A bulk of the literature on foreign aid is centered on a simple question: Does it work?
The assumption of aid having a positive impact on growth remained scientifically almost unchallenged during the 1950s and 1960s. Since the late 1960s, empirical research has dealt with the aid-growth relationship in detail, but the results have been inconclusive. Even the reverse causality (i.e. growth leading to higher ODA flows) cannot be ruled out, because some donors may tend to reward improvements in economic performance. Relying on the existing data, scholars and aid practitioners have roughly three positions with regard to the answer of this question: yes, aid works and it will work better if the amount of aid is increased; no, it doesn’t work, it should be seriously reformed or even abolished completely; and it can work under certain circumstances. However, in this article we focused only on “yes” and “no” and left the third position to be discussed later.
Analyzing the aid effectiveness can not be better done through the debate between aid skeptical William Easterly and aid supporter Jeffrey Sachs. While the central issue of this debate is basically aid to Africa, they also have profound differences in many other aspects. Jeffrey Sachs believes the primary responsibility for ending global poverty belongs to wealthy nations who could effectively end it by 2025, with relatively small investment in foreign aid. William Easterly, to the contrary, believes that the ambitions of wealthy nations are a residue of the colonial mentality and that effective economic development must emerge from poor communities. Sachs-Easterly debate is much more than a strategic disagreement over public policy; it engages some very basic questions concerning both social responsibility and economic theory.
The core of Sachs' prognosis is targeted investments backed by aid from donor countries. Since the poor operate in a poverty trap where the ratio of capital per person falls from generation to generation, "the poor do not have the ability - by themselves - to get out of the mess. Because the poor are unable to overcome the poverty trap, donor countries must take steps to establish or reestablish a healthy economy. Donor-backed investments that correct particular deficiencies will raise the level of capital per person, effectively ending the poverty trap. He is of the idea that the specialized U.N. organizations like UNICEF can offer great expertise to poor countries, and the secretary general should help coordinate the efforts of U.N. agencies, the International Monetary Fund, the World Bank, and donors. As he makes utterly clear, poverty reduction must be managed by poor countries themselves, starting in the villages.
Planners and Searchers
In The White Man's Burden however, William Easterly takes a very different approach. He argues that in addition to the tragedy of global poverty, there is the tragedy that the West has spent $2.3 trillion in aid over the last five decades and extreme poverty still persists, that "so much swell-meaning compassion did not bring these results for needy people". His critique is not simply that money has been wasted which could have been used more productively, but that big Western plans are a residue of colonialism, are often counter-productive, and usually exacerbate the effects of extreme poverty. Easterly distinguishes "planners," who articulate grand visions but do not effectively implement them, from "searchers," who seek successful answers to individual problems through trial and error; recognizing that global poverty is not a monolithic problem with a single scientific solution. Easterly sees Sachs as a planner with a big plan although Sachs denies the charge. Searchers have no grand plan and focus exclusively on small, pragmatic results. Looking for workable solutions to particular problems and often operating below the level of national policy, searchers are "the social entrepreneurs and nongovernmental organizations trying to achieve modest goals one at a time.
Easterly is critical of planners because he is sensitive to the way Western policies are often a guise for political self-interest, and foreign aid often ends in the pockets of corrupt governments. The recent stagnation of the poorest countries has more to do with awful government than with a poverty trap. Countries which receive high amounts of aid are no more likely to grow economically than countries that receive low amounts of aid. Easterly's prognosis envisions "piecemeal" solutions from the bottom up. Considering that no one can fully grasp the complexity of extreme poverty, and that there is no single recipe for economic development, "only a confusing welter of bottom-up social institutions and norms essential for markets" will work; "Western outsiders and Planners don't have a clue how to create these norms and institutions”. While the market can address many of the problems of development, there also needs to be norms that curb exclusive self-interest and avarice. What those norms are precisely, and how they evolve, are the particularities searchers must address.
Easterly further criticizes the effects of foreign aid. Not only is it often ineffective and inefficient, it can even exacerbate the effects of corruption by benefiting political insiders who oppose democratic reform. High aid revenues make national governments worse, even causing setbacks to democracy in the last third of the twentieth century. Easterly maintains that 2.3 trillion spent in 5 decades didn't reach the poor and ending poverty is not easy at all. According to him; “[i]n those five decades, poverty researchers have learned a great deal about the complexity of toxic politics, bad history (including exploitative or inept colonialism), ethnic and regional conflicts, elites' manipulation of politics and institutions, official corruption, dysfunctional public services, malevolent police forces and armies, the difficulty of honoring contracts and property rights, unaccountable and excessively bureaucratic donors and many other issues”.
The Culprit: Recipient Country
On the other hand, most scholars and aid practitioners attributed aid ineffectiveness to the recipient countries, and their bad governments, malfunctioning institutions, corrupt politicians, and even lazy people. Following studies however, have found that there were quite a few reasons emanating from the donors side that causes aid ineffectiveness. First of all, studies proved that despite the two decades of high-sounding rhetoric on the virtues of democracy and trade openness, factors such as colonial past and voting patterns in the U.N. better explains the aid allocation than the political institutions or economic policy of recipients, best exampled by the fact that a non-democratic former colony may get twice as much aid as a democratic non-colony. Several other studies have also shown that donors’ ‘one-size-fits-all’ approach which ignores heterogeneities, their lack of harmonization and accountability, donor-driven aid programs which hinder local ownership, tying aid to imports from donor countries, overpriced transaction and administrative costs, volatile aid flows with conditionality triggering disruption and uncertainty are all factor that should be attributed to the donor side which severely block aid effectiveness. Therefore, any assessment of aid should take all these issues into consideration.
Despite of their disagreements, both Sachs and Easterly expressed their disagreement with the idea of military intervention for developmental purposes. Particularly Easterly claims that the previous cases has shown the ineffectiveness of military intervention to prevent humanitarian catastrophes and it would well lead to an escalation of violence on both sides and to the emergence of what Easterly calls as an “aid imperialism”.
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