Institute Notes: A Dialogue on Overcoming Hunger and Poverty

The New Philanthropy and Aid Effectiveness

The Hudson Institute’s Center for Global Prosperity has just issued its Index of Global Philanthropy 2008, their annual attempt to chronicle the role of non-governmental assistance in global development. The report correctly points out that Official Development Assistance (ODA), the internationally accepted measure of global development assistance, by concentrating on public expenditure misses a lot of important financial and technical assistance flows. For example, although the total volume of ODA from the U.S. vastly exceeds that of others donors, the U.S. government is frequently criticized for the relatively small share of Gross National Income (less than 0.2 percent, compared to the Nordic countries, Luxembourg and Netherlands at over 0.8 percent). However, when private philanthropy (from foundations, religious organizations, universities and colleges and other private and voluntary organizations) is considered, the picture changes considerably. For 2006, U.S. private philanthropy exceeded ODA by some $11 billion. Other OECD countries that allot a larger share of GNI in the form of public support for development generally provide significantly less in the form of private philanthropy. And this flow of financial resources from rich to poor countries does not take into account the volume of private investment and remittances, which together amounted to another $130 billion. But is this legitimate accounting? Should these different sources of funding be considered in the same light?

Working Families and Economic Insecurity

A new report on economic security and working families in the United States appeared this week from the Center for Economic and Policy Research (CEPR). The full title is Working Families and Economic Insecurity in the States: The Role of Job Quality and Work Supports, and it is well worth everyone’s attention.

First, some basic framing is necessary: the researchers are using a measure of economic security defined by whether families have sufficient resources to meet basic needs. This is different from how the government comes up with its official poverty data. The Institute has discussed the inadequacy of the Census measure—we dedicate an entire chapter to this in our own report Working Harder for Working Families.

A basic needs budget “takes into account the actual costs of goods and services needed to have a decent standard of living as well as the variations in these costs depending on where one lives.” Basic needs include housing, utilities, food, health care costs, transportation, and child care. We’re not talking entertainment and new furniture.

Naturally, cost of living varies depending on where you live and how large a family you have. For a family of three, basic needs can be met in Arkansas with an annual income of $12,775, whereas in New Hampshire it takes $25,047. According to the Census Bureau, it makes no difference which state you live in because costs of living are irrelevant. You see the problem.

The numbers in this report tell a compelling story. CEPR finds 22 percent of working families suffer from economic hardship. That’s almost double the official poverty rate.

The Millennium Development Goals: Facing Down Challenges

Bread for the World Institute just released a new briefing paper on the Millennium Development Goals. Entitled, The Millennium Development Goals: Facing Down Challenges, the paper looks at four problems countries face in their efforts to achieve the MDGs. Of course, countries face huge and diverse challenges to development, and getting down the list to four areas was no easy task. Invariably, the paper leaves many important issues out, but it also explores some of the issues which we think are of the most significance (and consequence) to a countries development prospects. We invite others to read  the paper and let us know if we have missed the mark.

Included in the analysis are discussions of:

Food Prices, Energy and Fertilizer Efficiency

There’s been a great deal of publicity of late on the increasing conjunction of agriculture and energy – the use of corn for ethanol production has knock-on effects for food costs, with the actual impact of the ethanol mandate accounting for some 20 percent of the recent runup in food costs according to IFPRI, the International Food Policy Research Institute. However, there is another point of commonality between food and fuel, and that is fertilizer. Food prices will only be stabilized and eventually reduced through increased production, and that is heavily dependent on fertilizer use. But while corn has gone from $3.05/bu. to $4.28/bu. between January ’07 and January ’08, fertilizer prices have been increasing even faster: For example, the Arab Gulf price of urea – the most commonly used form of nitrogen fertilizer – went from $272 to $415 per ton over the same period – a 50 percent increase. (The main input for producing urea is natural gas – hence the Arab Gulf base price.) So the increase in energy costs directly affects the costs of producing the food needed the mediate the price increases.

Announcing Half in Ten

The Center for American Progress (CAP) is leading a new campaign to cut poverty in half within ten years. The campaign is called Half in Ten and the frontman for it is none other than John Edwards, former Democratic presidential candidate and senator from North Carolina. Edwards was also the only candidate in both parties to raise poverty to the top of his issues agenda.

The Half-in-Ten campaign is promoting four main solutions:

• Expanding the Earned Income Tax Credit and the Child Tax Credit;
• Raising both state and federal minimum wages;
• Increasing the number of low-income families receiving child care assistance;
• Increasing eligibility for unemployment insurance.

These are spot on and should be on anybody’s list of what to do to reduce poverty. We promoted these policies in Working Harder for Working Families, and I have used this blog recently to write about the importance of the Earned Income Tax Credit and the Child Tax Credit.

Official Aid -- Not the Only Game in Town

A recent article by Raj Desai and Homi Kharas of the Brookings Institution – The New Philanthropy and Development Aid -- serves to highlight some of the complexities and paradoxes of foreign aid in the 21st century. The writers point out that some 800 press credentials were issued for the April 12-13 meeting of the World Bank and IMF, which generated over 400 news articles, while a meeting a few days prior of the Global Philanthropy Forum in California’s Silicon Valley generated no news stories. Yet the amount of aid disbursed by American foundations, charities and philanthropies in 2006 for international causes – $34 billion, all in the form of grants -- is $10 billion greater than the total grant and loan disbursements by the Bank and IMF for that year.

Other studies point out that for the U.S., private philanthropy – i.e., not including remittances and private investment and lending -- surpasses Official Development Assistance (ODA). And while large “mega-charities” like Gates, Ford and Hewlett foundations garner most of the publicity, small foundations actually contribute twice as much and their role is growing more rapidly.

Living on $5 per day or less in the United States

We read stories about people in the developing world living on $1 or $2 a day and it's easy to think that's all happening somewhere else. But there is also extreme poverty in the United States, and I think many Americans would be shocked to learn there are actually families trying to get by on a few dollars per day right here in the United States.

Rebecca Blank, an economist at the University of Michigan and the Brookings Institution, studies this group and has recently published a report highlighting some new and disturbing trends. While this group has always existed, the numbers have been increasing since welfare reform legislation in 1996.

Blank describes these families as "disconnected," and by that she means those in which the parent does not work, or works only a small amount, and the family does not receive cash welfare payments as part of the national welfare program Temporary Assistance to Needy Families (TANF).

Blank's study focuses exclusively on families made up of single mothers. She estimates there are some 2.2 million single mothers, with an average of 1.8 children per mother, or about 4 million children, who are disconnected. The average annual income of this group is between $4,287 and $4,435. Using a simple calculation, I figure that comes to roughly $4 - $5 per day. Three people (single mother, two children), over 365 days, use up $4,435 at a rate of $4 - $5 per day. 

Families this poor are likely to have many problems. Some of the most common are as follows:

• Less education and more learning disabilities
• High levels of past or current levels of substance abuse
• High rates of depression and forms of mental illness as well as more physical health problems
• Young children or larger families and are more likely to be caring for someone with health issues
• A history of domestic violence or violence in a current relationship

The last thing I'm interested in here is assigning responsibility for any of these. The point I want to highlight is the current welfare system does a terrible job in making sure these families get the help they need. These families may be poor for the reasons above, but they are disconnected because the welfare system fails them. Blank explains, "[F]ederal requirements create a strong incentive for states to remove disadvantaged women from their caseload through time limits and sanctions: this may increase the number of disconnected women and their children who face serious poverty."

Welfare reform legislation in 1996 was intended to get welfare-dependent parents into the workforce and begin moving them towards self-sufficiency. For the majority of parents who have been on TANF, it has at least gotten them into the workforce. But for the hardest cases, meaning parents who face the greatest barriers to obtaining or maintaining a job, welfare reform has been a cruel reckoning. As Blank's research shows, this is not an insignificant number of families either. 

The Debtor's Dilemma

Last Saturday I attended a presentation on debt at a church by where I live. A friend of mine is a financial counselor and volunteers to speak at churches, at women's shelters and other venues where people who want professional advice on managing their money can't afford to pay for it.

Debt is a big problem in the United States, and not only at the household level. It's a problem for our government, presently running a record $9 trillion debt. Carrying that much debt makes it hard for government to invest in national assets like infrastructure (remember the bridge that collapsed in Minnesota last year) or our country's most important assets, its people. When individuals carry too much debt, it also makes it difficult to invest in productive assets (e.g. education) that in the long run would increase their economic security and self-sufficiency.

Of course not all debt is bad debt. You can't buy a house without accumulating lots of debt. If you don't have a record of paying down your debts, you have a lot harder time getting credit at reasonable interest rates. To some extent, we all need to carry some amount of debt.

One of the paradoxes about being poor is that you pay more for credit in the form of higher interest rates. When you think about it, if anyone needs credit at low interest it's poor people. Lending to the poor entails more risk to creditors, and this is why the credit industry says they have to charge poor people higher interest. The poor get into trouble paying down debt because that's the nature of being poor, living from paycheck to paycheck. It all seems like a self-fulfilling prophecy if you ask me, but hey I'm just a guy who works at a nonprofit.

The Racial Wealth Divide Revisited

Income inequality between whites and blacks is widely known. It’s a serious problem and I would not want to understate it. However, wealth inequality is an even greater problem. Let’s have a quick refresher: Income is what you make and spend, wealth what you own and what appreciates in value over time. A home is the best example of wealth there is. For most people, it is the single biggest wealth-building asset they'll ever have.

Income inequality between whites and blacks is not quite 2:1; wealth inequality is 10:1, and if you factor out homeownership, it balloons to more than 100:1.

The racial wealth gap is an important topic in Bread for the World Institute’s work on asset building, and I’ve blogged about this before. I’m revisiting it now because of a recent article that appeared on the Economic Policy Institute’s website as part of its economic “snapshot” series.

“The Drive for Economic Equality…Stuck in Neutral” by Christian Dorsey and James Lin ponders where we are forty years after Dr. Martin Luther King’s death in achieving "[King's] vision of economic equality.”

In 2004, blacks held $11,800 in net worth, or about 10% of the $118,300 held by whites (see Chart). When home equity is subtracted, blacks held, at the median, only $300 in net financial assets, or less than 1% of the $36,100 held by whites. Contrary to conventional wisdom, the picture has not improved in recent years. The wealth gap was narrowest in 1992, and even then, median total wealth for blacks was a mere 16% of their white counterparts.

This is a depressing graph, and I'm afraid future ones are not likely to look better any time soon. In the coming years, I expect the racial wealth gap to widen still more because of the bust in the subprime housing market. We don't know much of the details now because the full effects of the subprime debacle won’t be in for a couple of years. What we do know is that blacks (and Hispanics) were targeted by subprime lenders at far higher rates than whites were, and we also know from other work we've done at Bread for the World Institute how much subprime lending there is in poor communities.

Subprime mortgages, once touted as a way to increase minority homeownership, and thereby increase minority wealth, will probably strip more wealth from minority families than what anybody can imagine at this point. One can only imagine what Dr. King would say. 

Climate Change Adaptation – A Matter of Justice

In a recent symposium, Dr. Saleemul Huq of the International Institute for Environment and Development and lead author of the chapter on Adaptation and Sustainable Development in the third assessment report of the Intergovernmental Panel on Climate Change (IPCC) makes the point that Global Climate Change is increasingly becoming a justice issue – i.e., that it is fundamentally unjust for poor countries to bear the brunt of climate change that stems from the actions of countries that are now wealthy. The “global south” increasingly views the issue in these terms.  And the upshot is that a new group of interested parties – beyond the environmental and development groups -- is being brought into the policy area, namely the human rights, equity and social justice advocates, who will to increase the pressure on developed countries to “do the right thing.”

The cost of adaptation to climate change in poor, at risk countries is enormous – estimates range up to $60 billion per year. This is well beyond what could be financed through traditional foreign aid. But the fact is that costs of climate change – whether they manifest themselves in massive migration, humanitarian emergencies or conflict – will eventually have to be borne. At issue is how and at what point.