Monday, September 25, 2006

Making aid work

I'm not a regular reader of the New York Review of Books (there is only so much lefty-establishment bile and rubbish one can take on a sustained basis, although - as far as I know - it's still more palatable than the truly appalling London Review of Books). However, every now and again one comes across something interesting there, and at the recommendation of a friend I read a review from the current issue, a balanced and very interesting piece by Nicholas Kristof (of the New York Times) on foreign aid: Aid: Can it Work?.
He makes several points which demonstrate both a healthy skepticism of many current arrangements, and a noble desire to ensure that poor people's lot across developing countries is improved, realistically and efficiently:
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 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.
Do read the whole thing.

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