EDITOR’S NOTE: The issue of big aid is one of whether it actually benefits or harms recipient countries, according to Nancy Birdsall, president of the Center for Global Development. She acknowledges, however, that the big aid debate is one that is unlikely to be resolved soon.
In a masterful essay this past Sunday on how we can help the world’s poor (that was the title), Nicholas Kristof managed to honor Jeff Sachs (“indefatigable”) and Bill Easterly (“powerful and provocative book”).
But he probably has set off another round of the “ferocious intellectual debate” between those two and their adherents. That’s because he didn’t really get to the question the ferocious debate is actually about.
He noted that we know more and more about what makes highly focused programs that reach people directly on the ground more effective and more cost-effective; he cites Michael Kremer’s pathbreaking study of the cost/benefit of de-worming of schoolchildren in Kenya and the success of conditional cash transfer programs like Oportunidades in Mexico (for an early CGD book concluding that the poverty impact of these programs is limited go here). And he refers to the Millions (of children’s lives) Saved in the last decade thanks to global health programs.
But Easterly and other aid skeptics agree that aid programs directed to education, health, and micro-finance relieve poverty and human suffering. It’s the big infrastructure, agriculture, and direct budget support programs aimed at economic growth and nation-building - at transforming poor countries into middle-class societies with democratic and accountable government - whose effectiveness they doubt.
The real debate is about whether these “big aid” programs do any good at all, or sometimes even do harm. My colleagues Michael Clemens and Steven Radelet argue that, based on their econometric analysis, these programs do do good. Rajan and Subramanian argue (more econometric analysis) that aid is implicated in Dutch disease, undermining the export potential of local small businesses as large aid inflows drive up the value of local currencies. Others worry that “big aid” reduces the incentive for tax collection, and induces poaching of scarce local talent by the official aid community. On the problem of currency value, Kristof’s idea that the Chinese invest in textiles in Liberia is a non-starter - until and unless the Chinese let their exchange rate appreciate. At the moment their undervalued currency means their cheap exports make it hard for African textile producers to compete.
We need to face the cold hard truth: No amount of rigorous impact evaluation or fancy econometrics is likely to answer the “big aid” question, as my colleague David Roodman has pointed out.
That doesn’t mean big aid should be off the table. We suspect big aid works better in countries that are reasonably well governed (this is the Millennium Challenge Corporation approach among others) and we can learn from case study and thoughtful analysis what might work better in fragile states. And it’s worth taking reasonable risks and learning as we go - with aid abroad just as with education and health reform at home. But let’s keep aid in perspective. As I’ve argued, growth and good government are in the hands of the leadership in most developing countries; and helping the world’s poor is about many other policies on the part of rich countries besides aid.
Re-published with permission by the Center for Global Development. Visit the original article.