Esther Duflo: Foreign aid at risk of becoming 'irrelevant'

BRUSSELS — Nobel laureate Esther Duflo says foreign aid as we know it has dwindled to the point of irrelevance. Apart from help in emergencies and investments in social innovation, “countries don’t really need it one way or another,” the MIT professor, who won the world’s top economics prize last year for her experimental approach to alleviating global poverty, told Devex Wednesday. “We should stop building hospitals instead of the health ministry and government, and we should stop having health ministers spending hours in the offices of junior bureaucrats of AFD or DFID or USAID or whatever to negotiate some grant,” she said. “That makes no sense.” Duflo spoke via video call from Paris to discuss France’s new Fund for Innovation in Development, an attempt to bring the U.S. model of using small grants to foster better public policies to Europe and Francophone Africa. Duflo will chair the board of the fund, which will start work next year with about 10 staff and an initial budget of €15 million, though that is expected to increase in coming years. “What is important is the policy of the developing country itself and what is important is that that policy is as effective as it can be,” the Frenchwoman said. “A lot of the aid budgets as they exist now and how they are spent now are largely irrelevant or at risk of becoming irrelevant. A lot of the discussion is whether aid is useful or it’s not useful etc. But mostly it’s getting to be nothing in the sense that quantitatively in most countries it’s a small amount of money. There are some countries for which it’s more important, but in most countries, really bilateral aid in particular is really nothing.” “Mostly the [low-income] countries spend money on their own,” she said. “So I’ve never been so interested in aid really, one way or the other.” There are two places however, where she says donors’ money can still be effective. First, faced with a natural disaster or health crisis, she said the international community can “serve as an insurance” by concentrating resources when needs spike. On this front, the world has so far “spectacularly failed,” she said, when it comes to addressing the health and economic effects of COVID-19. The second role is “to provide the equivalent of venture capital for social innovation.” That is the work of the French innovation fund, which complements Duflo’s work at the Abdul Latif Jameel Poverty Action Lab, or J-PAL, analyzing how sometimes small changes in teaching techniques, for instance, can reduce poverty. “Someone needs to fund research in these things, knowing that there is no private money to be paid but there is a lot of social gains. And I think that’s where the international community is best placed … In the same way that we need to work on climate. People understand a little bit better I think the commonality of purpose in climate, but that is also true for health policy, educational policy, gender policy. If we identify things that work, can prove that they work and can find ways to scale them, then what is developed in Kenya can be useful in Togo and vice versa, and that’s the global public good.” “In my opinion — that’s [what] we wrote when I was on the Obama [Global Development Council] — aid should be justice too in a way. It should be putting a lot of money aside for [emergency] contingencies, and otherwise spending on funding for innovation, and not just technological innovation. Obviously I think it should be like that but I also know it’s not going to be like that, but at least some part of it would be a good thing.”