both highlighting problems with the current aid structure and prescribing solutions.

(Reuben Abraham Alliance Magazine 12/1/09)

The Aid Trap the well-entrenched myth that development aid willerase global poverty.

(d-sector.org 6/12/10)

[ The Aid Trap] offers a refreshing perspective on the current effort to end world poverty.

(Bennett Grill African Affairs 1/1/11)

The Aid Trap is a concise, beautifully written, stimulating, profound, and up-to-date reminder to all of us who are deeply concerned as to just why our traditional aid programs continue to fail us.

(Joseph Keckeissen Journal of Markets & Morality Vol 13, No 2)

See all Editorial Reviews

Product Details

• Hardcover: 216 pages
• Publisher: Columbia University Press (August 31, 2009)
• Language: English
• ISBN-10: 0231145624
• ISBN-13: 978-0231145626
• Product Dimensions: 5 x 1 x 7.5 inches
• Shipping Weight: 12 ounces (View shipping rates and policies)
• Average Customer Review: 3.6 out of 5 stars  See all reviews (8 customer reviews)
• Amazon Best Sellers Rank: #167,741 in Books (See Top 100 in Books)

Most Helpful Customer Reviews

9 of 10 people found the following review helpful

2.0 out of 5 stars It's More Than Just Economics, It's Culture November 22, 2009

By David F. Latta

Format:Hardcover

There is much good to say for the excellent work in refocusing country development from Aid to Business which is unheard of in the dev/biz. But unfortunately, the authors solution, an applied Marshall plan, will fail. There is a huge difference between current Africa and 1948 Europe/Japan in their respective positions along the "development curve". This difference, as referenced in "The Aid Trap", was infrastructure, technical and business/experience resources but did not address differences in cultural development from tribal, political, ethical and religious perspectives.

Recently the U.S. and EU have effectively been cut out of Africa by China and to a lessor degree India. As Engineers and Constructors (E&C's) working with equipment manufacture/suppliers we cannot compete with Asia in Africa. This situation has been changing and we now have been reduced to technical goods and services limiting direct participation in the market. Africa is being exposed to Chinese business culture, especially second and third teams, rather than the highly developed business culture of the U.S. The Chinese are some 30-50 years behind in cultural development with significant corruption. All is not bad, however, Africa has benefited from Chinese built infrastructure (good but not great) projects at greatly reduced cost. The Ethiopian $500M Tekeze hydro electric project built by the Chinese for $300M is just one example. What developer wouldn't smile to have a constructor chop 40% off a feasible project with the same revenue.

Historically observing and experiencing country development first in Japan from the 1930's, then Korea and now China has shown the rate of growth is dependent on the cultural environment. Africa is being handicapped by Asia. No amount of business Czar's (ECA) wisdom, as proposed by the authors, will be smart enough to overcome the cultural change required to support growth in Africa. The excellence of moving from Aid to Business, overcoming the devastating damage of enabling welfare will fail because it's not the U.S./EU business but Asia's business. China's business culture is developing with significant difference between eastern, central and western China -- Africa will not see a first team for many decades. This is to say nothing about the almost impossible tasks of a Marshall Plan selecting from top-down the right businesses at the right time to develop from nothing.

But there's always a way.

While Africa is reflecting on it's economic/political environment, tribal issues and country boundaries governing trade to enhances regional markets, African business leaders (and the authors) may want to look at India's "Bottom-of-Pyramid" business development approach. India is taking advantage of low cost redesign and manufacturing, microlenders, market development working with large multinationals. This gets to the real needs of the people and most importantly, learning the environment for a successful ethical business culture in competition, risk and profits. This was nicely summarized in the front page of the WSJ article, "Moving Up in India" Oct 20th, 2009 and also addressed in detail in C.K.Prahalad's book, "The Fortune at the Bottom of the Pyramid", with references to McKinsey business consultants. Cultural development through business plus farming expansion and agriculture research will provide, in the long term, the foundation to develop competitive offerings through trade.

The Aid Trap business approach puts some real sense into country investment; it needs time and cultural development to be successful. An applied Marshall plan doesn't fit. In Europe and Japan their cultures and industries were developed; in Africa it's going to be a process. A business approach can overcome the destructive dependency of welfare Aid while significantly improving culture under the proper circumstances. When the slack tightens in the worlds labor markets, Africa's opportunities will significantly improve. Cultural development through business is best done by African's themselves with help in consulting/tutoring by developed nations, especially the U.S.

David F. Latta

5.0 out of 5 stars Nice blueprint October 21, 2010

By T. J. Lindberg

Format:Hardcover

This is not meant to be a tome. It is a nice, quick overview of some of the factors that have stifled aid and development around the world. While the recommendations will certainly require a significant amount of effort to implement, it is a nice place to start the discourse.

4.0 out of 5 stars The Aid Trap September 18, 2010

By -_Tim_-

Format:Hardcover

The claim made by the authors of The Aid Trap is that government- and NGO-based aid to developing countries, while suitable for helping refugees or disaster victims, cannot produce sustained economic growth. And sustained economic growth is what is needed to lift developing countries out of poverty.

The book begins with an extremely abbreviated history of the spread of private enterprise, from the ancient world to the Roman Empire and then to Venice, Holland, and finally to England. Through the centuries, the authors say, private enterprise thrived or suffered in response to changes in the political and social environment that are now measured by the World Bank's "Doing Business" indicators:

Starting a business.
Dealing with licenses.
Employing workers.
Registering property.
Getting credit.
Protecting investors.
Paying taxes.
Trading across borders.
Enforcing contracts.
Closing a business.

They reason that once all countries were poor and had no private businesses; now all rich countries have large private business sectors; therefore, the key to wealth is to encourage private business. The conclusion is true but that doesn't make the argument valid.

The authors then assert that "We have traced the growth of the business sector from Sumer to Rome to Venice to Amsterdam to London: the rise of business systems was the key that made the industrial revolution possible. This leap to industry owed little or nothing to scientific discovery: Arkwright's power loom and Whitney's cotton gin worked by mechanics that the ancient Greeks and Chinese already knew. Murdock's gas light used knowledge from ancient Persia." To say the least, this is a provocative claim; I am tempted to call it implausible. At any rate, the authors don't attempt to support it. This points to the main weakness of the book: its extreme brevity, combined with a lack of footnotes or endnotes, undermines the credibility of the authors' more surprising claims.

But the book is still worth reading for its examination of anti-business sentiment among NGOs, advocates of development aid, and rulers in developing countries. Development aid got its start in the 1960s, when socialist sentiment was widespread in Europe and Great Britain, and Soviet communism was still seen as a viable model - if a brutal one - for achieving rapid economic growth. Economic growth models developed by Robert Solow, Arthur Lewis, and P.N. Rosenstein-Rodan were either neutral on the question of how economies should be organized or favored a "big push" that could only be accomplished through massive injections of capital (foreign aid) and government coordination of economic decisions. The authors also note that government-led development was a convenience for donor agencies, which could then work through the planning agencies in client countries. At the same time, the authors say, rulers in developing countries, favored government-led development because it allowed them to reward supporters and because sentiment against former colonizers led them to reject private investment.

The book closes with a detailed proposal for a "New Marshall Plan" - an aid program directed at lending to businesses in developing countries, which would repay the funds to their own governments, who would use the reflows for investments in economic infrastructure. I appreciated the thought that went into this proposal, which the authors hope will inspire an urgent, large-scale effort to encourage private sector-led growth in developing countries.