End of Poverty vs End of Aid

As this winter break draws to a close, I can reflect upon a number of books I finally found the time to read.

One of them was Jeffery Sach’s The End of Poverty. Sachs is the Director of Columbia’s Earth Institute and a primary driver behind the UN’s Millenium Development Goals, an ambitious set of objectives to end poverty, hunger, and disease by the year 2015. (Some countries, such as China and India, are doing quite well. Others are falling painfully short.)

Sach’s main argument goes something like this: many of the poorest countries (a majority of which lie in sub-Saharan Africa) are stuck in a poverty trap. Using straightforward economic models, Sachs illustrates that when a household’s income cannot even cover the daily expenses of living, there are no household savings that can be invested in the future and thus no economic growth. The solution he proposes is to inject enough money into the system to allow for investment; a doubling of international donor funds in 2006 and another near doubling by 2015.

Interestingly, the second book I read is a resounding objection to this solution. In Dead Aid, Dambisa Moyo argues that foreign aid has failed to help Africa and has actually made Africa poor. She cites studies that show aid has made no appreciable impact on development, going on to argue how aid fuels corruption, increases political fighting, relieves the need for taxation (thus short-circuiting accountability), causes inflation, and weakens exports. She offers an alternative plan for development, by shifting away from the dependence on aid to an increased reliance on microfinance, direct foreign investment (read: China), and trade.

Sachs would fire back that aid has not made a difference because there’s not enough of it; when the US gives a grand total of six cents to every sub-Saharan African a year, it’s tough to find results to show for it. Of course, Sachs is sometimes misinterpreted as calling for a reliance on only aid, while in reality he has repeated asserted that aid is a necessary but insufficient component of Africa’s development needs. He probably agrees with many of the prescriptions that Moyo offers, while rejecting her call for an end to aid.

As well written as Moyo’s book is, it’s hard to imagine a massive scaling back of aid within the five years she calls for, especially when aid can constitute a majority of some governments’ incomes. A more pressing concern is the question of how much aid actually gets to the people it’s meant to serve. Moyo cites figures that show a quarter of World Bank aid to developing countries since 1946 has been misused, disappearing into the hands of a few elites rather than helping the people. To me, this is not an excuse to stop giving aid. It’s a call to tighten our systems of distribution, accountability, and oversight before even thinking about pushing more aid into the system. Perhaps the UN and other international agencies can serve a more advisory role, offering committed guidance to help countries squeeze out corruption and bolster long-term investment (using aid money as a carrot), rather than blindly funneling more money into a flawed system.

Aid fell throughout the 1990s. After 2001 it picked up

Image citations:
http://poorvoices.wordpress.com/category/research/
http://www.owen.org/wp-content/uploads/moyo.jpg
http://www.novascotiascott.com/2009/02/03/african-economist-foreign-aid-is-dead-aid/
http://www.globalissues.org/article/35/foreign-aid-development-assistance
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