Economics | Foreign Aid & Civil Society
The Case Against Development Aid: China, India, Africa
Greg Mankiw points to a piece by Robert Barro (Harvard economist) saying Bill Gates is never going to achieve as much with his philanthropy, as he did with Microsoft. Much of it advocates market oriented capitalism as the best known tool for development, but it also makes a more general case against charity. And hidden in there are some wonderful words of wisdom for the development aid critics (emphasis added):
To find policies that are likely to alleviate poverty, it is best to look at actual successes and failures. In recent decades, the biggest single accomplishment is the post-1979 (post-Mao) economic growth in China. The second-best story is the economic growth in India, where the poverty count fell by around 140 million people from 1970 to 2000.
Also illuminating is the greatest tragedy for world poverty — the low economic growth in sub-Saharan Africa. In this case, the number of people in poverty rose by around 200 million from 1970 to 2000.
Foreign aid had nothing to do with the successes and did not prevent the African tragedy.
For Barro the key to poverty alleviation is to get Africa to grow like China and India. He has good reason to be skeptical of foreign aid, and empirical evidence seems to be on his side.
For further evidence, look more carefully at India (see this 1992 Cato policy analysis). The country has been the largest recipient of foreign aid since the end of World War II. In 1992, total aid received was estimated at USD 55 billion since 1951. That year it reached a record high of USD 3.9 billion. Since then aid received has declined consistently.
Again, foreign aid had nothing to do with India’s growth. And during the 1950-1990 period it did not prevent India’s stagnation or improve the “Hindu rate of growth.”
See also:
- More on the Foreign Aid Curse
- Africa Does Not Need More Aid
- No more the ‘hopeless’ Continent: IHT - Nicky Oppenheimer (chairman, De Beers)
Discussion
4 comments for “The Case Against Development Aid: China, India, Africa”
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Do you really think that the USD55 billion of aid had nothing to do with the economic development? You don’t think that it might have formed the foundation for development that followed? Donation funding has tapered off when the country grew enough towards self-sufficiency.
Education and health are two of the foundations for economic development and neither of them is provided by market forces. Even the most market-oriented society (e.g. USA) provides most education and health services through govt funding.
How do the poorest countries build a literate and educated population without funds?
Currently Tanzania spends 18% of its national budget on education. This compares with Australia where 25% of the New South Wales government budget is spent on education. NSW children get 100 TIMES MORE resources for education than Tanzanian children. Tanzania’s education budget has been boosted in the past 5 years by the removal of debt burdens and by donations from other countries — 39% of the Tanzanian govt budget is provided by other countries.
Even with this development aid there is still only 1/100th the resources that children in my country have. This isn’t enough for Tanzania to catch up. Perhaps it is enough to prevent it sliding even further into poverty.
I’m with Jeffrey Sachs - more development aid is needed to help the poorest countries to climb onto the first rung of the ladder of development. Then, like India, they can climb further without the same assistance.
How do you propose that Tanzanian children get a useful education, without development aid?
Gillian,
Thanks for your comment, but I really encourage you to read the Cato paper. The analysis is exceptionally lucid, shows clearly how foreign aid to India killed the private sector in general, resulted in supporting a massive budget deficit, and in investments in wasteful public sector enterprises that never made any money. It prevented growth and promoted a massive, bloated bureaucracy.
Note that then, India was poorer than Tanzania is now. It grew not because of foreign aid, but in spite of it. In fact, it managed to climb out of a hole dug for it by the World Bank and the USA, only after it was forced to liberalize.
This has nothing to do with education - which is the challenge you present. Only a fraction of development aid is ever spent on education or other public goods. IDA will go to build roads that are never built, dig wells that run dry, and buy machinery that is never used. India’s primary education system is horrendous - do you think that USD 55 billion helped avoid that tragedy? No.
To answer your initial question - yes, I do think that USD 55 billion had something to do with India’s development. It prevented it.
Hmm… thanks Dweep… what do you think of this item by Jeffrey Sachs in Fortune Magazine? Do you see any role for aid?
http://money.cnn.com/2007/06/25/news/economy/sachs_worldbank.fortune/?postversion=2007062606
[...] from St. Jude asked me to comment on an article by Jeff Sachs on the role of the World Bank. Sachs is well known for his theory that [...]