There is No Fix for Aid

I agree with Bill Easterly that aid has not achieved goals “such as promoting rapid economic growth, changes in government economic policy to facilitate markets, or promotion of honest and democratic government.” But his hope that aid can achieve the less ambitious goals of getting “medicines to children to keep them dying from malaria…, $4 bed-nets to the poor to prevent malaria…$3 to each new mother to prevent child deaths..[and to] get Amaretch into school” through making the aid agencies accountable for specific tasks through rigorous academic evaluations of outcomes is also likely to be belied. This is so for a number of interrelated reasons, at the center of which is the character of the domestic governments to which aid is extended.

Thus consider the main form of humanitarian aid–food during famines—which would seemingly be an uncontroversial objective. But, as has been copiously documented, many famines, particularly in Africa, have been created or aggravated by governments who have used them as an instrument to coerce opponents in ongoing domestic civil conflicts. They have then prevented the food aid from reaching its victims. The latest example is the famine engineered in the former breadbasket of southern Africa— Zimbabwe—by its current Big Man, Robert Mugabe, to punish and coerce his political opponents.

These problems of “governance,” as they are euphemistically labeled, relate to the central dilemma faced by those who wish to use foreign aid to meet the obvious needs of the poorest in the developing world. For unlike private charity, foreign aid essentially transfers money from rich country governments to poor country governments. How can these donor governments ensure that the recipient governments use these resources for the purposes they were intended? As the history of foreign aid’s failures, particularly in Africa show, despite their promises there is little that the donor governments have been willing or able to do if the recipient governments do not fulfill them. Nor is channeling these flows through international or domestic NGO’s likely to overcome this problem, for these so-called “agents of civil society” too can be coerced or co-opted by predatory governments. That is why in a recent book I had argued that short of direct or indirect imperialism there seems to be little hope of overcoming the domestic political obstacles to the efficient utilization of foreign aid, particularly in Africa, where most of the current efforts of the “do gooding” brigade in the developed world are rightly concentrated.[1] Given this political constraint, the best the rest of the world could do for Africa is to keep its markets open for the free flow of trade and capital, but otherwise leave Africa alone, to sort out its own problems.

Easterly clearly thinks that there might still be some form of escape from what will appear to the world’s great and the good as a defeatist and gloomy conclusion. But the very example he cites—the role played by accountability and evaluation in the Mexican Progressa education program as a prototype for future aid projects—shows up why foreign aid is unnecessary for such programs. This was a Mexican program not funded by foreign aid. In fact in all the currently fashionable “soft” areas—health, education, democracy, gender etc.—favored by aid donors, there is no need for foreign money. Countries which subscribe to the worthy objectives of the aid donors do not need foreign money to do the right thing; they today have enough domestic money for these purposes. It is the ineffectiveness of this expenditure in meeting these objectives that leads to the observed dismal outcomes. Thus India spends a fair amount on public education but as official report after report has documented, this expenditure is wasted as the teachers do not turn up to teach, the school buildings are not built, and there are no books for which expenditure has been sanctioned. It is the will to do the right thing that remains in question in achieving even these modest objectives favored by Easterly. Foreign aid will make no difference, for as the adage has it: “You can lead a horse to the water but you cannot make him drink”.

Secondly, in these soft areas foreign aid agencies have no comparative advantage in effectively targeting these expenditures as they lack the local knowledge on which their efficiency depends.

Neither is Easterly’s desire to ensure professional evaluations of aid projects likely to deliver the goods. In fact in my first incarnation at the World Bank in the early 1970s I was involved in helping it to produce a project evaluation manual which was then supposed to be used to evaluate both projects and their outcomes for their social costs and benefits. As one wag commented this soon became “social cosmetic” analysis. The project officers who were making the loans had moved on by the time the project was completed, their career prospects depended on the amount of lending and not on the outcomes, which would in any case take a long time to manifest themselves. The official World Bank post evaluations, as Easterly rightly notes, are little more than window dressing which do little for the effectiveness of aid.

The unpalatable truth for the many well meaning people who are moved by world poverty and want to do something is that, over the years, alleviating world poverty has become a large international business from which a large number of middle class professionals derive a good living. They have been aptly described by a former East African correspondent of the Economist as the “Lords of Poverty.”[2] Easterly’s suggestions for making aid effective will merely provide them a new play! The truth is that aid is not only ineffective; it is actually counterproductive. It will be a cruel joke on the Amaretch’s of the world if it is now believed that some bureaucratic fix of the aid machinery will get them to school.

Ideally the time has come to pension off the Lords of Poverty. But this will not happen. For, as the recent outpouring of support for various celebrity promoters of foreign aid shows, there is a large constituency in the West to continue these failed programs to assuage their guilt. But then it is best to be clear headed about what can be achieved. The best analogy I find is with my action in giving a dollar to a beggar on the streets of Los Angeles or London. I do not take him to the nearest food shop to buy something nourishing. I know perfectly well that he will probably blow it on drink or drugs. But I still hand over the dollar because it makes me feel better. Similarly, it is best to end the futile attempt to fix “aid” to make it more effective. It is best to just hand the requisite checks to the governments of the poor, in the full knowledge that this will not do much for the world’s poor but will make us feel less guilty!


* This is based in part on a section of my forthcoming book Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century (Princeton University Press, 2006)

[1] Deepak Lal, In Praise of Empires, (Palgrave Macmillan, 2004).

[2] Graham Hancock, The Lords of Poverty: the Power, Prestige and Corruption of the International Aid Business, (Macmillan, 1989).

Also from This Issue

Lead Essay

  • Why Doesn’t Aid Work? by William Easterly

    It is a tragedy that billions suffer from extreme poverty. The second tragedy of the world’s poor, William Easterly maintains in this month’s lead essay, is that trillions spent on foreign aid have done so little to help. Aid efforts so rarely succeed because they so often lack feedback and accountability. The way forward, Easterly argues, is “truly independent scientific evaluation of specific aid efforts … continuous evaluation of particular interventions from which agencies can learn.”

Response Essays

  • Thought-Provoking and Misleading by Branko Milanovic

    In his spirited reply to this month’s lead essay the World Bank’s Branko Milanovic claims that William Easterly’s argument is misleading. Easterly, Milanovic argues, is not clear about the definition of “aid,” and he both underestimates how much governments can do to help the poor and overestimates the likely effectiveness of his proposed new “grandiose bureaucracy” to assess aid effectiveness. Easterly, Milanovic writes, “provides an argument for those who have long argued that the best policy is to do nothing and ignore the poor world.”

  • Evidence Beats Rhetoric, Every Time by Steve Radelet

    The Center for Global Development’s Steve Radelet argues against Easterly that, in fact, “aid amounts have been modest” and that the evidence shows that aid is often effective. Without successful health interventions, “millions of these people would be dead,” Radelet writes. Furthermore, he argues, aid does promote economic growth. “Here is the dirty little secret: most of the published research over the past decade has shown a modest positive relationship between aid and growth.”

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