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the failure of supply-side (aid) economics

I am currently re-reading Bill Easterly’s classic “The Elusive Quest for Growth,” and his chapter on the failure of education aid to generate increases in income or GDP hit home as I prepared this post.  Easterly interpreted the failure of education aid as demonstration that supply-side aid doesn’t work when consumers don’t see the payoff.  In “The Success of Development” draft, Charles Kenny finds that many attempts at providing health technologies, for example, largely fail because the demand for the products simply isn’t there:

If cheap and simple health technologies that don‘t require access to hospitals or doctors are available that could dramatically improve global health, why isn‘t everyone already using them? For some interventions, there are still significant issues of supply–vaccines not available, midwives not trained—and this is a topic we will return to. But supply issues are comparatively minor for many of the most cost-effective approaches. Breast feeding, hand-washing and sugarsalt solutions don‘t take an advanced health service to deliver. Here, it is the demand side that matters. A major reason behind poor health in developing countries is that people are not using available technologies, often through lack of knowledge or incentives. In India, the percentage of parents who think the correct treatment for a child with diarrhea is to reduce the amount they are given to drink (absolutely the wrong thing to do) varies considerably from state to state. Less than five percent give this wrong answer in states like Kerala, where we have seen health outcomes are very strong. Above 50 percent suggest this response in West Bengal –where child mortality in the 1990s was about three times as high as in Kerala.

Boone and Zhan estimated that improvements in treatment-seeking and education amongst parents might reduce child mortality by roughly 32%. Mirroring the results from Indian states, across the 45 countries, children whose mothers believed fluids should be reduced during diarrhea episodes faced a 15 percent greater risk of death than a child whose mother was better informed.

In India, for example, scheduled castes (such as the untouchables) are considerably less likely to seek immunization and antenatal services for their children, regardless of how rich they are. The role of cultural factors is also emphasized in case studies of rapid health improvements in Kerala, Sri Lanka and Costa Rica in the post-war period –factors including female autonomy, valuing education, and an active civil society.

Adding to evidence of the demand side at work, a number of studies confirm the importance of demand-stimulation as an effective tool. Conditional cash transfers pay recipients to use health or education facilities, for example. Such programs have had considerable impact on clinic attendance, treatment completion rates and health outcomes, discussed at greater length in the next chapter.303 In many cases, the impact of the transfers persists after payments end, suggesting that payments foster changes in attitudes.

How important is demand?

Television has spread at least as far. There was one television set for each four people on the planet in 2003. A recent survey of households in a rural area of Indonesia showed how rapidly the technology spread after villages gained access to electricity. Within two years of electrification, television ownership was 30 percent. Within seven years of electrification, household ownership rates reached 60 percent –this in an area where average incomes were around $2/day. Compare this to refrigerators, which were owned by fewer than five percent of surveyed electrified households. Where there is still no electricity network, people hook televisions up to batteries — indeed, in a number of developing countries, household television ownership rates are higher than household electrification rates.

The fact that a great number of aid projects are indeed ‘supply-side’ ventures should give us pause. Can the potential consumers really not afford the product, or do they not want it? If they want it less than a TV, is it because they are not educated or because you fail to understand their real needs? If it’s because they aren’t educated or don’t understand the product or service’s value, why can Coca Cola do a better job convincing people of its superiority to other products than you can? Especially when your product presumably offers them a qualitatively significant life improvement?

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Filed under: General Welfare, World,

2 Responses

  1. Lars Hansen says:

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  2. […] models to better serve the world’s poor as suppliers and customers. I have discussed the failure of supply-side aid economics in the past, and the Monitor Group’s findings illustrate the danger of assuming that your […]

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