The New York Review of Books

Those are some of the challenges of making foreign aid effective, and they can stand for many other examples. There are also many examples of foreign aid that are extraordinarily effective, and that can be used to encourage generous donations. But the pitfalls of aid tend not to be discussed among humanitarians, at least in loud voices, for fear of scaring donors. And now along comes William Easterly, in his tremendously important and provocative new book, The White Man’s Burden, which asserts with great force that the aid industry is deeply flawed.

A few years ago Professor Easterly wrote a good book, The Elusive Quest for Growth; and his new book contains many dozens of separate observations that, taken together, make up the most cogent critique of the foreign aid system that I’ve seen. His specific suggestions make sense and his book is a pleasure to read and even frequently funny. But some readers will take away from it the fundamental conclusion—even though he doesn’t draw it—that foreign aid just doesn’t work; and that would be deeply incorrect. The fact is that many of the people you meet in any African village are alive because of foreign aid.

Professor Easterly’s book arrives on the scene just as there is a growing consensus in support of foreign aid, particularly for Africa. In the past, conservatives were often deeply hostile to aid, with Jesse Helms dismissing it as “money down a rathole,” and Tom DeLay saying it meant “putting Ghana over Grandma.” But some conservatives have changed their views, and the result is that the Bush administration is spending three times as much on aid to Africa as the lowest figure during the Clinton years (for which the Republican Congress at the time was partly to blame).

Partly because of Bono’s efforts, sympathizing with Africa has become cool. Stars like Angelina Jolie have publicly embraced Africa; so have billionaires like Bill Gates (who is having a vast impact with his philanthropy), while Tony Blair pushed to have last year’s G-8 summit pledge to help Africa. A fair amount of this was lip service, and Blair has determinedly looked in the other direction when it comes to recognizing the genocide in Darfur. But in the case of Africa, even lip service is progress.

The intellectual father of this increased interest in fighting global poverty is Jeffrey Sachs, a brilliant economist whose book The End of Poverty called for rapid increases in aid and argued that African nations are stuck in a “poverty trap” from which they can extricate themselves only with outside help. Governments including the US have agreed in principle to the so-called Monterrey Consensus, that governments should give “official development assistance” equivalent to 0.7 percent of GNP—meaning 70 cents for each $100 of national income. President Bush agreed to that target, and in 2005 US spending on such aid reached its highest level since 1986—but that was still only 0.22 percent, less than one third of the pledge.

Professor Easterly devotes his book to hacking away, with considerable satisfaction, at Sachs and the entire humanitarian approach taken by the UN. Frankly, I find that satisfaction off-putting, because Sachs’s evangelism for aid has saved countless lives in the developing world by raising money to provide drinkable water, distribute mosquito nets to protect against malaria, improve methods of raising crops, and much else.

Moreover, a single-minded emphasis on vast sums having been squandered can itself be misleading. Steve L. Radelet, a development economist, notes that over the last half-century, aid has averaged about $14 per person annually in the poorest countries. Even if much of that money has not earned a great return, neither have the much larger sums we have invested in, say, military hardware or agricultural subsidies.

Still, on the arguments about the effectiveness of aid, Easterly makes a better case than Sachs—and if Easterly can stimulate a sensible rethinking of aid, he will save lots of lives, too. To begin with, he casts doubt on the very notion of a “poverty trap,” where countries need outside resources to generate economic growth. Certainly it’s well known that some of the countries that have battled poverty most effectively—like China, Singapore, Malaysia, and others in Asia—have received very little aid per capita. The median ratio of aid to GDP of the ten countries with the highest per capita growth rates between 1980 and 2002 was just 0.23 percent. In contrast, as Easterly shows, the ten countries with the lowest per capita growth rates in that period, all negative rates, had a median aid-to-GDP ratio of 10.98 percent. That says nothing about causation, but it’s still not very encouraging.

When it comes to the effects of large-scale aid programs in Africa, Easterly’s argument is worth quoting:

Jeffrey Sachs and co-authors previously predicted that large aid increases would finance “a ‘big push’ in public investments to produce a rapid ‘step’ increase in Africa’s underlying productivity, both rural and urban.” Alas, we have already seen this movie, and it doesn’t have a happy ending. There is good data on public investment for twenty-two African countries over the 1970–1994 period. These countries’ governments spent $342 billion on public investment. The donors gave these same countries’ governments $187 billion in aid over that period. Unfortunately, the corresponding “step” increase in productivity, measured as production per person, was zero. Perhaps part of the reason for this was such disasters as the five billion dollars spent on the publicly owned Ajaokuta steel mill in Nigeria, begun in 1979, which has yet to produce a bar of steel.

Even in the poorest countries you see some signs of available money that could be used for investment, and is not. In Kisangani, in the heart of poverty-stricken Congo, wrenching malnutrition exists side by side with brothels, beer joints, and cigarette stands. If one could get the men who spend their money in those places to invest in the simplest of businesses or in their children’s education, they could begin to escape the so-called poverty trap.

If it were just Easterly making these cautionary arguments, that would be painful enough. But another new book in some ways goes even further. Robert Calderisi, a humanitarian who has had plenty of experience in Africa, calls for aid cuts in The Trouble with Africa: Why Foreign Aid Isn’t Working. Calderisi is a Canadian who spent three decades at the World Bank dealing with development problems. His book is more focused on Africa, while Easterly concentrates on aid in general, but they make similar arguments and, in some respects, have similar prescriptions. Calderisi emphasizes that the problem of aid is not just a matter of quantity:

Almost everyone in North America and Europe who shares my ideals believes that more aid, along with additional lecturing on governance, will help Africa. I want to puncture that illusion. Africans need breathing space much more than they need money. Not a Marshall Plan, but real backing for the few governments that are fighting poverty, plus political support for the millions of Africans who are resisting oppression and violence in the rest of the continent.

At the end of his book, in a chapter offering a series of specific recommendations, Calderisi suggests cutting direct aid to individual countries in half. He explains: “Contrary to conventional recommendations, direct foreign aid to most African countries should be reduced, not increased.” In his view “most” African governments are using aid corruptly, ineffectively, and wastefully. Helping people who seek different political arrangements at least offers the hope that governments may change their ways or be replaced.

Both Easterly and Calderisi argue that the world concentrates too much on amounts of aid given and not enough on how well it works. As Easterly puts it:

It seems strange that bureaucrats and politicians would focus on the input—total aid dollars spent. The Hollywood producers of Catwoman, which won an award for being the worst movie of 2004, would not dare to argue with moviegoers that the movie wasn’t so bad because they had spent $100 million on making it. We can understand the emphasis on aid volume only as reflecting the pathology that in aid, the rich people who pay for the tickets are not the ones who see the movie.

Easterly and a few other authors are shaking up the aid establishment and making us all think about what works and what does not. That’s painful, but also essential.

The backdrop to these books is a vigorous debate among economists about whether aid promotes economic development. The evidence is murky: if you take the aid data and try to correlate it to data measuring economic growth, you end with…an unending argument.

Several studies have shown no overall connection between aid and growth. But one very important study, by the economists Craig Burnside and David Dollar in 2000, found that aid did boost growth in countries with good governance. So that conclusion has become the new conventional wisdom, and it’s partly behind the effort in the US Millennium Challenge Accounts, a new federally sponsored aid program, to channel assistance only to countries that are less corrupt and better managed.

Unfortunately, Easterly repeated the study by Burnside and Dollar but drew on a larger pool of data. This time he found no evidence that “aid works in a good policy environment.” Raghuram Rajan and Arvind Subramanian of the International Monetary Fund came to the same conclusion, and they also suggest a reason. After closely examining the evidence they concluded that “aid inflows have systematic adverse effects on a country’s competitiveness.”¹ They conclude that one reason aid can be counterproductive is that it tends to boost the recipient country’s exchange rate. That in turn makes its exports less competitive, undermining local manufacturing. Indeed, Subramanian compares aid inflows to the “natural resources curse” by which a country is flooded with revenues from oil or diamonds—and ends up suffering as a result.

Troubling as it is to say so, there may be a parallel between the impact of oil on a poor economy and the reception of aid in the ways by which they both promote corruption and also cause problems for other businesses and enterprises. Several studies have found that high levels of aid can lead to more corruption and worse government. Easterly even cites one study between 1960 to 1999 in which aid appeared to have a more corrosive effect on democracy than oil.

Economists are still arguing about these issues, and they don’t agree about them any more than they agree about most topics. There’s a broad range of opinion about the effectiveness of aid, with believers like Professor Sachs at one end and skeptics like Professor Easterly at the other. Most are somewhere in the middle.

More broadly, however, aid can be effective even if it doesn’t boost economic growth. Last fall when I was traveling through the remote lands of eastern Niger, miles from nowhere, I dropped in on a clinic in the town of Zinder and found a heavily pregnant thirty-seven-year-old woman named Ramatou who was groaning and suffering convulsions; she was losing her eyesight. The doctors were more interested in me than in her, but they said she was about to fall into a coma from eclampsia, a common condition in Africa that kills pregnant women but is essentially unknown in America. (In developed countries it is detected early, as pre-eclampsia, and then treated so that it never develops into full-fledged eclampsia.)