Is aid a blessing or a curse for developing countries? For Imran Khan, a former cricketer turned politician, the answer for his country, Pakistan, is clear. “If we don’t have aid we will be forced to make reforms and stand on our own feet,” he told the BBC recently. This was a message that he repeated at a mass rally in Lahore at the end of October, which launched his Movement for Justice party as a serious political force in the country. “Pakistan is losing over Rs3,000 billion [£21 billion] a year in tax corruption”, he told the crowd of 100,000 people. If this lost money “can be tapped, the country does not need foreign aid.”
Something certainly needs to change in Pakistan. The country is not the poorest of the poor – national income per head is $2,550 (at purchasing power parity), which makes it a lower middle income country – and it has managed to fund the development of nuclear weapons. But on human development it is seriously underperforming. More than 20% of the population (about 40 million people) lives in absolute poverty on less than $1.25 a day. Adult literacy is 55.5%, which is shocking low (Malawi, for example, has a national income one quarter of Pakistan’s and a literacy rate of 73.7%.) Pakistan has the dubious distinction of being one of just four countries in the world where polio is still endemic (the other three are India, Afghanistan and Nigeria).
Blame for the sufferings of the people of Pakistan rests firmly with its government. Public spending on education and health is miserably low – just 2.6% of national income on each (even Nigeria, another not-that-poor country that serves its citizens badly, spends twice as much as a proportion of national income). And even those figures are probably an over-estimate as so much of the money that should go to schools and hospitals leaks out in corruption.
It is this nonperformance of the government that makes aid so important to Pakistan. It receives total development (non-military) aid of about $1.7 billion per year, which is about 1% of national income. This is not a lot in absolute terms but significant in comparison to how little the government does. So, if taxes were collected and corruption squeezed out of the system, Mr Khan argues, there would be plenty of cash for a big push to drive Pakistan up the rankings of human development without foreign assistance.
Well, maybe. Mr Khan is certainly well-intentioned and represents a break from the, ahem, old-style sort of politicians who have dominated the country. But Pakistan is a hard country, as Anatol Lieven subtitles his brilliant new book. Mr Khan has a long way to go merely to win power. Turning around the country would be an even more difficult, and perilous, task. So what role should public and private aid play? Would it be best just to leave Pakistan to sort out its own problems?
Leaving Pakistan to its own devices would be problematic for two reasons. First, it would fall foul of the realpolitik of the ‘war on terror’ that, sadly, frames Pakistan’s relationship with donor countries like the US and UK, since aid is part of the West’s leverage over President Zardari and Prime Minister Gilani. That, Mr Khan would say, is the point. He wants foreign powers to stop messing around with the drone strikes on militants and so on that, he believes, are making the country more rather than less unstable.
The West is not going to buy this argument any time soon and, even if his logic was impeccable, it would be a high-risk gamble to do so. That would be a gamble not just with the security of Pakistan, the region and, maybe, the rest of the world. And, besides the security question, it would certainly be a gamble with the wellbeing of the people of Pakistan. Cutting aid might precipitate the crisis Mr Khan wants but it could mean cutting off education, healthcare and humanitarian aid to millions.
A better option would be to reform aid to Pakistan in a way that enables the country to provide help to the needy while supporting (or at least not undermining) the longer-term goal of reform that Mr Khan yearns for. That would represent a tricky challenge for official aid agencies. As arms of foreign governments or as multilateral aid agencies of which Pakistan is a member, it is hard to channel money to the needy without going through Pakistan’s government systems. (This is particularly true for agencies like the World Bank whose mandate is to lend to sovereign governments.) The current fashion in aid ideology also leans strongly against any radical departure from working with the government of Pakistan, even if that means knowingly pouring money into a leaky bucket.
Philanthrocapitalists in the private sector face no such constraints and have an opportunity to break this logjam by directly funding solutions to Pakistan’s education and health emergencies at a scale that meet the needs of the people of Pakistan (and, in so doing, put pressure on the government to improve on its miserable performance), use their business know-how to finance wealth-creation, and to use their risk-taking ability to support domestic citizens’ movements that are working for change.
This would require a significant scaling of philanthropic resources for a country that is all too often seen by private donors as not just ‘hard’ but ‘too difficult’. Yet there is a significant opportunity for philanthrocapitalists to forge new partnerships with the Pakistani diaspora. As Bill Gates pointed out in his recent report to the G20 on innovative financing mechanisms for development, globally remittances from diasporas now far exceed total aid flows from governments. Remittances to Pakistan are running at about $10 billion a year, about the same as the Pakistani government spends on health and education combined. Of course, not even a majority of this money currently goes directly into poverty reduction. Yet if some of this cash, together with domestic giving (which runs at around 1.5% of national income), could be used for high impact philanthropy there would be a chance of making a real difference, especially if official donors could be persuaded to match fund these private efforts.
So here is our four point plan for philanthrocapitalism in Pakistan (some of which Michael discussed at a recent debate on aid and Pakistan in London, organised by The Samosa, an online British Pakistani newspaper):
1) Accountability, accountability, accountability: getting the government to effectively collect taxes and ensuring that the money is used for the benefit of the people of Pakistan has to be the number one goal. The Omidyar Network is funding a wide range of transparency initiatives around the world, which harness the power that the internet and mobile phones put in the hands of ordinary citizens to hold government to account. Donors should be looking to fund Pakistan’s tech entrepreneurs to learn from these models and create a whirlwind of innovation in this area, ideally working with the local media.
2) Entrepreneurship: Pakistan needs wealth creators not just to generate economic growth but as a bulwark against the rent-seeking crony capitalism that dominates so much of commercial life. Yes, microfinance and other tools to support the poorest are important. But so too (as global entrepreneurship guru Elmira Bayrasli argues) is supporting businesses that can grow into economic powerhouses. One of Mr Gates’ suggestions for boosting diasporas’ contributions to development is for more countries to follow the example of India and Israel and issue ‘diaspora bonds’. For Pakistan, why not raise a diaspora venture capital fund that seeks commercial returns by investing in the country’s high-potential entrepreneurs.
3) Eradicate polio: this is not a significant killer in Pakistan nowadays, but eliminating it is an eminently achieveable goal and would be an important global good. The Global Polio Eradication Initiative thinks that endemic polio can be wiped from the planet within a couple of years, if the funding is made available (there’s a $700 million global shortfall at the moment). The Pakistani diaspora could own this problem and, by solving it, prove that they are important players in the development of Pakistan. The way to achieve this would be through leverage. If, say, the Pakistani diaspora could pledge to raise $25 million, they could approach the Gates Foundation to match this (as Gates has done already through a partnership with Rotary International) and then, armed with these commitments, lobby the governments of the countries they now call home (the US, UK and so on) to match this.
4) Improve education: everyone knows that Pakistan’s education system is in terrible shape and official donors are trying to do something about it. The UK, for example, has pledged $1 billion over the next four years to get 4 million kids into school. We wish them luck in trying to reform the state school system to deliver these results.
Philanthrocapitalists can bypass the public sector and put some scaling capital into the privately run school system. This approach has had a bad press as a result of the expose of Greg ‘Three Cups of Tea’ Mortenson’s work on education. But there are good, local nonprofits running successful schools that reach some of the the poorest and remotest parts of Pakistan. One of the most respected, The Citizens Foundation, already has 100,000 kids in school and claims that it can educate a child for a year for around $100. Philanthrocapitalists, working with the diaspora and leveraging official aid money, could fund an ambitious scaling programme (why not 1 million kids in school?) to meet the immediate needs of Pakistan’s children, which would generate long term benefits for the country and, again, further show up how the government system for failing to deliver.
Experts in Pakistan will no doubt find holes in this plan. But the fact is that old aid models have failed in Pakistan. New solutions are needed. Who better to step up than philanthrocapitalists?