Why foreign aid doesn't work

Bob Geldof seemed concerned about accountability when he sponsored his aid concerts this year. What happened when he raised all that money for Ethiopia in the '80s?

The problem was that the money passed through an authoritarian Marxist government whose main preoccupation was fighting a war against rebels who eventually ended up winning. There are plenty of allegations that both sides used food aid as a political weapon in war. That's the kind of messy reality on the ground that makes it so hard for good intentions -- even a caring person like Geldof -- to actually have the money accomplish something good.

"Accountability" seems like a buzzword today, in general.

A lot of people are talking about accountability because that has been a criticism that has been voiced strongly in the last years. And that's the main criticism that I would make of the whole exercise. But as I learned from being on the inside of a bureaucracy, they're very skillful at deflecting criticism. When the World Bank is told they don't have accountability they immediately write five reports about how they will.

But you know it's become a meaningless buzzword at this point. We have to rescue the original idea. What does it mean? It means you are individually responsible for whether you did something. Someone gives you a reward or penalty -- that way of thinking is completely alien to the whole aid bureaucracy, I can tell you.

So how would the people receiving aid hold aid groups accountable?

You'd have to be creative to think of ways to give people who receive aid a voice. The technical solution is to do evaluations before and after.

I thought NGOs already did this.

NGOs do it a little bit, but NGOS are not necessarily the knights in shining armor that will ride to the rescue of aid problems. They have their own problems -- they respond to big problems that will be very visible to rich-country publics so rich people will give donations. Like the tsunami. All the NGOs will flock in, even though, as tragic as that event was, the amount of money that went to it was more than could be effectively spent to help the victims. It would be better spent on long-run development, nutrition or school programs.

I think you need to explain what you mean by too much money. The perception is that these poor, and now devastated, communities need everything they can get.

There's never too much money in the sense of need. But the problem comes back to 95 percent implementation. You have to have the aid workers or locals who are motivated and accountable make sure money does good things, and they can only handle so much money. Huge amounts overwhelm the system.

So, Jeffrey Sachs is obviously prominent. And so are you. How could two economists come up with such opposite conclusions on a problem that's been going on for years? Is it political motivation? Ego?

Frankly, I don't think Jeff Sachs is doing good economics. Call economists at top schools and ask their opinion and I think you would get a similar one. He wants to solve problems in administrative and bureaucratic ways whereas economists want to ask: What are the incentives for people to get things done? Who has the incentive to make things work on the ground? And Jeff doesn't address that at all in his book. It's all about the technological, scientific or administrative situation you would need to improve soil fertility. But there's nothing about who will be the one implementing the solution to soil fertility.

Well, who should be?

I'll tell you right away my answers are never as convincing as the problems. Because there has been so little incentive to learn from past failures, we've been recycling and we have a lot less knowledge than we would have if we'd treated the last 40 years as a trial-and-error experiment with lots of methods on the ground.

The answers differ from one country to another. There's been far too little learning. To learn you have to admit mistakes. In aid, it's politically poisonous to ever admit you made a mistake because then the fear is they'll cut aid.

In defense of aid agencies, they really had a bad political environment in which to operate -- they're never allowed to make mistakes and thus they never learn.

Can you give an example of something that worked then?

I like the example I gave in the first chapter of the book. There's a nonprofit NGO called Population Services International, which is trying to control malaria in Africa. It's a huge problem. The prevailing administrative top-down apparatus is to just hand out free bed nets through mass campaigns. That has not worked because when you flood the market with free bed nets and you don't educate people on their great benefits, they end up not used or they're diverted -- since they're free -- to other uses, like wedding veils or fishing nets.

So PSI tackled this problem in Malawi. They don't like the model of just flying in the 22-year-old white kid from America to tell the local people how to solve their problems. They employ a lot of local staff. Their local staff came up with a reasonable solution that worked better: They targeted a high-risk group, which is pregnant women and children under 5, and they had the nets sold at a highly subsidized price to mothers through antenatal clinics and gave the nurses a commission. When you give nurses a commission and offer counseling -- and these are local Malawian nurses, not rich arrogant foreigners telling them what to do -- the number of children sleeping under them went way up. This model is now being copied by other countries.

The free bed net campaigns in some countries have statistics like: 70 percent of bed nets not used. And there are even scarier ones. In a refugee camp in Uganda, a survey found six months later that one-third of the nets were still in the package, one-third were out of the package but not used, and one-third were being used. When Jeff Sachs ignores that kind of problem -- that's why I have to disagree.

But obviously the reaction must be, how could you make poor people pay for things?

There's a visceral reaction to making people pay for things. That's another way I think Sachs is being demagogic -- he insists they have to be free whereas the PSI camp is charging mothers 50 cents per net. That isn't trivial, but once the benefits are clear, then 50 cents is very worthwhile for someone who wants to save their child from malaria. The advantage of charging something for someone is that it places some value on it. That doesn't play well in demagogic politics that surround debates about poverty, but it's pragmatic. When people pay for things they feel like they have a right to hold you accountable.

Are the products always fairly priced, though?

They make sure it's within their ability to pay. Then once the villagers pay then they get very angry if someone dies anyway. This is a totally homegrown aid program.

Next page: Is foreign aid just a new form of colonialism?