Wednesday, August 7, 2013

Why do the poor have so many kids?

It is my experience that any discussion about strengthening the social safety net for the economically disadvantaged quickly meets resistance via two types of objections. One of these holds that the less fortunate are by and large lazy and lackadaisical who would rather exploit the benefits of the social welfare system than earn an honest living. The second objection is usually posed as the following question: if they are so poor, why do they have so many kids?

In this column I intend to tackle the second question about the poor having many kids. Here the obvious conclusion that one must draw is that the poor are poor because they have so many kids who need to be fed and clothed; if only they did not procreate with such fecundity, then they can easily find a way out of poverty.

It turns out that this implied causality is utterly incorrect. It is not the case that they are poor because they have so many kids but rather that they have more children because they are poor.

There are different ways of thinking about this. Let me explain.

The evidence suggests that across the world citizens of richer countries tend to have fewer kids compared to those in poorer countries. So the birth rates in countries like Sweden or Switzerland are much lower than those in Bangladesh and sub-Saharan Africa.

But even within the same country birth rates (typically number of live births per thousand persons) start to drop as income levels rise. This has happened in recent years in many developing countries such as India. Even within the same country this pattern is evident. The birth-rate in India’s poorest state of Bihar is almost twice that in richer states like Kerala or Tamil Nadu.

There are many reasons behind this. Part of the answer comes from evolutionary biology. For one thing, in poorer societies where many children die in infancy, people tend to have more children so as to ensure that at least some of those children live to adulthood. Furthermore, in countries with inadequate social security and retirement benefits, parents often rely on children to take care of them in old age. Here again it is important to make sure that you have children who survive long enough to take care of the parents.

In many third world countries – which may not have child labour legislation - children can also be a source of income as they can be sent off to work in the field, in the local tea-shop or as domestic servants.

But as income levels rise, birth rates fall. With rising incomes, there are more opportunities including for women. Now the cost of having a baby needs to be considered against the consequent loss of income from her wages, a trade-off that was not required when jobs for women were few and far between.

Clearly then the way to get women to have fewer babies is to increase their options and income; with increasing income and education birth rates fall.

But what does this have to do with the poor in a rich country like New Zealand? Clearly compared to the poor in Bangladesh, the poor here are far better off. So how come they have more kids?

It is worth pointing out that this finding is also widespread. Even in rich countries, the socio-economically disadvantaged tend to have more children.

How much more? According to data provided by Statistics New Zealand our average fertility rate (roughly the average number of babies per mother) is 1.96. For Asians and Europeans the rates are 1.67 and 1.77 respectively. For Maori it is 2.59 and for Pacific Islanders it is 2.94. So yes, on average, the Maori and Pacific Islanders do tend to have more children than Asians or Pakeha.

There is certainly a difference, but not a large one, as some tend to think.

Where does this difference come from? There is an approximate childbearing age, roughly between 15 and 49. How are some mothers managing to have more kids?

The answer is that some – particularly those who are economically worse off - are having kids at a much earlier age. For instance looking only at 15 through 19 year olds the fertility rates among Maori and Pacific Islanders are two to four times higher than the national average.

But in understanding what is driving early pregnancies among some groups, one needs to think a little more deeply about the choices facing young people.

Having a baby is a choice and like most choices it involves trade-offs. For women from more privileged backgrounds, child-bearing at an earlier age is very costly in terms of the sacrifices this involves, in terms of their education, their careers and their foregone income.

But research undertaken among young and welfare-dependent mothers in low income neighbourhoods of Philadelphia suggests that they perceive no strong impetus to postpone child-birth since they have limited other options and no sterling careers to look forward to. The same seems to be true among the economically disadvantages in most rich countries.

Why does this perception persist? Surely in countries like New Zealand there are plenty of opportunities for young people of all backgrounds.

It is entirely possible that this view of having limited options is mistaken but the perception, if it exists, may be enough to guide child-bearing choices; or may be the perception is closer to reality and the hurdles that need to be overcome on the path to rewarding careers are indeed much more formidable.

Current evidence suggests that children born in poverty continue to suffer disadvantageous after-effects in a wide variety of ways. Many – if not most - of these are not in their control.

The bottom-line is inescapable: deprivation leads women to have more kids; kids are not the primary cause of that deprivation.

Tuesday, July 23, 2013

Let them eat cake!

Let them eat cake, or better yet let them not eat at all!

Ananish Chaudhuri

I wish to express my whole-hearted support for the proposed bylaw making begging illegal. I am surprised that it has taken the City Council this long to introduce this eminently sensible measure. Really! The nerve of this people; hanging out begging for money outside fancy restaurants while I am trying to enjoy my $40 plate of beef bourguignon!

Why can’t they get a job like the rest of us hard-working folks?

And come to think of it – why stop at begging? How about declaring poverty illegal?  Round up the poor folks sucking away at society’s tits for all their worth. For example, what is up with the free meals for kids in schools? If the parents cannot feed them, then let them go hungry. Why should my hard-earned tax dollars be used to help out poor moochers who are too lazy to work and earn a good living for themselves and their kids?

Also I read in the Herald that shoplifting is a major problem; around $2 million worth of goods in our stores are being stolen weekly probably by those same moochers who are too lazy to feed their own kids. I am not saying we should be chopping off their hands like they do in some middle-eastern countries. (Though I never quite understood why people get so upset about it. No hand means no appendage to shop-lift with; makes sense to me.) But at least can we not publicly flog them like they do in some countries?

I am sick and tired of all the abuse of tax-payer’s money. Look at me. I come from fairly humble beginnings but pulled myself up by my boot-straps. Yes, I went to tax-payer funded public universities and work at one, where I sit on my plush top floor office and stare out at the verdant expanse of the tax-payer funded Auckland domain. Yes, I drive over tax-payer funded roads on my way to my sumptuous abode in one of the leafy suburbs of Auckland. So what? I do not owe my success to anyone other than me. I deserve everything I have and I worked hard for it. No one gave me any hand-outs like these moochers constantly expect.

I am tired of this liberal welfare-state namby-pamby that we have an obligation to help out the less fortunate. Of course not! Have you guys never heard of “survival of the fittest”? Social Darwinism? Admittedly I have never actually read Darwin but I am sure that is exactly what Darwin said.  They are unfit and they deserve to be winnowed out.

There are way too many takers; people who are dependent on the government and believe that the state has some kind of obligation to provide them with food, with shelter, with housing and health-care.

I am also heartened by the maturity demonstrated by Aucklanders. Initially I was apprehensive that some people would be up in arms against this bylaw since it does violate a number of fundamental rights including the right of peaceful assembly. But clearly our citizens realize that tough times call for tough measures: clearly not every right is important and not everyone deserves to have their rights protected.

I commend the City Council for showing the fortitude of implementing something that we only talk about in hushed whispers behind closed doors in fancy soirees with no plebeians around.

What a brilliant solution to an entrenched social problem! Declare it illegal! I don’t know why no one thought of this before.

Now that it is no longer legal to beg, I bet the lazy buggers will get of their bums, clean up and find jobs and become productive members of society like the rest of us.

Ananish Chaudhuri is Professor of Experimental Economics and Head of the Department of Economics at the University of Auckland Business School.


Saturday, May 11, 2013

How should we respond to the Bangladesh garment factor debacle?

Many of us – particularly those hailing from the Indian sub-continent – are still reeling from the recent tragedy in Bangladesh which has claimed more than 400 lives. Many of these are children who were brought to work by their mothers. Hundreds are still missing and the death toll might climb.

Incidentally I find it ironic that here and elsewhere the Boston bombing has received more air time than the accident in Bangladesh where the death toll was multiples more!

Unfortunately, these accidents have become all too common.  This is the second such gruesome incident in Bangladesh within a short period following a devastating fire in another garment factory.

In many cases, these are accidents just waiting to happen. When they do there is an outpouring of outrage and guilt; we rush to donate money for the victims and then after a while things settle and we go back to hunting for bargains at our local chain store.

In the aftermath of the tragedy commentators have suggested different responses.

One is to boycott the products of companies who get them made in third-world sweat-shops. Disney has responded by stating that they will no longer rely on Bangladeshi factories to make their merchandise. This is the worst possible response.

Because pitiful as these jobs are, workers sign up for them willingly because the alternatives are far worse; unemployment and starvation. Boycotting these factories will throw thousands of workers out of their jobs and deprive them of the meagre living that they are making now.

It is also worth remembering that low wage countries do not stay that way for ever. Over time as more jobs are created wages increase so that countries that were low wage twenty years ago have much higher wages now leading to higher living standards. This is exactly why more and more companies are moving to countries like Bangladesh and away from countries like China where the wages have started to rise.

A second suggestion is to ask customers to pay more for goods that are produced under more humane conditions. I call this the “fair trade coffee” argument. The problem is that this creates a problem. I am willing to do this but only if others are too and all too often some of us are not.   

Besides, in the middle of a world-wide recession where a majority of households are struggling, it would be silly to expect people to not look for bargains.

We should also not lose sight of the fact that Bangladesh is one of the most corrupt nations in the world. Most of the buildings in Dhaka are shoddily constructed. Builders and developers routinely get around existing regulations by bribing government officials.

And while words such as “corporate social responsibility” sound good, businesses always have an incentive to cut costs. That is the fundamental driving force of the market place. High cost producers will be inevitably be displaced by low cost producers.

It is not surprising that the pursuit of cost savings often crosses into unethical behaviour. Inhuman working conditions have been part and parcel of the development of many major industries across the world and over the years.  There is little point in expecting businesses to monitor this because they have little incentive to do so.

So what can be done? For now the initiative needs to come from the government.

Here I am assuming that the governments of low-wage countries like Bangladesh actually care about the lives of their citizens and are interested in preventing such catastrophes. This might be a heroic assumption.

The only way forward is to get international chains to internalize the costs of such catastrophes.  Yes, there is some negative impact from the adverse publicity but clearly that is not enough of a deterrent. The point is to make these companies explicitly take into account the cost of an accident.

First, workers must be allowed to have a voice and the only way to do that is through powerful unions. Unions have been an integral part of securing the rights and well-being of workers in the first-world countries of today and countries like Bangladesh have to follow that trajectory.

Second, legislated minimum wages may well have to be part of the equation as well.

Third, there needs to be mandatory accident insurance for workers. Of course the fledgling owners of these garment factories cannot be expected to provide such insurance. But when they sign a contract with an international company promising to deliver goods at low cost there needs to be quid pro quo in that contract which stipulates compensation in the case of loss of limb or life. This provides an incentive to ensure safe working conditions because the insurance pay-outs will affect the bottom-line of those companies.

Governments need to implement audits of employers to make sure that such compensation is built in and at the same time allow worker unions to voice complaints when they are not.

But why should international giants continue to do business in Bangladesh or a similar place if the costs are higher? Here the point to remember is that as long as the cost per worker is less than the value of the output produced by the worker the company stands to make a profit. Given the low wages, the mark-ups between cost and price are still large and there will be enough profit left over.

Of course, this does not rule out the possibility of companies bribing officials to get around the regulations but at least it will be a start and a message that the democratically elected government of Bangladesh places some value on the lives of its own citizens.

Are MOOCs the future of higher education?

MOOCs or Massive Open Online Courses are increasingly gaining prominence. According to Wikipedia (yes, there is already an entry for MOOCs in there; what other evidence do you need that MOOCs have arrived?), 2012 became the “Year of the MOOC” with several providers including Coursera, Udacity and EdX emerging. Most of these are joint ventures by leading universities such as Stanford, Pennsylvania, Princeton, Michigan and Berkeley to name a few. Most of them are backed by venture capitalists with deep pockets generating the potential for future success.

So the questions are: if you are a student planning to go to university, or the parents of one worrying about the financial cost of higher education, is this an option you should investigate? And are universities doomed?

While an increasing number of people seem ready to answer these two questions in the affirmative, I am not so sure.

First, I sincerely doubt that MOOCs pose a threat to the traditional liberal arts institutions which rely upon small class sizes that offer close and intense interaction among professors and students. So the likes of Wellesley, Williams, Swarthmore and Amherst are most likely not under much threat.

Second, MOOCs do not have now and will most likely never have the same brand recognition as top universities. But while someone doing MOOCs with Stanford will clearly not have the same credentials as someone actually attending Stanford, the question remains, how does the Stanford MOOCs student compare with someone getting a degree from Auckland? The former is a cheaper. Could it be a better substitute?

This is a valid question. Our biggest lecture theatre at Auckland seats more than 500 people. I can barely make out faces beyond the first ten or so rows. A large number of students clearly cannot see me well since they often confuse me with other professors from the Indian sub-continent!  

If MOOCs pose a threat to any particular type of delivery mode it is this reliance on large impersonal methods of delivery in many of our universities.

To the extent that a part – maybe even a large part of what we do – is mere information transmission from one party to another, MOOCs may be able to achieve the same aim, maybe even better.

But at the end of the day what universities provide – or at least what I hope they provide – is not merely transmission of information, but rather an education. Education clearly has some direct utilitarian ends. But that is certainly not the entirety of education. A crucial humanizing role of our universities is the creation of educated citizens who are vital for a well-functioning democratic society.  

This is where I believe MOOCs come up short. This is because a large part of education also consists of interactions between professors and students and the students themselves.

MOOCs providers realize this and plans are afoot to offer facilities for interaction between students and at times tutorials led by experienced students. But interaction with the super-star professors teaching the courses is not and never will be on the cards.

So what? How much interaction do I have with the students that I teach? Not a lot I admit. But by arriving before lectures, walking the aisles during one, staying back after lectures and making time to meet students during office hours I reach hundreds more than would be the case if I taught a MOOCs course.

Moreover, in many of these interactions the questions I answer are not about the course but rather: what should I major in? How did you know that you wanted to be a professor? And the always popular: what do you think I should do with my life? MOOCs will not be providing answers to these questions any time in the near future.

When I went to college eons ago, I did learn some economics. But what I remember at least as much is that my class-mates turned me on to Albert Camus, Umberto Eco and T.S. Eliot, Sergei Eisenstein, Orson Welles and Woody Allen, Leonard Cohen, Louis Armstrong, Billie Holiday and Chet Baker. This has played a crucial role in defining who I am and what I am today.

In going forward, I anticipate that MOOCs might take over some of our functions as pure information disseminators. To an extent MOOCs may be able to supplant or complement some of what we attempt to do in large lectures. But this is not the same as education and if we equate the two we do so at peril to the future of our societies.

I have neatly side-stepped the question of escalating cost of higher education which is a debate for another day. But whatever the answer to that question is, exclusive reliance in MOOCs is not it.  

Obama and Boehner: one on one negotiations improve chances of success

A version of this article appeared in the New Zealand Herald on December 20, 2012.

As the deadline for averting the so-called “fiscal cliff” looms, President Barack Obama and the Speaker of the House of Representative in Congress, John Boehner have decided to resort to one-on-one negotiations rather than involve a group of players. If no agreement is reached then come the New Year, taxes will go up and there will be sweeping cuts to government spending. This will send the slowly recovering US economy into another recession which, in turn, will have significant spill-over effects on the rest of the world economy.


At first, the decision to do away with others seems counter-intuitive because we instinctively expect groups, with members engaged in vigorous debate, to be more deliberative and to find it easier to arrive at a mutually acceptable outcome.


But this decision may actually improve the chances of averting disaster. This is because research suggests that groups behave in a more self-interested manner than individuals.


Obama and Boehner find themselves caught up in a “prisoner’s dilemma”, a situation where there is tension between cooperation and self-interest, an idea introduced, most likely, by the Princeton mathematician Albert Tucker.  


A crime has been committed. The police arrest a couple of likely suspects: Butch and Sundance. They are placed in different cells and cannot talk to each other. Each of them is told separately:  “look, we know you guys did it but it is not too late to save yourself. All you need to do is to rat on your mate and finger him for the crime; then he will get ten years in prison, and we will let you go free. But all we need is one confession. So if the other guy takes the deal first, then he goes free while you go away for ten years.”


“What happens if I keep mum and so does my mate?” asks Butch (or Sundance). “We still have enough to put each of you in jail for a year.” “And if we both rat on each other?” asks Butch (or Sundance). “Then you both go to jail for five years,” says the officer.


Let us assume that Butch cares only about what happens to him. If Sundance confesses and fingers Butch, then Butch’s best bet is to do the same as well; by staying mum Butch gets ten years in jail, but by also confessing and ratting out Sundance he gets five years.


But suppose Sundance does not confess; even then Butch is better off confessing and ratting out his mate! Because this guarantees that Butch will go free instead of one year in prison, while Sundance gets ten years.


Self-interest suggests that we should expect both Butch and Sundance to rat on each other and end up in prison for five years. Except if only both could have kept their mouths shut, they would both be better off and spend only one year in jail! This particular scenario is, in fact, a regular feature of TV cop shows like NYPD Blue.


The fiscal cliff negotiations set up a similar tension. Both Republicans and Democrats have an interest in protecting the priorities of their core voters. Democrats prefer fewer cuts to entitlements while Republicans wish to preserve lower tax rates for the wealthy. Yet both sides need to make compromises in order to achieve an outcome that benefits society as a whole.


Compromise is the same as staying mum; leads to a better overall outcome. But the problem is that each side has an incentive to renege; that is to confess and protect their own interests. Each has a vested interest in extracting concessions from the other side without offering any of its own. But if neither side compromises we are faced the worst possible outcome; a five-year jail sentence which in this case would be another impasse like the one we had over raising the debt ceiling.


Economists and psychologists have long been engaged in understanding behavior when compromise and self-interest collide. The usual method is to have volunteers take part in a “game” where at times they can earn real money based on the decisions that they make.


Chester Insko, a professor of psychology at the University Of North Carolina, Chapel Hill, along with many of his colleagues, has done extensive work demonstrating that groups are more self-regarding.  


They identify two primary reasons behind this. The first one is “social support for shared self-interest”. The greater self-interest among groups arise from the fact that group members provide each other with moral support for acting in more selfish and in-group oriented ways.


The second reason has to do with “schema based distrust”. This holds that groups expect their opponents to act in a self-interested manner and therefore protect themselves against possible exploitation by acting in a self-interested manner at the very outset. The degree of distrust increases when group-membership is particularly salient as it is with entrenched political affiliations.


One would think that allowing participants to talk to one another should help break the gridlock. But it turns out that while unrestrained communication does improve cooperation among individuals, it makes things worse among groups, partly because the distrust of out-group members makes such communication less credible.


Whether knowingly or unknowingly, Obama and Boehner have made the right choice and I think we can be cautiously optimistic that an agreement will be reached before the deadline. Whether Boehner can then get his Republicans colleagues in the House to support him or whether he finds himself faced with a challenge for the Speaker’s post is, of course, a whole different question.

Help the world - educate the girls

A version of this article appeared in the New Zealand Herald on October 12, 2012.
On Tuesday, Malala Yousufzai, a fourteen year old school-girl and activist was shot in the head and the neck by a Taliban gunman in northwestern Pakistan. According to the New York Times Malala “is a champion of girl’s education and a potent symbol of resistance to militant ideology”. Why was she shot? According to a Taliban spokesman ““She has become a symbol of Western culture in the area; she was openly propagating it.”

Girls are forbidden from attending school in Taliban controlled areas of Afghanistan and Pakistan. Malala’s father ran a school for girls which was shut down by the Taliban in 2009. Malala seems to have survived the attack but is still to regain consciousness. The Taliban has promised to try again.

I am going to leave aside the heart-breaking question of exactly how a society gets to a point where a fourteen year old has to take on the mantle of being a champion of female education and the face of resistance to militancy. I am also going to side-step the question of what kind of theological movement teaches its followers that it is okay to shoot a fourteen year old girl for demanding nothing other than the right to be educated.

For now, I will concentrate on why educating women in under-developed countries is important, something that does not seem to be widely understood. Providing education for women is not only a way of ensuring gender equality but has far more profound implications for the economic development of poor countries. In fact if I am asked to suggest a single policy intervention that will have the maximum impact on poverty across the world it is this: educate the girls.

Interviews of parents in five states in north India report that as much as 10 percent of them believed that it was not important for girls to be educated, while only up to 1 percent believed the same for boys. Fifty-seven percent wanted their sons to study “as far as possible,” while only 28 percent wanted the same for their daughters.

Clearly, providing education for girls improves their employment prospects and addresses issues of gender equality. This is important and a worthy goal to achieve in and of itself. But are there other positive fallouts from educating the women? Not surprisingly, the answer is yes. James Wolfensohn, the former President of the World Bank, points out that education for girls influences literally all aspects of development. It leads to lower child and maternal mortality rates, increased educational levels of their children and better management of natural resources. Collectively all of these are essential pre-conditions for successful economic growth. More education for girls also enables more women to attain positions of leadership and it has been shown that increased female participation in government leads to reduced corruption.

Other studies have found strong positive correlation between mothers’ education and earnings and child health. Incidentally the correlation for mothers is much stronger than that between father’s education and earning and child health outcomes. Not only does higher education translate into higher income for women, research suggests in developing countries that income or assets in the hands of women is associated with more money being spent on household nutrients, health and housing and less on things like alcohol and tobacco. This is one reason why, around the world, many micro-finance organizations like the Grameen Bank in Bangladesh, make their loans exclusively to women.

Closer to home, John Gibson of the University of Waikato studies the relationship between women’s education and stunting in children using data from Papua New Guinea. Stunting refers to short stature on the part of children due to poor living conditions and malnourishment. Gibson finds that mother’s education has three times as large an effect compared to father’s education on reducing the risk of stunting in children, even after making allowances for other factors like overall household wealth and parental health.

The bottom-line is incontrovertible: societies that do a better job of educating their girls experience better overall economic outcomes than those who fail to do so. As for me when I go home tonight I am going to hug my two girls close to my chest, ignoring their embarrassment at such effusive display of fatherly affection and hope that in their lifetime they will be able to live in a world where no teenage girl is shot simply for demanding the right to education and equal treatment.

Foreign aid in the 21st century

Last week Barack Obama and Mitt Romney shared the stage at a function organized by the Clinton Global Initiative. In his speech Mr. Romney, who might become the next President of the USA, laid out how he views foreign aid. “The aim of a much larger share of our aid must be the promotion of work and the fostering of free enterprise,” he said. Mr. Romney added that the “United States should make foreign aid conditional on countries’ lowering barriers to entrepreneurship and trade with the United States.”

This view of foreign aid is, at the very least, grossly outdated. Normally, Mr. Romney’s views on aid should not be of much concern to us except that I think that our government’s view on this matter is similar; “Trade, not aid” is the mantra. A key piece of evidence here is that New Zealand Aid, a body which is in charge of handling our foreign aid is part of the Ministry of Foreign Affairs and Trade.

Before I discuss why this is a misguided way to view foreign aid, let me disabuse readers of some often held misconceptions. Most rich counties in the world actually provide a very small fraction of their gross national product in foreign aid.

The governments of developed countries promised to spend 0.7% of their gross national product on development assistance in 1970, 42 years ago! They have consistently failed to reach this goal; the amount of aid has been around 0.2 to 0.4% on average. Among developed nations only USA, Italy and Japan donate less in percentage terms than New Zealand.

So no, we are not really spending that much of our hard-earned money to help out “victims” in poor third-world countries who fail to take responsibility for their own well-being. But then do we have any obligation to help out those people at all?

Usually, those who answer this question in the affirmative, do so by appealing to morality, compassion and fairness. Those are valid arguments and I agree with them. But there is a case to be made in favour of foreign aid purely on the grounds of national security and self-interest. And that is where we need to think of foreign aid in different and more strategic terms.

First, in today’s globalized world opening up markets for our country’s businesses is not a major concern anymore; at least it is not a predominant concern. Most countries around the world are now clamoring for foreign investment. There are few counties in the world with the possible exception of North Korea and Myanmar which hang on the old-school ideas of autarky and self-sufficiency. If there is one thing that we have learned from the rapid growth of countries like China, India, Singapore, Taiwan and others it is that international trade provides poor countries an escape out of poverty. India recently opened up its retail sector to foreign investment. This was one of the few remaining sectors of that vast market. Yes, there may be some sectors in some countries that may require opening up but that is a minor concern.

Let us talk about tuberculosis in New Zealand. According to a report issued by the Ministry of Health there were 626 cases of TB in New Zealand in 2011. “The most commonly reported risk factors among the cases were being born overseas and current or recent residence with a person born outside of New Zealand.  Based on country of birth, the highest TB disease rate was among those born in Asia (61.7 per 100,000, 155 cases), followed by those born in Sub-Saharan Africa (38.9 per 100, 000, 23 cases) and in the Pacific Islands (27.2 per 100 000, 37 cases).”

Given that the symptoms of TB can be dormant for many years, routine health-checks as part of the immigration process may not pick up on this.

Another serious medical problem facing us is the over-the-counter availability of potent antibiotics in third-world countries leading to their widespread abuse. This in turn is giving rise to numerous multi-drug-resistant diseases which are spreading rapidly around our globalized world.

Pandemics like SARS, swine-flu or bird-flu (or ones that may happen in the future) have enormous detrimental effects on our economy. 

Note: If you are inclined to dismiss these arguments as fear-mongering then, if nothing else, you need to borrow a copy of the DVD of Stephen Soderbergh’s film “Contagion” and watch it immediately!

This implies that any aid program that leads to greater immunization of children in third-world countries or prevents the widespread abuse of antibiotics has positive implications for our own well-being.

But a much bigger threat to our interests and security come not from disease but from failed states like Afghanistan, where a number of Kiwi soldiers have died recently.

The problems we face in Afghanistan, Iraq, Somalia, Congo, Angola, Haiti or Sudan is not of opening up their markets. There are no markets in those countries! Because there is no government to create functional markets in the first place. And the problems are the same: corruption, graft, terrorism, civil unrest, warfare, genocide.

And much of that unrest is washing up on our shores in the form of the smouldering ruins of cafeterias and bars and ships and yes, skyscrapers.

Here is the lesson from the Arab Spring. In order to improve the situation in poor countries the primary focus needs to be on only one thing: governance. This means reducing corruption, creating rule of law and transparency in the operations of the government, ensuring property rights and fostering democratic ideals.

Therefore aid that goes towards providing primary schooling or towards microfinance in helping people get out of poverty may not pay off in terms of business interests in the immediate present but has a far greater payoff for our security interests down the road. It is not easy to recruit “shahids” for “jihad” when the prospective shahid has a job and a wife and children who go to school; people who have middle-class dreams and aspirations and stability in their lives and things to look forward to.

The result of this will not always be to our liking; people whose viewpoints are radically different from ours will sometimes end up in power. But then we must have faith in the people of those countries to overthrow their own despots. The west has tried doing it at gun-point and yes, there are clearly times when military intervention is unavoidable. But military interventions are costly in terms of money and lives lost. In the wake of the current recession, few nations, if any, have the appetite for incurring those costs. This is mostly why we have all gone about business as usual in the face of the massive human calamity unfolding right now in Syria. 

It is time that the rich countries in the world began to wake up to the real threats facing us in our globalized world. Yes, some of the aid we provide will be stolen; some will go towards helping ultra-conservative religious zealots or despots who will stash the money in Swiss accounts. But if we are smart about it and direct our aid well then much of it can help bring about lasting change in poor countries. In the long run this will be a good investment in our own future and that of our businesses.