More from Subramanian on foreign aid

By Arvind Subramanian, guest blogger

Referring to Nancy Birdsall’s response to my Wall Street Journal piece on foreign aid, Dani says that the real issue is not whether aid works but figuring out when it works, and how the aid apparatus can be improved to make aid more effective. I would put it slightly differently. 

The real issue is figuring out the most effective ways that the rich world can help in boosting living standards and improving the other conditions of underdevelopment (poor health, education, sanitation etc.) in developing countries. Aid, by which I mean transferring financial resources to developing country governments, could be one of these ways. But, on the evidence, at least in relation to improving living standards (economic growth), it is by no means the best or even an effective way of providing the help. Yet aid-giving has attracted most of the attention in rich countries. In fact, these are the central messages of a piece in Foreign Affairs, written by Nancy Birdsall, Dani Rodrik, and myself called “How to Help the Poor?” In this piece, we discuss the many other (i.e. non-aid) measures that rich countries could undertake with potentially large impacts, and why these should be pursued at least as seriously, if not more so, than aid. Nancy’s view is that there is no trade-off between doing these other things and giving more aid, and that governments in the rich world can do more of everything. Even if the impulse to help is inexhaustible, I find it difficult to believe that governments and the political process in rich countries—like anywhere else in the world—are not limited in their capacity, time, and attention span, not to mention their willingness to convert this impulse into policy actions.

But leave aside these intuitive arguments and look at some past evidence on other ways in which rich countries have acted (or not). For example, many demonstrably effective ways of helping the poorest, such as financing research to create new agricultural technologies for Africa, have been, and remain, neglected. More tellingly, even if better ways of helping have not been pursued, rich countries have flouted even the Hippocratic rule of doing no harm—and that too on an issue such as improving health and saving lives—while being ostensibly generous with providing aid. I have in mind here the WTO’s intellectual property rules (TRIPs), legislated into being by rich countries, which significantly impede access to low-cost drugs. If health in poor countries were a real concern, especially during these AIDS-ravaged years, TRIPs should never have been legislated. And, while it is true that TRIPs has been recently revised to take account of poor country concerns, that was pretty long in coming and the real effects of the revisions remain uncertain.

I agree with Nancy that celebrities have helped raise awareness of some of the problems of underdevelopment. But the generous impulse to help that such awareness elicits needs to be consistently translated into actions which have a real impact in developing countries. Then we can be more confident that aid is not like looking for the lost key under the lamp post and also that it is not a distraction from the search for the best solutions to help the poorest.

Comments

[Per Kurowski]

Re: “Nancy’s view is that there is no trade-off between doing these other things and giving more aid, and that governments in the rich world can do more of everything.”

I agree but specifically from the angle of “doing these other things”, and not concentrating aid on just some issues, those currently in vogue with the donors. Special monolithic flows of money and know-how tend to des-equilibrate the society receiving the help. It is a little bit like the warnings of those special miracle diets that sure enough will help you to lose some weight fast but that can so easily come back and haunt you, with vengeance. Do no harm? Start by spreading out.

[Vukani]

In some instances, Relief can be loosely mistaken for Aid (Help). Can anyone clarify just how much of what is termed Aid is actually used in a form relief.

Relief i would argue serve short term purpose and i would even go as far as saying useless. I would liken relief to giving a bagger small change to get him off your site. Dont get me wrong, relief is usefull in some instances but when everybody knows that it is a short term solution.

[Peter]

Making "aid" the question puts the cart before the horse. From collaborative experience (between people from rich and poor countries) we have some idea of specific programs that can be beneficial in fields like education, public health, infrastructure and social development. (I have worked in the area of child labor, which touches on several of these.) No doubt the design and implementation of these types of programs can be improved, and there are also political barriers to scaling them up. But to the extent that there are financial barriers as well, some form of "aid" can do the job. The point is that well-thought-out and appropriate programs help promote well-being and development, not "aid" as such.

The reason for putting "aid" in quotation marks is that redirecting financial flows does not necessarily imply transfers. The main job is to reverse the forces that each year generate net capital flows from South to North.

[Jamal Senouci]

Re: “Can anyone clarify just how much of what is termed Aid is actually used in a form relief.”

It is surprising how little is left to directly target poverty reduction.

The Millenium development project estimates that 24% of aid finances poverty-targeting investments.

Official world aid per year totals $30 per African. From this small amount, $5 goes to consultant salaries, $3 for food aid, $4 to service debts, $5 for debt relief operations. the remainder ($13) is left for development aid.

Even worse US aid is $3 per person and out of that development aid accounts for just 60 cents.

An increase in the amount of development aid may help but it won't ameliorate the condition of the inefficient aid structure.
The real problem with aid, for me, is its lack of accountability, poor co-ordination between projects and its tendency to be overly influenced by foreign policies.

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