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By Jagdish Bhagwati
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. By Dambisa Moyo. Farrar, Straus & Giroux, 2009, 208 pp.
If you live in the affluent West, no public policy issue is more likely to produce conflicts in your conscience than foreign aid. The humane impulse, fueled by unceasing televised images of famine and pestilence in the developing world, is to favor giving more aid. But a contrasting narrative has the opposite effect: Emperor Jean-Bédel Bokassa of the Central African Republic used Western aid to buy a gold-plated bed, and Zaire's dictator, Mobutu Sese Seko, spent it on personal jaunts on the Concorde. Such scandals inevitably lead many to conclude that most aid is wasted or, worse still, that it alone is responsible for corruption.
These debates have largely been the province of Western intellectuals and economists, with Africans in the developing world being passive objects in the exercise -- just as the 1980s debate over the United States' Japan fixation, and the consequent Japan bashing, occurred among Americans while the Japanese themselves stood by silently. Yet now the African silence has been broken by Dambisa Moyo, a young Zambian-born economist with impeccable credentials. Educated at
Moyo's sense of outrage derives partly from her distress over how rock stars, such as Bono, have dominated the public discussion of aid and development in recent years, to the exclusion of Africans with experience and expertise. "Scarcely does one see Africa's (elected) officials or those African policymakers charged with a country's development portfolio offer an opinion on what should be done," she writes, "or what might actually work to save the continent from its regression. . . . One disastrous consequence of this has been that honest, critical and serious dialogue and debate on the merits and demerits of aid have atrophied." She also distances herself from academic proponents of aid, virtually disowning her former
Moyo's analysis begins with the frustrating fact that in economic terms, Africa has actually regressed, rather than progressed, since shedding colonial rule several decades ago. She notes that the special factors customarily cited to account for this tragic situation -- geography, history, social cleavages, and civil wars -- are not as compelling as they appear. Indeed, there are many places where these constraints have been overcome. Moyo is less convincing, however, when she tries to argue that aid itself has been the crucial factor holding Africa back, and she verges on deliberate provocation when she proposes terminating all aid within five years -- a proposal that is both impractical (given existing long-term commitments) and unhelpful (since an abrupt withdrawal of aid would leave chaos in its wake).
Moyo's indictment of aid, however, is serious business, going beyond Africa to draw on cross-sectional studies and anecdotes from across the globe. Before buying her indictment, however, it is necessary to explore why the hopes of donors have so often been dashed.
THE CHARITY TRAP
Foreign aid rests on two principles: that it should be given as a moral duty and that it should yield beneficial results. Duty can be seen as an obligation independent of its consequences, but in practice, few are likely to continue giving if their charity has little positive effect. Beginning in the years after World War II, those who wanted the rich nations to give development aid to poorer ones had to address the challenges of building domestic support for greater aid flows and ensuring that the aid would be put to good use. But their unceasing efforts to produce higher flows of aid have led aid advocates to propose the use of tactics that have ironically undermined aid's efficacy, virtually guaranteeing the kind of failures that understandably trigger Moyo's outrage.
At the outset, aid was principally driven by a common sense of humanity that cut across national boundaries -- what might be called cosmopolitan altruism. Aid proponents in the 1940s and 1950s, such as Gunnar Myrdal and Paul Rosenstein-Rodan, were liberals who felt that the principle of progressive taxation -- redistribution within nations -- ought to be extended across international borders. This led to proposals such as those to set an aid target of one percent of each donor nation's GNP, playing off the Christian principle of tithing (giving ten percent of one's income to the church) or the Muslim duty of zakat (which mandates donating 2.5 percent of one's earnings to the needy).
How was the one percent figure arrived at? According to Sir Arthur Lewis, the first Nobel laureate in economics for development economics, the
The problem was that the one percent target remained aspirational rather than practical. Outside of Scandinavia, there was never much popular support for giving away so much money to foreigners, however deserving they might be. So aid proponents started looking for other arguments to bolster their case, and they hit on enlightened self-interest. If one could convince Western legislatures and voters that aid would benefit them as well, the reasoning went, the purse strings might be loosened.
In 1956, Rosenstein-Rodan told me that then Senator John F. Kennedy, who bought into the altruism argument, had told him that there was no way it could fly in the
FROM ALTRUISM TO SELF-INTEREST
When the Cold War began to lose its salience, the search began for other arguments to support aid.
Other feeble arguments related to immigration. It was assumed that if aid were given wisely and used effectively, it would reduce illegal immigration by decreasing the wage differentials between the sending and the receiving countries. But the primary constraint on illegal immigration today is the inability of many aspiring immigrants to pay the smugglers who shepherd them across the border. If those seeking to reach El Norte or Europe earned higher salaries, they would have an easier time paying "coyotes," and more of them would attempt illegal entry.
Lewis, who was a member of the
One of the chief reasons for the gap is not just miserliness but a lack of conviction that aid does much good. Aid proponents today try to overcome this doubt by linking aid-flow obligations to worldwide targets for the provision of primary education and health care and other laudable objectives enshrined in the 2000 UN Millennium Development Goals (which are uncannily reminiscent of the
And so one returns to the old question of what Rosenstein-Rodan termed "absorptive capacity": How much aid can be absorbed by potential aid recipients and transformed into useful programs? Arguments that aid can and should be used to promote development seem reasonable but have run into problems -- not just because corrupt dictators divert aid for nefarious or selfish purposes but because even in reasonably democratic countries, the provision of aid creates perverse incentives and unintended consequences.
The disconnect between what development economists thought foreign assistance would achieve and what it has actually done is best illustrated by a close look at the earliest model used to formulate development plans and estimate aid requirements. The model was associated with two world-class economists, Roy Harrod of Oxford and Evsey Domar of
Economists also assumed that aid recipients would use fiscal policy to steadily increase their own domestic savings rates over time, thus eliminating the need for aid entirely in the long run. With such matching efforts by the recipients to raise domestic savings, so the logic went, aid would promote growth and self-reliance.
The problem with this approach, widely used throughout the 1970s, was that although aid was predicated on increased domestic savings, in practice it led to reduced domestic savings. Many aid recipients were smart enough to realize that once wealthy nations had made a commitment to support them, shortfalls in their domestic efforts would be compensated by increased, not diminished, aid flows. Besides, as Moyo notes, the
PAVED WITH GOOD INTENTIONS
Similar problems involving the mismatch between intentions and realities are present in today's battles over aid. Now, as before, the real question is not who favors helping the poor or spurring development -- since despite the slurs of aid proponents, all serious parties to the debate share these goals -- but rather how this can be done.
Many activists today think that development economists in the past neglected poverty in their quest for growth. But what they miss is that the latter was seen as the most effective weapon against the former. Poverty rates in the developing countries did indeed rise during the postwar decades, but this was because growth was sporadic and uncommon. And that was because the policy framework developing countries embraced was excessively dirigiste, with knee-jerk government intervention across the economy and fears of excessive openness to trade and foreign direct investment. After countries such as China and India changed course and adopted liberal (or, if you prefer, "neoliberal") reforms in the last decades of the century, their growth rates soared and half a billion people managed to move above the poverty line -- without question, the greatest and quickest progress in fighting poverty in history.
Neither China nor India, Moyo points out, owed their progress to aid inflows at all. True, India had used aid well, but for decades its growth was inhibited by bad policies, and it was only when aid had become negligible and its economic policies improved in the early 1990s that its economy boomed. The same goes for China.
If history is any guide, therefore, the chief weapon in the "war on poverty" should be not aid but liberal policy reforms. Aid may assist poor nations if it is effectively tied to the adoption of sound development policies and carefully channeled to countries that are prepared to use it properly (as President George W. Bush's Millennium Challenge program recently sought to do). Political reform is important, too, as has been recognized by the enlightened African leaders who have put their energies into the
But unfortunately, despite all these good intentions, if the conditions for aid's proper use do not prevail, that aid is more likely to harm than help the world's poorest nations. This has been true in the past, it is true now, and it will continue to be true in the future -- especially if some activists get their wishes and major new flows of aid reach the developing world simply because it makes Western donors feel good.
Moyo is right to raise her voice, and she should be heard if African nations and other poor countries are to move in the right direction. In part, that depends on whether the international development agenda is set by Hollywood actresses and globetrotting troubadours or by policymakers and academics with half a century of hard-earned experience and scholarship. In the end, however, it will be the citizens and policymakers of the developing world who will seize the reins and make the choices that shape their destiny and, hopefully, soon achieve the development progress that so many have sought for so long.
Available at Amazon.com:
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa
© Jagdish Bhagwati - Foreign Affairs
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World - Why International Assistance Does Not Alleviate Poverty | Jagdish Bhagwati