The Public Policy

Aiding and Abetting

Fooling itself once again, the UN recommends a doubling of counterproductive foreign aid.

By 9.16.05

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In January 2005 the United Nations issued a massive report calling for a doubling of aid to developing countries between now and 2015 to conquer poverty. This month, it is holding a summit to push that agenda. Despite the noble intent of advocating more aid, developed nations should instead consider a reduction in development assistance funding. Why? Because aid simply does not work to solve world poverty.

I say this as an aid practitioner with close to 40 years experience in developing countries at practically all levels of the international aid apparatus, including the World Bank and the United Nations Development Program.

Like many with long aid experience, I wrestled for years with the evidence of aid's ineffectiveness. For example, community projects that look good while the aid flows, but disappear when it stops; benefits captured by those for whom they were not intended; infrastructure built with aid funds falling apart for lack of a "maintenance culture"; and interventions that look good on paper but turn out to be inappropriate to local customs or beliefs. Reluctantly I have come to believe that the structure of the aid industry is itself one of the obstacles in the development process, with its bureaucracy, and its deeply embedded incentive to get money out the door, usually before the homework is done.

Using aid as a short-term solution or humanitarian relief aid has some value, but aid's role in combating long-term poverty reduction is at best not significant, and at worst counterproductive.

In those countries where aid has dominated the national budget (e.g., Haiti, Malawi), poverty statistics have not brightened, while in those where aid has played a minor role (e.g., India, China), poverty has come down. The roots of poverty are just too deep and complex to be touched by outside aid programs set up as projects with inevitably limited time frames.

For the last 60 years the world's aid institutions have tried virtually everything, but without much success.

During the 1950s we believed in import substitution and industrial development. We thought we could help poor countries leapfrog history and become like us. (You don't have a steel industry? Well, we'll build one for you.)

Then we rediscovered the importance of agriculture and put money into extension worker training, agricultural marketing boards, seed multiplication, soil improvement, and new crops.

In the 1970s, faced with persistent poverty, we came to believe that trickle down did not work and we must therefore deal with the poor directly. We started with "integrated community development," building health clinics, training local paramedics, drilling water wells, setting up "appropriate technology" biogas plants, and distributing tools.

In the 1980s and 1990s we saw how critical women are to development, and so we focused on women's rights, women's health, breast feeding promotion, "income generating projects," and microcredit. We also realized the importance of political context and began investing in "institution building," legal reform, governance, and building democracy.

The thousands of personnel who work in the aid industry (9300 at the World Bank alone) have been kept busy for all these years designing and implementing such efforts.

And now comes the January U.N. Report "Investing in Development," the blueprint for the aid doubling campaign. The premise this time is that we have never really put enough fuel in the tank to get where we want to go. The thinking, then, is more money. But as development economists like the late P.T. Bauer have pointed out, money has never been what makes development happen. Rather, money is the result of development.

Where the report is more sensible, as it is in the notion that aid should be allocated to countries that can do the most good with it because of sound policies and institutions, it fails to note a killer contradiction: Countries with sound policies and institutions -- the Asian "tigers" for example -- don't need much aid in the first place, and certainly not a doubling of it.

The aid institutions, hiding their ineffectiveness behind the shield of their moral purpose and good intentions, have never shown much willingness to confront such internal contradictions nor have they been able to show a robust relationship between aid and poverty reduction. The $2 trillion spent on the road to development since the late 1950s have not made even a dent in the poorest countries' poverty. Instead, the legacy of that money includes not just rusting bulldozers and pumps, but the addictive disincentives to good governance that come with aid dependency.

If the time is not yet ripe to make the existing aid industry smaller, we should at least avoid any effort move to make it bigger.

Thomas Dichter has worked in international development since 1964 at the World Bank, the United Nations Development Program, the Peace Corps, the Aga Khan Foundation, and numerous nongovernmental organizations. He is the author of Despite Good Intentions: Why Development Assistance to the Third World Has Failed and the Cato Institute briefing paper, "Time to Stop Fooling Ourselves about Foreign Aid: A Practitioner's View."

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