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Aid: Can It Work?

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.)

Cockroaches skittered on the floor underneath Ramatou, as the doctors wheeled her into the small operating theater. The surgery was primitive but could not have been more effective: thirty minutes later, the doctor delivered a baby boy, and an hour later the mother was conscious and recovering. That clinic, financed by the UN Population Fund (whose funding the Bush administration has cut because of its support for China’s family planning program) and by Nigeria’s aid program (poor countries are donors, too), had just saved two lives before my eyes. I don’t know whether that aid will boost economic growth in Niger, but no one watching that drama could doubt that financing the clinic was money well spent.

Or consider blindness. When I recall my first trip through sub-Saharan Africa in 1982, my grimmest memories are of the victims of river blindness in West Africa. Typically they were middle-aged men being led around by their granddaughters, begging for money to buy food and living in the streets. But these days, there are far fewer such blind beggars, and one reason is the extraordinary work that Jimmy Carter has done in leading the fight against river blindness. It hasn’t been quite wiped out, but in a quarter-century it has gone from a major peril in Africa to a marginal problem.

In fact aid efforts in fighting disease have been extraordinarily effective—with one big exception, AIDS. Average life expectancy in the developing world was forty in 1950 and has risen in those countries to about sixty-five today. It’s difficult to quantify the economic impact of medical aid or be sure that it has boosted economic growth, but in any ordinary sense of the word it has been hugely effective. Leprosy has been a burden on humanity for thousands of years, and you still see victims in Africa and India who lost their fingers, toes, and noses to it decades ago. But international aid efforts have largely overcome leprosy, and when people get it now it is treated before patients lose their extremities.

For those who are depressed by the books by Easterly and Calderisi, I recommend a more upbeat work, Millions Saved: Proven Successes in Global Health, by Ruth Levine and her colleagues in the Center for Global Development. This book looks at seventeen dramatic successes in saving and improving lives, from controlling tuberculosis in China to preventing deaths from diarrhea in Egypt.

Still, the aim of this optimistic book is to improve foreign aid. It declares: “Each year about 3 million children in poor countries die of diseases that immunization can prevent; another 2 million die of the dehydrating effects of diarrheal disease.” Millions Savedunderscores a larger point: probably the most effective aid interventions have been in health care. That’s one reason Bill Gates has aimed his funding in that direction. By and large, you get better results per dollar by investing in health care than anywhere else—where else can you spend a few dollars and save a life?

Easterly acknowledges that and suggests (correctly, I believe) that this is partly because such spending tends to produce measurable results. You can count the number of women with eclampsia whose lives you save (or whose lives you lose). You can track the number of child vaccinations, and afterward somebody will estimate the number who die of measles because they missed the vaccinations.

It’s harder to measure the outcome of some other interventions. How do you tell whether a large-scale package of loans, currency reforms, and other measures intended to stabilize an entire economy has worked? Or a conference to harmonize school curriculums? Far too much aid money is spent financing conferences where experts gather to wring their hands. I once spoke to a UN conference on achieving millennium development goals, and as I looked out at the vast audience of aid workers gathered from around the world all I could think was: if only this conference had been canceled, the money could have gone to build schools and clinics, and then we’d be closer to achieving the millennium goals.

Health care spending may be the most effective form of aid, but it doesn’t always work. Several big efforts have been made to combat malaria, and yet it probably kills more people now than it did twenty years ago—estimates of the death toll from this disease range from one million to three million annually. And the aid industry and developing world alike fumbled catastrophically in their response to HIV and AIDS.

While there is plenty of disagreement about the effectiveness of aid, there is a growing consensus that systems for delivering aid have to be made more effective. One problem is that donors often restrict the aid they give, so that it must be used to buy products or technical help from the donor country. And even when it isn’t restricted in that way, the proliferation of donor programs results in a complex array of reporting requirements for the recipient country that are extremely burdensome. A Brookings Institution task force on “Transforming Foreign Assistance in the Twenty-first Century” published its report this summer and noted that by the late 1990s Tanzania was preparing 2,400 reports to donors each quarter, and hosting 1,000 meetings of donors annually. The Tanzanians concluded that “the marginal cost of accepting aid equaled its marginal benefit.”

In my view Easterly exaggerates the flaws in aid, but I think he offers some excellent suggestions for improving it. In particular, he emphasizes the need to listen to local people and follow their lead, and to measure success wherever possible. He cites the example of the International Christian Support Fund, which wanted to reduce worms in Kenyan children. One way would be to distribute deworming drugs to children, and another would be to train them on how to avoid getting worms in the first place. In the abstract, either might seem a plausible approach to reducing worms and thus decreasing school absenteeism. Two American economists designed a randomized survey to measure these two approaches. They found that distributing deworming drugs reduced absenteeism by one quarter while education had zero effect. “If this practical, critical approach spreads, much more of the foreign aid dollars available could actually reach the poor!” Easterly writes.

Likewise, one perennial problem has to do with getting poor people to use mosquito nets in order to prevent malaria. I’ve often been to villages where nets had been handed out for free but were put aside and not used. Aid workers often find that it is better to sell things than give them away, because people don’t assign value to what they get for nothing. Easterly praises a program devised in Malawi by Population Services International, based in Washington. PSI sells the nets for a token charge of fifty cents each to pregnant women at prenatal clinics because pregnant women and babies are most at risk from malaria; the nurse making the sale keeps nine cents for herself as an incentive. That means that the nets stay in stock and are actually sold. Meanwhile, PSI sells the nets in the cities for $5 each and uses the profits to pay for the subsidized nets in the clinics. “PSI’s bed net program increased the nationwide average of children under five sleeping under nets from 8 percent in 2000 to 55 percent in 2004, with a similar increase for pregnant women,” Easterly writes. “A follow-up survey found nearly universal use of the nets by those who paid for them.”

One problem in making aid programs work is that the ordinary people at the receiving end, those who can most easily tell whether they work, have no voice in assessing them. For example, donors often fund schools, but do nothing to ensure that teachers actually show up. When they don’t, every local parent knows that the project has failed; but the donor continues to trumpet its generosity in its annual report. And aid groups, both public and private, have every incentive to boast about their achievements but to ignore (or whitewash) their failures; so we don’t learn as much from our mistakes as we should.

One clever suggestion of Easterly is for donors themselves to improve their monitoring: “Perhaps the aid agencies should each set aside a portion of their budgets (such as the part now wasted on self-evaluation) to contribute to an international independent evaluation group made up of staff trained in the scientific method from the rich and poor countries, who will evaluate random samples of each aid agency’s efforts.”

If Easterly is generally sensible, there’s one matter where I think he’s catastrophically wrong. That is his hostility toward military intervention. It’s true that in the past, military interventions have often been foolish and ended up hurting the people we claimed to be helping. The long American proxy war in Angola was a disaster for everyone. But it’s also true that the single most essential prerequisite for economic development is security: no one will invest in a shop or factory if it is likely to be burned down soon. And insecurity is immensely contagious.

The Western failure to intervene early in Rwanda allowed the genocide in 1994 that claimed perhaps 800,000 lives. But that was only the beginning. That chaos in turn infected Burundi and especially Congo, which collapsed into civil war. Some 4.1 million people have died because of the Congo war, mostly from hunger and disease, making it the most lethal conflict since World War II.

Something similar happened in West Africa. Upheavals in Liberia were allowed to fester and spread to Sierra Leone and then Ivory Coast; and now Guinea may be on the precipice as well. Because nobody was concerned to stop the killings in Darfur when they began in 2003, the genocide there is now spreading to Chad as well, and even to the Central African Republic.

So one of the most crucial kinds of foreign aid is simply security. And when we have provided that kind of aid, it has made a huge difference. The most successful single thing the US ever did in Asia, for example, was probably Truman’s decision in 1950, after the Korean War began, to send the Seventh Fleet to protect Taiwan. Otherwise China would very likely have invaded Taiwan sometime in the 1950s, hundreds of thousands would have died, and Taiwan wouldn’t have existed as a free economy in the 1980s and 1990s to provide both an economic model and investment for the Chinese mainland. The cost to the US of that deployment was negligible, and the benefit to the world was enormous.

Likewise, the modest UN peacekeeping force sent to Mozambique in 1992 set the stage for Mozambique’s recovery from a brutal civil war and for the remarkable economic boom that followed. In fact, soldiers with guns are sometimes the most effective form of foreign aid. In Chad, right now, it doesn’t make sense to build clinics or train midwives since the Sudanese-financed janjaweed militia is storming through Darfur and Chad, slaughtering people because of their tribe or skin color. What Chadians need most is a small protection force to stop the genocidal marauders so that they can’t butcher children in schools or burn down clinics.

A book of a few years ago, Africa’s Stalled Development by David K. Leonard and Scott Straus, examined aid problems, but its most innovative suggestion was to call for foreign aid in the form of Western help in suppressing violent challenges to African democracies. The authors wrote:

If the international system were able to limit the danger of civil conflict in Africa, it would have profound, positive development consequences. In particular, given that the chances of a conflict increase after an initial outbreak of violence, the most efficient way to deal with civil conflict in Africa is to prevent it from occurring in the first place.

The book suggested that Western powers jointly guarantee security in any African country that observed basic democratic norms. That would create an incentive for democracy, and would also help preserve the peace.

The kinds of foreign aid failures that I described at the beginning of this review are real and frustrating, and they underscore why it’s important to wrestle with the issues that Easterly raises and the flaws in foreign policy he points to. More broadly, one of the lessons not only of his book but of modern history is that the best way for a country to escape poverty is not so much through aid as through increasing its trade and investment. Aid isn’t the preferred path to development.

But there are also other experiences you encounter as you travel in poor countries, and they help you appreciate the possibilities of aid. For my entire adult life, I’ve sponsored help for children through Plan USA, based in Rhode Island,2 and I’ve visited “my” children in the Philippines and in Sudan. It’s a modest program, but it helps keep children in school, buys them school uniforms, and helps them drink clean water from wells. If their parents want to start a business, it contributes some of the capital. Partly because the program is not about handouts but about working with local people to address needs that they themselves help identify—and that they must contribute labor or savings to resolve—it leaves villages visibly better off.

In Cambodia, I’ve seen schools started by American Assistance for Cambodia3 ; for $14,000, a donor can finance the construction of a school in a village that has none. That education in turn transforms the community. Once they are literate, the villagers have fewer children, take better care of them, and get better jobs.

Then there is the school feeding program, run by the World Food Program and UNICEF. It provides food for school meals (prepared by local volunteers), mostly as a bribe to get parents to send children to school. This program has been very successful at raising school attendance—and it also means that children have food so that they can concentrate on their work.

In Ethiopia, I met Catherine Hamlin, an Australian obstetrician who is overdue for a Nobel Peace Prize. She runs a hospital that repairs obstetric fistulas, one of the most awful injuries humans can sustain. Typically, a fistula occurs when a physically immature teenage girl tries to give birth, and the baby gets stuck. After a few days without a doctor around to help, the baby is stillborn, and the girl is left with perforations between her vagina and bladder or rectum. She cannot hold her wastes, which trickle constantly down her legs. She smells. Her husband divorces her, she must build a hut on her own, and sometimes she is barred from using the village well. At the age of about fifteen, her life is ruined. Some two million girls and women suffer from this affliction around the world.

Dr. Hamlin repairs the fistulas, at the cost of about $450 per operation, supplied largely by individual donors and aid groups, and she brings these teenage girls back to life.4 You visit her hospital, you see the girls with fistulas, and you just want to hand over your wallet to Dr. Hamlin. I don’t know what impact she has on Ethiopia’s economic development, but she seems to me a saint. Easterly is absolutely right that we need to figure out ways of delivering aid more efficiently, and he has written an immensely stimulating book. But no one who sees a girl with a fistula waiting patiently for an operation could doubt that foreign aid is often the very best investment in the world.


How Aid Can Work December 21, 2006

  1. 1

    Their paper, “What Undermines Aid’s Impact on Growth?,” is excellent and is available at papers.nber.org/papers/w11657.

  2. 2

    See www.planusa.org.

  3. 3

    See cambodiaschools.com.

  4. 4

    See fistulafoundation.org.

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