April 2006

Why Foreign Aid Has Failed . . . and How to Fix It

After fifty years and more than $2 trillion dollars in aid, the West has strikingly little to show for its efforts in alleviating global poverty.  How much does the world really know about fostering economic growth and development in the world’s poorest countries?  Why has foreign aid so often failed to achieve results, and how can it be fixed?  Is there an alternative to the current failed approach to development assistance?  These questions were the focus of an April 25 AEI panel discussion.

William Easterly
New York University

The tragedy of extreme poverty is aggravated by the fact that so little of the $2.3 trillion spent over the past five decades in foreign aid has actually produced material improvements in the lives of the world’s poorest people. The root cause of this disconnect is the emphasis in foreign aid on “big plans” and “big pushes” that attempt to “solve” the problem of poverty in one fell swoop--an emphasis, furthermore, that continues to this day among anti-poverty crusaders like Jeffrey Sachs and Bono.

Big plans to end poverty have failed in the past and will continue to fail in the future because they lack accountability, customer feedback, incentives, and sufficient information. Big plans, for instance, tend to be premised on collective responsibility, meaning no one actor is responsible for providing the desired outcome; as a result, there is no accountability for failure. The planner mentality does not recognize that poverty is the product of complex processes involving the actions of myriad individuals in a foreign society, many of which are opaque to outsiders.

To remedy these failures, aid organizations should abandon their utopian goal of spurring economic growth and recognize that development will only come about as a result of indigenous conditions; it is simply beyond the power of outsiders to control. That is not to say, however, that foreign aid should end. On the contrary, outsiders can help by focusing on more modest, piecemeal solutions, such as combating disease like malaria and providing clean water. Aid agencies can also accept genuinely independent evaluations of their projects and discontinue activities that are not working.

Adam Lerrick
AEI

The problem of development is the problem of Africa; and the problem of Africa is corruption.  Corruption is the root cause of poverty, not vice versa, and as long as kleptocrats rule the continent, Africa will remain poor. 

Corruption is not unique to Africa, but it is exacerbated by the relatively short terms of office its leaders typically enjoy. In the past thirty-five years, there have been 100 violent regime changes in thirty African countries. Consequently, it should come as no surprise that African leaders try to seize as much as they can, as fast as they can.

Why, then, is aid still given to these countries?  Because donors are more desperate to give than recipients are to receive. Despite broad consensus that aid is ineffective where corruption exists, development agencies reject the conclusion that flows naturally from this observation--namely, the end of aid to most of Africa--as unacceptable.  Instead, they reengineer measurements of corruption on a relative scale so that kleptocrats can continue to qualify for aid.  Aid agencies have likewise resisted performance audits of their programs for fear that results would demoralize or delegitimize their institutions.  Until the aid community comes to grips with these failures, it will continue to be ineffectual. 
     
AEI intern David Ribner prepared this summary.