Rethinking Foreign Aid

There have been plenty of critics of Western foreign aid, and quite often, rightly so. They have pointed out the waste, inefficiencies and counter-productive nature of much of our overseas aid programs.

One primary example of this is Lord P. T. Bauer (d. 2002), who worked for many years at the London School of Economics. An expert in development economics, he wrote extensively on this theme. He famously (and perceptively) said that Western foreign aid was “an excellent method for transferring money from poor people in rich countries to rich people in poor countries”.

Some of his major books include Dissent on Development (1972), Equality, the Third World, and Economic Delusion (1981), and Rhetoric and Reality (1984) – all published by Harvard University Press. These volumes dealt with a number of related themes:  poverty, development, foreign aid, colonialism, imperialism, and Marxism in the Third World.

He brilliantly critiqued dependency theories, Marxist economics, Western guilt manipulators, and the notion that Western nations thrive by exploiting developing countries. And he provided actual case studies, having himself lived in West Africa and Malaysia.

But of course such critics can simply be dismissed as stingy Westerners, or out-of-touch capitalist pigs. But what happens when economists from the developing world themselves denounce much of what passes for Western overseas aid? That is exactly what one young woman from Zambia has done.

Dambisa Moyo is an economist who has just penned an important new book called Dead Aid (Farrar, Straus and Giroux, 2009). In it she argues that most overseas aid in fact creates more poverty, not less. She does not oppose all foreign aid, and certainly finds a place for disaster relief and emergency aid.

But she is against the usual pattern of Western governments propping up corrupt and lazy governments in the developing world. Most money going there never makes it to those who most need it, but stays in the hands of greedy and crooked leaders.

Indeed, decades of money being thrown at Africa has done very little good. Says Moyo, "In the past fifty years, more than $1 trillion in development-related aid has been transferred from rich countries to Africa. Has this assistance improved the lives of Africans? No. In fact, across the continent, the recipients of this aid are not better off as a result of it, but worse – much worse."

This is because government corruption is simply subsidised and perpetuated; dependency is created and maintained; and accountability is seldom required of those receiving the handouts. Says Moyo, "You get the corruption – historically, leaders have stolen the money without penalty – and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people."

She is also critical of so many the Western celebrities who run around holding rock concerts, thinking they are doing some good for world poverty. Far from it, says Moyo: “They perpetuate a negative view of Africa. All that comes out from them is what I call it the Four Horsemen of Africa’s Apocalypse: war, disease, corruption, poverty. They never say, ‘Wow, guys, let’s try and change people’s image.’ They focus very much on the negative. They’ve become the face of Africa, and that’s an artifact of the aid model.”

To get the full picture, you need to get her book. But for starters, a few quotes from a recent interview may be of help. When asked about which countries were the worst offenders in terms of perpetually relying on handouts, she said this:

Across the continent, most countries have at least 70% dependency on aid. It’s easier for me to strip out the good ones. South Africa and Botswana – those two are on one scale. Ghana. Rwanda – President Kagame has been on record saying that aid is not the solution. Barring those guys, everyone else is guilty on some level of pursuing a lax model. For instance, I get irritated when I hear of countries pulling their bond ratings. Zambia is one. Yes, we know the system of bond ratings is not perfect, but it’s a good thing to be transparently measured.

She continues, “Many African countries have a lazy muscle. Why go to the trouble of getting a bond rating when I can just go to the World Bank? Or go to the G20? Or actually, have Bono go to the G20 and ask for you. I don’t even have to leave my country. That’s a cynical view, but it’s hard for me to interpret it any other way.”

Instead of over-reliance on intergovernmental transfers, she prefers – in part – mechanisms such as micro-financing. She admits that this is not the only piece of the puzzle, but it is in many ways it is to be preferred to the current inefficiencies, corruption and waste of our overseas aid programs.

Welfare dependency is always harmful on an individual level. But it is worse when we have entire nations addicted to aid. If we really care about the poor in developing nations, then we have to get them off the drug of aid dependency, and help them to become productive, responsible and forward-looking nations.

A good place to start is to look at the sorts of ideas that Dambisa Moyo and others are offering. Such ideas may not be a panacea, but it doesn’t appear that they are competing against any other panaceas here either.