The Growing Chorus against Foreign Aid

In today’s Wall Street Journal, Mary Anastasia O’Grady takes on the Obama administration’s approach to foreign aid, which, she argues, amounts merely to maintaining a failing system — specifically, giving more cash to the Inter-American Development Bank (IDB):

Does it follow that poverty persists because the amounts have been just too measly to do the job? It does for Mr. Geithner and the foreign-aid brigades. But rather than rely on those with vested interests, it’s more useful to look at the empirical evidence. A 2006 paper titled “Foreign Aid, Income Inequality and Poverty,” from the research department of the IDB itself, looked at the period 1971-2002 and found “some weak evidence that foreign aid is conducive to the improvement of the distribution of income [sic]. When the quality of institutions is taken into account, however, this result is not robust. This finding is consistent with recent empirical research on aid ineffectiveness in achieving economic growth or promoting democratic institutions.”

So now that we know it doesn’t work, Mr. Geithner wants more of it. This is what the late, great development economist Peter Lord Bauer called “the disregard of reality.” In a 1987 essay in the Cato Journal, he called the claim that poverty is a trap that cannot be escaped without external aid an “obvious conflict with simple reality.” “All developed countries began as underdeveloped,” Bauer wrote. “If the notion of the vicious circle were valid, mankind would still be in the Stone Age at best.”

She may be speaking of Latin America, but the problem is true everywhere Western donor nations ladle dollops of aid to poor countries. The notion that public policy problems cannot be solved by throwing money at them should not be controversial — yet when it comes to poverty in developing countries, that remains the largely dominant approach.

Thankfully, however, Mary O’Grady’s critique appears part of a growing chorus, as the media attention that Zambian author Dambisa Moyo is receiving for her new book Dead Aid: Why Aid Is Not Working and Why There is a Better Way for Africa. Speaking at the Cato Institute last Friday (video available here), Moyo also strongly criticized the view of poverty as a “trap,” which she described as product of a condescending Western “pity” that denigrates aid recipients’ resourcefulness and abilities.

May the chorus grow louder.