While talking about why foreign aid doesn't work, Bill Easterly Writes:
The two key elements necessary to make aid work, and the absence of which has been fatal to aid’s effectiveness in the past, are FEEDBACK and ACCOUNTABILITY. The needs of the rich get met through feedback and accountability. Consumers tell the firm “this product is worth the price” by buying the product, or decide the product is worthless and return it to the store. Voters tell their elected representatives that “these public services are bad” and the politician tries to fix the problem. (Cato Unbound)
But, Milanovic calls him out, and here's part of the reason why:
To that potpourri of numbers, composed of aid, quasi-grants and almost commercial loans with strings that can hardly be called “aid” corresponds a potpourri of motivations. Some of “aid” is given for hard-nosed political and strategic reasons, to make friends and to stave-off Communists yesterday or Islamists today; some is given to employ domestic industries and turn out goods that are purchased by the South and which the South might not need at all; some is given to employ domestic bureaucrats who write useless “policy reports” for poor countries. And finally again only a tiny fraction of it is given with the objective of poverty alleviation in the Third World. So, if $2.3 trillion of “aid” did not manage to buy $4-worth mosquito nets it is hardly surprising. For the vast bulk of “aid” was never intended for those nets, but was led by entirely different motives and objectives. (Cato)
And Deepak Lal gives even more compelling evidence why aid doesn't
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. (Cato)
And he also hits the money:
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.
Foreign aid has been academically proven to providing long term benefits to recipients, though actual effectiveness depends on such things as "governance" and, surprisingly, climatic conditions. But, as these essays show, there is a serious need for an overhaul of the system, lest we continue to ineffictively use billions of dollars. While in Cairo, I couldn't help but notice the extreme comfort with which so many aid workers lived. Is this where those dollars should be going? Here's a first hand account of a student studying in Kenya and the corruption he observes.
I think the future lies in microfinance: direct investment in those who need it most. |
