Some people who are against increasing aid say that, because foreign aid worth more than $450bn has been given to Africa and Africa remains poor, this is evidence that aid does not work. This argument is, of course, absolute rubbish, and you would think that intelligent people would be ashamed to advance it. Apparently not: it has been wheeled out again, this time by Marian Tupy (from the right-wing Cato Institute) on the Globalisation Institute website. It has also been put by Mark in a comment on one of my earlier postings. So let us try to deal with this once and for all.
First, the statistical evidence is clear that aid does lead to economic growth. To see why the naiive argument made by Dr Tupy and others is wrong, consider this thought experiment. Suppose your local Congressman made a speech saying that Americans spend $2 trillion a year on healthcare (which they do) and that people still get sick (which they do). Suppose your Congressman said that this is clear evidence that medicines and health care do not improve people’s health. You would think that was pretty stupid, wouldn’t you? You would want to know: what would have happened if we had not had healthcare: how much sicker would we have been then? The way to answer this question is to compare what happens to people who do get health care, and what happens to people who don’t, all other things being equal. That is what clinical trials for new drugs try to find out: do the people who take a new drug get better sooner than people who do not? So the fact that we spend money on aid, and Africans are still poor, does not tell us that aid doesn’t work. We need to know whether countries that get more aid do better, on average, than countries that get less, if you adjust for all the other things that might explain the differences. That is a statistical question we can answer. My colleagues at the Center for Global Development did a study (which you can find here) which looked at the relationship between aid and growth. This study excluded humanitarian aid (such as emergency relief) which is not intended to assist growth. This study finds:
From a different perspective, we find that higher-than-average short-impact aid to sub-Saharan Africa raised per capita growth rates there by about half a percentage point over the growth that would have been achieved by average aid flows. The results are highly statistically significant and stand up to a demanding array of tests …
But is this just one study? No. In a comprehensive survey of all the empirical research on this question, Mark McGillivray at the OECD (pdf file here) finds:
overwhelming evidence that aid increases growth and other poverty-relevant variables. By implication, therefore, it can be inferred that poverty would be higher in the absence of aid
So when you ask the right question, you find not that $450bn has been wasted, but that aid has made a considerable contribution to economic growth. If you want to draw well-founded conclusions from past experience of giving aid, you have to look at what would have happened without aid. The only way to do this is to compare countries that get more aid with countries that get less. All the rigorous statistical studies find overwhelming evidence that countries that get more aid – including in Africa – do better than countries that get less, other things being equal.
Second, aid is getting more effective Over the period up to 1985 (which is when the bulk of the $450bn was given), the foreign policy priorities of rich countries were dominated by the cold war. This extended to aid, which was often used to support allies in the fight for communism (Mengistu in Ethiopia) or against communism (Mobuto in Zaire) was used to prop up dictators, and much of the aid was stolen. Aid was also used to support commercial interests of donors, with aid being "tied" to foreign contracts for dams and power stations, many of which were totally inappropriate to the needs of the recipient. But since the end of the Cold War, the effectiveness of aid has increased as donors have begun to allocate money instead to countries who have the most poverty and which can make the most effective use of it. Countries in Africa such as Tanzania, Uganda and Mozambique have demonstrated that, with donor support, they can use aid to reduce poverty dramatically.
Third, nobody said aid is the only answer. Those of us who believe in increasing aid do not believe that it is the only answer to the problems facing developing countries. The Governments in poor countries will need to continue to improve; be more accountable to their people, create a better environment for private investment; and invest in human development such as education and health. But Governments in developing countries face almost unimaginable constraints: what would you do as Minister of Health with an average of $6 a person to spend on health care, for example? It is not that the governments do not know what needs to be done, but that they simply don’t have the resources even to start. It is not just Governments in poor countries that need to change. The rich countries must reform the trade rules to enable poor countries to have access to our markets. We should clamp down properly on corrupt businesses from rich countries, that pay the bribes and feed the corruption that is often talked about (very little of that corruption, incidentally, is financed by aid receipts; most of it comes from private companies in return for concessions to extract natural resources such as oil, diamonds, gold and llumber. Yet we don’t hear the anti-aid lobby preaching against private sector involvement because some of the money will be skimmed off by corrupt officials.) We should ensure that our intellectual property rights do not exclude the poor from access to medicines, while ensuring there are incentives to develop new vaccines and drugs. We should do more to stop global warming, the costs of which are mainly borne by people in developing countries, as creeping desertification destroys their environment.
Conclusion I am relieved to see that Dr Tupy has a degree in classics, not in economics. This argument is so evidently wrong that I am continually astounded by the number of people who seem to think that this is a clever or interesting point to make. The evidence is strong: aid has made a substantial contribution to raising prosperity, and saved millions of lives. (See here for some particular examples.) Furthermore, we are getting better at making aid more effective. We should not be deterred by a small, vocal minority whose argument against aid is completely without any sort of theoretical or empirical basis. I also want to pay tribute to Our Word Is Our Weapon, who has also comprehensively rebutted this argument.
Postscript: I have commented before, and do so again now, about my frustration that the Globalisation Institute does not have any facility for comments on their website. It is a blog only in name: in practice, it is just a website for them to parade their views in "transmit only" mode. Are they insecure, and fear withering criticisms? Or are they just arrogant, and not interested in other people’s opinions?