Monday, January 09, 2006

Policy Vertigo

Since 1927, Time Magazine has named its Person of the Year, and this year’s is as interesting as any—Bill and Melinda Gates, and Bono, for their work towards ending poverty and disease. It highlights two ways of trying to solve the same problem. It’s clear that one of them doesn’t work.

The Gates’, through the foundation that bears their name, have given nearly $10 billion in grants since its inception, 60% of which have gone toward global efforts. Private charity is a powerful force that is often overlooked in aiding the less fortunate, be it hurricane victims or African malaria suffers—and the Gates’ are proving it can have a sizeable worldwide impact. Since their name is connected to the gift, they have every interest in making sure the money goes to good use. I am fairly certain that the Gates’ would not like their name connected to, say, twelve separate loans to Zambia over a fifteen year period with the intention of lowering inflation, only to yield an average inflation rate of over 40 percent.

Governments often feel it is their role to step in and provide assistance, but a host of incentives problems follow them. Politicians have no incentive to make sure the money is spent well, though they do have an incentive to make sure they clear their annual budgets so they can dish out some more. Recipients have no incentive to spend the money well when debt forgiveness is the vogue policy stance.

Enter Bono, champion of foreign aid and debt relief. In connection with this summer’s Live 8 concerts, Bono called for the sum of $50 billion in aid to be raised and dispersed to Africa, along with the books being cleared of all debt. We’ve heard this story before; Easterly’s The Elusive Quest for Growth highlights the folly of development aid and debt relief, along with a whole smorgasbord of World Bank policies that failed miserably.

Bono has generated hundreds of millions of dollars in wealth through his decades of musical grandeur. Whether you like Zooropa or not, U2 has been a tremendous asset to the world economy. Their members should stick to what they do best. (And encourage fellow musicians Coldplay—outspoken fair trade advocates—to do the same.)

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