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Chapter Five: The Foreign Aid Debate
Thirty years ago, the world could be thought of as divided into two separate groups; the "rich world", made up of Western Europe, the United States, Canada, Japan and Australia which had just one fifth of the world's population but were holding onto 82% of the wealth, and the "poor world", made up of everyone else. But with the rise of the Asian economy, some of Earth's previously poor places -such as China (whose city Shanghai is pictured left), India, Brazil, and much of South East Asia- are rapidly catching up, gaining more and more wealth as their economies continue to grow at unprecedented rates.
Yet while this miracle continues pulling enormous amounts of people out of poverty, a large portion of Earth's population remains stuck in the Poverty Trap, growing only very gradually (and in some places even getting poorer). Their heavy disease burden, chronic civil conflict, overpopulation, lack of infrastructure and bad governance prevent them from getting the boost in wealth needed to move to the second stage of development, and so they continue dying in enormous numbers from preventable disease and severe malnutrition. If no serious action is taken to help these impoverished societies, then by 2050 the world can be thought of as divided into two different groups. On one side will be Earth's wealthy nations, including those in Europe, North America, Asia and much of South America, who represent four fifths of Earth's population and live very comfortable lives. On the other side of the divide will be the "Bottom Billion" countries, located mostly in Africa and some parts of Central America, who have barely gotten any wealthier since the turn of the century.
Are there any things which we can do to help these poorest billion people escape from their poverty traps? I believe that there is; a combination of foreign policy reforms from rich world nations can indeed play an integral role in helping Earth's extremely poor societies gain the boost in wealth needed to enter the second stage of development. I'll be exploring these reforms in the next four chapters.
Yet while this miracle continues pulling enormous amounts of people out of poverty, a large portion of Earth's population remains stuck in the Poverty Trap, growing only very gradually (and in some places even getting poorer). Their heavy disease burden, chronic civil conflict, overpopulation, lack of infrastructure and bad governance prevent them from getting the boost in wealth needed to move to the second stage of development, and so they continue dying in enormous numbers from preventable disease and severe malnutrition. If no serious action is taken to help these impoverished societies, then by 2050 the world can be thought of as divided into two different groups. On one side will be Earth's wealthy nations, including those in Europe, North America, Asia and much of South America, who represent four fifths of Earth's population and live very comfortable lives. On the other side of the divide will be the "Bottom Billion" countries, located mostly in Africa and some parts of Central America, who have barely gotten any wealthier since the turn of the century.
Are there any things which we can do to help these poorest billion people escape from their poverty traps? I believe that there is; a combination of foreign policy reforms from rich world nations can indeed play an integral role in helping Earth's extremely poor societies gain the boost in wealth needed to enter the second stage of development. I'll be exploring these reforms in the next four chapters.
International Aid as a Cure for Poverty
In 2002, more than fifty Heads of State and over two hundred Ministers of Finance met in Monterrey, Mexico to participate in the United Nations International Conference for Financing and Development. The purpose of the gathering was as follows:
"We the heads of State and Government, gathered in Monterrey, Mexico, on 21 and 22 March 2002, have resolved to address the challenges of financing for development around the world, particularly in developing (impoverished) countries. Our goal is to eradicate poverty, achieve sustained economic growth and promote sustainable development as we advance to a fully inclusive and equitable global economic system."
-Monterrey Consensus, March 2002
One of the key recommendations of the Consensus was that the rich world nations (including Western and Northern Europe, Canada, the United States, Australia and Japan) pledge to donate 0.7% of their annual Gross National Product (70 cents out of every hundred dollars) to extremely poor countries as international aid. The Consensus stated:
"Official development assistance (ODA) plays an essential role as a complement to other sources of financing for development, especially in those countries with the least capacity to attract private direct investment...We recognize that a substantial increase in ODA and other resources will be required if developing countries are to achieve the internationally agreed development goals and objectives, including those contained in the Millennium Declaration. In that context, we urge developed countries that have not done so to make concrete efforts towards the target of 0.7 per cent of gross national product (GNP) as ODA to developing countries."
-Monterrey Concensus, March 2002
This was not the first time that a major international panel has recommended the rich world donate 0.7% of its GNP to extremely poor nations; the history of the 0.7% pledge can be traced back to the 1969 when Canadian Prime Minister Lester B Pearson formed the Commission on International Development, which made the recommendation that rich world nations donate 0.7% of their GNP as international aid. In 1970, the Canadian Parliament committed itself to donating this money, asserting that it is our moral duty to promote health and wellness abroad.
As of 2009, the Canadian government has still not achieved this goal. It currently donates only 0.34% of its GNP as international aid (roughly half of what it pledged to donate four decades ago). Canada is not alone; among the 22 rich world countries, only 5 have succeeded in donating this percentage of their GNP (Netherlands, Luxembourg, Denmark, Norway and Sweden). But while some call on the government to fulfill its 40 year old promise to increase aid, many wish to see funding for aid dramatically cut. They argue that too much aid money is wasted or embezzled by corrupt foreign governments, and what extremely impoverished nations really need to escape from extreme poverty is a set of market reforms which champion the private sector.
So who is correct? Can aid play an essential role in helping eradicate extreme poverty as the Monterrey Consensus proclaims, or is it simply wasted by corrupt foreign governance? In this chapter we'll examine the Foreign Aid Debate between today's leading economists, and attempt to determine how international aid affects economic development in today's extremely poor societies.
"We the heads of State and Government, gathered in Monterrey, Mexico, on 21 and 22 March 2002, have resolved to address the challenges of financing for development around the world, particularly in developing (impoverished) countries. Our goal is to eradicate poverty, achieve sustained economic growth and promote sustainable development as we advance to a fully inclusive and equitable global economic system."
-Monterrey Consensus, March 2002
One of the key recommendations of the Consensus was that the rich world nations (including Western and Northern Europe, Canada, the United States, Australia and Japan) pledge to donate 0.7% of their annual Gross National Product (70 cents out of every hundred dollars) to extremely poor countries as international aid. The Consensus stated:
"Official development assistance (ODA) plays an essential role as a complement to other sources of financing for development, especially in those countries with the least capacity to attract private direct investment...We recognize that a substantial increase in ODA and other resources will be required if developing countries are to achieve the internationally agreed development goals and objectives, including those contained in the Millennium Declaration. In that context, we urge developed countries that have not done so to make concrete efforts towards the target of 0.7 per cent of gross national product (GNP) as ODA to developing countries."
-Monterrey Concensus, March 2002
This was not the first time that a major international panel has recommended the rich world donate 0.7% of its GNP to extremely poor nations; the history of the 0.7% pledge can be traced back to the 1969 when Canadian Prime Minister Lester B Pearson formed the Commission on International Development, which made the recommendation that rich world nations donate 0.7% of their GNP as international aid. In 1970, the Canadian Parliament committed itself to donating this money, asserting that it is our moral duty to promote health and wellness abroad.
As of 2009, the Canadian government has still not achieved this goal. It currently donates only 0.34% of its GNP as international aid (roughly half of what it pledged to donate four decades ago). Canada is not alone; among the 22 rich world countries, only 5 have succeeded in donating this percentage of their GNP (Netherlands, Luxembourg, Denmark, Norway and Sweden). But while some call on the government to fulfill its 40 year old promise to increase aid, many wish to see funding for aid dramatically cut. They argue that too much aid money is wasted or embezzled by corrupt foreign governments, and what extremely impoverished nations really need to escape from extreme poverty is a set of market reforms which champion the private sector.
So who is correct? Can aid play an essential role in helping eradicate extreme poverty as the Monterrey Consensus proclaims, or is it simply wasted by corrupt foreign governance? In this chapter we'll examine the Foreign Aid Debate between today's leading economists, and attempt to determine how international aid affects economic development in today's extremely poor societies.
How Foreign Aid Can Help Earth's Poorest Citizens
In 2005, Columbia University economist Jeffrey Sachs released a book entitled "The End of Poverty", in which he argued that the world could eradicate extreme poverty in twenty years time if international aid to Africa was roughly doubled over the course of the next decade. His proposed plan required the richest countries of the world - nations such as Canada, the United States, Japan, Australia and the European Union- to donate 0.7% of their GNP to the extremely impoverished nations of Africa, South America, Asia and the Caribbean. The book subsequently became the rallying cry for the "Foreign Aid Movement" promoting more foreign aid to Africa, becoming a New York Times best-seller and sparking a nationwide political debate.
The book makes strong arguments; as we have explored in the previous chapters, Ladder Theory of Economic Development suggests that countries need a sudden boost of wealth to escape from poverty; private citizens and the nation's government can then invest the new wealth in human health, education, infrastructure and technology to increase worker productivity and make the country more attractive to foreign aid, thus creating additional wealth. The country thereby enters a "Cycle of Prosperity" in which wealth is generated and invested in the economy, creating a second wave of wealth which is once more invested in the economy, etc. The cycle continues until the poor country becomes rich; this has already occurred in South Korea and Taiwan and is currently happening in China and India, causing these countries to become rapidly wealthier.
However, as we have witnessed in Chapter Three, extremely impoverished countries (such as those in Africa) often never get that initial boost in wealth because they are heavily burdened by several "Poverty Traps", including prevalent disease, civil conflict, overpopulation, lack of infrastructure, and terrible governance; these countries never achieve a boom in agricultural productivity or foreign investment (or they get the boom from natural resources, which are subsequently used to fund civil conflict), and therefore never enter the "Cycle of Prosperity". Sachs' argument is relatively simple; let's just give extremely impoverished nations the sudden increase in wealth through foreign aid.
The book makes strong arguments; as we have explored in the previous chapters, Ladder Theory of Economic Development suggests that countries need a sudden boost of wealth to escape from poverty; private citizens and the nation's government can then invest the new wealth in human health, education, infrastructure and technology to increase worker productivity and make the country more attractive to foreign aid, thus creating additional wealth. The country thereby enters a "Cycle of Prosperity" in which wealth is generated and invested in the economy, creating a second wave of wealth which is once more invested in the economy, etc. The cycle continues until the poor country becomes rich; this has already occurred in South Korea and Taiwan and is currently happening in China and India, causing these countries to become rapidly wealthier.
However, as we have witnessed in Chapter Three, extremely impoverished countries (such as those in Africa) often never get that initial boost in wealth because they are heavily burdened by several "Poverty Traps", including prevalent disease, civil conflict, overpopulation, lack of infrastructure, and terrible governance; these countries never achieve a boom in agricultural productivity or foreign investment (or they get the boom from natural resources, which are subsequently used to fund civil conflict), and therefore never enter the "Cycle of Prosperity". Sachs' argument is relatively simple; let's just give extremely impoverished nations the sudden increase in wealth through foreign aid.
Sachs lays out several investments to be made in Africa's economy which would allow it to enter the cycle of prosperity: for example, the donors of aid in the rich world could give African citizens fertilizers, tools for small-scale irrigation, and bio-engineered high-yielding seeds resistant to drought and pathogens (similar to those developed by the Rockefeller Administration) to give African farmers a boost in agricultural productivity. Rich world countries could give them free bed nets to prevent mosquito bites causing Malaria, treatments for HIV/AIDS, vaccines to cure tuberculosis and other diseases, and new wells and rainwater-harvesting technology to give Africans sanitary drinking water; all of these investments could help promote health in Africa, thus raising worker productivity and saving millions of lives. The rich world could donate money to build and fund primary schools throughout Africa, raising literacy rates, teaching students more efficient ways of irrigating their farms to save on water, and teaching students computer technology skills (enabling African children to get future jobs in the digital information services technology sector just like the students of India's IIT universities). Money could be used to invest in basic infrastructure including paved roads, airports and seaports, electricity for rural homes (through the use of an electricity generator), broadband cables to promote internet access, and silos to store grains so that they can be sold gradually instead of all at once (thereby allowing the farmers to sell the grain for a higher price).
Sachs argues that by giving African nations these critical tools to help rapidly increase worker productivity and attract foreign investment, the countries in sub-Saharan Africa could enter the Cycle of Prosperity and thereby grow into self-sufficient wealthy regions, just as South Korea and Taiwan had done in the 1960s. To prove that international aid can successfully trigger entrance into the Cycle of Prosperity, Sachs founded the Millennium Village Project, an initiative designed to make small scale investments in human health, education and infrastructure in small villages throughout Africa; after receiving enough aid money to make the critical investments, the African villages achieved dramatic reductions in child mortality rates, greater school enrollment and a large boost in crop productivity. Donald Ndahiro recently described the effects this aid had on one small village in Rwanda in a 2009 article to the Huffington Post:
"Farmers across the board are growing 60% more food with some experiencing 2 and 3-fold increases. This means there's more to eat, sell and save. The community now stores vital grains annually in a seed bank rather than relying on hand-outs or humanitarian relief. There is a fully-functioning health center run by Rwandans which delivers more than 85% of the community's babies and provides primary health care. We're proud that it is considered one of the best in the district. School enrollment has gone through the roof with more than 95% of children of age in attendance. Dozens of new cooperatives have taken off and are generating employment and new products. The community leaders frequently comment that weekly funerals of children which were once commonplace just two years ago, have since ceased altogether. In short, the project, which through and through is community-led, has achieved its goal of sustainably reducing poverty in the community, and on that foundation of stability, the community has begun real prosperity-creation projects." (emphasis added)
-Donald Ndahiro, Team Leader, Millennium Villages Project, Rwanda
These small-scale projects have successfully demonstrated that when given the means to invest in health, education and infrastructure, extremely poor communities can become self-sufficient; able to pull themselves out of the Poverty Trap and begin sustainable economic growth.
Sachs believes that these investments can be scaled up to include all of Africa for the price of 0.7% of rich country GNP (roughly seventy cents out of every hundred dollars); this is what the rich nations of Europe and North America had pledged to donate to impoverished countries in 2002 during a world summit in Monterrey. Such money would be given to the Millennium Challenge Account, directed at trying to improve life quality in cooperative impoverished nations. Unfortunately, rich world nations have yet to fulfill this promise; if they did donate this money, Sachs argues that the vast majority of extreme poverty could be eradicated in a very short period of time.
Sachs argues that by giving African nations these critical tools to help rapidly increase worker productivity and attract foreign investment, the countries in sub-Saharan Africa could enter the Cycle of Prosperity and thereby grow into self-sufficient wealthy regions, just as South Korea and Taiwan had done in the 1960s. To prove that international aid can successfully trigger entrance into the Cycle of Prosperity, Sachs founded the Millennium Village Project, an initiative designed to make small scale investments in human health, education and infrastructure in small villages throughout Africa; after receiving enough aid money to make the critical investments, the African villages achieved dramatic reductions in child mortality rates, greater school enrollment and a large boost in crop productivity. Donald Ndahiro recently described the effects this aid had on one small village in Rwanda in a 2009 article to the Huffington Post:
"Farmers across the board are growing 60% more food with some experiencing 2 and 3-fold increases. This means there's more to eat, sell and save. The community now stores vital grains annually in a seed bank rather than relying on hand-outs or humanitarian relief. There is a fully-functioning health center run by Rwandans which delivers more than 85% of the community's babies and provides primary health care. We're proud that it is considered one of the best in the district. School enrollment has gone through the roof with more than 95% of children of age in attendance. Dozens of new cooperatives have taken off and are generating employment and new products. The community leaders frequently comment that weekly funerals of children which were once commonplace just two years ago, have since ceased altogether. In short, the project, which through and through is community-led, has achieved its goal of sustainably reducing poverty in the community, and on that foundation of stability, the community has begun real prosperity-creation projects." (emphasis added)
-Donald Ndahiro, Team Leader, Millennium Villages Project, Rwanda
These small-scale projects have successfully demonstrated that when given the means to invest in health, education and infrastructure, extremely poor communities can become self-sufficient; able to pull themselves out of the Poverty Trap and begin sustainable economic growth.
Sachs believes that these investments can be scaled up to include all of Africa for the price of 0.7% of rich country GNP (roughly seventy cents out of every hundred dollars); this is what the rich nations of Europe and North America had pledged to donate to impoverished countries in 2002 during a world summit in Monterrey. Such money would be given to the Millennium Challenge Account, directed at trying to improve life quality in cooperative impoverished nations. Unfortunately, rich world nations have yet to fulfill this promise; if they did donate this money, Sachs argues that the vast majority of extreme poverty could be eradicated in a very short period of time.
Problems Associated with Foreign Aid
One year after the release of The End of Poverty, New York University economist William Easterly released a book entitled White Man's Burden which criticized Jeffrey Sachs' promotion of more aid to Africa. Easterly contended that "Sachs' anti-poverty prescriptions rest heavily on the kindness of some pretty dysfunctional regimes", arguing that large amounts of international aid are generally wasted or embezzled by corrupt governments. For example, he points to "studies in Guinea, Cameroon, Uganda and Tanzania, which estimated that 30 to 70 percent of government drugs disappeared into the black market rather than reaching the patients". Further, he also cited studies which contend that aid tends to have little effect on promoting economic growth even in countries with good governance.
This may be because foreign aid tends to promote a phenomenon nicknamed "Dutch Disease". According to a report by Raghuram Rajan of the International Monetary Fund, when large amounts of foreign aid are sent overseas, the receiving (impoverished) country's currency tends to rise in value; this rise in the value of currency makes it more expensive for foreigners to purchase exports coming out of the poor country, and thus foreign investment in the impoverished nation is discouraged. In this way, foreign aid undermines (not promotes) foreign investment.
Easterly also repeatedly mentions that more than $2.3 trillion has already been given to the developing world over the last 50 years; if aid was truly a successful means of promoting development, then Easterly argues that targeted impoverished nations should have already eradicated extreme poverty by now. Furthermore, he points out that much aid is wasted on projects whose primary purpose is to glorify the aid organization instead of helping the impoverished citizens; additional aid is wasted on propping up dictators supportive of rich world interests or overthrowing communist regimes.
Other authors have backed up Easterly's position; in 2006, another book written by World Bank economist Robert Calderasi entitled The Trouble with Africa concludes that international aid should be cut to Africa, saying that "Contrary to conventional recommendations, direct foreign aid to most African countries should be (cut in half), not increased" since corrupt African governments often use the money wastefully.
In 2009, Zambian economist Dambisa Moyo reinvigorated the foreign aid debate with the release of her book Dead Aid, in which she calls for the complete cut off of all aid to Africa over the next five years. She alleges that "Limitless development assistance to African governments has fostered dependency, encouraged corruption and ultimately perpetuated poor governance and poverty." Moyo argues that Africa's only problem is extensive government corruption and interference in the private market; what the continent needs is rapid market reforms which promote the private sector.
This may be because foreign aid tends to promote a phenomenon nicknamed "Dutch Disease". According to a report by Raghuram Rajan of the International Monetary Fund, when large amounts of foreign aid are sent overseas, the receiving (impoverished) country's currency tends to rise in value; this rise in the value of currency makes it more expensive for foreigners to purchase exports coming out of the poor country, and thus foreign investment in the impoverished nation is discouraged. In this way, foreign aid undermines (not promotes) foreign investment.
Easterly also repeatedly mentions that more than $2.3 trillion has already been given to the developing world over the last 50 years; if aid was truly a successful means of promoting development, then Easterly argues that targeted impoverished nations should have already eradicated extreme poverty by now. Furthermore, he points out that much aid is wasted on projects whose primary purpose is to glorify the aid organization instead of helping the impoverished citizens; additional aid is wasted on propping up dictators supportive of rich world interests or overthrowing communist regimes.
Other authors have backed up Easterly's position; in 2006, another book written by World Bank economist Robert Calderasi entitled The Trouble with Africa concludes that international aid should be cut to Africa, saying that "Contrary to conventional recommendations, direct foreign aid to most African countries should be (cut in half), not increased" since corrupt African governments often use the money wastefully.
In 2009, Zambian economist Dambisa Moyo reinvigorated the foreign aid debate with the release of her book Dead Aid, in which she calls for the complete cut off of all aid to Africa over the next five years. She alleges that "Limitless development assistance to African governments has fostered dependency, encouraged corruption and ultimately perpetuated poor governance and poverty." Moyo argues that Africa's only problem is extensive government corruption and interference in the private market; what the continent needs is rapid market reforms which promote the private sector.
And yet I remain skeptical of these arguments; for decades, free market economists from the Western world have simply prescribed greater market liberalization, decreases in tariff barriers, and widespread deregulation of the market to combat extreme poverty. Many such economists have pointed to Africa's extensive government interference (high tariffs on imported goods and to strict corporate regulation) to explain why Africa remains unable to attract foreign investment and continues to become poorer. But this argument doesn't seem to make sense; consider the world map to the left, comparing several nations' so-called "Index of Economic Freedom" measuring the extent of a country's government intervention in the private marketplace (for example, a country with high taxes and strict business regulation by the government would be not be considered "free" and might be colored orange). As we can see, the economies of some African nations (the long red line down the center of Africa) remain crippled by high government inference, but most of Africa is orange -the same color as China, India and Brazil, which have all in recent decades experienced a huge boom in foreign investment. So why are some over-regulated markets experiencing little to no growth, while other over-regulated markets are experiencing unprecedented growth?
Economic freedom certainly plays a role in changing a country's competitiveness; as we saw in the last chapter, India's market reforms (which ended the "License Raj" and rapidly deregulated the market) helped to bring in foreign investment and generate significant amounts of wealth. But too much government interference in Africa is only part of the problem; it is not the only reason why Africa is lagging behind Asia. As mentioned throughout chapters one and three, Africa is plagued by the perfect storm of high disease rates (including AIDS and Malaria), low rainfall which hinders agricultural production and causes repeated famines, and severe ethnic tension which mixes with extreme poverty and hunger to cause repeated bloody civil wars. It is often these things, not inferior governance, which prevent African nations from getting enough wealth to invest in the infrastructure needed to attract foreign investment. Without the prerequisites of proper health, basic education and vital infrastructure, private markets have left enormous areas of the world completely undeveloped; market reform policies are not the only things needed to bring wealth to Africa.
Economic freedom certainly plays a role in changing a country's competitiveness; as we saw in the last chapter, India's market reforms (which ended the "License Raj" and rapidly deregulated the market) helped to bring in foreign investment and generate significant amounts of wealth. But too much government interference in Africa is only part of the problem; it is not the only reason why Africa is lagging behind Asia. As mentioned throughout chapters one and three, Africa is plagued by the perfect storm of high disease rates (including AIDS and Malaria), low rainfall which hinders agricultural production and causes repeated famines, and severe ethnic tension which mixes with extreme poverty and hunger to cause repeated bloody civil wars. It is often these things, not inferior governance, which prevent African nations from getting enough wealth to invest in the infrastructure needed to attract foreign investment. Without the prerequisites of proper health, basic education and vital infrastructure, private markets have left enormous areas of the world completely undeveloped; market reform policies are not the only things needed to bring wealth to Africa.
International aid certainly has several setbacks including the creation of Dutch Disease, which discourages exporting. Yet one must remember that extensive aid ($4 billion worth) from the United States did not stop Taiwan from developing into a major exporter during the 1950s; in fact it did just the opposite, as US aid allowed Taiwanese farmers to buy large amounts of fertilizer to increase their crop yields, enabling farmers to produce more rice per hectare of farm than almost any other country in Asia. This enormous surplus of food was Taiwan's original export-base; if US aid had not been in place to support this small capitalist economy, it might not have been so successful in evolving into an export superpower. As noted in Chapter Four, international aid has also played a key role in the economic development of both South Korea, which received a 70% export subsidy from the US government, and India, which achieved a dramatic boost in crop productivity thanks to bio-engineering from the Rockefeller Foundation.
I also contend that Easterly's statistical analysis -which supposedly proves that aid tends to have little effect on promoting economic growth even in countries with good governance- may have been flawed due to lack of variable adjustment between countries. In a book review of The White Man's Burden, Nobel Prize-winning economist Amartya Sen criticized the studies saying:
"To arrive at his negative view of economic aid, Easterly draws on large-scale cross-sectional statistical analysis, as well as on case studies of particular plans and programs. Such intercountry comparisons have become fashionable as a way of isolating solid connections between causes and effects, but they are seriously compromised by the difficulty of comparing diverse experiences: countries can differ significantly in variables other than those that are brought under cross-sectional scrutiny. Many such studies are also impaired by difficulties in identifying what is causing what. For example, a country's economic distress may induce donors to give it more aid -- which may, in terms of associative statistics, suggest a connection between aid and bad economic performance. But using such a correlation to prove the bad effects of aid turns the causal connection on its head. Easterly tries to avoid such pitfalls, but the statistical associations on which he draws for his comprehensive pessimism about the effects of aid do not offer a definitive causal picture."
-Nobel Laureate Amartya Sen, Professor of Economics at Harvard University
Easterly also argued that aid is not a successful means of promoting development because enormous amounts of aid -$2.3 trillion worth- have already gone to developing countries without successfully eradicating extreme poverty. But this assertion is undermined by Easterly's second argument; that much aid has been spent on destructive activities such as overthrowing communist regimes instead of trying to help impoverished societies. Had this aid been spent on activities which bettered African welfare instead of furthering rich world interests, then arguably it would have been much more successful at alleviating poverty. Michael Gerson of the New York-based Council on Foreign Relations criticized similar statements from Dambisa Moyo (author of Dead Aid) in a recent Op-Ed column in Washington Post:
"Moyo is on firm ground in criticizing decades of direct foreign assistance to African governments. Such aid has often propped up corrupt elites, shielded leaders from the consequences of their own incompetence and delayed reforms necessary for the development of working markets. She is correct in emphasizing the decisive role of trade, direct foreign investment and local capital in the development of poor nations -- sources of opportunity that dwarf aid flows in size and importance. I'd go further. Through most of the past several decades, the development of Africa has not even been the purpose of foreign aid. Europeans often provided money to elites in former colonies to assuage guilt. During the Cold War, Americans often used aid to reward loyalty...But Moyo does not take sufficient account of the broad reaction against this kind of direct aid beginning in the 1990s. The United States started taking a much more targeted and strategic approach. The Millennium Challenge Account directed new aid to nations willing to work as responsible partners, dedicated to reform and transparency. Initiatives on AIDS and Malaria required and achieved measurable outcomes and have often worked through civil society instead of giving money directly to African governments...If Moyo's point is that some aid can be bad, then it is noncontroversial. If her point is that all aid is bad, then it is absurd."
-Michael Gerson, Council on Foreign Relations
Finally, although he certainly agrees that much aid has been wasted, Jeffrey Sachs still contends that international aid has been quite successful in bettering the lives of impoverished citizens. In addition to the enormous success of achieving a major increase in crop productivity throughout Asia, Sachs points out several revolutionary successes brought about by international aid, writing:
"Successes include the UNICEF campaigns to expand coverage of immunization, the eradication of smallpox, the control of onchocerciasis in Africa, the campaign to eradicate polio, the scaling up of anti-retroviral medicines, the use of oral rehydration therapy, the global application of DOTS for tuberculosis, and the expansion of family planning and contraceptive coverage."
Sachs also notes that in 1967, the plan to eradicate small pox was widely viewed as impossible and a waste of time due to the challenges of distributing the drug over vast areas. The resolution to finance the project only narrowly passed the vote of the World Health Assembly; just one decade later, the last natural case of smallpox was reported. Now, argues Sachs, "a significant number of other crippling and killing diseases, including African river blindness, schistosomiasis, trauchoma, lymphatic filariasis, hookworm, ascariasis, and trichuriasis, could be brought under control for well under($700 million per year)." Using history as our guiding light, we must use international aid to take action against these diseases, helping extremely poor nations escape from the Poverty Trap.
I also contend that Easterly's statistical analysis -which supposedly proves that aid tends to have little effect on promoting economic growth even in countries with good governance- may have been flawed due to lack of variable adjustment between countries. In a book review of The White Man's Burden, Nobel Prize-winning economist Amartya Sen criticized the studies saying:
"To arrive at his negative view of economic aid, Easterly draws on large-scale cross-sectional statistical analysis, as well as on case studies of particular plans and programs. Such intercountry comparisons have become fashionable as a way of isolating solid connections between causes and effects, but they are seriously compromised by the difficulty of comparing diverse experiences: countries can differ significantly in variables other than those that are brought under cross-sectional scrutiny. Many such studies are also impaired by difficulties in identifying what is causing what. For example, a country's economic distress may induce donors to give it more aid -- which may, in terms of associative statistics, suggest a connection between aid and bad economic performance. But using such a correlation to prove the bad effects of aid turns the causal connection on its head. Easterly tries to avoid such pitfalls, but the statistical associations on which he draws for his comprehensive pessimism about the effects of aid do not offer a definitive causal picture."
-Nobel Laureate Amartya Sen, Professor of Economics at Harvard University
Easterly also argued that aid is not a successful means of promoting development because enormous amounts of aid -$2.3 trillion worth- have already gone to developing countries without successfully eradicating extreme poverty. But this assertion is undermined by Easterly's second argument; that much aid has been spent on destructive activities such as overthrowing communist regimes instead of trying to help impoverished societies. Had this aid been spent on activities which bettered African welfare instead of furthering rich world interests, then arguably it would have been much more successful at alleviating poverty. Michael Gerson of the New York-based Council on Foreign Relations criticized similar statements from Dambisa Moyo (author of Dead Aid) in a recent Op-Ed column in Washington Post:
"Moyo is on firm ground in criticizing decades of direct foreign assistance to African governments. Such aid has often propped up corrupt elites, shielded leaders from the consequences of their own incompetence and delayed reforms necessary for the development of working markets. She is correct in emphasizing the decisive role of trade, direct foreign investment and local capital in the development of poor nations -- sources of opportunity that dwarf aid flows in size and importance. I'd go further. Through most of the past several decades, the development of Africa has not even been the purpose of foreign aid. Europeans often provided money to elites in former colonies to assuage guilt. During the Cold War, Americans often used aid to reward loyalty...But Moyo does not take sufficient account of the broad reaction against this kind of direct aid beginning in the 1990s. The United States started taking a much more targeted and strategic approach. The Millennium Challenge Account directed new aid to nations willing to work as responsible partners, dedicated to reform and transparency. Initiatives on AIDS and Malaria required and achieved measurable outcomes and have often worked through civil society instead of giving money directly to African governments...If Moyo's point is that some aid can be bad, then it is noncontroversial. If her point is that all aid is bad, then it is absurd."
-Michael Gerson, Council on Foreign Relations
Finally, although he certainly agrees that much aid has been wasted, Jeffrey Sachs still contends that international aid has been quite successful in bettering the lives of impoverished citizens. In addition to the enormous success of achieving a major increase in crop productivity throughout Asia, Sachs points out several revolutionary successes brought about by international aid, writing:
"Successes include the UNICEF campaigns to expand coverage of immunization, the eradication of smallpox, the control of onchocerciasis in Africa, the campaign to eradicate polio, the scaling up of anti-retroviral medicines, the use of oral rehydration therapy, the global application of DOTS for tuberculosis, and the expansion of family planning and contraceptive coverage."
Sachs also notes that in 1967, the plan to eradicate small pox was widely viewed as impossible and a waste of time due to the challenges of distributing the drug over vast areas. The resolution to finance the project only narrowly passed the vote of the World Health Assembly; just one decade later, the last natural case of smallpox was reported. Now, argues Sachs, "a significant number of other crippling and killing diseases, including African river blindness, schistosomiasis, trauchoma, lymphatic filariasis, hookworm, ascariasis, and trichuriasis, could be brought under control for well under($700 million per year)." Using history as our guiding light, we must use international aid to take action against these diseases, helping extremely poor nations escape from the Poverty Trap.
Summary
In summary, foreign aid certainly has many problems associated with it; much of it is wasted by corrupt government officials in impoverished nations, and aid may contribute to "Dutch Disease" and therefore undermine foreign direct investment. But aid has successfully eradicated many serious illnesses in developing countries, including polio and small pox, and has played a critical role in the takeoff of several successful economies, including South Korea, Taiwan, and India. In addition, small scale experiments with impoverished African villages (under the Millennium Villages Project) have proven that African communities can use foreign aid money to achieve self-sustaining economic growth.
Although market reforms obviously play a crucial role in helping to bring wealth to impoverished nations, vast regions of the world are still extremely poor not due to terrible governance but rather because they are stuck in various Poverty Traps which prevent them from generating enough wealth to enter the Cycle of Prosperity. The private sector is an excellent engine of wealth only when essential prerequisites such as good health, education, civil peace and physical infrastructure are in place; foreign aid is one means of giving impoverished nations those prerequisites.
Foreign aid is therefore not a "Band-Aid Solution" or a form of welfare which is wasted on those unable to take care of themselves; rather, aid is a form of economic stimulus which allows a nation to begin ascent up the Ladder of Development. International aid is one means by which rich nations such as Canada can help Earth's extremely impoverished societies.
Although market reforms obviously play a crucial role in helping to bring wealth to impoverished nations, vast regions of the world are still extremely poor not due to terrible governance but rather because they are stuck in various Poverty Traps which prevent them from generating enough wealth to enter the Cycle of Prosperity. The private sector is an excellent engine of wealth only when essential prerequisites such as good health, education, civil peace and physical infrastructure are in place; foreign aid is one means of giving impoverished nations those prerequisites.
Foreign aid is therefore not a "Band-Aid Solution" or a form of welfare which is wasted on those unable to take care of themselves; rather, aid is a form of economic stimulus which allows a nation to begin ascent up the Ladder of Development. International aid is one means by which rich nations such as Canada can help Earth's extremely impoverished societies.
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Engineers Without Borders. Is Canada Fulfilling the 0.7% Pledge? http://uwaterloo.ewb.ca/point7/canada
Engineers Without Borders. What is the 0.7% Pledge? http://uwaterloo.ewb.ca/point7/what
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Kristof, Nicholas D. "Aid: Can it Work?" The New York Review of Books. October 5, 2006.
Moyo, Dambisa. Dead Aid: Why Aid Isn’t Working and How there is a Better Way for Africa. New York: Farrar, Straus and Giroux, 2009.
Ndahiro, Donald. "Sustainable Results: Addressing Misconceptions about the Millennium Villages Project". Huffington Post. June 23, 2009.
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http://www.foreignaffairs.com/articles/61525/amartya-sen/the-man-without-a-plan
United Nations. Monterrey Consensus on Financing for Development. March 22, 2002
http://www.un.org/esa/ffd/monterrey/MonterreyConsensus.pdf
Wallis, William. "Foreign Aid Critic Spreads Theory Far and Fast." Financial Times, May 26, 2009.