How Effective is Foreign Aid?

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Every now and again, William Easterly, a former World Bank official and development expert, will appear on the op-ed pages of the Washington Post and tell everyone that foreign aid doesn’t really work all that well in places like Africa, taking a jab at Jeffrey Sachs and all those other good-intentioned “foreign aid” liberals out there in the process. And no doubt, it’s good to remember that more than a few grandiose aid projects have ended in disaster, but it’s another thing to say that foreign aid is hopeless, now and forever.

Anyway, Amartya Sen has a good review of Easterly’s new book, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, that takes a more nuanced view here. Among other things, he notes that even according to Easterly’s own data, aid efforts haven’t really done as “much ill” as advertised, although often they do do “little good.” But sometimes they do a lot of good. And it’s not like aid efforts are impossible to improve. As Sen notes, Easterly’s detailed (and valuable) observations and research put him in a position to offer constructive advice, but his “useful hints at balanced evaluation come amid deafening outbursts against the advocates of aid.”

Sen’s more optimistic view on aid makes sense, I think; a few months ago I wrote an article that found a good deal of evidence that aid to poor countries actually works much better than the pessimists say (although the current aid regime obviously isn’t perfect). One could also note that aid in the past hasn’t always come at the behest of well-meaning liberals. As one researcher I talked to showed, the Cold War and various geopolitical considerations, rather than development concerns, influenced a lot of Western aid-giving patterns. Under the circumstances, it’s not surprising that aid didn’t always lead to growth.

(Not to mention the fact that conflicts, wars, and coups triggered by the United States and the Soviet Union in the Third World during the Cold War negated whatever “good” effects aid might have had—Branko Milanovic has argued that conflict has caused a 40 percent income loss in developing countries over the past twenty years; presumably it was much higher before then.)

Meanwhile, as John Perkins’ thinly-argued but wholly plausible book, Confessions of an Economic Hit Man, suggests, a variety of Western development projects have often been carried out with the express purpose of doing nothing more than looting and pillaging the Third World to the benefit of Western business. Indeed, much aid still follows this pattern, as when developing nations receive restricted “loans” with which they can only purchase things from the original donor country. The foreign aid plotline doesn’t exactly run: “Western country tries to do some well-intentioned stuff that just doesn’t work out.” Maybe sometimes that’s true, but certainly not always.

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