Why foreign aid doesn't work

An economist says big ideas to "end poverty" have failed for decades -- and that the West needs to fight the war one village at a time.

By Suzy Hansen

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April 5, 2006 | Last year, celebrity economist and United Nations special advisor Jeffrey D. Sachs published his opus, "The End of Poverty: Economic Possibilities for Our Time," to much fanfare. Bono even (or not surprisingly) wrote the introduction. In the book, Sachs unveiled his crusading vision of how increased aid to poor countries could lift their most desperate citizens out of what he called a "poverty trap." He advocated for a flood of funds from the West to transform beleaguered nations into functional societies. Yet, unlike so many tracts, Sachs' book wasn't merely a proposal, but a blueprint of grand actions currently in effect; Sachs is the director of the United Nations Millennium Project, an effort to eradicate poverty by 2015. According to Sachs, it will take very little money to accomplish this. The world's poor simply need the will of the world's rich.

Sachs' appealing book was received with adulation, but critical reviews of it made a splash too. Essays in the New York Times and the Washington Post, for instance, commended the professor for passionately shoving poverty to the fore, yet angrily denounced his central plan. "Sachs's missionary zeal is infectious, but the flaws in 'The End of Poverty' should sound important notes of caution," said one. "The danger is that when the utopian dreams fail (as they will again), the rich-country public will get even more disillusioned about foreign aid," warned another.

That last quote (from the Washington Post Book World) was written by the New York University economist William Easterly, once called the "Charles Murray" of the aid debate by then Times columnist, now Times editor, Bill Keller. Easterly's new book, "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," suggests that the world's official aid agencies -- the World Bank, the International Monetary Fund, the U.N. -- and national agencies such as USAID, have been recycling the same unworkable aid plans for the last 50 years. (Non-governmental organizations are not necessarily included in his argument.) In fact, Easterly claims that Jeffrey Sachs' strategy resembles failed utopian aid policies that date back to the Eisenhower and Kennedy administrations. Easterly, on the other hand, believes in small, preferably homegrown, "piecemeal" efforts that focus on one specific problem at a time, perhaps focus on one specific problem in one tiny village.

At times, Easterly sounds a lot like the typical intervention critic, casually denouncing rich white Westerners who, as he sees it, meddle in thorny affairs of which they have no genuine understanding. But Easterly once meddled himself: He worked as a World Bank official for 16 years. "I didn't know anything," he told Salon by phone about his 26-year-old self. "I knew what you learn in an economics Ph.D. program. Over time I learned as I went along. A lot of aid jobs are writing reports. As if Africa could be made rich by reports. But I was a slow learner. I stayed in the World Bank for 16 years before I got disillusioned enough to want to try and reform the business I'd been in for so long."

What does "poverty trap" mean and why don't you believe in it?

The idea of the poverty trap is that if poor people start off poor, they will have difficulty saving enough to finance the investment they need to get out of poverty. It was appealing as a theory, it sounds like plausible common sense. Like other plausible common sense-sounding theories it turned out not to be true. Poor people save more than you would think and saving is not the only way to escape from poverty. Plenty of countries have started off poor and have had quite decent growth. If we take the poverty trap literally then really it should still be true for everyone -- life would have been a place that was nasty, brutish and short. That's a line I stole from someone else.

But this theory is the guiding principle for aid, isn't it?

This was the original rationale for aid back in the 1950s and it still is. One thing that strikes me -- having been trained in this field and having read all the old and new writings -- is just the amazing parallels between what was written in the 1950s (which should have solved the problem by 1965). My good friend Jeff Sachs' book really capitulates ideas that could have been written by Walt Rostow, an advisor to Kennedy and Eisenhower. He was writing the same stuff about the big push and the poverty trap. Unfortunately, experience since then has pretty amply demonstrated that that approach hasn't worked. Somehow we don't learn from failure. We're trying the same thing over again, which is very discouraging. If occasionally a note of outrage leaks out in the book, it's because I got so frustrated with the way failed ideas get recycled.

Why do you think they do?

These ideas offer simple answers and promise big things -- the end of poverty, for example -- in a fairly easy way that doesn't require huge sacrifices from rich countries: Just increase aid a little bit more, and that would lift the world's desperately poor out of poverty. I wish that were true myself. But simple is always appealing to politicians: Here is the thing that I can do that will alleviate this tragic problem of world poverty. So politicians like Blair and Bush can give the impression that something's being done. The public isn't terribly informed about what's actually happening in remote villages in Africa. There's no check on whether problems are being solved or not. Africans don't vote in our elections -- there's no pushback when plans don't work out or get results. Nobody is holding the aid donors accountable.

So the people who receive the aid should be holding them accountable?

In aid, 95 percent is implementation. Five percent is raising enough money from rich-country donors. [Bob] Geldof and Bono are talking about solving the 5 percent. The 95 percent has a long chain of poorly motivated and sometimes corrupt actors in between money and poor people. Donor bureaucracies like the World Bank or IMF are even less accountable than Blair and Bush because they don't have to face election. They're operating in a place that's hidden from view. I don't want to be too cynical. I think there are a lot of well-meaning professionals at these places. I am more cynical about the management, who I think just like to make a big splash in the media. The donor bureaucracies only have incentives to move the money. If it isn't spent, that will be a scandal, but what happens far away is never known.

Of course, there are tons of problems on the receiving end. These are fragile states with often-poisonous political situations, conflicts, corruption, patronage politics. Health workers, for example, are appointed for political reasons and don't have much incentive to get medicine to children. Drugs disappear on black markets.

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